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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __ )
CYBERGUARD CORPORATION
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(Name of Issuer)
COMMON STOCK, PAR VALUE $.01
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(Title of Class of Securities)
231910100
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(CUSIP Number)
DAVID R. PROCTOR
CYBERGUARD CORPORATION
2000 WEST COMMERCIAL BLVD., SUITE 200
FORT LAUDERDALE, FLORIDA 33309
(954) 958-3900
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
AUGUST 26, 1999
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(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 Subject 13D, and is filing this
schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-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 240.13d-7 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
disclosures provided in a prior cover page.
The information required on 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 (however, see the
Notes).
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CUSIP No. 231910100
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1 Names of Reporting Persons/I.R.S. Identification Nos. of Above Persons
(Entities Only)
DAVID R. PROCTOR
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2 Check the Appropriate Box if a Member of a Group (a): [ ]
(b): [ ]
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3 SEC Use Only
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4 Source of Funds
PF
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5 Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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6 Citizenship or Place of Organization
UNITED STATES
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7 Sole Voting Power
716,875
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NUMBER OF 8 Shared Voting Power
SHARES
BENEFICIALLY 10,000
OWNED BY --------------------------------------------------------
EACH 9 Sole Dispositive Power
REPORTING
PERSON 716,875
WITH --------------------------------------------------------
10 Shared Dispositive Power
10,000
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
726,875
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12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
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13 Percent of Class Represented by Amount in Row (11)
7.3%
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14 Type of Reporting Person (SEE Instructions)
IN
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ITEM 1. SECURITY AND ISSUER.
Common Stock, $.01 par value (the "Common Stock") of CyberGuard
Corporation, a Florida corporation (the "Issuer"). The principal executive
offices of the Issuer are located at 2000 West Commercial Boulevard, Suite 200,
Fort Lauderdale, Florida 33309.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is filed by David R. Proctor, a United States citizen.
Mr. Proctor's business address is 2000 West Commercial Blvd., Suite 200, Fort
Lauderdale, Florida 33309. Mr. Proctor serves as the President and Chief
Executive Officer of the Issuer.
The Issuer is a leading network security solutions provider to Fortune
1000 companies, major leading financial institutions, and government agencies
worldwide. Through a combination of proprietary and third-party technology (such
as Virtual Private Network ("VPN"), authentication, virus scanning, encryption,
advanced reporting, high availability and centralized management), the Issuer
provides a full suite of products and services that are designed to protect the
integrity of electronic data and customer applications from unauthorized
individuals and digital thieves. The Issuer's business address is 2000 West
Commercial Blvd., Suite 200, Fort Lauderdale, Florida 33309.
During the past five years, Mr. Proctor has not been convicted in any
criminal proceedings.
During the past five years, Mr. Proctor 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
Mr. Proctor used personal funds to participate in a financing
transaction (the "Financing Transaction") between the Issuer, certain of its
officers, directors and employees and Fernwood Partners II, LLC, a Delaware
limited liability company ("Fernwood"). The Financing Transaction consisted of
the issuance by the Issuer of promissory notes in the aggregate principal amount
of $4,313,484 convertible into 4,313,484 shares of Common Stock and warrants to
purchase an aggregate of 4,313,484 shares of Common Stock. The number of shares
issuable upon conversion of the notes and exercise of the warrants is subject to
adjustment in accordance with the terms of the notes and the warrants. Mr.
Proctor agreed to provide $150,000 of his personal funds to participate in the
Financing Transaction. He was issued (i) a promissory note in the aggregate
principal amount of $150,000 which is convertible into 150,000 shares
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of Common Stock through June 30, 2002 (the "Promissory Note") and (ii) a warrant
representing the right to purchase 150,000 shares at $2.00 per share through
August 26, 2004 (the "Warrant"). The number of shares issuable pursuant to the
Note and the Warrant are subject to adjustment pursuant to the terms of the Note
and the Warrant. At the time the financing was undertaken, Mr. Proctor delivered
$50,000 of the $150,000 to be lent by him to the Issuer and funded the balance
through the issuance of a promissory note to the Issuer in the principal amount
of $100,000 (the "Proctor Note"). As of the date of this filing, the total
amount owed under the Proctor Note is $8,049.90 and the Proctor Note will be
paid in full on March 3, 2000. Mr. Proctor granted the Issuer a security
interest in the Note and Warrant as collateral for the repayment of the Proctor
Note.
The above description of the terms and conditions of Mr. Proctor's
participation in the Financing Transaction is qualified in its entirety to the
complete description of such terms and conditions as set forth in the various
Exhibits included as part of this filing.
Pursuant to various agreements between Mr. Proctor and the Issuer, Mr.
Proctor has currently exercisable options to purchase 416,875 shares. In
addition to the options, Mr. Proctor holds 10,000 shares of Common Stock jointly
with his spouse. These shares were purchased with personal funds in an open
market transaction.
ITEM 4. PURPOSE OF TRANSACTION.
One of the conditions to Fernwood's agreement to consummate the
Financing Transaction was that the Issuer have procured loans in the aggregate
principal amount of at least $250,000 from employees, officers and members of
the Issuer's board of directors. One of the reasons Mr. Proctor participated in
the Financing Transaction was to facilitate satisfaction of the foregoing
condition. Mr. Proctor also participated in the Financing Transaction for
personal investment purposes.
Mr. Proctor may from time to time exercise any options to purchase
Common Stock which he now owns or any additional options that he subsequently
receives from the Issuer. Mr. Proctor may also from time to time exercise the
Warrant, in whole or in part, and convert the Note, in whole or in part, into
shares of Common Stock. Mr. Proctor may also from time to time purchase or sell
shares of Common Stock in the open market. Except as described herein, as of the
date of this filing, Mr. Proctor does not have any plans or proposals which
relate to or would result in: the acquisition of additional securities of the
Issuer; the disposition of 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 of the Issuer, including any plans or proposals to
change the number or term of directors or fill any existing vacancies on the
board; any material change in the present capitalization or dividend policy of
the Issuer; any other material change in the Issuer's business or corporate
structure; any changes in the Issuer's charter, bylaws or instruments
corresponding thereto or other actions which may
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impede the acquisition of control of the Issuer; causing a class of securities
of the Issuer to be delisted from a national securities exchange or to cease to
be authorized to be quoted in an inter-dealer quotation system of a registered
national securities association; 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 actions similar to those
enumerated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
As of the date of this filing, Mr. Proctor is the beneficial owner of
726,875 shares of Common Stock, which constitutes 7.3% of the outstanding Common
Stock of the Issuer, considering as currently outstanding the 716,875 shares of
Common Stock beneficially owned by Mr. Proctor which are issuable upon exercise
of options, conversion of the Promissory Note and upon exercise of the Warrant.
Mr. Proctor has the sole power to vote or direct the vote and the sole
power to dispose or to direct the disposition of 716,875 shares of Common Stock.
He has the shared power to vote or to direct the vote and shared power to
dispose or to direct the disposition of 10,000 shares of Common Stock.
With regard to the 10,000 shares in which Mr. Proctor shares
dispositive and voting power, they are owned jointly with his spouse, Judi T.
Proctor, a United States citizen. Her address is 2000 West Commercial Blvd.,
Suite 200, Fort Lauderdale, FL 33309. She is principally employed as a
volunteer.
During the past five years, Mrs. Proctor has not been convicted in any
criminal proceedings.
During the past five years, Mrs. Proctor 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.
Mr. Proctor has not had any transactions in the capital stock of the
Issuer in the past sixty days.
As discussed previously, Mr. Proctor owns 10,000 shares of Common Stock
jointly with his spouse. As such, his spouse has those rights with respect to
dividends and proceeds from the sale of such securities that accompany joint
ownership.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
Except as set forth in Items 3, 4 and 5 and as provided in the Exhibits
to this Schedule 13D and Mr. Proctor's Employment Agreement with the Issuer, as
amended, Mr. Proctor does not have any contracts, arrangements, understandings
or relationships (legal or otherwise) with any person with respect to any
securities of the
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Issuer, including but not limited to transfer or voting of any of the
securities, finder's fees, joint ventures, loan or option agreements, 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 various
lenders, including David R. Proctor.
2. Security Agreement dated August 26, 1999 between the Issuer and
various lenders, including David R. Proctor.
3. Convertible Promissory Note in the principal amount of $150,000
dated August 26, 1999, issued by the Issuer to David R. Proctor.
4. Common Stock Purchase Warrant for 150,000 shares of Common Stock
dated August 26, 1999, issued by the Issuer to David R. Proctor.
5. Promissory Note in the principal amount of $100,000 dated August 26,
1999, issued by David R. Proctor to the Issuer.
6. Pledge and Security Agreement, dated August 26, 1999, by and between
David R. Proctor and the Issuer.
7. Forms of Stock Option Agreements
8. Employment Agreement dated March 11, 1999 between the Issuer and
David R. Proctor, as amended May 4, 1999.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 1, 2000
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(Date)
/s/ David R. Proctor
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David R. Proctor
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EXHIBIT INDEX
Loan Agreement dated August 26, 1999 between the Issuer and various lenders,
including David R. Proctor.
Security Agreement dated August 26, 1999 between the Issuer and various lenders,
including David R. Proctor.
Convertible Promissory Note in the principal amount of $150,000 dated August 26,
1999, issued by the Issuer to David R. Proctor.
Common Stock Purchase Warrant for 150,000 shares of Common Stock dated August
26, 1999, issued by the Issuer to David R. Proctor.
Promissory Note in the principal amount of $100,000 dated August 26, 1999,
issued by David R. Proctor to the Issuer.
Pledge and Security Agreement, dated August 26, 1999, by and between David R.
Proctor and the Issuer.
Forms of Stock Option Agreements
Employment Agreement dated March 11, 1999 between the Issuer and David R.
Proctor, as amended May 4, 1999.
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LOAN AGREEMENT
THIS LOAN AGREEMENT (the Agreement") is made and entered into as of
August 26, 1999, by and between CyberGuard Corporation, a Florida corporation
(the "Company"), and the persons or entities who have executed the counterpart
signature pages attached hereto (individually a "Lender" and collectively, the
"Lenders").
1. LOAN AND USE OF PROCEEDS
Subject to and upon the terms and conditions herein set forth, Lenders
agree to loan to the Company the aggregate principal amount of $614,000.00 (the
"Loan"). The Company's obligation to pay the principal of, and interest on, the
Loan shall be evidenced by the Notes (as defined below). The proceeds of the
Loan shall be used (i) to satisfy the existing indebtedness of the Company to
Fernwood Partners, LLC ("Fernwood I"), which indebtedness is evidenced by that
certain Promissory Note previously executed by the Company in the original
principal amount of $1,125,000, (ii) for payment of certain expenses in
connection with a loan from Fernwood Partners II, LLC entered into on the date
hereof (the "Fernwood Loan") and (iii) for general corporate purposes.
2. PROMISSORY NOTES
The Company hereby covenants and agrees to issue a convertible
subordinated promissory note in the form of EXHIBIT A hereto to each of the
Lenders (collectively, the "Notes") in the principal amounts set forth on
EXHIBIT B hereto. The Notes will be secured by all of the Company's assets
pursuant to a Security Agreement in the form of EXHIBIT C hereto. The Notes will
only be subordinated in right of payment to the Senior Debt (as defined below)
of the Company.
The Notes will mature on June 30, 2002. The Notes will bear interest at
the rate of 11.5% per annum from the date of issuance. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Accrued interest shall be payable quarterly on January 1, April 1, July 1 and
October 1 of each year, commencing October 1, 1999, to the entity or persons in
whose names the Notes are issued; except that interest accruing from the date of
issuance of the Notes through July 1, 2000 shall be compounded quarterly on
January 1, April 1, July 1 and October 1, commencing October 1, 1999, and added
to the principal amount of the Note. Any amount of principal or interest not
paid when due (whether at the stated due date, at maturity, upon acceleration,
or otherwise) shall thereafter bear interest until paid in full at the rate of
17.5% per annum. The Notes may be presented for transfer or exchange at the
office of the Company, which office is currently located at 2000 West Commercial
Blvd., Suite 200, Ft. Lauderdale, Florida 33309. No service charge will be made
for transfer or exchange of the Notes.
3. CONVERSION RIGHTS
The Lenders will have the right ("Conversion Right"), at the Lenders'
option, to convert all or any portion of the principal and accrued interest of
the Notes into fully paid and nonassessable shares of the Company's Common Stock
("Common Stock"). The number of shares of Common Stock into which the Notes may
be converted ("Conversion Shares") shall be determined by dividing the aggregate
principal amount of the Notes, together with all accrued interest to the date of
conversion, by the conversion price in effect at the time of conversion (the
"Conversion Price"). The Conversion Price shall be equal to One Dollar ($1.00),
subject to adjustment in accordance with the terms of the Notes.
4. WARRANT RIGHTS
The Company will grant each of the Lenders a Common Stock Purchase
Warrant (collectively, the "Warrants") in the form of EXHIBIT D hereto that is
exercisable into the number of shares of Common Stock set forth on EXHIBIT E
hereto (the "Exercise Shares"). The Warrants shall have an exercise price of
$2.00 per share (the "Exercise Price"). The number of Exercise Shares and the
Exercise Price shall be subject to adjustment in accordance with the terms of
the Warrants. The Warrants shall have a term of five (5) years.
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5. SUBORDINATION
The Notes are secured obligations of the Company subordinate to the
existing indebtedness of the Company to Coast Business Credit, a division of
Southern Pacific Bank (the "Senior Debt") and of the same priority in interest
as Fernwood I under the Fernwood Loan. Each Lender agrees to execute any
subordination agreement reasonably requested by any holder of the Senior Debt.
No payment may be made by the Company on account of the principal of
and interest on the Notes, unless and until the principal of and interest of the
Senior Debt is either current or until such payment default has been cured or
waived or otherwise has ceased to exist.
Upon any distribution of assets of the Company or upon any dissolution,
winding up, liquidation or reorganization of the Company, whether voluntary or
involuntary, in bankruptcy, insolvency, receivership or a similar proceeding or
upon assignment for the benefit of creditors or any marshaling of assets or
liabilities, (i) the holders of all Senior Debt will first be entitled to
receive payment in full (or have such payment duly provided for) before the
Lenders are entitled to receive any payment on account of the principal of,
premium, if any, or interest on, the Notes and (ii) any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities to which the Lenders would be entitled (by setoff or otherwise),
except for the subordination provisions contained in this Agreement, will be
paid by the liquidating trustee or agent or other person making such a payment
or distribution directly to the lenders of Senior Debt or their representative
to the extent necessary to make payment in full of all such Senior Debt
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company shall be received by the Lenders at a time
when such payment or distribution is prohibited by the foregoing provisions,
such payment or distribution shall be held in trust for the holders of Senior
Debt, and shall be paid or delivered by the Lenders, as the case may be, to the
holders of the Senior Debt remaining unpaid or unprovided for or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior Debt
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Debt held or represented by each, for
application to the payment of all such Senior Debt remaining unpaid, to the
extent necessary to pay or to provide for the payment of all such Senior Debt in
full after giving effect to any concurrent payment or distribution to the
holders of the Senior Debt.
