UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-12
GRAPHON CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee previously paid with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
GRAPHON CORPORATION
5400 Soquel Avenue, Suite A-2
Santa Cruz, California 95062
----------------------------
NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 19, 2008
---------------------------------------------
To the Stockholders of
GraphOn Corporation:
NOTICE IS GIVEN that the 2008 annual meeting of stockholders of GraphOn
Corporation will be held at the Hilton Santa Cruz/Scotts Valley, 6001 La Madrona
Drive, Santa Cruz, California 95060, on Wednesday, November 19, 2008 at 10:00
a.m., local time, for the following purposes:
I. To elect one director to Class III of the board of directors to serve
for a three-year term.
II. To ratify the selection of Macias Gini & O'Connell LLP as our
independent auditors for the fiscal year ending December 31, 2008.
III. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on October 1, 2008
are entitled to notice of, and to vote at, the meeting or any adjournment
thereof.
/s/ William Swain
-----------------
William Swain
Secretary
Santa Cruz, California
October 1, 2008
Whether or not you plan to attend the meeting, please sign and date the enclosed
proxy, which is solicited by our board of directors, and promptly return it in
the pre-addressed envelope provided for that purpose. Any stockholder may revoke
his or her proxy at any time before the meeting by giving written notice to such
effect, by submitting a subsequently dated proxy, or by attending the meeting
and voting in person.
GRAPHON CORPORATION
5400 Soquel Avenue, Suite A-2
Santa Cruz, California 95062
PROXY STATEMENT
INTRODUCTION
This proxy statement is being mailed on or about October 3, 2008 to all
stockholders who held our common stock at the close of business on October 1,
2008 in connection with our solicitation of proxies for the 2008 annual meeting
of stockholders to be held at the Hilton Santa Cruz/Scotts Valley, 6001 La
Madrona Drive, Santa Cruz, California 95060 on Wednesday, November 19, 2008 at
10:00 a.m., local time.
Solicitation of Proxies
- -----------------------
Who is soliciting my vote and how is the solicitation financed?
This proxy solicitation is being made by GraphOn Corporation. Proxies are
being solicited by mail, and all expenses of preparing and soliciting such
proxies will be paid by us. We have also arranged for reimbursement of
brokerage houses, nominees, custodians and fiduciaries for the forwarding of
proxy materials to the beneficial owners of shares held of record. Proxies
may also be solicited by our directors, officers and employees, but such
persons will not be specifically compensated for such services.
When was the proxy statement mailed to stockholders?
This proxy statement was first mailed to stockholders on or about October 3,
2008.
Can I attend the meeting?
All persons or entities who held shares of our common stock on October 1,
2008 can attend the meeting. If your shares are held through a broker and you
would like to attend the meeting, please bring a copy of your brokerage
account statement or an omnibus proxy (which can be obtained from your
broker) and you will be permitted to attend the meeting.
Issues Submitted for Voting
- ---------------------------
On what issues am I voting?
o election of one director to Class III of the board of directors to serve
for a three-year term; and
o ratification of the selection of Macias Gini & O'Connell LLP as our
independent auditors for the fiscal year ending December 31, 2008.
Our board does not now know of any other matter that may be brought before
the meeting.
What if unanticipated business arises for vote at the meeting?
In the event that any other matter should come before the meeting, or any of
the director nominees should not be available for election, the persons named
as proxy will have authority to vote, in their discretion, all proxies not
marked to the contrary as they deem advisable.
Manner of Voting
- ----------------
How do I cast my vote?
Sign and date each proxy card you receive and return it in the prepaid
envelope. If you return your signed proxy card but do not mark the boxes
showing how you wish to vote, your shares will be voted FOR the election of
the director nominee and FOR the ratification of the selection of Macias Gini
& O'Connell LLP as our independent auditors for the fiscal year ending
December 31, 2008.
What if my shares are held through a bank or broker?
Stockholders who hold their shares through a bank or broker can also vote via
the Internet if this option is offered by the bank or broker.
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May I revoke my proxy?
Any stockholder may revoke his or her proxy, whether (s)he votes by mail or
the Internet, at any time before the meeting, by written notice to such
effect received by us at the address set forth above, attn: corporate
secretary, by delivery of a subsequently dated proxy, or by attending the
meeting and voting in person.
Who will count the votes?
Representatives of our transfer agent, American Stock Transfer & Trust
Company, will count the votes.
Is my vote confidential?
Proxy cards, ballots and voting tabulations that identify individual
stockholders are mailed or returned directly to the transfer company and are
handled in a manner that protects your voting privacy. Your vote will not be
disclosed except as needed to permit the transfer company to tabulate and
certify the vote and as required by law. Additionally, all comments written
on the proxy card or elsewhere will be forwarded to management. Your identity
will be kept confidential, unless you ask that your name be disclosed.
Votes Required
- --------------
How many shares can vote?
