1
EXHIBIT 10.3
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 Fernwood Partners II, LLC, a Delaware limited liability
company ("Lender").
1. Loan and Use of Proceeds
Subject to and upon the terms and conditions herein set forth, the
Lender agrees to loan to the Company the aggregate principal amount of
$3,699,484.38 (the "Loan"). The Company's obligation to pay the principal of,
and interest on, the Loan shall be evidenced by the Note (as defined below).
The proceeds of the Loan shall be used (i) to satisfy the existing indebtedness
of the Company to Fernwood Partners, LLC, 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 Lender's expenses pursuant
to Section 17 hereof, and (iii) for general corporate purposes.
2. Promissory Note
The Company hereby covenants and agrees to issue a convertible
promissory note in the form of Exhibit A hereto to the Lender (the "Note") in
the principal amount of the Loan. The Note will be secured by all of the
Company's assets pursuant to a Security Agreement in the form of Exhibit B
hereto. The Note will only be subordinated in right of payment to the Senior
Debt (as defined below) of the Company.
The Note will mature on June 30, 2002. The Note 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 name the Note is issued; except that interest accruing from the date of
issuance of the Note 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 Note 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 Note.
3. Conversion Rights
The Lender will have the right ("Conversion Right"), at the Lender's
option, to convert all or any portion of the principal and accrued interest of
the Note into fully paid and nonassessable shares of the Company's Common Stock
("Common Stock"). The number of shares of Common Stock into which the Note may
be converted ("Conversion Shares") shall be determined by dividing the
aggregate principal amount of the Note, 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 Note.
Upon conversion of the Note, the Lender will have and be entitled to
exercise the registration rights granted pursuant to Section 13 of this
Agreement with respect to the shares of Common Stock issued upon conversion of
the Note.
4. Warrant Rights
The Company will grant the Lender a Common Stock Purchase Warrant (the
"Warrant") in the form of Exhibit C hereto that is exercisable into the number
of shares of Common Stock equal to the aggregate dollar amount of the Loan
(rounded to the nearest dollar) (the "Exercise Shares"). The Warrant shall have
2
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 Warrant. The Warrant shall have a term of five
(5) years.
Upon exercise of the Warrant, the Lender will have and be entitled to
exercise the registration rights granted pursuant to Section 13 of this
Agreement with respect to the shares of Common Stock issued upon exercise of
the Warrant.
5. Subordination
The Note is a secured obligation of the Company, in priority second
only to the existing indebtedness of the Company to Coast Business Credit, a
division of Southern Pacific Bank (the "Senior Debt"). The Note shall be
subordinated in right of payment to the Senior Debt. The 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 Note, 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 Lender is entitled to receive any payment on account of the
principal of, premium, if any, or interest on, the Note 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 Lender 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 Lender 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 Lender, 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 Note 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 Note as and when the
same shall become due and payable. The subordination provisions of this
Agreement and the Note will not prevent the occurrence of any default or event
of default under this Agreement or the Note or limit the rights of the Lender,
subject to the preceding paragraphs, to pursue any other rights or remedies
with respect to the Note.
6. Conversion at the Company's Option
At the option of the Company, the Note 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 Note is
converted are fully registered under the Securities Act of 1933, as amended
(the "Securities Act"), and freely transferrable.
7. Acceleration of the Note at the Option of the Lender Upon a Change
of Control
In the event that a Change of Control (as defined in the Note) has
occurred, the Lender will have the right, in its sole discretion, to declare
the entire principal amount and accrued interest of the Note 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 the Lender
immediate notice thereof: (a) the failure of the Company to make any payment of
principal or interest under the Note when due, (b) the Company becomes subject
to any bankruptcy, insolvency, receivership or debtor relief proceedings and,
in the case of any such proceedings initiated against the Company, the same
have not been discharged within sixty (60) days after institution, (c) the
Company makes an assignment for the benefit of creditors, or admits in writing
an inability to pay its debts generally as they become due, (d) the Company
fails to comply with or perform any covenant, agreement or condition of this
Agreement or any other Loan Document, (e) any statement, representation or
warranty in any of the Loan Documents is false, misleading or erroneous in any
material respect on the date thereof, and such statement, representation or
warranty is not made true and correct (as of the time such corrective action is
taken) within the applicable grace period (if any) provided for in such Loan
Document, (f) the occurrence of any event or condition deemed to be a default
under or as defined in any other Loan Document, or (g) the Company breaches of
defaults under any material contract or obligation which has or may reasonably
be expected to have a material adverse effect on the business or operations of
the Company, including, with limitation, a default by the Company under the
Senior Debt; provided, however, the Lender acknowledges that as of the date
hereof, the Company is in default under the Senior Debt for failure to timely
file the reports listed on Exhibit D. 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 Note, the Warrant and the Security Agreement.
If an Event of Default occurs then all principal and accrued interest
on the Note will be immediately due and payable without any declaration or
other act on the part of the Lender. The Lender is authorized to rescind such
acceleration if all existing Events of Default, other than the nonpayment of
the principal of, and interest on, the Note that has become due solely by such
acceleration, has been cured or waived; provided, however, the Lender shall
have no obligation to rescind any such acceleration or waive any Event of
Default.
9. Conditions Precedent to Obligations of Lender
The obligations of the Lender to make the Loan is subject to the
satisfaction of the following conditions precedent:
A. The Company shall have procured loans in the aggregate principal
amount of at least $250,000 from certain employees, officers or members of the
Company's Board of Directors, which loans shall be evidenced by convertible
promissory notes of the Company, the terms of which shall be identical to the
Note issued to the Lender hereunder. The employees, officers or members of the
Company's Board of Directors who make such loans shall be granted warrants to
purchase Common Stock of the company on the same terms as the Warrant granted
to the Lender hereunder.
B. Except as disclosed in Exhibit D hereof, the Company shall have
filed all reports required to be filed pursuant to Sections 13, 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
C. 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 Partners,
LLC.
10. Covenants of the Company
In order to induce the Lender to enter into this Agreement and to make
the Loan, the Company covenants and agrees as follows:
A. Payment and Performance. The Company will pay all amounts due under
the Note in accordance with the terms thereof and will observe, perform and
comply with every covenant, term and condition of this Agreement or any other
3
4
Loan Document. The Company will cause each of its subsidiaries to observe,
perform and comply with every such term, covenant and condition.
B. Books, Financial Statements and Reports. The Company will at all
times maintain materially accurate books of account and records and will
furnish the following statements and reports to Lender at the Company's
expense:
(1) As soon as available, and in any event within ninety (90)
days after the end of each fiscal year, consolidated financial statements of
the Company together with all Note thereto, prepared in reasonable detail in
accordance with generally accepted accounting principles ("GAAP"), together
with an unqualified opinion (except for qualification due to preexisting class
action matters), based on an audit using generally accepted auditing standards,
by Price Waterhouse Coopers, or other independent certified public accountants
selected by the Company and reasonably acceptable to the Lender.
(2) As soon as available, and in any event within forty-five
(45) days after the end of each fiscal quarter, the Company's consolidated and
consolidating balance sheet as of the end of such fiscal quarter and
consolidated and consolidating statements of the Company's earnings and cash
flows for the period from the beginning of the then current fiscal year to the
end of such fiscal quarter, all in reasonable detail and prepared in accordance
with GAAP, subject to changes resulting from normal year-end adjustments.
(3) As soon as available, and in any event within twenty-one
(21) days following the end of each calendar month, the Company's consolidated
and consolidating balance sheet as of the end of such month and consolidated
and consolidating statements of the Company's earnings and cash flow for the
period from the beginning of the then current fiscal year to the end of such
month, all in reasonable detail and prepared in accordance with GAAP, subject
to changes resulting from normal year-end adjustments.
(4) As soon as available, and in any event within five (5)
business days following the end of each week, the Company's consolidated and
consolidating statement of the Company's cash flow for such week; provided,
however, that this obligation shall cease as soon as the Company is profitable
for two (2) consecutive quarters.
(5) Monthly receivable agings, aged by invoice date, and by
due date, within ten (10) days after the end of each month.
(6) Monthly accounts payable agings, aged by invoice date,
and outstanding or held check registers within ten (10) days after the end of
each month.
(7) All such other reports with respect to the Company
(including budgets, sales projections, operating plans and other financial
documentation), as the Lender shall from time to time reasonably specify
subject to limitations of applicable federal and state securities laws.
C. Senior Debt. The Company covenants and agrees that it will not
borrow from and be indebted to Coast Business Credit, a division of Southern
Pacific Bank, or any affiliate thereof, or any other lender (beside the
Lender), which collectively equals an amount which in the aggregate exceeds
$2,500,000.
D. Other Information and Inspections. The Company will furnish to the
Lender any information which the Lender may from time to time reasonably
request in writing concerning any covenant, provision or condition of this
Agreement or any other Loan Document, or any matter in connection with the
Company's businesses and operations. Upon reasonable notice, the Company will
permit representatives appointed by the Lender (including independent
accountants, auditors, agents, attorneys, appraisers and any other persons) to
visit and inspect during normal business hours the Company's property,
including its books of account, other books and records, and any facilities or
other business assets, and to make extra copies therefrom and photocopies and
photographs thereof, and to write down and record any information such
representatives obtain. The Lender agrees to maintain the confidentiality of
all such information disclosed to it and agrees and acknowledges that it will
4
5
not directly or indirectly trade in any of the Company's securities during any
period in which it has material information relating to the Company which is
not publicly available.
E. Notice of Material Events and Change of Address. The Company will
promptly notify the Lender in writing, stating that such notice is being given
pursuant to this Agreement, of:
(1) the occurrence of any material adverse change in the
business or operations of the Company;
(2) the occurrence of any Event of Default of which it has
knowledge;
(3) the acceleration of the maturity of any indebtedness owed
by the Company or of any default by the Company under any material indenture,
mortgage, agreement, contract or other instrument to which it is a party of
which it has knowledge; and
(4) any filing of any suit or proceeding against the Company
having a claim or potentially a claim of $100,000 or more.
F. Payment of Taxes, etc. The Company will (a) timely file all
required tax returns; (b) timely pay all taxes, assessments, and other
governmental charges or levies imposed upon it or upon its income, profits or
property unless contested in good faith; and (c) maintain appropriate accruals
and reserves for all of the foregoing in accordance with GAAP.
G. Agreement to Deliver Security Documents. The Company agrees to
deliver and to further secure the Note whenever requested by the Lender, in its
sole and absolute discretion, with deeds of trust, mortgages, chattel
mortgages, security agreements, financing statements and other security
documents in form and substance reasonably satisfactory to the Lender for the
purpose of granting, confirming, and perfecting liens or security interests in
any real or personal property now owned or hereafter acquired by the Company.
H. Perfection and Protection of Security Interests and Liens. The
Company will from time to time deliver to the Lender any financing statements,
continuation statements, extension agreements and other documents, properly
completed and executed (and acknowledged when required) by the Company in form
and substance reasonably satisfactory to the Lender.
I. Reporting Requirements. The Company will file in a timely manner
the reports required to be filed by it under the Securities Act, the Exchange
Act, and the rules and regulations adopted by the Commission thereunder, and
will take such further action as the Lender may reasonably request, all to the
extent required from time to time to enable the Lender to sell within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rules or
regulations hereafter adopted by the Commission. Upon the reasonable request of
the Lender, the Company will deliver to the Lender a written statement as to
filings made by the Company with the Commission.
J. Reporting Under Section 13. The Company covenants and agrees that
it will provide to the Lender any information required for the preparation and
filing of a schedule by the Lender pursuant to Section 13 of the Exchange Act,
and that the Company will assume any and all costs incurred by the Lender as
the result of the preparation and filing of such schedule.
K. Maintenance of Insurance. The Company shall (a) maintain with
financially sound and reputable insurance companies insurance on itself and its
properties in at least such amounts and against at least such risks as are
customarily insured against in the same general area by companies engaged in
the same or a similar business, which insurance shall in any event not provide
for materially less coverage than the insurance in effect on the date hereof,
(b) maintain the Lender as a named additional insured and loss payee,
subordinated to the Senior Debt, in respect of such insurance, and (c) furnish
to the Lender from time to time, upon written request, the policies under which
such insurance is issued, certificates of insurance and such other information
relating to such insurance as the Lender may request.
5
6
L. Liens. The Company shall not create, incur, assume or suffer to
exist, directly or indirectly, any lien, encumbrance, pledge, assignment,
preference, priority or other security interest of any kind whatsoever
(collectively, a "Lien") on any of the Collateral (as defined in the Security
Agreement), other than:
(1) Liens in favor of (a) the holder of the Senior Debt
existing on the date hereof, (b) the Lender pursuant to the terms hereof and
the other Loan Documents, and (c) the persons or entities who have loaned money
to the Company on the date hereof, are a party to the Security Agreement and
are listed on Exhibit E attached hereto;
(2) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings diligently conducted and with respect
to which adequate reserves are being maintained in accordance with GAAP;
(3) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law created in
the ordinary course of business for amounts not yet due or which are being
contested in good faith by appropriate proceedings diligently conducted and
with respect to which adequate bonds have been posted; and
(4) Liens created pursuant to capitalized leases and to
secure other purchase money indebtedness, provided that such Liens are only in
respect of the property or assets subject to, and secure only, the respective
capitalized lease or other purchase money indebtedness.
M. Advances, Investments and Loans. The Company shall not lend money
or credit or make advances to any Person, or directly or indirectly purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to any Person, except that the following shall be
permitted:
(1) accounts receivable owned by the Company if created in
the ordinary course of the business of the Company and payable or dischargeable
in accordance with customary trade terms; and
(2) loans and advances by the Company to its employees in the
ordinary course of its business not exceeding $25,000 in the aggregate at any
one time outstanding.
N. Dividends. Except for any liability arising from the class action
litigation described on Exhibit H hereof, the Company shall not declare or pay
any dividends (other than dividends payable solely in Common Stock) or return
any capital to its stockholders or authorize or make any other distribution,
payment or delivery of property or cash to its stockholders as such, or redeem,
retire, purchase or otherwise acquire, directly or indirectly, any shares of
any class of its capital stock now or hereafter outstanding (or any options or
warrants issued with respect to its capital stock), or set aside any funds for
any of the foregoing purposes.
O. Financial Covenants. So long as any principal of or interest on any
of the Note shall remain unpaid, the Company will:
(1) Maintain a ratio of Consolidated Current Assets to
Consolidated Current Liabilities (excluding the Note, the notes issued to the
persons or entities listed on Exhibit E hereto and the Senior Debt) at all
times of not less than 1:1; and
(2) Maintain the Net Worth of the Company and its
subsidiaries, on a consolidated basis, at all times in an amount of at least
One Dollar ($1.00).
The term "Consolidated Current Assets" shall mean all assets that as
of the date of determination thereof and in accordance with GAAP, consistently
applied, should be classified as current assets on a consolidated balance sheet
6
7
of the Company and its subsidiaries. The term "Consolidated Current
Liabilities' shall mean all liabilities that as of the date of determination
thereof and in accordance with GAAP, consistently applied, should be classified
as current liabilities on a consolidated balance sheet of the Company and its
subsidiaries. The term "Net Worth" shall mean the difference between the total
assets (including intangibles) and total liabilities (excluding subordinated
indebtedness, if any, and Preferred Stock and shareholders' equity) as shown on
a balance sheet of the Company and its subsidiaries on a consolidated basis,
prepared in accordance with GAAP, consistently applied.
P. Litigation Cooperation. Should any third party suit or proceeding
be initiated by or against the Lender with respect to any Collateral (as
defined in the Security Agreement) or relating to the Company, the Company
shall, without expense to the Lender, make available to the Lender the
Company's officers, employees and agents and the Company's books and records,
to the extent that the Lender may deem them reasonably necessary in order to
prosecute or defend any such suit or proceeding.
Q. Rights and Warrants. Except for the warrants issued (i) to the
Lender, (ii) to the persons or entities listed on Exhibit E in connection with
this Agreement, and (iii) in connection with the class action litigation
described on Exhibit H hereof, during any fiscal year of the Company, the
Company shall not issue any rights or warrants which collectively entitle the
holders thereof to subscribe for or purchase shares of any class of the
Company's capital stock in excess of 500,000 shares of the Company's capital
stock, plus the unexercised portion of the outstanding rights and warrants that
expire, are forfeited or otherwise terminate during such fiscal year. Further,
the Company shall not amend, alter or otherwise modify any agreement or option
entitling the holder thereof to subscribe for or purchase shares of any class
of the Company's capital stock.
R. SEC Filings. On or before August 31, 1999, the Company will file
with the Commission its Form 10-K for its fiscal year ended June 30, 1999. On
or before September 15, 1999, the Company will file with the Commission its
Form 10-Qs for the quarters ended September 30, 1998, December 31, 1998, and
March 31, 1999.
S. Senior Debt Restructuring. The Company shall use its best efforts
to have the Senior Debt restructured on the terms set forth on Exhibit F hereto
on or before September 7, 1999. In the event the Senior Debt is not
restructured on such terms by such date, Lender may, in its sole discretion,
advance to the Company funds necessary to satisfy the Senior Debt (the amount
required to satisfy the Senior Debt, including all fees and expenses related
thereto, if any, is referred to herein as the "Payoff Amount"; provided,
however, the Payoff Amount shall not include the Secured Term Loan No. 1 in the
principal amount of $650,000 which amount will be repaid to Coast Business
Credit ("Coast") through the use of the cash balance that is held by Coast as
security for the Secured Term Loan No. 1). The Payoff Amount shall be paid
directly to the holder of the Senior Debt, on behalf of the Company, and shall
be deemed an additional loan to the Company hereunder. Upon satisfaction of the
Senior Debt, the Company shall terminate the Loan Agreement with the holder of
the Senior Debt and take whatever action is necessary to have the security
interest granted to the holder of the Senior Debt released. Upon satisfaction
of the Senior Debt, the Company shall execute and deliver to the Lender (i) a
convertible promissory note, the terms and conditions of which shall be
identical to the Note, in the principal amount of the Payoff Amount, and (ii) a
Common Stock Purchase Warrant, the terms and conditions of which shall be
identical to the Warrant, exercisable into the number of shares of Common Stock
equal to the aggregate dollar amount of the Payoff Amount (rounded to the
nearest dollar). Upon satisfaction of the Senior Debt, Lender shall have a
first-priority perfected security interest in the Collateral (as defined in the
Security Agreement). Upon satisfaction of the Senior Debt, Sections 5 and 10.C
of this Agreement shall be deleted in their entirety.
