<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 17, 1998
CYBERGUARD CORPORATION
(Exact name of Registrant as specified in its charter)
2000 W. Commercial Blvd., Suite 200, Ft. Lauderdale, Florida 33309
(address of principal offices)
954-958-3900
(Registrant's telephone number)
<TABLE>
<S> <C> <C>
Incorporation under the laws of the Commission File Number I.R.S. Employer Identification Number
STATE OF FLORIDA 0-24544 65-0510339
</TABLE>
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 17, 1998, CyberGuard Corporation, a Florida corporation
("Registrant"), completed the acquisition of ARCA Systems, Inc., a California
corporation ("ARCA"), pursuant to an Agreement and Plan of Merger, dated May 29,
1998 (the "Merger Agreement"), among the Registrant, ARCA, and ARCA Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of the Registrant
("Sub"), and each of William F. Wilson ("Wilson"), R. Kenneth Bauer ("Bauer")
and Michael L. Weidner ("Weidner" and together with Wilson and Bauer, the "Party
Shareholders"). The acquisition was effected through the merger (the "Merger")
of Sub with and into ARCA, with ARCA being the surviving corporation of the
Merger and becoming a wholly-owned subsidiary of the Registrant. ARCA is a
security integration services firm specializing in practical applications of
advanced security technology for information systems and provides security
engineering services and security assessment services to a wide variety of
customers in private industry and selected government organizations.
In connection with the Merger, (i) each of the 3,726,667 shares of ARCA
common stock issued and outstanding immediately prior to the Merger was
converted into the right to receive .11819 shares of Registrant Common Stock
(rounded to the nearest thousandth of a share), subject to the payment of cash
in lieu of fractional shares; (ii) each of the 76,130 shares of ARCA Series A
preferred stock issued and outstanding immediately prior to the Merger was
converted into the right to receive .54817 shares of Registrant Common Stock
(rounded to the nearest thousandth of a share), subject to the payment of cash
in lieu of fractional shares; (iii) each of the 515,000 shares of ARCA Series B
preferred stock issued and outstanding immediately prior to the Merger was
converted into the right to receive .19361 shares of Registrant Common Stock
(rounded to the nearest thousandth of a share), subject to the payment of cash
in lieu of fractional shares; and (iv) certain loans, which aggregated
approximately $113,000 with principal and interest, to ARCA from certain
shareholders of ARCA were converted into and exchanged for 8,577 shares of
Registrant Common Stock. In the aggregate, approximately 590,429 shares of the
Registrant's Common Stock, constituting approximately 6.7% of its
then-outstanding shares, were issued in the Merger with an additional 116,842
shares reserved for issuance pursuant to options outstanding under ARCA's 1988
Stock Option Plan which was assumed by the Registrant in the Merger. The closing
price of a share of Registrant Common Stock on the effective date of the Merger
was approximately $9.44. The Merger was accounted for by the Registrant under
the "pooling-of-interests" method of accounting in accordance with generally
accepted accounting principles.
In connection with the Merger, the Registrant agreed to register the shares
of Registrant Common Stock to be received by the ARCA shareholders in the Merger
in three tranches over a 270-day period. In addition, key employees of ARCA
prior to the Merger entered into Employment Agreements with ARCA and the Party
Shareholders entered into Restrictive Covenant Agreements with the Registrant
whereby such persons have agreed to not compete and not solicit business or
personnel for a certain period of time in connection with the sale of ARCA.
Robert L. Carberry, Tommy D. Steele, William D. Murray, Leland R. Reiswig, Jr.
and the Party Shareholders have been appointed to the Board of Directors of
ARCA. Mr. Wilson also is a vice president of the Registrant.
The foregoing descriptions of the Merger Agreement, the Registration
Agreement, the Employment Agreements and the Restrictive Covenant Agreements
are qualified in their entirety by the full text of the Merger Agreement, the
form of Registration Agreement, the form of Employment Agreement for Party
Shareholders, the form of Employment Agreement for non-Party Shareholders and
the form of Restrictive Covenant Agreement which are included as Exhibits 2.1,
10.1, 10.2, 10.3 and 10.4 to this Current Report on Form 8-K and incorporated
herein by reference. The Registrant Common Stock is traded on the Nasdaq
National Market under the symbol "CYBG".
-2-
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
1. Report of Independent Certified Public Accountants.
2. Audited Balance Sheet of ARCA Systems, Inc. as of December 31,
1997.
3. Audited Statements of Operation and Retained Earnings of ARCA
Systems, Inc. as of December 31, 1997.
4. Audited Statement of Changes in Stockholders' Equity of ARCA
Systems, Inc. as of December 31, 1997.
5. Audited Statement of Cash Flows of ARCA Systems, Inc. as of
December 31, 1997.
6. Notes to Financial Statements of ARCA Systems, Inc. as of
December 31, 1997.
(b) Pro Forma Financial Information
1. Unaudited Pro Forma Condensed Combined Financial Statements of
CyberGuard Corporation and ARCA Systems, Inc.
2. Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended June 30, 1995.
3. Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended June 30, 1996.
4. Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended June 30, 1997.
5. Unaudited Pro Forma Condensed Combined Statement of Operations
for the three months ended March 31, 1997.
6. Unaudited Pro Forma Condensed Combined Statement of Operations
for the three months ended March 31, 1998.
7. Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended March 31, 1997.
8. Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended March 31, 1998.
9. Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1998.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of May 29, 1998, among
CyberGuard Corporation, ARCA Acquisition Corporation, ARCA
Systems, Inc. and William F. Wilson, Michael L. Weidner and
R. Kenneth Bauer.
10.1 Form of Registration Agreement, among CyberGuard
Corporation and the shareholders of ARCA.
10.2 Form of Employment Agreement, among ARCA Systems, Inc. and
William F. Wilson, Michael L. Weidner and R. Kenneth Bauer.
10.3 Form of Employment Agreement, among ARCA Systems, Inc. and
Jack Wool, Marv Schaefer, Gary Grossman, Victoria Thompson,
Stephen Nardone and Charles Pfleeger.
10.4 Form of Restrictive Covenant Agreement, among CyberGuard
Corporation and the Party Shareholders.
23.1 Consent of Tobkin, Chiang & Hammon, Certified Public
Accountants.
99.1 Press Release of CyberGuard Corporation relating to the
acquisition of ARCA Systems, Inc.
-3-
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CYBERGUARD CORPORATION
By: /s/ Robert L. Carberry
-----------------------------
Robert L. Carberry
Chief Executive Officer
Dated: June 22, 1998
-4-
<PAGE> 5
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<PAGE> 6
TOBKIN, CHIANG AND HAMMON
Certified Public Accountants
2007 W. Hedding Street, Suite 209
San Jose, California 95128
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
ARCA Systems, Inc.
San Jose, California
We have audited the accompanying balance sheet of ARCA Systems, Inc. as of
December 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ARCA Systems, Inc. as of
December 31, 1997 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Tobkin, Chiang & Hammon
San Jose, California
February 13, 1998
F-1
<PAGE> 7
ARCA SYSTEMS, INC.
BALANCE SHEET
December 31, 1997
ASSETS
CURRENT ASSETS
Cash $ 56,852
Trade accounts receivable 1,026,848
Accounts receivable - other 20,394
Travel advances 45,264
Prepaid expenses 35,092
-----------
TOTAL CURRENT ASSETS 1,184,450
FIXED ASSETS
Furniture and fixtures 67,452
Equipment 633,331
Accumulated depreciation (441,257)
-----------
NET FIXED ASSETS 259,526
OTHER ASSETS
Rent deposits 25,996
Other deposits 8,666
-----------
TOTAL OTHER ASSETS 34,662
TOTAL ASSETS $ 1,478,638
===========
See accompanying notes and independent auditors' report
F-2
<PAGE> 8
ARCA SYSTEMS, INC.
BALANCE SHEET
December 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 184,664
Income tax payable 1,256
Accrued expenses 221,840
Notes payable - short-term 323,000
----------
TOTAL CURRENT LIABILITIES 730,760
LONG-TERM DEBT 50,000
STOCKHOLDERS' EQUITY
Common stock 29,851
Preferred stock 591,130
Retained earnings 76,897
----------
TOTAL STOCKHOLDERS' EQUITY 697,878
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,478,638
==========
See accompanying notes and independent auditors' report
F-3
<PAGE> 9
ARCA SYSTEMS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Year ended December 31, 1997
REVENUES $ 4,235,083
COST OF SALES 1,851,014
-----------
GROSS PROFIT 2,384,069
EXPENSES
Salaries and wages 718,321
Overhead expenses 652,026
Interest expense 53,569
General and administrative 981,085
-----------
TOTAL EXPENSES 2,405,001
NET LOSS BEFORE INCOME TAX (20,932)
INCOME TAX - MINIMUM STATE TAXES 1,256
NET LOSS (22,188)
BEGINNING RETAINED EARNINGS 99,085
ENDING RETAINED EARNINGS $ 76,897
===========
See accompanying notes and independent auditors' report
F-4
<PAGE> 10
ARCA SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year ended December 31, 1997
<TABLE>
<CAPTION>
COMMON PREFERRED RETAINED
STOCK STOCK EARNINGS TOTAL
-------- --------- -------- --------
<S> <C> <C> <C> <C>
BALANCE AT 12/31/96 $ 21,000 76,130 99,085 $196,215
Stock issued 8,851 515,000 523,851
Net Loss from operations (22,188) (22,188)
----------------------------------------------------
BALANCE AT 12/31/97 $ 29,851 591,130 76,897 $697,878
====================================================
</TABLE>
See accompanying notes and independent auditors' report
F-5
<PAGE> 11
ARCA SYSTEMS, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (22,188)
Adjustment to reconcile net income to
net cash used by operating activities:
Depreciation 63,429
Increase in accounts receivable (251,715)
Decrease in other receivable 436
Increase in travel advances (19,962)
Increase in prepaid expenses (27,208)
Increase in accounts payable 54,218
Increase in accrued expenses 31,509
---------
NET CASH USED BY OPERATING ACTIVITIES (171,481)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (168,733)
Acquisition of other assets (8,256)
Common stock and preferred stock 523,851
---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 346,862
CASH FLOWS FROM FINANCING ACTIVITIES
Debt reduction (137,867)
---------
NET CASH USED BY FINANCING ACTIVITIES (137,867)
NET INCREASE IN CASH 37,514
CASH AT BEGINNING OF YEAR 19,338
---------
CASH AT END OF YEAR $ 56,852
=========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 53,569
Income taxes paid $ 3,547
See accompanying notes and independent auditors' report
F-6
<PAGE> 12
ARCA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of ARCA Systems, Inc. is
presented to assist in understanding the Company's financial statements. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
NATURE OF BUSINESS
The Company provides software security engineering for private companies and
government agencies that use and store highly sensitive computer data. The
Company grants credit to customers in the software security industry throughout
the nation. Consequently, the Company's ability to collect the amounts due from
customers is affected by economic fluctuations in the industry.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
DEPRECIATION OF PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes at rates based on the following estimated useful lives:
YEARS
-----
Computer equipment 5
Furniture and fixtures 7
Leasehold improvements 15
F-7
<PAGE> 13
ARCA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
DEPRECIATION OF PROPERTY AND EQUIPMENT (CONTINUED)
For federal income tax purposes, depreciation is computed using the modified
accelerated cost recovery system. Expenditures for major renewals and
betterments that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE B - LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, 1997
-----------------
Line of credit $ 187,367
Equipment loan 105,633
Loans from related parties (Note E) 80,000
Less amount due within one year (323,000)
---------
Total Long-term Debt $ 50,000
=========
Maturity of long-term debt is as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
1999 $ 25,000
2000 25,000
--------
TOTAL $ 50,000
========
F-8
<PAGE> 14
ARCA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE C - LEASE ARRANGEMENTS
The Company conducts its operations from facilities that are leased under a
sixty three month non-cancelable operating lease expiring on March 31, 1998.
There is an option to renew the lease for an additional two years at an
increased monthly payment. In addition, the Company also leases sales offices in
several other states with various terms.
The following is a schedule of future minimum lease payments required under the
above operating leases as of December 31, 1997:
Year Ending
December 31, Amount
------------ ----------
1998 $ 239,014
1999 204,447
2000 103,331
2001 85,297
2002 88,282
----------
TOTAL $ 720,371
==========
NOTE D - DEFINED BENEFIT PENSION PLAN
The Company has a 401(k) savings plan covering substantially all of its
employees. Contributions and costs are determined based on a percentage of each
covered employee's salary. For the year ended December 31, 1997, the Company did
not make any contributions to the savings plan.
NOTE E - RELATED PARTY TRANSACTIONS
The following notes exist as of December 31, 1997 between the Company and its
shareholders. Due dates for these notes vary from three to five years.
F-9
<PAGE> 15
ARCA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE E - RELATED PARTY TRANSACTIONS (CONTINUED)
The related party notes consist of the following:
<TABLE>
<CAPTION>
Note Interest Interest
Note Date Amount Rate Accrual
--------- ---------- -------- ---------
<S> <C> <C> <C>
08/24/93 $ 25,000 8.5% $ 949
04/23/93 20,000 8.5% 759
07/01/92 10,000 9.5% 950
03/01/93 25,000 8.5% 2,125
---------- ---------
Total $ 80,000 Total $ 4,783
========== =========
</TABLE>
NOTE F - CAPITAL STOCK
The capital stock as of December 31, 1997 consists of the following:
COMMON STOCK PREFERRED STOCK
------------ ---------------
Shares authorized 20,000,000 10,000,000
Shares outstanding 3,721,557 591,130
Stock option activity for the year ended December 31, 1997 is as follows:
OPTIONS OUTSTANDING
-------------------
Options outstanding, January 1, 1997 $ 792,498
Options granted 319,000
Options exercised (67,307)
Options outstanding, December 31, 1997 $ 1,044,191
===========
Value of the options granted varied from $ .45 to $ .60 per share. Value of the
options exercised varied from $ 0.0625 to $ 0.45 per share.
F-10
<PAGE> 16
ARCA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE G - INCOME TAX
For the year ended December 31, 1997, the Company has no income tax liability as
a result of the operating loss. However, two states imposed minimum tax of
$1,256 for the year ended December 31, 1997.
NOTE H - SUBSEQUENT EVENT
Subsequent to December 31, 1997, the Company entered into an agreement to merge
with Cyberguard Corporation (a publicly-held corporation). Under the agreement,
Cyberguard will issue common stock as consideration for a 100 percent interest
in ARCA Systems, Inc.
F-11
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
CYBERGUARD CORPORATION AND ARCA SYSTEMS, INC.
The following unaudited pro forma condensed combined financial
statements give effect to the acquisition by CyberGuard of all of the
outstanding stock of ARCA . This acquisition will be accounted for using the
pooling-of-interests method of accounting. The unaudited pro forma condensed
combined financial statements give effect to the issuance of CyberGuard Common
Stock to the shareholders of ARCA as well as the estimated transaction costs
incurred in connection with the acquisition. These statements are based on the
historical financial statements of CyberGuard and ARCA and the estimates and
assumptions noted in the unaudited condensed combined financial statements and
the footnotes thereto.
The unaudited pro forma condensed combined balance sheet gives effect
to the acquisition as if it had occurred on March 31, 1998. The unaudited pro
forma condensed combined statements of operations for the year ended June 30,
1997 and nine months ended March 31, 1998 give effects to the acquisition as if
it had occurred on July 1, 1996.
The pro forma adjustments are based upon preliminary estimates,
currently available information and certain assumptions that management deems
appropriate. The unaudited pro forma combined financial data presented herein
are not necessarily indicative of the results CyberGuard would have obtained had
such events occurred on July 1, 1996, as assumed, or the future results of
CyberGuard. The unaudited pro forma condensed combined financial statements
should be read in conjunction with the other financial statements and notes
thereto included in CyberGuard's Form 10-K for the year ended June 30, 1997 as
filed with the Commission on September 30, 1997.
F-12
<PAGE> 18
CYBERGUARD CORPORATION AND ARCA SYSTEMS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the year ended June 30, 1995 (Unaudited)
(all dollars in 000's)
<TABLE>
<CAPTION>
Pro
CYBG ARCA Merger Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product $ 3,704 $ -- $ -- $ 3,704
Services 216 3,214 -- 3,430
Real Time Allocation 40,232 -- -- 40,232
---------- ---------- ----------- ----------
Total Revenue 44,152 3,214 -- 47,366
---------- ---------- ----------- ----------
COST OF REVENUE:
Product 2,366 -- -- 2,366
Services 107 1,357 -- 1,464
Real Time Allocation 23,602 -- -- 23,602
---------- ---------- ----------- ----------
Total Cost of Revenue 26,075 1,357 -- 27,432
---------- ---------- ----------- ----------
Gross Profit 18,077 1,857 -- 19,934
OPERATING EXPENSES:
Research and Development 806 -- -- 806
Selling, General & Administrative 3,210 1,701 -- 4,911
Real Time Expenses 24,047 -- -- 24,047
Transaction Expense 1,256 -- -- 1,256
---------- ---------- ----------- ----------
Total Operating Expenses 29,319 1,701 -- 31,020
---------- ---------- ----------- ----------
Operating Income (Loss) (11,242) 156 -- (11,086)
---------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest Income (Expense) 292 (46) -- 246
Other Expense (2,804) (15) -- (2,819)
---------- ---------- ----------- ----------
Total Other Income (Expense) (2,512) (61) -- (2,573)
---------- ---------- ----------- ----------
Net Income (Loss) $ (13,754) $ 95 $ -- $ (13,659)
========== ========== =========== ==========
Income (Loss) per Share $ (2.33) $ 0.03 $ -- $ (2.10)
========== ========== =========== ==========
Weighted Average Number Of Shares 5,911,000 3,638,375 (3,047,946)(a) 6,501,429
========== ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-13
<PAGE> 19
CYBERGUARD CORPORATION AND ARCA SYSTEMS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the year ended June 30, 1996 (Unaudited)
(all dollars in 000's)
<TABLE>
<CAPTION>
Pro
CYBG ARCA Merger Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product $ 7,728 $ -- $ -- $ 7,728
Services 438 3,427 -- 3,865
Real Time Allocation 37,952 -- -- 37,952
---------- ---------- ----------- ----------
Total Revenue 46,118 3,427 -- 49,545
---------- ---------- ----------- ----------
COST OF REVENUE:
Equipment 5,062 -- -- 5,062
Services 194 1,502 -- 1,696
Real Time Allocation 20,921 -- -- 20,921
---------- ---------- ----------- ----------
Total Cost of Revenue 26,177 1,502 -- 27,679
---------- ---------- ----------- ----------
Gross Profit 19,941 1,925 -- 21,866
OPERATING EXPENSES:
Research and Development 1,180 -- -- 1,180
Selling, General & Administrative 7,955 1,957 -- 9,912
Real Time Expenses 23,424 -- -- 23,424
Transaction Expense 4,253 -- -- 4,253
---------- ---------- ----------- ----------
Total Operating Expenses 36,812 1,957 -- 38,769
---------- ---------- ----------- ----------
Operating Income (Loss) (16,871) (32) -- (16,903)
---------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest Income (Expense) 275 (21) -- 254
Loss on Sale of Real Time Business (15,160) -- -- (15,160)
Other Income (Expense) 331 (28) -- 303
---------- ---------- ----------- ----------
Total Other Income (Expense) (14,554) (49) -- (14,603)
---------- ---------- ----------- ----------
Net Loss $ (31,425) $ (80) $ -- $ (31,505)
========== ========== =========== ==========
Loss per Share $ (5.20) $ (0.02) $ -- $ (4.75)
========== ========== =========== ==========
Weighted Average Number Of Shares 6,046,182 3,805,510 (3,215,081)(a) 6,636,611
========== ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-14
<PAGE> 20
CYBERGUARD CORPORATION AND ARCA SYSTEMS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the year ended June 30, 1997 (Unaudited)
(all dollars in 000's)
<TABLE>
<CAPTION>
Pro
CYBG ARCA Merger Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product $ 14,574 $ -- $ -- $ 14,574
Services 1,047 3,463 -- 4,510
---------- ---------- ----------- ----------
Total Revenue 15,621 3,463 -- 19,084
---------- ---------- ----------- ----------
COST OF REVENUE:
Equipment 6,669 -- -- 5,062
Services 571 1,591 -- 2,162
---------- ---------- ----------- ----------
Total Cost of Revenue 7,240 1,591 -- 8,832
---------- ---------- ----------- ----------
Gross Profit 8,381 1,872 -- 10,253
OPERATING EXPENSES:
Research and Development 4,723 -- -- 4,723
Selling, General & Administrative 11,410 1,919 -- 13,329
Write Off Purchased In Process R&D 262 -- -- 262
---------- ---------- ----------- ----------
Total Operating Expenses 16,395 1,919 -- 18,314
---------- ---------- ----------- ----------
Operating Income (Loss) (8,014) (47) -- (8,062)
---------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest Income (Expense) 646 (39) -- 607
Write Off Translation Adjustment (520) -- -- (520)
Gain (Loss) on Sale of Securities (4,414) -- -- (4,414)
Other Income (Expense) (188) (31) -- (219)
---------- ---------- ----------- ----------
Total Other Income (Expense) (4,476) (70) -- (4,546)
---------- ---------- ----------- ----------
Net Loss $ (12,490) $ (117) $ -- $ (12,607)
========== ========== =========== ==========
Loss per Share $ (1.76) $ (0.03) $ -- $ (1.64)
========== ========== =========== ==========
Weighted Average Number Of Shares 7,100,014 3,954,359 (3,363,930)(a) 7,690,443
========== ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-15
<PAGE> 21
CYBERGUARD CORPORATION AND ARCA SYSTEMS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the three months ended March 31, 1997 (Unaudited)
(all dollars in 000's)
<TABLE>
<CAPTION>
Pro
CYBG ARCA Merger Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product $ 3,874 $ -- $ -- $ 3,874
Services 231 940 -- 1,171
---------- ---------- ----------- ----------
Total Revenue 4,105 940 -- 5,045
---------- ---------- ----------- ----------
COST OF REVENUE:
Equipment 1,727 -- -- 1,727
Services 143 446 -- 589
---------- ---------- ----------- ----------
Total Cost of Revenue 1,870 446 -- 2,316
---------- ---------- ----------- ----------
Gross Profit 2,235 494 -- 2,729
OPERATING EXPENSES:
Research and Development 1,028 -- -- 1,028
Selling, General & Administrative 2,847 478 -- 3,325
---------- ---------- ----------- ----------
Total Operating Expenses 3,875 478 -- 4,353
---------- ---------- ----------- ----------
Operating Income (Loss) (1,640) 15 -- (1,625)
---------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest Income (Expense) 187 (5) -- 182
Write off Translation Adjustment (220) -- -- (220)
Gain (Loss) on sale of securities 800 -- -- 800
Other Income (Expense) (19) (5) -- (24)
---------- ---------- ----------- ----------
Total Other Income (Expense) 748 (10) -- 738
---------- ---------- ----------- ----------
Net Income (Loss) $ (892) $ 6 $ -- $ (886)
========== ========== =========== ==========
Income (Loss) per Share $ (0.12) $ 0.00 $ -- $ (0.11)
========== ========== =========== ==========
Weighted Average Number Of Shares 7,375,293 3,958,770 (3,368,341)(a) 7,965,722
========== ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-16
<PAGE> 22
CYBERGUARD CORPORATION AND ARCA SYSTEMS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the three months ended March 31, 1998 (Unaudited)
(all dollars in 000's)
<TABLE>
<CAPTION>
Pro
CYBG ARCA Merger Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product $ 4,333 $ -- $ -- $ 4,333
Services 819 1,161 -- 1,980
---------- ---------- ----------- ----------
Total Revenue 5,152 1,161 -- 6,313
---------- ---------- ----------- ----------
COST OF REVENUE:
Equipment 1,457 -- -- 1,457
Services 321 450 -- 771
---------- ---------- ----------- ----------
Total Cost of Revenue 1,778 450 -- 2,228
---------- ---------- ----------- ----------
Gross Profit 3,374 711 -- 4,085
OPERATING EXPENSES:
Research and Development 1,059 -- -- 1,059
Selling, General & Administrative 3,988 670 -- 4,658
---------- ---------- ----------- ----------
Total Operating Expenses 5,047 670 -- 5,717
---------- ---------- ----------- ----------
Operating Income (Loss) (1,673) 41 -- (1,632)
---------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest Income (Expense) 45 (5) -- 40
Other Income (Expense) (15) (7) -- (22)
---------- ---------- ----------- ----------
Total Other Income (Expense) 30 (12) -- 18
---------- ---------- ----------- ----------
Net Income (Loss) $ (1,643) $ 29 $ -- $ (1,614)
========== ========== =========== ==========
Income (Loss) per Share $ (0.19) $ 0.01 $ -- $ (0.18)
========== ========== =========== ==========
Weighted Average Number Of Shares 8,504,575 3,726,667 (3,136,238)(a) 9,095,004
========== ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-17
<PAGE> 23
CYBERGUARD CORPORATION AND ARCA SYSTEMS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the nine months ended March 31, 1997 (Unaudited)
(all dollars in 000's)
<TABLE>
<CAPTION>
Pro
CYBG ARCA Merger Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product $ 9,585 $ -- $ -- $ 9,585
Services 634 2,673 -- 3,307
---------- ---------- ----------- ----------
Total Revenue 10,219 2,673 -- 12,892
---------- ---------- ----------- ----------
COST OF REVENUE:
Equipment 4,924 -- -- 4,924
Services 328 1,196 -- 1,524
---------- ---------- ----------- ----------
Total Cost of Revenue 5,252 1,196 -- 6,448
---------- ---------- ----------- ----------
Gross Profit 4,967 1,478 -- 6,445
OPERATING EXPENSES:
Research and Development 3,095 -- -- 3,095
Selling, General & Administrative 7,743 1,504 -- 9,247
---------- ---------- ----------- ----------
Total Operating Expenses 10,838 1,504 -- 12,342
---------- ---------- ----------- ----------
Operating Income (Loss) (5,871) (26) -- (5,897)
---------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest Income (Expense) 550 (12) -- 538
Write off Translation Adjustment (220) -- -- (220)
Loss on sale of securities (4,414) -- -- (4,414)
Other Expense (16) (12) -- (28)
---------- ---------- ----------- ----------
Total Other Income (Expense) (4,100) (24) -- (4,124)
---------- ---------- ----------- ----------
Net Loss $ (9,971) $ (51) $ -- $ (10,022)
========== ========== =========== ==========
Loss per Share $ (1.40) $ (0.01) $ -- $ (1.30)
========== ========== =========== ==========
Weighted Average Number Of Shares 7,105,576 3,954,359 (3,363,930)(a) 7,696,005
========== ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-18
<PAGE> 24
CYBERGUARD CORPORATION AND ARCA SYSTEMS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the nine months ended March 31, 1998 (Unaudited)
(all dollars in 000's)
<TABLE>
<CAPTION>
Pro
CYBG ARCA Merger Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product $ 13,540 $ - $ -- $ 13,540
Services 1,529 3,582 -- 5,111
---------- ---------- ----------- ----------
Total Revenue 15,069 3,582 -- 18,651
---------- ---------- ----------- ----------
COST OF REVENUE:
Equipment 4,619 -- -- 4,619
Services 784 1,469 -- 2,253
---------- ---------- ----------- ----------
Total Cost of Revenue 5,403 1,469 -- 6,872
---------- ---------- ----------- ----------
Gross Profit 9,666 2,114 -- 11,780
OPERATING EXPENSES:
Research and Development 4,221 -- -- 4,221
Selling, General & Administrative 12,064 1,959 -- 14,023
---------- ---------- ----------- ----------
Total Operating Expenses 16,285 1,959 -- 18,244
---------- ---------- ----------- ----------
Operating Income (Loss) (6,619) 155 -- (6,464)
---------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest Income (Expense) 281 (49) -- 232
Gain on sale of securities 521 -- -- 521
Other Expense (134) (24) -- (158)
---------- ---------- ----------- ----------
Total Other Income (Expense) 668 (72) -- 596
---------- ---------- ----------- ----------
Net Income (Loss) $ (5,951) $ 82 $ -- $ (5,869)
========== ========== =========== ==========
Income (Loss) per Share $ (0.75) $ 0.02 $ -- $ (0.69)
========== ========== =========== ==========
Weighted Average Number Of Shares 7,925,961 3,726,667 (3,136,238)(a) 8,516,390
========== ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-19
<PAGE> 25
CYBERGUARD CORPORATION AND ARCA SYSTEMS INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
as of March 31, 1998 (Unaudited)
(all dollars in 000's)
<TABLE>
<CAPTION>
Pro
CYBG ARCA Merger Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 4,361 $ 12 $ -- $ 4,373
Accounts Receivable (less allowance for uncollectible accounts) 7,362 905 -- 8,267
Deposits & Prepaids 927 63 -- 990
Inventory 1,302 204 -- 1,506
-------- ------ ----- --------
Total Current Assets 13,952 1,184 -- 15,136
FIXED ASSETS:
Equipment (net of accumulated depreciation) 1,792 247 -- 2,039
-------- ------ ----- --------
Total Fixed Assets 1,792 247 -- 2,039
OTHER ASSETS:
Non Compete Agreement 910 -- -- 910
Other Assets 121 35 -- 156
-------- ------ ----- --------
Total Other Assets 1,031 35 -- 1,066
Total Assets $ 16,775 $1,466 $ -- $ 18,241
======== ====== ===== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 525 100 400 (b) 1,025
Other Accrued Expenses 2,765 217 -- 2,982
Notes Payable Short Term 72 130 -- 202
Deferred Revenue 938 -- -- 938
-------- ------ ----- --------
Total Current Liabilities 4,300 447 400 5,147
LONG-TERM LIABILITIES:
Notes Payable - Other 650 250 -- 900
Total Liabilities 4,950 697 400 6,047
-------- ------ ----- --------
SHAREHOLDERS' EQUITY:
Preferred Stock -- 591 (591)(a) --
CyberGuard Common Stock 87 32 (26)(a) 93
Additional Paid In Capital 67,532 -- 617 (a) 68,149
Retained Earnings (Deficit) (55,651) 146 (400)(b) (55,905)
Cumulative Translation Adjustment (143) -- -- (143)
-------- ------ ----- --------
Total Shareholders' Equity 11,825 769 (400) 12,194
-------- ------ ----- --------
Total Liabilities and shareholders' equity $ 16,775 $1,466 $ -- $ 18,241
======== ====== ===== ========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-20
<PAGE> 26
CYBERGARD AND ARCA SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
HISTORICAL. The historical Condensed Combined Financial Statements of
CyberGuard and ARCA include the accounts of CyberGuard and its subsidiaries and
of ARCA, respectively. All significant intercompany balances within each
company have been eliminated.
