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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
CYBERGUARD CORPORATION
(Name of Issuer)
Common Stock, $.01 par value
(Title of Class of Securities)
231910100
(CUSIP Number)
Stephen T. Braun, Esq.
Greenebaum Doll & McDonald PLLC
700 Two American Center
3102 West End Avenue
Nashville, Tennessee 37203-1304
(615) 760-7120
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
August 27, 1999
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
[_].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter the
disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act.
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CUSIP No. 231910100 SCHEDULE 13D
1. Names of Reporting Persons: Fernwood Partners II, LLC.
IRS Identification No.: Applied For
2. Check the Appropriate Box if a Member of a Group (a) [_]
N/A (b) [_]
3. SEC USE ONLY
4. Source of Funds: WC
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e) [_]
6. Citizenship or Place of Organization: Delaware
NUMBER OF SHARES 7. Sole Voting Power: 7,398,968
BENEFICIALLY OWNED 8. Shared Voting Power: -0-
BY EACH REPORTING 9. Sole Dispositive Power: 7,398,968
PERSON 10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 7,398,968
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares: [_]
13. Percent of Class Represented by Amount in Row (11): 44.9%
14. Type of Reporting Person: 00 (Limited Liability Company)
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Item 1. Security and Issuer
Common Stock, $.01 par value ("Common Stock") of CyberGuard Corporation, a
Florida corporation (the "Issuer"). The principal executive offices of the
Issuer are located at 2000 West Commercial Blvd., Suite 200, Ft. Lauderdale,
Florida 33309.
Item 2. Identity and Background
This statement is filed by Fernwood Partners II, LLC, a Delaware limited
liability company ("Fernwood").
The principal office and principal business office of Fernwood is 100 First
Stamford Place, Suite 625, Stamford, Connecticut 06902.
Fernwood is principally engaged in the purchase, sale, and investment in
securities of other companies, including debt instruments.
Fernwood has not been convicted in any criminal proceedings during the five
years preceding the filing of this report.
During the five years preceding the filing of this report, Fernwood has not been
a party to any civil proceedings of a judicial or administrative body which has
resulted in any judgment, decree or final order enjoining future violations of,
or prohibiting or mandating activities subject to, federal or state securities
laws or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
Fernwood used it working capital funds to acquire $3,699,484 in principal amount
of Convertible Promissory Notes (the "Notes") of the Issuer. The total amount of
funds required to exercise the Common Stock Purchase Warrants described in Item
4 (the "Warrants") would be $7,398,968. Fernwood would expect to use working
capital funds to exercise the Warrants, if it elects to exercise the Warrants.
Item 4. Purpose of Transaction
The purpose of acquiring the Notes and the Warrants is to provide Fernwood the
opportunity to make a significant investment in the capital stock of the Issuer
and provide Fernwood with the opportunity to increase the level of its
investment in the future. Fernwood and the Issuer executed a Loan Agreement
dated August 26, 1999 (the "Loan Agreement") with respect to the purchase by
Fernwood of $3,699,484 principal amount of the Notes and the concurrent grant to
Fernwood of the Warrant to purchase 3,699,484 shares of Common Stock at $2.00
per share through August 26, 2004, and certain related matters. The Notes are
convertible at any time, at the holder's option, into 3,699,484 shares of Common
Stock at $1.00 per share through June 30, 2002. The
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transaction was consummated on August 27, 1999. In connection with the
transaction, David Manning and William B. Scott were elected to the Board of
Directors of the Issuer.
Fernwood may from time to time exercise, in whole or in part, its Warrant to
purchase additional shares of Common Stock. Fernwood may also purchase
additional shares of Common Stock of the Issuer in the open market at prevailing
market prices. Fernwood does not have any intention of making a tender offer for
any outstanding shares of capital stock of the Issuer. Except as set forth
herein, Fernwood does not have any plans or proposals which relate to or would
result in the acquisition of additional securities of the Issuer, an
extraordinary corporate transaction such as a merger, reorganization or
liquidation involving the Issuer or any of its subsidiaries, a sale or transfer
of a material amount of assets of the Issuer or any of its subsidiaries, any
change in the present Board of Directors or management, any change in the number
or term of directors, the filling of any vacancy on the Board of Directors of
the Issuer, any material change in the present capitalization or dividend policy
of the Issuer, any other material change in the business or corporate structure
of the Issuer, changes in the charter or by-laws which may impede the
acquisition of control of the Issuer, the delisting from a national securities
exchange or termination of quotations in an inter-dealer quotation system of a
registered national securities association for any class of capital stock of the
Issuer, a class of equity securities of the Issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934 or any action similar to the foregoing actions listed.
Fernwood will continue to evaluate the Issuer and its investment therein and may
later determine to propose or support any one or more of such actions in the
future, to purchase additional shares of capital stock or to sell part or all of
its holdings of capital stock of the Issuer.
Item 5. Interest in Securities of the Issuer
The 3,699,484 shares of Common Stock into which the Notes purchased by Fernwood
pursuant to the Loan Agreement described in Item 4 are convertible constitute
22.5% of the outstanding Common Stock of the Issuer, and the 3,699,484 shares of
Common Stock issuable upon exercise of the Warrants described in Item 4
constitute 22.5% of the outstanding Common Stock of the Issuer, considering as
currently outstanding all shares of Common Stock issuable upon conversion of the
Notes and upon exercise of the Warrants.
Fernwood will have sole voting and dispositive power with respect to any Common
Stock issuable upon conversion of the Notes or exercise of the Warrants.
Fernwood is a member-managed limited liability company.
Except as set forth above, Fernwood does not own any capital stock of the Issuer
and has not had any transactions in the capital stock of the Issuer in the past
60 days.
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Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer
Except as set forth in Items 4 and 5 and as provided in Exhibits 1 through 3 to
this Schedule 13D, Fernwood does not have any contracts, arrangements,
understandings or relationships (legal or otherwise) with any person with
respect to any securities of the Issuer, including but not limited to transfer
or voting of any of the securities, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guarantees of profits, division of profits
or loss, or the giving or withholding of proxies.
Item 7. Material to be Filed As Exhibits
1. Loan Agreement dated August 26, 1999 between the Issuer and
Fernwood.
2. Convertible Promissory Note in the principal amount of
$3,699,484.38 dated August 26, 1999, executed by the Issuer.
3. Common Stock Purchase Warrant for 3,699,484 shares of the Common
Stock dated August 26, 1999, executed by the Issuer.
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Signature
After reasonable inquiry and to the best of my knowledge and belief, each
of the undersigned certifies that the information set forth in this statement is
true, complete and correct.
DATED: September 3, 1999 FERNWOOD PARTNERS II, LLC
/s/ F. Stephen Allen
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F. Stephen Allen, Member
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EXHIBIT 99.1
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made and entered into as of August
26, 1999, by and between CyberGuard Corporation, a Florida corporation (the
"Company"), and Fernwood Partners II, LLC, a Delaware limited liability company
("Lender").
1. Loan and Use of Proceeds
Subject to and upon the terms and conditions herein set forth, the Lender
agrees to loan to the Company the aggregate principal amount of $3,699,484.38
(the "Loan"). The Company's obligation to pay the principal of, and interest on,
the Loan shall be evidenced by the Note (as defined below). The proceeds of the
Loan shall be used (i) to satisfy the existing indebtedness of the Company to
Fernwood Partners, LLC, which indebtedness is evidenced by that certain
Promissory Note previously executed by the Company in the original principal
amount of $1,125,000, (ii) for payment of Lender's expenses pursuant to Section
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17 hereof, and (iii) for general corporate purposes.
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2. Promissory Note
The Company hereby covenants and agrees to issue a convertible promissory
note in the form of Exhibit A hereto to the Lender (the "Note") in the principal
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amount of the Loan. The Note will be secured by all of the Company's assets
pursuant to a Security Agreement in the form of Exhibit B hereto. The Note will
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only be subordinated in right of payment to the Senior Debt (as defined below)
of the Company.
The Note will mature on June 30, 2002. The Note will bear interest at the
rate of 11.5% per annum from the date of issuance. Interest will be calculated
on the basis of a 360-day year consisting of twelve 30-day months. Accrued
interest shall be payable quarterly on January 1, April 1, July 1 and October 1
of each year, commencing October 1, 1999, to the entity or persons in whose name
the Note is issued; except that interest accruing from the date of issuance of
the Note through July 1, 2000 shall be compounded quarterly on January 1, April
1, July 1 and October 1, commencing October 1, 1999, and added to the principal
amount of the Note. Any amount of principal or interest not paid when due
(whether at the stated due date, at maturity, upon acceleration, or otherwise)
shall thereafter bear interest until paid in full at the rate of 17.5% per
annum. The Note may be presented for transfer or exchange at the office of the
Company, which office is currently located at 2000 West Commercial Blvd., Suite
200, Ft. Lauderdale, Florida 33309. No service charge will be made for transfer
or exchange of the Note.
3. Conversion Rights
The Lender will have the right ("Conversion Right"), at the Lender's
option, to convert all or any portion of the principal and accrued interest of
the Note into fully paid and
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nonassessable shares of the Company's Common Stock ("Common Stock"). The number
of shares of Common Stock into which the Note may be converted ("Conversion
Shares") shall be determined by dividing the aggregate principal amount of the
Note, together with all accrued interest to the date of conversion, by the
conversion price in effect at the time of conversion (the "Conversion Price").
The Conversion Price shall be equal to One Dollar ($1.00), subject to adjustment
in accordance with the terms of the Note.
Upon conversion of the Note, the Lender will have and be entitled to
exercise the registration rights granted pursuant to Section 13 of this
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Agreement with respect to the shares of Common Stock issued upon conversion of
the Note.
4. Warrant Rights
The Company will grant the Lender a Common Stock Purchase Warrant (the
"Warrant") in the form of Exhibit C hereto that is exercisable into the number
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of shares of Common Stock equal to the aggregate dollar amount of the Loan
(rounded to the nearest dollar) (the "Exercise Shares"). The Warrant shall have
an exercise price of $2.00 per share (the "Exercise Price"). The number of
Exercise Shares and the Exercise Price shall be subject to adjustment in
accordance with the terms of the Warrant. The Warrant shall have a term of five
(5) years.
Upon exercise of the Warrant, the Lender will have and be entitled to
exercise the registration rights granted pursuant to Section 13 of this
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Agreement with respect to the shares of Common Stock issued upon exercise of the
Warrant.
5. Subordination
The Note is a secured obligation of the Company, in priority second only to
the existing indebtedness of the Company to Coast Business Credit, a division of
Southern Pacific Bank (the "Senior Debt"). The Note shall be subordinated in
right of payment to the Senior Debt. The Lender agrees to execute any
subordination agreement reasonably requested by any holder of the Senior Debt.
No payment may be made by the Company on account of the principal of and
interest on the Note, unless and until the principal of and interest of the
Senior Debt is either current or until such payment default has been cured or
waived or otherwise has ceased to exist.
Upon any distribution of assets of the Company or upon any dissolution,
winding up, liquidation or reorganization of the Company, whether voluntary or
involuntary, in bankruptcy, insolvency, receivership or a similar proceeding or
upon assignment for the benefit of creditors or any marshaling of assets or
liabilities, (i) the holders of all Senior Debt will first be entitled to
receive payment in full (or have such payment duly provided for) before the
Lender is entitled to receive any payment on account of the principal of,
premium, if any, or interest on, the Note and (ii) any payment or distribution
of assets of the Company of any kind or character, whether in
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cash, property or securities to which the Lender would be entitled (by setoff or
otherwise), except for the subordination provisions contained in this Agreement,
will be paid by the liquidating trustee or agent or other person making such a
payment or distribution directly to the lenders of Senior Debt or their
representative to the extent necessary to make payment in full of all such
Senior Debt remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company shall be received by the Lender at a time
when such payment or distribution is prohibited by the foregoing provisions,
such payment or distribution shall be held in trust for the holders of Senior
Debt, and shall be paid or delivered by the Lender, as the case may be, to the
holders of the Senior Debt remaining unpaid or unprovided for or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior Debt
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Debt held or represented by each, for
application to the payment of all such Senior Debt remaining unpaid, to the
extent necessary to pay or to provide for the payment of all such Senior Debt in
full after giving effect to any concurrent payment or distribution to the
holders of the Senior Debt.
No provision contained in this Agreement or the Note will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of and premium, if any, and interest on the Note as and when the
same shall become due and payable. The subordination provisions of this
Agreement and the Note will not prevent the occurrence of any default or event
of default under this Agreement or the Note or limit the rights of the Lender,
subject to the preceding paragraphs, to pursue any other rights or remedies with
respect to the Note.
6. Conversion at the Company's Option
At the option of the Company, the Note may be converted into shares of
Common Stock at the Conversion Price if (i) shares of the Common Stock close at
a price in excess of Four Dollars ($4.00) per share for ninety (90) consecutive
trading days, and (ii) the shares of Common Stock into which the Note is
converted are fully registered under the Securities Act of 1933, as amended (the
"Securities Act"), and freely transferrable.
7. Acceleration of the Note at the Option of the Lender Upon a Change of
Control
In the event that a Change of Control (as defined in the Note) has
occurred, the Lender will have the right, in its sole discretion, to declare the
entire principal amount and accrued interest of the Note immediately due and
payable.