No provision contained in this Agreement or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of and premium, if any, and interest on the Notes as and when the
same shall become due and payable. The subordination provisions of this
Agreement and the Notes will not prevent the occurrence of any default or event
of default under this Agreement or the Notes or limit the rights of the Lenders,
subject to the preceding paragraphs, to pursue any other rights or remedies with
respect to the Notes.
6. CONVERSION AT THE COMPANY'S OPTION
At the option of the Company, the Notes may be converted into shares of
Common Stock at the Conversion Price if (i) shares of the Common Stock close at
a price in excess of Four Dollars ($4.00) per share for ninety (90) consecutive
trading days, and (ii) the shares of Common Stock into which the Notes are
converted are fully registered under the Securities Act of 1933, as amended (the
"Securities Act"), and freely transferable.
7. REPURCHASE OF THE NOTES AT THE OPTION OF THE LENDERS UPON A CHANGE OF
CONTROL
In the event that a Change of Control (as defined in the Notes) has
occurred, each Lender will have the right, in its sole discretion, to declare
the entire principal amount and accrued interest of the Notes immediately due
and payable.
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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 Lenders
immediate notice thereof: (a) the failure of the Company to make any payment of
principal or interest order the Notes when due, (b) if the Company fails to
comply with or perform any covenant, agreement or condition of the Loan
Documents or in the Loan Agreement of even date herewith between the Company and
Fernwood Partners II, LLC. For purposes of this Agreement, the term "Loan
Documents" shall mean this Agreement and the other documents and agreements
executed in connection herewith (as the same may be further amended,
supplemented, restated or otherwise modified from time to time), including,
without limitation, the Notes, the Warrants and the Security Agreement.
If an Event of Default occurs then all principal and accrued interest
on the Notes will be immediately due and payable without any declaration or
other act on the part of the Lenders. The Lenders are authorized to rescind such
acceleration if all existing Events of Default, other than the nonpayment of the
principal of, and interest on, the Notes that has become due solely by such
acceleration, has been cured or waived; provided, however, the Lenders shall
have no obligation to rescind any such acceleration or waive any Event of
Default.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LENDERS
The obligations of the Lenders to make the Loan is subject to the
satisfaction of the following condition precedent: if required, the Company
shall have obtained the written consent of Coast Business Credit to the
Company's use of a portion of the proceeds of the Loan to satisfy the existing
indebtedness of the Company to Fernwood I.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties:
A. CORPORATE STATUS. The Company (i) is a duly organized and validly
existing corporation in good standing under the laws of the jurisdiction of its
incorporation, (ii) has the corporate power and authority to own its property
and assets and to transact the business in which it is engaged or presently
proposes to engage, and (iii) is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in every foreign jurisdiction
in which it owns or leases real property or in which the nature of its business
requires it to be so qualified, except where the failure of any of the above
would not have a material adverse effect on the Company.
B. AUTHORITY. The executive officers executing the Loan Documents have
the full authority of the Company and its Board of Directors to accept and bind
the Company to the terms and conditions of this Agreement, the other Loan
Documents and all exhibits attached hereto and thereto.
11. REPRESENTATIONS AND WARRANTIES OF THE LENDERS
The Lenders make the following representations and warranties:
A. INVESTMENT. The Lenders are acquiring the Notes and the Warrants and
the shares of Common Stock issuable upon conversion or exercise thereof, for
their own account, for investment only and not with a view towards the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the Securities Act.
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B. RELIANCE ON EXEMPTIONS. The Lenders understand that the Notes and
the Warrants are being offered and sold to them in reliance upon specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and the Lenders' compliance with, the representation, warranties,
agreements, acknowledgments and understandings of the Lenders set forth herein
in order to determine the availability, of such exemptions.
C. INFORMATION. The Lenders and their respective advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Notes and Warrants which have been requested by the Lenders or their respective
advisors. The Lenders and their respective advisors, if any, have been afforded
the opportunity to ask questions of the Company and have received what the
Lenders believe to be satisfactory answers to any such inquiries. The Lenders
understand that their investment in the Notes and Warrants involves a
significant degree of risk.
D. GOVERNMENTAL REVIEW. The Lenders understand that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Notes and the
Warrants.
E. TRANSFER OR RESALE. The Lenders understand the limitations on resale
or transfer of the Notes and the Warrants incorporated herein and those
additional restrictions applicable pursuant to securities laws.
F. LEGENDS. The Lenders understand that the Notes and Warrants and,
until such time as the shares of Common Stock issuable upon the conversion or
exercise of the Note and/or Warrant have been registered under the Securities
Act as contemplated herein, such shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as mended. The securities
have been acquired for investment and may not be sold, transferred or
assigned in the absence of an effective registration statement for the
securities trader said Act, or an opinion of counsel, in form,
substance and scope reasonably acceptable to the Company, that
registration is not required under said Act or unless s old pursuant to
Rule 144 under said Act."
12. REGISTRATION RIGHTS
A. PIGGYBACK REGISTRATION. Subject to the limitations set forth in this
Section 12.A, if the Company shall propose to issue and register shares of its
equity securities on its own behalf or to register equity securities on behalf
of any holder of its equity securities under the Securities Act, the Company
shall give written notice as promptly as possible of such registration to each
of the holders of the Notes and the Warrants (which notice shall include the
anticipated filing date of the Registration Statement and the number of its
equity securities proposed to be included in the Registration Statement), and
will use its best efforts to include in the offering such mount of the
Registrable Securities as any such holder (a "Participating Holder") shall
request to be included by written notice to the Company received within fifteen
(15) days after receipt of the Company's notice, upon the same terms (including
the method of distribution) as the equity
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securities being sold by the Company or any such holder pursuant to any such
offering (a "Piggyback Registration").
(i) REQUIREMENTS OF REQUEST. Each request delivered to the
Company pursuant to this SECTION 12.A shall: (i) specify the amount of
Registrable Securities intended to be offered and sold by the
Participating Holder; and (ii) contain the undertaking of the
Participating Holder to provide all such information and materials and
take all such action as may be required in order to permit the Company
to comply with all applicable requirements of the commission and state
securities and "blue sky" laws and to obtain acceleration of the
effective date of the Registration Statement.
(ii) LIMITATIONS ON INCIDENTAL REGISTRATIONS. The obligations
of the Company to cause Registrable Securities to be registered
pursuant to this Section 12.A are subject to each of the following
limitations, conditions and qualifications:
(a) The Company shall not be required to give notice
or include Registrable Securities in any registration if the
proposed registration is primarily: (A) a registration of a
stock option, thrift, employee benefit or compensation plan or
of securities issued or issuable pursuant to any such plan;
(B) a registration of securities proposed to be issued in
connection with a dividend reinvestment plan or stock purchase
plan; (C) a registration of securities proposed to be issued
in exchange for securities or assets of, or in connection with
a merger or consolidation with, another corporation or other
entity; (D) a registration of securities to be offered by the
Company to its then existing security holders; or (E) a
registration of securities which is a combination of any of
the above.
(b) If the Company is advised by the managing
underwriter or its investment banking firm if the offering is
not underwritten, that the inclusion of Registrable Securities
may, in the opinion of such underwriter or investment banking
firm, as the case may be, materially adversely affect the
successful marketing of the securities proposed to be offered
by the Company, the number of shares of Registrable Securities
to be included in the offering shall be reduced or eliminated
to the extent necessary as shall be reasonably determined by
such underwriter or investment banker, as the case may be, in
good faith; provided that as to the Participating Holders,
such reduction shall be pro rata with respect to all
securities to be sold by persons other than the Company; and,
provided, further, that in such event, the Participating
Holders shall have the right to withdraw their requests to
participate in the offering.
(c) The Company may, in its sole discretion and
without the consent of or prior notice to any Participating
Holder, withdraw such registration statement and abandon the
proposed offering in which the Participating Holder had
requested to participate at any time.
B. PROHIBITED SALES OF SECURITIES. Notwithstanding the foregoing, the
Company shall have the right to prohibit the sale of Registrable Securities
pursuant to any Registration Statement filed pursuant to this Section 12.B, upon
notice to the applicable holder (i) if in the opinion of counsel for the
Company, the Company would thereby be required to disclose information not
otherwise then required by law to be publicly disclosed, provided that the
Company shall use its best efforts to minimize the period of time in which it
shall prohibit the sale of any shares of Registrable Securities pursuant to this
clause (i), (ii) during the period
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starting with the date 10 days prior to the Company's estimate of the date of
filing of, and ending on a date 90 days after the effective date of, a Company
initiated registration in which the person requesting registration is entitled
to participate in accordance with the provisions of this Section 12.B hereof, or
such longer post-effective periods as may be reasonably required by the
underwriter or underwriters if such offering is underwritten, or (iii) upon the
happening of any event, as a result of which the Prospectus under the
Registration Statement includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing (in which case, the Company shall promptly provide the person
requesting registration with revised or supplemental prospectuses and such
person shall promptly take action to cease making any offers of the Registrable
Securities until receipt and distribution of such revised or supplemental
prospectuses).
13. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Florida,
without regard to conflict of law principles.
14. NOTICE
Any notice or communication required to be given hereunder shall be
deemed effectively given when personally delivered, when received by receipted
overnight delivery, or five (5) days after being deposited in the U.S. mail,
with postage prepaid thereon, certified registered mail, return receipt
requested, addressed as follows:
To Lenders: To the address of the Lenders set forth on the
counterpart signature pages of the Security Agreement
dated August 26, 1999
To Company: CyberGuard Corporation
2000 W. Commercial Boulevard
Fort Lauderdale, Florida 33309
15. PARTIAL INVALIDITY
If any provision of this Agreement or the application thereof to any
party or circumstances is held to be invalid or unenforceable, the remainder of
this Agreement and the application of any such provision to other parties or
circumstances shall not be affected thereby, the provisions of this Agreement
being severable in any such instance. No invalid provision hereof shall affect
or impair any other provision of this Agreement.
16. AMENDMENTS
Any amendment or modification to this Agreement shall not be effective
unless signed in writing by the parties hereto.
17. HEADINGS; CONSTRUCTION
The headings of the sections of this Agreement are inserted for
convenience only and shall not be deemed to constitute a part hereof, words used
herein of any gender shall be construed to include any other gender where
appropriate, and words used herein which are either singular or plural shall be
construed to include the other where appropriate.
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<PAGE> 7
SUCCESSORS AND ASSIGNS
All of the covenants, stipulations, promises, and agreements of this
Agreement shall bind the parties' successors and assign, whether so expressed or
not; provided, however, that the Company may not, without the prior consent of
the Lenders, assign any rights, duties, or obligations under this Agreement.
NO ORAL AGREEMENTS
THIS AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
18. WAIVER OF TRIAL BY JURY
THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS THEY MAY HAVE
TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY
WAY RELATED TO THIS AGREEMENT BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND
ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE INCLUDING, BUT NOT
LIMITED TO, THE CONSTITUTION OF THE UNITED STATES OR ANY STATE THEREIN, COMMON
LAW OR ANY APPLICABLE STATUTE OR REGULATIONS. THE PARTIES ACKNOWLEDGE THAT THEY
ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHT TO DEMAND TRIAL BY JURY.
19. SURVIVAL
All representations and warranties made under this Agreement and all
statements, certifications and other information provided in or pursuant to this
Agreement or any other Loan Document shall be deemed to be made, and shall be
true and correct, as of the date hereof and shall survive, and not be waived by,
the execution hereof by the Lenders or any investigation or inquiry of the
Lenders.
22. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each and
all of which shall be deemed an original and all of which together shall
constitute but one and the same instrument.
SIGNATURE PAGE FOLLOWS
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<PAGE> 8
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seat
this 26th day of August, 1999.
COMPANY:
CyberGuard Corporation,
a Florida corporation
By:
----------------------------------
Its:
----------------------------------
LENDER:
By:
----------------------------------
Name:
----------------------------------
8
<PAGE> 9
EXHIBIT A
Convertible Promissory Note
<PAGE> 10
EXHIBIT B
Principal Amount of Notes
<PAGE> 11
EXHIBIT C
Security Agreement
<PAGE> 12
EXHIBIT D
Warrant
<PAGE> 13
EXHIBIT E
Exercise Shares
<PAGE> 1
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is dated as of August 26, 1999,
between CyberGuard Corporation, a Florida corporation ("Debtor"), and the
persons or entities who have executed the counterpart signature pages attached
hereto (individually, a "Secured Party" and collectively, the "Secured
Parties").
RECITALS:
A. Secured Parties have loaned $4,313,484.38 to Debtor, which loan is
evidenced by Debtor's convertible subordinated promissory notes of even date
herewith (the "Notes").
B. The parties desire for Debtor to enter into this Agreement to, among
other things, grant a security interest in its assets to Secured Parties in
order to secure the full and complete payment and performance of the Notes.
NOW, THEREFORE, in consideration of the foregoing, including in order
to induce Secured Parties to make the loan, Debtor hereby agrees with Secured
Parties as follows:
1. To secure the full and prompt payment of all obligations of Debtor
to Secured Parties, whether direct or indirect, contingent or absolute, now or
hereafter due or owing to Secured Parties from Debtor pursuant to the Loan
Documents, Debtor hereby grants to Secured Parties a security interest in the
following assets (collectively, the "Collateral"):
a. All present and future inventory, equipment, fixtures,
furniture, money, deposit accounts, and all other goods and personal property of
every kind and nature whatsoever, wherever located, now owned or hereafter
acquired by Debtor, and any and all present and future tax refunds of any kind
whatsoever to which Debtor is now or shall hereafter become entitled;
b. All present and future accounts, contracts, contract
rights, chattel paper, documents and general intangibles of Debtor, including,
without limitation, inventories, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill symbolized thereby, names, trade
names, trade secrets, goodwill, copyrights, registrations, licenses, customer
lists, software, source code, intellectual property (including, without
limitation, patents, copyrights, licenses software, source code, and
intellectual property relating to Debtor's Firewall Software and all present and
future products, technology and services), now owned or hereafter acquired or
created by Debtor, and all rights of Debtor now or hereafter existing in and to
all other contracts relating to any such accounts, contracts, contract rights,
chattel paper, rights to payment, documents, instruments, and general
intangibles;
c. all books, records, writings, data bases, information and
other property relating to, used or useful in connection with, evidencing,
embodying, incorporating or referring to, any of the Collateral heretofore
described;
d. All present and future increases, profits, combinations,
reclassifications, improvements, and products of, accessions, attachments, and
other additions to, tools, parts, and equipment used in connection with, and
substitutes and replacements for, all or part of the Collateral heretofore
described;
e. All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash proceeds,
and other rights arising from or by virtue of, or from the voluntary or
involuntary sale, lease, or other disposition of, or collections with respect
to, or insurance proceeds payable with respect to, or proceeds payable by virtue
of warranty or other claims against manufacturers of,
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or claims against any other person with respect to, all or any part of the
Collateral heretofore described in this clause otherwise; and
f. All present and future security for the payment to Debtor
of any of the Collateral heretofore described and goods which gave or will give
rise to any of such Collateral or are evidenced, identified, or represented
therein or thereby.
