1
LOAN AGREEMENT
THIS LOAN AGREEMENT (the Agreement") is made and entered into as of
August 26, 1999, by and between CyberGuard Corporation, a Florida corporation
(the "Company"), and the persons or entities who have executed the counterpart
signature pages attached hereto (individually a "Lender" and collectively, the
"Lenders").
1. LOAN AND USE OF PROCEEDS
Subject to and upon the terms and conditions herein set forth, Lenders
agree to loan to the Company the aggregate principal amount of $614,000.00 (the
"Loan"). The Company's obligation to pay the principal of, and interest on, the
Loan shall be evidenced by the Notes (as defined below). The proceeds of the
Loan shall be used (i) to satisfy the existing indebtedness of the Company to
Fernwood Partners, LLC ("Fernwood I"), which indebtedness is evidenced by that
certain Promissory Note previously executed by the Company in the original
principal amount of $1,125,000, (ii) for payment of certain expenses in
connection with a loan from Fernwood Partners II, LLC entered into on the date
hereof (the "Fernwood Loan") and (iii) for general corporate purposes.
2. PROMISSORY NOTES
The Company hereby covenants and agrees to issue a convertible
subordinated promissory note in the form of EXHIBIT A hereto to each of the
Lenders (collectively, the "Notes") in the principal amounts set forth on
EXHIBIT B hereto. The Notes will be secured by all of the Company's assets
pursuant to a Security Agreement in the form of EXHIBIT C hereto. The Notes will
only be subordinated in right of payment to the Senior Debt (as defined below)
of the Company.
The Notes will mature on June 30, 2002. The Notes will bear interest at
the rate of 11.5% per annum from the date of issuance. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Accrued interest shall be payable quarterly on January 1, April 1, July 1 and
October 1 of each year, commencing October 1, 1999, to the entity or persons in
whose names the Notes are issued; except that interest accruing from the date of
issuance of the Notes through July 1, 2000 shall be compounded quarterly on
January 1, April 1, July 1 and October 1, commencing October 1, 1999, and added
to the principal amount of the Note. Any amount of principal or interest not
paid when due (whether at the stated due date, at maturity, upon acceleration,
or otherwise) shall thereafter bear interest until paid in full at the rate of
17.5% per annum. The Notes may be presented for transfer or exchange at the
office of the Company, which office is currently located at 0000 Xxxx Xxxxxxxxxx
Xxxx., Xxxxx 000, Xx. Xxxxxxxxxx, Xxxxxxx 00000. No service charge will be made
for transfer or exchange of the Notes.
3. CONVERSION RIGHTS
The Lenders will have the right ("Conversion Right"), at the Lenders'
option, to convert all or any portion of the principal and accrued interest of
the Notes into fully paid and nonassessable shares of the Company's Common Stock
("Common Stock"). The number of shares of Common Stock into which the Notes may
be converted ("Conversion Shares") shall be determined by dividing the aggregate
principal amount of the Notes, together with all accrued interest to the date of
conversion, by the conversion price in effect at the time of conversion (the
"Conversion Price"). The Conversion Price shall be equal to One Dollar ($1.00),
subject to adjustment in accordance with the terms of the Notes.
4. WARRANT RIGHTS
The Company will grant each of the Lenders a Common Stock Purchase
Warrant (collectively, the "Warrants") in the form of EXHIBIT D hereto that is
exercisable into the number of shares of Common Stock set forth on EXHIBIT E
hereto (the "Exercise Shares"). The Warrants shall have an exercise price of
$2.00 per share (the "Exercise Price"). The number of Exercise Shares and the
Exercise Price shall be subject to adjustment in accordance with the terms of
the Warrants. The Warrants shall have a term of five (5) years.
1
2
5. SUBORDINATION
The Notes are secured obligations of the Company subordinate to the
existing indebtedness of the Company to Coast Business Credit, a division of
Southern Pacific Bank (the "Senior Debt") and of the same priority in interest
as Fernwood I under the Fernwood Loan. Each Lender agrees to execute any
subordination agreement reasonably requested by any holder of the Senior Debt.
No payment may be made by the Company on account of the principal of
and interest on the Notes, unless and until the principal of and interest of the
Senior Debt is either current or until such payment default has been cured or
waived or otherwise has ceased to exist.