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8. Events of Default and Remedies
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement, and the Company shall give the Lender immediate
notice thereof: (a) the failure of the Company to make any payment of principal
or interest under the Note when due, (b) the Company becomes subject to any
bankruptcy, insolvency, receivership or debtor relief proceedings and, in the
case of any such proceedings initiated against the Company, the same have not
been discharged within sixty (60) days after institution, (c) the Company makes
an assignment for the benefit of creditors, or admits in writing an inability to
pay its debts generally as they become due, (d) the Company fails to comply with
or perform any covenant, agreement or condition of this Agreement or any other
Loan Document, (e) any statement, representation or warranty in any of the Loan
Documents is false, misleading or erroneous in any material respect on the date
thereof, and such statement, representation or warranty is not made true and
correct (as of the time such corrective action is taken) within the applicable
grace period (if any) provided for in such Loan Document, (f) the occurrence of
any event or condition deemed to be a default under or as defined in any other
Loan Document, or (g) the Company breaches of defaults under any material
contract or obligation which has or may reasonably be expected to have a
material adverse effect on the business or operations of the Company, including,
with limitation, a default by the Company under the Senior Debt; provided,
however, the Lender acknowledges that as of the date hereof, the Company is in
default under the Senior Debt for failure to timely file the reports listed on
Exhibit D. For purposes of this Agreement, the term "Loan Documents" shall mean
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this Agreement and the other documents and agreements executed in connection
herewith (as the same may be further amended, supplemented, restated or
otherwise modified from time to time), including, without limitation, the Note,
the Warrant and the Security Agreement.
If an Event of Default occurs then all principal and accrued interest on
the Note will be immediately due and payable without any declaration or other
act on the part of the Lender. The Lender is authorized to rescind such
acceleration if all existing Events of Default, other than the nonpayment of the
principal of, and interest on, the Note that has become due solely by such
acceleration, has been cured or waived; provided, however, the Lender shall have
no obligation to rescind any such acceleration or waive any Event of Default.
9. Conditions Precedent to Obligations of Lender
The obligations of the Lender to make the Loan is subject to the
satisfaction of the following conditions precedent:
A. The Company shall have procured loans in the aggregate principal amount
of at least $250,000 from certain employees, officers or members of the
Company's Board of Directors, which loans shall be evidenced by convertible
promissory notes of the Company, the terms of which shall be identical to the
Note issued to the Lender hereunder. The employees, officers or members of the
Company's Board of Directors who make such loans shall be granted
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warrants to purchase Common Stock of the company on the same terms as the
Warrant granted to the Lender hereunder.
B. Except as disclosed in Exhibit D hereof, the Company shall have filed
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all reports required to be filed pursuant to Sections 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
C. If required, the Company shall have obtained the written consent of
Coast Business Credit to the Company's use of a portion of the proceeds of the
Loan to satisfy the existing indebtedness of the Company to Fernwood Partners,
LLC.
10. Covenants of the Company
In order to induce the Lender to enter into this Agreement and to make the
Loan, the Company covenants and agrees as follows:
A. Payment and Performance. The Company will pay all amounts due under the
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Note in accordance with the terms thereof and will observe, perform and comply
with every covenant, term and condition of this Agreement or any other Loan
Document. The Company will cause each of its subsidiaries to observe, perform
and comply with every such term, covenant and condition.
B. Books, Financial Statements and Reports. The Company will at all times
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maintain materially accurate books of account and records and will furnish the
following statements and reports to Lender at the Company's expense:
(1) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year, consolidated financial statements of the
Company together with all Note thereto, prepared in reasonable detail in
accordance with generally accepted accounting principles ("GAAP"), together with
an unqualified opinion (except for qualification due to preexisting class action
matters), based on an audit using generally accepted auditing standards, by
Price Waterhouse Coopers, or other independent certified public accountants
selected by the Company and reasonably acceptable to the Lender.
(2) As soon as available, and in any event within forty-five (45)
days after the end of each fiscal quarter, the Company's consolidated and
consolidating balance sheet as of the end of such fiscal quarter and
consolidated and consolidating statements of the Company's earnings and cash
flows for the period from the beginning of the then current fiscal year to the
end of such fiscal quarter, all in reasonable detail and prepared in accordance
with GAAP, subject to changes resulting from normal year-end adjustments.
(3) As soon as available, and in any event within twenty-one (21)
days following the end of each calendar month, the Company's consolidated and
consolidating balance sheet as of the end of such month and consolidated and
consolidating statements of the Company's
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earnings and cash flow for the period from the beginning of the then current
fiscal year to the end of such month, all in reasonable detail and prepared in
accordance with GAAP, subject to changes resulting from normal year-end
adjustments.
(4) As soon as available, and in any event within five (5) business
days following the end of each week, the Company's consolidated and
consolidating statement of the Company's cash flow for such week; provided,
however, that this obligation shall cease as soon as the Company is profitable
for two (2) consecutive quarters.
(5) Monthly receivable agings, aged by invoice date, and by due date,
within ten (10) days after the end of each month.
(6) Monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers within ten (10) days after the end of each
month.
(7) All such other reports with respect to the Company (including
budgets, sales projections, operating plans and other financial documentation),
as the Lender shall from time to time reasonably specify subject to limitations
of applicable federal and state securities laws.
C. Senior Debt. The Company covenants and agrees that it will not borrow
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from and be indebted to Coast Business Credit, a division of Southern Pacific
Bank, or any affiliate thereof, or any other lender (beside the Lender), which
collectively equals an amount which in the aggregate exceeds $2,500,000.
D. Other Information and Inspections. The Company will furnish to the
---------------------------------
Lender any information which the Lender may from time to time reasonably request
in writing concerning any covenant, provision or condition of this Agreement or
any other Loan Document, or any matter in connection with the Company's
businesses and operations. Upon reasonable notice, the Company will permit
representatives appointed by the Lender (including independent accountants,
auditors, agents, attorneys, appraisers and any other persons) to visit and
inspect during normal business hours the Company's property, including its books
of account, other books and records, and any facilities or other business
assets, and to make extra copies therefrom and photocopies and photographs
thereof, and to write down and record any information such representatives
obtain. The Lender agrees to maintain the confidentiality of all such
information disclosed to it and agrees and acknowledges that it will not
directly or indirectly trade in any of the Company's securities during any
period in which it has material information relating to the Company which is not
publicly available.
E. Notice of Material Events and Change of Address. The Company will
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promptly notify the Lender in writing, stating that such notice is being given
pursuant to this Agreement, of:
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(1) the occurrence of any material adverse change in the business or
operations of the Company;
(2) the occurrence of any Event of Default of which it has knowledge;
(3) the acceleration of the maturity of any indebtedness owed by the
Company or of any default by the Company under any material indenture, mortgage,
agreement, contract or other instrument to which it is a party of which it has
knowledge; and
(4) any filing of any suit or proceeding against the Company having a
claim or
potentially a claim of $100,000 or more.
F. Payment of Taxes, etc. The Company will (a) timely file all required
----------------------
tax returns; (b) timely pay all taxes, assessments, and other governmental
charges or levies imposed upon it or upon its income, profits or property unless
contested in good faith; and (c) maintain appropriate accruals and reserves for
all of the foregoing in accordance with GAAP.
G. Agreement to Deliver Security Documents. The Company agrees to deliver
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and to further secure the Note whenever requested by the Lender, in its sole and
absolute discretion, with deeds of trust, mortgages, chattel mortgages, security
agreements, financing statements and other security documents in form and
substance reasonably satisfactory to the Lender for the purpose of granting,
confirming, and perfecting liens or security interests in any real or personal
property now owned or hereafter acquired by the Company.
H. Perfection and Protection of Security Interests and Liens. The Company
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will from time to time deliver to the Lender any financing statements,
continuation statements, extension agreements and other documents, properly
completed and executed (and acknowledged when required) by the Company in form
and substance reasonably satisfactory to the Lender.
I. Reporting Requirements. The Company will file in a timely manner the
----------------------
reports required to be filed by it under the Securities Act, the Exchange Act,
and the rules and regulations adopted by the Commission thereunder, and will
take such further action as the Lender may reasonably request, all to the extent
required from time to time to enable the Lender to sell within the limitation of
the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (b) any similar rules or regulations
hereafter adopted by the Commission. Upon the reasonable request of the Lender,
the Company will deliver to the Lender a written statement as to filings made by
the Company with the Commission.
J. Reporting Under Section 13. The Company covenants and agrees that it
--------------------------
will provide to the Lender any information required for the preparation and
filing of a schedule by the Lender pursuant to Section 13 of the Exchange Act,
and that the Company will assume any and all costs incurred by the Lender as the
result of the preparation and filing of such schedule.
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K. Maintenance of Insurance. The Company shall (a) maintain with
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financially sound and reputable insurance companies insurance on itself and its
properties in at least such amounts and against at least such risks as are
customarily insured against in the same general area by companies engaged in the
same or a similar business, which insurance shall in any event not provide for
materially less coverage than the insurance in effect on the date hereof, (b)
maintain the Lender as a named additional insured and loss payee, subordinated
to the Senior Debt, in respect of such insurance, and (c) furnish to the Lender
from time to time, upon written request, the policies under which such insurance
is issued, certificates of insurance and such other information relating to such
insurance as the Lender may request.
L. Liens. The Company shall not create, incur, assume or suffer to exist,
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directly or indirectly, any lien, encumbrance, pledge, assignment, preference,
priority or other security interest of any kind whatsoever (collectively, a
"Lien") on any of the Collateral (as defined in the Security Agreement), other
than:
(1) Liens in favor of (a) the holder of the Senior Debt existing on
the date hereof, (b) the Lender pursuant to the terms hereof and the other Loan
Documents, and (c) the persons or entities who have loaned money to the Company
on the date hereof, are a party to the Security Agreement and are listed on
Exhibit E attached hereto;
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(2) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings diligently conducted and with respect to which
adequate reserves are being maintained in accordance with GAAP;
(3) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate proceedings diligently conducted and with respect to which
adequate bonds have been posted; and
(4) Liens created pursuant to capitalized leases and to secure other
purchase money indebtedness, provided that such Liens are only in respect of the
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property or assets subject to, and secure only, the respective capitalized lease
or other purchase money indebtedness.
M. Advances, Investments and Loans. The Company shall not lend money or
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credit or make advances to any Person, or directly or indirectly purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to any Person, except that the following shall be
permitted:
(1) accounts receivable owned by the Company if created in the
ordinary course of the business of the Company and payable or dischargeable in
accordance with customary trade terms; and
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(2) loans and advances by the Company to its employees in the ordinary
course of its business not exceeding $25,000 in the aggregate at any one time
outstanding.
N. Dividends. Except for any liability arising from the class action
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litigation described on Exhibit H hereof, the Company shall not declare or pay
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any dividends (other than dividends payable solely in Common Stock) or return
any capital to its stockholders or authorize or make any other distribution,
payment or delivery of property or cash to its stockholders as such, or redeem,
retire, purchase or otherwise acquire, directly or indirectly, any shares of any
class of its capital stock now or hereafter outstanding (or any options or
warrants issued with respect to its capital stock), or set aside any funds for
any of the foregoing purposes.
O. Financial Covenants. So long as any principal of or interest on any of
-------------------
the Note shall remain unpaid, the Company will:
(1) Maintain a ratio of Consolidated Current Assets to Consolidated
Current Liabilities (excluding the Note, the notes issued to the persons or
entities listed on Exhibit E hereto and the Senior Debt) at all times of not
---------
less than 1:1; and
(2) Maintain the Net Worth of the Company and its subsidiaries, on a
consolidated basis, at all times in an amount of at least One Dollar ($1.00).
The term "Consolidated Current Assets" shall mean all assets that as of the
date of determination thereof and in accordance with GAAP, consistently applied,
should be classified as current assets on a consolidated balance sheet of the
Company and its subsidiaries. The term "Consolidated Current Liabilities' shall
mean all liabilities that as of the date of determination thereof and in
accordance with GAAP, consistently applied, should be classified as current
liabilities on a consolidated balance sheet of the Company and its subsidiaries.
The term "Net Worth" shall mean the difference between the total assets
(including intangibles) and total liabilities (excluding subordinated
indebtedness, if any, and Preferred Stock and shareholders' equity) as shown on
a balance sheet of the Company and its subsidiaries on a consolidated basis,
prepared in accordance with GAAP, consistently applied.
P. Litigation Cooperation. Should any third party suit or proceeding be
----------------------
initiated by or against the Lender with respect to any Collateral (as defined in
the Security Agreement) or relating to the Company, the Company shall, without
expense to the Lender, make available to the Lender the Company's officers,
employees and agents and the Company's books and records, to the extent that the
Lender may deem them reasonably necessary in order to prosecute or defend any
such suit or proceeding.
Q. Rights and Warrants. Except for the warrants issued (i) to the Lender,
-------------------
(ii) to the persons or entities listed on Exhibit E in connection with this
---------
Agreement, and (iii) in connection with the class action litigation described on
Exhibit H hereof, during any fiscal year of the Company, the Company shall not
- ---------
issue any rights or warrants which collectively entitle the
9
<PAGE>
holders thereof to subscribe for or purchase shares of any class of the
Company's capital stock in excess of 500,000 shares of the Company's capital
stock, plus the unexercised portion of the outstanding rights and warrants that
expire, are forfeited or otherwise terminate during such fiscal year. Further,
the Company shall not amend, alter or otherwise modify any agreement or option
entitling the holder thereof to subscribe for or purchase shares of any class of
the Company's capital stock.
R. SEC Filings. On or before August 31, 1999, the Company will file with
-----------
the Commission its Form 10-K for its fiscal year ended June 30, 1999. On or
before September 15, 1999, the Company will file with the Commission its Form
10-Qs for the quarters ended September 30, 1998, December 31, 1998, and March
31, 1999.