Only stockholders who owned our common stock at the close of business on
October 1, 2008 (the "record date") can cast votes on the proposals raised at
this annual meeting. The total number of shares of our common stock
outstanding as of the record date was 47,322,292. Our common stock is the
only class of securities entitled to vote, each share being entitled to one
non-cumulative vote. A list of stockholders of record as of the record date
will be available at our offices, 5400 Soquel Avenue, Suite A-2, Santa Cruz,
California 95062, for a period of ten days prior to the meeting and at the
Hilton Santa Cruz/Scotts Valley, 6001 La Madrona Drive, Santa Cruz,
California 95060, on the day of the meeting itself, for examination by any
stockholder.
How many shares are required for the adoption of a proposal?
A majority of the shares of our common stock outstanding and entitled to vote
as of October 1, 2008 constitutes a quorum and must be present at the
meeting, in person or by proxy, for the meeting to be held for the
transaction of business.
The Class III director will be elected by a plurality of the votes cast at
the meeting. To be adopted, the proposal to ratify the selection of Macias
Gini & O'Connell LLP as our independent auditors must receive the affirmative
vote of more than 50% of the shares voting on the matter.
If you submit a properly executed proxy card, even if you abstain from
voting, then you will be considered part of the quorum. Broker non-votes
(proxies received from brokers who, in the absence of specific voting
instructions from beneficial owners of shares held in brokerage name, have
declined to vote such shares) will be counted as part of the quorum. However,
broker non-votes will not be counted for purposes of determining whether a
proposal has been approved. Abstentions will be counted in the tabulation of
votes cast on each of the proposals presented. An abstention has the same
effect as a vote AGAINST a proposal.
Stockholder Proposals for the 2009 Annual Meeting
- -------------------------------------------------
When are stockholder proposals for the 2009 annual meeting due?
All stockholder proposals to be considered for inclusion in next year's proxy
statement must be submitted in writing to William Swain, our Secretary, at
our address prior to June 5, 2009.
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PROPOSAL I
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ELECTION OF DIRECTOR
The members of our board of directors are divided into three classes. The
members of one class are elected at each annual meeting of stockholders to hold
office for a three-year term and until successors of such class members have
been elected and qualified. The respective members of each class are set forth
below:
o Class I: Michael Volker (one person; term expires 2009)
o Class II: Robert Dilworth and August Klein (two persons; terms
expire 2010)
o Class III: Gordon M. Watson (one person; current nominee, term
expires 2008)
One director is to be elected at this meeting to serve for a term of three
years or until his successor is elected and qualified.
Nominee for Election at the 2008 Annual Meeting (to a three-year term expiring
in 2011 - Class III)
The following sets forth information concerning the nominee:
Gordon M. Watson, age 72, has served as one of our directors since April
2002. In 1997 Mr. Watson founded Watson Consulting, LLC, a consulting company
for early stage technology companies, and has served as its President since its
inception. From 1996 to 1997, Mr. Watson served as Western Regional Director,
Lotus Consulting of Lotus Development Corporation. From 1988 to 1996, Mr. Watson
held various positions with Platinum Technology, Incorporated, most recently
serving as Vice President Business Development, Distributed Solutions. Earlier
positions included: Senior Vice President of Sales for Local Data, Incorporated;
President, Troy Division, Data Card Corporation; and Vice President and General
Manager, Minicomputer Division, Computer Automation, Incorporated. Mr. Watson
also held various executive and director level positions with TRW, Incorporated,
Varian Data Machines, and Computer Usage Company. Mr. Watson holds a Bachelors
of Science degree in electrical engineering from the University of California at
Los Angeles and has taught at the University of California at Irvine. Mr. Watson
is also a director of PATH Reliability, SoftwarePROSe, Inc. and Pound Hill
Software.
Current Director Whose Term Expires in 2009 (Class I)
Michael Volker, age 59, has served as one of our directors since July
2001. Since 1996 Mr. Volker has been Director of Simon Fraser University's
Industry Liaison Office. He is also Chief Executive Officer of WUTIF Capital, an
"angel" fund that invests in technology startup companies. From 1996 to 2001,
Mr. Volker was Chairman of the Vancouver Enterprise Forum, a non-profit
organization dedicated to the development of British Columbia's technology
enterprises. From 1987 to 1996, Mr. Volker was Chief Executive Officer and
Chairman of the Board of Directors of RDM Corporation, a developer of
specialized hardware and software products for both Internet electronic commerce
and paper payment processing. From 1988 to 1992, Mr. Volker was Executive
Director of BC Advanced Systems Institute, a hi-tech research institute. Since
1982, Mr. Volker has been active in various early stage businesses as a founder,
investor, director and officer. Mr. Volker, a registered professional engineer
in the Province of British Columbia, holds a Bachelor's and Master's degree from
the University of Waterloo. Mr. Volker is also a director of Visiphor
Corporation, Plutonic Power Corporation, Cyberlink Technologies, Inc. and
Angelwest Capital Corporation.
Current Directors Whose Terms Expire in 2010 (Class II)
Robert Dilworth, age 67, has served as one of our directors since July
1998 and was appointed Chairman in December 1999. In January 2002, Mr.