THE MERGER. The Merger has been accounted for in the Pro Forma Condensed
Consolidated Financial Statements using the pooling of interests method of
accounting whereby the accounts of CyberGuard are combined with the accounts of
ARCA as though both companies operated as one business for the periods
presented. The non-recurring costs associated with the Merger, estimated to be
$400,000, have been excluded from the Pro Forma Condensed Combined Statements
of Operations to more accurately reflect the actual operations of the
companies. These costs will be expensed in the period that the Merger is
consummated.
2. EARNINGS PER SHARE
Earnings per share have been calculated by dividing the net income by the
outstanding shares of CyberGuard Common Stock, adjusted to reflect the issuance
of the additional shares to be issued in the Merger.
3. PRO FORMA ADJUSTMENTS
PRO FORMA CONDENSED COMBINED BALANCE SHEET.
(a) To reflect the issuance of approximately 590,429 incremental shares of
CyberGuard Common Stock in the Merger and the elimination of a corresponding
amount of additional paid in capital.
(b) To reflect the estimated costs associated with the Merger.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS.
(a) To reflect the issuance of the incremental shares of CyberGuard Common
Stock in the Merger.
F-21
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER,
Dated May 29, 1998,
among
CYBERGUARD CORPORATION,
ARCA ACQUISITION CORPORATION,
ARCA SYSTEMS, INC.
and
EACH OF THE SHAREHOLDERS OF
ARCA SYSTEMS, INC. WHO ARE SIGNATORIES HERETO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I Definitions............................................................................................1
ARTICLE II The Merger.............................................................................................5
2.1 The Merger.............................................................................................5
2.2 Closing; Effective Time of the Merger..................................................................5
2.3 Effects of the Merger..................................................................................5
2.4 Certificate of Incorporation and Bylaws................................................................5
2.5 Directors and Officers.................................................................................5
2.6 Conversion of ARCA Common Stock and ARCA Preferred Stock...............................................6
2.7 Impact on ARCA Stock Options...........................................................................6
2.8 Conversion of Acquisition Common Stock.................................................................7
2.9 Exchange of and Payment for ARCA Common Stock and ARCA Preferred Stock.................................7
2.10 No Further Transfers of ARCA Common Stock or ARCA Preferred Stock......................................8
2.11 Cash in Lieu of Fractional Shares......................................................................8
2.12 Dissenters' Rights.....................................................................................8
ARTICLE III Representations and Warranties of CyberGuard and Acquisition...........................................9
3.1 ORGANIZATION, STANDING AND POWER.......................................................................9
3.2 AUTHORIZATION OF AGREEMENT.............................................................................9
3.3 NO VIOLATION OR CONFLICT...............................................................................9
3.4 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES........................................................9
3.5 SECURITIES AND EXCHANGE COMMISSION FILINGS.............................................................9
3.6 VALIDITY OF CYBERGUARD COMMON STOCK...................................................................10
3.7 PREEMPTIVE RIGHTS.....................................................................................10
3.8 PROXY STATEMENT.......................................................................................10
3.9 BROKER AND FINDERS....................................................................................10
3.10 TAX MATTERS...........................................................................................10
3.11 POOLING OF INTERESTS..................................................................................10
3.13 DISCLOSURE............................................................................................11
ARTICLE IV Representations and Warranties of ARCA and the Party Shareholders.....................................11
4.1 ORGANIZATION, STANDING AND POWER......................................................................11
4.2 AUTHORITY; LEGAL, VALID AND BINDING AGREEMENT.........................................................11
4.3 AUTHORITY TO DO BUSINESS..............................................................................11
4.4 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS....................................................11
4.5 SUBSIDIARIES..........................................................................................12
4.6 CAPITALIZATION........................................................................................12
4.7 RIGHTS, WARRANTS, OPTIONS.............................................................................12
4.8 FINANCIAL STATEMENTS..................................................................................12
4.9 ABSENCE OF UNDISCLOSED LIABILITIES....................................................................13
4.10 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS....................................................13
4.11 REAL PROPERTY.........................................................................................13
4.12 INSURANCE.............................................................................................13
4.13 LABOR RELATIONS.......................................................................................14
4.14 LICENSES..............................................................................................14
4.15 PROPRIETARY RIGHTS....................................................................................14
4.16 MAJOR CUSTOMERS AND SUPPLIERS.........................................................................15
4.17 LITIGATION............................................................................................15
4.18 NO VIOLATION OR CONFLICT..............................................................................15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.19 TRANSACTIONS WITH AFFILIATES..........................................................................16
4.20 LIST OF ACCOUNTS......................................................................................16
4.21 LIST OF PERSONNEL.....................................................................................16
4.22 GUARANTIES............................................................................................16
4.23 YEAR 2000 COMPLIANCE..................................................................................16
4.24 EMPLOYEE BENEFIT PLANS................................................................................16
4.25 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES.......................................................17
4.26 ABSENCE OF MATERIAL ADVERSE CHANGES...................................................................17
4.27 TAXES AND TAX MATTERS.................................................................................18
4.28 MATERIAL AGREEMENTS...................................................................................18
4.29 COMPLIANCE; GOVERNMENT AUTHORIZATION..................................................................18
4.30 BROKERS AND FINDERS...................................................................................19
4.31 PROXY STATEMENT.......................................................................................19
4.32 NO PRIOR AGREEMENT....................................................................................19
4.33 ENVIRONMENTAL MATTERS.................................................................................19
4.34 REORGANIZATION........................................................................................20
4.35 PROPOSALS.............................................................................................20
4.36 GOVERNMENT CONTRACTS AND AUDITS.......................................................................20
4.37 POOLING-OF-INTERESTS..................................................................................20
4.38 LOANS.................................................................................................20
4.39 DISCLOSURE............................................................................................20
4.1B AUTHORITY; LEGAL, VALID AND BINDING AGREEMENT.........................................................21
4.2B CAPITALIZATION........................................................................................21
4.3B LITIGATION............................................................................................21
4.4B NO VIOLATION OR CONFLICT..............................................................................21
4.5B CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES.......................................................21
4.6B BROKERS AND FINDERS...................................................................................22
4.7B NO PRIOR AGREEMENT....................................................................................22
4.8B DISCLOSURE............................................................................................22
ARTICLE V Covenants.............................................................................................22
5.1 Interim Operations of ARCA............................................................................22
5.2 Access................................................................................................23
5.3 Confidentiality.......................................................................................23
5.4 Notification..........................................................................................24
5.5 Consent of Governmental Authorities and Others........................................................24
5.6 Acquisition Proposals; No Solicitation................................................................24
5.7 Commercially Reasonable Efforts.......................................................................24
5.8 Public Announcements..................................................................................25
5.9 Approval by ARCA's Shareholders.......................................................................25
5.10 Investment Intent Letters.............................................................................25
5.11 Forbearance by CyberGuard.............................................................................25
5.12 Affiliates' Letters...................................................................................25
5.13 Registration Agreement................................................................................26
5.14 Preparation of Proxy Statement........................................................................26
5.15 Employment Agreements, Confidentiality Agreements
and Insider Trading Agreements........................................................................27
5.16 Personal Guaranties...................................................................................27
5.17 Pooling...............................................................................................27
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VI Additional Agreements.................................................................................27
6.1 Employees and Benefit Plans...........................................................................27
6.2 Investigation; Notices................................................................................27
6.3 Survival of the Representations, Warranties, Covenants and Agreements.................................27
6.4 Indemnification.......................................................................................28
6.5 General Release.......................................................................................29
6.6 Restrictive Covenants.................................................................................30
6.7 Tax Treatment of the Merger...........................................................................30
ARTICLE VII Closing; Conditions Precedent; Termination............................................................30
7.1 Closing...............................................................................................30
7.2 Mutual Conditions Precedent...........................................................................30
7.3 Conditions Precedent to the Obligations of CyberGuard.................................................30
7.4 Conditions Precedent to the Obligations of ARCA.......................................................32
7.5 Termination...........................................................................................33
ARTICLE VIII Miscellaneous.........................................................................................34
8.1 Notices...............................................................................................34
8.2 Entire Agreement......................................................................................34
8.3 Assignment............................................................................................34
8.4 Waiver and Amendment..................................................................................34
8.5 No Third Party Beneficiary............................................................................34
8.6 Severability..........................................................................................34
8.7 Expenses; Termination Fee.............................................................................34
8.8 Headings..............................................................................................35
8.9 Counterparts..........................................................................................35
8.10 Litigation; Prevailing Party..........................................................................35
8.11 Injunctive Relief.....................................................................................35
8.12 Governing Law.........................................................................................35
</TABLE>
-iii-
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is entered into as of May 29, 1998,
among CyberGuard Corporation, a Florida corporation ("CYBERGUARD"), ARCA
Acquisition Corporation, a Florida corporation and a wholly owned subsidiary of
CyberGuard ("ACQUISITION"), ARCA Systems, Inc., a California corporation
("ARCA"), William F. Wilson ("Wilson"), Michael L. Weidner ("Weidner") and R.
Kenneth Bauer ("Bauer") (Wilson, Weidner and Bauer are sometimes hereinafter
referred to individually as a "PARTY SHAREHOLDER" and collectively as the "PARTY
SHAREHOLDERS").
PRELIMINARY STATEMENT
ARCA and CyberGuard believe that the mutual best interests of ARCA and
CyberGuard and their respective shareholders will be served by the merger of
Acquisition with and into ARCA upon the terms and subject to the conditions of
this Agreement.
AGREEMENT
In consideration of the preliminary statement and the respective
covenants, representations and warranties contained in this Agreement, the
parties agree as set forth below.
ARTICLE I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the meanings indicated below:
"ACQUISITION COMMON STOCK" means the common stock of Acquisition, par
value $.01 per share.
"AFFILIATE" has the meaning specified in Rule 144 promulgated by the
Commission under the Securities Act.
"AFFILIATE LETTER" has the meaning specified in SECTION 5.12 of this
Agreement.
"AGREEMENT" means this Agreement and Plan of Merger together with all
exhibits and schedules referred to herein.
"ARCA COMMON STOCK" means the common stock of ARCA, no par value per
share.
"ARCA PLAN" has the meaning specified in SECTION 2.7 of this Agreement.
"ARCA SERIES A PREFERRED STOCK " means the Series A Preferred Stock of
ARCA, no par value per share.
"ARCA SERIES B PREFERRED STOCK "means the Series B Preferred Stock of
ARCA, no par value per share.
"ARCA MAJORITY SHAREHOLDERS" has the meaning specified in SECTION 4.2
of this Agreement.
"ARCA OPTION" has the meaning specified in SECTION 2.7 of this
Agreement.
<PAGE> 6
"ARCA PLANS" has the meaning specified in SECTION 4.24 of this
Agreement.
"ARCA PREFERRED STOCK" means the ARCA Series A Preferred Stock and the
ARCA Series B Preferred Stock.
"BASKET LIMITATION" has the meaning specified in SECTION 6.4(d) of this
Agreement.
"CALIFORNIA ACT" means the California General Corporation Law.
"CERTIFICATE OF MERGER" has the meaning specified in SECTION 2.2 of
this Agreement.
"CLOSING" has the meaning specified in SECTION 2.2 of this Agreement.
"CLOSING DATE" has the meaning specified in SECTION 2.2 of this
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"CYBERGUARD COMMON STOCK" means the common stock of CyberGuard, par
value $.01 per share.
"CYBERGUARD DISCLOSURE MATERIALS" means the latest Proxy Statement of
CyberGuard, Form 10-K, any interim 10-Qs of CyberGuard and any other materials
required under the 1933 Act Rule 502(b)(2) to be included in the Proxy Statement
concerning CyberGuard or otherwise provided by CyberGuard for delivery to the
Shareholders in the Proxy Statement.
"DISSENTING SHARES" has the meaning specified in SECTION 2.12 of this
Agreement.
"EFFECTIVE TIME" shall have the meaning set forth in SECTION 2.2 of
this Agreement.
"ENVIRONMENTAL LAWS" has the meaning specified in SECTION 4.33(a) of
this Agreement.
"ENVIRONMENTAL PERMITS" has the meaning specified in SECTION 4.33(b) of
this Agreement.
"ERISA" has the meaning specified in SECTION 4.24 of this Agreement.
"ESCROW AGENT" has the meaning specified in SECTION 6.4(a) of this
Agreement.
"ESCROW AGREEMENT" has the meaning specified in SECTION 6.4(a) of this
Agreement.
"ESCROWED CONSIDERATION" has the meaning specified in SECTION 6.4(a) of
this Agreement.
"EXCHANGE ACT" has the meaning specified in SECTION 3.5 of this
Agreement.
"EXCHANGE AGENT" has the meaning specified in SECTION 2.9(a) of this
Agreement.
"FINANCIAL STATEMENTS" means ARCA's unaudited balance sheets and the
related unaudited statements of operations, stockholders' equity and cash flow
as at and for the year ended December 31, 1996, the audited balance sheets and
the related audited statements of operations, stockholders' equity and cash flow
as at and for the year ended December 31, 1997 and ARCA's unaudited balance
sheets and the related statements of operations as at and for the three-month
period ended March 31, 1998.
"FLORIDA ACT" means the Florida Business Corporation Act.
-2-
<PAGE> 7
"GAAP" has the meaning specified in SECTION 4.8 of this Agreement.
"GUARANTY" means, as to any Person, any contract, agreement or
understanding of such Person pursuant to which such Person guarantees the
indebtedness, liabilities or obligations of others, directly or indirectly, in
any manner, including agreements to purchase such indebtedness, liabilities or
obligations, or to supply funds to or in any manner invest in others, or to
otherwise assure the holder of such indebtedness, liabilities or obligations
against loss, but excluding endorsement of checks in the ordinary course of
business.
"HAZARDOUS SUBSTANCES" has the meaning specified in SECTION 4.33(a) of
this Agreement.
"INDEMNIFIED PARTY" has the meaning specified in SECTION 6.4(c) of this
Agreement.
"INDEMNIFYING PARTY" has the meaning specified in SECTION 6.4(c) of
this Agreement.
"INTANGIBLE PROPERTY" has the meaning specified in SECTION 4.15 of this
Agreement.
"IRS" means the Internal Revenue Service.
"INVESTMENT INTENT LETTER" has the meaning specified in SECTION 5.10 of
this Agreement.
"KNOWLEDGE" or "KNOWN" have two different meanings in this Agreement:
(a) When matters are being referred to as "to the best of" a
party's knowledge or "to the best knowledge" of a party (or
any similar phrase), the reference shall mean, with respect to
any representation or warranty or other statement in this
Agreement, that such party has made a diligent investigation
as to the matters that are the subject of such representation,
warranty or other statement. Where reference is made "to the
best of ARCA's knowledge" or "to the best knowledge of ARCA"
(or any similar phrase), such reference shall mean the
knowledge of the executive officers and directors of ARCA, all
having conducted the diligent investigation contemplated by
this definition. Where reference is made "to the best of
CyberGuard's knowledge" or "to the best knowledge of
CyberGuard" (or any similar phrase), such reference shall mean
the knowledge of the executive officers of CyberGuard, all
having conducted the diligent investigation contemplated by
this definition.
(b) The words "knowledge" or "known" when used without the
qualifying language "to the best of" or "to the best knowledge
of" (or any similar phrase) shall mean the actual knowledge of
the Person whose knowledge is at issue. For these purposes the
word "actual" shall not, except as provided in Section 3.11
hereof, designate merely the Person's state of mind, but also
shall include information and data: that the Person has
learned; that in the ordinary course of business has been
reported to the Person; and that is ordinarily maintained as
part of the Person's business files (both computer and hard
files). Where reference is made to the "knowledge of ARCA" or
"to ARCA's knowledge" (when used without the qualifying
language "to the best of" or "to the best knowledge of"), such
reference shall mean the actual knowledge of the executive
officers and directors of ARCA. Where reference is made to the
"knowledge" of CyberGuard (when used without the qualifying
language "to the best of" or "to the best knowledge of"), such
reference shall mean the actual knowledge of the executive
officers of CyberGuard.
"LICENSE" has the meaning specified in SECTION 4.14 of this Agreement.
"LOAN AMOUNT" has the meaning specified in SECTION 4.38 of this
Agreement.
-3-
<PAGE> 8
"LOANS" has the meaning specified in SECTION 4.38 of this Agreement.
"LOSSES" has the meaning specified in SECTION 6.4(A) of this Agreement.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the business, operations, financial condition, results of
operations or business prospects of such Person and its Subsidiaries on a
consolidated basis, except for any such material adverse effect arising out of
the execution of this Agreement and the consummation of the transactions
contemplated hereby or out of general economic conditions or, in the case of
ARCA, the general conditions of the information technology consulting industry,
or, in the case of CyberGuard, the general conditions of the internet or
intranet security solutions industry.
"MATERIAL AGREEMENTS" has the meaning specified in SECTION 4.28 of this
Agreement.
"MERGER" has the meaning specified in SECTION 2.1 of this Agreement.
"1933 ACT" has the meaning specified in SECTION 3.5 of this Agreement.
"OPTIONS" has the meaning specified in SECTION 4.7 of this Agreement.
"PENSION PLAN" has the meaning specified in SECTION 4.24 of this
Agreement.
"PERSON" means any natural person, corporation, unincorporated
organization, partnership, association, joint stock company, joint venture,
trust or government, or any agency or political subdivision of any government,
or any other entity.
"PROXY STATEMENT" means the proxy or information statement relating to
the special meeting of, or solicitation of written consents of, ARCA's
shareholders in connection with the Merger, as amended or supplemented from time
to time.
"REGISTRATION AGREEMENT" has the meaning specified in SECTION 5.13 of
this Agreement.
"REGISTRATION STATEMENTS" means the registration statements on Form S-3
under the 1933 Act (or such other form available) to be filed with the
Commission to register the Shareholders' resale of the shares of CyberGuard
Common Stock to be issued at the Effective Time pursuant to SECTION 2.6 of this
Agreement, as the same may be amended or supplemented from time to time.
"SHAREHOLDERS" means the shareholders of ARCA immediately prior to the
Effective Time.
"STOCK CONVERSION RATIO" has the meaning specified in SECTION 2.6 of
this Agreement.
"SUBSIDIARY" of any Person means any Person, whether or not
capitalized, in which such Person owns, directly or indirectly, an equity
interest of 50% or more, or any Person which may be controlled, directly or
indirectly, by such Person, whether through the ownership of voting securities,
by contract, or otherwise.
"SUBSTITUTE OPTION" has the meaning specified in SECTION 2.7 of this
Agreement.
"SURVIVAL DATE" has the meaning specified in SECTION 6.3 of this
Agreement.
"SURVIVING CORPORATION" has the meaning specified in SECTION 2.1 of
this Agreement.
"TAXES" has the meaning specified in SECTION 4.27 of this Agreement.
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"TERMINATION DATE" has the meaning specified in SECTION 7.5(b) of this
Agreement.
"WELFARE PLAN" has the meaning specified in SECTION 4.24 of this
Agreement.
ARTICLE II
THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Florida Act and the California
Act, at the Effective Time, Acquisition shall be merged (the "MERGER") with and
into ARCA. At the Effective Time, the separate corporate existence of
Acquisition shall cease, and ARCA shall continue as the surviving corporation of
the Merger under the laws of the State of California (the "SURVIVING
CORPORATION"). The corporate existence of CyberGuard shall not be effected by
the Merger.
2.2 CLOSING; EFFECTIVE TIME OF THE MERGER. Unless this Agreement is
terminated in accordance with its terms, the consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of CyberGuard as soon as practicable, and in any event within three business
days, after the satisfaction or waiver of the conditions precedent to the
obligations of the parties set forth in Article VII (the "CLOSING DATE"), or on
such other date and at such other place as may be agreed to by the parties. On
the Closing Date, the parties hereto shall cause the Merger to be consummated by
filing articles of merger and an agreement of merger, substantially in the form
set forth as EXHIBIT A (collectively, the "CERTIFICATE OF MERGER"), with the
Secretary of State of the State of Florida and the Secretary of State of the
State of California, respectively, in such form as required by, and executed in
accordance with the relevant provisions of, the Florida Act and the California
Act (the later of the date and time of the filing of the Certificate of Merger
with the Secretary of State of the State of Florida and the Secretary of State
of the State of California (or such later time as is specified in the
Certificate of Merger) being the "EFFECTIVE TIME").
2.3 EFFECTS OF THE MERGER. From and after the Effective Time, the
Merger shall have the effects set forth under the applicable provisions of the
Florida Act and the California Act.
2.4 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) CERTIFICATE OF INCORPORATION. At the Effective Time, and
until thereafter amended or repealed in accordance with their terms and as
provided by law, the Articles of Incorporation of the Surviving Corporation
shall be the Articles of Incorporation of Acquisition, as in effect immediately
prior to the Effective Time, except that Article I thereof shall be deleted in
its entirety and replaced with the following: "The name of the Corporation is
ARCA Systems, Inc."
(b) BYLAWS. At the Effective Time, the Bylaws of the Surviving
Corporation shall be the Bylaws of Acquisition, as in effect immediately prior
to the Effective Time, until thereafter amended or repealed in accordance with
their terms and the Articles of Incorporation of the Surviving Corporation and
as provided by law.
2.5 DIRECTORS AND OFFICERS. The directors of Acquisition immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation, and the officers of Acquisition immediately prior
to the Effective Time shall be the officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed, as
the case may be, and qualified.
2.6 CONVERSION OF ARCA COMMON STOCK AND ARCA PREFERRED STOCK. At the
Effective Time, each share of ARCA Common Stock which is issued and outstanding
immediately prior to the
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Effective Time (other than Dissenting Shares as defined in SECTION 2.12 and
other than such shares owned by ARCA or CyberGuard or any of its Subsidiaries)
shall be canceled and retired and converted without any action on the part of
the holder thereof into and be exchangeable for .11819 shares of CyberGuard
Common Stock (the "STOCK CONVERSION RATIO") (rounded to the nearest thousandth
of a share), subject to the payment of cash in lieu of fractional shares in
accordance with SECTION 2.11 hereof.
At the Effective Time, each share of ARCA Series A Preferred Stock
which is issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares and other than such shares owned by ARCA or CyberGuard or
any of its Subsidiaries) shall be canceled and retired and converted without any
action on the part of the holder thereof into and be exchangeable for .54817
shares of CyberGuard Common Stock (rounded to the nearest thousandth of a
share), subject to the payment of cash in lieu of fractional shares in
accordance with SECTION 2.11 hereof.
At the Effective Time, each share of ARCA Series B Preferred Stock
which is issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares and other than such shares owned by ARCA or CyberGuard or
any of its Subsidiaries) shall be canceled and retired and converted without any
action on the part of the holder thereof into and be exchangeable for .19361
shares of CyberGuard Common Stock (rounded to the nearest thousandth of a
share), subject to the payment of cash in lieu of fractional shares in
accordance with SECTION 2.11 hereof.
At the Effective Time, the Loans (specified in SECTION 4.38)
outstanding immediately prior to the Effective Time shall be converted into and
be exchangeable for 8,577 shares of CyberGuard Common Stock (rounded to the
nearest thousandth of a share), subject to the payment of cash in lieu of
fractional shares in accordance with SECTION 2.11 hereof.
2.7 IMPACT ON ARCA STOCK OPTIONS. At the Effective Time, each unexpired
and unexercised option to purchase shares of ARCA Common Stock, whether or not
then exercisable (an "ARCA OPTION"), shall be assumed by CyberGuard and each
ARCA Option shall be canceled and retired and converted automatically into an
option ("SUBSTITUTE OPTION") to purchase a number of shares of CyberGuard Common
Stock equal to the number of shares of ARCA Common Stock that could have been
purchased under the ARCA Option multiplied by the Stock Conversion Ratio (except
that upon exercise, any options to purchase fractional shares resulting from the
aggregate of any such adjustment shall be eliminated), at a price per share of
CyberGuard Common Stock equal to the per share option exercise price under the
ARCA Option, divided by the Stock Conversion Ratio (with the resulting exercise
price rounded to the nearest whole cent); provided that in the case of any ARCA
Option intended to qualify as an incentive stock option under Section 422 of the
Code, the option price, the number of shares purchasable pursuant to such option
and the terms and conditions of exercise of such option shall be determined in
compliance with Section 424(a) of the Code. The duration, vesting and other
terms of the Substitute Options shall be the same as the original ARCA Options,
except that references to ARCA shall be deemed to be references to CyberGuard.
As soon as practicable after the Effective Time, CyberGuard shall deliver to the
holders of ARCA Options notice setting forth such holders' rights pursuant
thereto and the grants of ARCA Options shall continue in effect on substantially
the same terms and conditions (subject to the adjustments required by this
Section 2.7 after giving effect to the Merger). CyberGuard shall comply with the
terms of ARCA's 1988 Stock Plan (the "ARCA Plan") and use its commercially
reasonable efforts to seek, to the extent required by, and subject to the
provisions of, the ARCA Plan and Sections 422 and 424(a) of the Code, that ARCA
Options which qualified as incentive stock options prior to the Effective Time
continue to qualify as incentive stock options after the Effective Time.
CyberGuard shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of CyberGuard Common Stock for delivery upon
exercise of ARCA Options assumed in accordance with this Section 2.7. As soon as
practicable after the Effective Time and in any event no later than 10 business
days after the Closing, CyberGuard shall file a registration statement on Form
S-8 (or any successor or other appropriate forms) under the 1933 Act or another
appropriate form with respect to the shares of CyberGuard Common Stock subject
to such options and shall use its commercially reasonable efforts to maintain
the effectiveness of such
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registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
2.8 CONVERSION OF ACQUISITION COMMON STOCK. At the Effective Time, each
share of Acquisition Common Stock that is issued and outstanding immediately
prior to the Effective Time shall thereafter represent one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.
2.9 EXCHANGE OF AND PAYMENT FOR ARCA COMMON STOCK AND ARCA PREFERRED
STOCK.
(a) At or as soon as practicable after the Effective Time,
CyberGuard will cause the exchange agent selected by CyberGuard (the "EXCHANGE
AGENT") to send to each record holder of shares of ARCA Common Stock and ARCA
Preferred Stock which shall have been converted in the Merger an appropriate
letter of transmittal for purposes of such shareholder's obtaining certificates
representing the CyberGuard Common Stock into which it was converted, which
letter of transmittal shall be mailed to such shareholder's address of record
provided by ARCA. As soon as practicable after the Effective Time and after
surrender to the Exchange Agent of a properly executed letter of transmittal and
any certificates which immediately prior to the Effective Time shall have
represented any then issued and outstanding shares of ARCA Common Stock and ARCA
Preferred Stock, CyberGuard shall, subject to the provisions of SECTIONS 2.9(c)
AND 6.4(a) hereof, cause to be distributed to the person in whose name such ARCA
Common Stock and ARCA Preferred Stock shall have been registered, certificates
registered in the name of such person representing the shares of CyberGuard
Common Stock into which such shares of ARCA Common Stock and ARCA Preferred
Stock shall have been converted at the Effective Time and a check payable to
such person representing the payment of cash in lieu of fractional shares
determined in accordance with SECTION 2.11 hereof. Until surrendered as
contemplated by the preceding sentence, each certificate which immediately prior
to the Effective Time shall have represented any then issued and outstanding
shares of ARCA Common Stock and ARCA Preferred Stock shall be deemed at and
after the Effective Time to represent only the right to receive, upon such
surrender, the certificates and payment contemplated by the preceding sentence.
(b) No dividends or other distributions declared after the
Effective Time with respect to shares of CyberGuard Common Stock and payable to
the holders of record thereof after the Effective Time shall be paid with
respect to ARCA Common Stock and ARCA Preferred Stock converted in the Merger
until such properly executed letter of transmittal and any unsurrendered
certificates representing such shares of ARCA Common Stock and ARCA Preferred
Stock are surrendered as provided herein. Upon the surrender of such letter of
transmittal and any such outstanding certificates, however, there shall be paid
to the record holder of the certificates of CyberGuard Common Stock issued in
exchange for the shares of ARCA Common Stock or ARCA Preferred Stock, the
aggregate amount of dividends and distributions, if any, which theretofore
became payable in respect of the shares of CyberGuard Common Stock into which
such ARCA Common Stock or ARCA Preferred Stock is converted, subject in any case
to any applicable escheat laws and unclaimed property laws. No interest shall be
payable on or in respect of the payment of such dividends or cash in lieu of
fractional shares on surrender of outstanding certificates.