For purposes of this Agreement, the term "Loan Documents"
shall mean any other documents or instruments executed in connection herewith,
including, without limitation, the Notes and the Loan Agreement of even date
herewith between Debtor and each of the Secured Parties (as the same may be
further amended, restated, or otherwise modified from time to time).
2. Debtor represents, covenants and warrants that:
a. Its principal place of business will continue to be 2000
W. Commercial Blvd., Suite 200, Ft. Lauderdale, Florida 33309.
b. Debtor shall sign and execute any financing statement or
other documents required to perfect Secured Parties' security interest and pay
all costs necessary to protect the security interest under this Agreement
against the rights or interests of third parties, other than the rights of
Debtor's existing secured lender, Coast Business Credit ("Coast").
c. Debtor authorizes Secured Parties to file one or more
financing statements signed only by Secured Parties describing the Collateral in
the same manner as it is described herein and Debtor shall, from time to time,
at the request of Secured Parties, execute one or more financing statements and
such other documents (and pay the cost of filing or recording the same in all
public offices deemed necessary or desirable by Secured Parties) and do such
other acts and things, all as Secured Parties may request, to establish and
maintain a valid security interest in the Collateral. Secured Parties are hereby
appointed Debtor's irrevocable attorney-in-fact, coupled with an interest, to do
all acts and things which Secured Parties may deem necessary to perfect and
continue perfecting the security interest created hereby.
d. Except for (i) the security interest granted to Coast, and
(ii) the security interest granted hereby, Debtor is and shall be the lawful
owner of the Collateral, with good right to pledge, sell, assign or transfer the
same free from any lien, security interest or encumbrance, and Debtor will
defend the Collateral against the claims and demands of all persons at any time
claiming the same (other than Coast).
e. Debtor covenants and agrees that it shall not sell,
transfer, lease or otherwise dispose of any of the Collateral (except for sales,
transfers or dispositions of loaner and demo equipment in the ordinary course of
business or sales of inventory in the ordinary course of business) without
obtaining the prior written consent of Secured Parties to such sale, transfer,
lease or other disposition.
f. Debtor covenants and agrees that it shall not move any item
of equipment from the State in which it is now located (except for loaner and
demo equipment moved in the ordinary course of business), locate at a new place
of business, remove from a place of business as set forth above or establish a
new chief executive office without giving the Secured Parties not less than
thirty (30) days' prior written notice of such move, relocation, removal or
establishment.
g. Debtor is a Florida corporation and the execution, delivery
and performance of this Agreement are within Debtor's power and authority, have
been duly authorized, and are not in contravention of any law or the terms of
Debtor's charter, bylaws, or other incorporational papers, or any indenture,
agreement or undertaking to which Debtor is a party or by which it is bound.
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<PAGE> 3
h. Debtor will collect its accounts receivable only in the
ordinary course of business, will keep accurate and complete records of its
accounts receivable and, from time to time, will permit Secured Parties to
examine its business records and to make copies thereof.
i. As of the date hereof, Debtor is indebted to Coast in the
amount of $1,914,692.00, which amount includes all principal and accrued and
unpaid interest. Debtor covenants that so long as this Agreement is in effect
the total indebtedness of Debtor to Coast will not exceed $2,500,000.
3. Debtor shall be in default under this Agreement upon the happening
of any of the following events, circumstances or conditions:
a. If a default occurs under any of the Loan Documents which
is not cured within any applicable grace period, and Secured Parties shall have
accelerated Debtor's obligations thereunder.
b. Debtor shall have materially violated any covenant,
agreement, representation or warranty contained herein or in any other Loan
Documents.
4. Upon the occurrence of the events, circumstances and conditions of
default as set forth in Paragraph 3 above:
a. At Secured Parties' option, and upon notice to Debtor, all
of the obligations and liabilities of Debtor to Secured Parties evidenced herein
or secured hereby shall immediately be due and payable.
b. Secured Parties shall have all the rights, remedies and
privileges contained herein and in any other Loan Document, and the rights,
remedies and privileges accorded to (a) a secured party by the Uniform
Commercial Code in effect as of the date of this Agreement and as may be
hereafter amended and (b) a creditor under any other applicable law.
c. Secured Parties shall have the right to notify the obligors
under any of the Collateral to make payments owed to Debtor directly to Secured
Parties, and to take control of all proceeds thereof and enforce any and all
obligations of said obligors. The cost of such collection and enforcement,
including attorneys' fees and out-of-pocket expenses, shall be borne solely by
Debtor, whether the same are incurred by Secured Parties or Debtor. In order to
facilitate Secured Parties' rights hereunder, Debtor does hereby irrevocably
designate and appoint Secured Parties as Debtor's true and lawful
attorney-in-fact, either in Debtor's own name, place and stead, or otherwise, at
any time after the occurrence of an event of default, to ask, demand, receive,
receipt and give acquittance for any and all amounts which are now or may
hereafter become due and payable to Debtor and which are part of the Collateral.
d. Upon request of Secured Parties, Debtor shall assemble the
Collateral or evidence thereof and make it available to Secured Parties at a
place designated by Secured Parties.
e. Secured Parties may enter Debtor's premises where any of
the Collateral is located, and take possession of and remove all or any portion
of the Collateral or evidence thereof therefrom for purposes of disposition
pursuant to this Agreement. Any proceeds of any disposition of any of the
Collateral may be first applied by Secured Parties toward the payment of
expenses in connection with the exercise of their rights and remedies hereunder,
including reasonable attorneys' fees and legal expenses, and any balance of such
proceeds shall be applied by Secured Parties toward the payment of the
indebtedness secured hereby, but in such order of application as Secured Parties
may elect in their sole discretion.
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<PAGE> 4
f. Reasonable notification of the time and place of any public
sale of the Collateral, or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be sent to Debtor and to any other person entitled to notice under the
UCC; provided, however, if any of the Collateral threatens to decline speedily
in value or is of the type customarily sold on a recognized market, Secured
Parties may sell or otherwise dispose of the Collateral without notification,
advertisement, or other notice of any kind. It is agreed that notice sent or
given not less than five (5) calendar days prior to the taking of the action to
which the notice relates is reasonable notification and notice.
g. Debtor shall remain liable for any deficiency remaining
after any sale or other disposition of the Collateral or any portion thereof.
h. All of the rights, powers, remedies and privileges of
Secured Parties in the event of default by Debtor, as provided under this
Agreement and under applicable law, including, but not limited to, the Uniform
Commercial Code, shall be cumulative and in addition one to the other, and in
addition to those rights, powers, remedies and privileges afforded Secured
Parties under the provisions of any other Loan Documents.
5. Notwithstanding anything contained in this Agreement to the
contrary, each of the Secured Parties hereby irrevocably appoints and authorizes
the Majority Secured Party, in its sole discretion, to take all actions or
exercise all powers that are granted to the Secured Parties herein. The Majority
Secured Party shall have the right, for the ratable benefit of all Secured
Parties, for the enforcement of this Agreement and the collection of the
Collateral, and may take all actions in connection therewith as it deems
desirable in its sole discretion, without any authorization from the other
Secured Parties. The other Secured Parties agree that they shall have no claim
against the Majority Secured Party with respect to any action taken or not taken
hereunder, or any loss resulting from such action or inaction, except for gross
negligence and willful misconduct of the Majority Secured Party. Under no
circumstance shall the Majority Secured Party be deemed a fiduciary to the other
Secured Parties with respect to this Agreement. For purposes of this Agreement,
the term "Majority Secured Party" shall mean the Secured Party or Secured
Parties, as the case may be, holding fifty-one percent (51%) or more of the sum
of the aggregate principal outstanding balance of the Notes.
6. No waiver of, or acquiescence in, any default shall operate as a
waiver of, or acquiescence in, any other default then existing or thereafter
occurring, whether or not such other default be of the same type as that waived
or acquiesced in. No delay or omission on the part of Secured Parties in
exercising any right, power, remedy or privilege hereunder or otherwise shall
operate as a waiver thereof, and no single or partial exercise by Secured
Parties of any right, power, remedy or privilege shall preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
7. All rights of Secured Parties in connection herewith shall be
subject to any and all subordination agreements, intercreditor agreements and
similar agreements executed by Secured Parties in connection herewith.
8. All rights in the Collateral granted to the Secured Parties
hereunder shall be proportionate to each Secured Party's ratable interest in the
total indebtedness of Debtor to the Secured Parties under the Notes.
9. For the purpose of enabling Secured Parties to exercise rights and
remedies under this Agreement at such time as Secured Parties shall be lawfully
entitled to exercise such rights and remedies and for no other purpose, Debtor
hereby grants to Secured Parties an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to Debtor) to use,
assign or sublicense any of the Collateral, now owned or hereafter acquired by
Debtor and wherever the same may be located, including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof. Until such time as Secured Parties are entitled to exercise
such rights and remedies Debtor is entitled to use the Collateral without
payment of royalty or other compensation to Secured Parties. Upon payment in
full of the indebtedness secured hereby, the license granted to the Secured
Parties hereunder shall terminate.
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<PAGE> 5
10. This Agreement shall be governed by the laws of the State of
Connecticut, without regard to conflict of law principles.
11. Debtor shall neither assign its rights nor delegate the performance
of its duties hereunder without Secured Parties' prior written consent. Secured
Parties may assign their rights and delegate the performance of their duties
hereunder, and if Secured Parties do so, the assignee upon notifying Debtor
shall be entitled to the performance of all Debtor's duties and to all Secured
Parties' rights hereunder.
12. To the full extent Debtor may do so under applicable law, Debtor
agrees that Debtor will not at any time insist upon, plead, claim or take the
benefit or advantage of any law now or hereafter in force providing for any
appraisal or valuation, and Debtor, for Debtor, and for any and all persons ever
claiming any interest in the Collateral, to the extent permitted by law, hereby
WAIVES and RELEASES all rights of redemption, valuation, appraisal, and all
rights to receive notices of presentment, demand, protest, dishonor, default,
intention to mature or declare due the whole or any part of the secured
indebtedness, notice of election to mature or declare due the whole or any part
of the secured indebtedness, and all rights to a marshaling of the assets of
Debtor, including the Collateral.
13. MISCELLANEOUS.
a. All provisions herein shall inure to and become binding
upon the heirs, executors, administrators, successors, representatives,
receivers, trustees and assigns of the parties hereto.
b. Any notices required or allowed hereunder shall be in
writing and shall be deemed satisfactorily given when deposited in the United
States mail, postage prepaid, certified or registered mail, return receipt
requested, or forwarded by a nationally recognized overnight courier service
and, if to the Debtor, addressed to Debtor at the address set forth in Section
2(a) hereof, and if to a Secured Party, addressed to such Secured Party at the
address set forth on the signature pages hereto (or such other address as may be
specified in a written notice forwarded to the parties hereto as herein
specified).
c. This Agreement is intended by the parties as a final
expression of their agreement and is intended as a complete statement of the
terms herein stated. This Agreement may not be modified, amended or changed in
any manner, nor shall any waiver of any provision hereof be effective, except by
an instrument in writing signed by the party against whom enforcement of such
modification, amendment, change or waiver is sought.
d. If any term or provision of this Agreement, application
thereof to any person or circumstance, shall, to any extent, be invalid or
unenforceable, the remainder hereof, or the application of such term or
provision to persons or circumstances other than those to which it is invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law.
e. This Agreement may be executed in a number of identical
counterparts, each of which shall be deemed an original for all purposes and all
of which constitute, collectively, one agreement; but, in making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
f. DEBTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY
HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE
TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY
JURY ARISING FROM ANY SOURCE INCLUDING, BUT NOT LIMITED TO, THE CONSTITUTION OF
THE UNITED STATES OR ANY STATE THEREIN, COMMON LAW OR ANY
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APPLICABLE STATUTE OR REGULATIONS. DEBTOR ACKNOWLEDGES THAT IT IS KNOWINGLY AND
VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.
SIGNATURE PAGE FOLLOWS
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IN WITNESS THEREOF, this Agreement has been duly executed by the
parties as of the date and year first above written.
"DEBTOR"
CYBERGUARD CORPORATION
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
"SECURED PARTY"
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
Address:
-------------------------------
7
<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE LAWS OR SOME
OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
CONVERTIBLE PROMISSORY NOTE
$150,000
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 David R. Proctor
("Payee"), or its registered assigns (Payee or such registered assigns at the
time being the registered holder or holders hereof are hereinafter collectively
referred to as the "Holder"), at the Holder's address listed in the Security
Agreement dated as of August 26, 1999, or at such other place as the Holder
hereof may direct in writing, the aggregate principal sum of one hundred fifty
thousand US Dollars ($150,000.00), together with interest from the date hereof
on the unpaid principal amount, as follows:
1. INTEREST. The unpaid principal amount hereof shall bear interest at
the rate of 11.5% per annum. Any amount of principal or interest not paid when
due (whether at the stated due date, at maturity, upon acceleration or
otherwise) shall thereafter bear interest until paid in full at the rate of
17.5% per annum. Interest shall be computed on the actual number of days elapsed
on the basis of a 360-day year consisting of twelve 30-day months.
2. PRINCIPAL AND INTEREST PAYMENTS. Interest due hereunder shall be
payable quarterly on January 1, April 1, July 1 and October 1 of each year
commencing on October 1, 1999 and continuing on each January 1, April 1, July 1
and October 1 thereafter through the maturity date hereof; except that interest
accruing from the date hereof through July 1, 2000 shall be compounded quarterly
on January 1, April 1, July 1 and October 1, commencing October 1, 1999, and
added to the principal amount of this Note. All principal due hereunder together
with all accrued but unpaid interest shall become immediately due and payable
without further notice on June 30, 2002. In the event that any payment date
shall fall due on a Saturday, Sunday, legal holiday or a day on which federal
banking institutions are not required to be open, payment shall be made on the
next business day, but interest, shall continue to accrue until such payment is
made.
3. PAYMENTS. All payments of principal and interest are to be made in
lawful money of the United States of America. All payments received shall be
applied first to unpaid interest, then principal. This Note cannot be prepaid
without the written consent of the Holder.
4. DEFAULT. In the event that (a) any payment of principal or interest
due hereunder is not paid when due; or (b) Maker becomes subject to any
bankruptcy, insolvency, receivership
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<PAGE> 2
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 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
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<PAGE> 3
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 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.
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9. ADJUSTMENTS. The Conversion Price in effect at any time shall be
subject to adjustment as follows:
(a) DIVIDENDS, STOCK SPLITS AND REVERSE STOCK SPLITS. In case the
Company shall (i) declare a dividend on all its Common Stock in shares of its
capital stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine all the outstanding shares of its Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common Stock (other
than any reclassification upon a consolidation, merger, conveyance or transfer
subject to SECTION 10) any shares, the Conversion Price in effect at the time of
the record date for such dividend or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Holder of this Note upon conversion after such time shall be entitled to receive
the number and kind of shares which the Holder would have owned or have been
entitled to receive had this Note been converted immediately prior to such time.