Dilworth was appointed Interim Chief Executive Officer and in September 2006,
Mr. Dilworth was appointed our full-time Chief Executive Officer. From 1987
4
to 1998, Mr. Dilworth served as the Chief Executive Officer and Chairman of
the Board of Metricom, Inc., a leading provider of wireless data
communication and network solutions. Prior to joining Metricom, from 1985 to
1988, Mr. Dilworth served as President of Zenith Data Systems Corporation, a
microcomputer manufacturer. Earlier positions included: Chief Executive
Officer and President of Morrow Designs; Chief Executive Officer of
Ultramagnetics; Group Marketing and Sales Director of Varian Associates
Instruments Group; Director of Minicomputer Systems at Sperry Univac; and
Vice President of Finance and Administration at Varian Data Machines. Mr.
Dilworth is currently a director of eOn Communications and Amber
Communications. Mr. Dilworth previously served as director of Mobility
Electronics, Get2Chip.com, Inc., Sky Pipeline and Yummy Interactive.
August P. Klein, age 72, has served as one of our directors since August
1998. In 1995 Mr. Klein founded JSK Corporation, a general contracting firm.
Mr. Klein was an initial member of JSK Corporation's board of directors and
served as its initial Chief Executive Officer until his retirement in 1999.
Mr. Klein remains a member of JSK Corporation's board of directors. From 1989
to 1993, Mr. Klein was founder and Chief Executive Officer of Uniquest, Inc.,
an object-oriented application software company. From 1984 to 1988, Mr. Klein
served as Chief Executive Officer of Masscomp, Inc., a developer of high
performance real time mission critical systems and UNIX-based applications.
Mr. Klein has served as Group Vice President, Serial Printers at Data
Products Corporation and President and Chief Executive Officer at Integral
Data Systems, a manufacturer of personal computer printers. Mr. Klein spent
25 years with IBM Corporation, rising to a senior executive position as
General Manager of the Retail/Distribution Business Unit. Mr. Klein is a
director of QuickSite Corporation and has served as a trustee of the Computer
Museum in Boston, Massachusetts since 1988. Mr. Klein holds a B.S. in
Mathematics from St. Vincent College.
Executive Officer that is not a Director
William Swain, age 67, has served as our Chief Financial Officer and
Secretary since March 2000. Mr. Swain was a consultant from August 1998 until
February 2000, working with entrepreneurs in the technology industry in
connection with the start-up and financing of new business opportunities. Mr.
Swain was Chief Financial Officer and Secretary of Metricom Inc., from
January 1988 until June 1997, during which time he was instrumental in
private financings as well as Metricom's initial public offering and
subsequent public financing activities. Mr. Swain continued as Senior Vice
President of Administration with Metricom from June 1997 until July 1998.
Prior to joining Metricom, Mr. Swain held top financial positions with
leading companies in the computer industry, including Morrow Designs, Varian
Associates and Univac. Mr. Swain holds a Bachelors degree in Business
Administration from California State University of Los Angeles and is a
Certified Public Accountant in the State of California.
Executive officers are elected annually by our board to hold office until
the first meeting of the board following the next annual meeting of stockholders
and until their successors are chosen and qualified.
Our board of directors has determined that each of our non-employee
directors (August Klein, Michael Volker and Gordon Watson), who collectively
constitute a majority of our board, meets the general independence criteria set
forth in the Nasdaq Marketplace rules. In addition, as further required by
Nasdaq rules, our board has made a subjective determination as to each of the
foregoing individuals that no relationships exist that, in the opinion of our
board, would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director.
Board and Committee Meetings
Our board of directors has established two committees: an audit committee
and a compensation committee. During 2007, our board met five times, our audit
committee met four times and our compensation committee met twice. Each director
attended, either in person or by electronic means, at least 90% of the aggregate
number of meetings of the board of directors and the number of meetings held by
all committees on which he served during 2007.
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The duties and responsibilities of the audit committee are described below
under "Report of Audit Committee." The audit committee is composed of August P.
Klein (committee chairman), Michael Volker and Gordon Watson. The board has
determined that each member of the audit committee meets the Nasdaq Marketplace
Rules' definition of "independent" for audit committee purposes. The board of
directors has also determined that Mr. Klein meets the SEC definition of an
"audit committee financial expert."
The compensation committee reviews and approves the compensation and
benefits for our executive officers, administers our stock plans and performs
other duties as may from time to time be determined by our board. The
compensation committee does not have a written charter. The compensation
committee is composed of Gordon Watson and August Klein, each of whom is an
independent director. The compensation committee annually reviews and determines
both the cash and non-cash components of compensation paid to our directors and
executive officers. The compensation committee does not rely on the use of
outside consultants while carrying out its duties; however, they have utilized
information published by independent organizations such as the American
Electronics Association and Culpepper and Associates for insight as to general
compensation levels currently being offered in our industry. Due to the small
size of our company, it is not practical for the compensation committee to
delegate its functions to other parties and historically no such delegation has
occurred. Our executive officers have historically not performed any role in
determining or recommending the amount or form of executive or director
compensation.
We do not have a nominating committee as the board has determined, given
its relatively small size, to perform this function as a whole. We do not
currently have a charter or written policy with regard to the nomination
process. At this time, we do not have a formal policy with regard to the
consideration of any director candidates recommended by our stockholders because
historically we have not received recommendations from our stockholders.