(c) If any cash or certificate representing shares of
CyberGuard Common Stock are to be paid to or issued in a name other than that in
which the certificate surrendered in exchange therefor is registered, it shall
be a condition of the payment or issuance thereof that the certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of a certificate
representing shares of CyberGuard Common Stock in any name other than that of
the registered holder of the certificate surrendered.
(d) Any portion of the CyberGuard Common Stock or cash in lieu
of fractional shares payable hereunder that remains unclaimed by the
shareholders of ARCA for 12 months after the
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Effective Time shall, if on deposit with the Exchange Agent, be paid to
Surviving Corporation. Any shareholders of ARCA who have not theretofore
complied with this Article II shall thereafter look only to Surviving
Corporation or CyberGuard for payment of the shares of CyberGuard Common Stock
or cash in lieu of any fractional shares and any unpaid dividends and
distributions on the CyberGuard Common Stock deliverable in respect of each
share of ARCA Common Stock or ARCA Preferred Stock such shareholder holds as
determined pursuant to this Agreement without any interest thereon.
Notwithstanding the foregoing, none of ARCA, Acquisition, CyberGuard, Surviving
Corporation, the Exchange Agent or any other person shall be liable to any
former holder of shares of ARCA Common Stock or ARCA Preferred Stock for any
amount delivered in good faith to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(e) In the event any certificate which, immediately prior to
the Effective Time, represented ARCA Common Stock or ARCA Preferred Stock shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such certificate to be lost, stolen or destroyed as
indemnity against any claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed certificate the shares of CyberGuard Common Stock and any cash in lieu
of fractional shares deliverable in respect thereof pursuant to this Agreement.
2.10 NO FURTHER TRANSFERS OF ARCA COMMON STOCK OR ARCA PREFERRED STOCK.
After the Effective Time, there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of ARCA
Common Stock or ARCA Preferred Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, certificates representing such
outstanding shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for certificates representing the shares of CyberGuard
Common Stock or cash in lieu of fractional shares into which they were
converted, or both, as provided in this Article II.
2.11 CASH IN LIEU OF FRACTIONAL SHARES. Notwithstanding any other
provision of this Agreement, no certificates or scrip representing fractional
shares of CyberGuard Common Stock shall be issued upon the conversion of shares
which prior to the Effective Time shall have represented any then outstanding
shares of ARCA Common Stock or ARCA Preferred Stock, no dividend or distribution
of CyberGuard shall relate to any fractional share otherwise issuable pursuant
to the terms hereof and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a shareholder of CyberGuard. In lieu
of any fractional shares, there shall be paid to each holder of shares of ARCA
Common Stock or ARCA Preferred Stock, who otherwise would be entitled to receive
a fractional share of CyberGuard Common Stock, an amount of dollars in cash
(without interest) determined by multiplying such fraction by $13.39.
2.12 DISSENTERS' RIGHTS. Notwithstanding anything in this Agreement to
the contrary and unless otherwise provided by applicable law, each share of ARCA
Common Stock and ARCA Preferred Stock which is owned by Shareholders who,
pursuant to applicable law, have exercised such holder's dissenter's rights in
accordance with Chapter 13 of the California Act and who, as of the Effective
Time, have not effectively withdrawn or lost such dissenter's rights (the
"Dissenting Shares"), shall not be converted into the right to receive, or be
exchangeable for, the merger consideration specified in SECTION 2.6, but,
instead, the holders thereof shall be entitled to such rights as are provided in
Chapter 13 of the California Act. CyberGuard shall have the right to participate
in any proceeding involving dissenters' rights.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CYBERGUARD AND ACQUISITION
CyberGuard and Acquisition hereby jointly and severally represent and
warrant to ARCA and the Shareholders as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of CyberGuard and
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, and has all requisite
right, power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
3.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement by CyberGuard and Acquisition and the consummation by them of
the transactions contemplated hereby have been duly and effectively authorized
by all requisite corporate action. This Agreement constitutes the legal, valid
and binding obligation of each of CyberGuard and Acquisition, enforceable
against them in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights and
general principles of equity.
3.3 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 3.3, the
execution, delivery and performance of this Agreement by CyberGuard and
Acquisition, and the consummation by them of the transactions contemplated
hereby, and compliance by CyberGuard and Acquisition with the provisions hereof
(i) do not and will not violate or conflict with any provision of law or
regulation, or any writ, order or decree of any court, governmental or
regulatory authority or agency, or any term or provision of the respective
Articles or Certificate of Incorporation or Bylaws of CyberGuard or Acquisition
and (ii) do not and will not, with or without the passage of time or the giving
of notice, result in the breach of, or constitute a default or require any
consent under, or result in the creation of any lien, charge or encumbrance upon
any property or assets of CyberGuard or Acquisition pursuant to, any material
instrument or agreement to which CyberGuard or Acquisition is a party or by
which CyberGuard or Acquisition or any of their respective properties may be
bound or affected.
3.4 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES. Except as set
forth on SCHEDULE 3.4, no consent, approval or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or administrative agency is
required in connection with the execution, delivery or performance by CyberGuard
and Acquisition of this Agreement or any agreement, instrument or document
contemplated hereby or the consummation by CyberGuard and Acquisition of the
transactions contemplated hereby and thereby.
3.5 SECURITIES AND EXCHANGE COMMISSION FILINGS. CyberGuard has
heretofore furnished or made available to ARCA and its shareholders and option
holders a true and complete copy of each form, report or document filed by
CyberGuard with the Securities and Exchange Commission ("COMMISSION") pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), since
June 30, 1997. Since January 1, 1995, CyberGuard has timely filed all reports
and other documents required to be filed by it with the Commission under the
Exchange Act. As of the respective dates they were filed with the Commission,
such reports or other documents complied in all material respects with the
Exchange Act and the rules and regulations of the Commission and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except as heretofore disclosed in filings with the Commission, as
otherwise publicly announced or as disclosed to ARCA in writing, since June 30,
1997, CyberGuard and its Subsidiaries have conducted their respective businesses
only in the ordinary and usual course and there has not occurred any Material
Adverse Effect with respect to CyberGuard. CyberGuard currently meets the
"registrant eligibility" requirements set forth in the general instructions to
Form S-3 under the
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Securities Act of 1933, as amended (the "1933 Act"). Except as set forth in
SCHEDULE 3.5, there has been no material change in CyberGuard's authorized or
outstanding capitalization, or in the number of shares of CyberGuard capital
stock subject to options or other rights to acquire them, from the date of its
last filing with the Commission.
3.6 VALIDITY OF CYBERGUARD COMMON STOCK. The CyberGuard Common Stock to
be issued in the Merger will, when issued, be duly and validly authorized,
issued and outstanding, fully paid and non-assessable. CyberGuard will reserve
for issuance a sufficient number of shares of CyberGuard Common Stock for the
exercise of the Substitute Options and such CyberGuard Common Stock will, when
issued, be duly and validly authorized, issued and outstanding, fully paid and
non-assessable. The issuance of CyberGuard Common Stock in the Merger and upon
exercise of the Substitute Options will be made in accordance with all
applicable securities laws.
3.7 PREEMPTIVE RIGHTS. The CyberGuard Common Stock is not subject to
any statutory or contractual preemptive rights.
3.8 PROXY STATEMENT. None of the information supplied or to be supplied
by CyberGuard for inclusion in the Proxy Statement will, at the dates mailed to
ARCA's shareholders or at the time of any meeting of ARCA's shareholders to be
held in connection with the Merger (subject, if required, to a reasonable period
of time for the parties hereto to take such action as is necessary to supplement
or amend the same), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. No representation is made by CyberGuard with respect to
statements made therein based on information supplied by ARCA or its
shareholders for inclusion in the Proxy Statement.
3.9 BROKER AND FINDERS. Neither CyberGuard nor any of its Subsidiaries
and, to the best of their knowledge, no shareholder of CyberGuard has, employed
any financial advisor, broker or finder and none of them have incurred nor will
incur any broker's, finder's or similar fees, commissions or broker's or
finder's expenses in connection with the transactions contemplated by this
Agreement.
3.10 TAX MATTERS. CyberGuard has no present plan or intention following
the Merger to cause the Surviving Corporation to issue additional shares of
stock that would result in CyberGuard losing control of the Surviving
Corporation within the meaning of Section 368(c) of the Code. CyberGuard has no
present plan or intention following the Merger to reacquire any of its shares
issued in the transaction. CyberGuard has no present plan or intention following
the Merger to liquidate the Surviving Corporation, merge the Surviving
Corporation with or into another corporation, sell or otherwise dispose of the
stock of the Surviving Corporation or cause the Surviving Corporation to sell or
otherwise dispose of any of its assets, except for dispositions made in the
ordinary course of business. Following the Merger, CyberGuard will cause the
Surviving Corporation to continue its historic business or use a significant
portion of its business assets in a business. CyberGuard is not an investment
company as defined in Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the
Code. CyberGuard has no knowledge of any reason or facts or circumstances why
the Merger would fail to qualify as a tax-free reorganization under Section 368
of the Code.
3.11 POOLING OF INTERESTS. As of the date of this Agreement, to
CyberGuard's best knowledge, there are no facts or circumstances relating
specifically to CyberGuard or the structure of this transaction which would
disqualify CyberGuard's acquisition of ARCA pursuant to this Agreement for
pooling-of-interests accounting treatment and to the actual knowledge (without
any investigation) of CyberGuard, there are no facts or circumstances relating
specifically to ARCA which would disqualify CyberGuard's acquisition of ARCA
pursuant to this Agreement for pooling-of-interests treatment.
3.12 CONFIDENTIALITY AND INSIDER TRADING AGREEMENTS. The
confidentiality and works for hire and insider trading agreements described in
Section 5.15 hereto (or substantially similar agreements)
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have been signed by all employees of CyberGuard who hold positions that are
similar in rank or level of responsibility to the positions to be held after the
Effective Time by those ARCA employees who are being asked to sign such
agreements.
3.13 DISCLOSURE. No representation or warranty of CyberGuard herein
(including the exhibits and schedules hereto), and no certificate or affidavit
furnished or to be furnished by or on behalf of CyberGuard to ARCA or its
Shareholders or their agents, contains or will, at the time it is made, contain
any untrue statement of a material fact or omits or will, at the time it is
made, omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading, in light of the circumstances under
which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ARCA AND THE PARTY SHAREHOLDERS
A. In order to induce CyberGuard and Acquisition to enter into this
Agreement and to consummate the transactions contemplated hereby, ARCA hereby
represents and warrants to CyberGuard and Acquisition as follows:
4.1 ORGANIZATION, STANDING AND POWER. ARCA is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
4.2 AUTHORITY; LEGAL, VALID AND BINDING AGREEMENT. ARCA has full and
unrestricted right, power and authority to enter into and consummate the
transactions contemplated hereby. To ARCA' s knowledge, each of the shareholders
and option holders of ARCA resides in the state set forth opposite such Person's
name on SCHEDULE 4.2 hereof. This Agreement and all other agreements executed by
ARCA in connection with any of the transactions contemplated hereunder
constitute the legal, valid and binding obligations of ARCA, enforceable in
accordance with their respective terms, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights and general principles of
equity. The execution, delivery and performance of this Agreement by ARCA and
the consummation by it of the transactions contemplated hereby have been duly
and effectively authorized by all requisite corporate action on the part of
ARCA, subject to the receipt of requisite approval of the Shareholders of ARCA.
A vote in favor of the Merger by each of the shares of ARCA Common Stock and
ARCA Preferred Stock held by the holders of ARCA Common Stock and ARCA Preferred
Stock("ARCA MAJORITY SHAREHOLDERS") listed on SCHEDULE 4.2 would be sufficient
for shareholder approval of the Merger on behalf of ARCA. Each of the ARCA
Majority Shareholders has executed a voting agreement, substantially in the form
of EXHIBIT B. To ARCA's knowledge, such voting agreements constitute valid and
binding obligations of the ARCA Majority Shareholders, enforceable against them
in accordance with their terms.
4.3 AUTHORITY TO DO BUSINESS. ARCA has all requisite power and
authority to own and operate its properties and to conduct its business in the
manner and in the jurisdictions where now conducted. SCHEDULE 4.3 sets forth (i)
those jurisdictions in which ARCA owns or leases properties and (ii) all
jurisdictions in which ARCA is qualified to do business. ARCA is duly qualified
to do business as a foreign corporation in all jurisdictions where the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect on ARCA.
4.4 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. A true and
complete copy of the Articles or Certificate of Incorporation (as amended and in
effect), Bylaws (as amended and in effect) and minute books of ARCA have been
delivered by ARCA to CyberGuard. The minute books of ARCA in the form of the
copies supplied to CyberGuard have embodied therein copies of all minutes and
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actions by written consent which have been prepared since such entity's
inception. The minutes and actions by written consent delivered to ARCA reflect
all material actions taken by the Boards of Directors, any committees thereof,
the incorporators or the Shareholders of ARCA since their incorporation.
4.5 SUBSIDIARIES. ARCA has no direct or indirect equity interest by
stock ownership or otherwise in any other Person nor is ARCA engaged in a
partnership, joint venture or other similar arrangement (whether written or
oral) with any Person.
4.6 CAPITALIZATION. As of the date hereof, the authorized capital stock
of ARCA consists of: (i) 20,000,000 shares of ARCA Common Stock, of which
3,726,667 shares are issued and outstanding; and (ii) 10,000,000 shares of ARCA
Preferred Stock, of which (A) 100,000 shares have been designated ARCA Series A
Preferred Stock and of which 76,130 shares of ARCA Series A Preferred Stock are
issued and outstanding, and (B) 750,000 shares have been designated ARCA Series
B Preferred Stock and of which 515,000 shares of ARCA Series B Preferred Stock
are issued and outstanding. To ARCA's knowledge, all of the issued and
outstanding shares of ARCA Common Stock and ARCA Preferred Stock are owned
beneficially and of record by Persons and in the amounts set forth on SCHEDULE
4.6, free and clear of any and all liens, claims, charges, security interests,
voting agreements or encumbrances of any nature whatsoever created by ARCA. As
of the date hereof, ARCA has no treasury shares. All shares of ARCA's
outstanding capital stock have been duly authorized, are validly issued and
outstanding, and are fully paid and nonassessable. No securities issued by ARCA
from the date of its incorporation to the date hereof were issued in violation
of any statutory, contractual or common law preemptive rights. There are no
dividends or distributions which have accrued or been declared but are unpaid on
the capital stock of ARCA. Except as set forth on SCHEDULE 4.6, ARCA has not
declared or paid any dividends or distributions since December 31, 1997. All
taxes (including documentary stamp taxes) required to be paid in connection with
the issuance by ARCA of ARCA's capital stock have been paid. All authorizations
required to be obtained from or registrations required to be effected with any
Person in connection with the issuances of securities by ARCA from its date of
incorporation to the date hereof have been obtained or effected and all
securities of ARCA have been issued in accordance with the provisions of all
applicable securities and other laws. ARCA has no equity investment in any other
corporation, association, partnership, joint venture or other entity.
4.7 RIGHTS, WARRANTS, OPTIONS. Except as set forth on SCHEDULE 4.7,
ARCA has no commitment to issue or sell, has not granted, issued or entered into
any rights, subscriptions, warrants, options, conversion rights or agreements of
any kind ("Options") (other than this Agreement) to issue, purchase or to
otherwise acquire, any shares of stock, or securities or obligations of any kind
convertible or exchangeable into any shares of stock of any class of capital
stock of ARCA. All outstanding Options are held by the Persons and in the amount
set forth on SCHEDULE 4.7. To ARCA's knowledge, there are no Options (other than
this Agreement) to purchase or to otherwise acquire, any shares of stock or
other securities presently owned by any Shareholder or other equity interest
holder of ARCA.
4.8 FINANCIAL STATEMENTS. ARCA has delivered to CyberGuard true and
correct copies of the Financial Statements. The Financial Statements, as of the
dates thereof and for the periods covered thereby, present fairly, in all
material respects, the financial position, results of operations, and cash flows
of ARCA. Except as otherwise noted in SCHEDULE 4.8, the Financial Statements
were prepared in conformity with generally accepted accounting principles
applied on a consistent basis ("GAAP"), except, the unaudited December 31, 1996
Financial Statements will not have notes and will be subject to normal year-end
adjustments, none of which will be material. The December 31, 1997 Financial
Statements and supporting schedules were audited by independent public
accountants within the meaning of the rules promulgated by the Commission.
ARCA's accounts receivable, as set forth in the Financial Statements, arose in
the ordinary course of business, constitute valid and undisputed claims which
are not subject to any counterclaims or offsets and are reasonably believed to
be collectible at their recorded amounts, net of any reserves for doubtful
accounts, in accordance with past practices and GAAP.
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4.9 ABSENCE OF UNDISCLOSED LIABILITIES. There is no claim, liability,
commitment or obligation of any nature, whether absolute, accrued, contingent or
otherwise, and whether due or to become due, and, to the best of ARCA's
knowledge, there is no basis for assertion of any such claim, liability,
commitment or obligation, which is not included, disclosed or noted in the
December 31, 1997 Financial Statements (i) except for liabilities incurred since
December 31, 1997 in the ordinary course of business consistent with past
practice to Persons who are not, to ARCA's knowledge, Affiliates of any Party
Shareholder of ARCA or any officer or director of ARCA, (ii) except for matters
that would not be required to be recorded by GAAP where the claim, liability or
obligation involves an amount less than $10,000, and (iii) except as set forth
in SCHEDULE 4.9 hereto and as specifically cross-referenced therein.
4.10 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS. ARCA has good
and valid title to all personal property, as reflected on the December 31, 1997
Financial Statements (other than non-material property and inventory disposed of
in the ordinary course of business consistent with past practices to Persons who
are not Affiliates of ARCA and other than changes in ARCA's cash balances) and
to each item of personal property acquired since December 31, 1997, free and
clear of any security interests, liens, claims, charges or encumbrances
whatsoever, except for liens for Taxes not yet due and payable, statutory
non-material mechanics and materialmen's liens and except as set forth in
SCHEDULE 4.10 hereto. SCHEDULE 4.10 hereto contains a true and complete list of
each item of tangible personal property presently owned by ARCA having a value
in excess of $5,000. All equipment, machinery, fixtures and other personal
property owned or utilized by ARCA are in good operating condition taken as a
whole and in a good state of maintenance and repair, ordinary wear and tear
excepted, and are adequate for the conduct of their business as previously
conducted. Except for the leasehold interests and other leased properties
specifically identified in either SCHEDULE 4.10 OR 4.11 hereto and software or
other intellectual property subject to a license in favor of ARCA, there are no
assets owned by any third party which are used by ARCA in the operations of its
business as presently conducted or proposed to be conducted.
4.11 REAL PROPERTY.
(a) ARCA owns no real property.
(b) SCHEDULE 4.11 hereto sets forth a list of all of ARCA's
real property leases, true and complete copies of which have been provided or
made available to CyberGuard. No notice of violation of any ordinance or
administrative regulation (including any zoning or building law) has been
received by ARCA with respect to any real property leased by ARCA. The property
leased by ARCA is in a state of good maintenance and repair and is adequate and
suitable for the purposes for which it is presently being used. To ARCA's
knowledge, neither the whole nor any portion of such real property is being
condemned or otherwise taken by any public authority, nor is any such
condemnation or taking to ARCA's knowledge threatened or contemplated.
4.12 INSURANCE. SCHEDULE 4.12 hereto sets forth a true and complete
list of all insurance policies providing insurance coverage of any nature to
ARCA. Since January 1, 1996, timely notice of all material claims has been given
under all such policies. All premiums and other charges under such policies have
been timely paid. ARCA is not in default under any such policy. ARCA is in
material compliance with all such policies. Except as set forth on SCHEDULE 4.12
hereto, to ARCA's knowledge, ARCA has insurance policies of the type and in
amounts customarily carried by Persons conducting similar businesses. Such
insurance policies are sufficient in all material respects for compliance with
all requirements of law and all agreements to which ARCA is a party or by which
any of its assets are bound. During the last five years, ARCA has not been
refused insurance by any insurance carrier to which it has applied for
insurance. Except as set forth in SCHEDULE 4.12, no claims involving an amount
in excess of $10,000 have been asserted under any of the foregoing insurance
policies in the five years preceding the date of this Agreement.
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4.13 LABOR RELATIONS. ARCA is not a party to or otherwise bound by any
labor or collective bargaining agreement and to ARCA's knowledge there have been
no attempts to organize a labor union with respect to any employees of ARCA.
Except as noted on SCHEDULE 4.13 hereto, to ARCA's knowledge no unfair labor
practice complaints have been filed against ARCA with any governmental or
regulatory agency, and ARCA has not received any notice or communication
reflecting an intention or threat to file any such complaint. No Person has
notified ARCA of any claim, and to ARCA's knowledge, there is no basis for any
claim, against ARCA arising out of any statute, ordinance or regulation relating
to discrimination with respect to employees or employment practices. There is no
strike, work stoppage or labor disturbance pending or, to ARCA's knowledge,
threatened that involves any group of employees of ARCA. Except as set forth on
SCHEDULE 4.13 hereto and except as otherwise required by law, the terms of
employment or engagement of all employees, agents, consultants and professional
advisors of ARCA are such that their employment or engagement may be terminated
by not more than two weeks' notice given at any time without liability for
payment of compensation or damages and ARCA has not entered into any agreement
or arrangement for the management of its business or any part thereof other than
with its directors or employees. Except as set forth on SCHEDULE 4.13, no
consultant, employee or agent of ARCA has terminated his or her employment or
business relationship with ARCA since December 31, 1997, except for consultants,
employees or agents who have not received compensation of $25,000 or more from
ARCA in any calendar year; and ARCA has no knowledge that any such consultant,
employee or agent presently intends to so terminate or materially alter his or
her relationship with ARCA.
4.14 LICENSES. ARCA has all material licenses, franchises, approvals,
certificates, permits, planning permissions and authorizations (a "LICENSE") of
any Person necessary for the conduct of its trade or business and all Licenses
are presently in full force and effect and no action or claim is pending, and no
notice of any such claim or action has been received which threatens to revoke,
vary, modify or terminate any License or declare any License invalid in any
respect. ARCA is being operated in material compliance with all Licenses. A true
and complete list of all Licenses is set forth on SCHEDULE 4.14 hereto. Neither
the execution, delivery nor performance of this Agreement shall adversely affect
the status of any License nor permit such License to be terminated whether or
not following the giving of notice or making of payment.
4.15 PROPRIETARY RIGHTS. SCHEDULE 4.15 hereto sets forth a true and
complete list of all patents, patent rights, trademarks, trade names, service
marks, brands and registered copyrights (or pending registrations and
applications therefor) owned or used by ARCA (all such items together with each
invention, protocol, formula, software, trade secret, technology, product
composition, method or process including, but not limited to, the protocol
analyzer, owned or used by ARCA being hereinafter referred to as "INTANGIBLE
PROPERTY"), other than commercially available software programs generally
available to the public. ARCA owns the entire right, title and interest in and
to, or is licensed to use, the Intangible Property, free and clear of any claim
or conflict with the rights of others and no royalties, honorariums or fees are
payable by ARCA to any Person by reason of the ownership or use of the
Intangible Property. ARCA has no knowledge of any act or failure to act by ARCA
or any of its employees, duly authorized attorneys or agents during the
prosecution or registration of, or any other proceeding relating to any of the
Intangible Property or of any other fact, which could make invalid or
unenforceable, or negate the right to issuance of any of the Intangible
Property. The consummation of the transactions contemplated hereby will not
alter or impair any of the Intangible Property or the Surviving Corporation's
ability to use any such Intangible Property on the same terms and basis as
heretofore used by ARCA. Except as set forth in SCHEDULE 4.15, no interest in
any Intangible Property has been assigned, transferred, licensed or sublicensed
by ARCA to third parties and there is not and, to ARCA's knowledge, has not been
any infringement or asserted infringement by ARCA of any foreign or domestic
patents, patent rights, trademarks, trade names, service marks, copyrights or
applications therefor of another. No claim is pending by ARCA against others to
the effect that the present or past operations of such parties infringe upon or
conflict with the rights of ARCA and, to ARCA's knowledge, no grounds for such
action exists. ARCA knows of no pending or threatened cancellation or revocation
of any agreement granting to ARCA rights relating to any Intangible Property.
ARCA has not received
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<PAGE> 19
any notice that any claim is pending that the operation by ARCA of its
businesses or the manufacture or sale of any of its products or the provision of
its services, or any formula, method, process, part or material employed by it
in connection therewith, infringes or conflicts in any way upon any rights of
the type enumerated above owned by others. Each confidentiality or secrecy
agreement obtained by ARCA with respect to any of the Intangible Property, is in
full force and effect and ARCA is not, and to ARCA's knowledge, no other party
to any such agreement is in default thereunder.
4.16 MAJOR CUSTOMERS AND SUPPLIERS. SCHEDULE 4.16 hereto sets forth a
true and complete list of all of the customers and suppliers of ARCA which,
during either of the fiscal years ended December 31, 1996 or December 31, 1997,
received from or paid to ARCA $50,000 or more (in cash or in kind); and such
schedule sets forth with respect to each, the name and address and dollar volume
involved. Except as otherwise indicated on SCHEDULE 4.16, no customer or
supplier of ARCA listed on SCHEDULE 4.16 has (i) canceled, suspended or
otherwise terminated its relationship with it (except for expiration in the
ordinary course of business), or (ii) advised ARCA, any executive officer or
director of ARCA of its intent to cancel, suspend or otherwise terminate such
relationship (except for expiration in the ordinary course of business), or to
materially decrease its services or supplies of products to ARCA or its
purchases from ARCA (except in the case of relationships which expire in the
ordinary course of business) or to materially increase the price or change the
terms on which it supplies or purchases services or products to or of ARCA, or
to materially decrease the price or change the terms on which it purchases
services or products from ARCA. ARCA has no knowledge that "current customers or
suppliers" (as defined below) could reasonably be expected to terminate or
decrease or adversely modify its business relationship with ARCA by reason of
the transactions contemplated hereby. "Current customers or suppliers" means the
customers and suppliers listed on SCHEDULE 4.16.
4.17 LITIGATION. Except as set forth in SCHEDULE 4.17 hereto, there are
no actions, suits, proceedings or investigations pending, or to ARCA's
knowledge, directly or indirectly threatened, nor has any notice of such items
been received by ARCA, in any court or before any governmental agency or
instrumentality against or materially affecting ARCA or, to its knowledge, any
of its officers or directors nor, to its knowledge, has any such action, suit,
proceeding or investigation been pending during the five-year period preceding
the date hereof, nor have any such actions, suits, proceedings or investigations
been settled by ARCA and/or adjudicated for an aggregate amount of $10,000 or
more during the past five years; PROVIDED, HOWEVER, that the foregoing shall not
require disclosure of actions, suits or investigations relating to officers or
directors which are wholly unrelated to ARCA. Except as set forth in SCHEDULE
4.17 hereto, ARCA has no knowledge of any facts which could result in any such
action, suit, proceeding or investigation. ARCA is not in default with respect
to any order, writ, injunction or decree of any court, agency or
instrumentality. To the knowledge of ARCA, there are no actions, suits,
proceedings or investigations pending or threatened in any court or before any
governmental agency or instrumentality affecting any outstanding securities of
ARCA which could prevent, delay or hinder the consummation of the transactions
contemplated hereby. ARCA has no knowledge of any facts which could reasonably
result in any such action, suit, proceeding or investigation.
4.18 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 4.18,
the execution, delivery and performance of this Agreement by ARCA and the
consummation by it of the transactions contemplated hereby, and compliance by
them with the provisions hereof, (i) do not and will not violate or conflict
with any provision of law or regulation, or any writ, order or decree of any
court, governmental or regulatory authority or agency, or any term or provision
of ARCA's Articles of Incorporation or Bylaws, (ii) do not and will not, with or
without the passage of time or the giving of notice, or both, create any right
on the part of any party to any material instrument or Material Agreement to
which ARCA is a party, to unilaterally modify, amend or terminate any such
material instrument or Material Agreement and (iii) do not and will not, with or
without the passage of time or the giving of notice, result in the breach of, or
constitute a default or require any consent or notice under, or result in the
creation of any lien, charge or encumbrance upon any property or assets
(including, without limitation, Intangible Property) of ARCA pursuant to, any
material instrument or
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Material Agreement to which ARCA is a party or by which ARCA or any of its
properties are bound or affected.
4.19 TRANSACTIONS WITH AFFILIATES. Except as set forth in SCHEDULE
4.19, there are no, and since December 31, 1997 there have been no, contracts,
agreements or arrangements of any kind (including, but not limited to those
relating to, the sharing of overhead, intercompany loans, the furnishing of
services and the lease of facilities) between any Affiliate of ARCA, on the one
hand, and ARCA, on the other hand. Without limiting the generality of the
foregoing, except as set forth on SCHEDULE 4.19, (i) no Affiliate of ARCA has
any interest in any property (real or personal, tangible or intangible, or
otherwise) used in ARCA's business, (ii) ARCA has no indebtedness to any
shareholder, officer or director or any of their Affiliates and (iii) ARCA is
not owed any indebtedness by any shareholder, officer or director or any of
other Affiliates.
4.20 LIST OF ACCOUNTS. SCHEDULE 4.20 hereto contains a list (including
account numbers, where applicable) of (i) all banks and other institutions in
which ARCA has an account or safe deposit box and of all cash management, money
market and similar accounts of ARCA and the addresses of all such institutions
and names and telephone numbers of the contact persons at such institutions and
(ii) the names of all persons authorized to draw thereon, make withdrawals
therefrom or have access thereto.