11. 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.
7
8
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.
C. Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, having a par value of $.01 per
share and 5,000,000 shares of Preferred Stock, having a par value of $.01 per
share (the "Preferred Stock").
D. Options and Rights. Except as set forth on Exhibit G hereto, no
person has any agreement or option or any right or privilege (whether by or at
law, preemptive or contractual) capable of becoming an agreement, including
convertible securities, warrants or convertible obligations of any nature, for
the purchase, subscription, allotment or issuance of any unissued shares of
Common Stock or Preferred Stock.
E. Common Stock. As of the date hereof, there were 9,089,101 shares of
Common Stock issued and outstanding and 13,661,968 shares of Common Stock
reserved for issuance upon the exercise of options or warrants or upon the
conversion of convertible securities. All of such outstanding shares of Common
Stock are, and the shares of Common Stock issuable upon conversion of the Note
and/or exercise of the Warrant will be upon issuance, fully paid and
nonassessable. Each share of Common Stock has an equal and ratable right to
receive dividends when, as and if declared by the Board of Directors of the
Company out of assets legally available therefor. The Company is subject to
certain restrictions on the payment of dividends on, and the repurchase or
redemption of, the Common Stock under the provisions of the Senior Debt. In the
event of a liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share equally and ratably in the assets
available for distribution after payment of all liabilities. The holders of
Common Stock have no preemptive, subscription, conversion or redemption rights,
and are not subject to other calls or assessments by the Company. There are no
sinking fund provisions applicable to the Common Stock. Each share of Common
Stock is entitled to one vote in the election of directors and on all other
matters submitted to a vote of stockholders. Holders of Common Stock have no
right to cumulate their votes in the election of directors. As of the date
hereof, there are no shares of Preferred Stock issued or outstanding.
F. No Violation. Neither the execution, delivery or performance by the
Company of this Agreement or the other Loan Documents, nor compliance by it
with the terms and provisions hereof and thereof, nor the consummation of the
transactions contemplated herein and therein, (i) will contravene any
applicable provisions of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, or (ii) will
conflict or be inconsistent with or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any lien, security interest or encumbrance upon any of the property or assets
of the Company pursuant to the terms of any indenture, mortgage, deed of trust,
agreement or other instrument to which the Company is a party or by which it or
any of its property or assets is bound or to which it may be subject, or (iii)
will violate any provisions of the Certificate of Incorporation or By-Laws of
the Company.
G. Company Filings. Except as disclosed on Exhibit D hereof, the
Company represents and warrants that it has filed all reports, registrations
and statements, together with any amendments required to be made with respect
thereto, copies of which have been made available to the Lender, that were
required to be filed with (a) the Commission, and (b) any other federal, state
or local governmental or regulatory authority. All such reports, registrations
and filings are collectively referred to as the "Company Filings". As amended,
restated or, with respect to the financial statements contained therein,
corrected in a subsequent filing, each of the Company Filings (a) was true and
complete in all material respects, and (b) complied in all material respects
with all of the statutes, rules and regulations enforced or promulgated by the
governmental or regulatory authority with which it was filed (or was amended so
as to be so promptly following discovery of any such noncompliance) and none
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, not misleading.
8
9
H. Transfer Agent and Registration. The Company represents and
warrants that the Transfer Agent and Registrar for the Common Stock is American
Stock Transfer & Trust Company, and further covenants and agrees to notify the
Lender in writing within ten (10) days of any change of the Transfer Agent or
Registrar.
I. Financial Statements; Financial Condition; Etc. The financial
statements contained in the Company Filings, as amended, restated or corrected
in a subsequent filing, were prepared in accordance with GAAP consistently
applied and fairly present the financial condition and the results of
operations of the entities covered thereby on the dates and for the periods
covered thereby, except as disclosed in the Note thereto and, with respect to
interim financial statements, subject to normally recurring year-end
adjustments. The Company has no material liability (contingent or otherwise)
not reflected in such financial statements or in the Note thereto.
J. Litigation. Except as set forth on Exhibit H hereof, there are no
actions, suits or proceedings pending or threatened (i) with respect to this
Agreement or the other Loan Documents or any of the transactions contemplated
herein or therein, or (ii) that could, individually or in the aggregate, result
in a material adverse effect upon the business, operations, properties, assets,
prospects or condition (financial or otherwise) of the Company, or the ability
of the Company to perform, or of the Lender to enforce, any of the Loan
Documents.
K. Title to Property. The Company is and shall be the owner of the
Collateral (as defined in the Security Agreement), with good and valid title
thereto, free and clear of all encumbrances, liens or security interests other
than the security interest granted to Coast Business Credit and the security
interest granted to the Lender pursuant to the Security Agreement.
L. Compliance with Securities Laws. The Company represents and
warrants that the concurrent issuance of convertible promissory notes and
warrants to the Company's employees, officers and members of the Company's
Board of Directors who have made loans to the Company does not violate the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, or any applicable state securities laws or regulations
(collectively, the "Securities Laws"), except where such violation would not
have a material adverse effect on the Company. For purposes of this Section
11.L, the phrase "material adverse effect" shall mean any payments made by the
Company (including recission payments) to the persons or entities listed on
Exhibit E hereof resulting from a violation of the Securities Laws, which
payments are equal to or greater than $20,000 to any one such person or entity,
or $75,000 in the aggregate.
12. Representations and Warranties of the Lender
The Lender makes the following representations and warranties:
A. Investment Purpose. The Lender is acquiring the Note and the
Warrant and the shares of Common Stock issuable upon conversion or exercise
thereof, for its 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.
B. Accredited Investor Status. The Lender is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
C. Reliance on Exemptions. The Lender understands that the Note and
the Warrant are being offered and sold to it 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 Lender's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Lender set forth herein
in order to determine the availability, of such exemptions.
D. Information. The Lender and its 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 Note and
Warrant which have been requested by the Lender or its advisors. The Lender and
9
10
its advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received what the Lender believe to be satisfactory
answers to any such inquiries. The Lender understands that its investment in
the Note and Warrant involves a significant degree of risk. The Lender further
acknowledges receipt of the "Risk Factors" supplement attached hereto.
E. Governmental Review. The Lender understands 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 Note and the
Warrant.
F. Transfer or Resale. The Lender understands the limitations on
resale or transfer of the Note and the Warrant incorporated herein and those
additional restrictions applicable pursuant to securities laws.
G. Legends. The Lender understands that the Note and Warrant 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 amended. 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 under 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."
13. Registration Rights
A. Form S-3. Notwithstanding any provisions contained in this
Agreement or any other document to the contrary, the Company shall cause a
registration statement under Form S-3 to be filed with the Securities and
Exchange Commission ("Commission") permitting the resale of the shares issuable
upon conversion of the Note and/or the exercise of the Warrant (collectively
the "Registrable Securities"). The Lender agrees and acknowledges that the
Company has advised the Lender that it is presently not eligible to utilize
Form S-3 because, among other reasons, of its failure to timely file its Form
10-K for its fiscal year ended on June 30, 1998, and its Form 10-Qs for its
fiscal year ended on June 30, 1999. The Lender further acknowledges that the
Company will not be eligible to use a Form S-3 for at least one year after it
has filed such Form 10-K, provided that it otherwise meets the "registration
eligibility" requirements set forth in the general instructions to Form S-3.
The parties agree that the Company shall not be required to register any
Registrable Securities except (i) pursuant to a Form S-3, as and when available
to the Company, (ii) pursuant to the demand registration granted below, and
(iii) pursuant to the piggyback registration rights granted below.
Additionally, the Company acknowledges that Lender may at its option convert
the Note and/or exercise the Warrant into non-registered shares of the Company.
B. Demand Registration. To the extent not otherwise registered, after
one year from the date hereof the Lender shall have the right to demand from
the Company, at its expense, a registration of shares issuable upon conversion
of the Note and/or exercise of the Warrant pursuant to a Form S-1. If the
Company shall receive a written request from the Lender that the Company file a
registration statement under the Securities Act, or a similar document pursuant
to any other statute then in effect corresponding to the Securities Act,
covering the registration of at least 500,000 Registrable Shares (subject to
adjustment for stock splits, stock dividends, recapitalizations, and other
reorganizations), then the Company shall within five (5) days after the Company
receives such written request to file a registration statement use its best
efforts to cause to be registered under the Securities Act the Registrable
Shares which the Company has been so requested to register. Any request for
registration under this Section 13.B must be for a firmly or best efforts
underwritten public offering to be managed by an underwriter or underwriters of
recognized national standing selected by the Lender. A registration requested
pursuant to this Section 13.B will not be deemed to have been effected unless
it has become effective.
10
11
C. Piggyback Registration. Subject to the limitations set forth in
this Section 13.C, 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 Note and the Warrant (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 amount 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 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 13.C 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 13.C 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.
D. 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 13, 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 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 13 hereof, or such longer post-effective periods
11
12
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).
14. Indemnification
The Company shall pay, indemnify, defend, and hold the Lender and its
shareholders, officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest
extent permitted by law) from and against any and all claims, demands, suits,
actions, investigations, proceedings, and damages, and all attorneys fees and
disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of
them in connection with or as a result of or related to the execution,
delivery, enforcement, performance, and administration of this Agreement and
any other Loan Documents or the transactions contemplated herein, and with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the Loan
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The
Company shall have no obligation to any Indemnified Person hereunder with
respect to any Indemnified Liability that has resulted from the gross
negligence or willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the repayment of the Note.
15. Governing Law
This Agreement shall be governed by the laws of the State of
Connecticut, without regard to conflict of law principles.
16. 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 the Lender: Fernwood Partners II, LLC
000 Xxxxx Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxx
To Company: CyberGuard Corporation
0000 X. Xxxxxxxxxx Xxxx., Xxxxx 000
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
1. EXPENSE REIMBURSEMENT
On the date the Loan is funded, the Company agrees to pay all of
Lender's legal expenses and out-of-pocket expenses related to the proposed
transaction with the proceeds of the Loan, up to a maximum aggregate amount of
$30,000. Subsequent to the date the Loan is funded, the Company agrees to pay
on demand all reasonable expenses of the Lender (including the reasonable fees
and out-of-pocket expenses of counsel to the Lender) in connection with the
negotiation, preparation, execution and delivery of any amendments, waivers,
consents, supplements or other modifications to this Agreement or any other
Loan Document, as well as in connection with the enforcement of the obligations
represented by this Agreement or any other Loan Document.
12
13
17. 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.
18. Amendments
Any amendment or modification to this Agreement shall not be effective
unless signed in writing by the parties hereto.
19. 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.
20. Successors and Assigns
All of the covenants, stipulations, promises, and agreements of this
Agreement shall bind the parties' successors and assigns, whether so expressed
or not; provided, however, that the Company may not, without the prior consent
of the Lender, assign any rights, duties, or obligations under this Agreement.
21. 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.
22. Public Announcements
The Company shall not release, publish, or otherwise make available to
the public in any manner whatsoever any information or announcement regarding
the transactions herein contemplated without the prior written consent of
Lenders, except for information, press releases and filings required in
connection with securities and other laws.
23. WAIVER OF TRIAL BY JURY
THE PARTIES HEREBY IRREVOCABLY WAIVE 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.
25. 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 Lender or any investigation or inquiry of the
Lender.
13
14
26. 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
14
15
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 26th day of August, 1999.
COMPANY:
CyberGuard Corporation
By:
---------------------------------------
Its:
LENDER:
Fernwood Partners II, LLC
By:
---------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
15
16
EXHIBIT A
Convertible Promissory Note
16
17
EXHIBIT B
Security Agreement
17
18
EXHIBIT C
Warrant
18
19
EXHIBIT D
Filings Not Current
FORM 10-K
The Company's Form 10-K (Annual Report) for the fiscal year ended June 30, 1998
has not been filed. The due date was September 28, 1998. The Company will not
file this report. This report in effect will be brought current with the
Company's June 30, 1999 Form 10-K filing.
FORM 10-Q
The Company's quarterly Form 10-Q filings for the fiscal year ended June 30,
1999 have not been filed.
19
20
EXHIBIT E
Other Lenders
NO. NAME AMOUNT
--- ---- ------
1 Xxxx Garnish $1,000.00
2 Xxxxxxx Xxxxxxx $10,000.00
3 Xxxxxxx Xxxxxx $4,000.00
4 Chela Xxxxxxxxx Xxxx-XxXxxxxxxx $3,000.00
5 Xxxxx Xxxxxxx $1,000.00
6 Xxxxx Xxxxxxxx $3,000.00
7 Xxxx Scholine $1,000.00
8 Xxxxxxx Xxxxx $1,000.00
9 Hadi Mettawa $3,000.00
10 Xxxx Xxxxx $3,000.00
11 Xxxxx Xxxxxxxx $5,000.00
12 Xxxx Xxxxxxx $1,000.00
13 Xxx Xxxx $3,000.00
14 Xxxx Xxxx $2,000.00
15 Xxxxxxx Xxxxxxxxxx $2,000.00
16 Xxxx Xxx Xxxxx, Xx. $3,000.00
17 Xxxxxxx Xxxxxx $10,000.00
18 Xxxxxxxx Xxxxxxx $18,000.00
19 Xxxxxxx Xxxxx $2,000.00
20 Xxxx Xxxxxx $3,000.00
21 Xxxxx Xxxxxxx $8,000.00
22 Xxxxxxx Xxxxx $7,000.00
23 Xxxxxxxx Xxxxxxx $1,000.00
24 Xxxxx Xxxxxx $2,000.00
25 Xxxxx X. Xxxxxxx* $150,000.00
26 Xxxxxxxx X. Xxxxxxxxx $25,000.00
27 Xxxxxxx Xxxxxxxxxx $15,000.00
28 C. Xxxxxxx Xxxxx Defined Benefit Xxxxx Plan $10,000.00
29 Xxxxx Xxxxxxxxx $10,000.00
30 Xxxxxxx Xxxxxx $37,000.00
31 Xxxxxxx X. Xxxxxxx $35,000.00
32 Xxxxxxxxx X. Xxxxxx $15,000.00
33 Xxxxxx X. Xxxxxxx $10,000.00
34 Xxxxx Xxxxxxxxxx $100,000.00
35 Xxxxxxx X. Xxxxx $100,000.00
36 Xxxxx Xxxxxxx $10,000.00
-----------
TOTAL $614,000.00
===========
* $50,000-Cash; $100,000-Note
20
21
EXHIBIT F
Senior Debt Restructuring
21
22
EXHIBIT G
Stock Options and Warrants
22
23
EXHIBIT H
Litigation
CLASS ACTION
Twenty-five class action lawsuits have been filed by alleged shareholders
against CyberGuard Corporation and certain current and former officers and
directors. Pursuant to the order issued by Judge Xxxx Xxxx, these actions have
been consolidated into one action, Xxxxxxx Xxxxxx v. CyberGuard Corporation,
Case No. 98-6879-CIV-Gold, in the United States District Court for the Southern
District of Florida.
DST
Digital Signature Trust Co. vs. CyberGuard Corporation, Case No. 99CV 0417G, in
the United States District Court for the Southern District of Utah, Central
Division.
23
24
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").
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.
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.
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.
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.
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.
1
25
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.
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.
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.
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
2
26
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.
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.
Representations and Warranties of the Company
The Company makes the following representations and warranties:
1 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.
2 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.
Representations and Warranties of the Lenders
The Lenders make the following representations and warranties:
3 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.
4 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.
5 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.
6 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.
7 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.
8 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):
3
27
"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. "
Registration Rights
9 Piggyback Registration. Subject to the limitations set forth in this Section
23.9, 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 securities being sold by the Company
or any such holder pursuant to any such offering (a "Piggyback Registration").
1 Requirements of Request. Each request delivered to the Company pursuant to
this Section 23.9 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.
2 Limitations on Incidental Registrations. The obligations of the Company to
cause Registrable Securities to be registered pursuant to this Section 23.9 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.
10 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 23.10, 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 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
4
28
requesting registration is entitled to participate in accordance with the
provisions of this Section 23.10 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).
Governing Law
This Agreement shall be governed by the laws of the State of Florida,
without regard to conflict of law principles.
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
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.
Amendments
Any amendment or modification to this Agreement shall not be effective
unless signed in writing by the parties hereto.
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.
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.
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
5
29
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.