Stockholders may propose director nominees for consideration by our board
of directors. Stockholders can propose qualified candidates for director
nominees by submitting, in writing, the names, appropriate biographical
information and qualifications of such nominees to: William Swain, Chief
Financial Officer and Secretary, GraphOn Corporation, 5400 Soquel Avenue, Suite
A2, Santa Cruz, California 95062. Properly completed submissions that are
received will be forwarded to the board of directors for further review and
consideration. In considering any nominee proposed by a stockholder, the
directors will reach a conclusion based on the factors described below. The
board does not intend to evaluate candidates proposed by stockholders any
differently than other candidates. After full consideration, the stockholder
proponent will be notified of the decision of the board of directors.
Qualifications for consideration as a board nominee may vary according to
the particular areas of expertise being sought as a complement to the existing
board composition. The board of directors would consider, among other things, an
individual's business experience, industry experience, breadth of knowledge
about issues affecting our company, time available for meetings and consultation
regarding company matters and other particular skills and experience possessed
by the individual.
Code of Ethics
We have a code of ethics that applies to all of our employees, including
our chief executive officer, chief financial officer and controller. Our code of
ethics is made available at our website at: www.graphon.com. Follow the link to
"About GraphOn" to the link for "Corp. Governance" and then "Code of Ethics."
Stockholder Communication with Board Members
We maintain contact information for stockholders, both telephone and
email, on our website (www.graphon.com) under the heading "About GraphOn." By
first clicking on the "About GraphOn" link and then following the "Contact Us"
link, a stockholder will be given access to our telephone number and mailing
address as well as a link for providing email correspondence to Investor/Public
Relations. Communications sent to Investor/Public Relations and specifically
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marked as a communication for our board will be forwarded to the board or
specific members of the board as directed in the stockholder communication. In
addition, communications received via telephone or mail for the board are
forwarded to the board by one of our employees.
Board Member Attendance at Annual Meetings
Our board of directors does not have a formal policy regarding attendance
of directors at our annual stockholder meetings. All of our directors attended
our 2007 annual meeting of stockholders.
Board Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE TO
SERVE AS A CLASS III DIRECTOR.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for the fiscal years ended December
31, 2007 and 2006, respectively, concerning compensation we paid to our Chief
Executive Officer and our other executive officers whose total compensation
exceeded $100,000 for the year ended December 31, 2007.
Summary Compensation Table
- ------------------------------------------------------------------------------------
Name and Option All Other
Principal Position Year Salary Awards (1) Compensation Total
- ------------------------------------------------------------------------------------
Robert Dilworth 2007 $ 296,852 $ 36,734 - $ 333,586
Chief Executive Officer 2006 $ 259,034 $ 33,743 - $ 292,777
- ------------------------------------------------------------------------------------
William Swain 2007 $ 149,569 $ 28,085 $ 2,000 (2) $ 179,654
Chief Financial Officer 2006 $ 141,750 $ 25,155 $ 2,000 (2) $ 168,905
(1) The amounts listed in the Option Awards column reflect the dollar amount
recognized for financial statement reporting purposes for the respective
fiscal year in accordance with Statement of Financial Accounting Standards
No. 123R, "Share-Based Payment," ("FAS No. 123R"), and include amounts from
awards granted in and prior to 2007 and 2006, respectively. Prior to our
adoption of FAS No. 123R, on January 1, 2006, we used the intrinsic-value
method, as prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and interpretations thereof
(collectively "APB 25"). We estimated the fair value of stock options at
their grant date by using the Black-Scholes option pricing model with the
following weighted average assumptions for grants made prior to 2006 that
are included in the Summary Compensation Table: dividend yield, 0; risk free
interest of 1.5% to 2.5%; expected volatility of 60%; and an expected life
of 5 years. The assumptions used in the valuations of the stock options
awarded in 2007 and 2006, subsequent to our adoption of FAS No. 123R, are
set forth in Note 1 to our consolidated financial statements, appearing in
our Form 10-KSB as filed with the SEC on March 31, 2008.
(2) Company contribution to the 401(k) Plan.
Mr. Dilworth began as Chief Executive Officer (Interim) during January 2002 and
became full-time Chief Executive Officer during September 2006. Mr. Dilworth
elected during his term as interim Chief Executive Officer, to forgo the cash
compensation we pay all directors for their attendance at board and committee
meetings as well as the quarterly retainer.
The recognized stock-based compensation expense listed as Option Awards for Mr.
Dilworth in the above Summary Compensation Table for the year ended December 31,
2007 was derived from option awards made on November 11, 2004, January 27, 2005,
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January 26, 2006 and January 15, 2007 in the amount of 40,000, 200,000, 125,000
and 125,000 options, respectively, at exercise prices of $0.34, $0.43, $0.21 and
$0.17 per share, respectively.
The recognized stock-based compensation expense listed as Option Awards for Mr.
Dilworth in the above Summary Compensation Table for the year ended December 31,
2006 was derived from option awards made on May 5, 2003, November 11, 2004,
January 27, 2005 and January 26, 2006 in the amount of 40,000, 40,000, 200,000
and 125,000 options, respectively, at exercise prices of $0.18, $0.34, $0.43 and
$0.21 per share, respectively.
