1
Exhibit 10.4
FORM OF RESTRICTIVE COVENANT AGREEMENT
This Restrictive Covenant Agreement ("AGREEMENT") is entered into as of
June __, 1998, among CyberGuard Corporation, a Florida corporation
("CYBERGUARD"), ARCA Systems, Inc., a California corporation ("ARCA"), and
_______________________________ ("SELLING SHAREHOLDER").
PRELIMINARY STATEMENTS
Each of the parties hereto is a party to an Agreement and Plan of
Merger ("AGREEMENT AND PLAN OF MERGER"), dated as of May 29, 1998, pursuant to
which, among other things, CyberGuard acquired ARCA simultaneously with the
execution of this Agreement.
Selling Shareholder was a principal shareholder and key employee,
officer and director of ARCA prior to CyberGuard's acquisition of ARCA, and was
critical to the growth and success of ARCA prior to such acquisition.
It was a material inducement for CyberGuard's entering into the
Agreement and Plan of Merger that Selling Shareholder agree to enter into this
Agreement, and CyberGuard would not have entered into the Agreement and Plan of
Merger but for the Selling Shareholder's agreement to enter into this Agreement.
Selling Shareholder recognizes that in order to assure CyberGuard and
ARCA that CyberGuard will retain the value of ARCA as a "going concern," it is
necessary that Selling Shareholder undertakes not to utilize his special
knowledge of the business of ARCA and his relationship with customers and
suppliers of ARCA to compete with CyberGuard or ARCA or their respective
subsidiaries with respect to such business; and Selling Shareholder acknowledges
that each and every one of the restrictions set forth herein are reasonable.
Selling Shareholder acknowledges that he received substantial
consideration in connection with such merger, that he voted in favor of such
merger, and that he agreed to enter into this Agreement of his own free will in
furtherance of obtaining such consideration.
Selling Shareholder acknowledges and agrees that each and every one of
his obligations under this agreement are unconditional and absolute.
AGREEMENT
In consideration of the foregoing preliminary statements and the
respective covenants, representations and warrants contained in this Agreement,
and for other good and valuable consideration, the receipt and sufficient of
which are hereby acknowledged, the parties agree as set forth below.
1. PRELIMINARY STATEMENTS. The preliminary statements set forth above
are true and correct and are incorporated herein by reference.
2. RESTRICTIVE COVENANTS.
2.1 NONCOMPETITION. Selling Shareholder hereby agrees that he shall,
throughout the Covenant Period (as defined below) and throughout the Geographic
Area (as defined below), refrain from, directly or indirectly, owning, managing,
operating, controlling or financing, or participating in the ownership,
management, operation, control or financing of, or being connected with or
having any
2
interest in, or otherwise taking any part as a shareholder, director, officer,
employee, consultant, independent contractor, partner or otherwise in, any
business competitive with that engaged in by ARCA as of the effective time of
the merger contemplated by the Agreement and Plan of Merger ("EFFECTIVE TIME"),
including, but not limited to, information security consulting services;
provided, however, that the foregoing shall not apply solely to the ownership of
not more than two percent (2%) of the outstanding stock of any company listed by
a national securities exchange or an over-the-counter stock listed by the
National Association of Securities Dealers. For the purposes of this Agreement,
"COVENANT PERIOD" means the two-year period beginning on the Effective Time, and
"GEOGRAPHIC AREA" means the United States and each other country in which ARCA
has done business on or prior to the Effective Time.
2.2 CONFIDENTIAL INFORMATION. Selling Shareholder agrees not to
disclose, directly or indirectly, to any person or entity, or use or cause or
authorize any person or entity to use any confidential information
(collectively, "Disclose") relating to ARCA, CyberGuard or any of their
respective subsidiaries or any information concerning financial condition,
results of operations, customers, suppliers, services, inventions, sources,
leads or methods of obtaining new products, services or business, intangible
property or methods of operating their businesses or any other information
relating to ARCA, CyberGuard or any of their respective subsidiaries which he
knows or should know is regarded as confidential and valuable by CyberGuard or
ARCA (whether or not any of the foregoing information is actually novel or
unique or is actually known by others, collectively the "Confidential
Information"); provided, however, that this Agreement shall not restrict the
disclosure of confidential information (i) to any governmental entity to the
extent required by law, (ii) which is publicly known and available through no
wrongful act of a Selling Shareholder or any other shareholder of ARCA
immediately prior to the Effective Time or any of their respective affiliates,
or (iii) which becomes available to the Selling Shareholder on a
non-confidential basis from a source other than a party to this Agreement,
provided such source is not known to be in violation of a confidentiality
agreement. With respect to ARCA, the Selling Shareholder agrees not to Disclose
Confidential Information at any time subsequent to the Effective Time; with
respect to CyberGuard, the Selling Shareholder agrees not to Disclose
Confidential Information during the Covenant Period.