Upon any distribution of assets of the Company or upon any dissolution,
winding up, liquidation or reorganization of the Company, whether voluntary or
involuntary, in bankruptcy, insolvency, receivership or a similar proceeding or
upon assignment for the benefit of creditors or any marshaling of assets or
liabilities, (i) the holders of all Senior Debt will first be entitled to
receive payment in full (or have such payment duly provided for) before the
Lenders are entitled to receive any payment on account of the principal of,
premium, if any, or interest on, the Notes and (ii) any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities to which the Lenders would be entitled (by setoff or otherwise),
except for the subordination provisions contained in this Agreement, will be
paid by the liquidating trustee or agent or other person making such a payment
or distribution directly to the lenders of Senior Debt or their representative
to the extent necessary to make payment in full of all such Senior Debt
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company shall be received by the Lenders at a time
when such payment or distribution is prohibited by the foregoing provisions,
such payment or distribution shall be held in trust for the holders of Senior
Debt, and shall be paid or delivered by the Lenders, as the case may be, to the
holders of the Senior Debt remaining unpaid or unprovided for or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior Debt
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Debt held or represented by each, for
application to the payment of all such Senior Debt remaining unpaid, to the
extent necessary to pay or to provide for the payment of all such Senior Debt in
full after giving effect to any concurrent payment or distribution to the
holders of the Senior Debt.
No provision contained in this Agreement or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of and premium, if any, and interest on the Notes as and when the
same shall become due and payable. The subordination provisions of this
Agreement and the Notes will not prevent the occurrence of any default or event
of default under this Agreement or the Notes or limit the rights of the Lenders,
subject to the preceding paragraphs, to pursue any other rights or remedies with
respect to the Notes.
6. CONVERSION AT THE COMPANY'S OPTION
At the option of the Company, the Notes may be converted into shares of
Common Stock at the Conversion Price if (i) shares of the Common Stock close at
a price in excess of Four Dollars ($4.00) per share for ninety (90) consecutive
trading days, and (ii) the shares of Common Stock into which the Notes are
converted are fully registered under the Securities Act of 1933, as amended (the
"Securities Act"), and freely transferable.
7. REPURCHASE OF THE NOTES AT THE OPTION OF THE LENDERS UPON A CHANGE OF
CONTROL
In the event that a Change of Control (as defined in the Notes) has
occurred, each Lender will have the right, in its sole discretion, to declare
the entire principal amount and accrued interest of the Notes immediately due
and payable.
2
3
8. EVENTS OF DEFAULT AND REMEDIES
The occurrence of any of the following events shall constitute an
"Event of Default" under this Agreement, and the Company shall give Lenders
immediate notice thereof: (a) the failure of the Company to make any payment of
principal or interest order the Notes when due, (b) if the Company fails to
comply with or perform any covenant, agreement or condition of the Loan
Documents or in the Loan Agreement of even date herewith between the Company and
Fernwood Partners II, LLC. For purposes of this Agreement, the term "Loan
Documents" shall mean this Agreement and the other documents and agreements
executed in connection herewith (as the same may be further amended,
supplemented, restated or otherwise modified from time to time), including,
without limitation, the Notes, the Warrants and the Security Agreement.
If an Event of Default occurs then all principal and accrued interest
on the Notes will be immediately due and payable without any declaration or
other act on the part of the Lenders. The Lenders are authorized to rescind such
acceleration if all existing Events of Default, other than the nonpayment of the
principal of, and interest on, the Notes that has become due solely by such
acceleration, has been cured or waived; provided, however, the Lenders shall
have no obligation to rescind any such acceleration or waive any Event of
Default.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LENDERS
The obligations of the Lenders to make the Loan is subject to the
satisfaction of the following condition precedent: if required, the Company
shall have obtained the written consent of Coast Business Credit to the
Company's use of a portion of the proceeds of the Loan to satisfy the existing
indebtedness of the Company to Fernwood I.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties:
A. CORPORATE STATUS. The Company (i) is a duly organized and validly
existing corporation in good standing under the laws of the jurisdiction of its
incorporation, (ii) has the corporate power and authority to own its property
and assets and to transact the business in which it is engaged or presently
proposes to engage, and (iii) is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in every foreign jurisdiction
in which it owns or leases real property or in which the nature of its business
requires it to be so qualified, except where the failure of any of the above
would not have a material adverse effect on the Company.
B. AUTHORITY. The executive officers executing the Loan Documents have
the full authority of the Company and its Board of Directors to accept and bind
the Company to the terms and conditions of this Agreement, the other Loan
Documents and all exhibits attached hereto and thereto.
11. REPRESENTATIONS AND WARRANTIES OF THE LENDERS
The Lenders make the following representations and warranties:
A. INVESTMENT. The Lenders are acquiring the Notes and the Warrants and
the shares of Common Stock issuable upon conversion or exercise thereof, for
their own account, for investment only and not with a view towards the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the Securities Act.