The options granted to Mr. Dilworth on November 11, 2004, which aggregated
$2,330 and $14,025 of stock-based compensation expense during the years ended
December 31, 2007 and 2006, respectively, were granted to Mr. Dilworth in his
capacity as Chairman of the Board of Directors. All other options granted, and
stock-based compensation expense recognized for Mr. Dilworth during the years
ended December 31, 2007 and 2006, resulted from his activities as our Chief
Executive Officer.
The recognized stock-based compensation expense listed as Options Awards for Mr.
Swain in the above Summary Compensation Table for the year ended December 31,
2007 was derived from option awards made on January 27, 2005, January 26, 2006
and January 15, 2007 in the amount of 160,000, 75,000 and 75,000 options,
respectively, at exercise prices of $0.43, $0.21 and $0.17 per share,
respectively.
The recognized stock-based compensation expense listed as Options Awards for Mr.
Swain in the above Summary Compensation Table for the year ended December 31,
2006 was derived from option awards made on May 5, 2003, January 27, 2005 and
January 26, 2006 in the amount of 40,000, 160,000 and 75,000 options,
respectively, at exercise prices of $0.18, $0.43 and $0.21 per share,
respectively.
All such options granted to Mr. Dilworth and Mr. Swain were immediately
exercisable upon their respective grant date and vest in thirty-three equal
monthly installments, beginning in the fourth month after their respective grant
date. Should either Mr. Dilworth's or Mr. Swain's service cease prior to full
vesting of the options, we have the right to repurchase any shares issued upon
exercise of options not vested.
Pursuant to his employment letter agreement, Mr. Swain would be entitled to
three-months' severance of his then base salary in the event of a merger or
acquisition which lead to a change in the nature, reduction or elimination of
his duties, a reduction in his level of compensation, relocation of the
corporate office by more than 50 miles from its then current location or his
termination.
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Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards At Fiscal Year-End
-----------------------------------------------------------------------
Option Awards (1)
---------------------------------------------
Number of
Securities
Underlying
Unexercised Option Option
Options Exercise Expiration
Name Exercisable Price Date
-----------------------------------------------------------------------
Robert Dilworth 100,000 (2) $ 0.25 03/04/12
Chief Executive Officer 40,000 (2) $ 0.18 05/04/13
300,000 (3) $ 0.34 11/14/14
200,000 (2) $ 0.43 01/26/15
125,000 (2) $ 0.21 01/25/16
125,000 (2) $ 0.17 01/15/17
-----------------------------------------------------------------------
William Swain 40,000 (2) $ 0.18 05/04/13
Chief Financial Officer 380,000 (3) $ 0.34 11/14/14
160,000 (2) $ 0.43 01/26/15
75,000 (2) $ 0.21 01/25/16
75,000 (2) $ 0.17 01/15/17
(1) As of December 31, 2007.
(2) All such options were immediately exercisable upon grant and vest in
thirty-three equal monthly installments, beginning in the fourth month
after their respective grant date. For Mr. Dilworth, the options
identified in this footnote were, or will be, fully vested on the
following dates: March 5, 2005, May 4, 2006, January 26, 2008, January 25,
2009 and January 15, 2010, respectively. For Mr. Swain, the options
identified in this footnote were, or will be, fully vested on the
following dates: May 4, 2006, January 26, 2008, January 25, 2009and
January 15, 2010, respectively. If Mr. Dilworth's or Mr. Swain's
employment ceases prior to full vesting of the options, we have the right
to repurchase any shares issued upon exercise of options not vested.
(3) Mr. Dilworth and Mr. Swain voluntarily surrendered, on May 14, 2004,
260,000 and 380,000 out-of-the-money options, respectively, in conjunction
with participation in a voluntary stock option exchange program. New
option grants equal to the number cancelled were made on November 15,
2004. All such options were fully vested as of November 14, 2005. On
November 15, 2004, Mr. Dilworth was granted 40,000 options in his capacity
as a director. These options became fully vested on November 14, 2007.
Compensation of Directors
During the years ended December 31, 2007 and 2006, our non-employee directors
were eligible to be compensated at the rate of $1,000 for attendance at each
meeting of our board, $500 if their attendance was via telephone, $500 for
attendance at each meeting of a board committee, and a $1,500 quarterly
retainer. Additionally, non-employee directors are granted stock options
periodically, typically on a yearly basis.
Director Compensation
- -------------------------------------------------------------------------------
Fees
Earned or Option All Other
Name Year Paid in Cash Awards (1) Compensation Total
- -------------------------------------------------------------------------------
August Klein 2007 $ 16,500 $ 31,306 $ - $ 47,806
2006 10,500 34,973 7,000 (2) 52,473
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Michael Volker 2007 15,500 30,662 - 46,162
2006 9,000 33,236 - 42,236
Gordon Watson 2007 15,500 30,146 - 45,646
2006 10,000 31,847 - 41,847
(1) The amounts listed in the Option Awards column reflect the dollar
amount recognized for financial statement reporting purposes for the
fiscal years ended December 31, 2007 and 2006, in accordance with FAS No.
123R, and include amounts from awards granted in and prior to 2007 and
2006, respectively. We estimated the fair value of stock options at their
grant date by using the Black-Scholes option pricing model with the
following weighted average assumptions for grants made prior to 2006 that
are included in the Summary Compensation Table: dividend yield, 0; risk
free interest of 1.5% to 2.5%; expected volatility of 60%; and an expected
life of 5 years. The assumptions used in the valuations of the stock
options awarded in 2007 and 2006, subsequent to our adoption of FAS No.