Such adjustment will become effective immediately prior to the opening of
business on the day following the date on which such dividend is declared or
such subdivision or combination becomes effective. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) ISSUANCES BELOW MARKET. In case the Company shall fix a record
date for the issuance of rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the current market price per share of Common Stock (as
determined pursuant to subsection (e) below) on such record date, the Conversion
Price in effect immediately prior to the issuance of such rights or warrants
shall be adjusted to a price determined by multiplying such Conversion Price by
a fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares to be offered would
purchase at such current market price, and of which the denominator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock to be offered for subscription or purchase.
Such adjustment will become effective immediately prior to the opening of
business on the day following such record date. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that such
rights or warrants are not so issued, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such record
date had not been fixed.
(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.
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(d) OTHER DISTRIBUTIONS. In case the Company shall distribute
evidences of its indebtedness, securities, assets, rights or warrants to any
Person (as defined in Section 10) in connection with or as a result of or
related to any pending or future claims, suits, actions or proceedings against
the Company or any of its subsidiaries, then in each such case the Conversion
Price in effect immediately prior to such distribution shall be adjusted by
multiplying such Conversion Price by a fraction, of which the numerator shall be
the current market price per share of Common Stock (as determined by pursuant to
subsection (e) below) on the date of such distribution, less the fair market
value (as determined in good faith by the Board and Directors) of the portion of
such evidences of indebtedness, securities, assets, rights or warrants so
distributed applicable to one share of Common Stock, and of which the
denominator shall be such current market price per share of Common Stock. Such
adjustment will become effective immediately prior to the opening of business on
the day following the date of such distribution. Such adjustment shall be made
successively whenever any such distribution or issuance is made. The intent of
this subsection is that if any evidences of indebtedness, securities, assets,
rights or warrants are distributed in connection with or as a result of or
related to any pending or future claims, suits, actions or proceedings against
the Company or any of its subsidiaries, that the Holder of this Note shall be
entitled to convert this Note into the same percentage of the outstanding
capital stock of the Company for the same aggregate conversion price immediately
after such distribution as the Holder of this Note could convert immediately
prior to such distribution.
(e) OTHER DILUTIVE EVENTS. In case any event shall occur as to
which the provisions of SECTION 9 are not strictly applicable but the failure to
make any adjustment would not fairly protect the conversion rights represented
by this Note in accordance with the essential intent and principles hereof then,
in each such case, the Company shall appoint a firm of independent certified
public accountants of recognized national standing (which may be the regular
auditors of the Company), which shall give its opinion upon the adjustment, if
any, on a basis consistent with the essential intent and principles established
in SECTION 9, necessary to preserve, without dilution, the conversion rights
represented by this Note. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Note and shall make the
adjustments described therein. Notwithstanding anything contained in this
subsection (e) to the contrary, this subsection (e) shall not apply to any
issuance of Common Stock by the Company for which the Company has received
consideration equal to the fair market value of such Common Stock on the date of
issuance, as determined by the Board of Directors of the Company in good faith.
(f) NO DILUTION OR IMPAIRMENT. The Company will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 9 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion privilege of the
Holder of this Note against dilution or other impairment.
(g) MARKET PRICE DETERMINATION. For the purpose of any computation
under subsections (b), (c) and (d) above, the current market price per share of
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the ten (10) consecutive trading dates immediately preceding such
date. The closing price for each day shall be the last reported 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
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<PAGE> 6
Common Stock are not quoted on Nasdaq, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if the shares of Common Stock are not quoted on Nasdaq
and not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices on such other nationally recognized quotation system then in use,
or, if on any such day the shares of Common Stock are not quoted on any such
quotation system, the average of the closing bid and asked prices as furnished
by a professional market maker selected by the Board of Directors making a
market in the shares of Common Stock. If the shares of Common Stock are not
publicly held or so listed, quoted or publicly traded, the current market price
per share of Common Stock shall be determined in good faith by the Board of
Directors.
(h) MINIMUM ADJUSTMENT REQUIRED. No adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in such price; provided, however, that any
adjustments which by reason of this subsection (h) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this SECTION 9 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
(i) ADJUSTMENTS FOR TAX PURPOSES. The Company may make such
adjustments in the Conversion Price so as to increase the number of shares
issuable on conversion, in addition to those adjustments required by this
SECTION 9, as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(j) CERTIFICATE. Whenever the Conversion Price is adjusted, as
herein provided, the Company shall promptly cause a certificate setting forth
the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment and a computation thereof to be mailed to
the Holder of this Note at the address shown in the registration books of the
Company.
(k) ADJUSTMENTS TO OTHER SHARES. In the event that at any time,
as a result of an adjustment made pursuant to subsection (a) above, the Holder
of this Note thereafter surrendered for conversion shall become entitled to
receive any shares of the Company other than shares of its Common Stock,
thereafter the number of such other shares so receivable upon conversion of this
Note shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subsections (a)-(j) above.
10. EFFECT OF CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER. In case of
any consolidation of the Company with, or merger of the Company into, any other
person, any merger of another Person into the Company (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company) or any sale, transfer or
lease of all or substantially all of the assets of the Company, the Person
formed by such consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall execute and deliver to the Holder a
supplemental agreement providing that the Holder of this Note shall have the
right hereafter, during the period this Note shall be convertible, to convert
such Note into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock of the Company into which this Note was
convertible immediately prior to such consolidation, merger, sale
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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;
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
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<PAGE> 8
or into any other Person or any other sale, transfer or other disposition,
whether direct or indirect, of all or substantially all of the assets of the
Company, on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction, any
"person" or "group" is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers, or trustees, as
applicable, of the transferee or surviving entity, (ii) when any "person" or
"group" is or becomes the "beneficial owner," directly or indirectly, of more
than 50% of the total voting power in the aggregate normally entitled to vote in
the election of directors of Maker, (iii) when, during any period of 12
consecutive months after the date hereof, individuals who at the beginning of
any such 12-month period constituted the Board of Directors of Maker (together
with any new directors whose election by such Board or whose nomination for
election by the stockholders of Maker was approved by a vote of a majority of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease to constitute a majority of the Board of Directors of Maker then
in office, (iv) a sale, transfer or other disposition, whether directly or
indirectly, by Maker of all or substantially all of its assets, on a
consolidated basis, or (v) the pro rata distribution by Maker to its
stockholders of substantially all of its assets. For purposes of this definition
of "Change of Control," (i) the terms "person" and "group" shall have the
meanings used for purposes of Rules l3d-3 and 13d-5 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as in effect on the date hereof,
whether or not applicable; and (ii) the term "beneficial owner" shall have the
meaning used in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the
date hereof, whether or not applicable, except that a "person" shall be deemed
to have "beneficial ownership" of all shares that any such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time or upon the occurrence of certain events.
13. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF.
With respect to any offer, sale or other disposition of this Note or securities
into which this Note may be converted, the Holder will give written notice to
Maker prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel to the effect that such offer, sale or
other distribution may be effected without registration or qualification (under
any federal or state law then in effect). Promptly upon receiving such written
notice and reasonably satisfactory opinion, if so requested, Maker, as promptly
as practicable, shall notify such Holder that such Holder may sell or otherwise
dispose of this Note or such securities, all in accordance with the terms of the
notice delivered to Maker. If a determination has been made pursuant to this
SECTION 13 that the opinion of counsel for the Holder is not reasonably
satisfactory to Maker, the Maker shall so notify the Holder promptly after such
determination has been made. Each Note thus transferred and each certificate
representing the securities thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act of 1933, as amended (the "Act"), unless in the opinion of
counsel for Maker such legend is not required in order to ensure compliance with
the Act. Maker may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
14. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of the Note
such number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of the Note; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of the entire outstanding principal amount and accrued interest
of this Note, in addition to such other remedies as shall be available to the
Holder, the Company will use its best efforts to take such
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<PAGE> 9
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
15. REGISTRATION RIGHTS. Upon conversion of this Note, the Holder shall
have and be entitled to exercise, together with all other holders of Common
Stock possessing registration rights under the Loan Agreement, the registration
rights granted under the Loan Agreement with respect to the shares of Common
Stock issued upon conversion of this Note.
16. OBLIGATIONS ABSOLUTE. All obligations of Maker hereunder are
absolute and unconditional, irrespective of any effect or counterclaim of Maker
against the Holder. Maker hereby waives the right to enforce any right of
offset, counterclaim or breach in any action brought to enforce the obligations
of Maker under this Note.
17. WAIVERS. Maker and any co-makers, sureties, endorsers and
guarantors of this Note hereby jointly and severally waive presentment for
payment, notices of non-performance or nonpayment, protest, notices of protest,
notice of dishonor, diligence in bringing suit hereon against any party hereto
and notice of acceleration, and further consent to any extension of time for
payment hereunder (whether one or more), any renewal hereof (whether one or
more), any substitution or release of any collateral, and any addition or
release of any party liable for payment of this Note. Any such extension,
renewal, substitution or release may be made by the Holder without notice to any
such party and without discharging such party's liability hereunder.
18. COLLECTION COSTS; ATTORNEYS' FEES. Maker agrees to pay all expenses
and costs of collection, including all reasonable attorneys' fees and expenses
as awarded by a court, court costs, and similar costs incurred by the Holder in
connection with the enforcement of this Note, endeavoring to collect any amounts
payable hereunder, whether by acceleration or otherwise.
19. PARTIAL INVALIDITY. If any provision of this Note or the
application thereof to any party or circumstances is held invalid or
unenforceable, the remainder of this Note and the application of any such
provision to other parties or circumstances shall not be affected thereby, the
provisions of this Note being severable in any such instance. No invalid
provision hereof shall affect or impair any other provision of this Note.
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.
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<PAGE> 10
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.
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25. MAXIMUM INTEREST RATE. Regardless of any provision contained
herein, or in any other documents or instruments executed in connection
herewith, the Holder hereof shall never be entitled to receive, collect, or
apply, as interest hereon, any amount in excess of the Highest Lawful Rate and
in the event the Holder hereof ever receives, collects, or applies, as interest,
any such excess, such amount which would be excessive interest shall be deemed a
partial prepayment of principal and treated hereunder as such; and, if the
principal hereof is paid in full, any remaining excess shall be refunded to
Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder
hereof shall, to the maximum extent permitted under applicable law, (a)
characterize any nonprincipal payment as an expense, fee, or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
spread the total amount of interest throughout the entire contemplated term
hereof; provided that if the interest received for the actual period of
existence hereof exceeds the Highest Lawful Rate, the Holder hereof shall either
apply or refund to Maker the amount of such excess as herein provided, and in
such event the Holder hereof shall not be subject to any penalties provided by
any laws for contracting for, charging, or receiving interest in excess of the
Highest Lawful Rate. For purposes of this Note, the term "Highest Lawful Rate"
shall mean, at any given time, the maximum nonusurious interest rate, if any,
that may be contracted for or received on the indebtedness evidenced by this
Note under applicable federal and state laws.
26. NO ORAL AGREEMENTS. THIS NOTE REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
27. WAIVER OF TRIAL BY JURY. MAKER HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE BE TRIED BY JURY. THIS WAIVER
EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE
INCLUDING, BUT NOT LIMITED TO, THE CONSTITUTION OF THE UNITED STATES OR ANY
STATE THEREIN, COMMON LAW OR ANY APPLICABLE STATUTE OR REGULATIONS. MAKER
ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND
TRIAL BY JURY.
MAKER:
CyberGuard Corporation, a Florida Corporation
By:
--------------------------------------
Its:
--------------------------------------
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE LAWS OR SOME
OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Warrant to Purchase 150,000
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, David R. Proctor (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"), 150,000 shares (subject to adjustment as provided herein) of
the fully paid, nonassessable shares of Common Stock (hereinafter defined) of
the Company at a price per share equal to the Exercise Price (as hereinafter
defined).
This Warrant is subject to the following terms and conditions:
SECTION 1.0. DEFINED TERMS. For the purposes of this Warrant, the
following terms shall have the respective meanings set forth below:
(a) "COMMON STOCK" shall mean the Company's Common Stock, par
value $.01 per share, authorized as of the date of this Warrant, and shall
include also any capital stock of the Company of any class which shall be
authorized at any time after the date of this Warrant and which shall have the
right to participate in the distribution of earnings and assets of the Company
without limitation as to amount.
"CLOSING PRICE" with respect to a share of Common Stock on any
day means, subject to SECTION 6.1(g), the last reported sale price on that day
or, in case no such reported sale takes place on such day, the average of the
last reported bid and asked prices, regular way, on that day, in either case, as
reported in the consolidated transaction reporting system with respect to
securities quoted on Nasdaq or, if the shares of Common Stock are not quoted on
Nasdaq, as reported in the principal
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consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if the shares of Common Stock are not
quoted on Nasdaq and not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices on such other nationally recognized quotation
system then in use, or, if on any such day the shares of Common Stock are not
quoted on any such quotation system, the average of the closing bid and asked
prices as furnished by a professional market maker selected by the Board of
Directors making a market in the shares of Common Stock. If the shares of Common
Stock are not publicly held or so listed, quoted or publicly traded, the
"Closing Price" means the fair market value of a share of Common Stock, as
determined in good faith by the Board of Directors.
"EXERCISE PRICE" shall mean $2.00 per share, subject to adjustment as
set forth herein.
"INITIAL WARRANT NUMBER" shall mean 150,000 shares of Common Stock.
"LOAN AGREEMENT" shall mean that certain Loan Agreement by and between
the Company and the Original Holder dated as of the date hereof.
"PERSON" means any individual, firm, corporation, company, limited
liability company, association, partnership, joint venture, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"PROMISSORY NOTE" shall mean the Convertible Subordinated Promissory
Note which was executed and delivered by the Company on the date of this Warrant
to the Original Holder.
"ORGANIC CHANGE" means, with respect to any Person, any transaction
(including without limitation any recapitalization, capital reorganization or
reclassification of any class or series of equity securities, any consolidation
of such person with, or merger of such person into, any other person, any merger
of another person into such Person (other than a merger which does not result in
a reclassification, conversion, exchange or cancellation of outstanding shares
of capital stock of such Person), and any sale or transfer or lease of all or
substantially all of the assets of such Person, but not including any stock
split, combination or subdivision which is the subject of SECTION 6.1(b))
pursuant to which any class or series of equity securities of such Person is
converted into the right to receive other securities, cash or other property.
"STRIKE DIFFERENTIAL" shall mean, with respect to any day, the amount
by which the closing price of the Common Stock on such day (or in the event that
such day is not a trading day with respect to the Common Stock, on the last
trading day with respect to the Common Stock preceding such day) exceeds the
Exercise Price on such day.
"WARRANT NUMBER" shall mean the Initial Warrant Number as the same
shall be adjusted from time to time pursuant to SECTION 6.0 hereof.