4.21 LIST OF PERSONNEL. SCHEDULE 4.21 hereto contains: the names of all
incumbent directors and officers of ARCA; the names, job designations and annual
compensation of all Persons who have been employees or consultants of ARCA since
December 31, 1996; a detailed itemization of all accrued but unpaid benefits,
emoluments, bonuses, sums or amounts of any nature whatsoever (other than
salaries accrued since the end of the last payroll period) which are or may
become due to any such employee or consultant in connection with services
rendered prior to the date hereof, including, but not limited to, accrued
vacation and sick leave; and a true and complete list of all employee policies,
employee benefit manuals or other manuals including employee work rules or
policies, vacation policies, sick leave policies, compensation plans, and any
other employee benefit policies or benefit plans currently in effect for ARCA.
SCHEDULE 4.21 further sets forth any contracts or arrangements with any
director, officer, consultant or employee which provides for payments to be made
to such party in connection with the termination of any office or employment or
retention of such Person. Except as set forth in SCHEDULE 4.21, since December
31, 1997, ARCA has not paid or given any increase in or improvement to the
benefits of any nature of or any bonus or compensation to any of its directors,
officers, consultants or employees, and ARCA is not under any obligation to
increase or improve any such benefits or bonuses or compensation with or without
retrospective operation, except for increased sales commissions paid or payable
to any individual resulting solely from, and directly correlated with, increased
sales by such individual. Except as disclosed in SCHEDULE 4.21, there are no
amounts which are or may become due or owing to any employee or consultant of
ARCA for any accrued benefit, emolument, bonus, sum or amount, including without
limitation, amounts due for accrued vacation or sick leave, except for salaries
accrued since the end of the last payroll period.
4.22 GUARANTIES. Except as disclosed on SCHEDULE 4.22, ARCA has not
guaranteed any obligation or indebtedness of any Person or granted any power of
attorney, and no Person has guaranteed any obligation or indebtedness of ARCA or
granted it a power of authority.
4.23 YEAR 2000 COMPLIANCE. Except as set forth on SCHEDULE 4.23, ARCA
has no contractual obligations with any of its customers or any other Person
which requires ARCA to be Year 2000 compliant. In the event ARCA is required to
be Year 2000 compliant, ARCA has taken all necessary steps to comply with the
requirements and terms of its contracts.
4.24 EMPLOYEE BENEFIT PLANS. SCHEDULE 4.24 sets forth a complete list
of all pension, retirement, stock purchase, stock bonus, stock ownership, stock
option, profit sharing, savings, medical, disability, hospitalization,
insurance, deferred compensation, bonus, incentive, welfare or any other
employee benefit plan, policy, agreement, commitment, arrangement or practice
currently or previously
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maintained by ARCA for any of directors, officers, consultants, employees or
former employees of ARCA (the "ARCA PLANS"). SCHEDULE 4.24 also identifies each
ARCA Plan which constitutes an "employee pension benefit plan" ("PENSION PLAN")
or an "employee welfare benefit plan" ("WELFARE PLAN"), as such terms are
defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). None of the ARCA Plans is a "multiemployer plan," as such term is
defined in ERISA, or is subject to Title IV of ERISA. ARCA has delivered or made
available to CyberGuard true and complete copies of the following for each ARCA
Plan, if applicable: (i) the Plan document; (ii) summary plan description of the
ARCA Plan; (iii) the trust agreement, insurance policy or other instrument
relating to the funding of the ARCA Plan; (iv) the most recent Annual Report
(Form 5500 series) and accompanying schedules filed with the IRS or Department
of Labor with respect to the ARCA Plan; (v) the most recent audited financial
statement for the ARCA Plan; and (vi) the most recent determination letter
issued by the IRS with respect that to the ARCA Plan that is intended to qualify
under Section 401(a) of the Code.
Each Pension Plan has been determined by the IRS to be qualified under
Section 401(a) of the Code, and each such Plan remains so qualified; and to
ARCA's knowledge, no facts or circumstances exist which could result in the
revocation of such qualification. Each Welfare Plan which is intended to meet
the requirements for tax-favored treatment under the Code to ARCA's knowledge
meets such requirements. Each ARCA Plan has been administered in all material
respects in accordance with its terms and the Code, and each Pension Plan and
Welfare Plan has been administered in all material respects in accordance with
ERISA. No facts or circumstances exist which might give rise to any material
liability with respect to any ARCA Plan, to CyberGuard, ARCA, Acquisition or any
of their Subsidiaries or to any other Person. ARCA has paid all amounts required
under applicable law, any Pension Plan and any Welfare Plan to be paid as a
contribution to each Pension Plan and Welfare Plan through the date hereof. ARCA
has set aside adequate reserves to meet contributions which are not yet due
under any Pension Plan or Welfare Plan. Neither ARCA, nor any other Person has
engaged in any transaction or taken any other action with respect to any ARCA
Plan which would subject ARCA, CyberGuard, Acquisition or any of their
Subsidiaries or any other Person to: (A) any tax, penalty or liability for
prohibited transactions under ERISA or the Code; (B) any tax under Code Sections
4971, 4972, 4976, 4977 or 4979; or (C) a penalty under ERISA Sections 502(c) or
502(l). ARCA, to the extent it is a fiduciary with respect to any Pension Plan
or Welfare Plan, has not breached any of its responsibilities or obligations
imposed upon fiduciaries under ERISA or the Code or which could result in any
material claim being made under, by or on behalf of any Pension Plan or Welfare
Plan or any participant or beneficiary thereof other than benefit claims in the
ordinary course of business. Each Welfare Plan which is a group health plan
within the meaning of Code Section 5000(b)(1) complies with and in each and
every case has complied with the applicable requirements of Code Section 4980B
and Part 6 of Title I of ERISA. Except as set forth in SCHEDULE 4.24, no ARCA
Plan, other than an ARCA Plan which is an employee pension benefit plan (within
the meaning of Section 3(2)(A) of ERISA), provides benefits, including without
limitation, death, health or medical benefits (whether or not insured), with
respect to current or former employees of ARCA beyond their retirement or other
termination of service with ARCA, other than coverage mandated by applicable
law.
4.25 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES. Except as set
forth on SCHEDULE 4.25, no consent, approval or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or administrative agency is
required in connection with the execution, delivery or performance by ARCA of
this Agreement or any agreement, instrument or document contemplated hereby or
the consummation by ARCA of the transactions contemplated hereby and thereby.
4.26 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth in
SCHEDULE 4.26, since December 31, 1997: (A) ARCA has conducted its business in
the ordinary and usual course; (B) there has been no Material Adverse Effect
with respect to ARCA; and (C) ARCA has not engaged or agreed to engage in any of
the actions enumerated in the second sentence of SECTION 5.1.
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4.27 TAXES. Except as set forth in SCHEDULE 4.27: (A) there have been
timely filed (and shall timely be filed prior to the Effective Time) all returns
and reports with respect to ARCA required to be filed with any taxing authority
with respect to Taxes for any period ending on or before the Effective Time,
taking into account any extension of time to file granted to or obtained on
behalf of ARCA; (B) all Taxes shown to be payable on such returns or reports
that are due prior to the Effective Time have been paid or shall be paid (prior
to the Effective Time), and all such returns or reports accurately reflect the
proper amount of Taxes payable for the applicable periods; (C) no deficiency for
any Tax has been asserted or assessed by a taxing authority against or with
respect to ARCA; (D) ARCA has provided adequate reserves in its Financial
Statements for any Taxes that have not been paid, whether or not shown as being
due on any returns; (E) the income tax returns of ARCA have never been audited;
and (F) ARCA has not waived any restrictions on assessment or collection of
Taxes or consented to the extension of any statute of limitations relating to
Taxes. As used in this Agreement, "TAXES" shall mean any and all taxes, fees,
levies, duties, tariffs, imposts and other charges of any kind (together with
any and all interest, penalties, additions to tax and additional amounts imposed
with respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs and
similar charges.
4.28 MATERIAL AGREEMENTS. SCHEDULE 4.28 sets forth a list of all
written and oral agreements, leases (whether capitalized or otherwise),
arrangements or commitments to which either ARCA is a party or by which it or
any of the assets it owns, leases or utilizes is bound which are expected to
result in the receipt or payment of $10,000 or more (in cash or in kind) by ARCA
or which are material to the financial position, results of operations or
prospects of ARCA on a consolidated basis or to the ability of ARCA to
consummate the transactions contemplated hereby (the "MATERIAL AGREEMENTS").
ARCA has furnished CyberGuard with true and complete copies of all Material
Agreements. The Material Agreements are each in full force and effect and are
the valid and legally binding obligations of ARCA and to ARCA's knowledge, are
valid and binding obligations of the other parties thereto; and ARCA is not in
breach of any Material Agreement. Except as set forth on SCHEDULE 4.28, ARCA has
no: (A) agreement, contract or commitment which requires the making of any
charitable contributions; (B) material agreement, contract or commitment which
is not terminable without penalty, liability or premium upon notice of 30 days
or less; (C) agreement, contract or commitment containing any severance
provisions, or any employment, consulting or similar agreement, contract or
commitment; (D) outstanding obligation for borrowed money; (E) outstanding loan
or advance to any Person; (F) power of attorney outstanding; (G) agreement,
contract or commitment relating to joint ventures, partnerships, debt or equity
investments; (H) agreements, contracts or commitments relating to
non-competition or employee non-disclosure, or non-solicitation or other similar
restrictive covenants; (I) agreements, contracts or commitments relating to the
registration of any of ARCA's securities; and (J) agreement, contract or
commitment relating to the voting or other rights with respect to any securities
of ARCA.
4.29 COMPLIANCE; GOVERNMENT AUTHORIZATION. ARCA (and the properties
used by it) is in material compliance with all federal, state, local and foreign
laws, ordinances, regulations, judgments, rulings, orders and other legal
requirements applicable to it, its properties or its operations. ARCA has
furnished CyberGuard with true and correct copies of all correspondence from
governmental authorities asserting that ARCA is not or was not in material
compliance with any laws, ordinances, regulations, judgments, rulings, orders or
other requirements. All material deficiencies noted in any such report furnished
to CyberGuard in accordance with this SECTION 4.29 have been corrected. There is
no existing governmental or judicial order or decree directed expressly at ARCA
or its assets. ARCA is, and during the past five years has been, in material
compliance with all defense contract accounting standards and all related and
similar standards, laws, rules, regulations, guidelines and the like. A list of
all material investigations, proceedings, actions, notices, reports, assessments
and correspondence or other
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communications from or to any governmental entity during the past five years
with respect to defense contract accounting standards is set forth on SCHEDULE
4.29. Except as set forth on SCHEDULE 4.29, no material deficiency has been
asserted against ARCA with respect to the foregoing matters, and each such
deficiency has been corrected without cost or adverse impact to ARCA.
4.30 BROKERS AND FINDERS. ARCA has not employed any financial advisor,
broker or finder and it has not incurred nor will incur any broker's, finder's
or similar fees, commissions or broker's or finder's expenses in connection with
the transactions contemplated by this Agreement.
4.31 PROXY STATEMENT. None of the information contained or incorporated
by reference in the Proxy Statement will at the dates mailed to ARCA's
Shareholders and at the times of any meetings of ARCA's Shareholders to be held
in connection with the Merger (subject, if required, to a reasonable period of
time for the parties hereto to take such action as is necessary to supplement or
amend the same), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. No representation has been made by ARCA with respect to
information supplied or to be supplied by CyberGuard for inclusion or
incorporation by reference in the Proxy Statement. The Proxy Statement,
including any amendments thereto, will comply with and be distributed to ARCA's
Shareholders in accordance with ARCA's charter and bylaws and all applicable
laws and regulations, and will be distributed in every instance with a copy of
the CyberGuard Disclosure Materials.
4.32 NO PRIOR AGREEMENT. To ARCA's knowledge, there is no written or
oral agreement or understanding with respect to the disposition of any
securities of ARCA owned by any of the Party Shareholders, any portion thereof,
or any rights attendant or relating thereto, other than this Agreement.
4.33 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings: (A) "HAZARDOUS SUBSTANCES" means: (i)
those substances defined in or regulated under the following federal statutes
and their state counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act, the Toxic Substances Control Act and the Clean Air Act; (ii) petroleum and
petroleum products, byproducts and breakdown products including crude oil and
any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures
thereof; (iv) polychlorinated biphenyls; (v) any other chemicals, materials or
substances defined or regulated as toxic or hazardous or as a pollutant or
contaminant or as a waste under any applicable Environmental Law; and (vi) any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation; and (B)
"ENVIRONMENTAL LAWS" means any federal, state, foreign, or local law, rule or
regulation, now or hereafter in effect and as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment, health, safety or natural resources, including, without limitation,
those relating to (i) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances or (ii) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances.
(b) ENVIRONMENTAL STATUS. Except as described in SCHEDULE 4.33
hereto: (A) ARCA is and has been in compliance with all applicable Environmental
Laws; (B) ARCA has obtained all permits, approvals, identification numbers,
licenses or other authorizations required under any applicable Environmental
Laws ("ENVIRONMENTAL PERMITS") and is and has been in compliance with their
requirements; (C) such Environmental Permits do not, in connection with the
Merger, require the
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consent or approval of, or any filing with or notice to, any governmental
authority; (D) to ARCA's knowledge, there are no underground or aboveground
storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons
in which Hazardous Substances are being or have been treated, stored or disposed
of on any leased real property; (E) to ARCA's knowledge, there is no asbestos or
asbestos- containing material on any leased real property in violation of
applicable Environmental Laws; (F) ARCA has not released, discharged or disposed
of Hazardous Substances except in compliance with Environmental Laws at any real
property owned by any third party or any real property leased; (G) ARCA is not
undertaking, and has not completed, any investigation or assessment or remedial
or response action relating to any such release, discharge or disposal of or
contamination with Hazardous Substances at any site, location or operation,
either voluntarily or pursuant to the order of any governmental authority or the
requirements of any Environmental Law; and (H) there are no past or pending or,
to the knowledge of ARCA, threatened actions, suits, demands, demand letters,
claims, liens, notices of non-compliance or violation, notices of liability or
potential liability, investigations, proceedings, consent orders or consent
agreements relating in any way to Environmental Laws, any Environmental Permits
or any Hazardous Substances against ARCA which is outstanding or has been
outstanding during the past two years, and to ARCA's knowledge, there are no
circumstances that could be expected to form the basis for any of the foregoing.
ARCA has made available to CyberGuard copies of any environmental reports,
studies or analyses in its possession relating to owned or leased real property
or the operations of ARCA.
4.34 REORGANIZATION. ARCA has no knowledge of any reason or facts or
circumstances why the Merger would fail to qualify as a tax-free reorganization
under Section 368 of the Code.
4.35 PROPOSALS. SCHEDULE 4.35 sets forth a list of all written and oral
proposals and offers pursuant to which, during the past 180 days, ARCA has
proposed or offered to provide services and which remain open for possible
acceptance. ARCA has furnished CyberGuard with true and correct copies of all of
such proposals and offers.
4.36 GOVERNMENT CONTRACTS AND AUDITS. Since December 31, 1997, ARCA has
not experienced a decrease in Independent Research And Development (IRAD or
similar items) or IRAD funding (or commitments for the same) from any
governmental entity. To ARCA's knowledge, the execution, delivery and
performance of this Agreement and the transactions contemplated in connection
herewith will not cause or result in any decrease in the number or dollar volume
of government contracts or subsidies, otherwise adversely affect ARCA's business
relationship with, and prospects for continued business with, any governmental
entity, or adversely affect any status, qualification or other standard which
ARCA currently enjoys.
4.37 POOLING-OF-INTERESTS. As of the date of this Agreement, to ARCA's
knowledge, it has not taken or agreed to take any action which would, to ARCA's
knowledge, disqualify CyberGuard's acquisition of ARCA pursuant to this
Agreement for pooling-of-interests accounting treatment.
4.38 LOANS. As of the date hereof, ARCA's existing bank, shareholder
loans or any other loans identified on Schedule 4.38 hereto (the "Loans") do not
exceed $610,000 (the "Loan Amount").
4.39 DISCLOSURE. No representation or warranty of ARCA herein
(including the exhibits and schedules hereto), and no certificate or affidavit
furnished or to be furnished by or on behalf of ARCA to CyberGuard or its
agents, contains or will, at the time it is made, contain any untrue statement
of a material fact or omits or will, at the time it is made, omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading, in light of the circumstances under which they were
made.
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B. In order to induce CyberGuard and Acquisition to enter into this
Agreement and to consummate the transactions contemplated hereby, each Party
Shareholder hereby severally represents and warrants to CyberGuard and
Acquisition with respect to such Party Shareholder as follows:
4.1B AUTHORITY; LEGAL, VALID AND BINDING AGREEMENT. Such Party
Shareholder has full and unrestricted right, power and authority to enter into
and consummate the transactions contemplated hereby. This Agreement and all
other agreements executed by such Party Shareholder in connection with any of
the transactions contemplated hereunder constitutes the legal, valid and binding
obligations of such party, enforceable in accordance with their respective
terms, except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights and general principles of equity. Such Party
Shareholder has executed a voting agreement, substantially in the form of
EXHIBIT B.
4.2B CAPITALIZATION. Such Party Shareholder owns ARCA Common Stock,
ARCA Preferred Stock and options to acquire the same as described on SCHEDULE
4.6, free and clear of any and all liens, claims, charges, security interests,
voting agreements or encumbrances of any nature whatsoever.
4.3B LITIGATION. Except as set forth in SCHEDULE 4.17 hereto, such
Party Shareholder has not received any notice of any actions, suits, proceedings
or investigations pending, or directly or indirectly threatened, in any court or
before any governmental agency or instrumentality against or affecting ARCA or
any of its officers or directors nor has such Party Shareholder received any
notice that any such action, suit, proceeding or investigation has been pending
during the five-year period preceding the date hereof, nor has he received any
notice that any such actions, suits, proceedings or investigations have been
settled by ARCA and/or adjudicated for an aggregate amount of $10,000 or more
during the past five years; PROVIDED, HOWEVER, that the foregoing shall not
require disclosure of actions, suits or investigations relating to officers or
directors which are wholly unrelated to ARCA; PROVIDED, HOWEVER, that,
notwithstanding the immediately preceding proviso, the foregoing shall require
disclosure of all actions, suits, proceedings and investigations relating to
each of Wilson, Weidner and Bauer except as set forth in SCHEDULE 4.17 or
disclosed to CyberGuard in writing.
4.4B NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 4.18,
the execution, delivery and performance of this Agreement by such Party
Shareholder and the consummation by him of the transactions contemplated hereby,
and compliance by such Party Shareholder with the provisions hereof, (i) do not
and will not violate or conflict with any provision of law or regulation, or any
writ, order or decree of any court, governmental or regulatory authority or
agency, or any term or provision of ARCA's Articles of Incorporation or Bylaws,
(ii) do not and will not, with or without the passage of time or the giving of
notice, or both, create any right on the part of any party to any material
instrument or Material Agreement to which ARCA is a party, to unilaterally
modify, amend or terminate any such material instrument or Material Agreement
and (iii) do not and will not, with or without the passage of time or the giving
of notice, result in the breach of, or constitute a default or require any
consent or notice under, or result in the creation of any lien, charge or
encumbrance upon any property or assets (including, without limitation,
Intangible Property) of ARCA pursuant to, any material instrument or Material
Agreement to which ARCA is a party or by which ARCA or any of its properties are
bound or affected.
4.5B CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES. Except as set
forth on SCHEDULE 4.25, no consent, approval or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or administrative agency is
required in connection with the execution, delivery or performance by such Party
Shareholder of this Agreement or any agreement, instrument or document
contemplated hereby or the consummation by such Party Shareholder of the
transactions contemplated hereby and thereby.
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4.6B BROKERS AND FINDERS. Such Party Shareholder has not employed any
financial advisor, broker or finder and has not incurred nor will incur any
broker's, finder's or similar fees, commissions or broker's or finder's expenses
in connection with the transactions contemplated by this Agreement.
4.7B NO PRIOR AGREEMENT. There is no written or oral agreement or
understanding with respect to the disposition of any securities of ARCA owned by
such Party Shareholder, any portion thereof, or any rights attendant or relating
thereto, other than this Agreement.
4.8B DISCLOSURE. No representation or warranty of such Party
Shareholder herein (including the exhibits and schedules hereto), and no
certificate or affidavit furnished or to be furnished by or on behalf of such
Party Shareholder to CyberGuard or its agents, contains or will, at the time it
is made, contain any untrue statement of a material fact or omits or will, at
the time it is made, omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading, in light of the
circumstances under which they were made.
ARTICLE V
COVENANTS
During the period from the date of this Agreement to the Closing Date,
ARCA agrees to perform all of ARCA's covenants and agreements in this Article V
and CyberGuard and Acquisition agree to perform all of their covenants and
agreements in this Article V, all as follows, and the Party Shareholders agree
to execute all agreements or instruments referred to in Sections 5.10, 5.12 and
5.15:
5.1 INTERIM OPERATIONS OF ARCA. ARCA shall operate its business only in
the ordinary and usual course consistent with past practices, procedures and
policies and shall use its commercially reasonable efforts to preserve its their
business organization and material rights, franchises and licenses and the
goodwill of its customers, suppliers, employees and others having business
relations with them and to continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without limiting the foregoing, except as may be
contemplated in, or disclosed in a schedule to, this Agreement without the
written consent of CyberGuard, ARCA shall not: (A) amend its Articles of
Incorporation or Bylaws; (B) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not limited to, by way of
stock split or dividend) or any subscriptions, options, warrants, rights or
convertible securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities, excluding
issuances of shares upon exercise of options disclosed pursuant to (and not in
violation of) this Agreement; (C) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any option, warrant
or other right to purchase or acquire any such shares; (D) declare or pay any
dividend or other distribution (whether in cash, stock or other property) with
respect to its capital stock; (E) voluntarily sell, transfer, surrender, abandon
or dispose of any of its assets or property rights (tangible or intangible),
other than cash and non-material dispositions of other assets, in either case in
the ordinary course of business consistent with past practices; (F) grant or
make any mortgage or pledge or subject itself or any of its properties or assets
to any lien, charge or encumbrance of any kind, except liens for taxes not
currently due or liens not exceeding $20,000 in the aggregate; (G) create, incur
or assume any liability or any indebtedness, except in the ordinary course of
business consistent with past practices, but in no event in an aggregate amount
exceeding $20,000 more than is shown on ARCA's December 31, 1997 Financial
Statements, or cancel any debts or waive any claims or rights in an aggregate
amount in excess of $20,000 (except for changes to the line of credit, which
amount will in no event exceed $300,000); (H) make or commit to make any capital
expenditures in excess of $20,000 in the aggregate; (I) grant any increase in
the compensation payable or to become payable to directors, officers or
employees (including, without limitation, any such increase pursuant to any ARCA
Plan or otherwise), other than merit increases to officers and employees in the
ordinary course of business and consistent with past practices, but in no event
to exceed $20,000 in the aggregate; (J) enter into any agreement,
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arrangement or commitment that, if it existed on the date hereof, would be a
Material Agreement (for purposes of this subsection J only, the dollar amount in
the definition of Material Agreement will be deemed to be $100,000), or amend or
terminate or permit the amendment or termination of any of same or any existing
Material Agreement (other than a termination by virtue of expiration in
accordance with its terms), or enter into, terminate or modify any contract,
agreement or arrangement with any Affiliate thereof (except to the extent
expressly contemplated hereby, and except for salary and benefits described in
subsection Q below); (K) alter the manner of keeping its books, accounts or
records, or change in any manner the accounting practices (including, but not
limited to, those relating to amortization and depreciation) therein reflected;
(L) enter into any material commitment or transaction other than in the ordinary
course of business consistent with past practices; (M) write off the value of
any inventory or accounts receivable or increase the reserve for uncollectible
receivables or obsolete, damaged or otherwise unsalable inventory (collectively,
in excess of $25,000), except as required by GAAP or by law, or discount,
factor, sell or otherwise transfer any account receivable; (N) approve any
increase in the benefits payable under, or establish any new ARCA Plan; (O) take
any action which could reasonably be expected to have a Material Adverse Effect
on ARCA or which could reasonably be expected to materially and adversely impact
employee, customer or supplier relations or hinder or delay ARCA in consummating
the transactions contemplated hereby on or prior to the Termination Date, or
materially reduce or downsize its operations, materially reduce its work force
or eliminate any material operations; (P) make any Guaranty; (Q) apply any of
its assets to the direct or indirect payment, discharge, satisfaction or
reduction of any amount payable directly or indirectly (i) to or for the benefit
of any Affiliate of ARCA (except for salary and benefits as currently in effect
and except in accordance with existing agreements and arrangements which have
been disclosed to ARCA by CyberGuard in writing) or (ii) to any Person, except
in the ordinary course of business consistent with past practices; (R) fail to
discharge its liabilities in the ordinary course of business when they become
due, except for liabilities subject to a good faith dispute; (S) materially
increase its level of operating expenses; or (T) agree, whether in writing or
otherwise, to do any of the foregoing.
5.2 ACCESS. ARCA shall: (A) afford to CyberGuard and its agents and
representatives reasonable access to the properties, books, records and other
information of ARCA, provided that such access shall be granted upon reasonable
notice and at reasonable times during normal business hours and (B) furnish
promptly to CyberGuard all information and documents concerning its business,
assets, liabilities, properties and personnel as CyberGuard may from time to
time reasonably request. CyberGuard shall: (A) afford to ARCA and its agents and
representatives reasonable access to the properties, books, records and other
information of CyberGuard and its Subsidiaries, provided that such access shall
be granted upon reasonable notice and at reasonable times during normal business
hours and (B) furnish promptly to ARCA all information and documents concerning
its business, assets, liabilities, properties and personnel as ARCA may from
time to time reasonably request.
5.3 CONFIDENTIALITY. Except as otherwise required by law or in the
performance of obligations under this Agreement, any nonpublic information
received by a party or its advisors, agents or representatives from the other
party shall be kept confidential and shall not be used or disclosed for any
purpose other than in furtherance of the transactions contemplated by this
Agreement. The obligation of confidentiality shall not extend to information
which: (A) is or becomes generally available to the public other than as a
result of a disclosure by a party in violation of this Agreement; (B) was in the
lawful possession of a party prior to its receipt from the other party; or (C)
becomes available to a party on a nonconfidential basis from a source other than
a party to this Agreement, provided such source is not known to be in violation
of a confidentiality agreement. Upon termination of this Agreement, each party
shall, upon request, promptly return or destroy any confidential information
received from the other party. Notwithstanding anything to the contrary set
forth herein, the parties expressly consent to the disclosure of all information
reasonably required to be disclosed in the Proxy Statement and the Registration
Statements. The covenants of the parties contained in this SECTION 5.3 shall
survive any termination of this Agreement but shall terminate at the Closing, if
it occurs, with respect to information concerning ARCA.
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5.4 NOTIFICATION. ARCA and CyberGuard shall promptly notify the other
in writing of the occurrence, or threatened occurrence, of: (A) any event that
would constitute a breach of this Agreement by such party or could reasonably be
expected to have a Material Adverse Effect on such party or materially and
adversely effect its ability to consummate the transactions contemplated hereby
on or prior to the Termination Date; (B) any event that would cause any
representation or warranty made by such party in this Agreement to be false or
misleading in any material respect (to the extent representations and warranties
are by their terms qualified by materiality, they shall to that extent be true
and correct in all respects after giving effect to the materiality qualification
contained in such representations and warranties); (C) any other matter which
occurs after the date of this Agreement which, if existing on the date of this
Agreement, would have been required to be disclosed herein; provided, however,
that the delivery of any notice under this SECTION 5.4 shall not cure any breach
of any provision set forth in this Agreement or otherwise limit or affect the
remedies available to the party receiving such notice; (D) any notice from any
governmental or regulatory authority relating to the transactions contemplated
hereby; and (E) any notice or communication from any Person suggesting that any
notice, consent, filing or similar item is necessary to consummate the
transactions contemplated hereby. ARCA will provide to CyberGuard true and
complete copies of all reports or notices to and other material communications
with any governmental or regulatory authority relating to ARCA between the date
of this Agreement and the Closing Date.
5.5 CONSENT OF GOVERNMENTAL AUTHORITIES AND OTHERS. Each of ARCA and
CyberGuard agrees to file, submit or request promptly after the date of this
Agreement and to prosecute diligently any and all consents, approvals,
authorizations, registrations, qualifications, filings, applications and notices
appropriate for filing or submission to any governmental authorities, as
provided in Sections 3.4 and 4.25 hereof. Each of ARCA and CyberGuard agrees to
file, submit or request promptly after the date of this Agreement and to
prosecute diligently and reasonably any and all consents, approvals,
authorizations, registrations, qualifications, filings, applications and notices
appropriate for filing or submission to any Person which are described in
Sections 3.3 or 4.18 hereof. Each of ARCA and CyberGuard shall promptly make
available to the other such information as each of them may reasonably request
relating to its business, assets, liabilities, properties and personnel as may
be required by each of them to prepare and file or submit such applications and
notices and any additional information requested by any governmental authority,
and shall update by amendment or supplement any such information given in
writing. Each of ARCA and CyberGuard represents and warrants to the other that
such information, as amended or supplemented, shall be true, correct and
complete and not misleading.