123R, appear in Note 1 to our consolidated financial statements, which
appear in our Form 10-KSB as filed with the SEC on March 31, 2008.
(2) Payment for consulting fees provided to our company
The recognized stock-based compensation expense listed as Option Awards for all
three non-employee directors in the above table for the year ended December 31,
2007 was derived from option awards made on May 14, 2004, January 27, 2005,
January 26, 2006 and January 15, 2007 at exercise prices of $0.56, $0.43, $0.21
and $0.17 per share respectively. On such dates, Mr. Klein was granted 62,500,
160,000, 75,000 and 75,000 options, respectively; Mr. Volker was granted 50,000,
160,000, 75,000 and 75,000 options, respectively; and Mr. Watson was granted
40,000, 160,000, 75,000 and 75,000 options, respectively. All such options
granted to our non-employee directors were immediately exercisable upon their
respective grant date and vest in thirty-three equal monthly installments,
beginning in the fourth month after their respective grant date.
The recognized stock-based compensation expense listed as Option Awards for all
three non-employee directors in the above table for the year ended December 31,
2006 was derived from option awards made on May 5, 2003, May 14, 2004, January
27, 2005 and January 26, 2006 at exercise prices of $0.18, $0.56, $0.43 and
$0.21 per share respectively. On such dates, Mr. Klein was granted 40,000,
62,500, 160,000 and 75,000 options, respectively, Mr. Volker was granted 40,000,
50,000, 160,000 and 75,000 options, respectively, and Mr. Watson was granted
40,000, 40,000, 160,000 and 75,000 options, respectively. All such options
granted to our non-employee directors were immediately exercisable upon their
respective grant date and vest in thirty-three equal monthly installments,
beginning in the fourth month after their respective grant date.
Should any non-employee director's service cease prior to full vesting of the
options, we have the right to repurchase any shares issued upon exercise of
options not vested.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2007, the compensation committee was
comprised of Gordon Watson and August Klein, each of whom is a non-employee
director. August Klein is the committee chairman.
10
REPORT OF AUDIT COMMITTEE
The audit committee operates under a written charter adopted by the
board of directors. GraphOn's audit committee charter is made available at
its web-site at: www.graphon.com. Follow the link to "About GraphOn" to the
link for "Corp. Governance" and then "Audit Committee Charter." The functions
of the audit committee include the following:
o appointment of independent auditors, determination of their compensation
and oversight of their work;
o review the arrangements for and scope of the audit by independent
auditors;
o review the independence of the independent auditors;
o consider the adequacy and effectiveness of the accounting and financial
controls;
o pre-approve audit and non-audit services;
o establish procedures regarding complaints relating to accounting,
internal accounting controls, or auditing matters;
o review and approve any related party transactions; and
o discuss with management and the independent auditors our draft quarterly
interim and annual financial statements and key accounting and reporting
matters.
Management has the primary responsibility for the financial statements and
the reporting process, including the systems of internal controls, and the
independent auditors are responsible for auditing those financial statements in
accordance with the standards set forth by the Public Company Accounting
Oversight Board and to issue a report thereon. The committee's responsibility is
to oversee the financial reporting process on behalf of the board of directors
and to report the result of their activities to the board of directors.
In fulfilling its oversight responsibilities, the audit committee reviewed
the audited consolidated financial statements in the Annual Report on Form
10-KSB with management, including a discussion of both the quality and
acceptability of the accounting principles applied, the reasonableness of
significant estimates and judgments, critical accounting policies and accounting
estimates resulting from the application of these policies and the clarity of
disclosures in the financial statements. In addition, the audit committee
discussed the rules under The Sarbanes-Oxley Act of 2002 that pertain to the
audit committee and the roles and responsibilities of the audit committee
members.
During the year ended December 31, 2007, GraphOn's independent certified
public accountants were Macias Gini & O'Connell LLP. In addition to
audit-related services, Macias Gini & O'Connell also performed non-audit related
services that consisted primarily of tax services for GraphOn during 2007. The
audit committee reviewed Macias Gini & O'Connell's judgments of both the quality
and acceptability of the accounting principles applied by management and such
other matters that are required to be discussed with the audit committee under
auditing standards generally accepted in the United States.
In overseeing the preparation of GraphOn's financial statements, the audit
committee met with both GraphOn's management and Macias Gini & O'Connell, with
and without management being present, to review and discuss all financial
statements prior to their issuance and to discuss significant accounting issues.
GraphOn's management advised the audit committee that all financial statements
were prepared in accordance with accounting principles generally accepted in the
United States and that they complied with the rules of Sarbanes-Oxley. The audit
committee's review included discussions with Macias Gini & O'Connell of matters
required to be discussed pursuant to Statement on Auditing Standards No. 114
(The Auditor's Communication with Those Charged with Governance), which has
11
superseded Statement on Auditing Standards No. 61 (Communication with Audit
Committees), as well as matters relating to Macias Gini & O'Connell's
independence, including the disclosures made to the audit committee as required
by the Independence Standards Board Standard No. 1 (Discussions with Audit
Committee).