2.3 SOLICITATION OF BUSINESS. During the Covenant Period, Selling
Shareholder agrees that he will not, directly or indirectly, at any time
knowingly solicit or cause or authorize directly or indirectly to be solicited,
or accept or cause or authorize directly or indirectly to be accepted, for or on
behalf of himself or other persons or entities, any business competitive to the
business of CyberGuard, ARCA or any of their respective subsidiaries from
persons or entities who are or were customers or potential customers of ARCA,
CyberGuard, or any of their respective subsidiaries at any time prior to the
Effective Time or at any time during the Covenant Period.
2.4 SOLICITATION OF PERSONNEL. During the Covenant Period, Selling
Shareholder agrees that he will not, directly or indirectly, at any time
knowingly solicit or cause or authorize directly or indirectly to be solicited
for employment or employ or cause or authorize, directly or indirectly, to be
employed or engaged as an employee, independent contractor or sales agent, for
or on behalf of himself or any other person or entity, any person or entity who
was an employee, independent contractor or sales agent of ARCA, CyberGuard or
any of their respective subsidiaries at any time prior to the Effective Time or
at any time during the Covenant Period.
2.5 USE OF SYMBOLS. Selling Shareholder agrees not to at any time
after the Effective Time, directly or indirectly, use or authorize any person or
entity to use any name, xxxx, logo or other identifying words or images
(collectively, "SYMBOLS") which are similar to those used by ARCA at any time
prior to the date hereof or at any time during the Covenant Period in connection
with any business product or service, whether or not competitive with any
business then being carried on by ARCA or any product or service then being sold
or provided by ARCA.
-2-
3
2.6 INJUNCTIVE RELIEF. Selling Shareholder acknowledges that it
would be very difficult or impossible to measure the damages resulting from the
breach of any provision of this Agreement. Selling Shareholder further
acknowledges that the restrictions herein are reasonable and reasonably
necessary for the protection of the legitimate business interests and goodwill
of ARCA and CyberGuard, and that a violation by Selling Shareholder of any such
covenant will cause irreparable damage to ARCA and CyberGuard. Therefore,
Selling Shareholder hereby agrees that any breach or threatened breach by him of
any provision of this Agreement shall entitle ARCA and CyberGuard, in addition
to any other legal remedies available to them, to a temporary and permanent
injunction or any other appropriate decree of specific performance (without any
bond or security being required) in order to enjoin such breach or threatened
breach. It is the desire and intent of the parties that the provisions of this
Agreement shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular subparagraph or portion of this Agreement shall
be adjudicated to be invalid or unenforceable, this Agreement shall not be
deemed null and void and shall be deemed amended to delete therefrom the portion
thus adjudicated to be invalid or unenforceable, such deletion to apply only
with respect to the operation of this Agreement in that particular jurisdiction
in which such adjudication is made. In the event any provisions of this
Agreement relating to the time period, scope of activities or areas of
restrictions shall be declared by a court of competent jurisdiction to exceed
the maximum time period, scope of activities or area such court deems reasonable
and enforceable, the time period, scope of activities or areas of restrictions
shall thereafter be deemed the maximum which such court deems reasonable and
enforceable.
2.7 TOLLING. In the event of a knowing breach or violation by
Selling Shareholder of any of the provisions of this Agreement, the running of
the Covenant Period set forth in this Agreement (but not of the Selling
Shareholder's obligations under this Agreement) shall be tolled during the
continuance of any actual breach or violation; provided, however, in any event
such tolling shall not extend the Covenant Period beyond four years from the
date of this Agreement.
2.8 SURVIVAL; TERMINATION. This Agreement shall survive the
execution and delivery of this Agreement. In the event after a Change in Control
(as defined in the employment agreement by and between the Selling Shareholder
and ARCA (the "Employment Agreement")), the Selling Shareholder is terminated
without "Cause" (as such term is defined in the Employment Agreement) by ARCA or
terminates his employment with ARCA for "Good Reason" (as such term is defined
in the first and second clause of Section 6(a) of the Employment Agreement),
then this Agreement and all of Selling Shareholder's obligations hereunder shall
terminate.