S. Senior Debt Restructuring. The Company shall use its best efforts to
-------------------------
have the Senior Debt restructured on the terms set forth on Exhibit F hereto on
---------
or before September 7, 1999. In the event the Senior Debt is not restructured
on such terms by such date, Lender may, in its sole discretion, advance to the
Company funds necessary to satisfy the Senior Debt (the amount required to
satisfy the Senior Debt, including all fees and expenses related thereto, if
any, is referred to herein as the "Payoff Amount"; provided, however, the Payoff
Amount shall not include the Secured Term Loan No. 1 in the principal amount of
$650,000 which amount will be repaid to Coast Business Credit ("Coast") through
the use of the cash balance that is held by Coast as security for the Secured
Term Loan No. 1). The Payoff Amount shall be paid directly to the holder of the
Senior Debt, on behalf of the Company, and shall be deemed an additional loan to
the Company hereunder. Upon satisfaction of the Senior Debt, the Company shall
terminate the Loan Agreement with the holder of the Senior Debt and take
whatever action is necessary to have the security interest granted to the holder
of the Senior Debt released. Upon satisfaction of the Senior Debt, the Company
shall execute and deliver to the Lender (i) a convertible promissory note, the
terms and conditions of which shall be identical to the Note, in the principal
amount of the Payoff Amount, and (ii) a Common Stock Purchase Warrant, the terms
and conditions of which shall be identical to the Warrant, exercisable into the
number of shares of Common Stock equal to the aggregate dollar amount of the
Payoff Amount (rounded to the nearest dollar). Upon satisfaction of the Senior
Debt, Lender shall have a first-priority perfected security interest in the
Collateral (as defined in the Security Agreement). Upon satisfaction of the
Senior Debt, Sections 5 and 10.C of this Agreement shall be deleted in their
---------- ----
entirety.
11. Representations and Warranties of the Company
The Company makes the following representations and warranties:
A. Corporate Status. The Company (i) is a duly organized and validly
----------------
existing corporation in good standing under the laws of the jurisdiction of its
incorporation, (ii) has the corporate power and authority to own its property
and assets and to transact the business in which it is engaged or presently
proposes to engage, and (iii) is duly qualified and is authorized to do
10
<PAGE>
business and is in good standing as a foreign corporation in every foreign
jurisdiction in which it owns or leases real property or in which the nature of
its business requires it to be so qualified.
B. Authority. The executive officers executing the Loan Documents have
---------
the full authority of the Company and its Board of Directors to accept and bind
the Company to the terms and conditions of this Agreement, the other Loan
Documents and all exhibits attached hereto and thereto.
C. Capitalization. The authorized capital stock of the Company consists
--------------
of 20,000,000 shares of Common Stock, having a par value of $.01 per share and
5,000,000 shares of Preferred Stock, having a par value of $.01 per share (the
"Preferred Stock").
D. Options and Rights. Except as set forth on Exhibit G hereto, no person
------------------ ---------
has any agreement or option or any right or privilege (whether by or at law,
preemptive or contractual) capable of becoming an agreement, including
convertible securities, warrants or convertible obligations of any nature, for
the purchase, subscription, allotment or issuance of any unissued shares of
Common Stock or Preferred Stock.
E. Common Stock. As of the date hereof, there were 9,089,101 shares of
------------
Common Stock issued and outstanding and 13,661,968 shares of Common Stock
reserved for issuance upon the exercise of options or warrants or upon the
conversion of convertible securities. All of such outstanding shares of Common
Stock are, and the shares of Common Stock issuable upon conversion of the Note
and/or exercise of the Warrant will be upon issuance, fully paid and
nonassessable. Each share of Common Stock has an equal and ratable right to
receive dividends when, as and if declared by the Board of Directors of the
Company out of assets legally available therefor. The Company is subject to
certain restrictions on the payment of dividends on, and the repurchase or
redemption of, the Common Stock under the provisions of the Senior Debt. In the
event of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share equally and ratably in the assets available
for distribution after payment of all liabilities. The holders of Common Stock
have no preemptive, subscription, conversion or redemption rights, and are not
subject to other calls or assessments by the Company. There are no sinking fund
provisions applicable to the Common Stock. Each share of Common Stock is
entitled to one vote in the election of directors and on all other matters
submitted to a vote of stockholders. Holders of Common Stock have no right to
cumulate their votes in the election of directors. As of the date hereof, there
are no shares of Preferred Stock issued or outstanding.
F. No Violation. Neither the execution, delivery or performance by the
------------
Company of this Agreement or the other Loan Documents, nor compliance by it with
the terms and provisions hereof and thereof, nor the consummation of the
transactions contemplated herein and therein, (i) will contravene any applicable
provisions of any law, statute, rule, regulation, order, writ, injunction or
decree of any court or governmental instrumentality, or (ii) will conflict or be
inconsistent with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to
11
<PAGE>
create or impose) any lien, security interest or encumbrance upon any of the
property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, agreement or other instrument to which the Company is a
party or by which it or any of its property or assets is bound or to which it
may be subject, or (iii) will violate any provisions of the Certificate of
Incorporation or By-Laws of the Company.
G. Company Filings. Except as disclosed on Exhibit D hereof, the Company
--------------- ---------
represents and warrants that it has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, copies of which have been made available to the Lender, that were
required to be filed with (a) the Commission, and (b) any other federal, state
or local governmental or regulatory authority. All such reports, registrations
and filings are collectively referred to as the "Company Filings". As amended,
restated or, with respect to the financial statements contained therein,
corrected in a subsequent filing, each of the Company Filings (a) was true and
complete in all material respects, and (b) complied in all material respects
with all of the statutes, rules and regulations enforced or promulgated by the
governmental or regulatory authority with which it was filed (or was amended so
as to be so promptly following discovery of any such noncompliance) and none
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
not misleading.
H. Transfer Agent and Registration. The Company represents and warrants
-------------------------------
that the Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, and further covenants and agrees to notify the Lender
in writing within ten (10) days of any change of the Transfer Agent or
Registrar.
I. Financial Statements; Financial Condition; Etc. The financial
----------------------------------------------
statements contained in the Company Filings, as amended, restated or corrected
in a subsequent filing, were prepared in accordance with GAAP consistently
applied and fairly present the financial condition and the results of operations
of the entities covered thereby on the dates and for the periods covered
thereby, except as disclosed in the Note thereto and, with respect to interim
financial statements, subject to normally recurring year-end adjustments. The
Company has no material liability (contingent or otherwise) not reflected in
such financial statements or in the Note thereto.
J. Litigation. Except as set forth on Exhibit H hereof, there are no
---------- ---------
actions, suits or proceedings pending or threatened (i) with respect to this
Agreement or the other Loan Documents or any of the transactions contemplated
herein or therein, or (ii) that could, individually or in the aggregate, result
in a material adverse effect upon the business, operations, properties, assets,
prospects or condition (financial or otherwise) of the Company, or the ability
of the Company to perform, or of the Lender to enforce, any of the Loan
Documents.
K. Title to Property. The Company is and shall be the owner of the
-----------------
Collateral (as defined in the Security Agreement), with good and valid title
thereto, free and clear of all
12
<PAGE>
encumbrances, liens or security interests other than the security interest
granted to Coast Business Credit and the security interest granted to the Lender
pursuant to the Security Agreement.
L. Compliance with Securities Laws. The Company represents and warrants
-------------------------------
that the concurrent issuance of convertible promissory notes and warrants to the
Company's employees, officers and members of the Company's Board of Directors
who have made loans to the Company does not violate the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, or any applicable
state securities laws or regulations (collectively, the "Securities Laws"),
except where such violation would not have a material adverse effect on the
Company. For purposes of this Section 11.L, the phrase "material adverse effect"
shall mean any payments made by the Company (including recission payments) to
the persons or entities listed on Exhibit E hereof resulting from a violation of
---------
the Securities Laws, which payments are equal to or greater than $20,000 to any
one such person or entity, or $75,000 in the aggregate.
12. Representations and Warranties of the Lender
The Lender makes the following representations and warranties:
A. Investment Purpose. The Lender is acquiring the Note and the Warrant
------------------
and the shares of Common Stock issuable upon conversion or exercise thereof, for
its own account, for investment only and not with a view towards the public sale
or distribution thereof, except pursuant to sales registered or exempted from
registration under the Securities Act.
B. Accredited Investor Status. The Lender is an "accredited investor" as
--------------------------
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
C. Reliance on Exemptions. The Lender understands that the Note and the
----------------------
Warrant are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Lender's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Lender set forth herein in order to
determine the availability, of such exemptions.
D. Information. The Lender and its advisors, if any, have been furnished
-----------
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Note and Warrant
which have been requested by the Lender or its advisors. The Lender and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Lender believe to be satisfactory answers to
any such inquiries. The Lender understands that its investment in the Note and
Warrant involves a significant degree of risk. The Lender further acknowledges
receipt of the "Risk Factors" supplement attached hereto.
13
<PAGE>
E. Governmental Review. The Lender understands that no United States
-------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Note and the
Warrant.
F. Transfer or Resale. The Lender understands the limitations on resale or
------------------
transfer of the Note and the Warrant incorporated herein and those additional
restrictions applicable pursuant to securities laws.
G. Legends. The Lender understands that the Note and Warrant and, until
-------
such time as the shares of Common Stock issuable upon the conversion or exercise
of the Note and/or Warrant have been registered under the Securities Act as
contemplated herein, such shares may bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of
the certificates for such securities):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under
said Act, or an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, that registration is not required under said Act
or unless s old pursuant to Rule 144 under said Act."
13. Registration Rights
A. Form S-3. Notwithstanding any provisions contained in this Agreement or
--------
any other document to the contrary, the Company shall cause a registration
statement under Form S-3 to be filed with the Securities and Exchange Commission
("Commission") permitting the resale of the shares issuable upon conversion of
the Note and/or the exercise of the Warrant (collectively the "Registrable
Securities"). The Lender agrees and acknowledges that the Company has advised
the Lender that it is presently not eligible to utilize Form S-3 because, among
other reasons, of its failure to timely file its Form 10-K for its fiscal year
ended on June 30, 1998, and its Form 10-Qs for its fiscal year ended on June 30,
1999. The Lender further acknowledges that the Company will not be eligible to
use a Form S-3 for at least one year after it has filed such Form 10-K, provided
that it otherwise meets the "registration eligibility" requirements set forth in
the general instructions to Form S-3. The parties agree that the Company shall
not be required to register any Registrable Securities except (i) pursuant to a
Form S-3, as and when available to the Company, (ii) pursuant to the demand
registration granted below, and (iii) pursuant to the piggyback registration
rights granted below. Additionally, the Company acknowledges that Lender may at
its option convert the Note and/or exercise the Warrant into non-registered
shares of the Company.
B. Demand Registration. To the extent not otherwise registered, after one
-------------------
year from the date hereof the Lender shall have the right to demand from the
Company, at its expense, a
14
<PAGE>
registration of shares issuable upon conversion of the Note and/or exercise of
the Warrant pursuant to a Form S-1. If the Company shall receive a written
request from the Lender that the Company file a registration statement under the
Securities Act, or a similar document pursuant to any other statute then in
effect corresponding to the Securities Act, covering the registration of at
least 500,000 Registrable Shares (subject to adjustment for stock splits, stock
dividends, recapitalizations, and other reorganizations), then the Company shall
within five (5) days after the Company receives such written request to file a
registration statement use its best efforts to cause to be registered under the
Securities Act the Registrable Shares which the Company has been so requested to
register. Any request for registration under this Section 13.B must be for a
------------
firmly or best efforts underwritten public offering to be managed by an
underwriter or underwriters of recognized national standing selected by the
Lender. A registration requested pursuant to this Section 13.B will not be
------------
deemed to have been effected unless it has become effective.
C. Piggyback Registration. Subject to the limitations set forth in this
----------------------
Section 13.C, if the Company shall propose to issue and register shares of its
- ------------
equity securities on its own behalf or to register equity securities on behalf
of any holder of its equity securities under the Securities Act, the Company
shall give written notice as promptly as possible of such registration to each
of the holders of the Note and the Warrant (which notice shall include the
anticipated filing date of the Registration Statement and the number of its
equity securities proposed to be included in the Registration Statement), and
will use its best efforts to include in the offering such amount of the
Registrable Securities as any such holder (a "Participating Holder") shall
request to be included by written notice to the Company received within fifteen
(15) days after receipt of the Company's notice, upon the same terms (including
the method of distribution) as the equity securities being sold by the Company
or any such holder pursuant to any such offering (a "Piggyback Registration").
(i) Requirements of Request. Each request delivered to the Company
-----------------------
pursuant to this Section 13.C shall: (i) specify the amount of Registrable
------------
Securities intended to be offered and sold by the Participating Holder; and (ii)
contain the undertaking of the Participating Holder to provide all such
information and materials and take all such action as may be required in order
to permit the Company to comply with all applicable requirements of the
commission and state securities and "blue sky" laws and to obtain acceleration
of the effective date of the Registration Statement.
(ii) Limitations on Incidental Registrations. The obligations of the
---------------------------------------
Company to cause Registrable Securities to be registered pursuant to this
Section 13.C are subject to each of the following limitations, conditions and
- ------------
qualifications:
(a) The Company shall not be required to give notice or include
Registrable Securities in any registration if the proposed registration is
primarily: (A) a registration of a stock option, thrift, employee benefit or
compensation plan or of securities issued or issuable pursuant to any such plan;
(B) a registration of securities proposed to be issued in connection with a
dividend reinvestment plan or stock purchase plan; (C) a registration of
15
<PAGE>
securities proposed to be issued in exchange for securities or assets of, or in
connection with a merger or consolidation with, another corporation or other
entity; (D) a registration of securities to be offered by the Company to its
then existing security holders; or (E) a registration of securities which is a
combination of any of the above.
(b) If the Company is advised by the managing underwriter or its
investment banking firm if the offering is not underwritten, that the inclusion
of Registrable Securities may, in the opinion of such underwriter or investment
banking firm, as the case may be, materially adversely affect the successful
marketing of the securities proposed to be offered by the Company, the number of
shares of Registrable Securities to be included in the offering shall be reduced
or eliminated to the extent necessary as shall be reasonably determined by such
underwriter or investment banker, as the case may be, in good faith; provided
that as to the Participating Holders, such reduction shall be pro rata with
respect to all securities to be sold by persons other than the Company; and,
provided, further, that in such event, the Participating Holders shall have the
right to withdraw their requests to participate in the offering.