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
6
30
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:
--------------------------------------
7
31
EXHIBIT A
Convertible Promissory Note
8
32
EXHIBIT B
Principal Amount of Notes
NO. NAME AMOUNT
--- ---- ------
1 Xxxx Garnish $1,000.00
2 Xxxxxxx Xxxxxxx $10,000.00
3 Xxxxxxx Xxxxxx $4,000.00
4 Chela Xxxxxxxxx Xxxx-XxXxxxxxxx $3,000.00
5 Xxxxx Xxxxxxx $1,000.00
6 Xxxxx Xxxxxxxx $3,000.00
7 Xxxx Scholine $1,000.00
8 Xxxxxxx Xxxxx $1,000.00
9 Hadi Mettawa $3,000.00
10 Xxxx Xxxxx $3,000.00
11 Xxxxx Xxxxxxxx $5,000.00
12 Xxxx Xxxxxxx $1,000.00
13 Xxx Xxxx $3,000.00
14 Xxxx Xxxx $2,000.00
15 Xxxxxxx Xxxxxxxxxx $2,000.00
16 Xxxx Xxx Xxxxx, Xx. $3,000.00
17 Xxxxxxx Xxxxxx $10,000.00
18 Xxxxxxxx Xxxxxxx $18,000.00
19 Xxxxxxx Xxxxx $2,000.00
20 Xxxx Xxxxxx $3,000.00
21 Xxxxx Xxxxxxx $8,000.00
22 Xxxxxxx Xxxxx $7,000.00
23 Xxxxxxxx Xxxxxxx $1,000.00
24 Xxxxx Xxxxxx $2,000.00
25 Xxxxx X. Xxxxxxx* $150,000.00
26 Xxxxxxxx X. Xxxxxxxxx $25,000.00
27 Xxxxxxx Xxxxxxxxxx $15,000.00
28 C. Xxxxxxx Xxxxx Defined Benefit Xxxxx Plan $10,000.00
29 Xxxxx Xxxxxxxxx $10,000.00
30 Xxxxxxx Xxxxxx $37,000.00
31 Xxxxxxx X. Xxxxxxx $35,000.00
32 Xxxxxxxxx X. Xxxxxx $15,000.00
33 Xxxxxx X. Xxxxxxx $10,000.00
34 Xxxxx Xxxxxxxxxx $100,000.00
35 Xxxxxxx X. Xxxxx $100,000.00
36 Xxxxx Xxxxxxx $10,000.00
-----------
TOTAL $614,000.00
===========
* $50,000-Cash; $100,000-Note
9
33
EXHIBIT C
Security Agreement
10
34
EXHIBIT D
Warrant
11
35
EXHIBIT E
Exercise Shares
12
36
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is dated as of August 26, 1999,
between CyberGuard Corporation, a Florida corporation ("Debtor"), and the
persons or entities who have executed the counterpart signature pages attached
hereto (individually, a "Secured Party" and collectively, the "Secured
Parties").
Recitals:
A. Secured Parties have loaned $4,313,484.38 to Debtor, which loan is
evidenced by Debtor's convertible subordinated promissory notes of even date
herewith (the "Notes").
B. The parties desire for Debtor to enter into this Agreement to,
among other things, grant a security interest in its assets to Secured Parties
in order to secure the full and complete payment and performance of the Notes.
NOW, THEREFORE, in consideration of the foregoing, including in order
to induce Secured Parties to make the loan, Debtor hereby agrees with Secured
Parties as follows:
1. To secure the full and prompt payment of all obligations of Debtor
to Secured Parties, whether direct or indirect, contingent or absolute, now or
hereafter due or owing to Secured Parties from Debtor pursuant to the Loan
Documents, Debtor hereby grants to Secured Parties a security interest in the
following assets (collectively, the "Collateral"):
a. All present and future inventory, equipment, fixtures,
furniture, money, deposit accounts, and all other goods and personal property
of every kind and nature whatsoever, wherever located, now owned or hereafter
acquired by Debtor, and any and all present and future tax refunds of any kind
whatsoever to which Debtor is now or shall hereafter become entitled;
b. All present and future accounts, contracts, contract
rights, chattel paper, documents and general intangibles of Debtor, including,
without limitation, inventories, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill symbolized thereby, names, trade
names, trade secrets, goodwill, copyrights, registrations, licenses, customer
lists, software, source code, intellectual property (including, without
limitation, patents, copyrights, licenses software, source code, and
intellectual property relating to Debtor's Firewall Software and all present
and future products, technology and services), now owned or hereafter acquired
or created by Debtor, and all rights of Debtor now or hereafter existing in and
to all other contracts relating to any such accounts, contracts, contract
rights, chattel paper, rights to payment, documents, instruments, and general
intangibles;
c. all books, records, writings, data bases, information and
other property relating to, used or useful in connection with, evidencing,
embodying, incorporating or referring to, any of the Collateral heretofore
described;
d. All present and future increases, profits, combinations,
reclassifications, improvements, and products of, accessions, attachments, and
other additions to, tools, parts, and equipment used in connection with, and
substitutes and replacements for, all or part of the Collateral heretofore
described;
e. All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash proceeds,
and other rights arising from or by virtue of, or from the voluntary or
involuntary sale, lease, or other disposition of, or collections with respect
to, or insurance proceeds payable with respect to, or proceeds payable by
virtue of warranty or other claims against manufacturers of, or claims against
any other person with respect to, all or any part of the Collateral heretofore
described in this clause otherwise; and
1
37
f. All present and future security for the payment to Debtor
of any of the Collateral heretofore described and goods which gave or will give
rise to any of such Collateral or are evidenced, identified, or represented
therein or thereby.
For purposes of this Agreement, the term "Loan Documents"
shall mean any other documents or instruments executed in connection herewith,
including, without limitation, the Notes and the Loan Agreement of even date
herewith between Debtor and each of the Secured Parties (as the same may be
further amended, restated, or otherwise modified from time to time).
2. Debtor represents, covenants and warrants that:
a. Its principal place of business will continue to be 0000
X. Xxxxxxxxxx Xxxx., Xxxxx 000, Xx. Xxxxxxxxxx, Xxxxxxx 00000.
b. Debtor shall sign and execute any financing statement or
other documents required to perfect Secured Parties' security interest and pay
all costs necessary to protect the security interest under this Agreement
against the rights or interests of third parties, other than the rights of
Debtor's existing secured lender, Coast Business Credit ("Coast").
c. Debtor authorizes Secured Parties to file one or more
financing statements signed only by Secured Parties describing the Collateral
in the same manner as it is described herein and Debtor shall, from time to
time, at the request of Secured Parties, execute one or more financing
statements and such other documents (and pay the cost of filing or recording
the same in all public offices deemed necessary or desirable by Secured
Parties) and do such other acts and things, all as Secured Parties may request,
to establish and maintain a valid security interest in the Collateral. Secured
Parties are hereby appointed Debtor's irrevocable attorney-in-fact, coupled
with an interest, to do all acts and things which Secured Parties may deem
necessary to perfect and continue perfecting the security interest created
hereby.
d. Except for (i) the security interest granted to Coast, and
(ii) the security interest granted hereby, Debtor is and shall be the lawful
owner of the Collateral, with good right to pledge, sell, assign or transfer
the same free from any lien, security interest or encumbrance, and Debtor will
defend the Collateral against the claims and demands of all persons at any time
claiming the same (other than Coast).
e. Debtor covenants and agrees that it shall not sell,
transfer, lease or otherwise dispose of any of the Collateral (except for
sales, transfers or dispositions of loaner and demo equipment in the ordinary
course of business or sales of inventory in the ordinary course of business)
without obtaining the prior written consent of Secured Parties to such sale,
transfer, lease or other disposition.
f. Debtor covenants and agrees that it shall not move any
item of equipment from the State in which it is now located (except for loaner
and demo equipment moved in the ordinary course of business), locate at a new
place of business, remove from a place of business as set forth above or
establish a new chief executive office without giving the Secured Parties not
less than thirty (30) days' prior written notice of such move, relocation,
removal or establishment.
g. Debtor is a Florida corporation and the execution,
delivery and performance of this Agreement are within Debtor's power and
authority, have been duly authorized, and are not in contravention of any law
or the terms of Debtor's charter, bylaws, or other incorporational papers, or
any indenture, agreement or undertaking to which Debtor is a party or by which
it is bound.
h. Debtor will collect its accounts receivable only in the
ordinary course of business, will keep accurate and complete records of its
accounts receivable and, from time to time, will permit Secured Parties to
examine its business records and to make copies thereof.
2
38
i. As of the date hereof, Debtor is indebted to Coast in the
amount of $1,914,692.00, which amount includes all principal and accrued and
unpaid interest. Debtor covenants that so long as this Agreement is in effect
the total indebtedness of Debtor to Coast will not exceed $2,500,000.
3. Debtor shall be in default under this Agreement upon the happening
of any of the following events, circumstances or conditions:
a. If a default occurs under any of the Loan Documents which
is not cured within any applicable grace period, and Secured Parties shall have
accelerated Debtor's obligations thereunder.
b. Debtor shall have materially violated any covenant,
agreement, representation or warranty contained herein or in any other Loan
Documents.
4. Upon the occurrence of the events, circumstances and conditions of
default as set forth in Paragraph 3 above:
a. At Secured Parties' option, and upon notice to Debtor, all
of the obligations and liabilities of Debtor to Secured Parties evidenced
herein or secured hereby shall immediately be due and payable.
b. Secured Parties shall have all the rights, remedies and
privileges contained herein and in any other Loan Document, and the rights,
remedies and privileges accorded to (a) a secured party by the Uniform
Commercial Code in effect as of the date of this Agreement and as may be
hereafter amended and (b) a creditor under any other applicable law.
c. Secured Parties shall have the right to notify the
obligors under any of the Collateral to make payments owed to Debtor directly
to Secured Parties, and to take control of all proceeds thereof and enforce any
and all obligations of said obligors. The cost of such collection and
enforcement, including attorneys' fees and out-of-pocket expenses, shall be
borne solely by Debtor, whether the same are incurred by Secured Parties or
Debtor. In order to facilitate Secured Parties' rights hereunder, Debtor does
hereby irrevocably designate and appoint Secured Parties as Debtor's true and
lawful attorney-in-fact, either in Debtor's own name, place and stead, or
otherwise, at any time after the occurrence of an event of default, to ask,
demand, receive, receipt and give acquittance for any and all amounts which are
now or may hereafter become due and payable to Debtor and which are part of the
Collateral.
d. Upon request of Secured Parties, Debtor shall assemble the
Collateral or evidence thereof and make it available to Secured Parties at a
place designated by Secured Parties.
e. Secured Parties may enter Debtor's premises where any of
the Collateral is located, and take possession of and remove all or any portion
of the Collateral or evidence thereof therefrom for purposes of disposition
pursuant to this Agreement. Any proceeds of any disposition of any of the
Collateral may be first applied by Secured Parties toward the payment of
expenses in connection with the exercise of their rights and remedies
hereunder, including reasonable attorneys' fees and legal expenses, and any
balance of such proceeds shall be applied by Secured Parties toward the payment
of the indebtedness secured hereby, but in such order of application as Secured
Parties may elect in their sole discretion.
f. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to be
made, shall be sent to Debtor and to any other person entitled to notice under
the UCC; provided, however, if any of the Collateral threatens to decline
speedily in value or is of the type customarily sold on a recognized market,
Secured Parties may sell or otherwise dispose of the Collateral without
notification, advertisement, or other notice of any kind. It is agreed that
notice sent or given not less than five (5) calendar days prior to the taking
of the action to which the notice relates is reasonable notification and
notice.
g. Debtor shall remain liable for any deficiency remaining
after any sale or other disposition of the Collateral or any portion thereof.
3
39
h. All of the rights, powers, remedies and privileges of
Secured Parties in the event of default by Debtor, as provided under this
Agreement and under applicable law, including, but not limited to, the Uniform
Commercial Code, shall be cumulative and in addition one to the other, and in
addition to those rights, powers, remedies and privileges afforded Secured
Parties under the provisions of any other Loan Documents.
5. Notwithstanding anything contained in this Agreement to the
contrary, each of the Secured Parties hereby irrevocably appoints and
authorizes the Majority Secured Party, in its sole discretion, to take all
actions or exercise all powers that are granted to the Secured Parties herein.
The Majority Secured Party shall have the right, for the ratable benefit of all
Secured Parties, for the enforcement of this Agreement and the collection of
the Collateral, and may take all actions in connection therewith as it deems
desirable in its sole discretion, without any authorization from the other
Secured Parties. The other Secured Parties agree that they shall have no claim
against the Majority Secured Party with respect to any action taken or not
taken hereunder, or any loss resulting from such action or inaction, except for
gross negligence and willful misconduct of the Majority Secured Party. Under no
circumstance shall the Majority Secured Party be deemed a fiduciary to the
other Secured Parties with respect to this Agreement. For purposes of this
Agreement, the term "Majority Secured Party" shall mean the Secured Party or
Secured Parties, as the case may be, holding fifty-one percent (51%) or more of
the sum of the aggregate principal outstanding balance of the Notes.
6. No waiver of, or acquiescence in, any default shall operate as a
waiver of, or acquiescence in, any other default then existing or thereafter
occurring, whether or not such other default be of the same type as that waived
or acquiesced in. No delay or omission on the part of Secured Parties in
exercising any right, power, remedy or privilege hereunder or otherwise shall
operate as a waiver thereof, and no single or partial exercise by Secured
Parties of any right, power, remedy or privilege shall preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
7. All rights of Secured Parties in connection herewith shall be
subject to any and all subordination agreements, intercreditor agreements and
similar agreements executed by Secured Parties in connection herewith.
8. All rights in the Collateral granted to the Secured Parties
hereunder shall be proportionate to each Secured Party's ratable interest in
the total indebtedness of Debtor to the Secured Parties under the Notes.
9. For the purpose of enabling Secured Parties to exercise rights and
remedies under this Agreement at such time as Secured Parties shall be lawfully
entitled to exercise such rights and remedies and for no other purpose, Debtor
hereby grants to Secured Parties an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to Debtor) to
use, assign or sublicense any of the Collateral, now owned or hereafter
acquired by Debtor and wherever the same may be located, including in such
license reasonable access to all media in which any of the licensed items may
be recorded or stored and to all computer programs used for the compilation or
printout thereof. Until such time as Secured Parties are entitled to exercise
such rights and remedies Debtor is entitled to use the Collateral without
payment of royalty or other compensation to Secured Parties. Upon payment in
full of the indebtedness secured hereby, the license granted to the Secured
Parties hereunder shall terminate.
10. This Agreement shall be governed by the laws of the State of
Connecticut, without regard to conflict of law principles.
11. Debtor shall neither assign its rights nor delegate the
performance of its duties hereunder without Secured Parties' prior written
consent. Secured Parties may assign their rights and delegate the performance
of their duties hereunder, and if Secured Parties do so, the assignee upon
notifying Debtor shall be entitled to the performance of all Debtor's duties
and to all Secured Parties' rights hereunder.
12. To the full extent Debtor may do so under applicable law, Debtor
agrees that Debtor will not at any time insist upon, plead, claim or take the
benefit or advantage of any law now or hereafter in force providing for any
appraisal or valuation, and Debtor, for Debtor, and for any and all persons
ever claiming any interest in the Collateral, to the extent permitted by law,
4
40
hereby WAIVES and RELEASES all rights of redemption, valuation, appraisal, and
all rights to receive notices of presentment, demand, protest, dishonor,
default, intention to mature or declare due the whole or any part of the
secured indebtedness, notice of election to mature or declare due the whole or
any part of the secured indebtedness, and all rights to a marshaling of the
assets of Debtor, including the Collateral.
13. Miscellaneous.
a. All provisions herein shall inure to and become binding
upon the heirs, executors, administrators, successors, representatives,
receivers, trustees and assigns of the parties hereto.
b. Any notices required or allowed hereunder shall be in
writing and shall be deemed satisfactorily given when deposited in the United
States mail, postage prepaid, certified or registered mail, return receipt
requested, or forwarded by a nationally recognized overnight courier service
and, if to the Debtor, addressed to Debtor at the address set forth in Section
2(a) hereof, and if to a Secured Party, addressed to such Secured Party at the
address set forth on the signature pages hereto (or such other address as may
be specified in a written notice forwarded to the parties hereto as herein
specified).
c. This Agreement is intended by the parties as a final
expression of their agreement and is intended as a complete statement of the
terms herein stated. This Agreement may not be modified, amended or changed in
any manner, nor shall any waiver of any provision hereof be effective, except
by an instrument in writing signed by the party against whom enforcement of
such modification, amendment, change or waiver is sought.
d. If any term or provision of this Agreement, application
thereof to any person or circumstance, shall, to any extent, be invalid or
unenforceable, the remainder hereof, or the application of such term or
provision to persons or circumstances other than those to which it is invalid
or unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted
by law.
e. This Agreement may be executed in a number of identical
counterparts, each of which shall be deemed an original for all purposes and
all of which constitute, collectively, one agreement; but, in making proof of
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart.
f. DEBTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY
HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO 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. DEBTOR ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING
ITS RIGHT TO DEMAND TRIAL BY JURY.
SIGNATURE PAGE FOLLOWS
5
41
IN WITNESS THEREOF, this Agreement has been duly executed by the
parties as of the date and year first above written.
"DEBTOR"
CYBERGUARD CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
"SECURED PARTY"
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address:
----------------------------
6
42
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE LAWS OR
SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE PROMISSORY NOTE
$------------
FOR VALUE RECEIVED, on August 26, 1999, and pursuant to the terms and
conditions of the Loan Agreement entered into on this same date (the "Loan
Agreement"), the undersigned, CyberGuard Corporation, a Florida corporation
("Maker"), having a mailing address of 0000 Xxxx Xxxxxxxxxx Xxxx., Xxxxx 000,
Xx. Xxxxxxxxxx, Xxxxxxx 00000, promises to pay to the order of
____________________ ("Payee"), or its registered assigns (Payee or such
registered assigns at the time being the registered holder or holders hereof are
hereinafter collectively referred to as the "Holder"), at the Holder's address
listed in the Security Agreement dated as of August , 1999, or at such other
place as the Holder hereof may direct in writing, the aggregate principal sum of
_______________ ($____________), together with interest from the date hereof on
the unpaid principal amount, as follows:
1. Interest. The unpaid principal amount hereof shall bear interest at
the rate of 11.5% per annum. 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. Interest shall be computed on the actual number of days
elapsed on the basis of a 360-day year consisting of twelve 30-day months.