3. NOTICES. Any notice or other communication under this Agreement
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by prepaid overnight
courier to the parties at the addresses set forth below their names on the
signature pages of this Agreement (or at such other addresses as shall be
specified by the parties by like notice). Such notices, demands, claims and
other communications shall be deemed given when actually received or: (A) in the
case of delivery by overnight service with guaranteed next day delivery, the
next day or the day designated for delivery; or (B) in the case of registered
U.S. mail, five days after deposit in the U.S. mail.
4. ENTIRE AGREEMENT; OBLIGATIONS UNCONDITIONAL. This Agreement and each
document and agreement executed by the parties in connection with the
transactions contemplated in connection herewith contains every obligation and
understanding among the parties relating to the subject matter hereof and merges
all prior discussions, negotiations and agreements, if any, among them, and none
of the parties shall be bound by any representations, warranties, covenants, or
other understandings, other than as expressly provided or referred to herein.
Selling Shareholder acknowledges that each and every one of his obligations
under this Agreement are unconditional and absolute, shall not be terminable for
any reason whatsoever and shall not be subject any counterclaim, defense, cross
claim or similar item of any nature whatsoever, including, but not limited to,
claims of offset, breach of contract or any action in tort or otherwise.
-3-
4
5. ASSIGNMENT. This Agreement may not be assigned by any party without
the written consent of the other party hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, and permitted assigns.
6. WAIVER AND AMENDMENT. Any representation, warranty, covenant, term
or condition in this Agreement which may legally be waived, may be waived, or
the time of performance thereof extended, at any time by the party hereto
entitled to the benefit thereof, and any term, condition or covenant hereof may
be amended by the parties hereto at any time; PROVIDED, HOWEVER, that no such
amendment or waiver shall be effective unless in writing. No waiver by any party
hereto, whether express or implied, of its rights under any provision of this
Agreement shall constitute a waiver of such party's rights under such provisions
at any other time or a waiver of such party's rights under any other provision
of this Agreement. No failure by any party hereto to take any action against any
breach of this Agreement or default by another party shall constitute a waiver
of the former party's right to enforce any provision of this Agreement or to
take action against such breach or default or any subsequent breach or default
by such other party.
7. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
or entity other than the parties hereto and their respective successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.
8. SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written.
9. HEADINGS. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
10. COUNTERPARTS; CONSTRUCTION. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. Any telecopied
counterpart of a manually executed original shall be deemed a manually executed
original. This Agreement shall be construed and interpreted without reference to
any rule or presumption that it be construed or interpreted against the party
causing it to be drafted. Each particular clause and section of this Agreement
shall have its own independent legal significance and shall not be limited by
any other clause or provision hereof.
11. LITIGATION; PREVAILING PARTY. In the event of any litigation with
regard to this Agreement, the prevailing party shall be entitled to receive from
the non-prevailing party and the non-prevailing party shall pay upon demand all
reasonable fees and expenses of counsel for the prevailing party.
12. GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Florida
without reference to the choice of law principles thereof.
13. INDEPENDENT COUNSEL. Selling Shareholder acknowledges that he has
been advised that he should be represented by his own independent legal counsel
in connection with the negotiation and execution of this Agreement, and that he
understands and recognizes the meaning of this Agreement and each of the
provisions hereof.
14. CERTAIN INTERPRETATIONS. The Selling Shareholders hereto
acknowledge that each has entered into an Employment Agreement by which each has
agreed, among other things, (1) to be employed by ARCA, (2) to be a consultant
for a period of time upon termination of the Selling
-4-
5
Shareholder's employment with ARCA, (3) not to compete with ARCA or CyberGuard
during the period of their employment and consultancy, and (4) not to solicit
employees and customers of ARCA, CyberGuard or their affiliates, subsidiaries or
predecessors in interest during their employment and for one year after
termination of the Employment Agreement. The Selling Shareholders acknowledge
that a further consideration for the sale of the business of ARCA and its
goodwill is the entering into by the Selling Shareholder of the Employment
Agreement and the consulting arrangement (and related restrictions) described in
Paragraph 16 of the Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
CYBERGUARD CORPORATION
By:
------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address:
--------------------------------
ARCA SYSTEMS, INC.
By:
------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address:
--------------------------------
----------------------------------------
Address:
--------------------------------
-5-