(c) The Company may, in its sole discretion and without the
consent of or prior notice to any Participating Holder, withdraw such
registration statement and abandon the proposed offering in which the
Participating Holder had requested to participate at any time.
D. Prohibited Sales of Securities. Notwithstanding the foregoing, the
------------------------------
Company shall have the right to prohibit the sale of Registrable Securities
pursuant to any Registration Statement filed pursuant to this Section 13, upon
----------
notice to the applicable holder (i) if in the opinion of counsel for the
Company, the Company would thereby be required to disclose information not
otherwise then required by law to be publicly disclosed, provided that the
Company shall use its best efforts to minimize the period of time in which it
shall prohibit the sale of any shares of Registrable Securities pursuant to this
clause (i), (ii) during the period starting with the date 10 days prior to the
Company's estimate of the date of filing of, and ending on a date 90 days after
the effective date of, a Company initiated registration in which the person
requesting registration is entitled to participate in accordance with the
provisions of this Section 13 hereof, or such longer post-effective periods as
----------
may be reasonably required by the underwriter or underwriters if such offering
is underwritten, or (iii) upon the happening of any event, as a result of which
the Prospectus under the Registration Statement includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing (in which case, the Company shall promptly
provide the person requesting registration with revised or supplemental
prospectuses and such person shall promptly take action to cease making any
offers of the Registrable Securities until receipt and distribution of such
revised or supplemental prospectuses).
14. Indemnification
The Company shall pay, indemnify, defend, and hold the Lender and its
shareholders, officers, directors, employees, counsel, agents and attorneys-in-
fact (each, an "Indemnified
16
<PAGE>
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them in connection with or as a result of or related
to the execution, delivery, enforcement, performance, and administration of this
Agreement and any other Loan Documents or the transactions contemplated herein,
and with respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the Loan
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The
Company shall have no obligation to any Indemnified Person hereunder with
respect to any Indemnified Liability that has resulted from the gross negligence
or willful misconduct of such Indemnified Person. This provision shall survive
the termination of this Agreement and the repayment of the Note.
15. Governing Law
This Agreement shall be governed by the laws of the State of Connecticut,
without regard to conflict of law principles.
16. Notice
Any notice or communication required to be given hereunder shall be deemed
effectively given when personally delivered, when received by receipted
overnight delivery, or five (5) days after being deposited in the U.S. mail,
with postage prepaid thereon, certified registered mail, return receipt
requested, addressed as follows:
To the Lender: Fernwood Partners II, LLC
100 First Stamford Place, Suite 625
Stamford, Connecticut 06902
Attn: Richard L. Scott
To Company: CyberGuard Corporation
2000 W. Commercial Blvd., Suite 200
Fort Lauderdale, Florida 33309
17. Expense Reimbursement
On the date the Loan is funded, the Company agrees to pay all of Lender's
legal expenses and out-of-pocket expenses related to the proposed transaction
with the proceeds of the Loan, up to a maximum aggregate amount of $30,000.
Subsequent to the date the Loan is funded, the Company agrees to pay on demand
all reasonable expenses of the Lender (including the reasonable fees and out-of-
pocket expenses of counsel to the Lender) in connection with the negotiation,
17
<PAGE>
preparation, execution and delivery of any amendments, waivers, consents,
supplements or other modifications to this Agreement or any other Loan Document,
as well as in connection with the enforcement of the obligations represented by
this Agreement or any other Loan Document.
18. Partial Invalidity
If any provision of this Agreement or the application thereof to any party
or circumstances is held to be invalid or unenforceable, the remainder of this
Agreement and the application of any such provision to other parties or
circumstances shall not be affected thereby, the provisions of this Agreement
being severable in any such instance. No invalid provision hereof shall affect
or impair any other provision of this Agreement.
19. Amendments
Any amendment or modification to this Agreement shall not be effective
unless signed in writing by the parties hereto.
20. Headings; Construction
The headings of the sections of this Agreement are inserted for convenience
only and shall not be deemed to constitute a part hereof, words used herein of
any gender shall be construed to include any other gender where appropriate, and
words used herein which are either singular or plural shall be construed to
include the other where appropriate.
21. Successors and Assigns
All of the covenants, stipulations, promises, and agreements of this
Agreement shall bind the parties' successors and assigns, whether so expressed
or not; provided, however, that the Company may not, without the prior consent
of the Lender, assign any rights, duties, or obligations under this Agreement.
22. No Oral Agreements
This Agreement and the Loan Documents represent the final agreement between
the parties and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten oral
agreements between the parties.
23. Public Announcements
The Company shall not release, publish, or otherwise make available to the
public in any manner whatsoever any information or announcement regarding the
transactions herein contemplated without the prior written consent of Lenders,
except for information, press releases and filings required in connection with
securities and other laws.
18
<PAGE>
24. Waiver of Trial by Jury
The Parties hereby irrevocably waive any and all rights they may have to
demand that any action, proceeding or counterclaim arising out of or in any way
related to this Agreement be tried by jury. This waiver extends to any and all
rights to demand a trial by jury arising from any source including, but not
limited to, the Constitution of the United States or any state therein, common
law or any applicable statute or regulations. The parties acknowledge that they
are knowingly and voluntarily waiving their right to demand trial by jury.
25. Survival
All representations and warranties made under this Agreement and all
statements, certifications and other information provided in or pursuant to this
Agreement or any other Loan Document shall be deemed to be made, and shall be
true and correct, as of the date hereof and shall survive, and not be waived by,
the execution hereof by the Lender or any investigation or inquiry of the
Lender.
26. Counterparts
This Agreement may be executed in two or more counterparts, each and all of
which shall be deemed an original and all of which together shall constitute but
one and the same instrument.
SIGNATURE PAGE FOLLOWS
19
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
26th day of August, 1999.
COMPANY:
CyberGuard Corporation
By: /s/ David R. Proctor
--------------------------------------------
Its: CEO
-------------------------------------------
LENDER:
Fernwood Partners II, LLC
By: /s/ Richard L. Scott
--------------------------------------------
Its: Member
-------------------------------------------
20
<PAGE>
EXHIBIT 99.2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACTTHESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE LAWS OR SOME
OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
CONVERTIBLE PROMISSORY NOTE
---------------------------
$3,699,484.38 Stamford, Connecticut
August 26, 1999
FOR VALUE RECEIVED, on August 26, 1999, and pursuant to the terms and
conditions of the Loan Agreement entered into on this same date (the "Loan
Agreement"), the undersigned, CyberGuard Corporation, a Florida corporation
("Maker"), having a mailing address of 2000 West Commercial Blvd., Suite 200,
Ft. Lauderdale, Florida 33309, promises to pay to the order of FERNWOOD PARTNERS
II, LLC, a Delaware limited liability company ("Payee"), or its registered
assigns (Payee or such registered assigns at the time being the registered
holder or holders hereof are hereinafter collectively referred to as the
("Holder"), at 100 First Stamford Place, Suite 625, Stamford, Connecticut 06902,
Attn: Richard L. Scott, or at such other place as the Holder hereof may direct
in writing, the aggregate principal sum of Three Million Six Hundred Ninety Nine
Thousand Four Hundred Eighty Four and 38/100 Dollars ($3,699,484.38), together
with interest from the date hereof on the unpaid principal amount, as follows:
1. Interest. The unpaid principal amount hereof shall bear interest at
--------
the rate of 11.5% per annum. Any amount of principal or interest not paid when
due (whether at the stated due date, at maturity, upon acceleration or
otherwise) shall thereafter bear interest until paid in full at the rate of
17.5% per annum. Interest shall be computed on the actual number of days elapsed
on the basis of a 360-day year consisting of twelve 30-day months.
2. Principal and Interest Payments. Interest due hereunder shall be
-------------------------------
payable quarterly on January 1, April 1, July 1 and October 1 of each year
commencing on October 1, 1999 and continuing on each January 1, April 1, July 1
and October 1 thereafter through the maturity date hereof; except that interest
accruing from the date hereof through July 1, 2000 shall be compounded quarterly
on January 1, April 1, July 1 and October 1, commencing October 1, 1999, and
added to the principal amount of this Note. All principal due hereunder together
with all accrued but unpaid interest shall become immediately due and payable
without further notice on June 30, 2002. In the event that any payment date
shall fall due on a Saturday, Sunday, legal holiday or a day on which federal
banking institutions are not required to be open, payment shall
<PAGE>
be made on the next business day, but interest, shall continue to accrue until
such payment is made.
3. Payments. All payments of principal and interest are to be made in
--------
lawful money of the United States of America. All payments received shall be
applied first to unpaid interest, then principal. This Note cannot be prepaid
without the written consent of the Holder.
4. Default. In the event that (a) any payment of principal or interest
-------
due hereunder is not paid when due; or (b) Maker becomes subject to any
bankruptcy, insolvency, receivership or debtor relief proceedings and, in the
case of any such proceedings initiated against Maker, the same have not been
discharged within sixty (60) days after institution; or (c) Maker makes an
assignment for the benefit of creditors, or admits in writing an inability to
pay its debts generally as they become due; or (d) Maker fails to comply with or
perform any covenant, agreement or condition of this Note or any other Loan
Document; or (e) any statement, representation or warranty in any of the Loan
Documents, is false, misleading or erroneous in any material respect on the date
thereof, and such statement, representation or warranty is not made true and
correct (as of the time such corrective action is taken) within the applicable
grace period (if any) provided for in such Loan Document; or (f) the occurrence
of any event or condition deemed to be a default under or as defined in any
other Loan Document; then an event of default hereunder shall be deemed to have
occurred and then or thereafter, at the option of the Holder hereof, the entire
principal and accrued interest of this Note shall become immediately due and
payable, without further notice to Maker. The failure of the Holder to exercise
any right or remedy hereunder shall not be deemed to be a release or waiver of
any obligation or liability of the Maker. As used herein, the term ("Loan
Document") means any other document or instrument now or hereafter evidencing,
governing, guaranteeing or securing this Note or any part thereof or otherwise
executed in connection with the loan evidenced or governed by this Note,
including, without limitation, the Loan Agreement and the Security Agreement.
5. Remedies. Upon the occurrence of an event of default as described
--------
above, the Holder may exercise any rights and remedies available to it provided
herein or by law or in equity. To the extent permitted by applicable law, all
benefits, rights and remedies hereunder shall be deemed cumulative and not
exclusive of any other thereof.
6. Security. This Note is secured by the security interests and
--------
assignments created by that certain Security Agreement dated as of August 26,
1999 (as such may hereafter be amended, modified, supplemented and/or restated,
the ("Security Agreement"), executed by Maker in favor of the Secured Parties
thereunder, to which Security Agreement reference is made for a more complete
description of the collateral, the nature and extent of the security, and the
rights of the Holder in respect of such security.
7. Subordination. The indebtedness evidenced by this Note is expressly
-------------
subordinated, to the extent and in the manner set forth in the Loan Agreement,
in right of payment to the prior payment in full of all the Senior Indebtedness
of Maker. As used in this Note, the term ("Senior Indebtedness") shall mean the
principal and unpaid accrued interest on all indebtedness of Maker
2
<PAGE>
to Coast Business Credit, a division of Southern Pacific Bank, including any
renewals, extensions and refundings of such indebtedness.
8. Conversion.
----------
8.1 Conversion by Holder. Any Holder of this Note has the right, at
--------------------
the Holder's option, at any time prior to payment in full of the principal
balance of this Note, to convert this Note, in accordance with the provisions of
Section 8.3 hereof, in whole or in part, into fully paid and nonassessable
shares of Common Stock of Maker (the "Common Stock"). The number of shares of
Common Stock into which this Note may be converted (the "Conversion Shares")
shall be determined by dividing the aggregate principal amount together with all
accrued interest to the date of conversion by the Conversion Price (as defined
below) in effect at the time of conversion. The initial Conversion Price shall
be equal to One Dollar ($1.00).
8.2 Conversion by Maker. At the option of Maker, the entire principal
-------------------
amount together with all accrued interest of this Note may be converted into
shares of Common Stock at the Conversion Price if (i) shares of the Common Stock
close at a price in excess of Four Dollars ($4.00) per share for ninety (90)
consecutive trading days, and (ii) the shares of Common Stock into which this
Note is converted are fully registered under the Securities Act of 1933, as
amended, and freely transferable.
8.3 Conversion Procedure.
--------------------
(a) Notice of Conversion Pursuant to Section 8.1. Before the
--------------------------------------------
Holder shall be entitled to convert this Note into shares of Common Stock, it
shall surrender this Note at the office of Maker and shall give written notice
by mail, postage prepaid, to Maker at its principal corporate office, of the
election to convert the same pursuant to Section 8.1, and shall state therein
-----------
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. Maker shall, as soon as practicable thereafter, issue
and deliver to the Holder of this Note a certificate or certificates for the
number of shares of Common Stock to which the Holder of this Note shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of this
Note, and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date.
(b) Notice of Conversion Pursuant to Section 8.2. If this Note
--------------------------------------------
is converted by Maker pursuant to Section 8.2, written notice shall be delivered
-----------
to the Holder of this Note at the address last shown on the records of Maker for
the Holder or given by the Holder to Maker for the purpose of notice or, if no
such address appears or is given, at the place where the principal executive
office of Maker is located, notifying the Holder of the conversion to be
effected, specifying the principal amount of the Note to be converted, the
amount of accrued
3
<PAGE>
interest to be converted, the date on which such conversion will occur and
calling upon such holder to surrender to Maker, in the manner and at the place
designated, the Note.