"WARRANT RIGHTS" shall mean rights to obtain shares of Common Stock
pursuant to a Warrant Rights Exercise (as defined below). The number of Warrant
Rights that the Holder is entitled to exercise at any time shall equal the
number of shares of Common Stock that the holder would be entitled to purchase
at such time if a Cash Exercise (as defined below) were effected in accordance
with the terms of this Warrant.
"WARRANT STOCK" shall mean Common Stock issued upon any exercise of
this Warrant.
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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 "Termination Date"), by the delivery of this Warrant and the Form of
Subscription annexed hereto as SCHEDULE I to the principal office of the Company
at 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 ("Cash Exercise"). Notwithstanding the foregoing, at any time
and from time to time, the Holder hereof may elect to exercise this Warrant by
delivering to the Company this Warrant and the Form of Subscription annexed
hereto as SCHEDULE I for conversion without payment of cash or other
consideration ("Warrant Rights Exercise"). In the event of a Warrant Rights
Exercise, this Warrant shall be converted into a number of shares of Common
Stock, which number shall equal the quotient of (i) the product of the Strike
Differential on the day of such Warrant Rights Exercise and the number of
Warrant Rights exercised by the Holder and (ii) the closing price of the Common
Stock on the day of such Warrant Rights Exercise (or in the event that such day
is not a trading day with respect to the Common Stock, on the last trading day
with respect to the Common Stock preceding such day). To the extent that this
Warrant is not exercised in full prior to 5:00 p.m., eastern standard time on
the Termination Date, this Warrant shall be converted without any action or
delivery of any consideration on behalf of the Holder hereof into a number of
shares of Common Stock, which number shall equal the quotient of (i) the product
of the Strike Differential on the Termination Date and the number of Warrant
Rights to which the Holder is then entitled and (ii) the closing price of the
Common Stock on the Termination Date (or in the event that such day is not a
trading day with respect to the Common Stock, on the last trading day with
respect to the Common Stock preceding such day).
The Company covenants that the shares of Common Stock purchased
pursuant to this SECTION 2.0 shall be and be deemed to be issued to the Holder
hereof as the record owner of such Common Stock as of the close of business of
the Company on the date on which this Warrant shall have been exercised as
aforesaid. The Company further covenants that all shares of Common Stock which
may be issued upon the exercise of this Warrant will, upon exercise of the
rights represented by this Warrant be fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof.
The certificates for the shares of Common Stock so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding ten (10)
days, after the date on which the rights represented by this Warrant shall have
been so exercised.
Payment of the applicable Exercise Price may be made (a) by cash, or
(b) by certified check, or bank cashier's check, payable to the Company.
In the event of a partial exercise of this Warrant, the Company shall
issue and deliver to Holder, on or within ten (10) days of the date on which
such Warrant was exercised, and in substitution of such Warrant, a new warrant
or warrants (at Holder's option), of even date herewith and with the terms
identical to the terms hereof, except that such new warrant or warrants shall be
exercisable, in the aggregate, for a percentage of all issued and outstanding
Common Stock, subject to the antidilution provisions of SECTION 6.0 hereof,
which represents the number of shares of Common Stock with respect to which this
Warrant has not yet been exercised.
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SECTION 3.0. NO FRACTIONAL SHARES OR SCRIP. No fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon the exercise of this Warrant, an amount equal to such
fraction multiplied by the closing price of the Common Stock on the day of such
exercise (or in the event that such day is not a trading day with respect to the
Common Stock, on the last trading day with respect to the Common Stock preceding
such day) shall be paid to the Holder hereof in cash by the Company.
SECTION 4.0. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer taxes or any other
incidental expenses in respect of the issuance of such certificates to and in
the name of the registered Holder of this Warrant, all of which transfer taxes
and expenses shall be paid by the Company, and such certificates shall be issued
in the name of the Holder of this Warrant. Certificates will be issued in a name
other than that of the Holder upon the request of the Holder and payment by the
Holder of any applicable transfer taxes.
SECTION 5.0. CERTAIN OBLIGATIONS OF THE COMPANY. The Company covenants
that it will at all times reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of issuing upon exercise of the
purchase rights evidenced by this Warrant, the number of shares of Common Stock
purchasable and deliverable hereunder.
The Company will not, by amendment of its Certificate of Incorporation
or through reorganization, consolidation, merger, dissolution, issuance of
capital stock or sale of treasury stock (otherwise than upon exercise of this
Warrant) or sale of assets, or by any other voluntary act or deed, avoid or seek
to avoid the performance or observance of any of the covenants, stipulations or
conditions in this Warrant to be observed or performed by the Company. The
Company will at all times in good faith assist in the carrying out of all of the
provisions of this Warrant and in the taking of all other action which may be
necessary in order to protect the rights of the Holder of this Warrant against
dilution consistent with the provisions of this Warrant.
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
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numerator shall be the number of shares of Common Stock outstanding at the close
of business on such record date and (y) the denominator shall be the sum of such
number of shares of Common Stock outstanding and the total number of shares of
Common Stock constituting such dividend or distribution, such reduction to
become effective immediately after the opening of business on the day following
such record date. The Company will not pay any dividend or make any distribution
on shares of Common Stock held in the treasury of the Company.
(b) STOCK SPLITS AND REVERSE SPLITS. In case after the date
hereof outstanding shares of Common Stock shall be subdivided into a greater
number of shares of Common Stock, the Exercise Price in effect at the opening of
business on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, in case after the
date hereof outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Exercise Price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, shall entitle the Holder hereof to receive the number and kind of
shares which the Holder would have owned or have been entitled to receive if
this Warrant had been exercised immediately prior to such subdivision or
combination. Such adjustment shall become effective immediately prior to the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(c) ISSUANCES BELOW MARKET. In case the Company after the date
hereof shall fix a record date of the issuance of rights or warrants to all
holders of its shares of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Closing Price
per share on the record date for the determination of stockholders entitled to
receive such rights or warrants, the Exercise Price in effect at the opening of
business on the day following such record date shall be adjusted to a price
obtained by multiplying such Exercise Price by a fraction of which (x) the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on such record date plus the number of shares of Common Stock that
the aggregate offering price of the total number of shares to be offered would
purchase at such Closing Price and (y) the denominator shall be the number of
shares of Common Stock outstanding at the close of business on such record date
plus the number of additional shares of Common Stock to be offered for
subscription or purchase, such adjustment to become effective immediately prior
to the opening of business on the day following such record date; provided,
however, that no adjustment shall be made if the Company issues or distributes
to each Holder the rights or warrants that each Holder would have been entitled
to receive had the Warrants held by such Holder been exercised prior to such
record date. The Company shall not issue any rights or warrants in respect of
shares of Common Stock held in the treasury of the Company.
(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
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shall be such Closing Price, such adjustment to become effective immediately
prior to the opening of business on the day following such record date;
provided, however, that no adjustment shall be made (1) if the Company issues or
distributes to each Holder the subscription rights referred to above that each
Holder would have been entitled to receive had the Warrants held by such Holder
been exercised prior to such record date, or (2) if the Company grants to each
Holder the right to receive, upon the exercise of the Warrants held by such
Holder at any time after the distribution of the evidences of indebtedness or
assets or equity securities referred to above, the evidences of indebtedness or
assets or equity securities that such Holder would have been entitled to receive
had such Warrants been exercised prior to such record date. The Company shall
provide any Holder, upon receipt of a written request therefor, with any
indenture or other instrument defining the rights of the holders of any
indebtedness, assets, subscription rights or equity securities referred to in
this subsection (d).
(e) OTHER DISTRIBUTIONS. In case the Company after the date
hereof shall distribute evidences of its indebtedness, assets, equity
securities, rights or warrants to any Person in connection with or as a result
of or related to any pending or future claims, suits, actions or proceedings
against the Company or any of its subsidiaries, then in each such case the
Exercise Price in effect immediately prior to the close of business on the date
of such distribution shall be adjusted to a price obtained by multiplying such
Exercise Price by a fraction of which (x) the numerator shall be the Closing
Price per share of Common Stock on such date, less the then-current fair market
value as of such date (as determined by the Board of Directors in its good faith
judgment) of the portion of such evidences of indebtedness, assets, equity
securities, rights or warrants so distributed applicable to one share of Common
Stock, and (y) the denominator shall be such Closing Price, such adjustment to
become effective immediately prior to the opening of business on the day
following the date of such distribution. The intent of this subsection is that
if any evidences of indebtedness, securities, assets, rights or warrants are
distributed in connection with or as a result of or related to any pending or
future claims, suits, actions or proceedings against the Company or any of its
subsidiaries, that the Holder of this Warrant shall be entitled to exercise this
Warrant for the same percentage of the outstanding capital stock of the Company
for the same aggregate exercise price immediately after such distribution as the
Holder of this Warrant could acquire immediately prior to such distribution.
(f) TENDER OR EXCHANGE OFFER. In case a tender or exchange
offer made by the Company or any subsidiary of the Company for all or any
portion of the Common Stock shall be consummated and such tender offer shall
involve an aggregate consideration having a fair market value (as determined by
the Board of Directors in its good faith judgment) at the last time (the "Offer
Time") tenders may be made pursuant to such tender or exchange offer (as it may
be amended) that, together with the aggregate of the cash plus the fair market
value (as determined by the Board of Directors in its good faith judgment), as
of the Offer Time, of consideration payable in respect of any tender or exchange
offer by the Company or any such subsidiary for all or any portion of the Common
Stock consummated preceding the Offer Time and in respect of which no Exercise
Price adjustment pursuant to this subsection (f) has been made, exceeds 5% of
the product of the Closing Price of the Common Stock at the Offer Time
multiplied by the number of shares of Common Stock outstanding (including any
tendered shares) at the Offer Time, the Exercise Price shall be reduced so that
the same shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the Offer Time by a fraction of which (x) the
numerator shall be (i) the product of the Closing Price of the Common Stock at
the Offer Time multiplied by the number of shares of Common Stock outstanding
(including any tendered shares) at the Offer Time minus (ii) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all
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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 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
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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 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
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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.
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.
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(b) COMPANY DOES NOT SURVIVE. The Company shall not enter into
an Organic Change that is a transaction in which the Company is not the
surviving entity unless lawful provision shall be made as part of the terms of
such transaction whereby the surviving entity shall issue new securities to each
Holder, without payment of any additional consideration therefor, with terms
that provide that upon the exercise of this Warrant, the Holders of such Warrant
shall have the right to purchase only the kind and amount of securities, cash
and other property receivable upon such Organic Change by a holder of the number
of shares of Common Stock into which such Warrant might have been exercised
immediately prior to such Organic Change, assuming such holder of Common Stock
(i) is not a Constituent Person or an affiliate of a Constituent Person and (ii)
failed to exercise his rights of election, if any, as to the kind and amount of
securities, cash and other property receivable upon such Organic Change
(provided that if the kind and amount of securities, cash and other property
receivable upon such Organic Change is not the same for each Non-Electing Share,
then for the purpose of this subsection (b) the kind and amount of securities,
cash and other property receivable upon such Organic Change by each Non-Electing
Share shall be deemed to be the kind and amount so receivable per share by a
plurality of the Non-Electing Shares); provided, however, that no adjustment
shall be made as a result of such Organic Change to the Exercise Price or the
number of shares of Common Stock notwithstanding any provision of SECTION 6
hereof unless any event requiring any such adjustment shall have occurred or
shall occur prior to, upon or after such Organic Change. The certificate or
articles of incorporation or other constituent document of the surviving entity
shall provide for such adjustments which, for events subsequent to the effective
date of such certificate or articles of incorporation or other constituent
document, shall be equivalent to the adjustments provided for in SECTION 6.1
hereof.
6.4. STATEMENT ON WARRANTS. This Warrant need not be changed because of
any adjustment made pursuant to SECTION 6.1 or SECTION 6.2 hereof, and Warrants
issued after such adjustment may state the same Exercise Price and the same
Warrant Number as are stated in this Warrant.
SECTION 7.0. PRIOR NOTICE OF CERTAIN EVENTS. In the event that:
(a) the Company shall declare any dividend, whether payable in
cash or in any capital stock upon its Common Stock, or authorize any other
issuance or distribution to the holders of its Common Stock; or
(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
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notice shall be given at least thirty (30) days prior to the date of the event
in question and the record date or the date on which the Company's transfer
books are closed in respect thereto.
SECTION 8.0. NO RIGHTS OR RESPONSIBILITIES AS SHAREHOLDER. Except as
otherwise agreed in writing by the Holder and the Company, a Holder of this
Warrant, as such, shall not be subject to any responsibilities as a shareholder
of the Company and shall not be entitled to vote or be deemed the Holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained herein be
construed to confer upon the Holder of this Warrant, as such, the rights of a
shareholder of the Company or the right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate section (except as provided herein) or to
receive notice of meetings or other actions affecting shareholders (except as
provided herein), or to receive dividends or subscription rights or otherwise
(except as provided herein), until the date of exercise of this Warrant shall
have occurred.
SECTION 9.0 REGISTRATION RIGHTS. Upon exercise of this Warrant, the
Holder shall have and be entitled to exercise, together with all other holders
of Common Stock possessing registration rights under the Loan Agreement, the
rights of registration granted under the Loan Agreement with respect to the
shares of Common Stock issued upon exercise of this Warrant.
SECTION 10.0. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new warrant of like tenor and date, in lieu of this Warrant.
SECTION 11.0. TRANSFER AND EXCHANGE OF WARRANT. This Warrant and all
rights hereunder are transferable at the office or agency of the Company by the
registered Holder hereof in person or by a duly authorized attorney, upon
surrender of this Warrant together with a properly endorsed assignment in the
form attached hereto as SCHEDULE II. The Company shall be entitled to receive,
as a condition to any transfer of this Warrant, an opinion of counsel reasonably
satisfactory to the Company that such transfer does not violate the registration
requirements of the Securities Act of 1933, as amended, or applicable state
securities laws. Until transfer hereof on the registration books of the Company,
the Company may treat the registered Holder as the owner hereof for all
purposes. This Warrant is exchangeable, upon the surrender hereof by Holder, at
the principal offices of the Company, together with a properly endorsed
assignment in the form attached hereto as SCHEDULE II, for new warrants, in such
denominations as Holder shall designate at the time of surrender for exchange,
of like tenor and date representing in the aggregate the right to subscribe for
and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new warrants to represent the right to subscribe for and
purchase not less than one hundred thousand (100,000) shares of Common Stock
(except to the extent necessary to round out the balance of the number of
shares).
SECTION 12.0. INVESTMENT INTENT. Contemporaneously with the original
issuance of this Warrant to the Holder hereof, the Holder has executed and
delivered to the Company an investment representation letter (in the form of
SCHEDULE III hereto) regarding the Holder's investment intent and imposing a
requirement that any transferee of this Warrant execute and deliver to the
Company a representation letter in form and substance similar to the contents of
such letter.
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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.
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
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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:
Its:
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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.
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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.]
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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 ("Warrant") and the rights to the
underlying shares has been acquired for investment for the Holder's own account,
not as a nominee or agent, and not with a view to the Holder's distribution of
any part thereof, and the Holder has no present intention of selling, granting
any participation in, or otherwise distributing the same. The Holder does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to the Warrant.
