December 16, 2003
Mr. Robert Dilworth
Chairman & CEO
GraphOn Corporation
105 Cochran Circle
Morgan Hill, CA 95037
Dear Mr. Dilworth:
The purpose of this letter ("Agreement") is to formalize the understanding
between Griffin Securities, Inc. ("Advisor") and GraphOn Corporation (the
"Company") with respect to a non-exclusive arrangement whereby Advisor shall
introduce the Company to prospective investors that may participate in the
Company's bridge financing, the bridge take out financing, other financing
and/or to other companies that may lead to new business opportunities.
Equity Financing - Should the Company raise any equity financing ("Equity
Financing") from investors introduced directly and or indirectly to the Company
by Advisor [Indirect introductions shall be limited to those investors
introduced directly to the Company by one of the investors or potential
investors previously introduced to the Company by the advisor], the Company
agrees to compensate Advisor with a cash fee at the closing of such Equity
Financing (or closings, if the Equity Financing has two or more tranches) at the
rate of Ten Percent (10%) of the amount raised. In addition, the Company agrees
to issue financing warrants (the "Equity Warrants") to Advisor to purchase
equity in the Company equal to Ten Percent (10%) of the number of common shares
and/or warrants issued in the Equity Financing. [In other words, if the
investors receive common stock and/or warrants to purchase Ten Percent (10%) of
the Company, Advisor shall receive Equity Warrants to purchase One Percent (1%)
of the Company.] Advisor's Equity Warrants shall be exercisable over a five (5)
year period at a price per share equal to the price at which the Company raises
funds under such offering and will be subject to certain customary terms and
conditions including piggyback registration rights, which the parties hereto
agree to negotiate in good faith.
Other Financing Transaction Fees - Should the Company raise any bridge and/or
debt financing ("Bridge Financing") from investors introduced directly and or
indirectly to the Company by Advisor [Indirect introductions shall be limited to
those investors introduced directly to the Company by one of the investors or
potential investors previously introduced to the Company by the Advisor], the
Company agrees to compensate Advisor with a cash fee at the closing of such
Bridge Financing at the rate of Ten Percent (10%) of the amount raised. In
addition, the Company agrees to issue financing warrants (the "Equity Warrants")
to Advisor to purchase equity in the Company equal to Ten Percent (10%) of the
number of common shares and/or warrants issued in the Equity Financing. [In
other words, if the investors receive common stock and/or warrants to purchase
Ten Percent (10%) of and Company, Advisor shall receive Equity Warrants to
purchase One Percent (1%) of the Company.] Advisor's Equity Warrants shall be
exercised over a five (5) year period at a price per share equal to the price at
which the Company raises funds under such offering and will be subject to
certain customary terms and conditions, including piggyback registration rights,
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which the parties hereto agree to negotiate in good faith. In addition, as and
to the extent that any Warrants issued to the investor(s) are exercised the
Company agrees to pay Griffin a warrant solicitation fee equal to 5% of the
exercise price of the applicable Warrants.
New Business Opportunities - Should the Company enter into a business
transaction or "Merger and Acquisition" transaction ("Business Transaction")
with a company or entity that was introduced to the Company directly by Advisor,
the Company agrees to compensate Advisor with a cash fee at the closing of such
Business Transaction (or closings, if the Business Transaction has two or more
events) at the rate of five percent (5%) of the Aggregate Value of the
transaction. For the purpose of this letter, the term Aggregate Value shall mean
the total amount of cash and/or reasonably quantifiable economic benefit
received directly by the Company.
The Company shall have the right to reject any equity financing, other financing
or new business opportunity in its discretion for any reason or no reason
whatsoever.
Expense Reimbursement - The Company shall promptly reimburse Griffin, after the
receipt of reasonable documentation, for all reasonable out-of-pocket expenses
incurred by Griffin personnel in connection with the performance of their
services under this Agreement, including, but not limited to: travel, lodging,
meals, overnight deliveries, telephone expenses. Aggregate expenses in excess of
$500 shall require prior approval by the Company.
Term - The term of this Agreement shall be for twelve months from the date
hereof. If the Company [or any of its affiliates] completes a financing
transaction, with investors, or any affiliates thereof, that were directly or
indirectly (as defined above) introduced by Advisor within 12 months from the
date of introduction, then Advisor shall be entitled to full fees on any
financings as described above. Either the Company or the Advisor may terminate
this Agreement at any time. Advisor shall be entitled to all fees earned to the
date of termination by Advisor, as well as, its pre-approved expenses. Further,
Advisor's right to receive fees on account of introductions made by Advisor
prior to such termination as herein provided shall be unaffected by such
termination as shall Advisor's right to indemnification as hereinafter provided.
Indemnification - In connection with Engagements such as this, it is our policy
to receive indemnification. The Company agrees to the provisions with respect to
the indemnification and other matters set forth in Schedule A, which is
incorporated by reference into this Agreement and made a part hereof.
Please acknowledge below your agreement to the above and to the attached
indemnification agreement, denoted as Schedule A. We look forward to working
with you, and to a mutually rewarding relationship.