8.4 Delivery of Stock Certificates. As promptly as practicable after the
------------------------------
conversion of this Note, Maker at its expense will issue and deliver to the
Holder of this Note a certificate or certificates for the number of full shares
of Common Stock issuable upon such conversion.
8.5 Mechanics and Effect of Conversion. No fractional shares of Common
----------------------------------
Stock shall be issued upon conversion of this Note. In lieu of Maker issuing any
fractional shares to the Holder upon the conversion of this Note, Maker shall
pay to the Holder the amount of outstanding principal that is not so converted,
such payment to be in the form as provided below. Upon the conversion of this
Note, the Holder shall surrender this Note, duly endorsed, at the principal
office of Maker. At its expense, Maker shall, as soon as practicable thereafter,
issue and deliver to such Holder at such principal office a certificate or
certificates for the number of shares of such Common Stock to which the Holder
shall be entitled upon such conversion (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to
Maker), together with any other securities and property to which the Holder is
entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described above. In the
event of any conversion of this Note, such conversion shall be deemed to have
been made immediately prior to the closing for the issuance and sale of such
Common Stock and on and after such date the Holder of this Note entitled to
receive the shares of such Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares. Upon conversion of
this Note, Maker shall be forever released from its obligations and liabilities
under this Note, except that Maker shall be obligated to pay the Holder, within
ten (10) days after the date of such conversion, any interest accrued and unpaid
or unconverted to and including the date of such conversion.
9. Adjustments. The Conversion Price in effect at any time shall be
-----------
subject to adjustment as follows:
(a) Dividends, Stock Splits and Reverse Stock Splits. In case the
------------------------------------------------
Company shall (i) declare a dividend on all its Common Stock in shares of its
capital stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine all the outstanding shares of its Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common Stock (other
than any reclassification upon a consolidation, merger, conveyance or transfer
subject to Section 10) any shares, the Conversion Price in effect at the time of
----------
the record date for such dividend or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Holder of this Note upon conversion after such time shall be entitled to receive
the number and kind of shares which the Holder would have owned or have been
entitled to receive had this Note been converted immediately prior to such time.
Such adjustment will become effective immediately prior to the opening of
business on the day following the date on which such dividend is declared or
such subdivision or combination becomes
4
<PAGE>
effective. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) Issuances Below Market. In case the Company shall fix a record
----------------------
date for the issuance of rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the current market price per share of Common Stock (as
determined pursuant to subsection (e) below) on such record date, the Conversion
Price in effect immediately prior to the issuance of such rights or warrants
shall be adjusted to a price determined by multiplying such Conversion Price by
a fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares to be offered would
purchase at such current market price, and of which the denominator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock to be offered for subscription or purchase.
Such adjustment will become effective immediately prior to the opening of
business on the day following such record date. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that such
rights or warrants are not so issued, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such record
date had not been fixed.
(c) Special Dividends. In case the Company shall fix a record date
-----------------
for the making of a distribution to all holders of its Common Stock (including
any such distribution made in connection with a consolidation or merger in which
the Company is the continuing corporation) of evidences of its indebtedness,
securities or assets (excluding cash dividends paid out of retained earnings) or
subscription rights or warrants (excluding those referred to in subsection (b)
above), the Conversion Price in effect immediately prior to such distribution
shall be adjusted by multiplying such Conversion Price by a fraction, of which
the numerator shall be the current market price per share of Common Stock (as
determined pursuant to subsection (e) below) on such record date, less the fair
market value (as determined in good faith by the Board of Directors) of the
portion of such evidences of indebtedness, securities or assets or of such
subscription rights or warrants so applicable to one share of Common Stock, and
of which the denominator shall be such current market price per share of Common
Stock. Such adjustment will become effective immediately prior to the opening of
business on the day following such record date. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such record date had not
been fixed.
(d) Other Distributions. In case the Company shall distribute
-------------------
evidences of its indebtedness, securities, assets, rights or warrants to any
Person (as defined in Section 10) in connection with or as a result of or
related to any pending or future claims, suits, actions or proceedings against
the Company or any of its subsidiaries, then in each such case the Conversion
Price in effect immediately prior to such distribution shall be adjusted by
multiplying such Conversion Price by a fraction, of which the numerator shall be
the current market price per share
5
<PAGE>
of Common Stock (as determined by pursuant to subsection (e) below) on the date
of such distribution, less the fair market value (as determined in good faith by
the Board and Directors) of the portion of such evidences of indebtedness,
securities, assets, rights or warrants so distributed applicable to one share of
Common Stock, and of which the denominator shall be such current market price
per share of Common Stock. Such adjustment will become effective immediately
prior to the opening of business on the day following the date of such
distribution. Such adjustment shall be made successively whenever any such
distribution or issuance is made. The intent of this subsection is that if any
evidences of indebtedness, securities, assets, rights or warrants are
distributed in connection with or as a result of or related to any pending or
future claims, suits, actions or proceedings against the Company or any of its
subsidiaries, that the Holder of this Note shall be entitled to convert this
Note into the same percentage of the outstanding capital stock of the Company
for the same aggregate conversion price immediately after such distribution as
the Holder of this Note could convert immediately prior to such distribution.
(e) Other Dilutive Events. In case any event shall occur as to which
---------------------
the provisions of Section 9 are not strictly applicable but the failure to make
any adjustment would not fairly protect the conversion rights represented by
this Note in accordance with the essential intent and principles hereof then, in
each such case, the Company shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the regular auditors
of the Company), which shall give its opinion upon the adjustment, if any, on a
basis consistent with the essential intent and principles established in Section
9, necessary to preserve, without dilution, the conversion rights represented by
this Note. Upon receipt of such opinion, the Company will promptly mail a copy
thereof to the Holder of this Note and shall make the adjustments described
therein. Notwithstanding anything contained in this subsection (e) to the
contrary, this subsection (e) shall not apply to any issuance of Common Stock by
the Company for which the Company has received consideration equal to the fair
market value of such Common Stock on the date of issuance, as determined by the
Board of Directors of the Company in good faith.
(f) No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 9 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion privilege of the Holder of this
Note against dilution or other impairment.
(g) Market Price Determination. For the purpose of any computation
--------------------------
under subsections (b), (c) and (d) above, the current market price per share of
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the ten (10) consecutive trading dates immediately preceding such
date. The closing price for each day shall be the last reported sale price on
that day or, in case no such reported sale takes place on such day, the
6
<PAGE>
average of the last reported bid and asked prices, regular way, on that day, in
either case, as reported in the consolidated transaction reporting system with
respect to securities quoted on Nasdaq or, if the shares of Common Stock are not
quoted on Nasdaq, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if the shares of Common Stock are not quoted on Nasdaq and not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices on such other nationally recognized quotation system then in use, or, if
on any such day the shares of Common Stock are not quoted on any such quotation
system, the average of the closing bid and asked prices as furnished by a
professional market maker selected by the Board of Directors making a market in
the shares of Common Stock. If the shares of Common Stock are not publicly held
or so listed, quoted or publicly traded, the current market price per share of
Common Stock shall be determined in good faith by the Board of Directors.
(h) Minimum Adjustment Required. No adjustment in the Conversion
---------------------------
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in such price; provided, however, that any
adjustments which by reason of this subsection (h) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 9 shall be made to the nearest cent or to
---------
the nearest one-hundredth of a share, as the case may be.
(i) Adjustments for Tax Purposes. The Company may make such
----------------------------
adjustments in the Conversion Price so as to increase the number of shares
issuable on conversion, in addition to those adjustments required by this
Section 9, as it considers to be advisable in order that any event treated for
- ---------
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(j) Certificate. Whenever the Conversion Price is adjusted, as herein
-----------
provided, the Company shall promptly cause a certificate setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment and a computation thereof to be mailed to
the Holder of this Note at the address shown in the registration books of the
Company.
(k) Adjustments to Other Shares. In the event that at any time, as a
---------------------------
result of an adjustment made pursuant to subsection (a) above, the Holder of
this Note thereafter surrendered for conversion shall become entitled to receive
any shares of the Company other than shares of its Common Stock, thereafter the
number of such other shares so receivable upon conversion of this Note shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in subsections (a)-(j) above.
10. Effect of Consolidation, Merger, Conveyance or Transfer. In case of
-------------------------------------------------------
any consolidation of the Company with, or merger of the Company into, any other
person, any merger
7
<PAGE>
of another Person into the Company (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock of the Company) or any sale, transfer or lease of all or
substantially all of the assets of the Company, the Person formed by such
consolidation or resulting from such merger or which acquires such assets, as
the case may be, shall execute and deliver to the Holder a supplemental
agreement providing that the Holder of this Note shall have the right hereafter,
during the period this Note shall be convertible, to convert such Note into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock of the Company into which this Note was convertible immediately
prior to such consolidation, merger, sale or transfer, assuming such holder of
Common Stock of the Company (i) is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be ("Constituent
Person"), or an affiliate of a Constituent Person, and (ii) failed to exercise
such Holder's rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer (provided that if the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer is
not the same for each share of Common Stock of the Company held immediately
prior to such consolidation, merger, sale, transfer or lease by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-Electing Share"), then for the
purpose of this Section 10 the kind and amount of securities, cash and other
----------
property receivable upon such consolidation, merger, sale or transfer by each
Non-Electing Share shall be deemed to be the kind and amount so receivable per
share by a plurality of the Non-Electing Shares). Such supplemental agreement
shall provide for adjustments which, for events subsequent to the effective date
of such supplemental agreement, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 10. The above
----------
provisions of this Section 10 shall similarly apply to successive
----------
consolidations, mergers, conveyances or transfers. For purposes of this Note,
the term "Person" shall mean any individual, firm, corporation, company, limited
liability company, association, partnership, joint venture or other entity.
11. Prior Notice of Certain Events. In the event that:
------------------------------
(a) Maker shall declare any dividend, whether payable in cash or in
any capital stock upon its Common Stock, or authorize any other issuance or
distribution to the holders of its Common Stock; or
(b) there shall be any capital reorganization or reclassification of
the capital stock of Maker, or consolidation or merger of Maker with another
entity or a sale of all or substantially all its assets; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of Maker;
8
<PAGE>
then, in any of said cases, Maker shall give prior written notice, by first-
class mail, postage prepaid, addressed to the registered Holder of this Note at
the address of such registered Holder as shown on the registration books of
Maker, of the date on which (i) the books of Maker shall close or a record shall
be taken for such stock dividend, distribution or subscription rights, (ii) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up shall be consummated, or (iii) such other event shall
be consummated, as the case may be. Such notice shall also specify the date as
of which the holders of the Common Stock of record shall receive said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be. Such written notice shall be
given at least thirty (30) days prior to the date of the event in question and
the record date or the date on which Maker=s transfer books are closed in
respect thereto.
12. Change of Control. In the event that a Change of Control (as defined
-----------------
below) has occurred, the Holder may, in its sole discretion, declare the entire
principal amount and accrued interest of this Note immediately due and payable,
without further notice to Maker. A "Change of Control" occurs upon any of the
following events: (i) upon any merger or consolidation of Maker with or into any
other Person or any other sale, transfer or other disposition, whether direct or
indirect, of all or substantially all of the assets of the Company, on a
consolidated basis, in one transaction or a series of related transactions, if,
immediately after giving effect to such transaction, any "person" or "group" is
or becomes the Abeneficial owner,@ directly or indirectly, of more than 50% of
the total voting power in the aggregate normally entitled to vote in the
election of directors, managers, or trustees, as applicable, of the transferee
or surviving entity, (ii) when any Aperson@ or Agroup@ is or becomes the
Abeneficial owner,@ directly or indirectly, of more than 50% of the total voting
power in the aggregate normally entitled to vote in the election of directors of
Maker, (iii) when, during any period of 12 consecutive months after the date
hereof, individuals who at the beginning of any such 12-month period constituted
the Board of Directors of Maker (together with any new directors whose election
by such Board or whose nomination for election by the stockholders of Maker was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease to constitute a majority of the
Board of Directors of Maker then in office, (iv) a sale, transfer or other
disposition, whether directly or indirectly, by Maker of all or substantially
all of its assets, on a consolidated basis, or (v) the pro rata distribution by
Maker to its stockholders of substantially all of its assets. For purposes of
this definition of "Change of Control," (i) the terms "person" and "group" shall
have the meanings used for purposes of Rules l3d-3 and 13d-5 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date
hereof, whether or not applicable; and (ii) the term "beneficial owner" shall
have the meaning used in Rules 13d-3 and 13d-5 under the Exchange Act as in
effect on the date hereof, whether or not applicable, except that a "person"
shall be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time or upon the occurrence of certain events.
9
<PAGE>
13. Transfer of this Note or Securities Issuable on Conversion Hereof.
-----------------------------------------------------------------
With respect to any offer, sale or other disposition of this Note or securities
into which this Note may be converted, the Holder will give written notice to
Maker prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel to the effect that such offer, sale or
other distribution may be effected without registration or qualification (under
any federal or state law then in effect). Promptly upon receiving such written
notice and reasonably satisfactory opinion, if so requested, Maker, as promptly
as practicable, shall notify such Holder that such Holder may sell or otherwise
dispose of this Note or such securities, all in accordance with the terms of the
notice delivered to Maker. If a determination has been made pursuant to this
Section 13 that the opinion of counsel for the Holder is not reasonably
- ----------
satisfactory to Maker, the Maker shall so notify the Holder promptly after such
determination has been made. Each Note thus transferred and each certificate
representing the securities thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act of 1933, as amended (the "Act"), unless in the opinion of
counsel for Maker such legend is not required in order to ensure compliance with
the Act. Maker may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
14. Reservation of Stock Issuable Upon Conversion. The Company shall at
---------------------------------------------
all times reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of the Note
such number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of the Note; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of the entire outstanding principal amount and accrued interest
of this Note, in addition to such other remedies as shall be available to the
Holder, the Company will use its best efforts to take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
15. Registration Rights. Upon conversion of this Note, the Holder shall
-------------------
have and be entitled to exercise, together with all other holders of Common
Stock possessing registration rights under the Loan Agreement, the registration
rights granted under the Loan Agreement with respect to the shares of Common
Stock issued upon conversion of this Note.