2. Principal and Interest Payments. Interest due hereunder shall be
payable quarterly on January 1, April 1, July 1 and October 1 of each year
commencing on October 1, 1999 and continuing on each January 1, April 1, July 1
and October 1 thereafter through the maturity date hereof; except that interest
accruing from the date hereof 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 this Note. All principal due
hereunder together with all accrued but unpaid interest shall become
immediately due and payable without further notice on June 30, 2002. In the
event that any payment date shall fall due on a Saturday, Sunday, legal holiday
or a day on which federal banking institutions are not required to be open,
payment shall be made on the next business day, but interest, shall continue to
accrue until such payment is made.
3. Payments. All payments of principal and interest are to be made in
lawful money of the United States of America. All payments received shall be
applied first to unpaid interest, then principal. This Note cannot be prepaid
without the written consent of the Holder.
4. Default. In the event that (a) any payment of principal or interest
due hereunder is not paid when due; or (b) Maker becomes subject to any
bankruptcy, insolvency, receivership or debtor relief proceedings and, in the
case of any such proceedings initiated against Maker, the same have not been
discharged within sixty (60) days after institution; or (c) Maker makes an
assignment for the benefit of creditors, or admits in writing an inability to
pay its debts generally as they become due; or (d) Maker fails to comply with
or perform any covenant, agreement or condition of this Note or any other Loan
Document; or (e) any statement, representation or warranty in any of the Loan
Documents, is false, misleading or erroneous in any material respect on the
date thereof, and such statement, representation or warranty is not made true
and correct (as of the time such corrective action is taken) within the
applicable grace period (if any) provided for in such Loan Document; or (f) the
occurrence of any event or condition deemed to be a default under or as defined
in any other Loan Document; then an event of default hereunder shall be deemed
to have occurred and then or thereafter, at the option of the Holder hereof,
the entire principal and accrued interest of this Note shall become immediately
due and payable, without further notice to Maker. The failure of the Holder to
exercise any right or remedy hereunder shall not be deemed to be a release or
waiver of any obligation or liability of the Maker. As used herein, the term
1
43
"Loan Document" means any other document or instrument now or hereafter
evidencing, governing, guaranteeing or securing this Note or any part thereof
or otherwise executed in connection with the loan evidenced or governed by this
Note, including, without limitation, the Loan Agreement and the Security
Agreement.
5. Remedies. Upon the occurrence of an event of default as described
above, the Holder may exercise any rights and remedies available to it provided
herein or by law or in equity. To the extent permitted by applicable law, all
benefits, rights and remedies hereunder shall be deemed cumulative and not
exclusive of any other thereof.
6. Security. This Note is secured by the security interests and
assignments created by that certain Security Agreement dated as of August ,
1999 (as such may hereafter be amended, modified, supplemented and/or restated,
the "Security Agreement"), executed by Maker in favor of the Secured Parties
thereunder, to which Security Agreement reference is made for a more complete
description of the collateral, the nature and extent of the security, and the
rights of the Holder in respect of such security.
7. Subordination. The indebtedness evidenced by this Note is expressly
subordinated, to the extent and in the manner set forth in the Loan Agreement,
in right of payment to the prior payment in full of all the Senior Indebtedness
of Maker. As used in this Note, the term "Senior Indebtedness" shall mean the
principal and unpaid accrued interest on all indebtedness of Maker to Coast
Business Credit, a division of Southern Pacific Bank, including any renewals,
extensions and refundings of such indebtedness.
8. Conversion.
8.1 Conversion by Holder. Any Holder of this Note has the
right, at the Holder's option, at any time prior to payment in full of the
principal balance of this Note, to convert this Note, in accordance with the
provisions of Section 8.3 hereof, in whole or in part, into fully paid and
nonassessable shares of Common Stock of Maker (the "Common Stock"). The number
of shares of Common Stock into which this Note may be converted (the
"Conversion Shares") shall be determined by dividing the aggregate principal
amount together with all accrued interest to the date of conversion by the
Conversion Price (as defined below) in effect at the time of conversion. The
initial Conversion Price shall be equal to One Dollar ($1.00).
8.2 Conversion by Maker. At the option of Maker, the entire
principal amount together with all accrued interest of this Note 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 this Note is converted are fully registered under the Securities Act
of 1933, as amended, and freely transferable.
8.3 Conversion Procedure.
(a) Notice of Conversion Pursuant to Section 8.1.
Before the Holder shall be entitled to convert this Note into shares of Common
Stock, it shall surrender this Note at the office of Maker and shall give
written notice by mail, postage prepaid, to Maker at its principal corporate
office, of the election to convert the same pursuant to Section 8.1, and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. Maker shall, as soon as practicable
thereafter, issue and deliver to the Holder of this Note a certificate or
certificates for the number of shares of Common Stock to which the Holder of
this Note shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of this Note, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
such date.
(b) Notice of Conversion Pursuant to Section 8.2. If
this Note is converted by Maker pursuant to Section 8.2, written notice shall
be delivered to the Holder of this Note at the address last shown on the
records of Maker for the Holder or given by the Holder to Maker for the purpose
2
44
of notice or, if no such address appears or is given, at the place where the
principal executive office of Maker is located, notifying the Holder of the
conversion to be effected, specifying the principal amount of the Note to be
converted, the amount of accrued interest to be converted, the date on which
such conversion will occur and calling upon such holder to surrender to Maker,
in the manner and at the place designated, the Note.
8.4 Delivery of Stock Certificates. As promptly as
practicable after the conversion of this Note, Maker at its expense will issue
and deliver to the Holder of this Note a certificate or certificates for the
number of full shares of Common Stock issuable upon such conversion.
8.5 Mechanics and Effect of Conversion. No fractional shares
of Common Stock shall be issued upon conversion of this Note. In lieu of Maker
issuing any fractional shares to the Holder upon the conversion of this Note,
Maker shall pay to the Holder the amount of outstanding principal that is not
so converted, such payment to be in the form as provided below. Upon the
conversion of this Note, the Holder shall surrender this Note, duly endorsed,
at the principal office of Maker. At its expense, Maker shall, as soon as
practicable thereafter, issue and deliver to such Holder at such principal
office a certificate or certificates for the number of shares of such Common
Stock to which the Holder shall be entitled upon such conversion (bearing such
legends as are required by applicable state and federal securities laws in the
opinion of counsel to Maker), together with any other securities and property
to which the Holder is entitled upon such conversion under the terms of this
Note, including a check payable to the Holder for any cash amounts payable as
described above. In the event of any conversion of this Note, such conversion
shall be deemed to have been made immediately prior to the closing for the
issuance and sale of such Common Stock and on and after such date the Holder of
this Note entitled to receive the shares of such Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder of such
shares. Upon conversion of this Note, Maker shall be forever released from its
obligations and liabilities under this Note, except that Maker shall be
obligated to pay the Holder, within ten (10) days after the date of such
conversion, any interest accrued and unpaid or unconverted to and including the
date of such conversion.
9. Adjustments. The Conversion Price in effect at any time shall be
subject to adjustment as follows:
(a) Dividends, Stock Splits and Reverse Stock Splits. In case
the Company shall (i) declare a dividend on all its Common Stock in shares of
its capital stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine all the outstanding shares of its Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common Stock (other
than any reclassification upon a consolidation, merger, conveyance or transfer
subject to Section 10) any shares, the Conversion Price in effect at the time
of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the Holder of this Note upon conversion after such time shall be
entitled to receive the number and kind of shares which the Holder would have
owned or have been entitled to receive had this Note been converted immediately
prior to such time. Such adjustment will become effective immediately prior to
the opening of business on the day following the date on which such dividend is
declared or such subdivision or combination becomes effective. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) Issuances Below Market. In case the Company shall fix a
record date for the issuance of rights or warrants to all holders of its Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the current market price per share of Common Stock
(as determined pursuant to subsection (e) below) on such record date, the
Conversion Price in effect immediately prior to the issuance of such rights or
warrants shall be adjusted to a price determined by multiplying such Conversion
Price by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares of
Common Stock which the aggregate offering price of the total number of shares
to be offered would purchase at such current market price, and of which the
denominator shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock to be offered
for subscription or purchase. Such adjustment will become effective immediately
prior to the opening of business on the day following such record date. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such record date had not been fixed.
3
45
(c) Special Dividends. In case the Company shall fix a record
date for the making of a distribution to all holders of its Common Stock
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) of evidences of its
indebtedness, securities or assets (excluding cash dividends paid out of
retained earnings) or subscription rights or warrants (excluding those referred
to in subsection (b) above), the Conversion Price in effect immediately prior
to such distribution shall be adjusted by multiplying such Conversion Price by
a fraction, of which the numerator shall be the current market price per share
of Common Stock (as determined pursuant to subsection (e) below) on such record
date, less the fair market value (as determined in good faith by the Board of
Directors) of the portion of such evidences of indebtedness, securities or
assets or of such subscription rights or warrants so applicable to one share of
Common Stock, and of which the denominator shall be such current market price
per share of Common Stock. Such adjustment will become effective immediately
prior to the opening of business on the day following such record date. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such record date had not been fixed.
(d) Other Distributions. In case the Company shall distribute
evidences of its indebtedness, securities, assets, rights or warrants to any
Person (as defined in Section 10) in connection with or as a result of or
related to any pending or future claims, suits, actions or proceedings against
the Company or any of its subsidiaries, then in each such case the Conversion
Price in effect immediately prior to such distribution shall be adjusted by
multiplying such Conversion Price by a fraction, of which the numerator shall
be the current market price per share of Common Stock (as determined by
pursuant to subsection (e) below) on the date of such distribution, less the
fair market value (as determined in good faith by the Board and Directors) of
the portion of such evidences of indebtedness, securities, assets, rights or
warrants so distributed applicable to one share of Common Stock, and of which
the denominator shall be such current market price per share of Common Stock.
Such adjustment will become effective immediately prior to the opening of
business on the day following the date of such distribution. Such adjustment
shall be made successively whenever any such distribution or issuance is made.
The intent of this subsection is that if any evidences of indebtedness,
securities, assets, rights or warrants are distributed in connection with or as
a result of or related to any pending or future claims, suits, actions or
proceedings against the Company or any of its subsidiaries, that the Holder of
this Note shall be entitled to convert this Note into the same percentage of
the outstanding capital stock of the Company for the same aggregate conversion
price immediately after such distribution as the Holder of this Note could
convert immediately prior to such distribution.
(e) Other Dilutive Events. In case any event shall occur as
to which the provisions of Section 9 are not strictly applicable but the
failure to make any adjustment would not fairly protect the conversion rights
represented by this Note in accordance with the essential intent and principles
hereof then, in each such case, the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give its opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in Section 9, necessary to preserve, without dilution,
the conversion rights represented by this Note. Upon receipt of such opinion,
the Company will promptly mail a copy thereof to the Holder of this Note and
shall make the adjustments described therein. Notwithstanding anything
contained in this subsection (e) to the contrary, this subsection (e) shall not
apply to any issuance of Common Stock by the Company for which the Company has
received consideration equal to the fair market value of such Common Stock on
the date of issuance, as determined by the Board of Directors of the Company in
good faith.
(f) No Dilution or Impairment. The Company will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 9 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion privilege of the
Holder of this Note against dilution or other impairment.
(g) Market Price Determination. For the purpose of any
computation under subsections (b), (c) and (d) above, the current market price
per share of Common Stock on any date shall be deemed to be the average of the
daily closing prices for the ten (10) consecutive trading dates immediately
preceding such date. The closing price for each day shall be the last reported
4
46
sale price on that day or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices, regular way, on
that day, in either case, as reported in the consolidated transaction reporting
system with respect to securities quoted on Nasdaq or, if the shares of Common
Stock are not quoted on Nasdaq, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if the shares of Common Stock are not quoted on Nasdaq
and not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices on such other nationally recognized quotation system then in use,
or, if on any such day the shares of Common Stock are not quoted on any such
quotation system, the average of the closing bid and asked prices as furnished
by a professional market maker selected by the Board of Directors making a
market in the shares of Common Stock. If the shares of Common Stock are not
publicly held or so listed, quoted or publicly traded, the current market price
per share of Common Stock shall be determined in good faith by the Board of
Directors.
(h) Minimum Adjustment Required. No adjustment in the
Conversion Price shall be required unless such adjustment would require an
increase or decrease of at least $0.01 in such price; provided, however, that
any adjustments which by reason of this subsection (h) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 9 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(i) Adjustments for Tax Purposes. The Company may make such
adjustments in the Conversion Price so as to increase the number of shares
issuable on conversion, in addition to those adjustments required by this
Section 9, as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(j) Certificate. Whenever the Conversion Price is adjusted,
as herein provided, the Company shall promptly cause a certificate setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and a computation thereof to
be mailed to the Holder of this Note at the address shown in the registration
books of the Company.
(k) Adjustments to Other Shares. In the event that at any
time, as a result of an adjustment made pursuant to subsection (a) above, the
Holder of this Note thereafter surrendered for conversion shall become entitled
to receive any shares of the Company other than shares of its Common Stock,
thereafter the number of such other shares so receivable upon conversion of
this Note shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subsections (a)-(j) above.
10. Effect of Consolidation, Merger, Conveyance or Transfer. In case
of any consolidation of the Company with, or merger of the Company into, any
other person, any merger of another Person into the Company (other than a
merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any sale,
transfer or lease of all or substantially all of the assets of the Company, the
Person formed by such consolidation or resulting from such merger or which
acquires such assets, as the case may be, shall execute and deliver to the
Holder a supplemental agreement providing that the Holder of this Note shall
have the right hereafter, during the period this Note shall be convertible, to
convert such Note into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock of the Company into which this
Note was convertible immediately prior to such consolidation, merger, sale or
transfer, assuming such holder of Common Stock of the Company (i) is not a
Person with which the Company consolidated or into which the Company merged or
which merged into the Company or to which such sale or transfer was made, as
the case may be ("Constituent Person"), or an affiliate of a Constituent
Person, and (ii) failed to exercise such Holder's rights of election, if any,
as to the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer (provided that if the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of
Common Stock of the Company held immediately prior to such consolidation,
merger, sale, transfer or lease by other than a Constituent Person or an
5
47
affiliate thereof and in respect of which such rights of election shall not
have been exercised ("Non-Electing Share"), then for the purpose of this
Section 10 the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by each
Non-Electing Share shall be deemed to be the kind and amount so receivable per
share by a plurality of the Non-Electing Shares). Such supplemental agreement
shall provide for adjustments which, for events subsequent to the effective
date of such supplemental agreement, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 10. The above
provisions of this Section 10 shall similarly apply to successive
consolidations, mergers, conveyances or transfers. For purposes of this Note,
the term "Person" shall mean any individual, firm, corporation, company,
limited liability company, association, partnership, joint venture or other
entity.
11. Prior Notice of Certain Events. In the event that:
(a) Maker shall declare any dividend, whether payable in cash
or in any capital stock upon its Common Stock, or authorize any other issuance
or distribution to the holders of its Common Stock; or
(b) there shall be any capital reorganization or
reclassification of the capital stock of Maker, or consolidation or merger of
Maker with another entity or a sale of all or substantially all its assets; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of Maker; then, in any of said cases, Maker shall
give prior written notice, by first-class mail, postage prepaid, addressed to
the registered Holder of this Note at the address of such registered Holder as
shown on the registration books of Maker, of the date on which (i) the books of
Maker shall close or a record shall be taken for such stock dividend,
distribution or subscription rights, (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up shall be consummated, or (iii) such other event shall be
consummated, as the case may be. Such notice shall also specify the date as of
which the holders of the Common Stock of record shall receive said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be. Such written notice shall be
given at least thirty (30) days prior to the date of the event in question and
the record date or the date on which Maker's transfer books are closed in
respect thereto.
12. Change of Control. In the event that a Change of Control (as
defined below) has occurred, the Holder may, in its sole discretion, declare
the entire principal amount and accrued interest of this Note immediately due
and payable, without further notice to Maker. A "Change of Control" occurs upon
any of the following events: (i) upon any merger or consolidation of Maker with
or into any other Person or any other sale, transfer or other disposition,
whether direct or indirect, of all or substantially all of the assets of the
Company, on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction, any
"person" or "group" is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate
normally entitled to vote in the election of directors, managers, or trustees,
as applicable, of the transferee or surviving entity, (ii) when any "person" or
"group" is or becomes the "beneficial owner," directly or indirectly, of more
than 50% of the total voting power in the aggregate normally entitled to vote
in the election of directors of Maker, (iii) when, during any period of 12
consecutive months after the date hereof, individuals who at the beginning of
any such 12-month period constituted the Board of Directors of Maker (together
with any new directors whose election by such Board or whose nomination for
election by the stockholders of Maker was approved by a vote of a majority of
the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease to constitute a majority of the Board of Directors of Maker
then in office, (iv) a sale, transfer or other disposition, whether directly or
indirectly, by Maker of all or substantially all of its assets, on a
consolidated basis, or (v) the pro rata distribution by Maker to its
stockholders of substantially all of its assets. For purposes of this
definition of "Change of Control," (i) the terms "person" and "group" shall
have the meanings used for purposes of Rules l3d-3 and 13d-5 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date
hereof, whether or not applicable; and (ii) the term "beneficial owner" shall
have the meaning used in Rules 13d-3 and 13d-5 under the Exchange Act as in
6
48
effect on the date hereof, whether or not applicable, except that a "person"
shall be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time or upon the occurrence of certain events.