On the basis of these reviews and discussions, the audit committee
recommended to the board of directors that it approve the inclusion of the
audited financial statements in GraphOn's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2007 for filing with the SEC.
The audit committee has also evaluated the performance of Macias Gini &
O'Connell, including, among other things, the amount of fees paid to them for
audit and non-audit related services in 2007. Information related to Macias Gini
& O'Connell's fees for 2007 and 2006 are discussed below in the proxy statement
under "Proposal II - Ratification of Selection of Independent Auditors." Based
on its evaluation, the audit committee has selected Macias Gini & O'Connell to
serve as GraphOn's auditors for the fiscal year ending December 31, 2008.
October 1, 2008 THE AUDIT COMMITTEE
August P. Klein, Chairman
Michael Volker
Gordon M. Watson
12
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of October 1, 2008,
with respect to the beneficial ownership of shares of our common stock held by:
(i) each director; (ii) each person known by us to beneficially own 5% or more
of our common stock; (iii) each executive officer named in the summary
compensation table; and (iv) all directors and executive officers as a group.
Unless otherwise indicated, the address for each of the following stockholders
is c/o GraphOn Corporation, 5400 Soquel Avenue, Suite A-2, Santa Cruz,
California 95062.
Number of Shares Percent
of Common Stock of
Beneficially Class
Name and Address of Beneficial Owner Owned (1)(2) (%)
- ----------------------------------------------------------------------
Robert Dilworth (3) 1,068,820 2.2
William Swain (4) 836,000 1.7
August P. Klein (5) 670,760 1.4
Michael Volker (6) 563,000 1.2
Gordon Watson (7) 505,000 1.1
AIGH Investment Partners, LLC (8) 9,120,417 18.1
6006 Berkeley Avenue
Baltimore, MD 21209
Ralph Wesinger (9) 4,230,207 8.8
Kennedy Capital Management, Inc. (10) 2,688,350 5.7
10829 Olive Boulevard
St. Louis, MO 63141
Paul Packer (11) 5,077,425 10.3
60 Broad Street, 38th Floor
New York, NY 10004
All current executive officers and 3,643,780 7.2
directors as a group (5 persons)(12)
- ------------------------------------
(1) As used in this table, beneficial ownership means the sole or shared
power to vote, or direct the voting of, a security, or the sole or shared
power to invest or dispose, or direct the investment or disposition, of a
security. Except as otherwise indicated, based on information provided by
the named individuals, all persons named herein have sole voting power
and investment power with respect to their respective shares of our
common stock, except to the extent that authority is shared by spouses
under applicable law, and record and beneficial ownership with respect to
their respective shares of our common stock. With respect to each
stockholder, any shares issuable upon exercise of options and warrants
held by such stockholder that are currently exercisable or will become
exercisable within 60 days of October 1, 2008 are deemed outstanding for
computing the percentage of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.
(2) Percentage ownership of our common stock is based on 47,322,292 shares of
common stock outstanding as of October 1, 2008.
(3) Includes 1,015,000 shares of common stock issuable upon the exercise of
outstanding options.
(4) Includes 805,000 shares of common stock issuable upon the exercise of
outstanding options.
(5) Includes 520,000 shares of common stock issuable upon the exercise of
outstanding options.
(6) Includes 485,000 shares of common stock issuable upon the exercise of
outstanding options.
(7) Includes 505,000 shares of common stock issuable upon the exercise of
outstanding options.
(8) Based on information contained in a Schedule 13G/A filed by AIGH
Investment Partners, LLC on March 3, 2008. Includes 3,040,139 shares of
common stock issuable upon the exercise of outstanding warrants. Orin
Hirschman is the managing member of AIGH Investment Partners, LLC.
(9) Based on information provided to us by Mr. Wesinger. Includes 1,000,000
13
shares of common stock issuable upon exercise of outstanding options.
(10) Based on information contained in a Schedule 13G filed by Kennedy Capital
Management, Inc., an investment advisor, on February 13, 2008. Kennedy
Capital Management has the sole power to vote or direct the vote of
2,535,900 shares and the sole power to dispose or direct the disposition
of 2,688,350 shares.
(11) Based on information contained in a Schedule 13G/A filed by Paul Packer
on February 11, 2008 and information made available to us. Includes
810,013 shares held by Mr. Packer, 638,176 shares held by Globis Overseas
Fund, Ltd. and 1,781,453 shares held by Globis Capital Partners, LP. Also
includes 405,004 shares of common stock issuable upon the exercise of
outstanding warrants held by Mr. Packer, 324,084 shares of common stock
issuable upon the exercise of outstanding warrants held by Globis
Overseas and 1,118,695 shares of common stock issuable upon the exercise
of outstanding warrants held by Globis Capital. Mr. Packer has sole
voting and dispositive power with respect to 1,215,017 shares held or
issuable upon exercise of outstanding warrants held by Mr. Packer and Mr.
Packer shares voting and dispositive power with respect to an aggregate
2,473,535 shares held or issuable upon exercise of outstanding warrants
held by Globis Overseas and Globis Capital.