5.6 ACQUISITION PROPOSALS; NO SOLICITATION. ARCA will not and will not
permit any of its directors, officers, employees, advisors or agents to,
directly or indirectly: (A) solicit, initiate, facilitate, encourage or
participate in any negotiations or discussions with respect to any offer or
proposal to, directly or indirectly, acquire all or a substantial portion of the
business or properties, or any of the capital stock or securities, of ARCA,
whether by merger (other than the Merger), consolidation, strategic
relationship, joint venture, partnership, share exchange, business combination,
purchase of assets, lease of assets, exchange of assets, pledge of assets, other
disposition of assets or otherwise, other than the issuance of capital stock
pursuant to the exercise of options existing as of the date hereof and disclosed
on SCHEDULE 4.7 hereto; or (B) except as required by law or in the ordinary
course of business, disclose to any Person, other than CyberGuard or its agents,
any information not customarily disclosed in the ordinary course concerning the
business, assets, liabilities, properties and personnel of ARCA, or afford to
any Person other than CyberGuard and its agents access to the properties, books
or records of ARCA. If ARCA or any of its officers or directors receive or
become aware of any offer or proposal, written or otherwise, of the type
referred to above, ARCA shall promptly inform CyberGuard of such offer or
proposal and furnish CyberGuard with a copy thereof if such offer or proposal is
in writing.
5.7 COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, ARCA and CyberGuard shall use their respective
commercially reasonable efforts in good faith to take or cause to be taken as
promptly as practicable: (A) all reasonable actions that are within
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their control to cause to be fulfilled those conditions precedent to their
obligations to consummate the Merger; and (B) those actions upon which the
conditions precedent to the other party's obligations to consummate the Merger
are dependent.
5.8 PUBLIC ANNOUNCEMENTS. CyberGuard and Acquisition, on the one hand,
and ARCA, on the other hand, will, to the extent reasonably practicable, consult
with each other before issuing, and give each other the opportunity to review
and comment upon, any press release or other public statements with respect to
the transactions contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or national securities quotation system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement shall be in the form heretofore agreed to by the parties.
5.9 APPROVAL BY ARCA'S SHAREHOLDERS. ARCA shall, through its Board of
Directors, as soon as practicable after the date of this Agreement, either
solicit the written consent of its Shareholders or call a special meeting of
Shareholders, for the purpose of approving the Merger, this Agreement and the
other transactions contemplated by this Agreement. ARCA, through it Board of
Directors, shall recommend that ARCA's Shareholders approve the Merger, this
Agreement and the other transactions contemplated by this Agreement, shall
include such recommendation in the Proxy Statement, shall not amend, modify,
revoke or withdraw such recommendation and shall use its commercially reasonable
efforts to obtain the approval of the Merger by ARCA's Shareholders and
otherwise consummate the transactions contemplated by this Agreement.
5.10 INVESTMENT INTENT LETTERS. ARCA shall use its commercially
reasonable efforts to cause each of the Shareholders to deliver to CyberGuard,
prior to the Effective Time, a letter ("INVESTMENT INTENT LETTER") in the form
of EXHIBIT C hereto.
5.11 FORBEARANCE BY CYBERGUARD. Prior to the Effective Time, CyberGuard
shall not make, declare or pay any extraordinary dividend or any stock split or
stock dividend.
5.12 AFFILIATES' LETTERS. SCHEDULE 5.12 sets forth a list of names and
addresses of those persons who, to the best knowledge of ARCA, may be deemed
Affiliates of ARCA or from whom a letter in the form of EXHIBIT D hereto (the
"AFFILIATE LETTER") may be necessary in order for the Merger to qualify as a
pooling-of-interests transaction. ARCA shall provide CyberGuard such information
and documents as CyberGuard shall reasonably request for purposes of reviewing
such list. There shall be added to such list the names and addresses of any
other person who becomes an Affiliate of ARCA at any time after the date hereof
up to and including the time of the ARCA special meeting of Shareholders or the
effectiveness of the written consents contemplated by Section 5.9 hereof, or who
CyberGuard reasonably identifies (by written notice to ARCA) as being a Person
who may be deemed to be an Affiliate of ARCA; PROVIDED, HOWEVER, that no Person
shall be added to such list by CyberGuard if it receives, on or before the
Effective Time, an opinion of counsel satisfactory to CyberGuard to the effect
that such Person is not an Affiliate. ARCA shall use its commercially reasonable
efforts to deliver or cause to be delivered to CyberGuard, concurrent herewith,
or as promptly as practicable after the date hereof, from each of the Affiliates
identified on SCHEDULE 5.12 (as the same may be supplemented as aforesaid), an
Affiliate Letter.
If an Affiliate of ARCA refuses to provide an Affiliate Letter,
CyberGuard shall in lieu of receipt of such letter be entitled to place
appropriate legends on the certificates evidencing the CyberGuard Common Stock
to be received by such Affiliates pursuant to the terms of this Agreement, and
to issue appropriate stock transfer instructions to the transfer agent for the
CyberGuard Common Stock, to the effect that the shares of the CyberGuard Common
Stock received or to be received by such Affiliate pursuant to the terms of this
Agreement may only be sold, transferred or otherwise conveyed, and the holder
thereof may only reduce his interest in or risks relating to such shares of
CyberGuard Common
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Stock, pursuant to an effective registration statement under the 1933 Act or in
accordance with the provisions of Rule 144 promulgated under the 1933 Act or
pursuant to an exemption provided from registration under the 1933 Act and, in
any event, only after financial results covering at least 30 days of combined
operations of CyberGuard and ARCA after the Closing Date shall have been
published. The foregoing restrictions on the transferability of the CyberGuard
Common Stock shall apply to all purported sales, transfers and other conveyances
of the shares of CyberGuard Common Stock received or to be received by such
Affiliate pursuant to this Agreement and to all purported reductions in the
interest in or risks relating to such shares of the CyberGuard Common Stock
whether or not such Affiliate has exchanged the certificates previously
evidencing such Affiliate's shares of the ARCA Common Stock or ARCA Preferred
Stock for certificates evidencing the shares of CyberGuard Common Stock into
which such shares of ARCA Common Stock or ARCA Preferred Stock were converted.
The Proxy Statement shall disclose the foregoing in a reasonably prominent
manner.
5.13 REGISTRATION AGREEMENT. CyberGuard will, at the Effective Time,
execute and deliver a registration agreement ("Registration Agreement"),
substantially in the form of EXHIBIT E to the Shareholders of ARCA, which will
provide, among other things, that CyberGuard will file three Registration
Statements covering the resale to the public by the Shareholders of ARCA of the
CyberGuard Common Stock issued to such Shareholders pursuant to the Merger, and
thereafter use its best efforts to cause each Registration Statement to be
declared effective as soon as practicable following the filing date and to
maintain such effectiveness for a period of two years.
5.14 PREPARATION OF PROXY STATEMENT. ARCA promptly shall prepare the
Proxy Statement and mail the same to its shareholders in accordance with its
charter and bylaws . CyberGuard shall cooperate with and assist ARCA in the
preparation of the Proxy Statement. The Proxy Statement shall, together with the
CyberGuard Disclosure Materials, constitute a disclosure document for the offer
and issuance of the shares of CyberGuard Common Stock to be received by holders
of ARCA Common Stock and ARCA Preferred Stock in the Merger. ARCA and CyberGuard
shall each use commercially reasonable efforts to cause the Proxy Statement to
comply with applicable federal and state securities law requirements. Each of
ARCA and CyberGuard agrees to provide promptly to the other such information
concerning its business affairs and financial statements as, in the reasonable
judgment of the providing party or its counsel, may be required for inclusion in
or with the Proxy Statement, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Proxy Statement.
If any event relating to CyberGuard or any of its Subsidiaries should
be discovered which should be set forth in an amendment of, or a supplement to,
the Proxy Statement, CyberGuard promptly shall so inform ARCA and shall furnish
all necessary information to ARCA relating to such event. If any event relating
to ARCA should be discovered which should be set forth in an amendment of, or a
supplement to, the Proxy Statement, ARCA promptly shall so inform CyberGuard and
shall furnish all necessary information to CyberGuard relating to such event. In
the Proxy Statement, ARCA shall present this Agreement and the Merger for
approval by the holders of ARCA Common Stock and ARCA Preferred Stock either by
written consent or at the special meeting of ARCA Shareholders relating to the
Merger, include the recommendation of ARCA's Board of Directors to its
Shareholders that they vote in favor of the Agreement and the Merger and include
any description of the availability of dissenters' rights required by applicable
law. ARCA shall provide CyberGuard and its counsel with a reasonable opportunity
to review, comment upon and approve the Proxy Statement. ARCA covenants to
CyberGuard that it will distribute the Proxy Statement only to recipients who
also receive a copy of the CyberGuard Disclosure Materials concurrently
therewith and that the Proxy Statement will contain a conspicuous statement in
substantially the following form:
THIS PROXY STATEMENT IS BEING DISTRIBUTED TOGETHER
WITH THE CYBERGUARD DISCLOSURE MATERIALS IN
CONNECTION WITH THE MERGER DESCRIBED HEREIN. THE
CYBERGUARD DISCLOSURE MATERIALS CONTAIN IMPORTANT
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INFORMATION CONCERNING CYBERGUARD CORPORATION AND SHOULD BE
READ TOGETHER WITH THIS PROXY STATEMENT PRIOR TO MAKING A
DECISION TO VOTE ON THE MERGER. IF YOU HAVE RECEIVED THIS
PROXY STATEMENT WITHOUT THE ACCOMPANYING CYBERGUARD DISCLOSURE
MATERIALS PLEASE CONTACT ARCA SYSTEMS, INC. IMMEDIATELY AND A
COPY OF SUCH MATERIALS WILL BE PROVIDED TO YOU FREE OF CHARGE.
In addition, any form of proxy or written consent which is provided to
holders of ARCA's securities for use in voting upon or consenting to this
Agreement and the Merger will contain an acknowledgment that the stockholder
executing the proxy has received and reviewed the CyberGuard Disclosure
Materials.
5.15 EMPLOYMENT AGREEMENTS, CONFIDENTIALITY AGREEMENTS AND INSIDER
TRADING AGREEMENTS. ARCA shall cause: (i) each of the Persons listed on SCHEDULE
5.15(a) to enter into an employment agreement with ARCA, substantially in the
form of EXHIBIT F, and (ii) each of the employees of ARCA to enter into a
confidentiality and works for hire agreement, substantially in the form of
EXHIBIT G and an insider trading agreement, substantially in the form of EXHIBIT
H.
5.16 PERSONAL GUARANTIES. On the Closing Date, CyberGuard shall obtain
the release of all Shareholder personal guaranties for the Loans.
5.17 POOLING. From and after the date of this Agreement, none of ARCA,
CyberGuard and Acquisition shall take, and each of them shall use commercially
reasonable efforts to cause their respective Affiliates not to take, any action
that would prevent CyberGuard from treating the Merger as a pooling-of-interests
for accounting purposes.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 EMPLOYEES AND BENEFIT PLANS. It is contemplated that, upon
consummation of the Merger, all of the ARCA Plans will be continued by ARCA as
are currently in place except to the extent prohibited by law. Thereafter,
CyberGuard, in its sole discretion, will determine which of the ARCA Plans will
be combined with CyberGuard's existing benefit plans and is under no obligation
to maintain the ARCA Plans as they currently exist; provided, however, that to
the extent CyberGuard determines to include ARCA employees in CyberGuard benefit
plans, CyberGuard will use commercially reasonable efforts to give ARCA
employees credit for purposes of any service requirements for participation for
their period of service with ARCA prior to the Effective Time.
6.2 INVESTIGATION; NOTICES. The representations, warranties and
covenants set forth in this Agreement shall not be affected or diminished in any
way by the receipt of any notice pursuant to SECTION 5.4 or by any investigation
(or failure to investigate) at any time by or on behalf of the party for whose
benefit such representations, warranties and covenants were made. All statements
contained in this Agreement or any schedule hereto, or in any certificate or
notice delivered pursuant hereto shall be deemed to be representations and
warranties for purposes of this Agreement.
6.3 SURVIVAL OF THE REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. All representations and warranties of the parties contained in this
Agreement shall survive the execution and delivery hereof and the Closing and
continue until the first anniversary of the Closing Date and shall not be
affected by an examination made for or on behalf of any party to whom such
representation is made or the knowledge of any of such party's officers,
directors, shareholders, employees or agents; provided
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however, that those representations and warranties of the parties that relate to
contingencies or matters that are subject to resolution through the audit
process shall only survive the execution and delivery hereof and the Closing
until the earlier of (i) the public issuance of the first independent audit
report on CyberGuard following the Closing which covers a period of time
subsequent to the Closing and (ii) the first anniversary of the Closing Date
(collectively, the "Survival Date"). All covenants of the parties shall
terminate as of the Effective Time, except that the agreements set forth in
Article II, Section 5.3 (Confidentiality), this Article VI and Article VIII
shall survive the Closing.
6.4 INDEMNIFICATION.
(a) BY THE PARTY SHAREHOLDERS; ESCROWED CONSIDERATION. Subject
to the limitations set forth in SECTION 6.4(d) hereof, each Party Shareholder of
ARCA severally and pro rata, in proportion to his ownership of ARCA Common Stock
immediately prior to the Effective Time, agrees (and by virtue of the Merger
shall have deemed to have agreed) to indemnify and hold harmless CyberGuard and
its successors and assigns from, against and in respect of, the full amount of
any and all liabilities, damages, claims, deficiencies, fines, assessments,
losses, taxes, penalties, interest, costs and expenses, including, without
limitation, reasonable fees and disbursements of counsel (collectively "LOSSES")
arising from, in connection with, or incident to: (i) any breach or violation of
any of the representations, warranties, covenants or agreements of ARCA or any
Party Shareholder contained in this Agreement or in any document or certificate
delivered by ARCA or any Party Shareholder at or prior to the Closing; and (ii)
any and all actions, suits, proceedings, demands, assessments, judgments, costs
and expenses incidental to any of the foregoing. On the terms and subject to the
conditions set forth in this Agreement, 10% of the CyberGuard Common Stock to be
delivered by CyberGuard pursuant to the Merger, exclusive of the CyberGuard
Common Stock delivered with respect to the Loans payable to Shareholders, shall
be delivered at the Closing to Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A., as escrow agent (the "ESCROW AGENT"), to be held and delivered
in accordance with an Escrow Agreement (the "ESCROW AGREEMENT") in the form
attached hereto as EXHIBIT I (the "ESCROWED CONSIDERATION"). The Escrowed
Consideration represents security for the performance by the Party Shareholders
of their indemnity obligations under this Agreement. The Escrow Agreement will
provide for the Escrowed Consideration to be held until the Survival Date or
such longer period pending resolution of any outstanding claims thereunder. The
fees, costs and expenses of the Escrow Agent shall be paid by CyberGuard.
(b) BY CYBERGUARD. Subject to the limitations set forth in
SECTION 6.4(d) hereof, CyberGuard agrees to indemnify and hold harmless ARCA and
the Shareholders of ARCA from, against and in respect of, the full amount of any
and all Losses arising from, in connection with, or incident to: (i) any breach
or violation of any of the representations, warranties, covenants or agreements
of CyberGuard contained in this Agreement or in any document or certificate
delivered by CyberGuard at or prior to the Closing; and (ii) any and all
actions, suits, proceedings, demands, assessments, judgments, costs and expenses
incidental to any of the foregoing.
(c) INDEMNITY PROCEDURE. A party or parties hereto agreeing to
be responsible for or to indemnify against any matter pursuant to this SECTION
6.4 is referred to herein as the "Indemnifying Party" and the other party or
parties claiming indemnity is referred to as the "Indemnified Party." An
Indemnified Party under this Agreement shall, with respect to claims asserted
against such party by any third party, give written notice to each Indemnifying
Party of any liability which might give rise to a claim for indemnity under this
Agreement within ten (10) business days of the receipt of any written claim from
any such third party, and with respect to other matters for which the
Indemnified Party may seek indemnification, give prompt written notice to each
Indemnifying Party; provided, however, that any failure to give such notice will
not waive any rights of the Indemnified Party except to the extent the rights of
the Indemnifying Party are materially prejudiced. The Indemnified Party shall
contest and defend such claims, acting reasonably and in accordance with good
faith business judgment, with counsel reasonably satisfactory to the
Indemnifying Party, and shall not effect any settlement thereof without the
consent of each Indemnifying Party, which consent shall not be unreasonably
withheld. An
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Indemnifying Party shall have the right to participate in such proceedings and
to be represented by separate attorneys of its choice and at its own expense.
Each Indemnified Party and Indemnifying Party agree to afford one another the
opportunity to be present at, and to participate in, conferences with all
Persons asserting claims for which indemnification is sought hereunder. Each
Indemnified Party and Indemnifying Party shall cooperate with and assist the
other to the extent lawful and reasonably possible. Each Indemnifying Party
shall be kept fully informed of the defense of any such claim at all stages
thereof. In the event that an Indemnified Party fails to timely and in good
faith defend against any such claim, each Indemnifying Party shall, after
providing three days prior written notice to the Indemnified Party, have the
right, but not the obligation, to defend and settle the same. In the event that
the Indemnifying Party is, directly or indirectly, conducting a defense against
any such claim, the Indemnified Party shall cooperate with the Indemnifying
Party in any such defense and make available to it all such witnesses, records,
materials and information in its possession or under its control.
(d) LIMITATIONS. Except as otherwise set forth herein, no
party shall have any obligation under the indemnification provisions set forth
in SECTIONS 6.4(a) or 6.4(b): (i) unless notice of a claim for indemnity in
respect of any matter has been given such party on or before the Survival Date
and (ii) unless and until the aggregate of all claims for which CyberGuard, on
the one hand, or the Party Shareholders, on the other hand, is responsible under
the indemnification provisions of Sections 6.4(a) or 6.4(b), respectively,
exceeds $50,000 (the "BASKET LIMITATION"); PROVIDED, HOWEVER, that if an
Indemnifying Party is responsible to an Indemnified Party hereunder for an
aggregate amount in excess of $50,000, the Basket Limitation shall be deemed
inapplicable and the Indemnifying Party shall be responsible to the Indemnified
Party for the full amount of all such claims. None of the limitations of this
Section 6.4(d)(ii) shall apply with respect to indemnification obligations of a
party arising in connection with the breach of any representation, warranty or
covenant set forth in Sections 4.2, 4.5, 4.6, 4.7, 4.10 (only with respect to
title), 4.30, 4.33, 4.38, 4.1B, 4.2B, 4.6B, 6.5, 6.6 and 8.7 hereof and none of
the limitations of this SECTION 6.4(d) shall apply with respect to any action
based upon fraud of any party; and the Basket Limitation shall be inapplicable
with respect to indemnification obligations of a party arising in connection
with the breach of any provision of Article V. Except for any claim involving
fraud, after the Effective Time the sole and exclusive remedy of CyberGuard for
any breach of any representation or warranty by ARCA or any Party Shareholder in
this Agreement shall be the indemnification provisions contained in this Section
6.4; PROVIDED, that in no event will a Party Shareholder have any liability to
CyberGuard other than pursuant to the indemnification provisions contained in
this Section 6.4 and PROVIDED FURTHER that, in the event this Agreement is
terminated before Closing, nothing contained herein will impact CyberGuard's
ability to recover damages against ARCA. Any and all amounts determined to be
owed by any Party Shareholder by reason of this Section 6.4 shall be satisfied
solely out of the Escrowed Consideration by return to CyberGuard by the Escrow
Agent of such number of shares of CyberGuard Common Stock equal to the amount of
any such indemnity obligation (up to and not to exceed the amount of Escrowed
Consideration). For purposes of this Section 6.4(d), the value of each such
share of CyberGuard Common Stock so returned to the Shareholders of ARCA shall
be determined in the manner set forth in the Escrow Agreement. CyberGuard shall
have no recourse against any Shareholder of ARCA by virtue of this Section 6.4,
it being understood that CyberGuard's sole recourse shall be against the
Escrowed Consideration.
6.5 GENERAL RELEASE. As a material inducement for CyberGuard and
Acquisition to enter into this Agreement, effective as the Effective Time,
except as expressly set forth on SCHEDULE 6.5, each Party Shareholder hereby
unconditionally and irrevocably releases and forever discharges, effective as of
the Effective Time, ARCA from any and all rights, claims, demands, judgments,
obligations, liabilities and damages, whether accrued or unaccrued, asserted or
unasserted, and whether known or unknown, suspected or unsuspected, relating to
ARCA which ever existed, now exist, or may hereafter exist, by reason of any
tort, breach of contract, violation of law or other act or failure to act which
shall have occurred at or prior to the Effective Time. Each Party Shareholder
expressly intends that the foregoing release shall be effective regardless of
whether the basis for any claim or right hereby released shall have been known
to or anticipated by him or her. Notwithstanding the foregoing, nothing
contained in this SECTION 6.5 will have any effect on (i) a Party Shareholder's
claim accruing against CyberGuard, whether under this Agreement or any agreement
entered into in connection with the
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transactions contemplated hereby or otherwise, (ii) a Party Shareholder's right
to indemnification (whether statutory or otherwise) as an officer or director of
ARCA provided that (A) the Party Shareholder has met any applicable standard of
conduct to qualify for such indemnification and (B) the basis of a lawsuit
against such officer or director does not otherwise constitute a breach of any
of the representations and warranties made by ARCA or the Party Shareholders in
this Agreement, or (iii) a Party Shareholder's right to compensation and
benefits earned or accrued by the Party Shareholder as an employee or officer of
ARCA to the extent disclosed in the disclosure schedules, incurred in the
ordinary course of business or properly accounted for in the Financial
Statements.
6.6 RESTRICTIVE COVENANTS. Each Party Shareholder recognizes that in
order to assure CyberGuard and Acquisition that CyberGuard will retain the value
of ARCA as a "going concern," it is necessary that each Party Shareholder
undertakes to enter into a restrictive covenant agreement, substantially in the
form attached hereto as EXHIBIT J (the "Restrictive Covenant Agreement").
6.7 TAX TREATMENT OF THE MERGER. CyberGuard and the Surviving
Corporation shall each use its best efforts to cause the Merger to be treated as
a tax free reorganization within the meaning of Section 368(a) of the Code. To
the extent permitted under applicable tax laws, the Merger shall be reported as
a reorganization within the meaning of Section 368(a)(1)(B) of the Code in all
federal, state, and local tax returns after such acquisition occurs.
ARTICLE VII
CLOSING; CONDITIONS PRECEDENT; TERMINATION
7.1 CLOSING. At the Closing, the parties shall deliver to each other
such documents as may be specified, or required to satisfy the conditions set
forth, in SECTIONS 7.2, 7.3 AND 7.4. All proceedings to be taken and all
documents to be executed at the Closing shall be deemed to have been taken,
delivered and executed simultaneously, and no proceeding shall be deemed taken
nor documents deemed executed or delivered until all have been taken, delivered
and executed.
7.2 MUTUAL CONDITIONS PRECEDENT. The respective obligations of the
parties to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions.
(a) GOVERNMENTAL CONSENTS. All material consents and approvals
required by governmental authorities for the consummation of the transactions
contemplated by this Agreement shall have been obtained.
(b) NO INJUNCTION. No injunction shall be pending which
enjoins, prohibits or materially restricts the consummation of the transactions
contemplated by this Agreement.
(c) SHAREHOLDER APPROVAL. The shareholders of ARCA shall have
duly approved the Merger, this Agreement and the transactions contemplated
hereby.
(d) TAX OPINION. Each of ARCA, the ARCA Shareholders and
CyberGuard shall have received an opinion from Stearns Weaver Miller Weissler
Alhadeff & Sitterson, P.A., dated the Closing Date, substantially in the form of
EXHIBIT K.
7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CYBERGUARD. The
obligations of CyberGuard to consummate the transactions contemplated by this
Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions.
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(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of ARCA and the Party Shareholders contained in this Agreement
and in any certificate or notice delivered pursuant to this Agreement shall be
true and correct in all material respects as of the date of this Agreement (to
the extent representations and warranties are by their terms qualified by
materiality, they shall to that extent be true and correct in all respects after
giving effect to the materiality qualification contained in such representations
and warranties) and as of the Closing Date with the same force and effect as
though made on and as of such date, except to the extent that such
representations and warranties by their terms are expressly limited to an
earlier date.
(b) COVENANTS PERFORMED. The covenants of ARCA contained in
this Agreement to be performed or complied with on or prior to the Closing Date
shall have been duly performed or complied with in all material respects.
(c) NO MATERIAL ADVERSE EFFECT. Since the date of this
Agreement, there shall not have occurred (i) any event or condition of any
character which has adversely affected in any material respect or could
reasonably be expected to adversely affect in any material respect CyberGuard's
ability to operate the business of ARCA or (ii) any Material Adverse Effect with
respect to ARCA.
(d) CONSENTS. ARCA shall have duly and in compliance with
applicable laws delivered all notices, filings and applications and obtained all
consents, approvals, authorizations, registrations and qualifications
contemplated by SECTION 4.18 or SECTION 5.5 to be obtained by ARCA, all of which
shall have been obtained without the imposition of any materially adverse terms
or conditions.
(e) OPINION OF COUNSEL. CyberGuard shall have received from
General Counsel Associates LLP, legal counsel to ARCA, an opinion letter, dated
the Closing Date, in substantially the form set forth in EXHIBIT L to this
Agreement.
(f) CERTIFICATE OF ARCA AND THE PARTY SHAREHOLDERS. ARCA shall
have delivered to CyberGuard a certificate executed by ARCA's President and
Chief Financial Officer, dated the Closing Date, certifying that the conditions
specified in SECTIONS 7.3(a), (b) and (c) above have been fulfilled and each
Party Shareholder shall have delivered to CyberGuard a certificate, dated the
Closing Date, certifying that the conditions specified in SECTION 7.3(A) above
have been fulfilled to the extent such conditions refer to them.
(g) DISSENTERS' RIGHTS. Holders of no more than 5% of the
outstanding shares of ARCA Common Stock or ARCA Preferred Stock shall have
exercised or shall remain entitled to exercise dissenters' appraisal rights in
connection with the Merger under applicable law.
(h) EMPLOYMENT AGREEMENTS. Each of the Persons listed on
SCHEDULE 5.15(a) shall have executed and delivered to CyberGuard an employment
agreement, substantially in the form of EXHIBIT F.
(i) AFFILIATE LETTERS. Each of the persons specified on
SCHEDULE 5.12 as of the Closing Date shall have executed and delivered to
CyberGuard an Affiliate Letter in the form of EXHIBIT D to this Agreement.
(j) INVESTMENT INTENT LETTERS. Each of the Shareholders of
ARCA shall have executed and delivered to CyberGuard an Investment Intent
Letter.
(k) RESIGNATIONS. To the extent requested, each of the
officers and directors of ARCA shall have resigned from such positions.
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(l) CONFIDENTIALITY AGREEMENTS. Each employee of ARCA shall
have executed and delivered to CyberGuard a confidentiality and works for hire
agreement substantially in the form of EXHIBIT G.
(m) INSIDER TRADING AGREEMENTS. Each employee of ARCA shall
have executed and delivered to CyberGuard an insider trading agreement
substantially in the form of EXHIBIT H.
(n) RESTRICTIVE COVENANT AGREEMENT. Each of the Party
Shareholders shall have executed and delivered to CyberGuard a Restrictive
Covenant Agreement substantially in the form of EXHIBIT J.
(o) AUDITORS' "POOLING" LETTER. CyberGuard shall have received
from KPMG Peat Marwick LLP, a letter dated as of the Closing Date, in form and
substance reasonably satisfactory to CyberGuard, to the effect that the Merger
will qualify for pooling-of-interests accounting treatment if consummated in
accordance with this Agreement; the parties hereto agree that any representation
made by a party in the "pooling" representation letters executed by each of the
parties and delivered to KPMG Peat Marwick LLP will be deemed to be a
representation and warranty of such party under this Agreement.
(p) ESCROW AGREEMENT. Each of the Party Shareholders shall
have executed and delivered to CyberGuard an Escrow Agreement substantially in
the form of EXHIBIT I.
(q) SHAREHOLDERS OF ARCA. No more than 35 holders of ARCA
Common Stock and ARCA Preferred Stock shall exist; the number of shareholders
shall be determined in accordance with Regulation D promulgated under the 1933
Act.
7.4 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ARCA. The obligations of
ARCA and the Party Shareholders to consummate the transactions contemplated by
this Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions.
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of CyberGuard contained in this Agreement or in any certificate
or notice delivered pursuant to this Agreement shall be true and correct in all
material respects as of the date of this Agreement (to the extent
representations and warranties are by their terms qualified by materiality, they
shall to that extent be true and correct in all respects after giving effect to
the materiality qualifications contained in such representations and warranties)
and as of the Closing Date with the same force and effect as though made on and
as of such date, except to the extent such representations and warranties by
their terms are expressly limited to an earlier date.
(b) COVENANTS PERFORMED. The covenants of CyberGuard contained
in this Agreement to be performed or complied with on or prior to the Closing
Date shall have been duly performed or complied with in all material respects.
(c) NO MATERIAL ADVERSE EFFECT. There shall not have occurred
since the date of this Agreement (i) any event or condition of any character
which has adversely affected in any material respect or could reasonably be
expected to adversely affect in any material respect CyberGuard's ability to
operate the business of ARCA or (ii) any Material Adverse Effect with respect to
CyberGuard; provided, however, that any drop in the market price of CyberGuard
Common Stock shall not in and of itself without other reasons be sufficient to
provide ARCA with a basis for not proceeding with the Merger on the terms and
conditions set forth herein.