The Holder further undertakes to require any transferee of the Warrant
to execute and deliver to the CyberGuard Corporation a representation letter in
form and substance similar to the contents of this letter.
DATED: August __, 1999.
By:
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<PAGE> 1
$100,000
PROMISSORY NOTE
DUE JUNE 26, 2000
DATED: AUGUST 26, 1999
EXECUTED AND DELIVERED AT ATLANTA, GEORGIA
FOR VALUE RECEIVED, on August 26, 1999, the undersigned, DAVID R.
PROCTOR, an individual resident of the State of Texas ("Maker"), having a
mailing address of 5834 Westlope Drive, Austin, TX 78731 promises to pay to the
order of CyberGuard Corporation, a Florida corporation ("Payee"), or its
registered assigns (Payee or such registered assigns at the time being the
registered holder or holders hereof are hereinafter collectively referred to as
the ("Holde"), at 2000 West Commercial Boulevard, Suite 200, Fort Lauderdale,
Florida, or at such other place as the Holder hereof may direct in writing, the
aggregate principal sum of One Hundred Thousand dollars ($100,000), from the
date hereof on the unpaid principal amount, as follows:
1. INTEREST. This Note shall not bear interest so long as the Maker
waives his right to receive interest payments pursuant to that certain
Promissory Note of CyberGuard Corporation dated of even date herewith payable to
Maker in the amount of $150,000 (the "CyberGuard Note"). If the Maker elects to
receive interest under the CyberGuard Note, then the unpaid principal amount
hereof shall bear interest at the rate of 11.5% per annum, payable in monthly
installments on the first day of each month.
2. PRINCIPAL PAYMENTS. Until paid in full, this Note shall be paid (i)
by Payee's withholding all of the salary of the Maker (other amounts currently
being withheld for taxes, employee benefits and the like) during each pay period
in effect while Maker is employed with CyberGuard Corporation and (ii) in cash
upon the earlier of (a) the termination of Maker's employment with Payee for any
reason or (b) June 26, 2000.
3. DEFAULT. This Note may be declared in Default and the entire amount
of this Note, including the principal balance then outstanding, together with
all interest accrued thereon, shall become immediately due and payable, at the
option of Payee and without further notice, if (a) any payment of principal or
interest due hereunder is not paid when due; or (b) Maker becomes subject to any
bankruptcy, insolvency, receivership or debtor relief proceedings and, in the
case of any such proceedings initiated against Maker, the same have not been
discharged within sixty (60) days after institution; or (c) Maker makes an
assignment for the benefit of creditors, or admits in writing an inability to
pay its debts generally as they become due; or (d) Maker fails to comply with or
perform any covenant, agreement or condition of this Note. The failure of the
Holder to exercise any right or remedy hereunder shall not be deemed to be a
release or waiver of any obligation or liability of the Maker.
4. PREPAYMENT. The Maker may prepay this Note, in whole or in part, at
any time, without penalty.
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<PAGE> 2
5. SECURITY FOR REPAYMENT. This Note is secured by a Pledge and
Security Agreement dated of even date herewith between Maker and Payee (the
"Pledge Agreement") pursuant to which Payee has pledged (collectively, the
"Collateral"): (i) the CyberGuard Note and (ii) warrant issued by CyberGuard
Corporation to purchase 150,000 shares of common stock of CyberGuard
Corporation. This is a non-recourse Note. In the event of a default hereunder,
the Payee shall have recourse only to the Collateral for collection of such
costs and expenses.
6. WAIVERS. Maker hereby waives presentment for payment, notices of
non-performance or nonpayment, protest, notices of protest, notice of dishonor,
diligence in bringing suit hereon against any party hereto and notice of
acceleration, and further consent to any extension of time for payment hereunder
(whether one or more), any renewal hereof (whether one or more), any
substitution or release of any collateral, and any addition or release of any
party liable for payment of this Note. Any such extension, renewal, substitution
or release may be made by the Holder without notice to any such party and
without discharging such party's liability hereunder.
7. COLLECTION COSTS; ATTORNEYS' FEES. Maker agrees to pay all expenses
and costs of collection, including all reasonable attorneys' fees and expenses
as awarded by a court, court costs, and similar costs incurred by the Holder in
connection with the enforcement of this Note, endeavoring to collect any amounts
payable hereunder, whether by acceleration or otherwise.
8. PARTIAL INVALIDITY. If any provision of this Note or the application
thereof to any party or circumstances is held invalid or unenforceable, the
remainder of this Note and the application of any such provision to other
parties or circumstances shall not be affected thereby, the provisions of this
Note being severable in any such instance. No invalid provision hereof shall
affect or impair any other provision of this Note.
9. CONFLICT. This Note is issued pursuant to a Loan Agreement entered
into on the date hereof between Maker and Payee (the "Loan Agreement"). In the
event of a conflict as between the terms and conditions hereof and the terms and
conditions of the Loan Agreement, the terms and conditions of this Note shall
control. In lieu of any such conflict of terms both documents shall be of equal
force and effect.
10. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to conflict of
law principles.
11. AMENDMENTS. Any amendment or modification to this Note shall not be
effective unless signed in writing by the Holder.
12. HEADINGS; CONSTRUCTION. The headings of the sections of this Note
are inserted for convenience only and shall not be deemed to constitute a part
hereof, words used herein of any gender shall be construed to include any other
gender where appropriate, and words used herein which are either singular or
plural shall be construed to include the other where appropriate.
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<PAGE> 3
13. SUCCESSORS AND ASSIGNS. All of the covenants, stipulations,
promises, and agreements in this Note contained by or on behalf of Maker shall
bind its successors and assigns, whether so expressed or not; provided, however,
that Maker may not, without the prior consent of the Holder, assign any rights,
duties, or obligations under this Note.
14. MAXIMUM INTEREST RATE. Regardless of any provision contained
herein, or in any other documents or instruments executed in connection
herewith, the Holder hereof shall never be entitled to receive, collect, or
apply, as interest hereon, any amount in excess of the Highest Lawful Rate and
in the event the Holder hereof ever receives, collects, or applies, as interest,
any such excess, such amount which would be excessive interest shall be deemed a
partial prepayment of principal and treated hereunder as such; and, if the
principal hereof is paid in full, any remaining excess shall be refunded to
Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder
hereof shall, to the maximum extent permitted under applicable law, (a)
characterize any nonprincipal payment as an expense, fee, or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
spread the total amount of interest throughout the entire contemplated term
hereof; provided that if the interest received for the actual period of
existence hereof exceeds the Highest Lawful Rate, the Holder hereof shall either
apply or refund to Maker the amount of such excess as herein provided, and in
such event the Holder hereof shall not be subject to any penalties provided by
any laws for contracting for, charging, or receiving interest in excess of the
Highest Lawful Rate. For purposes of this Note, the term "Highest Lawful Rate"
shall mean, at any given time, the maximum nonusurious interest rate, if any,
that may be contracted for or received on the indebtedness evidenced by this
Note under applicable federal and state laws.
15. NO ORAL AGREEMENTS. THIS NOTE REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
16. WAIVER OF TRIAL BY JURY. MAKER HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE BE TRIED BY JURY. THIS WAIVER
EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE
INCLUDING, BUT NOT LIMITED TO, THE CONSTITUTION OF THE UNITED STATES OR ANY
STATE THEREIN, COMMON LAW OR ANY APPLICABLE STATUTE OR REGULATIONS. MAKER
ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND
TRIAL BY JURY.
MAKER:
-----------------------------------
David R. Proctor
3
<PAGE> 4
STATE OF GEORGIA )
) SS
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this 26th day of
August, 1999, by David R. Proctor. He is (check one) _____ personally known to
me or ____ has produced a _____________ drivers license as identification.
Signature:
---------------------------
Print Name
--------------------------
State of
----------------------------
[Notary Seal] Commission#:
My Commission Expires:
4
<PAGE> 1
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement ("Pledge Agreement") is made this
26th of August, 1999, by and between David Proctor, an individual resident of
the State of Florida ("Pledgor") and CyberGuard Corporation, a Florida
corporation ("Pledgee").
RECITALS
Pledgor has executed that certain promissory note ("Note") of even date
herewith in favor of Pledgee in the original principal amount of $100,000, which
Note is attached hereto and incorporated herein as Exhibit "A."
As security for Pledgor's obligations under the Note ("Note
Obligations"), as and when required by the Note, Pledgor is required to pledge
and to grant to Pledgee a security interest in and lien upon the "Collateral"
(as hereinafter defined).
NOW THEREFORE, in order to induce Pledgee to accept the Note, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. PLEDGE.
(a) To secure the payment and performance of all Note
Obligations, Pledgee hereby grants, transfers and pledges to Pledgor, and grants
to Pledgee a security interest in, all of Pledgor's now existing and hereafter
arising right, title and interest in, under and to the following (the
"Collateral"):
(i) One Promissory Note of CyberGuard Corporation in
the principal amount of $150,000 payable to Pledgor, together with all new,
substituted and additional notes made at any time with respect to this Note (the
"Pledged Note"); or such substituted Collateral as may be reasonably acceptable
to the Pledgee;
(ii) One Warrant to purchase 150,000 shares of
CyberGuard Corporation, together with all new, substituted and additional
warrants made at any time with respect to such Warrant (the "Pledged Warrants");
or such substituted Collateral as may be reasonably acceptable to the Pledgee;
(iii) Any and all now existing and hereafter arising
rights of the holder of the Collateral or any substituted Collateral with
respect to all rights to payment of any kind, including cash and non-cash
dividends, instruments and other property, from time to time received,
receivable or otherwise distributed on account of, or in exchange for, the
Pledged Note or Pledged Warrant or any substituted Collateral; and
(iv) All proceeds of the foregoing Collateral,
including, without limitation, whatever is receivable or received when
Collateral or proceeds is sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and including, without
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<PAGE> 2
limitation, all rights to payment, interest, or other property receivable or
received on account of the Collateral or proceeds thereof.
(b) Pledgor hereby irrevocably appoints Pledgee as its true
and lawful attorney-in-fact, with full power of delegation, substitution and
assignment, as follows: (i) to execute, deliver, file and record, on Pledgor's
behalf and in Pledgor's name, financing statements and all such other security
and agreements, contracts, documents and instruments; (ii) to give notice of
Pledgee's rights in the Collateral and to enforce the same; (iii) to receive,
endorse, and collect all instruments made payable to Pledgor, representing any
payment or distribution in respect of the Collateral or any part thereof and to
give full discharge therefor, which irrevocable power shall become effective
without further action upon the occurrence of an "Event of Default" (as
hereinafter defined); and (iv) to do such other acts as Pledgee, in its sole
discretion, may deem necessary or desirable to perfect or protect the security
interest hereby created and to carry out the purposes and intents of this Pledge
Agreement, Pledgor hereby ratifying and confirming all that Pledgee may do in
that regard, acknowledging that this power of attorney is coupled with an
interest, and agreeing to pay all reasonable costs and expenses in connection
therewith, provided, however, that Pledgee shall have recourse only to the
Collateral for collection of such costs and expenses.
2. CONVERSION OF NOTE/EXERCISE OF WARRANT. In the event that the
Pledgor desires to convert the Pledged Note or exercise the Pledged Warrant in
accordance with the terms thereof, then the Pledgee shall permit such conversion
or exercise and shall replace the Collateral with a substitute Pledged Note or
Pledged Warrant reduced in amount to reflect such exercise; provided, however,
that the following conditions shall apply:
(a) The Pledged Note may be not be converted in whole until
the Note is paid in full and may not be converted in part if, after such partial
conversion, the principal amount of the Pledged Note will be less than the
principal amount of the Note secured by the Pledged Note at the time of
conversion; and (b) The Pledged Warrant may not be exercised in whole until the
Note is paid in full and may not be exercised in part if, after such partial
exercise, the number of shares remaining issuable upon exercise of the Pledged
Warrant is less than the dollar amount of the principal outstanding of the Note
at the time of exercise.
3. INDEBTEDNESS SECURED. The security interest created hereby is given
for the purpose of securing payment by Pledgor to Pledgee of all Note
Obligations required pursuant to the Note.
4. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby
represents, warrants, and agrees that:
(a) The execution and delivery by Pledgor of, and the
performance by Pledgor of all of its obligations under, this Pledge Agreement
will not violate any applicable law or any contract or agreement by which
Pledgor is bound;
(b) Pledgor has granted no security interest in any Collateral
or the proceeds thereof, except in favor of Pledgee;
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<PAGE> 3
(c) This Pledge Agreement constitutes a legal, valid and
binding obligation of Pledgor, enforceable in accordance with its terms;
(d) There is no action, suit, or proceeding pending, or to the
best of Pledgor's knowledge threatened, against Pledgor which could reasonably
be expected to adversely affect the Collateral or Pledgor's property or
financial condition; and
(e) The sole owner of the Collateral is the Pledgor (or, in
the case of after-acquired Collateral, at the time Pledgor acquires rights in
the Collateral, Pledgor will be the sole owner thereof).
5. COVENANTS OF PLEDGOR. Until such time as all the Note Obligations
have been satisfied in full or all payments required under the Note have been
made, unless Pledgee otherwise consents in writing:
(a) Pledgor shall: (i) at the request of Pledgee, at any time
and from time to time, execute and deliver to Pledgee all financing statements
and other documents reasonably deemed necessary or advisable by Pledgee in order
more fully to evidence and perfect the security interest in the Collateral; (ii)
promptly furnish Pledgee with any information which Pledgee may reasonably
request concerning the Collateral; (iii) allow Pledgee to inspect all records of
Pledgor relating to the Collateral and to make and take away copies of such
records; (iv) do all acts which may be necessary to preserve, maintain, and
protect the Collateral and the value thereof and Pledgor's rights and interests
therein; (v) pay all taxes, assessments, and other charges imposed on or
relating to the Collateral, except such taxes, if any, as are being contested in
good faith by appropriate proceedings and by reason of such nonpayment and
contest no material item or portion of the Collateral is in jeopardy of being
attached or forfeited; and (vi) pay all reasonable costs and expenses, including
reasonable attorneys' fees, incurred by Pledgee in connection with the
enforcement of this Pledge Agreement, provided, however, that Pledgee shall have
recourse only to the Collateral for collection of such costs and expenses.
(b) Pledgor shall not, without prior written consent, (i)
sell, assign, exchange, transfer, encumber, or otherwise dispose of, or contract
to sell, assign, exchange, transfer, encumber, or otherwise dispose of
(collectively, "Transfer"), any of the Collateral or any part thereof or any
interest therein, or (ii) take any action with respect to the Collateral which
is inconsistent with the provisions or purposes of this Pledge Agreement or
which would adversely affect the rights of Pledgee hereunder.
6. EVENTS OF DEFAULT AND REMEDIES.
(a) The occurrence of any of the following events shall
constitute an "Event of Default" hereunder: The breach by Pledgor of any term,
provision or covenant of this Pledge Agreement or any event of default under the
Note (other than the failure to make any principal payment required in Paragraph
1 of the Note) upon the lapse of the "Notice and Cure Period" (as defined below)
and the Pledgor's failure to remove or alleviate the event, fact or condition
giving rise to such alleged default during the Notice and Cure Period.