13. Transfer of this Note or Securities Issuable on Conversion Hereof.
With respect to any offer, sale or other disposition of this Note or securities
into which this Note may be converted, the Holder will give written notice to
Maker prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel to the effect that such offer, sale or
other distribution may be effected without registration or qualification (under
any federal or state law then in effect). Promptly upon receiving such written
notice and reasonably satisfactory opinion, if so requested, Maker, as promptly
as practicable, shall notify such Holder that such Holder may sell or otherwise
dispose of this Note or such securities, all in accordance with the terms of
the notice delivered to Maker. If a determination has been made pursuant to
this Section 13 that the opinion of counsel for the Holder is not reasonably
satisfactory to Maker, the Maker shall so notify the Holder promptly after such
determination has been made. Each Note thus transferred and each certificate
representing the securities thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act of 1933, as amended (the "Act"), unless in the opinion of
counsel for Maker such legend is not required in order to ensure compliance
with the Act. Maker may issue stop transfer instructions to its transfer agent
in connection with such restrictions.
14. Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of
the Note such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of the Note; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount and accrued
interest of this Note, in addition to such other remedies as shall be available
to the Holder, the Company will use its best efforts to take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
15. Registration Rights. Upon conversion of this Note, the Holder
shall have and be entitled to exercise, together with all other holders of
Common Stock possessing registration rights under the Loan Agreement, the
registration rights granted under the Loan Agreement with respect to the shares
of Common Stock issued upon conversion of this Note.
16. Obligations Absolute. All obligations of Maker hereunder are
absolute and unconditional, irrespective of any effect or counterclaim of Maker
against the Holder. Maker hereby waives the right to enforce any right of
offset, counterclaim or breach in any action brought to enforce the obligations
of Maker under this Note.
17. Waivers. Maker and any co-makers, sureties, endorsers and
guarantors of this Note hereby jointly and severally waive presentment for
payment, notices of non-performance or nonpayment, protest, notices of protest,
notice of dishonor, diligence in bringing suit hereon against any party hereto
and notice of acceleration, and further consent to any extension of time for
payment hereunder (whether one or more), any renewal hereof (whether one or
more), any substitution or release of any collateral, and any addition or
release of any party liable for payment of this Note. Any such extension,
renewal, substitution or release may be made by the Holder without notice to
any such party and without discharging such party's liability hereunder.
18. Collection Costs; Attorneys' Fees. Maker agrees to pay all
expenses and costs of collection, including all reasonable attorneys' fees and
expenses as awarded by a court, court costs, and similar costs incurred by the
Holder in connection with the enforcement of this Note, endeavoring to collect
any amounts payable hereunder, whether by acceleration or otherwise.
19. Partial Invalidity. If any provision of this Note or the
application thereof to any party or circumstances is held invalid or
unenforceable, the remainder of this Note and the application of any such
provision to other parties or circumstances shall not be affected thereby, the
provisions of this Note being severable in any such instance. No invalid
provision hereof shall affect or impair any other provision of this Note.
7
49
20. Conflict. In the event of a conflict as between the terms and
conditions hereof and the terms and conditions of the Loan Agreement, the terms
and conditions of this Note shall control. In lieu of any such conflict of
terms both documents shall be of equal force and effect.
21. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Connecticut, without regard to
conflict of law principles.
22. Amendments. Any amendment or modification to this Note shall not
be effective unless signed in writing by the Holder.
23. Headings; Construction. The headings of the sections of this Note
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.
24. Successors and Assigns. All of the covenants, stipulations,
promises, and agreements in this Note contained by or on behalf of Maker shall
bind its successors and assigns, whether so expressed or not; provided,
however, that Maker may not, without the prior consent of the Holder, assign
any rights, duties, or obligations under this Note.
8
50
25. Maximum Interest Rate. Regardless of any provision contained
herein, or in any other documents or instruments executed in connection
herewith, the Holder hereof shall never be entitled to receive, collect, or
apply, as interest hereon, any amount in excess of the Highest Lawful Rate and
in the event the Holder hereof ever receives, collects, or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial prepayment of principal and treated hereunder as such; and,
if the principal hereof is paid in full, any remaining excess shall be refunded
to Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder
hereof shall, to the maximum extent permitted under applicable law, (a)
characterize any nonprincipal payment as an expense, fee, or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof,
and (c) spread the total amount of interest throughout the entire contemplated
term hereof; provided that if the interest received for the actual period of
existence hereof exceeds the Highest Lawful Rate, the Holder hereof shall
either apply or refund to Maker the amount of such excess as herein provided,
and in such event the Holder hereof shall not be subject to any penalties
provided by any laws for contracting for, charging, or receiving interest in
excess of the Highest Lawful Rate. For purposes of this Note, the term "Highest
Lawful Rate" shall mean, at any given time, the maximum nonusurious interest
rate, if any, that may be contracted for or received on the indebtedness
evidenced by this Note under applicable federal and state laws.
26. NO ORAL AGREEMENTS. THIS NOTE REPRESENTS 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.
27. WAIVER OF TRIAL BY JURY. MAKER HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE 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. MAKER
ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND
TRIAL BY JURY.
MAKER:
CyberGuard Corporation, a Florida Corporation
By: Its:
--------------------------- -----------------------------------------
9
51
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE LAWS OR
SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
Warrant to Purchase ____
Shares of Common Stock
CYBERGUARD CORPORATION
0000 Xxxx Xxxxxxxxxx Xxxx.
Xxxxx 000
Xx. Xxxxxxxxxx, Xxxxxxx
COMMON STOCK PURCHASE WARRANT
Dated August 26, 1999
THIS CERTIFIES that, for Ten Dollars ($10.00) and other good and
valuable consideration received, __________________________ (the "Original
Holder"), or its registered and permitted assigns (the Original Holder or such
registered assigns at the time being the registered holder or holders hereof
are hereinafter collectively referred to as the "Holder"), is entitled, at any
time, to subscribe for and purchase from CyberGuard Corporation, a Florida
corporation (the "Company"), _______ shares (subject to adjustment as provided
herein) of the fully paid, nonassessable shares of Common Stock (hereinafter
defined) of the Company at a price per share equal to the Exercise Price (as
hereinafter defined).
This Warrant is subject to the following terms and conditions:
SECTION 1.0. Defined Terms. For the purposes of this Warrant, the
following terms shall have the respective meanings set forth below:
(a) "COMMON STOCK" shall mean the Company's Common Stock, par
value $.01 per share, authorized as of the date of this Warrant, and shall
include also any capital stock of the Company of any class which shall be
authorized at any time after the date of this Warrant and which shall have the
right to participate in the distribution of earnings and assets of the Company
without limitation as to amount.
"CLOSING PRICE" with respect to a share of Common Stock on
any day means, subject to Section 6.1(g), the last reported sale price on that
day or, in case no such reported sale takes place on such day, the average of
the last reported bid and asked prices, regular way, on that day, in either
case, as reported in the consolidated transaction reporting system with respect
to securities quoted on Nasdaq or, if the shares of Common Stock are not quoted
on Nasdaq, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
or, if the shares of Common Stock are not quoted on Nasdaq and not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices on such
other nationally recognized quotation system then in use, or, if on any such
day the shares of Common Stock are not quoted on any such quotation system, the
average of the closing bid and asked prices as furnished by a professional
market maker selected by the Board of Directors making a market in the shares
of Common Stock. If the shares of Common Stock are not publicly held or so
listed, quoted or publicly traded, the "Closing Price" means the fair market
value of a share of Common Stock, as determined in good faith by the Board of
Directors.
1
52
"EXERCISE PRICE" shall mean $2.00 per share, subject to adjustment as
set forth herein.
"INITIAL WARRANT NUMBER" shall mean ___________ shares of Common Stock.
"LOAN AGREEMENT" shall mean that certain Loan Agreement by and between
the Company and the Original Holder dated as of the date hereof.
"PERSON" means any individual, firm, corporation, company, limited
liability company, association, partnership, joint venture, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"PROMISSORY NOTE" shall mean the Convertible Subordinated Promissory
Note which was executed and delivered by the Company on the date of this
Warrant to the Original Holder.
"ORGANIC CHANGE" means, with respect to any Person, any transaction
(including without limitation any recapitalization, capital reorganization or
reclassification of any class or series of equity securities, any consolidation
of such person with, or merger of such person into, any other person, any
merger of another person into such Person (other than a merger which does not
result in a reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock of such Person), and any sale or transfer
or lease of all or substantially all of the assets of such Person, but not
including any stock split, combination or subdivision which is the subject of
Section 6.1(b)) pursuant to which any class or series of equity securities of
such Person is converted into the right to receive other securities, cash or
other property.
"STRIKE DIFFERENTIAL" shall mean, with respect to any day, the amount
by which the closing price of the Common Stock on such day (or in the event
that such day is not a trading day with respect to the Common Stock, on the
last trading day with respect to the Common Stock preceding such day) exceeds
the Exercise Price on such day.
"WARRANT NUMBER" shall mean the Initial Warrant Number as the same
shall be adjusted from time to time pursuant to Section 6.0 hereof.
"WARRANT RIGHTS" shall mean rights to obtain shares of Common Stock
pursuant to a Warrant Rights Exercise (as defined below). The number of Warrant
Rights that the Holder is entitled to exercise at any time shall equal the
number of shares of Common Stock that the holder would be entitled to purchase
at such time if a Cash Exercise (as defined below) were effected in accordance
with the terms of this Warrant.
"WARRANT STOCK" shall mean Common Stock issued upon any exercise of
this Warrant.
SECTION 2.0. Exercise of Warrant. The purchase rights represented by
this Warrant may be exercised, in whole or in part, by the registered Holder
hereof, at any time or from time to time, but not later than August ____, 2004
(the "Termination Date"), by the delivery of this Warrant and the Form of
Subscription annexed hereto as Schedule I to the principal office of the
Company at 0000 Xxxx Xxxxxxxxxx Xxxx., Xxxxx 000, Xx. Xxxxxxxxxx, Xxxxxxx (or
at such other office of the Company as the Company shall designate by notice in
writing to the Holder hereof at the address of such Holder appearing on the
books of the Company), and upon payment to the Company of the Exercise Price
for the shares thereby purchased ("Cash Exercise"). Notwithstanding the
foregoing, at any time and from time to time, the Holder hereof may elect to
exercise this Warrant by delivering to the Company this Warrant and the Form of
Subscription annexed hereto as Schedule I for conversion without payment of
cash or other consideration ("Warrant Rights Exercise"). In the event of a
Warrant Rights Exercise, this Warrant shall be converted into a number of
shares of Common Stock, which number shall equal the quotient of (i) the
product of the Strike Differential on the day of such Warrant Rights Exercise
and the number of Warrant Rights exercised by the Holder and (ii) the closing
price of the Common Stock on the day of such Warrant Rights Exercise (or in the
event that such day is not a trading day with respect to the Common Stock, on
the last trading day with respect to the Common Stock preceding such day). To
the extent that this Warrant is not exercised in full prior to 5:00 p.m.,
eastern standard time on the Termination Date, this Warrant shall be converted
2
53
without any action or delivery of any consideration on behalf of the Holder
hereof into a number of shares of Common Stock, which number shall equal the
quotient of (i) the product of the Strike Differential on the Termination Date
and the number of Warrant Rights to which the Holder is then entitled and (ii)
the closing price of the Common Stock on the Termination Date (or in the event
that such day is not a trading day with respect to the Common Stock, on the
last trading day with respect to the Common Stock preceding such day).
The Company covenants that the shares of Common Stock purchased
pursuant to this Section 2.0 shall be and be deemed to be issued to the Holder
hereof as the record owner of such Common Stock as of the close of business of
the Company on the date on which this Warrant shall have been exercised as
aforesaid. The Company further covenants that all shares of Common Stock which
may be issued upon the exercise of this Warrant will, upon exercise of the
rights represented by this Warrant be fully paid and nonassessable and free
from all taxes, liens and charges in respect of the issue thereof.
The certificates for the shares of Common Stock so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding ten (10)
days, after the date on which the rights represented by this Warrant shall have
been so exercised.
Payment of the applicable Exercise Price may be made (a) by cash, or
(b) by certified check, or bank cashier's check, payable to the Company.
In the event of a partial exercise of this Warrant, the Company shall
issue and deliver to Holder, on or within ten (10) days of the date on which
such Warrant was exercised, and in substitution of such Warrant, a new warrant
or warrants (at Holder's option), of even date herewith and with the terms
identical to the terms hereof, except that such new warrant or warrants shall
be exercisable, in the aggregate, for a percentage of all issued and
outstanding Common Stock, subject to the antidilution provisions of Section 6.0
hereof, which represents the number of shares of Common Stock with respect to
which this Warrant has not yet been exercised.
SECTION 3.0. No Fractional Shares or Scrip. No fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon the exercise of this Warrant, an amount equal to such
fraction multiplied by the closing price of the Common Stock on the day of such
exercise (or in the event that such day is not a trading day with respect to
the Common Stock, on the last trading day with respect to the Common Stock
preceding such day) shall be paid to the Holder hereof in cash by the Company.
SECTION 4.0. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer taxes or any other
incidental expenses in respect of the issuance of such certificates to and in
the name of the registered Holder of this Warrant, all of which transfer taxes
and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder of this Warrant. Certificates will be issued
in a name other than that of the Holder upon the request of the Holder and
payment by the Holder of any applicable transfer taxes.
SECTION 5.0. Certain Obligations of the Company. The Company covenants
that it will at all times reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of issuing upon exercise of the
purchase rights evidenced by this Warrant, the number of shares of Common Stock
purchasable and deliverable hereunder.
The Company will not, by amendment of its Certificate of Incorporation
or through reorganization, consolidation, merger, dissolution, issuance of
capital stock or sale of treasury stock (otherwise than upon exercise of this
Warrant) or sale of assets, or by any other voluntary act or deed, avoid or
seek to avoid the performance or observance of any of the covenants,
stipulations or conditions in this Warrant to be observed or performed by the
Company. The Company will at all times in good faith assist in the carrying out
of all of the provisions of this Warrant and in the taking of all other action
which may be necessary in order to protect the rights of the Holder of this
Warrant against dilution consistent with the provisions of this Warrant.
3
54
The Company covenants and agrees to maintain, on a current basis, the
reports, notices and statements required to be filed with the Securities
Exchange Commission.
The Company will maintain an office where presentations and demands to
or upon the Company in respect of this Warrant may be made. The Company will
give notice in writing to the registered Holder of this Warrant, at the address
of the registered Holder of this Warrant appearing on the books of the Company,
of each change in the locations of such office.
SECTION 6.0. Adjustment of Exercise Price and Number of Shares. The
number of shares of Common Stock purchasable upon the exercise of this Warrant
and the Exercise Price thereof shall be subject to adjustment from time to time
after the date hereof upon the happening of certain events, as follows:
6.1. Adjustments to Exercise Price. The Exercise Price shall be
subject to adjustment as follows:
(a) Stock Dividends. In case the Company after the date
hereof shall pay a dividend or make a distribution to all holders of shares of
Common Stock in shares of Common Stock, then in any such case the Exercise
Price in effect at the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or
distribution shall be reduced to a price obtained by multiplying such Exercise
Price by a fraction of which (x) the numerator shall be the number of shares of
Common Stock outstanding at the close of business on such record date and (y)
the denominator shall be the sum of such number of shares of Common Stock
outstanding and the total number of shares of Common Stock constituting such
dividend or distribution, such reduction to become effective immediately after
the opening of business on the day following such record date. The Company will
not pay any dividend or make any distribution on shares of Common Stock held in
the treasury of the Company.
(b) Stock Splits and Reverse Splits. In case after the date
hereof outstanding shares of Common Stock shall be subdivided into a greater
number of shares of Common Stock, the Exercise Price in effect at the opening
of business on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, in case after the
date hereof outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Exercise Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as
the case may be, shall entitle the Holder hereof to receive the number and kind
of shares which the Holder would have owned or have been entitled to receive if
this Warrant had been exercised immediately prior to such subdivision or
combination. Such adjustment shall become effective immediately prior to the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(c) Issuances Below Market. In case the Company after the
date hereof shall fix a record date of the issuance of rights or warrants to
all holders of its shares of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Closing
Price per share on the record date for the determination of stockholders
entitled to receive such rights or warrants, the Exercise Price in effect at
the opening of business on the day following such record date shall be adjusted
to a price obtained by multiplying such Exercise Price by a fraction of which
(x) the numerator shall be the number of shares of Common Stock outstanding at
the close of business on such record date plus the number of shares of Common
Stock that the aggregate offering price of the total number of shares to be
offered would purchase at such Closing Price and (y) the denominator shall be
the number of shares of Common Stock outstanding at the close of business on
such record date plus the number of additional shares of Common Stock to be
offered for subscription or purchase, such adjustment to become effective
immediately prior to the opening of business on the day following such record
date; provided, however, that no adjustment shall be made if the Company issues
or distributes to each Holder the rights or warrants that each Holder would
have been entitled to receive had the Warrants held by such Holder been
exercised prior to such record date. The Company shall not issue any rights or
warrants in respect of shares of Common Stock held in the treasury of the
Company.