3
4
B. RELIANCE ON EXEMPTIONS. The Lenders understand that the Notes and
the Warrants are being offered and sold to them in reliance upon specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and the Lenders' compliance with, the representation, warranties,
agreements, acknowledgments and understandings of the Lenders set forth herein
in order to determine the availability, of such exemptions.
C. INFORMATION. The Lenders and their respective advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Notes and Warrants which have been requested by the Lenders or their respective
advisors. The Lenders and their respective advisors, if any, have been afforded
the opportunity to ask questions of the Company and have received what the
Lenders believe to be satisfactory answers to any such inquiries. The Lenders
understand that their investment in the Notes and Warrants involves a
significant degree of risk.
D. GOVERNMENTAL REVIEW. The Lenders understand that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Notes and the
Warrants.
E. TRANSFER OR RESALE. The Lenders understand the limitations on resale
or transfer of the Notes and the Warrants incorporated herein and those
additional restrictions applicable pursuant to securities laws.
F. LEGENDS. The Lenders understand that the Notes and Warrants and,
until such time as the shares of Common Stock issuable upon the conversion or
exercise of the Note and/or Warrant have been registered under the Securities
Act as contemplated herein, such shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as mended. The securities
have been acquired for investment and may not be sold, transferred or
assigned in the absence of an effective registration statement for the
securities trader said Act, or an opinion of counsel, in form,
substance and scope reasonably acceptable to the Company, that
registration is not required under said Act or unless s old pursuant to
Rule 144 under said Act."
12. REGISTRATION RIGHTS
A. PIGGYBACK REGISTRATION. Subject to the limitations set forth in this
Section 12.A, if the Company shall propose to issue and register shares of its
equity securities on its own behalf or to register equity securities on behalf
of any holder of its equity securities under the Securities Act, the Company
shall give written notice as promptly as possible of such registration to each
of the holders of the Notes and the Warrants (which notice shall include the
anticipated filing date of the Registration Statement and the number of its
equity securities proposed to be included in the Registration Statement), and
will use its best efforts to include in the offering such mount of the
Registrable Securities as any such holder (a "Participating Holder") shall
request to be included by written notice to the Company received within fifteen
(15) days after receipt of the Company's notice, upon the same terms (including
the method of distribution) as the equity
4
5
securities being sold by the Company or any such holder pursuant to any such
offering (a "Piggyback Registration").
(i) REQUIREMENTS OF REQUEST. Each request delivered to the
Company pursuant to this SECTION 12.A shall: (i) specify the amount of
Registrable Securities intended to be offered and sold by the
Participating Holder; and (ii) contain the undertaking of the
Participating Holder to provide all such information and materials and
take all such action as may be required in order to permit the Company
to comply with all applicable requirements of the commission and state
securities and "blue sky" laws and to obtain acceleration of the
effective date of the Registration Statement.
(ii) LIMITATIONS ON INCIDENTAL REGISTRATIONS. The obligations
of the Company to cause Registrable Securities to be registered
pursuant to this Section 12.A are subject to each of the following
limitations, conditions and qualifications:
(a) The Company shall not be required to give notice
or include Registrable Securities in any registration if the
proposed registration is primarily: (A) a registration of a
stock option, thrift, employee benefit or compensation plan or
of securities issued or issuable pursuant to any such plan;
(B) a registration of securities proposed to be issued in
connection with a dividend reinvestment plan or stock purchase
plan; (C) a registration of securities proposed to be issued
in exchange for securities or assets of, or in connection with
a merger or consolidation with, another corporation or other
entity; (D) a registration of securities to be offered by the
Company to its then existing security holders; or (E) a
registration of securities which is a combination of any of
the above.
(b) If the Company is advised by the managing
underwriter or its investment banking firm if the offering is
not underwritten, that the inclusion of Registrable Securities
may, in the opinion of such underwriter or investment banking
firm, as the case may be, materially adversely affect the
successful marketing of the securities proposed to be offered
by the Company, the number of shares of Registrable Securities
to be included in the offering shall be reduced or eliminated
to the extent necessary as shall be reasonably determined by
such underwriter or investment banker, as the case may be, in
good faith; provided that as to the Participating Holders,
such reduction shall be pro rata with respect to all
securities to be sold by persons other than the Company; and,
provided, further, that in such event, the Participating
Holders shall have the right to withdraw their requests to
participate in the offering.