16. Obligations Absolute. All obligations of Maker hereunder are absolute
--------------------
and unconditional, irrespective of any effect or counterclaim of Maker against
the Holder. Maker hereby waives the right to enforce any right of offset,
counterclaim or breach in any action brought to enforce the obligations of Maker
under this Note.
17. Waivers. Maker and any co-makers, sureties, endorsers and guarantors
-------
of this Note hereby jointly and severally waive presentment for payment, notices
of non-performance or nonpayment, protest, notices of protest, notice of
dishonor, diligence in bringing suit hereon against any party hereto and notice
of acceleration, and further consent to any extension of time for
10
<PAGE>
payment hereunder (whether one or more), any renewal hereof (whether one or
more), any substitution or release of any collateral, and any addition or
release of any party liable for payment of this Note. Any such extension,
renewal, substitution or release may be made by the Holder without notice to any
such party and without discharging such party's liability hereunder.
18. Collection Costs; Attorneys' Fees. Maker agrees to pay all expenses
---------------------------------
and costs of collection, including all reasonable attorneys' fees and expenses
as awarded by a court, court costs, and similar costs incurred by the Holder in
connection with the enforcement of this Note, endeavoring to collect any amounts
payable hereunder, whether by acceleration or otherwise.
19. Partial Invalidity. If any provision of this Note or the application
------------------
thereof to any party or circumstances is held invalid or unenforceable, the
remainder of this Note and the application of any such provision to other
parties or circumstances shall not be affected thereby, the provisions of this
Note being severable in any such instance. No invalid provision hereof shall
affect or impair any other provision of this Note.
20. Conflict. In the event of a conflict as between the terms and
--------
conditions hereof and the terms and conditions of the Loan Agreement, the terms
and conditions of this Note shall control. In lieu of any such conflict of terms
both documents shall be of equal force and effect.
21. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Connecticut, without regard to conflict
of law principles.
22. Amendments. Any amendment or modification to this Note shall not be
----------
effective unless signed in writing by the Holder.
23. Headings; Construction. The headings of the sections of this Note are
----------------------
inserted for convenience only and shall not be deemed to constitute a part
hereof, words used herein of any gender shall be construed to include any other
gender where appropriate, and words used herein which are either singular or
plural shall be construed to include the other where appropriate.
24. Successors and Assigns. All of the covenants, stipulations, promises,
----------------------
and agreements in this Note contained by or on behalf of Maker shall bind its
successors and assigns, whether so expressed or not; provided, however, that
Maker may not, without the prior consent of the Holder, assign any rights,
duties, or obligations under this Note.
25. Maximum Interest Rate. Regardless of any provision contained herein,
---------------------
or in any other documents or instruments executed in connection herewith, the
Holder hereof shall never be entitled to receive, collect, or apply, as interest
hereon, any amount in excess of the Highest Lawful Rate and in the event the
Holder hereof ever receives, collects, or applies, as interest, any such excess,
such amount which would be excessive interest shall be deemed a partial
prepayment of principal and treated hereunder as such; and, if the principal
hereof is paid in full, any remaining excess shall be refunded to Maker. In
determining whether or not the interest paid or
11
<PAGE>
payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker
and the Holder hereof shall, to the maximum extent permitted under applicable
law, (a) characterize any nonprincipal payment as an expense, fee, or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) spread the total amount of interest throughout the entire
contemplated term hereof; provided that if the interest received for the actual
period of existence hereof exceeds the Highest Lawful Rate, the Holder hereof
shall either apply or refund to Maker the amount of such excess as herein
provided, and in such event the Holder hereof shall not be subject to any
penalties provided by any laws for contracting for, charging, or receiving
interest in excess of the Highest Lawful Rate. For purposes of this Note, the
term AHighest Lawful Rate@ shall mean, at any given time, the maximum
nonusurious interest rate, if any, that may be contracted for or received on the
indebtedness evidenced by this Note under applicable federal and state laws.
26. No Oral Agreements. This note represents the final agreement between
------------------
the parties and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten oral
agreements between the parties .
27. Waiver of Trial by Jury. Maker Hereby Irrevocably Waives Any and All
-----------------------
Rights it May Have to Demand That Any Action, Proceeding or Counterclaim Arising
out of or in Any Way Related to this Note Be Tried by Jury. This Waiver Extends
to Any and All Rights to Demand a Trial by Jury Arising from Any Source
Including, but Not Limited To, the Constitution of the United States or Any
State Therein, Common Law or Any Applicable Statute or Regulations. Maker
Acknowledges That it Is Knowingly and Voluntarily Waiving its Right to Demand
Trial by Jury.
MAKER:
CyberGuard Corporation, a Florida Corporation
By: /s/ David R. Proctor
------------------------------------------
Its: CEO
-----------------------------------------
12
<PAGE>
EXHIBIT 99.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWSFinancial Printing
GroupFinancial Printing GroupTHESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
No. _________ Warrant to Purchase 3,699,484
Shares of Common Stock
CYBERGUARD CORPORATION
2000 West Commercial Blvd.
Suite 200
Ft. Lauderdale, Florida
COMMON STOCK PURCHASE WARRANT
-----------------------------
Dated August 26, 1999
THIS CERTIFIES that, for Ten Dollars ($10.00) and other good and valuable
consideration received, FERNWOOD PARTNERS II, LLC, a Delaware limited liability
company (the "Original Holder"), or its registered and permitted assigns (the
Original Holder or such registered assigns at the time being the registered
holder or holders hereof are hereinafter collectively referred to as the
"Holder"), is entitled, at any time, to subscribe for and purchase from
CyberGuard Corporation, a Florida corporation (the "Company"), 3,699,484 shares
(subject to adjustment as provided herein) of the fully paid, nonassessable
shares of Common Stock (hereinafter defined) of the Company at a price per share
equal to the Exercise Price (as hereinafter defined).
This Warrant is subject to the following terms and conditions:
SECTION 1.0. Defined Terms. For the purposes of this Warrant, the
-------------
following terms shall have the respective meanings set forth below:
(a) "Common Stock" shall mean the Company's Common Stock, par value
$.01 per share, authorized as of the date of this Warrant, and shall include
also any capital stock of the Company of any class which shall be authorized at
any time after the date of this Warrant and which shall have the right to
participate in the distribution of earnings and assets of the Company without
limitation as to amount.
<PAGE>
"Closing Price" with respect to a share of Common Stock on any day
means, subject to Section 6.1(g), the last reported sale price on that day or,
--------------
in case no such reported sale takes place on such day, the average of the last
reported bid and asked prices, regular way, on that day, in either case, as
reported in the consolidated transaction reporting system with respect to
securities quoted on Nasdaq or, if the shares of Common Stock are not quoted on
Nasdaq, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the shares of Common Stock are listed or admitted to trading or, if the
shares of Common Stock are not quoted on Nasdaq and not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices on such other
nationally recognized quotation system then in use, or, if on any such day the
shares of Common Stock are not quoted on any such quotation system, the average
of the closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Common
Stock. If the shares of Common Stock are not publicly held or so listed, quoted
or publicly traded, the AClosing Price@ means the fair market value of a share
of Common Stock, as determined in good faith by the Board of Directors.
"Exercise Price" shall mean $2.00 per share, subject to adjustment as set
forth herein.
"Initial Warrant Number" shall mean 3,699,484 shares of Common Stock.
"Loan Agreement" shall mean that certain Loan Agreement by and between the
Company and the Original Holder dated as of the date hereof.
"Person" means any individual, firm, corporation, company, limited
liability company, association, partnership, joint venture, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Promissory Note" shall mean the Convertible Subordinated Promissory Note
which was executed and delivered by the Company on the date of this Warrant to
the Original Holder.
"Organic Change" means, with respect to any Person, any transaction
(including without limitation any recapitalization, capital reorganization or
reclassification of any class or series of equity securities, any consolidation
of such person with, or merger of such person into, any other person, any merger
of another person into such Person (other than a merger which does not result in
a reclassification, conversion, exchange or cancellation of outstanding shares
of capital stock of such Person), and any sale or transfer or lease of all or
substantially all of the assets of such Person, but not including any stock
split, combination or subdivision which is the subject of Section 6.1(b))
--------------
pursuant to which any class or series of equity securities of such Person is
converted into the right to receive other securities, cash or other property.
2
<PAGE>
"Strike Differential" shall mean, with respect to any day, the amount by
which the closing price of the Common Stock on such day (or in the event that
such day is not a trading day with respect to the Common Stock, on the last
trading day with respect to the Common Stock preceding such day) exceeds the
Exercise Price on such day.
"Warrant Number" shall mean the Initial Warrant Number as the same shall be
adjusted from time to time pursuant to Section 6.0 hereof.
-----------
"Warrant Rights" shall mean rights to obtain shares of Common Stock
pursuant to a Warrant Rights Exercise (as defined below). The number of Warrant
Rights that the Holder is entitled to exercise at any time shall equal the
number of shares of Common Stock that the holder would be entitled to purchase
at such time if a Cash Exercise (as defined below) were effected in accordance
with the terms of this Warrant.
"Warrant Stock" shall mean Common Stock issued upon any exercise of this
Warrant.
SECTION 2.0. Exercise of Warrant. The purchase rights represented by this
-------------------
Warrant may be exercised, in whole or in part, by the registered Holder hereof,
at any time or from time to time, but not later than August 26, 2004 (the
ATermination Date@), by the delivery of this Warrant and the Form of
Subscription annexed hereto as Schedule I to the principal office of the Company
----------
at 2000 West Commercial Blvd., Suite 200, Ft. Lauderdale, Florida (or at such
other office of the Company as the Company shall designate by notice in writing
to the Holder hereof at the address of such Holder appearing on the books of the
Company), and upon payment to the Company of the Exercise Price for the shares
thereby purchased (ACash Exercise@). Notwithstanding the foregoing, at any time
and from time to time, the Holder hereof may elect to exercise this Warrant by
delivering to the Company this Warrant and the Form of Subscription annexed
hereto as Schedule I for conversion without payment of cash or other
----------
consideration (AWarrant Rights Exercise@). In the event of a Warrant Rights
Exercise, this Warrant shall be converted into a number of shares of Common
Stock, which number shall equal the quotient of (i) the product of the Strike
Differential on the day of such Warrant Rights Exercise and the number of
Warrant Rights exercised by the Holder and (ii) the closing price of the Common
Stock on the day of such Warrant Rights Exercise (or in the event that such day
is not a trading day with respect to the Common Stock, on the last trading day
with respect to the Common Stock preceding such day). To the extent that this
Warrant is not exercised in full prior to 5:00 p.m., eastern standard time on
the Termination Date, this Warrant shall be converted without any action or
delivery of any consideration on behalf of the Holder hereof into a number of
shares of Common Stock, which number shall equal the quotient of (i) the product
of the Strike Differential on the Termination Date and the number of Warrant
Rights to which the Holder is then entitled and (ii) the closing price of the
Common Stock on the Termination Date (or in the event that such day is not a
trading day with respect to the Common Stock, on the last trading day with
respect to the Common Stock preceding such day).
3
<PAGE>
The Company covenants that the shares of Common Stock purchased pursuant to
this Section 2.0 shall be and be deemed to be issued to the Holder hereof as the
-----------
record owner of such Common Stock as of the close of business of the Company on
the date on which this Warrant shall have been exercised as aforesaid. The
Company further covenants that all shares of Common Stock which may be issued
upon the exercise of this Warrant will, upon exercise of the rights represented
by this Warrant be fully paid and nonassessable and free from all taxes, liens
and charges in respect of the issue thereof.
The certificates for the shares of Common Stock so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding ten (10)
days, after the date on which the rights represented by this Warrant shall have
been so exercised.
Payment of the applicable Exercise Price may be made (a) by cash, or (b) by
certified check, or bank cashier=s check, payable to the Company.
In the event of a partial exercise of this Warrant, the Company shall issue
and deliver to Holder, on or within ten (10) days of the date on which such
Warrant was exercised, and in substitution of such Warrant, a new warrant or
warrants (at Holder's option), of even date herewith and with the terms
identical to the terms hereof, except that such new warrant or warrants shall be
exercisable, in the aggregate, for a percentage of all issued and outstanding
Common Stock, subject to the antidilution provisions of Section 6.0 hereof,
-----------
which represents the number of shares of Common Stock with respect to which this
Warrant has not yet been exercised.
SECTION 3.0. No Fractional Shares or Scrip. No fractional shares shall be
-----------------------------
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon the exercise of this Warrant, an amount equal to such
fraction multiplied by the closing price of the Common Stock on the day of such
exercise (or in the event that such day is not a trading day with respect to the
Common Stock, on the last trading day with respect to the Common Stock preceding
such day) shall be paid to the Holder hereof in cash by the Company.
SECTION 4.0. Charges, Taxes and Expenses. Issuance of certificates for
---------------------------
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer taxes or any other
incidental expenses in respect of the issuance of such certificates to and in
the name of the registered Holder of this Warrant, all of which transfer taxes
and expenses shall be paid by the Company, and such certificates shall be issued
in the name of the Holder of this Warrant. Certificates will be issued in a name
other than that of the Holder upon the request of the Holder and payment by the
Holder of any applicable transfer taxes.