4
55
(d) Special Dividends. In case the Company after the date
hereof shall fix a record date for the making of a distribution to all holders
of shares of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the surviving
corporation) evidences of its indebtedness, securities or assets (excluding any
dividends paid out of retained earnings), or subscription rights or warrants
(excluding those referred to in subsection (c) above), in each such case the
Exercise Price in effect immediately prior to the close of business on the
record date for the determination of stockholders entitled to receive such
distribution shall be adjusted to a price obtained by multiplying such Exercise
Price by a fraction of which (x) the numerator shall be the Closing Price per
share of Common Stock on such record date, less the then-current fair market
value as of such record date (as determined by the Board of Directors in its
good faith judgment) of the portion of assets, evidences of indebtedness,
securities or subscription rights or warrants so distributed applicable to one
share of Common Stock, and (y) the denominator shall be such Closing Price,
such adjustment to become effective immediately prior to the opening of
business on the day following such record date; provided, however, that no
adjustment shall be made (1) if the Company issues or distributes to each
Holder the subscription rights referred to above that each Holder would have
been entitled to receive had the Warrants held by such Holder been exercised
prior to such record date, or (2) if the Company grants to each Holder the
right to receive, upon the exercise of the Warrants held by such Holder at any
time after the distribution of the evidences of indebtedness or assets or
equity securities referred to above, the evidences of indebtedness or assets or
equity securities that such Holder would have been entitled to receive had such
Warrants been exercised prior to such record date. The Company shall provide
any Holder, upon receipt of a written request therefor, with any indenture or
other instrument defining the rights of the holders of any indebtedness,
assets, subscription rights or equity securities referred to in this subsection
(d).
(e) Other Distributions. In case the Company after the date
hereof shall distribute evidences of its indebtedness, assets, equity
securities, rights or warrants to any Person in connection with or as a result
of or related to any pending or future claims, suits, actions or proceedings
against the Company or any of its subsidiaries, then in each such case the
Exercise Price in effect immediately prior to the close of business on the date
of such distribution shall be adjusted to a price obtained by multiplying such
Exercise Price by a fraction of which (x) the numerator shall be the Closing
Price per share of Common Stock on such date, less the then-current fair market
value as of such date (as determined by the Board of Directors in its good
faith judgment) of the portion of such evidences of indebtedness, assets,
equity securities, rights or warrants so distributed applicable to one share of
Common Stock, and (y) the denominator shall be such Closing Price, such
adjustment to become effective immediately prior to the opening of business on
the day following the date of such distribution. The intent of this subsection
is that if any evidences of indebtedness, securities, assets, rights or
warrants are distributed in connection with or as a result of or related to any
pending or future claims, suits, actions or proceedings against the Company or
any of its subsidiaries, that the Holder of this Warrant shall be entitled to
exercise this Warrant for the same percentage of the outstanding capital stock
of the Company for the same aggregate exercise price immediately after such
distribution as the Holder of this Warrant could acquire immediately prior to
such distribution.
(f) Tender or Exchange Offer. In case a tender or exchange
offer made by the Company or any subsidiary of the Company for all or any
portion of the Common Stock shall be consummated and such tender offer shall
involve an aggregate consideration having a fair market value (as determined by
the Board of Directors in its good faith judgment) at the last time (the "Offer
Time") tenders may be made pursuant to such tender or exchange offer (as it may
be amended) that, together with the aggregate of the cash plus the fair market
value (as determined by the Board of Directors in its good faith judgment), as
of the Offer Time, of consideration payable in respect of any tender or
exchange offer by the Company or any such subsidiary for all or any portion of
the Common Stock consummated preceding the Offer Time and in respect of which
no Exercise Price adjustment pursuant to this subsection (f) has been made,
exceeds 5% of the product of the Closing Price of the Common Stock at the Offer
Time multiplied by the number of shares of Common Stock outstanding (including
any tendered shares) at the Offer Time, the Exercise Price shall be reduced so
that the same shall equal the price determined by multiplying the Exercise
Price in effect immediately prior to the Offer Time by a fraction of which (x)
the numerator shall be (i) the product of the Closing Price of the Common Stock
at the Offer Time multiplied by the number of shares of Common Stock
outstanding (including any tendered shares) at the Offer Time minus (ii) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly tendered and
5
56
not withdrawn as of the Offer Time (the shares deemed so accepted, up to any
such maximum, being referred to as the "Purchased Shares") and (y) the
denominator shall be the product of (i) such Closing Price at the Offer Time
multiplied by (ii) such number of outstanding shares at the Offer Time minus
the number of Purchased Shares, such reduction to become effective immediately
prior to the opening of business on the day following the Offer Time. For
purposes of this subsection (f), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued in
lieu of fractions of shares of Common Stock.
(g) Other Dilutive Events. In case any event shall occur as
to which the provisions of Section 6.1 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Company shall appoint a firm of
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Company), which shall give its opinion upon
the adjustment, if any, on a basis consistent with the essential intent and
principles established in Section 6.1, necessary to preserve, without dilution,
the purchase rights represented by this Warrant. Upon receipt of such opinion,
the Company will promptly mail a copy thereof to the Holder of this Warrant and
shall make the adjustments described therein. Notwithstanding anything
contained in this subsection (g) to the contrary, this subsection (g) shall not
apply to any issuance of Common Stock by the Company for which the Company has
received consideration equal to the fair market value of such Common Stock on
the date of issuance, as determined by the Board of Directors of the Company in
good faith.
(h) No Dilution or Impairment. The Company will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 6.1 and in the taking of all such action as may
be necessary or appropriate in order to protect the purchase privilege of the
Holder of this Warrant against dilution or other impairment.
(i) Closing Price Determination. For the purpose of any
computation under subsections (c), (d) and (e) of this Section 6.1, the Closing
Price of Common Stock on any date shall be deemed to be the average of the
Closing Prices for the ten (10) consecutive trading days immediately preceding
such date; provided, however, that (i) if the "ex" date for any event (other
than the issuance or distribution requiring such computation) that requires an
adjustment to the Exercise Price pursuant to this Section 6 occurs on or after
the tenth (10th) trading day prior to the day in question and prior to the "ex"
date for the issuance or distribution requiring such computation, the Closing
Price for each trading day prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the same fraction which the
Exercise Price is so required to be adjusted as a result of such other event,
(ii) if the "ex" date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Exercise Price
pursuant to this Section 6 occurs on or after the "ex" date for the issuance or
distribution requiring such computation and on or prior to the day in question,
the Closing Price for each trading day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Exercise Price is so required to be
adjusted as a result of such other event, and (iii) if the "ex" date for the
issuance or distribution requiring such computation is on or prior to the day
in question, after taking into account any adjustment required pursuant to
clause (ii) of this proviso, the Closing Price for each trading day on or after
such "ex" date shall be adjusted by adding thereto the fair market value on the
day in question (as determined by the Board of Directors in a manner consistent
with any determination of such value for the purposes of subsection (d) of this
Section 6.1) of the assets, evidences of indebtedness, equity securities or
subscription rights being distributed applicable to one share of Common Stock
as of the close of business on the day before such "ex" date. For the purposes
of any computation under subsection (f) of this Section 6.1, the Closing Price
on any date shall be deemed to be the average of the daily Closing Prices for
the ten (10) consecutive trading days immediately preceding the Offer Time;
provided, however, that if the "ex" date for any event (other than the tender
or exchange offer requiring such computation) that requires an adjustment to
the Exercise Price pursuant to this Section 6 occurs on or after the tenth
(10th) trading day prior to the Offer Time for the tender or exchange offer
requiring such computation, the Closing Price for each trading day prior to the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the Exercise Price is so required to be
adjusted as a result of such other event. For purposes of this subsection (g),
the term "ex" date, (i) when used with respect to any issuance or distribution,
6
57
means the first date on which the Common Stock trades regular way on the
relevant exchange or in the relevant market from which the Closing Price was
obtained without the right to receive such issuance or distribution, (ii) when
used with respect to any subdivision or combination of shares of Common Stock,
means the first date on which the Common Stock trades regular way on such
exchange or in such market after the time at which such subdivision or
combination becomes effective, and (iii) when used with respect to any tender
or exchange offer means the first date on which the Common Stock trades regular
way on such exchange or in such market after the Offer Time of such tender or
exchange offer.
(j) Minimum Adjustment Requirement. No adjustment shall be
required unless such adjustment would result in an increase or decrease of at
least $0.01 in the Exercise Price then subject to adjustment; provided,
however, that any adjustments that are not made by reason of this subsection
(j) shall be carried forward and taken into account in any subsequent
adjustment. In case the Company shall at any time issue shares of Common Stock
by way of dividend on any stock of the Company or subdivide or combine the
outstanding shares of Common Stock, said amount of $0.01 specified in the
preceding sentence (as theretofore increased or decreased, if said amount shall
have been adjusted in accordance with the provisions of this subsection (h))
shall forthwith be proportionately increased in the case of such a combination
or decreased in the case of such a subdivision or stock dividend so as
appropriately to reflect the same.
(k) Calculations. All calculations under this Section 6.1
shall be made to the nearest $0.01.
(l) Certificate. Whenever an adjustment in the Exercise Price
is made as required or permitted by the provisions of this Section 6.1, the
Company shall promptly cause a certificate of its chief financial officer
setting forth (A) the adjusted Exercise Price as provided in this Section 6.1
and a brief statement of the facts requiring such adjustment and the
computation thereof and (B) the number of shares of Common Stock (or portions
thereof) purchasable upon exercise of this Warrant after such adjustment in the
Exercise Price in accordance with Section 6.2 hereof and the record date
therefor to be mailed to the Holder of this Warrant at the address shown on the
registration books of the Company. Such certificate, in the absence of manifest
error, shall be conclusive and final evidence of the correctness of such
adjustment.
(m) Section 305. Anything in this Section 6.1 to the contrary
notwithstanding, the Company shall be entitled, but not required, to make such
reductions in the Exercise Price, in addition to those required by this Section
6.1, as it in its discretion shall determine to be advisable, including,
without limitation, in order that any dividend in or distribution of shares of
Common Stock or shares of capital stock of any class other than Common Stock,
subdivision, reclassification or combination of shares of Common Stock,
issuance of rights or warrants, or any other transaction having a similar
effect, shall not be treated as a distribution of property by the Company to
its stockholders under Section 305 of the Internal Revenue Code of 1986, as
amended, or any successor provision and shall not be taxable to them.
(n) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for purposes of taking any action
that requires an adjustment of the Exercise Price under this Section 6, and
shall, thereafter and before the effective date of such action, legally abandon
its plan to take such action, then thereafter no adjustment shall be required
by reason of the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
6.2. Adjustment to Number of Shares of Stock. Upon each adjustment of
the Exercise Price pursuant to Section 6.1 hereof the number of shares of
Common Stock purchasable upon exercise of this Warrant outstanding prior to the
effectiveness of such adjustment shall be adjusted to the number, calculated to
the nearest one-hundredth of a share, obtained by (x) multiplying the number of
shares of Common Stock purchasable immediately prior to such adjustment upon
the exercise of this Warrant by the Exercise Price in effect prior to such
adjustment and (y) dividing the product so obtained by the Exercise Price in
effect after such adjustment of the Exercise Price.
7
58
6.3. Organic Change.
(a) Company Survives. Upon the consummation of an Organic
Change (other than a transaction in which the Company is not the surviving
entity), lawful provision shall be made as part of the terms of such
transaction whereby the terms of this Warrant shall be modified, without
payment of any additional consideration therefor, so as to provide that upon
exercise this Warrant following the consummation of such Organic Change, the
Holders of such Warrant shall have the right to purchase only the kind and
amount of securities, cash and other property receivable upon such Organic
Change by a holder of the number of shares of Common Stock into which such
Warrant might have been exercised immediately prior to such Organic Change,
assuming such holder of Common Stock (i) is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which a sale, transfer or lease of all or substantially all of the assets
of the Company was made, as the case may be (a "Constituent Person"), or an
affiliate of a Constituent Person, and (ii) failed to exercise his or her
rights of election, if any, as to the kind and amount of securities, cash and
other property receivable upon such Organic Change (provided that if the kind
and amount of securities, cash and other property receivable upon such Organic
Change is not the same for each share of Common Stock held immediately prior to
such Organic Change by others than a Constituent Person or an affiliate thereof
and in respect of which such rights of election shall not have been exercised
("Non-Electing Shares"), then for the purpose of this subsection (a) the kind
and amount of securities, cash and other property receivable upon such Organic
Change by each Non-Electing Share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-Electing Shares); provided,
however, that no adjustment shall be made as a result of such Organic Change to
the Exercise Price or the number of shares of Common Stock notwithstanding any
provision of Section 6 hereof unless any event requiring any such adjustment
shall have occurred or shall occur prior to, upon or after such Organic Change.
Lawful provision also shall be made as part of the terms of the Organic Change
so that all other terms of this Warrant shall remain in full force and effect
following such an Organic Change. The provisions of this Section 6.3(a) shall
similarly apply to successive Organic Changes.
(b) Company Does Not Survive. The Company shall not enter
into an Organic Change that is a transaction in which the Company is not the
surviving entity unless lawful provision shall be made as part of the terms of
such transaction whereby the surviving entity shall issue new securities to
each Holder, without payment of any additional consideration therefor, with
terms that provide that upon the exercise of this Warrant, the Holders of such
Warrant shall have the right to purchase only the kind and amount of
securities, cash and other property receivable upon such Organic Change by a
holder of the number of shares of Common Stock into which such Warrant might
have been exercised immediately prior to such Organic Change, assuming such
holder of Common Stock (i) is not a Constituent Person or an affiliate of a
Constituent Person and (ii) failed to exercise his rights of election, if any,
as to the kind and amount of securities, cash and other property receivable
upon such Organic Change (provided that if the kind and amount of securities,
cash and other property receivable upon such Organic Change is not the same for
each Non-Electing Share, then for the purpose of this subsection (b) the kind
and amount of securities, cash and other property receivable upon such Organic
Change by each Non-Electing Share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-Electing Shares); provided,
however, that no adjustment shall be made as a result of such Organic Change to
the Exercise Price or the number of shares of Common Stock notwithstanding any
provision of Section 6 hereof unless any event requiring any such adjustment
shall have occurred or shall occur prior to, upon or after such Organic Change.
The certificate or articles of incorporation or other constituent document of
the surviving entity shall provide for such adjustments which, for events
subsequent to the effective date of such certificate or articles of
incorporation or other constituent document, shall be equivalent to the
adjustments provided for in Section 6.1 hereof.
6.4. Statement on Warrants. This Warrant need not be changed because
of any adjustment made pursuant to Section 6.1 or Section 6.2 hereof, and
Warrants issued after such adjustment may state the same Exercise Price and the
same Warrant Number as are stated in this Warrant.
SECTION 7.0. Prior Notice of Certain Events. In the event that:
(a) the Company shall declare any dividend, whether payable
in cash or in any capital stock upon its Common Stock, or authorize any other
issuance or distribution to the holders of its Common Stock; or
8
59
(b) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company or a sale of all or substantially all its assets; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any of said cases, the Company shall give prior written notice, by
first-class mail, postage prepaid, addressed to the registered Holder of this
Warrant at the address of such registered Holder as shown on the registration
books of the Company, of the date on which (i) the books of the Company shall
close or a record shall be taken for such stock dividend, distribution or
subscription rights, (ii) such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up shall be consummated, or
(iii) such other event shall be consummated, as the case may be. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall receive said dividend, distribution or subscription rights or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, as the case may be. Such
written notice shall be given at least thirty (30) days prior to the date of
the event in question and the record date or the date on which the Company's
transfer books are closed in respect thereto.
SECTION 8.0. No Rights or Responsibilities as Shareholder. Except as
otherwise agreed in writing by the Holder and the Company, a Holder of this
Warrant, as such, shall not be subject to any responsibilities as a shareholder
of the Company and shall not be entitled to vote or be deemed the Holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained herein be
construed to confer upon the Holder of this Warrant, as such, the rights of a
shareholder of the Company or the right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or to give
or withhold consent to any corporate section (except as provided herein) or to
receive notice of meetings or other actions affecting shareholders (except as
provided herein), or to receive dividends or subscription rights or otherwise
(except as provided herein), until the date of exercise of this Warrant shall
have occurred.
SECTION 9.0 Registration Rights. Upon exercise of this Warrant, the
Holder shall have and be entitled to exercise, together with all other holders
of Common Stock possessing registration rights under the Loan Agreement, the
rights of registration granted under the Loan Agreement with respect to the
shares of Common Stock issued upon exercise of this Warrant.
SECTION 10.0. Loss, Theft, Destruction or Mutilation of Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and date, in lieu of
this Warrant.
SECTION 11.0. Transfer and Exchange of Warrant. This Warrant and all
rights hereunder are transferable at the office or agency of the Company by the
registered Holder hereof in person or by a duly authorized attorney, upon
surrender of this Warrant together with a properly endorsed assignment in the
form attached hereto as Schedule II. The Company shall be entitled to receive,
as a condition to any transfer of this Warrant, an opinion of counsel
reasonably satisfactory to the Company that such transfer does not violate the
registration requirements of the Securities Act of 1933, as amended, or
applicable state securities laws. Until transfer hereof on the registration
books of the Company, the Company may treat the registered Holder as the owner
hereof for all purposes. This Warrant is exchangeable, upon the surrender
hereof by Holder, at the principal offices of the Company, together with a
properly endorsed assignment in the form attached hereto as Schedule II, for
new warrants, in such denominations as Holder shall designate at the time of
surrender for exchange, of like tenor and date representing in the aggregate
the right to subscribe for and purchase the number of shares which may be
subscribed for and purchased hereunder, each of such new warrants to represent
the right to subscribe for and purchase not less than one hundred thousand
(100,000) shares of Common Stock (except to the extent necessary to round out
the balance of the number of shares).
9
60
SECTION 12.0. Investment Intent. Contemporaneously with the original
issuance of this Warrant to the Holder hereof, the Holder has executed and
delivered to the Company an investment representation letter (in the form of
Schedule III hereto) regarding the Holder's investment intent and imposing a
requirement that any transferee of this Warrant execute and deliver to the
Company a representation letter in form and substance similar to the contents
of such letter.