(d) OPINION OF COUNSEL. The Shareholders and ARCA shall have
received from Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., legal
counsel to CyberGuard, an opinion letter, dated the Closing Date, in
substantially the form set forth in EXHIBIT M to this Agreement.
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(e) CYBERGUARD'S CERTIFICATE. CyberGuard shall have delivered
to ARCA a certificate executed by its President or a Vice President, dated the
Closing Date, certifying that the conditions specified in SECTIONS 7.4(a), (b)
and (c) above have been fulfilled.
(f) LISTING. The CyberGuard Common Stock issuable hereunder at
the Effective Time shall have been listed on NASDAQ, subject to official notice
of issuance.
(g) PERSONAL GUARANTIES. All action to be taken under Section
5.16 with regard to the Shareholder guaranties shall have been taken.
(h) REGISTRATION AGREEMENT. CyberGuard shall have executed and
delivered the Registration Agreement.
7.5 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated prior to the Closing:
(a) at any time by mutual consent of the parties;
(b) by CyberGuard or ARCA if the Closing has not occurred on
or prior to September 30, 1998 (the "TERMINATION DATE"), provided the failure of
the Closing to occur by such date is not the result of the failure of the party
seeking to terminate this Agreement to perform or fulfill any of its obligations
hereunder;
(c) by CyberGuard or ARCA, if any governmental entity shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger, and such order,
decree, ruling or other action shall have become final and nonappealable;
(d) by CyberGuard at any time in its sole discretion if any of
the representations or warranties of ARCA or the Party Shareholders in this
Agreement are not in all material respects true and accurate or if ARCA or the
Party Shareholders breach in any material respect any covenant contained in this
Agreement, provided that if such misrepresentation or breach is curable, it is
not cured within ten business days after written notice thereof specifying the
nature of the breach, but in any event prior to the Termination Date; or
(e) by ARCA at any time in its sole discretion if any of the
representations or warranties of CyberGuard or Acquisition in this Agreement are
not in all material respects true and accurate or if CyberGuard or Acquisition
breaches in any material respect any covenant contained in this Agreement,
provided that if such misrepresentation or breach is curable, it is not cured
within ten business days after written notice thereof specifying the nature of
the breach, but in any event prior to the Termination Date.
In the event this Agreement is terminated pursuant to this SECTION 7.5,
this Agreement shall terminate and become void and of no force and effect, the
Merger shall be abandoned without further action by any of the parties to this
Agreement, and no party to this Agreement shall have any liability or further
obligation under this Agreement, except for the agreements contained in SECTIONS
5.3 (Confidentiality), 8.7 (Expenses; Termination Fees), 8.10 (Litigation;
Prevailing Party) and 8.12 (Governing Law); provided that, any termination of
this Agreement pursuant to this SECTION 7.5 shall not relieve any party from any
liability for the willful or intentional breach of any representation, warranty
or covenant contained in this Agreement or be deemed to constitute a waiver of
any remedy available for such breach.
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ARTICLE VIII
MISCELLANEOUS
8.1 NOTICES. Any notice or other communication under this Agreement
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by prepaid overnight
courier to the parties at the addresses set forth below their names on the
signature pages of this Agreement (or at such other addresses as shall be
specified by the parties by like notice), to the attention of the President of
such party. Such notices, demands, claims and other communications shall be
deemed given when actually received or: (A) in the case of delivery by overnight
service with guaranteed next day delivery, the next day or the day designated
for delivery; or (B) in the case of registered U.S. mail, five days after
deposit in the U.S. mail.
8.2 ENTIRE AGREEMENT. This Agreement and each document and agreement
executed by the parties in connection herewith contains every obligation and
understanding among the parties relating to the subject matter hereof and merges
all prior discussions, negotiations and agreements, if any, among them, and none
of the parties shall be bound by any representations, warranties, covenants, or
other understandings, other than as expressly provided or referred to herein.
8.3 ASSIGNMENT. This Agreement may not be assigned by any party without
the written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, and permitted assigns.
8.4 WAIVER AND AMENDMENT. Any representation, warranty, covenant, term
or condition of this Agreement which may legally be waived, may be waived, or
the time of performance thereof extended, at any time by the party hereto
entitled to the benefit thereof, and any term, condition or covenant hereof may
be amended by the parties hereto at any time. No waiver by any party hereto,
whether express or implied, of its rights under any provision of this Agreement
shall constitute a waiver of such party's rights under such provisions at any
other time or a waiver of such party's rights under any other provision of this
Agreement. No failure by any party hereto to take any action against any breach
of this Agreement or default by another party shall constitute a waiver of the
former party's right to enforce any provision of this Agreement or to take
action against such breach or default or any subsequent breach or default by
such other party.
8.5 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any Person
other than the parties hereto (and the Shareholders and option holders of ARCA)
and their respective successors and permitted assigns, any rights or remedies
under or by reason of this Agreement.
8.6 SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written.
8.7 EXPENSES; TERMINATION FEE.
(a) EXPENSES. All expenses (including, without limitation,
legal fees and expenses, investment banking fees, and expenses of accountants)
incurred by a party in connection with the transactions contemplated hereby will
be borne by such party; provided, however, that if the Merger is consummated,
the fees and expenses incurred by or on behalf of ARCA in excess of $100,000
shall be paid jointly and severally by the Party Shareholders; and provided
further that CyberGuard shall pay the fees and expenses of one counsel to the
Shareholders of ARCA up to $10,000.
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(b) TERMINATION FEE. If this Agreement is terminated by ARCA
other than a termination pursuant to SECTIONS 7.5(a), (b), (c) or (e) and ARCA
or the Party Shareholders enter into an agreement, oral or otherwise, to sell
all or substantially all of the business or properties, or all or substantially
all of the capital stock or securities, of ARCA, whether by merger,
consolidation, share exchange, business combination, purchase of assets, other
disposition of assets or otherwise, within six months after the date of
termination and closes such agreement or transaction within one year after such
date, then ARCA shall be liable to pay to CyberGuard an amount equal to
$750,000.
(c) CALCULATION. ARCA agrees that the actual damages accruing
to CyberGuard from termination of this Agreement pursuant to those termination
provisions referenced in this SECTION 8.7 are incapable of precise estimation
and would be difficult to prove, and that the damages stipulated herein bear a
reasonable relationship to the potential injury likely to be sustained in the
event of termination pursuant to such occurrence. The payments stipulated in
this SECTION 8.7 are intended by the parties to provide just compensation in the
event of termination and is not intended to constitute a penalty for
nonperformance.
(d) TIME OF PAYMENT. Any payment required to be made by ARCA
pursuant to this SECTION 8.7 shall be made to CyberGuard not later than five
business days after the occurrence of the event for which CyberGuard is entitled
to payment as provided for herein. All payments required to be made pursuant to
this SECTION 8.7 shall be made by wire transfer of immediate available funds to
an account designated by CyberGuard.
8.8 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Any telecopied
counterpart of a manually executed original shall be deemed a manually executed
original.
8.10 LITIGATION; PREVAILING PARTY. In the event of any litigation with
regard to this Agreement, the prevailing party shall be entitled to receive from
the non-prevailing party and the non-prevailing party shall pay upon demand all
reasonable fees and expenses of counsel for the prevailing party.
8.11 INJUNCTIVE RELIEF. It is possible that remedies at law may be
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies in addition to all other remedies provided hereunder or
available to the parties hereto at law or in equity.
8.12 GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Florida
without reference to the choice of law principles thereof.
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IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
CYBERGUARD CORPORATION INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
-------------------------------
ARCA ACQUISITION CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
-------------------------------
ARCA SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
-------------------------------
---------------------------------------
WILLIAM F. WILSON
Address:
-------------------------------
---------------------------------------
MICHAEL L. WEIDNER
Address:
-------------------------------
---------------------------------------
R. KENNETH BAUER
Address:
-------------------------------
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<PAGE> 1
Exhibit 10.1
REGISTRATION AGREEMENT
This Registration Agreement (this "Agreement") is made and entered into
as of the ___ day of June, 1998 by and among CYBERGUARD CORPORATION, a Florida
corporation ("COMPANY"), and each of the shareholders of ARCA Systems, Inc, a
California corporation ("ARCA") who are signatories hereto ("SIGNATORY
SHAREHOLDERS").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of May 29, 1998 (the "ACQUISITION AGREEMENT"), by and among the Company,
ARCA, ARCA Acquisition Corporation and the Party Shareholders (as defined in the
Acquisition Agreement), the shareholders of ARCA ("SHAREHOLDERS") acquired
590,429 shares of the Company's common stock, par value $.01 per share (the
"COMMON STOCK"), at the Effective Time of the Merger.
WHEREAS, pursuant to the Acquisition Agreement and as a condition
precedent to ARCA's and the Party Shareholders' obligations under the
Acquisition Agreement, the Company has agreed to grant certain registration
rights with respect to the Common Stock received by the Shareholders pursuant to
the Acquisition Agreement, at the Effective Time of the Merger.
WHEREAS, each term which is capitalized but undefined in this Agreement
shall have the meaning ascribed thereto in the Acquisition Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, the parties agree as follows:
1. REGISTRATION RIGHTS.
(a) SHELF REGISTRATIONS. The Company will use its best efforts
to file, no later than three business days after Closing, a shelf registration
statement ("SHELF REGISTRATION STATEMENT NO.1") on Form S-3 covering 50% of the
shares of Common Stock issued to the Shareholders at the Effective Time by the
Company as a result of the Merger together with all of the Common Stock issued
to certain Shareholders in exchange for the Loans pursuant to Section 2.6 of the
Acquisition Agreement and thereafter shall use its best efforts to cause Shelf
Registration Statement No. 1 to be declared effective as soon as practicable
following such filing and to maintain such effectiveness for a period of 2 years
from the date it is declared effective by the Commission. The Company will use
its best efforts to file, no later than 150 days after Closing, a shelf
registration statement ("SHELF REGISTRATION STATEMENT NO.2") on Form S-3
covering 30% of the shares of Common Stock issued to the Shareholders at the
Effective Time by the Company as a result of the Merger and thereafter shall use
its best efforts to cause Shelf Registration Statement No. 2 to be declared
effective as soon as practicable following such filing and to maintain such
effectiveness for a period of 2 years from the date it is declared effective by
the Commission. The Company will use its best efforts to file, no later than 270
days after Closing, a shelf registration statement ("SHELF REGISTRATION
STATEMENT NO.3", along with Shelf Registration
<PAGE> 2
Statement No.1 and Shelf Registration Statement No. 2, the "SHELF REGISTRATION
STATEMENTS") on Form S-3 covering the remaining 20% of the shares of Common
Stock issued to the Shareholders at the Effective Time by the Company as a
result of the Merger (including any Escrowed Consideration) and thereafter shall
use its best efforts to cause Shelf Registration Statement No. 3 to be declared
effective as soon as practicable following such filing and to maintain such
effectiveness for a period of 2 years from the date it is declared effective by
the Commission. Notwithstanding anything to the contrary set forth herein, the
Company shall have the right to prohibit the sale of Common Stock by the Party
Shareholders pursuant to each Shelf Registration Statement, 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 Company is selling securities on its own
behalf, or such longer post-effective periods as may be reasonably required by
the underwriter or underwriters if such offering is underwritten. In connection
with each Registration Statement, the Company will use its best efforts to
effect, and to maintain the effectiveness of, such other registrations,
qualifications and compliances (including, without limitation, obtaining
appropriate qualifications under applicable state securities or "blue sky" laws
and compliance with any other applicable governmental requirements or
regulations), if any, as any selling Shareholder may reasonably request and that
would permit or facilitate the sale of shares subject to such Shelf Registration
Statement (provided however that the Company shall not be required in connection
therewith to qualify to do business or to file a general consent to service of
process in any such state or jurisdiction), in each case so that all other such
registrations, qualifications and compliances will be effective for as much of
the same period as the Shelf Registration Statement as is reasonably
practicable. The Company will from time to time amend or supplement each Shelf
Registration Statement and the prospectuses contained therein as and to the
extent necessary to comply with the 1933 Act, the Exchange Act and any
applicable state securities statute or regulation, subject to the following
limitations and qualifications. Subject to the provisions of this Section 1,
when a Shareholder is entitled to sell shares pursuant to a Shelf Registration
Statement, the Company shall, within two (2) trading days following a request
from such Shareholder, furnish to such Shareholder a reasonable number of copies
of the prospectus in conformity with the requirements of the 1933 Act, and such
other documents as such Shareholder may reasonably request, and any supplement
to or amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in light of the circumstances then existing.
(b) LIMITATIONS. Notwithstanding anything to the contrary set
forth herein, the Company shall have the right to suspend the sale of Common
Stock pursuant to any and/or each Shelf Registration Statement if in the
reasonable judgment of the Company after consultation with counsel there is or
may be in existence material undisclosed information or events concerning the
Company (the "Suspension Right"). In the event the Company exercises the
Suspension Right, such suspension will continue for the period of time
reasonably necessary for disclosure to occur at a time that is not materially
detrimental to the Company and its shareholders (but in any case not later than
the time such disclosure is otherwise actually made or is legally required to be
made)
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<PAGE> 3
or until such time as the information or event is no longer material, each as
determined in good faith by the Company. The Company will promptly give the
Shareholders written notice of the commencement and termination of any such
period of suspension (which information the Shareholders shall maintain as
confidential) and will use all reasonable efforts to minimize the length of the
suspension. All shares of Common Stock offered and sold pursuant to a Shelf
Registration Statement must be sold in accordance with the restrictions set
forth in the Affiliate Letters and Insider Trading Agreements (as such terms are
used in the Acquisition Agreement) to the extent a Shareholder is a party to
either such instrument.
(c) ALLOCATION OF REGISTRATION OPPORTUNITIES. The maximum
number of shares of Common Stock that each Shareholder shall be entitled to sell
pursuant to each Shelf Registration Statement shall be determined pro rata based
on the total number of shares of Common Stock (including Escrowed Consideration,
if any) owned by such Shareholders and issued to him or her at the Effective
Time by the Company as a result of the Merger, and the Company shall utilize
this allocation in preparing the information concerning selling Shareholders in
each Shelf Registration Statement. For example, in the case of Shelf
Registration Statement No. 1, the maximum number of shares of Common Stock that
each Shareholder shall be entitled to sell shall be equal to 50% of the shares
of Common Stock issued to such Shareholder at the Effective Time by the Company
as a result of the Merger.
2. INDEMNIFICATION.
(a) COMPANY'S INDEMNIFICATION. The Company will indemnify and
hold harmless each Signatory Shareholder, any underwriter (as defined in the
1933 Act) for such Signatory Shareholder, and each person who controls any
Signatory Shareholder or underwriter within the meaning of the 1933 Act and the
Exchange Act against any losses, claims, expenses, damages or liabilities
(including reasonable attorneys' fees), joint or several, to which such
Signatory Shareholder, underwriter or controlling persons become subject under
the 1933 Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, expenses, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement under which such
Registrable Securities were registered under the 1933 Act pursuant to Section 1
hereof, any preliminary or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will pay each such
Signatory Shareholder, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, expense, damage, liability or action; PROVIDED,
HOWEVER, that the Company will not be liable under this Section 2(a) in any such
case if and to the extent that any such loss, claim, expense, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with written
information furnished to the Company by any such Signatory Shareholder,
underwriter or controlling person or any affiliate of any of them expressly for
inclusion in such Shelf Registration Statement; and
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<PAGE> 4
PROVIDED, FURTHER, that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any Prospectus under a Shelf
Registration Statement, the indemnity contained in this Section 2(a) shall not
inure to the benefit of any Signatory Shareholder (or the benefit of any person
controlling any Signatory Shareholder) if the person asserting any such loss,
claim, liability, expense or damage purchased the Common Stock that is the
subject thereof, and such Signatory Shareholder or any person controlling such
Signatory Shareholder (i) failed to deliver the version of the prospectus most
recently provided by the Company to such Signatory Shareholder as of the date of
such sale, or (ii) utilized a prospectus during a time period that such
Signatory Shareholder was notified, in accordance with Section 1 hereof, to
suspend making any offers or sales of Common Stock pursuant to a Shelf
Registration Statement.
(b) SIGNATORY SHAREHOLDERS' INDEMNIFICATION. Each Signatory
Shareholder will, severally but not jointly, indemnify and hold harmless the
Company and each underwriter of the Company's securities under Section 1 and
each person who controls the Company or underwriter within the meaning of the
1933 Act and the Exchange Act, each officer of the Company who signs the
registration statement and each director of the Company, against all losses,
claims, expenses, damages or liabilities (including reasonable attorneys' fees),
joint or several, to which the Company, underwriter or such officer or director
or controlling person become subject under the 1933 Act, the Exchange Act or
other federal or state law, but only insofar as such losses, claims, expenses,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable Securities
were registered under the 1933 Act pursuant to Section 1 hereof, any preliminary
or final prospectus contained therein, or any amendment or supplement thereof
and made in reliance on and in conformity with written information relating to
such Signatory Shareholder furnished to the Company expressly for use in the
Registration Statement, prospectus, amendment or supplement, or contained in any
prospectus which was utilized by such Signatory Shareholder or any controlling
person or affiliate of such Signatory Shareholder during a time period in which
such Signatory Shareholder was notified, in accordance with Section 1 hereof, to
suspend making any offers or sales of Common Stock pursuant to a Shelf
Registration Statement.
(c) NOTIFICATION. Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof;
PROVIDED, HOWEVER, that any failure to give such notice will not waive any
rights of the indemnified party except to the extent the rights of the
indemnified party are materially prejudiced. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party
and, after notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the indemnifying party
shall not be liable to such indemnified party under this Section 2 for any legal
expenses subsequently incurred by such indemnified party in connection
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<PAGE> 5
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; PROVIDED, HOWEVER, that (i) if the
indemnifying party has failed to assume the defense and employ counsel or (ii)
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it that are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, then the indemnified party shall have the right to
select separate counsel and to assume such legal defense and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) If the indemnification provided for in this Section 2 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, expenses, damages or liabilities or actions in respect
thereof, then each indemnifying party shall in lieu of indemnifying such
indemnified party contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, expenses, damages, liabilities or
actions in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and such Signatory Shareholder, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, expenses, damages, liabilities or actions as well as any other relevant
equitable considerations, including the failure to give any required notice. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or any affiliate thereof, on the one hand, or such Signatory Shareholder
or any affiliate thereof, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or present such
statement or omission. The Company and the Signatory Shareholders agree that it
would not be just and equitable if contribution pursuant to this Section 2(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 2(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, expenses, damages, liabilities or actions in
respect thereof referred to above in this Section 2(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
3. EXPENSES. In connection with each Shelf Registration Statement filed
pursuant to Section 1 of this Agreement: (i) neither the Company nor ARCA will
pay any expenses of the Shareholders' legal counsel, accountants and other
experts; (ii) the Company shall pay all of the fees and disbursements of legal
counsel for the Company, fees and disbursements of accountants and any other
experts used by the Company in connection with such registration, expenses of
any audits of the Company incidental to or required in connection with such
registration and all expenses of registration not otherwise specifically
described in this Section 3, including expenses incidental to any post-effective
amendment to any such registration statement; and (iii) the
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<PAGE> 6
Company shall pay all Commission and blue sky registration and filing fees, fees
and expenses attributable to the printing and distribution of Prospectuses,
reasonable fees and disbursements of underwriters' counsel, and reasonable
disbursements of the underwriters, underwriting discounts and commissions.
4. REGISTRABLE SECURITIES. For purposes of this Agreement, the term
"REGISTRABLE SECURITIES" shall mean (i) the shares of Common Stock issued to
Shareholders at the Effective Time pursuant to the Acquisition Agreement as a
result of the Merger (including Escrowed Consideration) and (ii) any shares of
Common Stock issued or issuable with respect to the shares of Common Stock
described in (i) above, by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganizations.
5. INFORMATION FOR REGISTRATION STATEMENT. In the case of each
Shareholder, the Company's obligations under Section 1 with respect to such
Shareholder are expressly conditioned upon the Shareholder furnishing to the
Company in writing such information concerning such Shareholder and his or her
controlling persons and the terms of the Shareholder's proposed offering of
shares of the Registrable Securities as the Company shall reasonably request for
inclusion in the registration statement.
6. RULE 144 COVENANTS. The Company agrees during the effectiveness of
the Registration Statements contemplated hereby to (i) file with the Commission,
in a timely manner, all reports required to be filed by the Company under the
Exchange Act, and (ii) to provide the Shareholders, upon request, information
regarding the number of shares of Common Stock outstanding as shown by the most
recent report or statement published by the Company.
7. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Florida, without
regard to the conflict of law principles thereof.
8. BINDING EFFECT; THIRD PARTY BENEFICIARIES. The obligations of this
Agreement shall be binding upon the parties, their heirs, successors and legal
representatives. Each Shareholder shall be a third-party beneficiary of this
Agreement, except for Section 2 hereof. Any Shareholder may, by execution and
delivery to the Company of a counterpart signature page hereto, become an
additional party to this Agreement whether before or after the Effective Time.
9. ASSIGNMENT. This Agreement may not be assigned by any party without
the prior written consent of the other party hereto.
10. AMENDMENT. Amendments to this Agreement may only be made in writing
signed by CyberGuard and the holders of a majority of the ARCA Common Stock.
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<PAGE> 7
11. NOTICES. Any notice or other communication under this Agreement
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by prepaid overnight
courier to the parties at the addresses set forth below their names on the
signature pages of this Agreement (or at such other addresses as shall be
specified by the parties by like notice). Such notices, demands, claims and
other communications shall be deemed given when actually received or: (A) in the
case of delivery by overnight service with guaranteed next day delivery, the
next day or the day designated for delivery; or (B) in the case of registered
U.S. mail, five days after deposit in the U.S. mail.
12. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties and there are no other agreements, written or oral, regarding the
subject matter hereof.
13. SEVERABILITY. Any provision in this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CYBERGUARD CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
------------------------------
Name:
---------------------------------
Address:
------------------------------
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<PAGE> 1
Exhibit 10.2
FORM OF EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of June 1, 1998 by and between ARCA Systems, Inc. (the "Company"), a California
corporation and a wholly-owned subsidiary of CyberGuard Corporation, a Florida
corporation ("CyberGuard"), and __________________________ ("Employee").
WHEREAS, the Company, through its Board of Directors, desires to retain
the services of Employee, and Employee desires to be retained by the Company, on
the terms and conditions set forth in this Agreement;
WHEREAS, the services to be provided by Employee during the term of his
employment and consultancy are of a special, unique, unusual, extraordinary, and
intellectual character, which gives such services peculiar value, the loss of
which cannot be reasonably or adequately compensated in damages in an action at
law.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
accepts employment, upon the terms of and subject to this Agreement.
2. TERM. The term (the "Term") of this Agreement shall commence on June
1, 1998 and shall continue until otherwise terminated in accordance with the
terms of this Agreement.
3. DUTIES. During his employment hereunder, Employee will serve in such
capacity and with such duties as shall be assigned from time to time by the
__________________________ of the Company. Employee shall diligently perform
such duties and shall devote his entire business skill, time and effort to his
employment and his duties hereunder and shall not during the Term, directly or
indirectly, alone or as a member of a partnership, or as an officer, director,
employee or agent of any other person, firm or business organization engage in
any other businessactivities or pursuits requiring his personal service that
materially conflict with his duties hereunder or the diligent performance of
such duties.
4. COMPENSATION.
(a) SALARY. During his employment hereunder Employee shall be paid a
salary of ____________________________ ($_______________ ) per year, payable in
equal installments not less than monthly ("Base Salary"). The Employee's Base
Salary shall be reviewed at least annually by the Board of Directors or any
Committee of the Board delegated the authority to review executive compensation.
<PAGE> 2
(b) BONUS. In addition to salary, Employee shall be eligible to
receive a targeted incentive bonus that will be established at the beginning of
each fiscal year. To be eligible to receive the targeted incentive bonus, in
full or in part, Employee will be required to fulfill performance goals to be
established by the Company.
(c) INSURANCE. During his employment hereunder, Employee shall be
entitled to participate in all such health, life, disability and other insurance
programs, if any, that the Company may offer to executive employees of the
Company from time to time.
(d) OTHER BENEFITS. During his employment hereunder, Employee shall
be entitled to all such other benefits, if any, that the Company may offer to
executive employees of the Company from time to time.
(e) VACATION. Employee shall be entitled to accrue that number of
weeks' vacation leave (in addition to holidays) during the Term in accordance
with the Company's vacation policy for employees as it may be in effect from
time to time. Notwithstanding the foregoing, Employee shall not be deemed to
have forfeited any unused vacation leave accrued prior to the date hereof.
(f) EXPENSE REIMBURSEMENT. Employee shall, upon submission of
appropriate supporting documentation, be entitled to reimbursement of reasonable
out-of-pocket expenses incurred in the performance of his duties hereunder in
accordance with policies established by the Company. Such expenses shall
include, without limitation, reasonable entertainment expenses, gasoline and
toll expenses and cellular phone use charges, if such charges are directly
related to the business of the Company.
5. GROUNDS FOR TERMINATION. The President of the Company may terminate
this Agreement for Cause. As used herein, "Cause" shall mean any of the
following: (i) conviction of Employee of a felony involving moral turpitude; or
(ii) a material act of dishonesty or breach of trust on the part of Employee
resulting or intended to result directly or indirectly in personal gain or
enrichment at the expense of the Company; or (iii) the material failure to
faithfully perform such duties as may be duly assigned to the Employee; if such
act is capable of cure, Employee shall be given written notice and such act
shall not be deemed a basis for Cause if cured within 60 days after written
notice is received by Employee specifying the alleged failure in reasonable
detail (and during such 60 day period, Employee shall continue to be employed by
the Company at full pay).
6. TERMINATION BY EMPLOYEE.
(a) TERMINATION WITH GOOD REASON. Employee may terminate this
Agreement with Good Reason. "Good Reason" means:
A material breach of the provisions of this Agreement by the Company
(except those set forth in Paragraph 4(a) above) and Employee
provides at least 15 days' prior
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<PAGE> 3
written notice to the Company of the existence of such breach and
his intention to terminate this Agreement (no such termination shall
be effective if such breach is cured during such period); or
The failure of the Company to comply with the provisions of
Paragraph 4(a) or to pay any amounts due under the Management Bonus
Program provisions of Paragraph 4(b) for an uninterrupted 10 day
period; or
A reduction in Employee's base salary; or
A requirement by ARCA that Employee relocate beyond a 75-mile radius
of the office at which Employee was employed as of May 1, 1998.
(b) TERMINATION WITHOUT GOOD REASON. Employee may terminate this
Agreement without Good Reason on 30 days notice.
7. PAYMENT AND OTHER PROVISIONS UPON TERMINATION.
(a) TERMINATION FOR CAUSE. In the event Employee's employment with
the Company (including its subsidiaries) is terminated by the Company for Cause
as provided in Paragraph 5 then, on or before Employee's last day of employment
with the Company, the provisions of this Paragraph 7(a) shall apply. These same
provisions shall apply if Employee terminates his employment with the Company
without Good Reason.
(i) SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS.
The Company shall pay in a lump sum to Employee at the time of Employee's
termination (a) an amount equal to the unpaid salary due to the Employee for
services performed prior to the date of termination of employment plus (b) such
amount of Employee's target incentive bonus as has been earned based upon
fulfilling performance goals, and been accrued but remains unpaid plus (c)
compensation for unused vacation time. Any and all other rights granted to
Employee under this Agreement shall terminate as of the date of termination.
(b) TERMINATION WITHOUT CAUSE. In the event Employee's employment
with the Company (including its subsidiaries) is terminated by the Company for
any reason other than for Cause as provided in Paragraph 5 and other than as a
consequence of Employee's death, disability, or normal retirement under the
Company's retirement plans and practices, then the following provisions apply.
These same provisions shall apply if Employee terminates his employment with
Good Reason as described in Paragraph 6. In addition to the amounts stated
below, Employee shall be paid an amount equal the unpaid salary due to the
Employee for services performed prior to the date of termination of employment
plus compensation for unused vacation time.
(i) SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS.
The Company shall pay to Employee as compensation for services rendered to the
Company a cash amount equal
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<PAGE> 4
to one-half (1/2) of the Employee's annual base salary as then in effect plus
the greater of (x) one-half (1/2) the amount of Employee's targeted incentive
bonus for the fiscal year in which such employment is terminated, or (y) the
amount of the targeted incentive bonus to which he is entitled but which remains
unpaid. At the election of the Company, the cash amount referred to in this
Paragraph 7(b)(i) may be paid to Employee in one lump sum or in no less than six
equal monthly periodic installments, without interest, in accordance with the
regular salary payment practices of the Company, with the first such installment
to be paid on or before Employee's last day of employment with the Company, and
no interest shall be paid with respect to any amount not paid on the Employee's
date of termination.
(ii) VESTING OF OPTIONS AND RIGHTS. Notwithstanding
the vesting period provided for in the Stock Incentive Plan and any related
stock option agreements between the Company and Employee for stock options
("options") and stock appreciation rights ("rights") granted Employee by the
Company, all options and stock appreciation rights that were exercisable at the
date of termination or within six months thereafter shall be immediately
exercisable upon termination of employment. In addition, Employee will have the
right to exercise all such options and rights for the shorter of (a) six months
following his termination of employment or (b) with respect to each option, the
remainder of the period of exercisability under the terms of the appropriate
documents that grant such options.