SECTION 5.0. Certain Obligations of the Company. The Company covenants that
----------------------------------
it will at all times reserve and keep available out of its authorized and
unissued Common Stock, solely
4
<PAGE>
for the purpose of issuing upon exercise of the purchase rights evidenced by
this Warrant, the number of shares of Common Stock purchasable and deliverable
hereunder.
The Company will not, by amendment of its Certificate of Incorporation or
through reorganization, consolidation, merger, dissolution, issuance of capital
stock or sale of treasury stock (otherwise than upon exercise of this Warrant)
or sale of assets, or by any other voluntary act or deed, avoid or seek to avoid
the performance or observance of any of the covenants, stipulations or
conditions in this Warrant to be observed or performed by the Company. The
Company will at all times in good faith assist in the carrying out of all of the
provisions of this Warrant and in the taking of all other action which may be
necessary in order to protect the rights of the Holder of this Warrant against
dilution consistent with the provisions of this Warrant.
The Company covenants and agrees to maintain, on a current basis, the
reports, notices and statements required to be filed with the Securities
Exchange Commission.
The Company will maintain an office where presentations and demands to or
upon the Company in respect of this Warrant may be made. The Company will give
notice in writing to the registered Holder of this Warrant, at the address of
the registered Holder of this Warrant appearing on the books of the Company, of
each change in the locations of such office.
SECTION 6.0. Adjustment of Exercise Price and Number of Shares. The number
-------------------------------------------------
of shares of Common Stock purchasable upon the exercise of this Warrant and the
Exercise Price thereof shall be subject to adjustment from time to time after
the date hereof upon the happening of certain events, as follows:
6.1. Adjustments to Exercise Price. The Exercise Price shall be subject to
-----------------------------
adjustment as follows:
(a) Stock Dividends. In case the Company after the date hereof shall
---------------
pay a dividend or make a distribution to all holders of shares of Common Stock
in shares of Common Stock, then in any such case the Exercise Price in effect at
the opening of business on the day following the record date for the
determination of stockholders entitled to receive such dividend or distribution
shall be reduced to a price obtained by multiplying such Exercise Price by a
fraction of which (x) the numerator shall be the number of shares of Common
Stock outstanding at the close of business on such record date and (y) the
denominator shall be the sum of such number of shares of Common Stock
outstanding and the total number of shares of Common Stock constituting such
dividend or distribution, such reduction to become effective immediately after
the opening of business on the day following such record date. The Company will
not pay any dividend or make any distribution on shares of Common Stock held in
the treasury of the Company.
(b) Stock Splits and Reverse Splits. In case after the date hereof
-------------------------------
outstanding shares of Common Stock shall be subdivided into a greater number of
shares of Common Stock, the Exercise Price in effect at the opening of business
on the day following the day upon which such
5
<PAGE>
subdivision becomes effective shall be proportionately reduced, and, conversely,
in case after the date hereof outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Exercise Price in
effect at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, shall entitle the Holder hereof to receive the
number and kind of shares which the Holder would have owned or have been
entitled to receive if this Warrant had been exercised immediately prior to such
subdivision or combination. Such adjustment shall become effective immediately
prior to the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(c) Issuances Below Market. In case the Company after the date hereof
----------------------
shall fix a record date of the issuance of rights or warrants to all holders of
its shares of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Closing Price per share on the
record date for the determination of stockholders entitled to receive such
rights or warrants, the Exercise Price in effect at the opening of business on
the day following such record date shall be adjusted to a price obtained by
multiplying such Exercise Price by a fraction of which (x) the numerator shall
be the number of shares of Common Stock outstanding at the close of business on
such record date plus the number of shares of Common Stock that the aggregate
offering price of the total number of shares to be offered would purchase at
such Closing Price and (y) the denominator shall be the number of shares of
Common Stock outstanding at the close of business on such record date plus the
number of additional shares of Common Stock to be offered for subscription or
purchase, such adjustment to become effective immediately prior to the opening
of business on the day following such record date; provided, however, that no
adjustment shall be made if the Company issues or distributes to each Holder the
rights or warrants that each Holder would have been entitled to receive had the
Warrants held by such Holder been exercised prior to such record date. The
Company shall not issue any rights or warrants in respect of shares of Common
Stock held in the treasury of the Company.
(d) Special Dividends. In case the Company after the date hereof shall
-----------------
fix a record date for the making of a distribution to all holders of shares of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the surviving corporation)
evidences of its indebtedness, securities or assets (excluding any dividends
paid out of retained earnings), or subscription rights or warrants (excluding
those referred to in subsection (c) above), in each such case the Exercise Price
in effect immediately prior to the close of business on the record date for the
determination of stockholders entitled to receive such distribution shall be
adjusted to a price obtained by multiplying such Exercise Price by a fraction of
which (x) the numerator shall be the Closing Price per share of Common Stock on
such record date, less the then-current fair market value as of such record date
(as determined by the Board of Directors in its good faith judgment) of the
portion of assets, evidences of indebtedness, securities or subscription rights
or warrants so distributed applicable to one share of Common Stock, and (y) the
denominator shall be such Closing Price, such adjustment to become effective
immediately prior to the opening of business on the day following such record
date; provided, however, that no adjustment shall be made (1) if the Company
issues or distributes to each Holder
6
<PAGE>
the subscription rights referred to above that each Holder would have been
entitled to receive had the Warrants held by such Holder been exercised prior to
such record date, or (2) if the Company grants to each Holder the right to
receive, upon the exercise of the Warrants held by such Holder at any time after
the distribution of the evidences of indebtedness or assets or equity securities
referred to above, the evidences of indebtedness or assets or equity securities
that such Holder would have been entitled to receive had such Warrants been
exercised prior to such record date. The Company shall provide any Holder, upon
receipt of a written request therefor, with any indenture or other instrument
defining the rights of the holders of any indebtedness, assets, subscription
rights or equity securities referred to in this subsection (d).
(e) Other Distributions. In case the Company after the date hereof
-------------------
shall distribute evidences of its indebtedness, assets, equity securities,
rights or warrants to any Person in connection with or as a result of or related
to any pending or future claims, suits, actions or proceedings against the
Company or any of its subsidiaries, then in each such case the Exercise Price in
effect immediately prior to the close of business on the date of such
distribution shall be adjusted to a price obtained by multiplying such Exercise
Price by a fraction of which (x) the numerator shall be the Closing Price per
share of Common Stock on such date, less the then-current fair market value as
of such date (as determined by the Board of Directors in its good faith
judgment) of the portion of such evidences of indebtedness, assets, equity
securities, rights or warrants so distributed applicable to one share of Common
Stock, and (y) the denominator shall be such Closing Price, such adjustment to
become effective immediately prior to the opening of business on the day
following the date of such distribution. The intent of this subsection is that
if any evidences of indebtedness, securities, assets, rights or warrants are
distributed in connection with or as a result of or related to any pending or
future claims, suits, actions or proceedings against the Company or any of its
subsidiaries, that the Holder of this Warrant shall be entitled to exercise this
Warrant for the same percentage of the outstanding capital stock of the Company
for the same aggregate exercise price immediately after such distribution as the
Holder of this Warrant could acquire immediately prior to such distribution.
(f) Tender or Exchange Offer. In case a tender or exchange offer made
------------------------
by the Company or any subsidiary of the Company for all or any portion of the
Common Stock shall be consummated and such tender offer shall involve an
aggregate consideration having a fair market value (as determined by the Board
of Directors in its good faith judgment) at the last time (the AOffer Time@)
tenders may be made pursuant to such tender or exchange offer (as it may be
amended) that, together with the aggregate of the cash plus the fair market
value (as determined by the Board of Directors in its good faith judgment), as
of the Offer Time, of consideration payable in respect of any tender or exchange
offer by the Company or any such subsidiary for all or any portion of the Common
Stock consummated preceding the Offer Time and in respect of which no Exercise
Price adjustment pursuant to this subsection (f) has been made, exceeds 5% of
the product of the Closing Price of the Common Stock at the Offer Time
multiplied by the number of shares of Common Stock outstanding (including any
tendered shares) at the Offer Time, the Exercise Price shall be reduced so that
the same shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the Offer Time by a fraction of which
7
<PAGE>
(x) the numerator shall be (i) the product of the Closing Price of the Common
Stock at the Offer Time multiplied by the number of shares of Common Stock
outstanding (including any tendered shares) at the Offer Time minus (ii) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly tendered and
not withdrawn as of the Offer Time (the shares deemed so accepted, up to any
such maximum, being referred to as the "Purchased Shares") and (y) the
denominator shall be the product of (i) such Closing Price at the Offer Time
multiplied by (ii) such number of outstanding shares at the Offer Time minus the
number of Purchased Shares, such reduction to become effective immediately prior
to the opening of business on the day following the Offer Time. For purposes of
this subsection (f), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock.
(g) Other Dilutive Events. In case any event shall occur as to which
---------------------
the provisions of Section 6.1 are not strictly applicable but the failure to
-----------
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof then,
in each such case, the Company shall appoint a firm of independent certified
public accountants of recognized national standing (which may be the regular
auditors of the Company), which shall give its opinion upon the adjustment, if
any, on a basis consistent with the essential intent and principles established
in Section 6.1, necessary to preserve, without dilution, the purchase rights
-----------
represented by this Warrant. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein. Notwithstanding anything contained in this
subsection (g) to the contrary, this subsection (g) shall not apply to any
issuance of Common Stock by the Company for which the Company has received
consideration equal to the fair market value of such Common Stock on the date of
issuance, as determined by the Board of Directors of the Company in good faith.
(h) No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 6.1 and in the taking of all such action as may be necessary or
-----------
appropriate in order to protect the purchase privilege of the Holder of this
Warrant against dilution or other impairment.
(i) Closing Price Determination. For the purpose of any computation
---------------------------
under subsections (c), (d) and (e) of this Section 6.1, the Closing Price of
-----------
Common Stock on any date shall be deemed to be the average of the Closing Prices
for the ten (10) consecutive trading days immediately preceding such date;
provided, however, that (i) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that requires an adjustment
to the
8
<PAGE>
Exercise Price pursuant to this Section 6 occurs on or after the tenth (10th)
---------
trading day prior to the day in question and prior to the "ex" date for the
issuance or distribution requiring such computation, the Closing Price for each
trading day prior to the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the same fraction which the Exercise Price is
so required to be adjusted as a result of such other event, (ii) if the "ex"
date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Exercise Price pursuant to this
Section 6 occurs on or after the "ex" date for the issuance or distribution
- ---------
requiring such computation and on or prior to the day in question, the Closing
Price for each trading day on and after the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the reciprocal of the fraction
by which the Exercise Price is so required to be adjusted as a result of such
other event, and (iii) if the "ex" date for the issuance or distribution
requiring such computation is on or prior to the day in question, after taking
into account any adjustment required pursuant to clause (ii) of this proviso,
the Closing Price for each trading day on or after such "ex" date shall be
adjusted by adding thereto the fair market value on the day in question (as
determined by the Board of Directors in a manner consistent with any
determination of such value for the purposes of subsection (d) of this Section
-------
6.1) of the assets, evidences of indebtedness, equity securities or subscription
- ---
rights being distributed applicable to one share of Common Stock as of the close
of business on the day before such "ex" date. For the purposes of any
computation under subsection (f) of this Section 6.1, the Closing Price on any
-----------
date shall be deemed to be the average of the daily Closing Prices for the ten
(10) consecutive trading days immediately preceding the Offer Time; provided,
however, that if the "ex" date for any event (other than the tender or exchange
offer requiring such computation) that requires an adjustment to the Exercise
Price pursuant to this Section 6 occurs on or after the tenth (10th) trading day
---------
prior to the Offer Time for the tender or exchange offer requiring such
computation, the Closing Price for each trading day prior to the "ex" date for
such other event shall be adjusted by multiplying such Closing Price by the same
fraction by which the Exercise Price is so required to be adjusted as a result
of such other event. For purposes of this subsection (g), the term "ex" date,
(i) when used with respect to any issuance or distribution, means the first date
on which the Common Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Price was obtained without the right to
receive such issuance or distribution, (ii) when used with respect to any
subdivision or combination of shares of Common Stock, means the first date on
which the Common Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination becomes effective, and
(iii) when used with respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on such exchange or in such
market after the Offer Time of such tender or exchange offer.
(j) Minimum Adjustment Requirement. No adjustment shall be required
------------------------------
unless such adjustment would result in an increase or decrease of at least $0.01
in the Exercise Price then subject to adjustment; provided, however, that any
adjustments that are not made by reason of this subsection (j) shall be carried
forward and taken into account in any subsequent adjustment. In case the Company
shall at any time issue shares of Common Stock by way of dividend on any stock
of the Company or subdivide or combine the outstanding shares of Common Stock,
said
9
<PAGE>
amount of $0.01 specified in the preceding sentence (as theretofore increased or
decreased, if said amount shall have been adjusted in accordance with the
provisions of this subsection (h)) shall forthwith be proportionately increased
in the case of such a combination or decreased in the case of such a subdivision
or stock dividend so as appropriately to reflect the same.
(k) Calculations. All calculations under this Section 6.1 shall be
------------ -----------
made to the nearest $0.01.
(l) Certificate. Whenever an adjustment in the Exercise Price is made
-----------
as required or permitted by the provisions of this Section 6.1, the Company
-----------
shall promptly cause a certificate of its chief financial officer setting forth
(A) the adjusted Exercise Price as provided in this Section 6.1 and a brief
-----------
statement of the facts requiring such adjustment and the computation thereof and
(B) the number of shares of Common Stock (or portions thereof) purchasable upon
exercise of this Warrant after such adjustment in the Exercise Price in
accordance with Section 6.2 hereof and the record date therefor to be mailed to
-----------
the Holder of this Warrant at the address shown on the registration books of the
Company. Such certificate, in the absence of manifest error, shall be conclusive
and final evidence of the correctness of such adjustment.