(c) The Company may, in its sole discretion and
without the consent of or prior notice to any Participating
Holder, withdraw such registration statement and abandon the
proposed offering in which the Participating Holder had
requested to participate at any time.
B. PROHIBITED SALES OF SECURITIES. Notwithstanding the foregoing, the
Company shall have the right to prohibit the sale of Registrable Securities
pursuant to any Registration Statement filed pursuant to this Section 12.B, upon
notice to the applicable holder (i) if in the opinion of counsel for the
Company, the Company would thereby be required to disclose information not
otherwise then required by law to be publicly disclosed, provided that the
Company shall use its best efforts to minimize the period of time in which it
shall prohibit the sale of any shares of Registrable Securities pursuant to this
clause (i), (ii) during the period
5
6
starting with the date 10 days prior to the Company's estimate of the date of
filing of, and ending on a date 90 days after the effective date of, a Company
initiated registration in which the person requesting registration is entitled
to participate in accordance with the provisions of this Section 12.B hereof, or
such longer post-effective periods as may be reasonably required by the
underwriter or underwriters if such offering is underwritten, or (iii) upon the
happening of any event, as a result of which the Prospectus under the
Registration Statement includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing (in which case, the Company shall promptly provide the person
requesting registration with revised or supplemental prospectuses and such
person shall promptly take action to cease making any offers of the Registrable
Securities until receipt and distribution of such revised or supplemental
prospectuses).
13. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Florida,
without regard to conflict of law principles.
14. NOTICE
Any notice or communication required to be given hereunder shall be
deemed effectively given when personally delivered, when received by receipted
overnight delivery, or five (5) days after being deposited in the U.S. mail,
with postage prepaid thereon, certified registered mail, return receipt
requested, addressed as follows:
To Lenders: To the address of the Lenders set forth on the
counterpart signature pages of the Security Agreement
dated August 26, 1999
To Company: CyberGuard Corporation
0000 X. Xxxxxxxxxx Xxxxxxxxx
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
15. PARTIAL INVALIDITY
If any provision of this Agreement or the application thereof to any
party or circumstances is held to be invalid or unenforceable, the remainder of
this Agreement and the application of any such provision to other parties or
circumstances shall not be affected thereby, the provisions of this Agreement
being severable in any such instance. No invalid provision hereof shall affect
or impair any other provision of this Agreement.
16. AMENDMENTS
Any amendment or modification to this Agreement shall not be effective
unless signed in writing by the parties hereto.
17. HEADINGS; CONSTRUCTION
The headings of the sections of this Agreement are inserted for
convenience only and shall not be deemed to constitute a part hereof, words used
herein of any gender shall be construed to include any other gender where
appropriate, and words used herein which are either singular or plural shall be
construed to include the other where appropriate.
6
7
SUCCESSORS AND ASSIGNS
All of the covenants, stipulations, promises, and agreements of this
Agreement shall bind the parties' successors and assign, whether so expressed or
not; provided, however, that the Company may not, without the prior consent of
the Lenders, assign any rights, duties, or obligations under this Agreement.
NO ORAL AGREEMENTS
THIS AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
18. WAIVER OF TRIAL BY JURY
THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS THEY MAY HAVE
TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY
WAY RELATED TO THIS AGREEMENT BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND
ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE INCLUDING, BUT NOT
LIMITED TO, THE CONSTITUTION OF THE UNITED STATES OR ANY STATE THEREIN, COMMON
LAW OR ANY APPLICABLE STATUTE OR REGULATIONS. THE PARTIES ACKNOWLEDGE THAT THEY
ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHT TO DEMAND TRIAL BY JURY.
19. SURVIVAL
All representations and warranties made under this Agreement and all
statements, certifications and other information provided in or pursuant to this
Agreement or any other Loan Document shall be deemed to be made, and shall be
true and correct, as of the date hereof and shall survive, and not be waived by,
the execution hereof by the Lenders or any investigation or inquiry of the
Lenders.
22. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each and
all of which shall be deemed an original and all of which together shall
constitute but one and the same instrument.
SIGNATURE PAGE FOLLOWS
7
8
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seat
this 26th day of August, 1999.
COMPANY:
CyberGuard Corporation,
a Florida corporation
By:
----------------------------------
Its:
----------------------------------
LENDER:
By:
----------------------------------
Name:
----------------------------------
8
9
EXHIBIT A
Convertible Promissory Note
10
EXHIBIT B
Principal Amount of Notes
11
EXHIBIT C
Security Agreement
12
EXHIBIT D
Warrant
13
EXHIBIT E
Exercise Shares