(iii) BENEFIT PLAN COVERAGE. The Company shall
maintain in full force and effect for Employee and his dependents for six months
after the date of termination, all life, health, accident, and disability
benefit plans and other similar employee benefit plans, programs and
arrangements in which Employee or his dependents were entitled to participate
immediately prior to the date of termination, in such amounts as were in effect
immediately prior to the date of termination, provided that such continued
participation is possible under the general terms and provisions of such benefit
plans, programs and arrangements. In the event that participation in any benefit
plan, program or arrangement described above is barred, or any such benefit
plan, program or arrangement is discontinued or the benefits thereunder
materially reduced, the Company shall arrange to provide Employee and his
dependents for six months after the date of termination with benefits
substantially similar to those that they were entitled to receive under such
benefit plans, programs and arrangements immediately prior to the date of
termination. Notwithstanding any time period for continued benefits stated in
this Paragraph 7(b)(iii), all benefits in this Paragraph 7(b)(iii), will
terminate on the date that Employee becomes an employee of another employer and
eligible to participate in the employee benefit plans of such other employer. To
the extent that Employee was required to contribute amounts for the benefits
described in this Paragraph 7(b)(iii), prior to his termination, he shall
continue to contribute such amounts for such time as these benefits continue in
effect after termination.
(iv) SAVINGS AND OTHER PLANS. Except as otherwise
more specifically provided herein or under the terms of the respective plans
relating to termination of employment, Employee's active participation in any
applicable savings, retirement, profit sharing or supplemental employee
retirement plans or any deferred compensation or similar plan of the Company or
any of
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its subsidiaries shall continue only through the last day of his employment. All
other provisions, including any distribution and/or vested rights under such
plans, shall be governed by the terms of those respective plans.
(c) THIS SECTION DOES NOT ADDRESS TERMINATIONS AFTER A CHANGE IN
CONTROL. The provisions of this Paragraph 7 shall apply if Employee's employment
is terminated prior to a Change of Control (as defined in Paragraph 8) or more
than one year after the occurrence of a Change of Control. From the occurrence
of any Change of Control until the first anniversary of such Change of Control,
the provisions of Paragraph 8 shall apply in place of this Paragraph 7, EXCEPT
THAT in the event that Employee's employment is terminated by Employee after a
Change of Control without Good Reason, then the provisions of Paragraph 8 shall
not apply and the provisions of Paragraph 7(a) shall apply. Termination upon
death and disability are covered by Paragraphs 9 and 10, respectively.
8. PAYMENT AND OTHER PROVISIONS AFTER CHANGE OF CONTROL.
(a) SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS. In the event
Employee's employment with the Company is terminated within one year following
the occurrence of a Change of Control (other than as a consequence of his death
or disability) either (i) by the Company for any reason whatsoever or (ii) by
Employee with Good Reason as provided in Paragraph 6, then all benefits under
Paragraphs 7(b)(i), (ii), (iii) and (iv) shall be extended to Employee as
described in such Paragraphs except that all options and rights shall be
immediately exercisable.
(b) NONCOMPETITION PERIOD. In the event of a Change of Control and
the Company terminates Employee without Cause or the Employee terminates his
employment with Good Reason (as such term is defined in the first and second
clause of Paragraph 6(a) hereto), the provisions of Paragraphs 12, 13 and 16
shall be without force and effect and shall not apply to Employee.
(c) DEFINITION OF "CHANGE OF CONTROL." For purposes of this
Agreement, the term "Change of Control" shall mean
The acquisition, other than from the Company or CyberGuard, by any
individual, entity or group (within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) (any of the foregoing described in this Paragraph
8(c)(i) hereafter a "Person") of 30% or more of either (a) the then outstanding
shares of Capital Stock of the Company or CyberGuard (the "Outstanding Capital
Stock") or (b) the combined voting power of the then outstanding voting
securities of the Company or CyberGuard entitled to vote generally in the
election of directors (the "Voting Securities"), PROVIDED, HOWEVER, that any
acquisition by (x) CyberGuard or any of its subsidiaries, or any employee
benefit plan (or related trust) sponsored or maintained by the Company or
CyberGuard or any of its subsidiaries or (y) any Person that is eligible,
pursuant to Rule 13d-1(b) under the Exchange Act, to file a statement on
Schedule 13G with
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<PAGE> 6
respect to its beneficial ownership of Voting Securities, whether or not such
Person shall have filed a statement on Schedule 13G, unless such Person shall
have filed a statement on Schedule 13D with respect to beneficial ownership of
30% or more of the Voting Securities or (z) any corporation with respect to
which, following such acquisition, more than 60% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Capital Stock and
Voting Securities immediately prior to such acquisition in substantially the
same proportion as their ownership, immediately prior to such acquisition, of
the Outstanding Capital Stock and Voting Securities, as the case may be, shall
not constitute a Change of Control; or
(i) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any individual becoming a
director subsequent to the date hereof whose election or nomination for election
by the Company's or CyberGuard's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the Directors of the Company or CyberGuard (as such terms are
used in Rule 14a-11 of Regulation 14A, or any successor section, promulgated
under the Exchange Act); or
(ii) Approval by the shareholders of the Company or
CyberGuard of a reorganization, merger or consolidation (a "Business
Combination"), in each case, with respect to which all or substantially all
holders of the Outstanding Capital Stock and Voting Securities immediately prior
to such Business Combination do not, following such Business Combination,
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from Business
Combination; or
(iii)(a) a complete liquidation or dissolution of the
Company or CyberGuard or (b) a sale or other disposition of all or substantially
all of the assets of the Company or CyberGuard other than to a corporation with
respect to which, following such sale or disposition, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors is then owned beneficially, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Capital Stock and Voting
Securities immediately prior to such sale or disposition in substantially the
same proportion as their ownership of the Outstanding Capital Stock and Voting
Securities, as the case may be, immediately prior to such sale or disposition.
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<PAGE> 7
9. TERMINATION BY REASON OF DEATH. If Employee shall die while employed
by the Company both prior to termination of employment and during the effective
term of this Agreement, all Employee's rights under this Agreement shall
terminate with the payment of such amounts of annual Base Salary as have accrued
but remain unpaid and a prorated amount of targeted incentive bonus under the
Company's Management Bonus Program through the month in which his death occurs,
plus three additional months of the fixed salary and targeted bonus. All
benefits under Paragraph 7(b)(ii) and (iv) shall be extended to Employee's
estate as described in such Paragraphs. In addition, Employee's eligible
dependents shall receive continued benefit plan coverage under Paragraph
7(b)(iii) for three months from the date of Employee's death.
10. TERMINATION BY DISABILITY. Employee's employment hereunder may be
terminated by the Company for disability. In such event, all Employee's rights
under this Agreement shall terminate with the payment of such amounts of annual
Base Salary as have accrued but remain unpaid as of thirtieth (30th) day after
such notice is given EXCEPT that all benefits under Paragraphs 7(b)(ii), (iii),
and (iv) shall be extended to Employee as described in such Paragraphs. For
purposes of this Agreement, "disability" is defined to mean that, as a result of
Employee's incapacity due to physical or mental illness (a) Employee shall have
been absent from his duties as an officer of the Company on a substantially
full-time basis for six (6) consecutive months; and (b) within thirty (30) days
after the Company notifies Employee in writing that it intends to replace him,
Employee shall not have returned to the performance of his duties as an officer
of the Company on a full-time basis.
11. CERTAIN LIMITATIONS ON REMEDIES. Paragraph 7(b) provides that
certain payments and other benefits shall be received by Employee upon the
termination of Employee by the Company under the circumstances described
therein. It is the intention of this Agreement that if the Company terminates
Employee other than for Cause then the payments and other benefits set forth in
Paragraph 7(b) shall constitute the sole and exclusive remedies of Employee.
12. NONCOMPETITION. At all times during Employee's employment
hereunder, and for such additional periods during which the Company is current
in its obligation to pay Employee pursuant to Paragraph 16 hereof, Employee
shall not, directly or indirectly, engage or agree to engage in any business or
enterprise or be employed by or agree to be employed by any business or
enterprise (a "Competitor"), whether as owner, operator, shareholder, director,
partner, creditor, employee, consultant, agent or in any capacity whatsoever,
that provides services or manufactures products designed to compete directly
with services or products of the Company or its parent company, or markets such
services or products anywhere in the world where the Company or its parent
company (i) is engaged in business or (ii) has evidenced an intention known to
Employee of engaging in business. Employee acknowledges that he has read the
foregoing and agrees that the nature of the geographical restrictions are
reasonable given the international nature of the Company's and CyberGuard's
business.
In the event that these geographical or temporal restrictions
are judicially determined to be unreasonable, the parties agree that these
restrictions shall be judicially reformed to the maximum restrictions which are
reasonable.
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<PAGE> 8
Notwithstanding the provisions of this Paragraph 12, Employee may
accept employment with a company that would be deemed to be a Competitor of the
Company or CyberGuard so long as (i) the Competitor has had annual revenues of
at least $1 billion in each of the prior two fiscal years, (ii) the Competitor's
revenues for products and maintenance in direct competition with the Company and
CyberGuard does not exceed 50% of its total revenues and (iii) Employee's
responsibilities are solely for divisions or subsidiaries of the Competitor that
do not compete with the Company and CyberGuard. The restrictions of this Section
12 shall not apply to the ownership of less than 2% of the outstanding shares of
a publicly-traded company.
13. NONSOLICITATION OF EMPLOYEES AND CUSTOMERS. At all times during
Employee's employment hereunder and for one year after termination or expiration
of this Agreement, Employee shall not, directly or indirectly, for himself or
for any other person, firm, corporation, partnership, association or other
entity (a) attempt to employ, employ or enter into any contractual arrangement
with any employee or former employee of the Company, CyberGuard, their
affiliates, subsidiaries or predecessors in interest, unless such employee or
former employee has not been employed by the Company, CyberGuard, their
affiliates, subsidiaries or predecessors in interest during the twelve months
prior to Employee's attempt to employ him or (b) call on or solicit any of the
actual customers of the Company or others known by Employee to be targeted
prospective customers of the Company, CyberGuard or their affiliates,
subsidiaries or predecessors in interest with respect to any matters competitive
with the business of the Company or CyberGuard.
14. CONFIDENTIALITY.
(a) NONDISCLOSURE. Employee acknowledges and agrees that the
Confidential Information (as defined below) is a valuable, special and unique
asset of the Company's and CyberGuard's business. Accordingly, except (i) in
connection with the performance of his duties hereunder, (ii) in connection with
the enforcement of this Agreement or any other agreement between Employee and
the Company or CyberGuard or (iii) as otherwise required by law, Employee shall
not at any time during or subsequent to the term of his employment hereunder
disclose, directly or indirectly, to any person, firm, corporation, partnership,
association or other entity any proprietary or confidential information relating
to the Company or CyberGuard or any information concerning the Company's or
CyberGuard's financial condition, business line, business strategy or prospects,
the Company's or CyberGuard's customers, the design, research, development,
manufacture, marketing or sale of the Company's or CyberGuard's products, or the
Company's or CyberGuard's methods of operating its business, or intellectual
property of any kind, which shall include, without limitation, inventions,
improvements, discoveries, creations, computer programs, computer hardware,
design specifications, concepts, formulas, trade secrets, ideas, processes,
know-how, methods, proprietary data, software code, source code, products,
future products, techniques, any and all derivative works therefrom and any and
all patents and copyrights therein or any improvements thereof (collectively
"Confidential Information"). Confidential Information shall not include
information which, at the time of disclosure, is known or available to the
general public by publication or otherwise through no wrongful act or failure
to act on the part of Employee.
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<PAGE> 9
(b) RETURN OF CONFIDENTIAL INFORMATION. Upon termination of
Employee's employment, for whatever reason and whether voluntary or involuntary,
or at any time at the request of the Company, Employee shall promptly return all
Confidential Information in the possession or under the control of Employee to
the Company and shall not retain any copies or other reproductions or extracts
thereof. Employee shall at any time at the request of the Company destroy or
have destroyed all memoranda, notes, reports, and documents, whether in "hard
copy" form or as stored on magnetic or other media, and all copies and other
reproductions and extracts thereof, prepared by Employee and shall provide the
Company with a certificate that the foregoing materials have in fact been
returned or destroyed.
(c) BOOKS AND RECORDS. All books, records and accounts of the
Company or CyberGuard whether prepared by Employee or otherwise coming into
Employee's possession, shall be the exclusive property of the Company and shall
be returned immediately to the Company upon termination of Employee's employment
hereunder or upon the Company's request at any time.
15. INJUNCTION/SPECIFIC PERFORMANCE. Employee acknowledges that a
breach of any of the provisions of Paragraphs 12, 13 and 14 hereof would result
in immediate and irreparable injury to the Company or CyberGuard which cannot be
adequately or reasonably compensated at law. Therefore, Employee agrees that the
Company shall be entitled, if any such breach shall occur or be threatened or
attempted, to a decree of specific performance and to a temporary and permanent
injunction, without the posting of a bond, enjoining and restraining such breach
by Employee or his agents, either directly or indirectly, and that such right to
injunction shall be cumulative to whatever other remedies for actual damages to
which the Company is entitled. Employee further acknowledges that the Company
may have additional remedies set forth in other agreements that may be in effect
between Employee and the Company (including without limitation a Stock Option
Agreement between Employee and the Company) that are available to the Company in
the event of a breach of any or all of the provisions of Paragraphs 12, 13 or 14
and that nothing herein shall be deemed a waiver of such remedies set forth in
such other agreements.
16. CONSULTING ARRANGEMENT. As further consideration for Employee's
employment with the Company, Employee agrees that, following termination of
Employee's employment with the Company, he will, if so requested to do so by the
Company, enter into a consulting agreement, the terms of which will provide that
the Employee will be paid at a rate per annum equal to the rate he was being
paid as of the date of his termination. Any such request by the Company for the
Employee to enter into such consulting agreement will be given to Employee by
the Company (i) upon termination of his employment if such termination is by the
Company and (ii) within five business days of termination of his employment if
such termination is by the Employee. The term of such consulting agreement shall
be determined by the Company and included in such notice and shall be no longer
than six months. Employee shall only work that number of hours during the term
of such consulting agreement as the parties shall mutually agree in the
consulting agreement, and Employee shall provide those services pursuant to the
consulting agreement as the parties shall mutually agree in the consulting
agreement. Payments under such consulting agreement shall be made in accordance
with the normal payroll practices of Company, which, in any event shall be no
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<PAGE> 10
less often than monthly. Employee further agrees that such consulting agreement
will provide that the Company may set off against or recoup from any amounts due
under the consulting agreement to the extent of any losses incurred by the
Company as a result of any breach by Employee of the provisions of Paragraphs
12, 13 and 14 hereof. The consulting agreement will provide that the Company
shall be deemed to be current in its obligations to make payments under the
consulting agreement unless the Company fails to make such payments and such
failure is not remedied after five days' written notice to the Company.
17. SEVERABILITY. Any provision in this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. SUCCESSORS. This Agreement shall be binding upon Employee and inure
to his and his estate's benefit, and shall be binding upon and inure to the
benefit of the Company and any permitted successor of the Company. Neither this
Agreement nor any rights arising hereunder may be assigned or pledged by:
Employee or anyone claiming through Employee; or by the Company, except to any
corporation which is the successor in interest to the Company by reason of a
merger, consolidation or sale of substantially all of the assets of the Company.
The foregoing sentence shall not be deemed to have any effect upon the rights of
Employee upon a Change of Control.
19. NOTICES. Any notice required or permitted to be given hereunder
shall be written and sent by registered or certified mail, telecommunicated or
hand delivered at the address set forth herein or to any other address of which
notice is given:
To the Company: c/o CyberGuard Corporation
2000 West Commercial Boulevard
Fort Lauderdale, Florida 33309
Attention: President
To Employee: To the address listed for
Employee in the records of the Company
20. ENTIRE AGREEMENT. Subject to Paragraph 25 hereof, this Agreement
constitutes the entire agreement between the parties hereto on the subject
matter hereof and may not be modified without the written agreement of both
parties hereto.
21. WAIVER. A waiver by any party of any of the terms and conditions
hereof shall not be construed as a general waiver by such party.
22. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and both of which together shall constitute
a single agreement.
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23. GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Maryland
without reference to the choice of laws principles thereof.
24. SURVIVAL. Notwithstanding the provisions of Paragraph 2, the
provisions of Paragraphs 12, 13 and 14 shall survive the expiration or early
termination of this Agreement.
25. CERTAIN INTERPRETATIONS. Employee acknowledges that he has entered
into a restrictive covenant agreement by which he has agreed to not compete
against ARCA or solicit the business or personnel of ARCA, CyberGuard or any of
their subsidiaries in connection with the sale of ARCA's business and its
goodwill to CyberGuard. Employee acknowledges that a further consideration for
the sale of the business of ARCA and its goodwill is the entering into by
Employee of this Agreement and the consulting arrangement (and the related
restrictions) described in Paragraph 16.
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<PAGE> 12
IN WITNESS WHEREOF, this Employment Agreement has been executed by the
parties as of the date first above written.
COMPANY:
ARCA SYSTEMS, INC.
-----------------------------
By:
--------------------------
Title:
-----------------------
EMPLOYEE:
-----------------------------
CyberGuard Corporation agrees to guarantee all obligations
of the Company to Employee under Sections 7 or 8 of this
Agreement which arise and accrue upon or after the
termination of this Agreement.
CYBERGUARD CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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<PAGE> 1
Exhibit 10.3
FORM OF EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of June 1, 1998 by and between ARCA Systems, Inc. (the "Company"), a California
corporation and a wholly-owned subsidiary of CyberGuard Corporation, a Florida
corporation ("CyberGuard"), and __________________________ ("Employee").
WHEREAS, the Company, through its Board of Directors, desires to retain
the services of Employee, and Employee desires to be retained by the Company, on
the terms and conditions set forth in this Agreement;
WHEREAS, the services to be provided by Employee during the term of his
employment and consultancy are of a special, unique, unusual, extraordinary, and
intellectual character, which gives such services peculiar value, the loss of
which cannot be reasonably or adequately compensated in damages in an action at
law.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
accepts employment, upon the terms of and subject to this Agreement.
2. TERM. The term (the "Term") of this Agreement shall commence on June
1, 1998 and shall continue until otherwise terminated in accordance with the
terms of this Agreement.
3. DUTIES. During his employment hereunder, Employee will serve in such
capacity and with such duties as shall be assigned from time to time by the
President of the Company. Employee shall diligently perform such duties and
shall devote his entire business skill, time and effort to his employment and
his duties hereunder and shall not during the Term, directly or indirectly,
alone or as a member of a partnership, or as an officer, director, employee or
agent of any other person, firm or business organization engage in any other
business activities or pursuits requiring his personal service that materially
conflict with his duties hereunder or the diligent performance of such duties.
4. COMPENSATION.
(a) SALARY. During his employment hereunder Employee shall be paid a
salary of ____________________________ ($ _____________ ) per year, payable in
equal installments not less than monthly ("Base Salary"). The Employee's Base
Salary shall be reviewed at least annually by the Board of Directors or any
Committee of the Board delegated the authority to review executive compensation.
<PAGE> 2
(b) BONUS. In addition to salary, Employee shall be eligible to
receive a targeted incentive bonus that will be established at the beginning of
each fiscal year. To be eligible to receive the targeted incentive bonus, in
full or in part, Employee will be required to fulfill performance goals to be
established by the Company.
(c) INSURANCE. During his employment hereunder, Employee shall be
entitled to participate in all such health, life, disability and other insurance
programs, if any, that the Company may offer to executive employees of the
Company from time to time.
(d) OTHER BENEFITS. During his employment hereunder, Employee shall
be entitled to all such other benefits, if any, that the Company may offer to
executive employees of the Company from time to time.
(e) VACATION. Employee shall be entitled to accrue that number of
weeks' vacation leave (in addition to holidays) during the Term in accordance
with the Company's vacation policy for employees as it may be in effect from
time to time. Notwithstanding the foregoing, Employee shall not be deemed to
have forfeited any unused vacation leave accrued prior to the date hereof.
(f) EXPENSE REIMBURSEMENT. Employee shall, upon submission of
appropriate supporting documentation, be entitled to reimbursement of reasonable
out-of-pocket expenses incurred in the performance of his duties hereunder in
accordance with policies established by the Company. Such expenses shall
include, without limitation, reasonable entertainment expenses, gasoline and
toll expenses and cellular phone use charges, if such charges are directly
related to the business of the Company.
5. GROUNDS FOR TERMINATION. The President of the Company may terminate
this Agreement for Cause. As used herein, "Cause" shall mean any of the
following: (i) conviction of Employee of a felony involving moral turpitude; or
(ii) a material act of dishonesty or breach of trust on the part of Employee
resulting or intended to result directly or indirectly in personal gain or
enrichment at the expense of the Company; or (iii) the material failure to
faithfully perform such duties as may be duly assigned to the Employee; if such
act is capable of cure, Employee shall be given written notice and such act
shall not be deemed a basis for Cause if cured within 60 days after written
notice is received by Employee specifying the alleged failure in reasonable
detail (and during such 60 day period, Employee shall continue to be employed by
the Company at full pay).
6. TERMINATION BY EMPLOYEE.
(a) TERMINATION WITH GOOD REASON. Employee may terminate this
Agreement with Good Reason. "Good Reason" means:
A material breach of the provisions of this Agreement by the Company
(except those set forth in Paragraph 4(a) above) and Employee
provides at least 15 days' prior
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written notice to the Company of the existence of such breach and
his intention to terminate this Agreement (no such termination shall
be effective if such breach is cured during such period); or
The failure of the Company to comply with the provisions of
Paragraph 4(a) or to pay any amounts due under the Management Bonus
Program provisions of Paragraph 4(b) for an uninterrupted 10 day
period; or
A reduction in Employee's base salary; or
A requirement by ARCA that Employee relocate beyond a 75-mile radius
of the office at which Employee was employed as of May 1, 1998.
(b) TERMINATION WITHOUT GOOD REASON. Employee may terminate this
Agreement without Good Reason on 30 days notice.
7. PAYMENT AND OTHER PROVISIONS UPON TERMINATION.
(a) TERMINATION FOR CAUSE. In the event Employee's employment with
the Company (including its subsidiaries) is terminated by the Company for Cause
as provided in Paragraph 5 then, on or before Employee's last day of employment
with the Company, the provisions of this Paragraph 7(a) shall apply. These same
provisions shall apply if Employee terminates his employment with the Company
without Good Reason.
(i) SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS. The Company
shall pay in a lump sum to Employee at the time of Employee's termination (a) an
amount equal to the unpaid salary due to the Employee for services performed
prior to the date of termination of employment plus (b) such amount of
Employee's target incentive bonus as has been earned based upon fulfilling
performance goals, and been accrued but remains unpaid plus (c) compensation for
unused vacation time. Any and all other rights granted to Employee under this
Agreement shall terminate as of the date of termination.
(b) TERMINATION WITHOUT CAUSE. In the event Employee's employment
with the Company (including its subsidiaries) is terminated by the Company for
any reason other than for Cause as provided in Paragraph 5 and other than as a
consequence of Employee's death, disability, or normal retirement under the
Company's retirement plans and practices, then the following provisions apply.
These same provisions shall apply if Employee terminates his employment with
Good Reason as described in Paragraph 6. In addition to the amounts stated
below, Employee shall be paid an amount equal the unpaid salary due to the
Employee for services performed prior to the date of termination of employment
plus compensation for unused vacation time.
(i) SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS. The Company
shall pay to Employee as compensation for services rendered to the Company a
cash amount equal
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<PAGE> 4
to one-half (1/2) of the Employee's annual base salary as then in effect plus
the greater of (x) one-half (1/2) the amount of Employee's targeted incentive
bonus for the fiscal year in which such employment is terminated, or (y) the
amount of the targeted incentive bonus to which he is entitled but which remains
unpaid. At the election of the Company, the cash amount referred to in this
Paragraph 7(b)(i) may be paid to Employee in one lump sum or in no less than six
equal monthly periodic installments, without interest, in accordance with the
regular salary payment practices of the Company, with the first such installment
to be paid on or before Employee's last day of employment with the Company, and
no interest shall be paid with respect to any amount not paid on the Employee's
date of termination.
(ii) VESTING OF OPTIONS AND RIGHTS. Notwithstanding the vesting
period provided for in the Stock Incentive Plan and any related stock option
agreements between the Company and Employee for stock options ("options") and
stock appreciation rights ("rights") granted Employee by the Company, all
options and stock appreciation rights that were exercisable at the date of
termination or within six months thereafter shall be immediately exercisable
upon termination of employment. In addition, Employee will have the right to
exercise all such options and rights for the shorter of (a) six months following
his termination of employment or (b) with respect to each option, the remainder
of the period of exercisability under the terms of the appropriate documents
that grant such options.
(iii) BENEFIT PLAN COVERAGE. The Company shall maintain in full
force and effect for Employee and his dependents for six months after the date
of termination, all life, health, accident, and disability benefit plans and
other similar employee benefit plans, programs and arrangements in which
Employee or his dependents were entitled to participate immediately prior to the
date of termination, in such amounts as were in effect immediately prior to the
date of termination, provided that such continued participation is possible
under the general terms and provisions of such benefit plans, programs and
arrangements. In the event that participation in any benefit plan, program or
arrangement described above is barred, or any such benefit plan, program or
arrangement is discontinued or the benefits thereunder materially reduced, the
Company shall arrange to provide Employee and his dependents for six months
after the date of termination with benefits substantially similar to those that
they were entitled to receive under such benefit plans, programs and
arrangements immediately prior to the date of termination. Notwithstanding any
time period for continued benefits stated in this Paragraph 7(b)(iii), all
benefits in this Paragraph 7(b)(iii), will terminate on the date that Employee
becomes an employee of another employer and eligible to participate in the
employee benefit plans of such other employer. To the extent that Employee was
required to contribute amounts for the benefits described in this Paragraph
7(b)(iii), prior to his termination, he shall continue to contribute such
amounts for such time as these benefits continue in effect after termination.
(iv) SAVINGS AND OTHER PLANS. Except as otherwise more
specifically provided herein or under the terms of the respective plans relating
to termination of employment, Employee's active participation in any applicable
savings, retirement, profit sharing or supplemental employee retirement plans or
any deferred compensation or similar plan of the Company or any of
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<PAGE> 5
its subsidiaries shall continue only through the last day of his employment. All
other provisions, including any distribution and/or vested rights under such
plans, shall be governed by the terms of those respective plans.
(c) THIS SECTION DOES NOT ADDRESS TERMINATIONS AFTER A CHANGE IN
CONTROL. The provisions of this Paragraph 7 shall apply if Employee's employment
is terminated prior to a Change of Control (as defined in Paragraph 8) or more
than one year after the occurrence of a Change of Control. From the occurrence
of any Change of Control until the first anniversary of such Change of Control,
the provisions of Paragraph 8 shall apply in place of this Paragraph 7, EXCEPT
THAT in the event that Employee's employment is terminated by Employee after a
Change of Control without Good Reason, then the provisions of Paragraph 8 shall
not apply and the provisions of Paragraph 7(a) shall apply. Termination upon
death and disability are covered by Paragraphs 9 and 10, respectively.
8. PAYMENT AND OTHER PROVISIONS AFTER CHANGE OF CONTROL.
(a) SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS. In the event
Employee's employment with the Company is terminated within one year following
the occurrence of a Change of Control (other than as a consequence of his death
or disability) either (i) by the Company for any reason whatsoever or (ii) by
Employee with Good Reason as provided in Paragraph 6, then all benefits under
Paragraphs 7(b)(i), (ii), (iii) and (iv) shall be extended to Employee as
described in such Paragraphs except that all options and rights shall be
immediately exercisable.
(b) NONCOMPETITION PERIOD. In the event of a Change of Control and
the Company terminates Employee without Cause or the Employee terminates his
employment with Good Reason (as such term is defined in the first and second
clause of Paragraph 6(a) hereto), the provisions of Paragraphs 12, 13 and 16
shall be without force and effect and shall not apply to Employee.
(c) DEFINITION OF "CHANGE OF CONTROL." For purposes of this
Agreement, the term "Change of Control" shall mean
The acquisition, other than from the Company or CyberGuard, by any
individual, entity or group (within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) (any of the foregoing described in this Paragraph
8(c)(i) hereafter a "Person") of 30% or more of either (a) the then outstanding
shares of Capital Stock of the Company or CyberGuard (the "Outstanding Capital
Stock") or (b) the combined voting power of the then outstanding voting
securities of the Company or CyberGuard entitled to vote generally in the
election of directors (the "Voting Securities"), PROVIDED, HOWEVER, that any
acquisition by (x) CyberGuard or any of its subsidiaries, or any employee
benefit plan (or related trust) sponsored or maintained by the Company or
CyberGuard or any of its subsidiaries or (y) any Person that is eligible,
pursuant to Rule 13d-1(b) under the Exchange Act, to file a statement on
Schedule 13G with
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<PAGE> 6
respect to its beneficial ownership of Voting Securities, whether or not such
Person shall have filed a statement on Schedule 13G, unless such Person shall
have filed a statement on Schedule 13D with respect to beneficial ownership of
30% or more of the Voting Securities or (z) any corporation with respect to
which, following such acquisition, more than 60% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Capital Stock and
Voting Securities immediately prior to such acquisition in substantially the
same proportion as their ownership, immediately prior to such acquisition, of
the Outstanding Capital Stock and Voting Securities, as the case may be, shall
not constitute a Change of Control; or
(i) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election or nomination for election by the
Company's or CyberGuard's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the Directors of the Company or CyberGuard (as such terms are
used in Rule 14a-11 of Regulation 14A, or any successor section, promulgated
under the Exchange Act); or
(ii) Approval by the shareholders of the Company or CyberGuard
of a reorganization, merger or consolidation (a "Business Combination"), in each
case, with respect to which all or substantially all holders of the Outstanding
Capital Stock and Voting Securities immediately prior to such Business
Combination do not, following such Business Combination, beneficially own,
directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from Business Combination; or
(iii)(a) a complete liquidation or dissolution of the Company
or CyberGuard or (b) a sale or other disposition of all or substantially all of
the assets of the Company or CyberGuard other than to a corporation with respect
to which, following such sale or disposition, more than 60% of, respectively,
the then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors is then owned beneficially, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Capital Stock and Voting Securities
immediately prior to such sale or disposition in substantially the same
proportion as their ownership of the Outstanding Capital Stock and Voting
Securities, as the case may be, immediately prior to such sale or disposition.