(m) Section 305. Anything in this Section 6.1 to the contrary
----------- -----------
notwithstanding, the Company shall be entitled, but not required, to make such
reductions in the Exercise Price, in addition to those required by this Section
-------
6.1, as it in its discretion shall determine to be advisable, including, without
- ---
limitation, in order that any dividend in or distribution of shares of Common
Stock or shares of capital stock of any class other than Common Stock,
subdivision, reclassification or combination of shares of Common Stock, issuance
of rights or warrants, or any other transaction having a similar effect, shall
not be treated as a distribution of property by the Company to its stockholders
under Section 305 of the Internal Revenue Code of 1986, as amended, or any
successor provision and shall not be taxable to them.
(n) When Adjustment Not Required. If the Company shall take a record
----------------------------
of the holders of its Common Stock for purposes of taking any action that
requires an adjustment of the Exercise Price under this Section 6, and shall,
---------
thereafter and before the effective date of such action, legally abandon its
plan to take such action, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
6.2. Adjustment to Number of Shares of Stock. Upon each adjustment of the
---------------------------------------
Exercise Price pursuant to Section 6.1 hereof the number of shares of Common
-----------
Stock purchasable upon exercise of this Warrant outstanding prior to the
effectiveness of such adjustment shall be adjusted to the number, calculated to
the nearest one-hundredth of a share, obtained by (x) multiplying the number of
shares of Common Stock purchasable immediately prior to such adjustment upon the
exercise of this Warrant by the Exercise Price in effect prior to such
adjustment and (y) dividing the product so obtained by the Exercise Price in
effect after such adjustment of the Exercise Price.
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6.3. Organic Change.
--------------
(a) Company Survives. Upon the consummation of an Organic Change
----------------
(other than a transaction in which the Company is not the surviving entity),
lawful provision shall be made as part of the terms of such transaction whereby
the terms of this Warrant shall be modified, without payment of any additional
consideration therefor, so as to provide that upon exercise this Warrant
following the consummation of such Organic Change, the Holders of such Warrant
shall have the right to purchase only the kind and amount of securities, cash
and other property receivable upon such Organic Change by a holder of the number
of shares of Common Stock into which such Warrant might have been exercised
immediately prior to such Organic Change, assuming such holder of Common Stock
(i) is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which a sale, transfer or
lease of all or substantially all of the assets of the Company was made, as the
case may be (a "Constituent Person"), or an affiliate of a Constituent Person,
and (ii) failed to exercise his or her rights of election, if any, as to the
kind and amount of securities, cash and other property receivable upon such
Organic Change (provided that if the kind and amount of securities, cash and
other property receivable upon such Organic Change is not the same for each
share of Common Stock held immediately prior to such Organic Change by others
than a Constituent Person or an affiliate thereof and in respect of which such
rights of election shall not have been exercised ("Non-Electing Shares"), then
for the purpose of this subsection (a) the kind and amount of securities, cash
and other property receivable upon such Organic Change by each Non-Electing
Share shall be deemed to be the kind and amount so receivable per share by a
plurality of the Non-Electing Shares); provided, however, that no adjustment
shall be made as a result of such Organic Change to the Exercise Price or the
number of shares of Common Stock notwithstanding any provision of Section 6
---------
hereof unless any event requiring any such adjustment shall have occurred or
shall occur prior to, upon or after such Organic Change. Lawful provision also
shall be made as part of the terms of the Organic Change so that all other terms
of this Warrant shall remain in full force and effect following such an Organic
Change. The provisions of this Section 6.3(a) shall similarly apply to
--------------
successive Organic Changes.
(b) Company Does Not Survive. The Company shall not enter into an
------------------------
Organic Change that is a transaction in which the Company is not the surviving
entity unless lawful provision shall be made as part of the terms of such
transaction whereby the surviving entity shall issue new securities to each
Holder, without payment of any additional consideration therefor, with terms
that provide that upon the exercise of this Warrant, the Holders of such Warrant
shall have the right to purchase only the kind and amount of securities, cash
and other property receivable upon such Organic Change by a holder of the number
of shares of Common Stock into which such Warrant might have been exercised
immediately prior to such Organic Change, assuming such holder of Common Stock
(i) is not a Constituent Person or an affiliate of a Constituent Person and (ii)
failed to exercise his rights of election, if any, as to the kind and amount of
securities, cash and other property receivable upon such Organic Change
(provided that if the kind and amount of securities, cash and other property
receivable upon such Organic Change is not the same for each Non-Electing Share,
then for the purpose of this subsection (b)
11
<PAGE>
the kind and amount of securities, cash and other property receivable upon such
Organic Change by each Non-Electing Share shall be deemed to be the kind and
amount so receivable per share by aplurality of the Non-Electing Shares);
provided, however, that no adjustment shall be made as a result of such Organic
Change to the Exercise Price or the number of shares of Common Stock
notwithstanding any provision of Section 6 hereof unless any event requiring any
---------
such adjustment shall have occurred or shall occur prior to, upon or after such
Organic Change. The certificate or articles of incorporation or other
constituent document of the surviving entity shall provide for such adjustments
which, for events subsequent to the effective date of such certificate or
articles of incorporation or other constituent document, shall be equivalent to
the adjustments provided for in Section 6.1 hereof.
-----------
6.4. Statement on Warrants. This Warrant need not be changed because of any
---------------------
adjustment made pursuant to Section 6.1 or Section 6.2 hereof, and Warrants
----------- -----------
issued after such adjustment may state the same Exercise Price and the same
Warrant Number as are stated in this Warrant.
SECTION 7.0. Prior Notice of Certain Events. In the event that:
------------------------------
(a) the Company shall declare any dividend, whether payable in cash or
in any capital stock upon its Common Stock, or authorize any other issuance or
distribution to the holders of its Common Stock; or
(b) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company or a
sale of all or substantially all its assets; or
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, in any of said cases, the Company shall give prior written notice, by
first-class mail, postage prepaid, addressed to the registered Holder of this
Warrant at the address of such registered Holder as shown on the registration
books of the Company, of the date on which (i) the books of the Company shall
close or a record shall be taken for such stock dividend, distribution or
subscription rights, (ii) such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up shall be consummated, or
(iii) such other event shall be consummated, as the case may be. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall receive said dividend, distribution or subscription rights or shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be. Such written
notice shall be given at least thirty (30) days prior to the date of the event
in question and the record date or the date on which the Company's transfer
books are closed in respect thereto.
12
<PAGE>
SECTION 8.0. No Rights or Responsibilities as Shareholder. Except as
--------------------------------------------
otherwise agreed in writing by the Holder and the Company, a Holder of this
Warrant, as such, shall not be subject to any responsibilities as a shareholder
of the Company and shall not be entitled to vote or be deemed the Holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained herein be
construed to confer upon the Holder of this Warrant, as such, the rights of a
shareholder of the Company or the right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate section (except as provided herein) or to
receive notice of meetings or other actions affecting shareholders (except as
provided herein), or to receive dividends or subscription rights or otherwise
(except as provided herein), until the date of exercise of this Warrant shall
have occurred.
SECTION 9.0 Registration Rights. Upon exercise of this Warrant, the
-------------------
Holder shall have and be entitled to exercise, together with all other holders
of Common Stock possessing registration rights under the Loan Agreement, the
rights of registration granted under the Loan Agreement with respect to the
shares of Common Stock issued upon exercise of this Warrant.
SECTION 10.0. Loss, Theft, Destruction or Mutilation of Warrant. Upon
-------------------------------------------------
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new warrant of like tenor and date, in lieu of this Warrant.
SECTION 11.0. Transfer and Exchange of Warrant. This Warrant and all rights
--------------------------------
hereunder are transferable at the office or agency of the Company by the
registered Holder hereof in person or by a duly authorized attorney, upon
surrender of this Warrant together with a properly endorsed assignment in the
form attached hereto as Schedule II. The Company shall be entitled to receive,
-----------
as a condition to any transfer of this Warrant, an opinion of counsel reasonably
satisfactory to the Company that such transfer does not violate the registration
requirements of the Securities Act of 1933, as amended, or applicable state
securities laws. Until transfer hereof on the registration books of the Company,
the Company may treat the registered Holder as the owner hereof for all
purposes. This Warrant is exchangeable, upon the surrender hereof by Holder, at
the principal offices of the Company, together with a properly endorsed
assignment in the form attached hereto as Schedule II, for new warrants, in such
-----------
denominations as Holder shall designate at the time of surrender for exchange,
of like tenor and date representing in the aggregate the right to subscribe for
and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new warrants to represent the right to subscribe for and
purchase not less than one hundred thousand (100,000) shares of Common Stock
(except to the extent necessary to round out the balance of the number of
shares).
SECTION 12.0. Investment Intent. Contemporaneously with the original
-----------------
issuance of this Warrant to the Holder hereof, the Holder has executed and
delivered to the Company an
13
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investment representation letter (in the form of Schedule III hereto) regarding
------------
the Holder's investment intent and imposing a requirement that any transferee of
this Warrant execute and deliver to the Company a representation letter in form
and substance similar to the contents of such letter.
SECTION 13.0. Communications and Notices. All communications and notices
--------------------------
hereunder must be in writing, either delivered in hand or sent by first-class
mail, postage prepaid, or sent by confirmed facsimile and, if to the Company,
shall be addressed to it at the address set forth on the first page hereof,
Attention: C. Shelton James, or at such other address as the Company may
hereafter designate in writing by notice to the registered Holder of this
Warrant, and if to such registered Holder, addressed to such Holder at the
address of such Holder as shown on the books of the Company.
SECTION 14.0. Sundays, Holidays, Etc. If the last or appointed day for the
-----------------------
taking of any action required or the expiration of any right granted herein
shall be a Sunday, or a Saturday or shall be a legal holiday or a day on which
banking institutions in New York, New York, are authorized or required by law to
remain closed, then such action may be taken or right may be exercised on the
next succeeding day which is not a Sunday, a Saturday or a legal holiday and not
a day on which banking institutions in New York, New York, are authorized or
required by law to remain closed.
SECTION 15.0. Remedies. The Company stipulates that the remedies at law of
--------
the Holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
SECTION 16.0. Miscellaneous. This Warrant shall be binding upon the
-------------
Company's successors. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be unenforced to the extent, if any, that it may legally be
enforced, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. The five (5) year term of
this Warrant shall be stayed during any bankruptcy proceedings involving the
Company. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. This Warrant shall
take effect as an instrument under seal.
SECTION 17.0. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE LAWS OF
-------------
THE STATE OF CONNECTICUT, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
14
<PAGE>
SECTION 18.0 Conflict. In the event of a conflict of the terms and
--------
conditions hereof and the terms and conditions of the Loan Agreement, the terms
and conditions of this Warrant shall prevail.
SIGNATURE PAGE FOLLOWS
15
<PAGE>
IN WITNESS WHEREOF, CyberGuard Corporation has caused this Warrant to be
signed in its corporate name and its corporate seal to be impressed hereon by
its duly authorized officers.
Date: August 26, 1999 CyberGuard Corporation, a Florida Corporation
By: /s/ David R. Proctor
------------------------------------
Its: CEO
------------------------------------
16
<PAGE>
SCHEDULE I
----------
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Common Stock Purchase Warrant)
TO: CyberGuard Corporation
The undersigned, the Holder of the within Common Stock Purchase Warrant,
hereby irrevocably elects to exercise this Common Stock Purchase Warrant for,
and to purchase thereunder ___ * shares of Common Stock of CyberGuard
Corporation, and herewith makes payment of $________ therefor, and requests
that the certificates for such shares be issued in the name of_______________,
and delivered to ________________________, whose address is
_____________________.
Dated: _____________
_______________________________________________
(Signature must conform in all respects to name
of Holder as specified on the face of the
Warrant)
_______________________________________________
(Address)
*Insert here the number of shares (all shares called for in the Common
Stock Purchase Warrant) as to which the Common Stock Purchase Warrant is being
exercised without making any adjustment for any other stock or other securities
or property or cash which, pursuant to the adjustment provisions of the Common
Stock Purchase Warrant, may be deliverable on exercise.
17
<PAGE>
SCHEDULE II
-----------
FORM OF ASSIGNMENT
(To be signed only on transfer of
Common Stock Purchase Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ___________ of ________________________________, the right represented by
the within Common Stock Purchase Warrant to purchase ___ shares of Common Stock
of CyberGuard Corporation, to which the within Common Stock Purchase Warrant
relates, and appoints ____________ Attorney to transfer such right on the books
of CyberGuard Corporation, with full power of substitution in the premises.
Dated: ________________
_______________________________________________
(Signature must conform in all respects to name
of Holder as specified on the face of the
Warrant)
_______________________________________________
(Address)
Signed in the presence of
____________________________
Signature guaranteed by*
____________________________
[*Signature guarantee by a bank is required for all Holders other than the
Original Holder.]
18
<PAGE>
SCHEDULE III
------------
INVESTMENT REPRESENTATION LETTER
CyberGuard Corporation
Attn: Office of Corporate Secretary
2000 West Commercial Blvd.
Suite 200
Ft. Lauderdale, FL 33309
RE: Common Stock Purchase Warrant
Dated ___________, 1999
To: CyberGuard Corporation
The Common Stock Purchase Warrant (AWarrant@) and the rights to the
underlying shares has been acquired for investment for the Holder's own account,
not as a nominee or agent, and not with a view to the Holder's distribution of
any part thereof, and the Holder has no present intention of selling, granting
any participation in, or otherwise distributing the same. The Holder does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to the Warrant.
The Holder further undertakes to require any transferee of the Warrant to
execute and deliver to the CyberGuard Corporation a representation letter in
form and substance similar to the contents of this letter.
DATED: August __, 1999.
By:_________________
19