SECTION 13.0. Communications and Notices. All communications and
notices hereunder must be in writing, either delivered in hand or sent by
first-class mail, postage prepaid, or sent by confirmed facsimile and, if to
the Company, shall be addressed to it at the address set forth on the first
page hereof, Attention: C. Xxxxxxx Xxxxx, or at such other address as the
Company may hereafter designate in writing by notice to the registered Holder
of this Warrant, and if to such registered Holder, addressed to such Holder at
the address of such Holder as shown on the books of the Company.
SECTION 14.0. Sundays, Holidays, Etc. If the last or appointed day for
the taking of any action required or the expiration of any right granted herein
shall be a Sunday, or a Saturday or shall be a legal holiday or a day on which
banking institutions in New York, New York, are authorized or required by law
to remain closed, then such action may be taken or right may be exercised on
the next succeeding day which is not a Sunday, a Saturday or a legal holiday
and not a day on which banking institutions in New York, New York, are
authorized or required by law to remain closed.
SECTION 15.0. Remedies. The Company stipulates that the remedies at
law of the Holder of this Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of the
terms of this Warrant are not and will not be adequate, and that such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
SECTION 16.0. Miscellaneous. This Warrant shall be binding upon the
Company's successors. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be unenforced to the extent, if any, that it may legally be
enforced, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. The five (5) year term of
this Warrant shall be stayed during any bankruptcy proceedings involving the
Company. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. This Warrant shall
take effect as an instrument under seal.
SECTION 17.0. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF CONNECTICUT, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
SECTION 18.0 Conflict. In the event of a conflict of the terms and
conditions hereof and the terms and conditions of the Loan Agreement, the terms
and conditions of this Warrant shall prevail.
SIGNATURE PAGE FOLLOWS
10
61
IN WITNESS WHEREOF, CyberGuard Corporation has caused this Warrant to
be signed in its corporate name and its corporate seal to be impressed hereon
by its duly authorized officers.
Date: August ___, 1999 CyberGuard Corporation, a Florida Corporation
By:
------------------------------------------
Its:
----------------------------------------
11
62
SCHEDULE I
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Common Stock Purchase Warrant)
TO: CyberGuard Corporation
The undersigned, the Holder of the within Common Stock Purchase
Warrant, hereby irrevocably elects to exercise this Common Stock Purchase
Warrant for, and to purchase thereunder ___ * shares of Common Stock of
CyberGuard Corporation, and herewith makes payment of $________ therefor, and
requests that the certificates for such shares be issued in the name
of_______________, and delivered to ________________________, whose address is
_____________________________________________.
Dated:
(Signature must conform in all respects to name
of Holder as specified on the face of the Warrant)
(Address)
*Insert here the number of shares (all shares called for in the Common
Stock Purchase Warrant) as to which the Common Stock Purchase Warrant is being
exercised without making any adjustment for any other stock or other securities
or property or cash which, pursuant to the adjustment provisions of the Common
Stock Purchase Warrant, may be deliverable on exercise.
1
63
SCHEDULE II
FORM OF ASSIGNMENT
(To be signed only on transfer of
Common Stock Purchase Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ______________ of ___________, the right represented by the within Common
Stock Purchase Warrant to purchase ___ shares of Common Stock of CyberGuard
Corporation, to which the within Common Stock Purchase Warrant relates, and
appoints ____________ Attorney to transfer such right on the books of CyberGuard
Corporation, with full power of substitution in the premises.
Dated:
(Signature must conform in all respects to name
of Holder as specified on the face of the Warrant)
(Address)
Signed in the presence of
Signature guaranteed by*
[*Signature guarantee by a bank is required for all Holders other than the
Original Holder.]
1
64
SCHEDULE III
INVESTMENT REPRESENTATION LETTER
CyberGuard Corporation
Attn: Office of Corporate Secretary
0000 Xxxx Xxxxxxxxxx Xxxx.
Xxxxx 000
Xx. Xxxxxxxxxx, XX 00000
RE: Common Stock Purchase Warrant
Dated ___________, 1999
To: CyberGuard Corporation
The Common Stock Purchase Warrant ("Warrant") and the rights to the
underlying shares has been acquired for investment for the Holder's own
account, not as a nominee or agent, and not with a view to the Holder's
distribution of any part thereof, and the Holder has no present intention of
selling, granting any participation in, or otherwise distributing the same. The
Holder does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person, with respect to the Warrant.
The Holder further undertakes to require any transferee of the Warrant
to execute and deliver to the CyberGuard Corporation a representation letter in
form and substance similar to the contents of this letter.
DATED: August __, 1999.
By:
-------------------------------
1
65
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
COAST
SUBORDINATION AGREEMENT
BORROWER: CYBERGUARD CORPORATION
ADDRESS: 0000 XXXX XXXXXXXXXX XXXXXXXXX
XXXXX 000
XXXX XXXXXXXXXX, XXXXXXX 00000
SUBORDINATING
CREDITOR:
ADDRESS:
DATE:
THIS SUBORDINATION AGREEMENT is executed by the above-named
Subordinated Party. ("Subordinated Party") in favor of Coast Business
Credit(R), a division of Southern Pacific Bank ("Coast"), whose address is
00000 Xxxxxxxx Xxxx., Xxx Xxxxxxx, Xxxxxxxxxx, with respect to the above-named
borrower (the "Borrower"). In order to induce Coast to extend or continue to
extend financing to the Borrowers (but without obligation on Coast's part to do
so), the Subordinated Party hereby agrees as follows:
1. SUBORDINATION OF DEBT AND CAPITAL Subordinating Creditor hereby
subordinates payment by the Borrower of any and all indebtedness, liabilities,
guarantees and other obligations of the Borrower to Subordinating Creditor and
return of Capital or Distributions now existing or hereafter arising
(collectively, the "Subordinated Amounts"), to the payment to Coast, in full in
cash, of all indebtedness, liabilities, guarantees and other obligations of the
Borrower to Coast, now existing or hereafter arising (including without
limitation any interest, charges and other sums accruing after the filing of a
petition by or against Borrower under the Bankruptcy Code) (the "Coast Debt").
Subordinating Creditor represents and warrants that it has not
transferred or assigned the Subordinated Amounts or given any other
subordination agreement in respect thereof, and that it will not do so without
prior written notice to Coast and without making such transfer or assignment or
subordination expressly subject to this Agreement. Notwithstanding any default
of the Subordinated Amounts, Subordinating Creditor agrees not to ask for,
demand, xxx for, take or receive all or any part of the Subordinated Amounts
nor any security therefor unless and until all of the Coast Debt has been paid
and performed in full, in cash; provided that, so long as no Event of Default
and no event which, with notice or passage of time or both, would constitute an
Event of Default under any present or future document, instrument or agreement
evidencing, securing or relating to the Coast Debt, both before and after
giving effect to the following payments, Subordinated Creditor may accept
payment of the following amounts on the Subordinated Amounts: Subordinating
Creditor may accept repayment of all or part of the Subordinated Amounts
provided (a) such payments constitute ordinary course of business transactions,
(b) such payments would not constitute an event of default and no event which,
with notice or passage of time or both, would constitute an event of default
under any present or future document, instrument or agreement between Borrower,
Subordinating Creditor or any affiliate, on the one hand and a party other than
Coast on the other hand, (c) all such payments are reported to Coast on a
monthly basis, or more frequently if requested by Coast, and (d) Coast has not
given notice to Subordinating Creditor that Coast has revoked the authorization
of Subordinating Creditor to accept such repayments of the Subordinated
Amounts, which revocation may be made by Coast if Coast in good faith believes
that revocation is or may be necessary to avoid or reduce the risk of a
material adverse change or impairment of Coast's rights or financial interests.
Coast may further limit or condition repayments of the Subordinated Amounts
upon such terms as Coast, in its sole discretion, deems appropriate, including,
but not limited to, imposing dollar limits and requiring advance notice to
Coast of proposed dividends and repayments in amounts which Coast, in its sole
discretion, deems material.
Subordinating Creditor further agrees that upon any distribution of the assets
or readjustment of the indebtedness of the Borrower whether by reason of
liquidation, composition, bankruptcy, arrangement, receivership, assignment for
the benefit of creditors or any other action or proceeding involving the
readjustment of all or any of the Subordinated Amounts, or the application of
the assets of the Borrower to the payment or liquidation thereof, Coast shall
be entitled to receive payment in full in cash of all of the Coast Debt prior
to the payment of all or any part of the Subordinated Amounts, and in order to
2
66
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
enable Coast to enforce its rights hereunder in any such action or proceeding,
Coast is hereby irrevocably authorized and empowered in its discretion (but
without any obligation on its part) to make and present for and on behalf of
Subordinating Creditor such proofs of claim and proofs of interest against the
Borrower on account of the Subordinated Amounts as Coast may deem expedient or
proper and to vote such proofs of claim and proofs of interest in any such
proceeding and to receive and collect any and all dividends or other payments
or disbursements made thereon in whatever form the same may be paid or issued
and to apply same on account of the Coast Debt. Subordinating Creditor further
agrees to execute and deliver to Coast such assignments or other instruments as
may be required by Coast in order to enable Coast to enforce or vote any and
all such claims and to collect any and all dividends or other payments or
disbursements which may be made at any time on account of all and any of the
Subordinated Amounts. Subordinating Creditor shall endorse all notes and other
written evidence of the Subordinated Amounts with a statement that they are
subordinated to the Coast Debt pursuant to the terms of this agreement, in such
form as Coast shall require, and Subordinating Creditor will exhibit the
originals of such notes and other written evidence of the Subordinated Amounts
to Coast so that Coast can confirm that such endorsement has been made, but
this Subordination Agreement shall be fully effective, even if no such
endorsement is made.
2. MODIFICATIONS TO COAST DEBT; WAIVERS. Until Coast have received
payment in full of all Coast Debt, the Subordinating Creditor agrees that, in
addition to any other rights that Coast may have at law or in equity, Coast may
at any time, and from time to time, without the Subordinating Creditor' consent
and without notice to the Subordinating Creditor, renew, extend or increase any
of the Coast Debt or that of any other person at any time directly or
indirectly liable for the payment of any Coast Debt, accept partial payments of
the Coast Debt, settle, release (by operation of law or otherwise), compound,
compromise, collect or liquidate any of the Coast Debt, make loans or advances
to the Borrower secured in whole or in part by the any present or future assets
securing any or all of the Coast Debt (the "Collateral") or refrain from making
any loans or advances to the Borrower, change, waive, alter or vary the
interest charge on, or any other terms or provisions of the Coast Debt or any
present or future instrument, document or agreement between Coast and the
Borrower, release, exchange, fail to perfect, delay the perfection of, fail to
resort to, or realize upon any Collateral, and take any other action or omit to
take any other action with respect to the Coast Debt or the Collateral as Coast
deems necessary or advisable in Coast's sole discretion. Subordinating Creditor
waives any right to require Coast to marshal any assets in favor of the
Subordinating Creditor or against or in payment of any or all of the Coast
Debt. Subordinating Creditor further waives any defense arising by reason of
any claim or defense based upon an election of remedies by Coast which in any
manner impairs, affects, reduces, releases, destroys and/or extinguishes the
Subordinating Creditor' subrogation rights, rights to proceed against the
Borrower for reimbursement, and/or any other rights of the Subordinating
Creditor. In the event of any financing of the Borrower by Coast during any
bankruptcy, arrangement, or reorganization of the Borrower, the Subordinating
Creditor agrees that the term "Coast Debt" shall include without limitation all
indebtedness, liabilities and obligations incurred in any such proceeding, and
the Subordinated Amounts shall continue to remain subordinate to the Coast
Debt, and the Subordinating Creditor agrees to take such actions and execute
such documents in such proceedings as may be required in order to continue such
subordination.
3. DEFAULT. The Subordinating Creditor shall promptly give Coast
written notice of any default or event of default under any document,
instrument or agreement evidencing, securing or relating to any of the
Subordinated Amounts, and, until the Coast Debt has been paid and performed in
full, the Subordinating Creditor shall not exercise any rights or remedies with
respect to, the Subordinated Amounts, judicially or non-judicially, or attempt
to do any of the foregoing.
4. NO COMMITMENT. It is understood and agreed that this Agreement
shall in no way be construed as a commitment or agreement by Coast to continue
financing arrangements with the Borrower and that Coast may terminate such
arrangements at any time, in accordance with Coast's agreements with the
Borrower.
5. NO CONTEST. Subordinating Creditor agrees not to contest the
validity, perfection, priority or enforceability of Coast' security interest in
the Collateral or the Coast Debt.
6. FINANCIAL CONDITION OF BORROWER. The Subordinating Creditor is
presently informed of the financial condition of the Borrower and of all other
circumstances which a diligent inquiry would reveal and which bear upon the
risk of non-payment of the Coast Debt and the Subordinated Amounts. The
Subordinating Creditor covenants that it will continue to keep itself informed
as to the Borrower's financial condition and all other circumstances which bear
upon the risk of non-payment of the Coast Debt and the Subordinated Amounts.
3
67
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
The Subordinating Creditor waives any right to require Coast to disclose to it
any information which Coast may now or hereafter acquire concerning the
Borrower.
7. REVIVOR. If, after payment of the Coast Debt, the Borrower
thereafter becomes liable to Coast on account of the Coast Debt, as a result of
any payment made on the Coast Debt for any reason being returned by Coast or
being reversed, set aside, or recovered by the Borrower or any trustee or
assignee for the Borrower, this Agreement shall thereupon in all respects
become effective with respect to such subsequent or reinstated Coast Debt,
without the necessity of any further act or agreement between Coast and the
Subordinating Creditor.
8. GENERAL. The Subordinating Creditor agrees, upon Coast's request,
to execute all such documents and instruments and take all such actions as
Coast shall deem necessary or advisable in order to carry out the purposes of
this Agreement. The word "indebtedness" is used in this agreement in its most
comprehensive sense and includes without limitation any and all present and
future loans, advances, credit, debts, obligations, liabilities,
representations, warranties, and guarantees, of any kind and nature, absolute
or contingent, liquidated or unliquidated, and individual or joint.
Subordinating Creditor represents and warrants that it has not heretofore
transferred or assigned the Subordinated Amounts, and that it will not do so
without prior written notice to Coast and without making such transfer or
assignment expressly subject to this Agreement. This Agreement is solely for
the benefit of Coast and Coast's successors and assigns, and neither the
Borrower nor any other person shall have any right, benefit, priority or
interest under, or because of the existence of, this Agreement. All of Coast's
rights and remedies hereunder and under applicable law are cumulative and not
exclusive. This Agreement sets forth in full the terms of agreement between the
parties with respect to the subject matter hereof, and may not be modified or
amended, nor may any rights hereunder be waived, except in a writing signed by
Coast and the Subordinating Creditor. The Subordinating Creditor agrees to
reimburse Coast, upon demand, for all costs and expenses (including reasonable
attorneys' fees) incurred by Coast in enforcing this Agreement against
Subordinating Creditor, whether or not suit be brought. In the event of any
litigation between the parties based upon or arising out of this Agreement, the
prevailing party shall be entitled to recover all of its costs and expenses
(including without limitation attorneys fees) from the non-prevailing party.
This Agreement shall be construed in accordance with, and governed by, the laws
of the State of California. As a material part of the consideration to the
parties for entering into this Agreement, each party (i) agrees that all
actions and proceedings based upon, arising out of or relating in any way
directly or indirectly to, this Agreement shall be litigated exclusively in
courts located within Los Angeles County, California, (ii) consents to the
jurisdiction of any such court and consents to the service of process in any
such action or proceeding by personal delivery, first-class mail, or any other
method permitted by law, and (iii) waives any and all rights to transfer or
change the venue of any such action or proceeding to any court located outside
Los Angeles County, California. This Agreement shall be binding upon the
Subordinating Creditor and its successors and assigns and shall inure to the
benefit of Coast and Coast's successors and assigns.
9. MUTUAL WAIVER OF JURY TRIAL. SUBORDINATING CREDITOR AND COAST EACH
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY
OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SUBORDINATING CREDITOR
AND COAST; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF SUBORDINATING CREDITOR OR
COAST OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY
OTHER PERSONS AFFILIATED WITH SUBORDINATING CREDITOR OR COAST; IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
10. Governing Law; Jurisdiction; Venue. This Agreement and all acts
and transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of
any such action or proceeding.
"SUBORDINATING CREDITOR:"
BY: _______________________________
TITLE: _____________________________
4
68
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
CONSENT AND AGREEMENT OF BORROWER
The undersigned Borrower hereby approves of, agrees to and consents to all of
the terms and provisions of the foregoing Subordination Agreement and agrees to
be bound thereby and further agrees that any default or event of default by the
Borrower under any present or future instrument or agreement between the
Borrower and the Subordinating Creditor shall constitute an immediate default
and event of default under all present and future instruments and agreements
between the Borrower and Coast. Borrower further agrees that, at any time and
from time to time, the foregoing Agreement may be altered, modified or amended
by Coast and the Subordinating Creditor without notice to or the consent of
Borrower.
BORROWER:
CYBERGUARD CORPORATION, A FLORIDA CORPORATION
BY:_____________________________________
TITLE:__________________________________
ACCEPTED:
COAST:
COAST BUSINESS CREDIT(R), A DIVISION OF SOUTHERN PACIFIC BANK
BY: ____________________________________
TITLE: _________________________________
5
69
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
$100,000
PROMISSORY NOTE
DUE JUNE 26, 2000
DATED: AUGUST 26, 1999
EXECUTED AND DELIVERED AT ATLANTA, GEORGIA
FOR VALUE RECEIVED, on August 26, 1999, the undersigned, XXXXX X.