(12) Includes 3,330,000 shares of common stock issuable upon the exercise of
outstanding options.
COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, as well as those persons who own more than 10% of our common
stock, to file reports of ownership and changes in ownership with the SEC. These
persons are required by SEC rule to furnish us with copies of all Section 16(a)
forms they file.
Based solely on our review of the copies of such forms, or written
representations from certain reporting persons that no such forms were required,
we believe that during the year ended December 31, 2007, all filing requirements
applicable to our officers, directors and greater than 10% owners of our common
stock were complied with.
14
PROPOSAL II
-----------
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Our audit committee has selected Macias Gini & O'Connell LLP to audit our
accounts for the fiscal year ending December 31, 2008. Such firm, which has
served as our independent auditors since February 9, 2005, has reported to us
that none of its members has any direct financial interest or material indirect
financial interest in our company.
A proposal will be presented at the annual meeting to ratify the audit
committee's appointment of Macias Gini & O'Connell LLP as our independent
auditors. Although stockholder ratification of the audit committee's action in
this respect is not required, our board of directors considers it desirable for
stockholders to pass upon such appointment.
A representative of Macias Gini & O'Connell LLP is expected to attend the
annual meeting and will be afforded the opportunity to make a statement and/or
respond to appropriate questions from stockholders.
Fees for professional services provided by Macias Gini & O'Connell LLP for
the years ended December 31, 2007 and 2006 were as follows:
Category 2007 2006
-------- ---------- ----------
Audit fees $ 154,900 $ 170,500
Audit - related fees 1,300 5,500
Tax fees 14,000 14,000
Other fees - -
---------- ----------
Total $ 170,200 $ 190,000
========== ==========
Audit fees include fees associated with our annual audit, the reviews of
our quarterly reports on Form 10-QSB, and assistance with and review of
documents filed with the Securities and Exchange Commission. Audit-related fees
include consultations regarding revenue recognition and new accounting
pronouncements, particularly; Financial Accounting Standards Board
Interpretation 48 (2007) and Statement of Financial Accounting Standards No.
123R, "Share-Based Payment" and related interpretations (2006). Tax fees
included tax compliance and tax consultations.
The audit committee has adopted a policy that requires advance approval of
all audit, audit-related, tax services and other services performed by our
independent auditor. The policy provides for pre-approval by the audit committee
of specifically defined audit and non-audit services. Unless the specific
service has been previously pre-approved with respect to that year, the audit
committee must approve the permitted service before the independent auditor is
engaged to perform it.
Board Recommendation
The board unanimously recommends a vote FOR ratification of the selection
of Macias Gini & O'Connell LLP as our independent auditors for the fiscal year
ending December 31, 2008.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g.,
brokers) to satisfy the delivery requirements for proxy statements and annual
reports with respect to two or more stockholders sharing the same address by
delivering a single proxy statement addressed to those stockholders. This
process, which is commonly referred to as "householding," potentially means
extra convenience for stockholders and cost savings for companies.
15
This year, a number of brokers with account holders who are GraphOn
stockholders will be "householding" our proxy materials. A single proxy
statement and annual report will be delivered to multiple stockholders sharing
an address unless contrary instructions have been received from the affected
stockholders. Once you have received notice from your broker that they will be
"householding" communications to your address, "householding" will continue
until you are notified otherwise or until you revoke your consent. If, at any
time, you no longer wish to participate in "householding" and would prefer to
receive a separate proxy statement and annual report, please notify your broker,
direct your written request to William Swain, our Secretary, at our address or
contact William Swain at (800) 472-7466. Stockholders who currently receive
multiple copies of the proxy statement and annual report at their address and
would like to request "householding" of their communications should contact
their broker.
ACCOMPANYING INFORMATION
Accompanying this proxy statement is a copy of our annual report to
stockholders on Form 10-KSB, for our fiscal year ended December 31, 2007. Such
annual report includes our audited financial statements for the two fiscal years
ended December 31, 2007. No part of such annual report shall be regarded as
proxy-soliciting material or as a communication by means of which any
solicitation is being or is to be made.
16
GRAPHON CORPORATION
5400 Soquel Avenue, Suite A2
Santa Cruz, California 95062
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert Dilworth and William Swain as
Proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and vote, as designated on the reverse side hereof,
all the shares of Common Stock of GraphOn Corporation (the "Company") held of
record by the undersigned on October 1, 2008, at the Annual Meeting of the
Stockholders to be held on November 19, 2008 or any adjournment thereof.
This Proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, the Proxy will be voted FOR
Proposals I and II.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
GRAPHON CORPORATION
November 19, 2008
Please sign, date and mail your proxy card
in the envelope provided as soon as possible
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPSALS I AND II.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
I. Election of Director: The nominee for Class III of the Board of
Directors is listed below:
[ ] For nominee Gordon M. Watson
[ ] Withhold authority for nominee
II. To ratify the selection of Macias Gini & O'Connell LLP [ ] For
as the Company's independent auditors for the fiscal [ ] Against
year ended December 31, 2008 [ ] Abstain
III. To transact such other business as may properly come before the meeting.
To change the address on your account, please check the box at right [ ] and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
Signature of Stockholder: Date:
Signature of Stockholder: Date:
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.