(b) Upon the occurrence of any Event of Default, Pledgee shall
have all rights and remedies of a secured party under the Uniform Commercial
Code.
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(c) "Notice and Cure Period" shall mean the date immediately
the ten (10) day period commencing upon the date on which an event as described
under Section 6(a) hereof occurs.
7. RELEASE OF COLLATERAL.
(a) This Pledge Agreement, the Collateral and all obligations
of Pledgor hereunder shall be released when the Note has been paid in full and
all Note Obligations required thereunder have been made.
(b) Upon the release of any Collateral pursuant to this
Section 7, Pledgee shall execute, deliver, file and record all documents and
instruments, or shall cause such to be done, all acts or instruments reasonably
required by Pledgor to evidence such release.
8. AMENDMENTS; WAIVERS. Neither this Pledge Agreement nor any provision
hereof may be amended, modified, waived, discharged, or terminated nor may any
of the Collateral be released except by an instrument in writing duly signed by
or on behalf of Pledgee and Pledgor. No failure or delay on the part of Pledgee
in exercising any right, power, or remedy may be, or may be deemed to be, a
waiver thereof; nor may any single or partial exercise of any right, power, or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy hereunder.
9. NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
TO THE PLEDGEE: TO THE PLEDGOR:
CyberGuard Corporation David R. Proctor
2000 West Commercial Boulevard 5834 Westlope Drive
Fort Lauderdale, Florida 33309 Austin, Texas 78731
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
10. FURTHER ASSURANCES. The parties shall cooperate and take such
actions, and execute such other documents as either may reasonably request in
order to carry out the provisions or purpose of this Pledge Agreement.
11. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Pledge Agreement,
together with all exhibits hereto, constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior
agreements, understanding, negotiations and discussions, whether
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oral or written, of the parties. No supplement, amendment, modification or
waiver of this Pledge Agreement shall be binding unless executed in writing by
the party to be bound thereby. No waiver of any of the provisions of this Pledge
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
12. BINDING AGREEMENT. This Pledge Agreement and the terms, covenants,
and conditions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that Pledgee
shall not be permitted to transfer, convey, or assign this Pledge Agreement or
any interest herein without the prior written consent of Pledgor.
13. INVALIDITY. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to herein
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, then such invalidity, illegality or unenforceability shall not affect
any other provision of this Pledge Agreement or any other such instrument.
14. MISCELLANEOUS. All words used herein in the plural shall be deemed
to have been used in the singular, and all words used herein in the singular
shall be deemed to have been used in the plural, where the context and
construction so require. Section headings in this Pledge Agreement are included
for convenience of reference only and are not a part of this Pledge Agreement
for any other purpose.
15. GOVERNING LAW. This Pledge Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Florida.
16. COUNTERPARTS. This Pledge Agreement may be executed in one or more
counterparts, each one of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of an executed
counterpart of this Pledge Agreement via telephone facsimile transmission shall
be effective as delivery of a manually executed counterpart of this Pledge
Agreement.
*****
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IN WITNESS WHEREOF, the parties have duly executed this Pledge
Agreement on the date first above written.
PLEDGOR
------------------------------------------
David R. Proctor
PLEDGEE
CyberGuard Corporation
------------------------------------------
By:
Its:
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STATE OF GEORGIA )
) SS
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this 26th day of
August, 1999, by David R. Proctor. He is (check one) _____ personally known to
me or ____ has produced a _____________ drivers license as identification.
Signature:
---------------------------
Print Name
--------------------------
State of
----------------------------
[Notary Seal] Commission#:
My Commission Expires:
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<PAGE> 1
CYBERGUARD CORPORATION
NON-STATUTORY STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into as of the 4th
day of September, 1998, between CyberGuard Corporation (the "Corporation"), a
Florida corporation having its principal office in Ft. Lauderdale, Florida, and
____________ ("Director"), a director of the Corporation.
WHEREAS, the Corporation and the Director have previously entered into
one or more stock option agreement(s) as more fully described below ("Old
Options");
WHEREAS, in consideration of Director's agreement to fully terminate
all the Old Options, the Corporation hereby agrees to grant to Director a "New
Option" (as defined below) to completely replace the Old Options.
NOW THEREFORE, the Corporation and Director hereby agree as follows:
1. NEW OPTION. Under and subject to the provisions of the Corporation's
Stock Incentive Plan as in effect from time to time ("Plan"), the Corporation
hereby grants to Director a non-statutory option to purchase an aggregate of the
number of shares of Common Stock of the Corporation as set forth on Exhibit B
attached hereto at the price of U.S. $1.125 per share ("New Option"), subject to
the following conditions:
(a) The New Option shall not be exercisable to any extent
until and unless the Director shall have remained continuously as a
director of the Corporation until at least May 6, 1999; provided,
however, that if the Director's position as a director terminates
because of the Director's death, failure to be re-elected by the
shareholders, medical disability (with physician's written opinion
regarding disability to serve as a director) or removal from office
(including a resignation upon request of a purchaser of the
Corporation) after "Change of Control" (as defined in the Plan), then
the requirement that Director remain continuously as a director of the
Corporation until at least May 6, 1999 shall be waived by the
Corporation and the New Options shall become immediately exercisable
(to the extent they have not expired) and remain exercisable for the
time period stated in Exhibit B hereof.
(b) During the lifetime of the Director, the New Option shall
be exercisable only by the Director; after the Director's death, the
New Option shall be exercisable as described in the Plan.
(c) Notwithstanding any other provision of this Agreement, the
New Option shall expire in accordance with the schedule set forth on
Exhibit B hereof and shall not be exercisable thereafter.
(d) By executing this Agreement, Director acknowledges and
agrees that all Old Options are hereby fully and finally terminated,
are void and are of no further force or effect. The New Option granted
to Director herein replaces the Old Options in their entirety. As used
herein, the term "Old Option" shall mean all options, rights and option
agreements dated on or before September 3, 1998 between Corporation and
Director under which Director has the right to purchase shares of
Corporation Common Stock from the Corporation at a stated exercise
price per share (collectively, the "Old Options"). Without limiting the
generality of the foregoing sentence, attached hereto as Exhibit A is a
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description of the Old Options. Notwithstanding the attachment of
Exhibit A, it is the intention of the parties hereto that this
Agreement shall terminate all options, rights and option agreements
dated on or before September 3, 1998 between Corporation and Director
under which Director has the right to purchase shares of Corporation
Common Stock from the Corporation at a stated exercise price per share,
whether or not such options, warrants or agreements are listed on
Exhibit A.
2. EXERCISE OF NEW OPTION. The New Option may be exercised by
delivering to the Corporation at the office of the Corporate Secretary (i) a
written notice, signed by the person entitled to exercise the New Option,
stating the number of shares such person then elects to purchase hereunder, (ii)
payment in an amount equal to the full purchase price of the shares then to be
purchased, and (iii) in the event the New Option is exercised by any person
other than the Director, evidence satisfactory to the Corporation that such
person has the right to exercise the New Option. If it is required (in the
estimation of the Corporation), the Corporation also may require the payment of
any withholding or other applicable taxes at the time of exercise of the New
Option. Payment shall be made (a) in cash, (b) in previously acquired shares of
Common Stock of the Corporation, valued at their Fair Market Value on the day
preceding the exercise date of the New Option, or (c) in any combination of cash
and such shares. Shares tendered in payment of the purchase price which have
been acquired through an exercise of a stock option shall have been held at
least six (6) months prior to exercise of the New Option. Upon the due exercise
of the New Option, the Corporation shall issue in the name of the person
exercising the New Option, and deliver to the Director, one or more certificates
for the shares in respect of which the New Option shall have been so exercised.
The Director acknowledges that the Director does not have any rights as a
shareholder in respect of any shares as to which the New Option shall not have
been duly exercised and that no rights as a shareholder shall arise in respect
of any such shares until and except to the extent that a certificate or
certificates for such shares shall have been issued.
3. PROHIBITION AGAINST TRANSFER. The New Option and rights granted by
the Corporation under this Agreement are not transferable except by will or the
laws of descent and distribution. Without limiting the generality of the
foregoing, the New Option may not be assigned, transferred except as aforesaid,
pledged or hypothecated, shall not be assignable by operation of law, and shall
not be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the New
Option contrary to the provisions hereof, or the levy of any execution,
attachment or similar process upon the New Option, shall be null and void and
without effect.
4. ADJUSTMENTS. In case there shall be a merger, reorganization,
consolidation, recapitalization, stock dividend, a change in corporate structure
such that shares of Common Stock are changed into or become exchangeable for a
larger or smaller number of shares, or an issuance of Common Stock by the
Corporation in exchange for which the Corporation (or its current shareholders,
on a pro-rata basis) does not receive cash or other property, the number of
shares subject to outstanding New Options shall be increased or decreased in
direct proportion to the increase or decrease in the number of shares of Common
Stock by reason of such change. The number of shares shall always be a whole
number, and the purchase price per share of any outstanding New Options shall,
in the case of an increase in the number of shares, be proportionately reduced,
and in the case of a decrease in the number of shares, shall be proportionately
increased.
(1) 5. COMMITTEE. The Corporation's Board of Directors and the
Committee administering the Plan shall have authority, subject to the express
provisions of the Plan as in effect from time to time, to construe this
Agreement and the Plan, to establish, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations in the judgment of
the Committee necessary or desirable for the administration of the Plan. The
Committee may correct any defect or supply any omission
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or reconcile any inconsistency in this Agreement in the manner and to the extent
it shall deem expedient to carry the Plan into effect, and it shall be the sole
and final judge of such expediency.
6. INCORPORATION OF PLAN PROVISIONS. This Agreement is made pursuant to
the Plan, the terms and conditions of which are hereby incorporated by
reference. Capitalized terms not otherwise defined herein have the meanings set
forth in the Plan. In the event of a conflict between the terms of this
Agreement and the Plan, the terms of the Plan shall govern.
7. MISCELLANEOUS.
(i) Words such as "herein", "hereof" and "hereunder" when used in this
Agreement shall refer to this Agreement as a whole unless the context requires
otherwise.
(ii) This Agreement embodies the entire agreement and understanding of
the parties with respect to the Old Options and the New Options.
(iii) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
(iv) THIS AGREEMENT MAY BE AMENDED OR MODIFIED ONLY IN A WRITTEN
DOCUMENT EXECUTED BY BOTH OF THE PARTIES HERETO.
(v) No waiver of any provision of this Agreement shall in any event be
effective unless the same shall be in writing and signed by the party granting
such waiver and then such waiver shall be effective only in the specific
instance and for the specific purpose for which given.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Option
Agreement in duplicate as of the day and year first above written.
CYBERGUARD CORPORATION DIRECTOR
By:__________________________ __________________________
C. Shelton James, Chairman
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<PAGE> 4
CYBERGUARD CORPORATION
NON-STATUTORY STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into as of the
___ day of _________, 1999, between CyberGuard Corporation ("Corporation"), a
Florida corporation having its principal office in Ft. Lauderdale, Florida, and
_________, ("Employee") of the Corporation or one of its subsidiaries.
1. THE OPTION. Under and subject to the provisions of the Corporation's
Employee Stock Option Plan as in effect from time to time ("Plan"), the
Corporation hereby grants to Employee a non-statutory option to purchase an
aggregate of _________ shares of Common Stock of the Corporation at the price of
U.S. $_________ per share ("Option"), subject to the following conditions:
(a) The Option shall not be exercisable to any extent until
and unless the Employee shall have remained continuously in the employ
of the Corporation for one year from the date hereof. Nothing herein
shall limit or restrict the Corporation's rights to terminate the
Employee's employment.
(b) During the lifetime of the Employee, the Option shall be
exercisable only by the Employee, and (except when Section 2 is
applicable) only while the Employee continues as an employee of the
Corporation.
(c) Notwithstanding any other provision of this Agreement, the
Option shall expire no later than five years from the date hereof and
shall not be exercisable thereafter.
(d) The number of shares of Common Stock with respect to which
the Option may be exercised from time to time is limited to the
following percentages of the aggregate number of shares optioned
hereby:
(i) After the end of one year and prior to the
end of two years from the date hereof, not
more than thirty-three percent (33.333%);
(ii) After the end of two years and prior to the
end of three years from the date hereof, not
more than sixty-six percent (66.666%);
(iii) After the end of three years from the date
hereof, one-hundred percent (100%).
2. TERMINATION OF EMPLOYMENT
(a) DEATH. In the event of the death of the Employee, the
Option shall be (i) exercisable only by the executor or administrator
of the Employee's estate or by the person or persons to whom the
Employee's rights under the Option shall pass by the Employee's will or
the laws of descent and distribution, (ii) exercisable if and to the
extent that the Option was exercisable at the date of the Employee's
death and (iii) shall remain exercisable for the shorter of (a) one
year following Employee's death or (b) the remainder of the period of
exercisability as stated in Section 1(c).
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(b) DISABILITY. In the event of termination of Employee's
employment due to disability of the Employee, the Option shall be
exercisable by the Employee only to the extent that the Option was
exercisable at the date of such cessation of employment, and no more,
and shall remain exercisable for the shorter of (i) one year following
Employee's termination of employment or (ii) the remainder of the
period of exercisability as stated in Section 1(c).
(c) RETIREMENT. In the event of Retirement of the Employee,
the Option shall be exercisable by the Employee only to the extent that
the Option was exercisable at the date of such cessation of employment,
and no more, and shall remain exercisable for the shorter of (i) one
year following Employee's termination of employment or (ii) the
remainder of the period of exercisability as stated in Section 1(c).
The term "Retirement" is specially defined in the Plan; generally, a
termination in service from the Company will be covered by provisions
regarding terminations for reasons other than death, disability, or
Retirement, and not this paragraph.
(d) TERMINATION OF EMPLOYMENT. In the event of termination of
Employee's employment for reasons other than death, disability or
Retirement, the Option shall be exercisable by the Employee only to the
extent that it was exercisable at the date of such cessation of
employment, and no more, and shall remain exercisable for the shorter
of (i) three (3) months following Employee's termination of employment
or (ii) the remainder of the period of exercisability as stated in
Section 1(c).
(e) CHANGE OF CONTROL. If a "Change of Control" (as defined in
the Plan) shall occur and Employee's employment is thereafter
terminated by the Corporation, then the Options shall become 100%
immediately exercisable in full (to the extent that they otherwise have
not expired) and shall remain exercisable for the shorter of (i) one
year following Employee's termination of employment or (ii) the
remainder of the period of exercisability as stated in Section 1(c).
Notwithstanding the foregoing provisions of this section 2, in the event that:
(x) the Employee has entered into an Employment Agreement with the Corporation
(the "Employment Agreement"); and (y) if Employee's Employment Agreement is
terminated under circumstances that give Employee a longer period of exercise or
greater rights than those set forth in this Agreement, then the terms and
conditions governing exercisability and continuation of the Option after
termination of Employment contained in the Employment Agreement shall supersede
those set forth in this Agreement.