XXXXXXX, an individual resident of the State of Texas ("Maker"), having a
mailing address of 0000 Xxxxxxxx Xxxxx, Xxxxxx, XX 00000 promises to pay to the
order of CyberGuard Corporation, a Florida corporation ("Payee"), or its
registered assigns (Payee or such registered assigns at the time being the
registered holder or holders hereof are hereinafter collectively referred to as
the ("Holde"), at 0000 Xxxx Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxx Xxxxxxxxxx,
Xxxxxxx, or at such other place as the Holder hereof may direct in writing, the
aggregate principal sum of One Hundred Thousand dollars ($100,000), from the
date hereof on the unpaid principal amount, as follows:
1. Interest. This Note shall not bear interest so long as the Maker
waives his right to receive interest payments pursuant to that certain
Promissory Note of CyberGuard Corporation dated of even date herewith payable
to Maker in the amount of $150,000 (the "CyberGuard Note"). If the Maker elects
to receive interest under the CyberGuard Note, then the unpaid principal amount
hereof shall bear interest at the rate of 11.5% per annum, payable in monthly
installments on the first day of each month.
2. Principal Payments. Until paid in full, this Note shall be paid (i)
by Payee's withholding all of the salary of the Maker (other amounts currently
being withheld for taxes, employee benefits and the like) during each pay
period in effect while Maker is employed with CyberGuard Corporation and (ii)
in cash upon the earlier of (a) the termination of Maker's employment with
Payee for any reason or (b) June 26, 2000.
3. Default. This Note may be declared in Default and the entire amount
of this Note, including the principal balance then outstanding, together with
all interest accrued thereon, shall become immediately due and payable, at the
option of Payee and without further notice, if (a) any payment of principal or
interest due hereunder is not paid when due; or (b) Maker becomes subject to
any bankruptcy, insolvency, receivership or debtor relief proceedings and, in
the case of any such proceedings initiated against Maker, the same have not
been discharged within sixty (60) days after institution; or (c) Maker makes an
assignment for the benefit of creditors, or admits in writing an inability to
pay its debts generally as they become due; or (d) Maker fails to comply with
or perform any covenant, agreement or condition of this Note. The failure of
the Holder to exercise any right or remedy hereunder shall not be deemed to be
a release or waiver of any obligation or liability of the Maker.
4. Prepayment. The Maker may prepay this Note, in whole or in part, at
any time, without penalty.
5. Security for Repayment. This Note is secured by a Pledge and
Security Agreement dated of even date herewith between Maker and Payee (the
"Pledge Agreement") pursuant to which Payee has pledged (collectively, the
"Collateral"): (i) the CyberGuard Note and (ii) warrant issued by CyberGuard
Corporation to purchase 150,000 shares of common stock of CyberGuard
Corporation. This is a non-recourse Note. In the event of a default hereunder,
the Payee shall have recourse only to the Collateral for collection of such
costs and expenses.
6. Waivers. Maker hereby waives presentment for payment, notices of
non-performance or nonpayment, protest, notices of protest, notice of dishonor,
diligence in bringing suit hereon against any party hereto and notice of
acceleration, and further consent to any extension of time for payment
hereunder (whether one or more), any renewal hereof (whether one or more), any
substitution or release of any collateral, and any addition or release of any
party liable for payment of this Note. Any such extension, renewal,
substitution or release may be made by the Holder without notice to any such
party and without discharging such party's liability hereunder.
7. Collection Costs; Attorneys' Fees. Maker agrees to pay all expenses
and costs of collection, including all reasonable attorneys' fees and expenses
as awarded by a court, court costs, and similar costs incurred by the Holder in
connection with the enforcement of this Note, endeavoring to collect any
amounts payable hereunder, whether by acceleration or otherwise.
6
70
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
8. Partial Invalidity. If any provision of this Note or the
application thereof to any party or circumstances is held invalid or
unenforceable, the remainder of this Note and the application of any such
provision to other parties or circumstances shall not be affected thereby, the
provisions of this Note being severable in any such instance. No invalid
provision hereof shall affect or impair any other provision of this Note.
9. Conflict. This Note is issued pursuant to a Loan Agreement entered
into on the date hereof between Maker and Payee (the "Loan Agreement"). In the
event of a conflict as between the terms and conditions hereof and the terms
and conditions of the Loan Agreement, the terms and conditions of this Note
shall control. In lieu of any such conflict of terms both documents shall be of
equal force and effect.
10. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to conflict of
law principles.
11. Amendments. Any amendment or modification to this Note shall not
be effective unless signed in writing by the Holder.
12. Headings; Construction. The headings of the sections of this Note
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.
13. Successors and Assigns. All of the covenants, stipulations,
promises, and agreements in this Note contained by or on behalf of Maker shall
bind its successors and assigns, whether so expressed or not; provided,
however, that Maker may not, without the prior consent of the Holder, assign
any rights, duties, or obligations under this Note.
14. Maximum Interest Rate. Regardless of any provision contained
herein, or in any other documents or instruments executed in connection
herewith, the Holder hereof shall never be entitled to receive, collect, or
apply, as interest hereon, any amount in excess of the Highest Lawful Rate and
in the event the Holder hereof ever receives, collects, or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial prepayment of principal and treated hereunder as such; and,
if the principal hereof is paid in full, any remaining excess shall be refunded
to Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder
hereof shall, to the maximum extent permitted under applicable law, (a)
characterize any nonprincipal payment as an expense, fee, or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof,
and (c) spread the total amount of interest throughout the entire contemplated
term hereof; provided that if the interest received for the actual period of
existence hereof exceeds the Highest Lawful Rate, the Holder hereof shall
either apply or refund to Maker the amount of such excess as herein provided,
and in such event the Holder hereof shall not be subject to any penalties
provided by any laws for contracting for, charging, or receiving interest in
excess of the Highest Lawful Rate. For purposes of this Note, the term ?Highest
Lawful Rate? shall mean, at any given time, the maximum nonusurious interest
rate, if any, that may be contracted for or received on the indebtedness
evidenced by this Note under applicable federal and state laws.
15. NO ORAL AGREEMENTS. THIS NOTE REPRESENTS 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.
16. WAIVER OF TRIAL BY JURY. MAKER HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE 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. MAKER
ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND
TRIAL BY JURY.
7
71
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
MAKER:
------------------------------------------
Xxxxx X. Xxxxxxx
STATE OF GEORGIA )
) SS
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this 26th day of
August, 1999, by Xxxxx X. Xxxxxxx. He is (check one) _____ personally known to
me or ____ has produced a _____________ drivers license as identification.
Signature:
--------------------------------
Print Name
--------------------------------
State of
----------------------------------
[Notary Seal] Commission#:
My Commission Expires:
8
72
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement ("Pledge Agreement") is made this
26th of August, 1999, by and between Xxxxx Xxxxxxx, an individual resident of
the State of Florida ("Pledgor") and CyberGuard Corporation, a Florida
corporation ("Pledgee").
RECITALS
Pledgor has executed that certain promissory note ("Note") of even
date herewith in favor of Pledgee in the original principal amount of $100,000,
which Note is attached hereto and incorporated herein as Exhibit "A."
As security for Pledgor's obligations under the Note ("Note
Obligations"), as and when required by the Note, Pledgor is required to pledge
and to grant to Pledgee a security interest in and lien upon the "Collateral"
(as hereinafter defined).
NOW THEREFORE, in order to induce Pledgee to accept the Note, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. Pledge.
(a) To secure the payment and performance of all Note
Obligations, Pledgee hereby grants, transfers and pledges to Pledgor, and
grants to Pledgee a security interest in, all of Pledgor's now existing and
hereafter arising right, title and interest in, under and to the following (the
"Collateral"):
(i) One Promissory Note of CyberGuard Corporation in
the principal amount of $150,000 payable to Pledgor, together with all new,
substituted and additional notes made at any time with respect to this Note
(the "Pledged Note"); or such substituted Collateral as may be reasonably
acceptable to the Pledgee;
(ii) One Warrant to purchase 150,000 shares of
CyberGuard Corporation, together with all new, substituted and additional
warrants made at any time with respect to such Warrant (the "Pledged
Warrants"); or such substituted Collateral as may be reasonably acceptable to
the Pledgee;
(iii) Any and all now existing and hereafter arising
rights of the holder of the Collateral or any substituted Collateral with
respect to all rights to payment of any kind, including cash and non-cash
dividends, instruments and other property, from time to time received,
receivable or otherwise distributed on account of, or in exchange for, the
Pledged Note or Pledged Warrant or any substituted Collateral; and
(iv) All proceeds of the foregoing Collateral,
including, without limitation, whatever is receivable or received when
Collateral or proceeds is sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and including, without
limitation, all rights to payment, interest, or other property receivable or
received on account of the Collateral or proceeds thereof.
(b) Pledgor hereby irrevocably appoints Pledgee as its true
and lawful attorney-in-fact, with full power of delegation, substitution and
assignment, as follows: (i) to execute, deliver, file and record, on Pledgor's
behalf and in Pledgor's name, financing statements and all such other security
and agreements, contracts, documents and instruments; (ii) to give notice of
Pledgee's rights in the Collateral and to enforce the same; (iii) to receive,
endorse, and collect all instruments made payable to Pledgor, representing any
payment or distribution in respect of the Collateral or any part thereof and to
give full discharge therefor, which irrevocable power shall become effective
without further action upon the occurrence of an "Event of Default" (as
hereinafter defined); and (iv) to do such other acts as Pledgee, in its sole
discretion, may deem necessary or desirable to perfect or protect the security
interest hereby created and to carry out the purposes and intents of this
Pledge Agreement, Pledgor hereby ratifying and confirming all that Pledgee may
do in that regard, acknowledging that this power of attorney is coupled with an
interest, and agreeing to pay all reasonable costs and expenses in connection
therewith, provided, however, that Pledgee shall have recourse only to the
Collateral for collection of such costs and expenses.
9
73
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
2. Conversion of Note/Exercise of Warrant. In the event that the
Pledgor desires to convert the Pledged Note or exercise the Pledged Warrant in
accordance with the terms thereof, then the Pledgee shall permit such
conversion or exercise and shall replace the Collateral with a substitute
Pledged Note or Pledged Warrant reduced in amount to reflect such exercise;
provided, however, that the following conditions shall apply:
(a) The Pledged Note may be not be converted in whole until
the Note is paid in full and may not be converted in part if, after such
partial conversion, the principal amount of the Pledged Note will be less than
the principal amount of the Note secured by the Pledged Note at the time of
conversion; and
(b) The Pledged Warrant may not be exercised in whole until
the Note is paid in full and may not be exercised in part if, after such
partial exercise, the number of shares remaining issuable upon exercise of the
Pledged Warrant is less than the dollar amount of the principal outstanding of
the Note at the time of exercise.
3. Indebtedness Secured. The security interest created hereby is given
for the purpose of securing payment by Pledgor to Pledgee of all Note
Obligations required pursuant to the Note.
4. Representations and Warranties of Pledgor. Pledgor hereby
represents, warrants, and agrees that:
(a) The execution and delivery by Pledgor of, and the
performance by Pledgor of all of its obligations under, this Pledge Agreement
will not violate any applicable law or any contract or agreement by which
Pledgor is bound;
(b) Pledgor has granted no security interest in any
Collateral or the proceeds thereof, except in favor of Pledgee;
(c) This Pledge Agreement constitutes a legal, valid and
binding obligation of Pledgor, enforceable in accordance with its terms;
(d) There is no action, suit, or proceeding pending, or to
the best of Pledgor's knowledge threatened, against Pledgor which could
reasonably be expected to adversely affect the Collateral or Pledgor's property
or financial condition; and
(e) The sole owner of the Collateral is the Pledgor (or, in
the case of after-acquired Collateral, at the time Pledgor acquires rights in
the Collateral, Pledgor will be the sole owner thereof).
5. Covenants of Pledgor. Until such time as all the Note Obligations
have been satisfied in full or all payments required under the Note have been
made, unless Pledgee otherwise consents in writing:
(a) Pledgor shall: (i) at the request of Pledgee, at any time
and from time to time, execute and deliver to Pledgee all financing statements
and other documents reasonably deemed necessary or advisable by Pledgee in
order more fully to evidence and perfect the security interest in the
Collateral; (ii) promptly furnish Pledgee with any information which Pledgee
may reasonably request concerning the Collateral; (iii) allow Pledgee to
inspect all records of Pledgor relating to the Collateral and to make and take
away copies of such records; (iv) do all acts which may be necessary to
preserve, maintain, and protect the Collateral and the value thereof and
Pledgor's rights and interests therein; (v) pay all taxes, assessments, and
other charges imposed on or relating to the Collateral, except such taxes, if
any, as are being contested in good faith by appropriate proceedings and by
reason of such nonpayment and contest no material item or portion of the
Collateral is in jeopardy of being attached or forfeited; and (vi) pay all
reasonable costs and expenses, including reasonable attorneys' fees, incurred
by Pledgee in connection with the enforcement of this Pledge Agreement,
provided, however, that Pledgee shall have recourse only to the Collateral for
collection of such costs and expenses.
(b) Pledgor shall not, without prior written consent, (i)
sell, assign, exchange, transfer, encumber, or otherwise dispose of, or
contract to sell, assign, exchange, transfer, encumber, or otherwise dispose of
(collectively, "Transfer"), any of the Collateral or any part thereof or any
interest therein, or (ii) take any action
10
74
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
with respect to the Collateral which is inconsistent with the provisions or
purposes of this Pledge Agreement or which would adversely affect the rights of
Pledgee hereunder.
6. Events of Default and Remedies.
(a) The occurrence of any of the following events shall
constitute an "Event of Default" hereunder: The breach by Pledgor of any term,
provision or covenant of this Pledge Agreement or any event of default under
the Note (other than the failure to make any principal payment required in
Paragraph 1 of the Note) upon the lapse of the "Notice and Cure Period" (as
defined below) and the Pledgor's failure to remove or alleviate the event, fact
or condition giving rise to such alleged default during the Notice and Cure
Period.
(b) Upon the occurrence of any Event of Default, Pledgee
shall have all rights and remedies of a secured party under the Uniform
Commercial Code.
(c) "Notice and Cure Period" shall mean the date immediately
the ten (10) day period commencing upon the date on which an event as described
under Section 6(a) hereof occurs.
7. Release of Collateral.
(a) This Pledge Agreement, the Collateral and all obligations
of Pledgor hereunder shall be released when the Note has been paid in full and
all Note Obligations required thereunder have been made.
(b) Upon the release of any Collateral pursuant to this
Section 7, Pledgee shall execute, deliver, file and record all documents and
instruments, or shall cause such to be done, all acts or instruments reasonably
required by Pledgor to evidence such release.
8. Amendments; Waivers. Neither this Pledge Agreement nor any
provision hereof may be amended, modified, waived, discharged, or terminated
nor may any of the Collateral be released except by an instrument in writing
duly signed by or on behalf of Pledgee and Pledgor. No failure or delay on the
part of Pledgee in exercising any right, power, or remedy may be, or may be
deemed to be, a waiver thereof; nor may any single or partial exercise of any
right, power, or remedy preclude any other or further exercise thereof or the
exercise of any other right, power, or remedy hereunder.
9. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
To the Pledgee: To the Pledgor:
--------------- ---------------
CyberGuard Corporation Xxxxx X. Xxxxxxx
0000 Xxxx Xxxxxxxxxx Xxxxxxxxx 0000 Xxxxxxxx Xxxxx
Xxxx Xxxxxxxxxx, Xxxxxxx 00000 Xxxxxx, Xxxxx 00000
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.
10. Further Assurances. The parties shall cooperate and take such
actions, and execute such other documents as either may reasonably request in
order to carry out the provisions or purpose of this Pledge Agreement.
11. Entire Agreement; Amendments and Waivers. This Pledge Agreement,
together with all exhibits hereto, constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior
11
75
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
agreements, understanding, negotiations and discussions, whether oral or
written, of the parties. No supplement, amendment, modification or waiver of
this Pledge Agreement shall be binding unless executed in writing by the party
to be bound thereby. No waiver of any of the provisions of this Pledge
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
12. Binding Agreement. This Pledge Agreement and the terms, covenants,
and conditions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that Pledgee
shall not be permitted to transfer, convey, or assign this Pledge Agreement or
any interest herein without the prior written consent of Pledgor.
13. Invalidity. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein shall for any reason be held to be invalid, illegal or unenforceable in
any respect, then such invalidity, illegality or unenforceability shall not
affect any other provision of this Pledge Agreement or any other such
instrument.
14. Miscellaneous. All words used herein in the plural shall be deemed
to have been used in the singular, and all words used herein in the singular
shall be deemed to have been used in the plural, where the context and
construction so require. Section headings in this Pledge Agreement are included
for convenience of reference only and are not a part of this Pledge Agreement
for any other purpose.
15. Governing Law. This Pledge Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Florida.
16. Counterparts. This Pledge Agreement may be executed in one or more
counterparts, each one of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of an executed
counterpart of this Pledge Agreement via telephone facsimile transmission shall
be effective as delivery of a manually executed counterpart of this Pledge
Agreement.
*****
IN WITNESS WHEREOF, the parties have duly executed this Pledge
Agreement on the date first above written.
PLEDGOR
-------------------------------------------
Xxxxx X. Xxxxxxx
PLEDGEE
CyberGuard Corporation
-------------------------------------------
By:
Its:
<
12
76
SUBORDINATION AGREEMENT COAST BUSINESS CREDIT
-------------------------------------------------------------------------------
STATE OF GEORGIA )
) SS
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this 26th day of
August, 1999, by Xxxxx X. Xxxxxxx. He is (check one) _____ personally known to
me or ____ has produced a _____________ drivers license as identification.
Signature:
--------------------------------
Print Name
---------------------------------
State of
----------------------------------
[Notary Seal] Commission#:
My Commission Expires:
13