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<PAGE> 7
9. TERMINATION BY REASON OF DEATH. If Employee shall die while employed
by the Company both prior to termination of employment and during the effective
term of this Agreement, all Employee's rights under this Agreement shall
terminate with the payment of such amounts of annual Base Salary as have accrued
but remain unpaid and a prorated amount of targeted incentive bonus under the
Company's Management Bonus Program through the month in which his death occurs,
plus three additional months of the fixed salary and targeted bonus. All
benefits under Paragraph 7(b)(ii) and (iv) shall be extended to Employee's
estate as described in such Paragraphs. In addition, Employee's eligible
dependents shall receive continued benefit plan coverage under Paragraph
7(b)(iii) for three months from the date of Employee's death.
10. TERMINATION BY DISABILITY. Employee's employment hereunder may be
terminated by the Company for disability. In such event, all Employee's rights
under this Agreement shall terminate with the payment of such amounts of annual
Base Salary as have accrued but remain unpaid as of thirtieth (30th) day after
such notice is given EXCEPT that all benefits under Paragraphs 7(b)(ii), (iii),
and (iv) shall be extended to Employee as described in such Paragraphs. For
purposes of this Agreement, "disability" is defined to mean that, as a result of
Employee's incapacity due to physical or mental illness (a) Employee shall have
been absent from his duties as an officer of the Company on a substantially
full-time basis for six (6) consecutive months; and (b) within thirty (30) days
after the Company notifies Employee in writing that it intends to replace him,
Employee shall not have returned to the performance of his duties as an officer
of the Company on a full-time basis.
11. CERTAIN LIMITATIONS ON REMEDIES. Paragraph 7(b) provides that
certain payments and other benefits shall be received by Employee upon the
termination of Employee by the Company under the circumstances described
therein. It is the intention of this Agreement that if the Company terminates
Employee other than for Cause then the payments and other benefits set forth in
Paragraph 7(b) shall constitute the sole and exclusive remedies of Employee.
12. NONCOMPETITION. At all times during Employee's employment
hereunder, and for such additional periods during which the Company is current
in its obligation to pay Employee pursuant to Paragraph 16 hereof, Employee
shall not, directly or indirectly, engage or agree to engage in any business or
enterprise or be employed by or agree to be employed by any business or
enterprise (a "Competitor"), whether as owner, operator, shareholder, director,
partner, creditor, employee, consultant, agent or in any capacity whatsoever,
that provides services or manufactures products designed to compete directly
with services or products of the Company or its parent company, or markets such
services or products anywhere in the world where the Company or its parent
company (i) is engaged in business or (ii) has evidenced an intention known to
Employee of engaging in business. Employee acknowledges that he has read the
foregoing and agrees that the nature of the geographical restrictions are
reasonable given the international nature of the Company's and CyberGuard's
business.
In the event that these geographical or temporal restrictions are
judicially determined to be unreasonable, the parties agree that these
restrictions shall be judicially reformed to the maximum restrictions which are
reasonable.
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<PAGE> 8
Notwithstanding the provisions of this Paragraph 12, Employee may
accept employment with a company that would be deemed to be a Competitor of the
Company or CyberGuard so long as (i) the Competitor has had annual revenues of
at least $1 billion in each of the prior two fiscal years, (ii) the Competitor's
revenues for products and maintenance in direct competition with the Company and
CyberGuard does not exceed 50% of its total revenues and (iii) Employee's
responsibilities are solely for divisions or subsidiaries of the Competitor that
do not compete with the Company and CyberGuard. The restrictions of this Section
12 shall not apply to the ownership of less than 2% of the outstanding shares of
a publicly-traded company.
13. NONSOLICITATION OF EMPLOYEES AND CUSTOMERS. At all times during
Employee's employment hereunder and for one year after termination or expiration
of this Agreement, Employee shall not, directly or indirectly, for himself or
for any other person, firm, corporation, partnership, association or other
entity (a) attempt to employ, employ or enter into any contractual arrangement
with any employee or former employee of the Company, CyberGuard, their
affiliates, subsidiaries or predecessors in interest, unless such employee or
former employee has not been employed by the Company, CyberGuard, their
affiliates, subsidiaries or predecessors in interest during the twelve months
prior to Employee's attempt to employ him or (b) call on or solicit any of the
actual customers of the Company or others known by Employee to be targeted
prospective customers of the Company, CyberGuard or their affiliates,
subsidiaries or predecessors in interest with respect to any matters competitive
with the business of the Company or CyberGuard.
14. CONFIDENTIALITY.
(a) NONDISCLOSURE. Employee acknowledges and agrees that the
Confidential Information (as defined below) is a valuable, special and unique
asset of the Company's and CyberGuard's business. Accordingly, except (i) in
connection with the performance of his duties hereunder, (ii) in connection with
the enforcement of this Agreement or any other agreement between Employee and
the Company or CyberGuard or (iii) as otherwise required by law, Employee shall
not at any time during or subsequent to the term of his employment hereunder
disclose, directly or indirectly, to any person, firm, corporation, partnership,
association or other entity any proprietary or confidential information relating
to the Company or CyberGuard or any information concerning the Company's or
CyberGuard's financial condition, business line, business strategy or prospects,
the Company's or CyberGuard's customers, the design, research, development,
manufacture, marketing or sale of the Company's or CyberGuard's products, or the
Company's or CyberGuard's methods of operating its business, or intellectual
property of any kind, which shall include, without limitation, inventions,
improvements, discoveries, creations, computer programs, computer hardware,
design specifications, concepts, formulas, trade secrets, ideas, processes,
know-how, methods, proprietary data, software code, source code, products,
future products, techniques, any and all derivative works therefrom and any and
all patents and copyrights therein or any improvements thereof (collectively
"Confidential Information"). Confidential Information shall not include
information which, at the time of disclosure, is known or available to the
general public by publication or otherwise through no wrongful act or failure
to act on the part of Employee.
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<PAGE> 9
(b) RETURN OF CONFIDENTIAL INFORMATION. Upon termination of
Employee's employment, for whatever reason and whether voluntary or involuntary,
or at any time at the request of the Company, Employee shall promptly return all
Confidential Information in the possession or under the control of Employee to
the Company and shall not retain any copies or other reproductions or extracts
thereof. Employee shall at any time at the request of the Company destroy or
have destroyed all memoranda, notes, reports, and documents, whether in "hard
copy" form or as stored on magnetic or other media, and all copies and other
reproductions and extracts thereof, prepared by Employee and shall provide the
Company with a certificate that the foregoing materials have in fact been
returned or destroyed.
(c) BOOKS AND RECORDS. All books, records and accounts of the
Company or CyberGuard whether prepared by Employee or otherwise coming into
Employee's possession, shall be the exclusive property of the Company and shall
be returned immediately to the Company upon termination of Employee's employment
hereunder or upon the Company's request at any time.
15. INJUNCTION/SPECIFIC PERFORMANCE. Employee acknowledges that a
breach of any of the provisions of Paragraphs 12, 13 and 14 hereof would result
in immediate and irreparable injury to the Company or CyberGuard which cannot be
adequately or reasonably compensated at law. Therefore, Employee agrees that the
Company shall be entitled, if any such breach shall occur or be threatened or
attempted, to a decree of specific performance and to a temporary and permanent
injunction, without the posting of a bond, enjoining and restraining such breach
by Employee or his agents, either directly or indirectly, and that such right to
injunction shall be cumulative to whatever other remedies for actual damages to
which the Company is entitled. Employee further acknowledges that the Company
may have additional remedies set forth in other agreements that may be in effect
between Employee and the Company (including without limitation a Stock Option
Agreement between Employee and the Company) that are available to the Company in
the event of a breach of any or all of the provisions of Paragraphs 12, 13 or 14
and that nothing herein shall be deemed a waiver of such remedies set forth in
such other agreements.
16. CONSULTING ARRANGEMENT. As further consideration for Employee's
employment with the Company, Employee agrees that, following termination of
Employee's employment with the Company, he will, if so requested to do so by the
Company, enter into a consulting agreement, the terms of which will provide that
the Employee will be paid at a rate per annum equal to the rate he was being
paid as of the date of his termination. Any such request by the Company for the
Employee to enter into such consulting agreement will be given to Employee by
the Company (i) upon termination of his employment if such termination is by the
Company and (ii) within five business days of termination of his employment if
such termination is by the Employee. The term of such consulting agreement shall
be determined by the Company and included in such notice and shall be no longer
than six months. Employee shall only work that number of hours during the term
of such consulting agreement as the parties shall mutually agree in the
consulting agreement, and Employee shall provide those services pursuant to the
consulting agreement as the parties shall mutually agree in the consulting
agreement. Payments under such consulting agreement shall be made in accordance
with the normal payroll practices of Company, which, in any event shall be no
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<PAGE> 10
less often than monthly. Employee further agrees that such consulting agreement
will provide that the Company may set off against or recoup from any amounts due
under the consulting agreement to the extent of any losses incurred by the
Company as a result of any breach by Employee of the provisions of Paragraphs
12, 13 and 14 hereof. The consulting agreement will provide that the Company
shall be deemed to be current in its obligations to make payments under the
consulting agreement unless the Company fails to make such payments and such
failure is not remedied after five days' written notice to the Company.
17. SEVERABILITY. Any provision in this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. SUCCESSORS. This Agreement shall be binding upon Employee and inure
to his and his estate's benefit, and shall be binding upon and inure to the
benefit of the Company and any permitted successor of the Company. Neither this
Agreement nor any rights arising hereunder may be assigned or pledged by:
Employee or anyone claiming through Employee; or by the Company, except to any
corporation which is the successor in interest to the Company by reason of a
merger, consolidation or sale of substantially all of the assets of the Company.
The foregoing sentence shall not be deemed to have any effect upon the rights of
Employee upon a Change of Control.
19. NOTICES. Any notice required or permitted to be given hereunder
shall be written and sent by registered or certified mail, telecommunicated or
hand delivered at the address set forth herein or to any other address of which
notice is given:
To the Company: c/o CyberGuard Corporation
2000 West Commercial Boulevard
Fort Lauderdale, Florida 33309
Attention: President
To Employee: To the address listed for
Employee in the records of the Company
20. ENTIRE AGREEMENT. Subject to Paragraph 25 hereof, this Agreement
constitutes the entire agreement between the parties hereto on the subject
matter hereof and may not be modified without the written agreement of both
parties hereto.
21. WAIVER. A waiver by any party of any of the terms and conditions
hereof shall not be construed as a general waiver by such party.
22. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and both of which together shall constitute
a single agreement.
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<PAGE> 11
23. GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Virginia
without reference to the choice of laws principles thereof.
24. SURVIVAL. Notwithstanding the provisions of Paragraph 2, the
provisions of Paragraphs 12, 13 and 14 shall survive the expiration or early
termination of this Agreement.
25. INTERPRETATION. In the event of a conflict between the provisions
of this Agreement and any other agreement or document defining rights and duties
of Employee or the Company upon Employee's termination, the rights and duties
set forth in this Agreement shall control.
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<PAGE> 12
IN WITNESS WHEREOF, this Employment Agreement has been executed by the
parties as of the date first above written.
COMPANY:
ARCA SYSTEMS, INC.
----------------------------------
By:
-------------------------------
Title:
----------------------------
EMPLOYEE:
----------------------------------
CyberGuard Corporation agrees to guarantee all obligations
of the Company to Employee under Sections 7 or 8 of this
Agreement which arise and accrue upon or after the
termination of this Agreement.
CYBERGUARD CORPORATION
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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<PAGE> 1
Exhibit 10.4
FORM OF RESTRICTIVE COVENANT AGREEMENT
This Restrictive Covenant Agreement ("AGREEMENT") is entered into as of
June __, 1998, among CyberGuard Corporation, a Florida corporation
("CYBERGUARD"), ARCA Systems, Inc., a California corporation ("ARCA"), and
_______________________________ ("SELLING SHAREHOLDER").
PRELIMINARY STATEMENTS
Each of the parties hereto is a party to an Agreement and Plan of
Merger ("AGREEMENT AND PLAN OF MERGER"), dated as of May 29, 1998, pursuant to
which, among other things, CyberGuard acquired ARCA simultaneously with the
execution of this Agreement.
Selling Shareholder was a principal shareholder and key employee,
officer and director of ARCA prior to CyberGuard's acquisition of ARCA, and was
critical to the growth and success of ARCA prior to such acquisition.
It was a material inducement for CyberGuard's entering into the
Agreement and Plan of Merger that Selling Shareholder agree to enter into this
Agreement, and CyberGuard would not have entered into the Agreement and Plan of
Merger but for the Selling Shareholder's agreement to enter into this Agreement.
Selling Shareholder recognizes that in order to assure CyberGuard and
ARCA that CyberGuard will retain the value of ARCA as a "going concern," it is
necessary that Selling Shareholder undertakes not to utilize his special
knowledge of the business of ARCA and his relationship with customers and
suppliers of ARCA to compete with CyberGuard or ARCA or their respective
subsidiaries with respect to such business; and Selling Shareholder acknowledges
that each and every one of the restrictions set forth herein are reasonable.
Selling Shareholder acknowledges that he received substantial
consideration in connection with such merger, that he voted in favor of such
merger, and that he agreed to enter into this Agreement of his own free will in
furtherance of obtaining such consideration.
Selling Shareholder acknowledges and agrees that each and every one of
his obligations under this agreement are unconditional and absolute.
AGREEMENT
In consideration of the foregoing preliminary statements and the
respective covenants, representations and warrants contained in this Agreement,
and for other good and valuable consideration, the receipt and sufficient of
which are hereby acknowledged, the parties agree as set forth below.
1. PRELIMINARY STATEMENTS. The preliminary statements set forth above
are true and correct and are incorporated herein by reference.
2. RESTRICTIVE COVENANTS.
2.1 NONCOMPETITION. Selling Shareholder hereby agrees that he shall,
throughout the Covenant Period (as defined below) and throughout the Geographic
Area (as defined below), refrain from, directly or indirectly, owning, managing,
operating, controlling or financing, or participating in the ownership,
management, operation, control or financing of, or being connected with or
having any
<PAGE> 2
interest in, or otherwise taking any part as a shareholder, director, officer,
employee, consultant, independent contractor, partner or otherwise in, any
business competitive with that engaged in by ARCA as of the effective time of
the merger contemplated by the Agreement and Plan of Merger ("EFFECTIVE TIME"),
including, but not limited to, information security consulting services;
provided, however, that the foregoing shall not apply solely to the ownership of
not more than two percent (2%) of the outstanding stock of any company listed by
a national securities exchange or an over-the-counter stock listed by the
National Association of Securities Dealers. For the purposes of this Agreement,
"COVENANT PERIOD" means the two-year period beginning on the Effective Time, and
"GEOGRAPHIC AREA" means the United States and each other country in which ARCA
has done business on or prior to the Effective Time.
2.2 CONFIDENTIAL INFORMATION. Selling Shareholder agrees not to
disclose, directly or indirectly, to any person or entity, or use or cause or
authorize any person or entity to use any confidential information
(collectively, "Disclose") relating to ARCA, CyberGuard or any of their
respective subsidiaries or any information concerning financial condition,
results of operations, customers, suppliers, services, inventions, sources,
leads or methods of obtaining new products, services or business, intangible
property or methods of operating their businesses or any other information
relating to ARCA, CyberGuard or any of their respective subsidiaries which he
knows or should know is regarded as confidential and valuable by CyberGuard or
ARCA (whether or not any of the foregoing information is actually novel or
unique or is actually known by others, collectively the "Confidential
Information"); provided, however, that this Agreement shall not restrict the
disclosure of confidential information (i) to any governmental entity to the
extent required by law, (ii) which is publicly known and available through no
wrongful act of a Selling Shareholder or any other shareholder of ARCA
immediately prior to the Effective Time or any of their respective affiliates,
or (iii) which becomes available to the Selling Shareholder on a
non-confidential basis from a source other than a party to this Agreement,
provided such source is not known to be in violation of a confidentiality
agreement. With respect to ARCA, the Selling Shareholder agrees not to Disclose
Confidential Information at any time subsequent to the Effective Time; with
respect to CyberGuard, the Selling Shareholder agrees not to Disclose
Confidential Information during the Covenant Period.
2.3 SOLICITATION OF BUSINESS. During the Covenant Period, Selling
Shareholder agrees that he will not, directly or indirectly, at any time
knowingly solicit or cause or authorize directly or indirectly to be solicited,
or accept or cause or authorize directly or indirectly to be accepted, for or on
behalf of himself or other persons or entities, any business competitive to the
business of CyberGuard, ARCA or any of their respective subsidiaries from
persons or entities who are or were customers or potential customers of ARCA,
CyberGuard, or any of their respective subsidiaries at any time prior to the
Effective Time or at any time during the Covenant Period.
2.4 SOLICITATION OF PERSONNEL. During the Covenant Period, Selling
Shareholder agrees that he will not, directly or indirectly, at any time
knowingly solicit or cause or authorize directly or indirectly to be solicited
for employment or employ or cause or authorize, directly or indirectly, to be
employed or engaged as an employee, independent contractor or sales agent, for
or on behalf of himself or any other person or entity, any person or entity who
was an employee, independent contractor or sales agent of ARCA, CyberGuard or
any of their respective subsidiaries at any time prior to the Effective Time or
at any time during the Covenant Period.
2.5 USE OF SYMBOLS. Selling Shareholder agrees not to at any time
after the Effective Time, directly or indirectly, use or authorize any person or
entity to use any name, mark, logo or other identifying words or images
(collectively, "SYMBOLS") which are similar to those used by ARCA at any time
prior to the date hereof or at any time during the Covenant Period in connection
with any business product or service, whether or not competitive with any
business then being carried on by ARCA or any product or service then being sold
or provided by ARCA.
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<PAGE> 3
2.6 INJUNCTIVE RELIEF. Selling Shareholder acknowledges that it
would be very difficult or impossible to measure the damages resulting from the
breach of any provision of this Agreement. Selling Shareholder further
acknowledges that the restrictions herein are reasonable and reasonably
necessary for the protection of the legitimate business interests and goodwill
of ARCA and CyberGuard, and that a violation by Selling Shareholder of any such
covenant will cause irreparable damage to ARCA and CyberGuard. Therefore,
Selling Shareholder hereby agrees that any breach or threatened breach by him of
any provision of this Agreement shall entitle ARCA and CyberGuard, in addition
to any other legal remedies available to them, to a temporary and permanent
injunction or any other appropriate decree of specific performance (without any
bond or security being required) in order to enjoin such breach or threatened
breach. It is the desire and intent of the parties that the provisions of this
Agreement shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular subparagraph or portion of this Agreement shall
be adjudicated to be invalid or unenforceable, this Agreement shall not be
deemed null and void and shall be deemed amended to delete therefrom the portion
thus adjudicated to be invalid or unenforceable, such deletion to apply only
with respect to the operation of this Agreement in that particular jurisdiction
in which such adjudication is made. In the event any provisions of this
Agreement relating to the time period, scope of activities or areas of
restrictions shall be declared by a court of competent jurisdiction to exceed
the maximum time period, scope of activities or area such court deems reasonable
and enforceable, the time period, scope of activities or areas of restrictions
shall thereafter be deemed the maximum which such court deems reasonable and
enforceable.
2.7 TOLLING. In the event of a knowing breach or violation by
Selling Shareholder of any of the provisions of this Agreement, the running of
the Covenant Period set forth in this Agreement (but not of the Selling
Shareholder's obligations under this Agreement) shall be tolled during the
continuance of any actual breach or violation; provided, however, in any event
such tolling shall not extend the Covenant Period beyond four years from the
date of this Agreement.
2.8 SURVIVAL; TERMINATION. This Agreement shall survive the
execution and delivery of this Agreement. In the event after a Change in Control
(as defined in the employment agreement by and between the Selling Shareholder
and ARCA (the "Employment Agreement")), the Selling Shareholder is terminated
without "Cause" (as such term is defined in the Employment Agreement) by ARCA or
terminates his employment with ARCA for "Good Reason" (as such term is defined
in the first and second clause of Section 6(a) of the Employment Agreement),
then this Agreement and all of Selling Shareholder's obligations hereunder shall
terminate.
3. NOTICES. Any notice or other communication under this Agreement
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by prepaid overnight
courier to the parties at the addresses set forth below their names on the
signature pages of this Agreement (or at such other addresses as shall be
specified by the parties by like notice). Such notices, demands, claims and
other communications shall be deemed given when actually received or: (A) in the
case of delivery by overnight service with guaranteed next day delivery, the
next day or the day designated for delivery; or (B) in the case of registered
U.S. mail, five days after deposit in the U.S. mail.
4. ENTIRE AGREEMENT; OBLIGATIONS UNCONDITIONAL. This Agreement and each
document and agreement executed by the parties in connection with the
transactions contemplated in connection herewith contains every obligation and
understanding among the parties relating to the subject matter hereof and merges
all prior discussions, negotiations and agreements, if any, among them, and none
of the parties shall be bound by any representations, warranties, covenants, or
other understandings, other than as expressly provided or referred to herein.
Selling Shareholder acknowledges that each and every one of his obligations
under this Agreement are unconditional and absolute, shall not be terminable for
any reason whatsoever and shall not be subject any counterclaim, defense, cross
claim or similar item of any nature whatsoever, including, but not limited to,
claims of offset, breach of contract or any action in tort or otherwise.
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<PAGE> 4
5. ASSIGNMENT. This Agreement may not be assigned by any party without
the written consent of the other party hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, and permitted assigns.
6. WAIVER AND AMENDMENT. Any representation, warranty, covenant, term
or condition in this Agreement which may legally be waived, may be waived, or
the time of performance thereof extended, at any time by the party hereto
entitled to the benefit thereof, and any term, condition or covenant hereof may
be amended by the parties hereto at any time; PROVIDED, HOWEVER, that no such
amendment or waiver shall be effective unless in writing. No waiver by any party
hereto, whether express or implied, of its rights under any provision of this
Agreement shall constitute a waiver of such party's rights under such provisions
at any other time or a waiver of such party's rights under any other provision
of this Agreement. No failure by any party hereto to take any action against any
breach of this Agreement or default by another party shall constitute a waiver
of the former party's right to enforce any provision of this Agreement or to
take action against such breach or default or any subsequent breach or default
by such other party.
7. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
or entity other than the parties hereto and their respective successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.
8. SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written.
9. HEADINGS. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
10. COUNTERPARTS; CONSTRUCTION. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. Any telecopied
counterpart of a manually executed original shall be deemed a manually executed
original. This Agreement shall be construed and interpreted without reference to
any rule or presumption that it be construed or interpreted against the party
causing it to be drafted. Each particular clause and section of this Agreement
shall have its own independent legal significance and shall not be limited by
any other clause or provision hereof.
11. LITIGATION; PREVAILING PARTY. In the event of any litigation with
regard to this Agreement, the prevailing party shall be entitled to receive from
the non-prevailing party and the non-prevailing party shall pay upon demand all
reasonable fees and expenses of counsel for the prevailing party.
12. GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Florida
without reference to the choice of law principles thereof.
13. INDEPENDENT COUNSEL. Selling Shareholder acknowledges that he has
been advised that he should be represented by his own independent legal counsel
in connection with the negotiation and execution of this Agreement, and that he
understands and recognizes the meaning of this Agreement and each of the
provisions hereof.
14. CERTAIN INTERPRETATIONS. The Selling Shareholders hereto
acknowledge that each has entered into an Employment Agreement by which each has
agreed, among other things, (1) to be employed by ARCA, (2) to be a consultant
for a period of time upon termination of the Selling
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<PAGE> 5
Shareholder's employment with ARCA, (3) not to compete with ARCA or CyberGuard
during the period of their employment and consultancy, and (4) not to solicit
employees and customers of ARCA, CyberGuard or their affiliates, subsidiaries or
predecessors in interest during their employment and for one year after
termination of the Employment Agreement. The Selling Shareholders acknowledge
that a further consideration for the sale of the business of ARCA and its
goodwill is the entering into by the Selling Shareholder of the Employment
Agreement and the consulting arrangement (and related restrictions) described in
Paragraph 16 of the Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
CYBERGUARD CORPORATION
By:
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Name:
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Title:
----------------------------------
Address:
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ARCA SYSTEMS, INC.
By:
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Name:
-----------------------------------
Title:
----------------------------------
Address:
--------------------------------
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Address:
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<PAGE> 1
Exhibit 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated February 13, 1998 incorporated
by reference in this Current Report of CyberGuard Corporation on Form 8-K.
/s/ TOBKIN, CHIANG & HAMMON
TOBKIN, CHIANG & HAMMON, certified public accountants
San Jose, California
June 22, 1998
<PAGE> 1
Exhibit 99.1
WEDNESDAY JUNE 17, 1:09 PM EASTERN TIME
COMPANY PRESS RELEASE
CYBERGUARD CORPORATION COMPLETES ACQUISITION OF ARCA
SYSTEMS, INC.
ARCA RECEIVES FIRST PROFESSIONAL SERVICES CONTRACT WITH ONE OF CYBERGUARD'S
LARGEST FINANCE INDUSTRY CUSTOMERS
FORT LAUDERDALE, Fla.--(BUSINESS WIRE)--June 17, 1998--CyberGuard Corporation
(NASDAQ: CYBG - news) has completed the previously announced acquisition of
Arca Systems, Inc., a privately-held information security services firm
headquartered in San Jose, California. Arca will be operated as a wholly owned
subsidiary of CyberGuard Corporation headed by Bill Wilson, CyberGuard
Corporate Vice President and President of the Arca Subsidiary. A Board of
Directors has been established for the subsidiary that will initially include
Mr. Wilson; Tommy Steele, CyberGuard President; Bill Murray, CyberGuard CFO;
Lee Reiswig, CyberGuard Director; Jack Wool, Arca Chief Operating Officer; and
will be chaired by Robert Carberry, CyberGuard CEO.
In a related announcement CyberGuard also indicated that Arca has received a
contract to provide professional services to one of CyberGuard's largest
financial industry customers. This work relates to the overall security
assessment of the enterprise network and the deployment of firewalls within the
network.
"With Arca's professional services offerings as part of CyberGuard's overall
portfolio, customers can now be offered the complete security life-cycle of
products, systems and services," said Robert L. Carberry, chairman and chief
executive officer of CyberGuard Corporation. "We have seen an immediate benefit
of this acquisition by extending an existing services contract with one of our
largest finance industry customers to include Arca's network security analysis
service. Arca will play a key role in driving the growth of CyberGuard's
services revenues as well as contribute to the expansion of the e-Commerce and
product businesses," added Carberry.
Under the agreement, CyberGuard will issue 590,000 shares of its Common Stock to
Arca's shareholders in exchange for the entire equity interest in Arca. This
brings CyberGuard's total shares outstanding to 9,400,000. The acquisition will
be accounted for under the pooling of interests method.
About CyberGuard
CyberGuard Corporation (NASDAQ: CYBG - news) is a leading provider of
enterprise security and electronic commerce solutions to Fortune 1000 companies
and governments worldwide. CyberGuard's award winning, industrial-strength
firewall and certificate authority products and services protect the integrity
of data and applications from hackers and digital thieves. CyberGuard's
<PAGE> 2
newly acquired professional services subsidiary, Arca Systems, provides
unparalleled security consulting expertise and conducts independent trusted
product evaluations on behalf of the US Government's National Security Agency.
The company has US headquarters in Ft. Lauderdale, Florida and branch offices
worldwide. More information on CyberGuard Corporation can be found at
http://www.cyberguard.com and http://www.tradewave.com and http://www.arca.com.
About Arca Systems
Arca Systems is a high-end security integration services firm specializing in
practical applications of advanced security technology for information systems.
The company provides its clients with the methods, tools, techniques
and knowledge to securely process and communicate information. Arca has provided
assistance, guidance, planning, methods and training to a wide variety of
customers in private industry including Microsoft, Shell Oil, Harvard
University, Novell, CheckFree and IBM, and government organizations such as the
Internal Revenue Service, NATO and the Government of Italy. The company was
recently issued one of the first provisional licenses to conduct independent
trusted product evaluations on behalf of the U.S. Government's National
Security Agency. Arca, founded in 1987, has approximately 40 employees, and has
headquarters in San Jose, CA, with facilities in Virginia, Maryland and
Massachusetts. More information on Arca can be found at http://www.arca.com.
Note to Editors: CyberGuard Firewall is a trademark of CyberGuard Corporation.
All other trademarks are property of their respective owners.
CONTACT:
CyberGuard Corporation
Lisa Thornhill
Press and Investor Relations
954/958-3904
[email protected]
or
RadCom Strategic Marketing
Marianne Radwan
561/988-5300