Sincerely,
Griffin Securities, Inc.
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By: /s/ Adrian Stecyk
-----------------
Name: Adrian Stecyk
Title: President/CEO
Acknowledged and Agreed:
GraphOn Corporation
By: /s/ William Swain
-----------------
Name: William Swain
Title: CFO
Schedule A
The Company agrees to indemnify Griffin Securities, Inc. ("Griffin") and/or any
controlling person, director, officer, employee, affiliate or agent of Griffin
and hold them harmless against any losses, claims, damages, expenses or
liabilities to which Griffin and/or such other indemnified parties may become
subject arising in any manner out of or in connection with the rendering of
services by Griffin hereunder and the transactions contemplated hereby, except
to the extent that it is finally judicially determined that such losses, claims,
damages, expenses (including reasonable fees and expenses of counsel),
liabilities, actions, proceedings, investigations (formal and informal) or
inquiries are caused by gross negligence or willful misconduct or bad faith of
Griffin and/or any controlling person, director, officer, employee, affiliate or
agent of Griffin; and in case any action shall be brought against Griffin and/or
any other party indemnified hereunder with respect to which indemnity may be
sought against the Company, Griffin shall promptly notify the Company in writing
and the Company shall assume the defense thereof, including the employment of
counsel selected by the Company reasonably satisfactory to Griffin and payment
of all fees and expenses. Griffin and/or any party indemnified hereunder shall
have the right to retain separate counsel, but the fees and expenses of such
counsel shall be at the expense of Griffin or such other indemnified party, as
the case may be, unless (i) the expenses of such counsel have been expressly
assumed in writing by the Company, (ii) the Company has failed to assume the
defense or employ counsel satisfactory to Griffin, or (iii) the named partied to
any such action (including any impleaded parties) include both (a) Griffin or
any such other indemnified party and (b) the Company or any controlling person,
director, officer, employee, affiliate or agent of the Company, and Griffin or
such other indemnified party shall have been advised by legal counsel that there
may be one or more legal defenses available to it which arc different from or
additional to those available to the Company or the Company's agents (in which
case the Company shall not have the right to assume the defense of such action
on behalf of Griffin and/or such other indemnified party); it being understood
that if Griffin elects not to have the Company defend any claim pursuant to this
clause (iii), Griffin shall give the Company the opportunity to be defended by
the legal counsel selected by Griffin, and; it being understood, further, that
the Company shall not, in connection with any one such action or separate,
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys for Griffin and all
such other indemnified parties, which firm shall be designated in writing by
Griffin. For actions brought against Griffin or such other indemnified party for
which the Company has assumed the defense, the Company agrees that it will not,
without the prior consent of Griffin, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, motion or proceeding
relating to the matters contemplated by Griffin's engagement unless such
settlement, compromise or consent (i) includes an unconditional release of
Griffin and such indemnified parties from all liability arising or that may
arise out of such claim, and (ii) provides for the payment of an amount that the
Company is willing and able to pay.
The Company and Griffin agree that if any indemnification or reimbursement
sought pursuant to the preceding paragraph is finally judicially determined to
be unavailable (except by reason of the gross negligence or willful misconduct
or bad faith of Griffin or its controlling persons, directors, officers,
employees, affiliate or agents, as the case may be), then the company and
Griffin shall contribute to the liabilities for which such "indemnification or
reimbursement is held unavailable in such proportion as is appropriate to
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reflect (a) the relative benefits to the Company on the one hand, and Griffin on
the other hand, in connection with the transaction to which such indemnification
or reimbursement relates, (b) the relative fault of the parties, and (c) other
equitable considerations; provided, however, that in no event shall the amount
to be contributed by Griffin exceed the amount of the fees actually received by
Griffin hereunder.
The reimbursement, indemnity and contribution obligations of the Company under
the preceding paragraphs shall be in addition to any right that Griffin and/or
any controlling person, director, officer, employee, affiliate or agent of
Griffin may otherwise have, and shall be binding upon and inure to the benefit
of my successors, assigns, heirs, and personal representatives of the Company,
Griffin or such other persons.
In addition, the Company agrees to reimburse such indemnified person for all
expenses (including fees and expenses of counsel) as they are incurred by such
indemnified person (upon receipt by the Company from such indemnified person of
an undertaking by such indemnified person promptly to repay to the Company any
such reimbursement upon a final judicial determination that such indemnified
person is not entitled to indemnification pursuant to the preceding paragraphs)
in connection with investigating, preparing or defending any such action or
claim, whether or not in connection with litigation, in which any indemnified
person is a named party. If any of Griffin's personnel appears as witnesses, are
deposed or are otherwise involved in the defense of any action against Griffin,
the Company or the Company 's directors, the Company will pay Griffin with
respect to each day that one of Griffin's personnel is involved in the
preparation therefore, a fee of $2,000 per day for each such person with respect
to each appearance as witness or for a deposition and for each day of
preparation for any such appearance. The Company will reimburse Griffin for all
expenses incurred by Griffin by reason of any if its personnel being involved in
any such action.