3. EXERCISE OF OPTION. The Option may be exercised by delivering to the
Corporation at the office of the Corporate Secretary (a) a written notice,
signed by the person entitled to exercise the Option, stating the number of
shares such person then elects to purchase hereunder, (b) payment in an amount
equal to the full purchase price of the shares then to be purchased, and (c) in
the event the Option is exercised by any person other than the Employee,
evidence satisfactory to the Corporation that such person has the right to
exercise the Option. If it is required (in the estimation of the Corporation),
the Corporation also may require the payment of any withholding or other
applicable taxes at the time of exercise of the Option. Payment shall be made
(i) in cash, (ii) in previously acquired shares of Common Stock of the
Corporation, valued at their Fair Market Value on the day preceding the exercise
date of the Option, or (iii) in any combination of cash and such shares. Shares
tendered in payment of the purchase price which have been acquired through an
exercise of a stock option shall have been held at least six (6) months prior to
exercise of the Option.
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Upon the due exercise of the Option, the Corporation shall issue in the name of
the person exercising the Option, and deliver to the Employee, one or more
certificates for the shares in respect of which the Option shall have been so
exercised. The Employee acknowledges that the Employee does not have any rights
as a shareholder in respect of any shares as to which the Option shall not have
been duly exercised and that no rights as a shareholder shall arise in respect
of any such shares until and except to the extent that a certificate or
certificates for such shares shall have been issued.
4. PROHIBITION AGAINST TRANSFER. The Option and rights granted by the
Corporation under this Agreement are not transferable except by will or the laws
of descent and distribution. Without limiting the generality of the foregoing,
the Option may not be assigned, transferred except as aforesaid, pledged or
hypothecated, shall not be assignable by operation of law, and shall not be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, or the levy of any execution, attachment or similar
process upon the Option, shall be null and void and without effect.
5. ADJUSTMENTS. In case there shall be a merger, reorganization,
consolidation, recapitalization, stock dividend, a change in corporate structure
such that shares of Common Stock are changed into or become exchangeable for a
larger or smaller number of shares, or an issuance of Common Stock by the
Corporation in exchange for which the Corporation (or its then current
shareholders, on a pro-rata basis) does not receive cash or other property, the
number of shares subject to outstanding Options shall be increased or decreased
in direct proportion to the increase or decrease in the number of shares of
Common Stock by reason of such change in corporate structure. The number of
shares shall always be a whole number, and the purchase price per share of any
outstanding Options shall, in the case of an increase in the number of shares,
be proportionately reduced, and in the case of a decrease in the number of
shares, shall be proportionately increased.
6. EMPLOYMENT BY PARENT, SUBSIDIARY OR SUCCESSOR. For the purpose of
this Agreement, employment by a parent or subsidiary of or a successor to the
Corporation shall be considered employment by the Corporation. "Parent" and
"subsidiary" as used herein shall have the meaning of "parent" and "subsidiary
corporation," respectively, as defined in Section 424 of the Internal Revenue
Code of 1986, as amended, or subsequent comparable statute.
(2) 7. COMMITTEE. The Corporation's Board of Directors and the
Committee administering the Plan shall have authority, subject to the express
provisions of the Plan as in effect from time to time, to construe this
Agreement and the Plan, to establish, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations in the judgment of
the Committee necessary or desirable for the administration of the Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect, and it shall be the sole and final
judge of such expediency.
8. INCORPORATION OF PLAN PROVISIONS. This Agreement is made pursuant to
the Plan, the terms and conditions of which are hereby incorporated by
reference. Capitalized terms not otherwise defined herein have the meanings set
forth in the Plan. In the event of a conflict between the terms of this
Agreement and the Plan, the terms of the Plan shall govern.
9. MISCELLANEOUS.
(i) Words such as "herein", "hereof" and "hereunder" when used in this
Agreement shall refer to this Agreement as a whole unless the context requires
otherwise.
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(ii) This Agreement embodies the entire agreement between the parties
hereto with respect to the Option.
(iii) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
(iv) THIS AGREEMENT MAY BE AMENDED OR MODIFIED ONLY IN A WRITTEN
DOCUMENT EXECUTED BY BOTH OF THE PARTIES HERETO.
(v) No waiver of any provision of this Agreement shall in any event be
effective unless the same shall be in writing and signed by the party granting
such waiver and then such waiver shall be effective only in the specific
instance and for the specific purpose for which given.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Option
Agreement in duplicate as of the day and year first above written.
CYBERGUARD CORPORATION EMPLOYEE
By:_________________________ __________________________
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of March 11, 1999 by and between CyberGuard Corporation, a Florida corporation
(the "Company"), and David R. Proctor (the "Employee").
WHEREAS, the Company, through its Board of Directors, desires to retain
the services of Employee, and Employee desires to be retained by the Company, on
the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT. During his employment hereunder, Employee will serve as
the Chief Executive Officer and Chairman of the Board of Directors of the
Company.
2. TERM. The term ("Term") of this Agreement shall commence on March
15, 1999, and shall continue until otherwise terminated in accordance with the
terms of this Agreement.
3. DUTIES. Employee shall have general and active charge of the
business and affairs of the Company and, in such capacity, shall have
responsibility for the day-to-day operations of the Company, subject to the
authority and control of the Board of Directors of the Company. Throughout the
term of employment hereunder, the Employee shall devote his business time and
attention to the affairs of the Company as appropriate to his duties and
responsibilities hereunder; provided, however, that the Board of Directors
acknowledges that Employee is a resident of Austin TX, and it is not
contemplated or expected that Employee will change his principal residence from
Austin TX to South Florida. Furthermore, nothing in this Agreement shall
preclude the Employee from devoting reasonable periods required for serving as a
director or member of any advisory committee of other business organizations
involving no conflict of interest with the interests of the Company or from
engaging in charitable and community activities, or from managing his personal
investments.
4. COMPENSATION.
a. SALARY. During his employment hereunder, Employee shall be
paid a base salary of $182,00.00 per year, payable in equal installments not
less than monthly ("Base Salary"). The Employee's Base Salary
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<PAGE> 2
shall be reviewed at least annually by the Board of Directors or any Committee
of the Board delegated the authority to review executive compensation, but may
not be reduced during the Term.
b. OPTION AND BONUS. In addition to salary, Employee is hereby
awarded an option to acquire 375,000 shares ("Option Shares") of Company common
stock under the Company's Employee Stock Option Plan (the "Stock Option Plan"),
at an exercise price of $1.25 per share. The Option Shares shall be exercisable
as follows: the first 1/2 of the Option Shares shall be exercisable on the date
hereof, and the remainder shall become exercisable one year from today. The
Option Shares shall become immediately exercisable upon the occurrence of
certain events described in sections 7 and 8 of this Agreement. An agreement
shall be prepared providing for other terms and conditions regarding the Option
Shares that are typical of other executives option agreements, and this option
agreement shall also provide for anti-dilution in the event that shares of
Company stock are issued in settlement of any lawsuit pending against the
Company. In addition, Employee shall participate in the management bonus program
established by the Company with an initial annual targeted bonus equal to 100%
of Employee's Base Salary (hereafter the "Management Bonus Program").
c. INSURANCE. During his employment hereunder, Employee shall
be entitled to participate in all such health, life, disability and other
insurance programs, if any, that the Company may offer to other key executive
employees of the Company from time to time.
d. OTHER BENEFITS. During his employment here under, Employee
shall be entitled to all such other benefits, if any, that the Company may offer
to other key executive employees of the Company from time to time.
e. VACATION. Employee shall be entitled to four weeks'
vacation leave (in addition to holidays) in each calendar year during the Term;
however, Employee may take only two weeks' vacation leave within any calendar
month. Except with respect to vacation time unused as the result of a request by
the Company to postpone a vacation, and except for any Company policy that is
more favorable to Employee, any unused vacation from one calendar year shall not
carry-over to any subsequent calendar year.
f. EXPENSE REIMBURSEMENT. As a condition to employees
agreement to enter into this Agreement, the Company has agreed to reimburse
Employee for all his expenses in connection with his travel from Austin, TX to
Fort Lauderdale FL, as well as his expenses in connection with his living away
from home in Fort Lauderdale, FL. If Employee believes that it is in the best
interests of the Company to work over a weekend, he shall have the option to
have his spouse
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fly to Fort Lauderdale at Company expense. In addition, Employee shall, upon
submission of appropriate supporting documentation, be entitled to reimbursement
of reasonable out-of-pocket expenses incurred in the performance of his duties
hereunder in accordance with policies established by the Company. Such expenses
shall include, without limitation, reasonable entertainment expenses, gasoline
and toll expenses and cellular phone use charges, if such charges are directly
related to the business of the Company.
5. GROUNDS FOR TERMINATION. The Board of Directors of the Company may
terminate this Agreement for Cause. As used herein, "Cause" shall mean any of
the following: (i) an act of willful misconduct or gross negligence by Employee
in the performance of his material duties or obligations to the Company; if such
act is capable of cure, Employee shall be given written notice and such act
shall not be deemed a basis for Cause if cured within 60 days after written
notice is received by Employee specifying the alleged failure in reasonable
detail (and during such 60 day period, Employee shall continue to be employed by
the Company at full pay), or (ii) conviction of Employee of a felony involving
moral turpitude or (iii) a material act of dishonesty or breach of trust on the
part of Employee resulting or intended to result directly or indirectly in
personal gain or enrichment at the expense of the Company.
6. TERMINATION BY EMPLOYEE. Employee may terminate this Agreement with
Good Reason. In the event of termination by Employee for Good Reason, Employee
shall be entitled to the benefits of Paragraph 7b. of this Agreement. "Good
Reason" means:
a. The Company materially breaches the provisions of this
Agreement (except those set forth in Paragraph 4a.) and Employee provides at
least 15 days' prior written notice to the Company of the existence of such
breach and his intention to terminate this Agreement (no such termination shall
be effective if such breach is cured during such period); or
b. The Company fails to comply with the provisions of
Paragraph 4a. or to pay any amounts due under the Management Bonus Program
provisions of Paragraph 4b. for an uninterrupted 10 day period; or
c. the Company demotes or otherwise elects or appoints the
Employee to lesser offices or responsibilities than set forth in Section 1
hereof, or fails to re-elect or appoint him to such positions, or the Company
causes a material change in the nature or scope of the authorities, powers,
functions, duties or responsibilities attached to the Employee's positions as
described in Section 3; or
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d. The Company decreases Employee's compensation (salary or
percentage of bonus opportunity); or
e. The Company materially reduces Employee's welfare benefits,
including without limitation: paid vacation; paid sick time; paid legal and
float holidays; medical, dental and cancer insurance, hospital indemnity,
Flexible Spending, Short- and Long-term Disability insurance, Basic Group Term
Life/Accidental Death & Dismemberment insurance, Supplemental Life/AD&D
insurance, Spouse Life/Spouse AD&D insurance, Dependent Life insurance, Vision
Plan, 401k plan, Employee Assistance Program; education reimbursement program
(collectively, the "Benefits"); provided, however, that any change in Benefits
that is made by the Company that applies to its employees generally, shall not
be considered as giving rise to "Good Reason"; or
f. The Employee is required, without his prior written
consent, to relocate his office more than seventy-five miles from the office
Employee currently reports to.
7. PAYMENT AND OTHER PROVISIONS UPON TERMINATION.
a. In the event Employee's employment with the Company
(including its subsidiaries) is terminated by the Company for Cause as provided
in Paragraph 5 then, on or before Employee's last day of employment with the
Company, the provisions of this Paragraph 7a. shall apply. These same provisions
shall apply if Employee terminates his employment without Good Reason as
described in Paragraph 6.
i. SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS. The
Company shall pay in a lump sum to Employee at the time of Employee's
termination such amount of compensation due Employee for services rendered to
the Company, as well as compensation for unused vacation time and earned bonus,
as has accrued but remains unpaid. Any and all other rights granted to Employee
under this Agreement shall terminate as of the date of termination.
ii. NON-COMPETITION/NON-SOLICITATION PERIOD. The
provisions of Paragraphs 14 and 15 shall, at the option of the Company in its
sole discretion, continue to apply with respect to Employee for a period of up
to six months following the date of termination, so long as the Company: (x)
provides a written notice to Employee within 5 business days after Employee's
termination that the Company wishes to exercise its right to require that
Employee not compete and not solicit in accordance with Paragraphs 14 and 15
hereof; and (y) Company thereafter pays to Employee in periodic installments,
without interest, in
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accordance with the regular salary payment practices of the Company an amount
equal to (.1) the amount of Employee's annual Base Salary as in effect
immediately prior to Employee's date of termination, multiplied by (.2) the
number of months that the Company is requiring the non-competition and
non-solicitation covenants to remain in place, divided by 12. The first such
installment of Base Salary and target bonus shall be paid on or before the
delivery of the notice described in the prior sentence of this Paragraph 7a(ii).
The non-competition and non-solicitation provisions of this Agreement shall no
longer apply to Employee if the Company fails to pay the amounts required under
this Section 7a(ii) for an uninterrupted 10-day period and such failure is not
cured with 5 days after written notice of such failure is delivered to the
Company.
b. In the event Employee's employment with the Company
(including its subsidiaries) is terminated by the Company for any reason other
than for Cause as provided in Paragraph 5 and other than as a consequence of
Employee's death, disability, or normal retirement under the Company's
retirement plans and practices, then the following provisions apply. These same
provisions shall apply if Employee terminates his employment with Good Reason as
described in Paragraph 6. In addition to the amounts stated below, Employee
shall be paid any other amounts by the Company to which he is entitled.
i. SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS. On
or before Employee's last day of employment with the Company, the Company shall
pay in a lump sum to Employee as compensation for services rendered to the
Company a cash amount equal to twice the amount of Employee's annual Base
Salary. At the election of the Company, the cash amount referred to in this
Paragraph 7b.i. may be paid to Employee in periodic installments, without
interest, in accordance with the regular salary payment practices of the
Company, with the first such installment to be paid on or before Employee's last
day of employment with the Company, and no interest shall be paid with respect
to any amount not paid on the Employee's date of termination.
ii. VESTING OF OPTIONS AND RIGHTS. Notwithstanding
the vesting period provided for in any Company stock option plan and any related
stock option agreements between the Company and Employee for stock options
("Options") and stock appreciation rights ("Rights") granted Employee by the
Company, all Options (including without limitation the Option Shares) and Rights
shall become immediately exercisable upon termination of employment. In
addition, Employee will have the right to exercise all such Options and Rights
for the shorter of (a) two years following his termination of employment or (b)
with respect to each Option and Right, the remainder of the period of
exercisability under the terms of the appropriate documents that grant such
options.
iii. BENEFIT PLAN COVERAGE. The Company shall
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maintain in full force and effect for Employee and his dependents for six months
after the date of termination, all life, health, accident, and disability
benefit plans and other similar employee benefit plans, programs and
arrangements in which Employee or his dependents were entitled to participate
immediately prior to the date of termination, in such amounts as were in effect
immediately prior to the date of termination, provided that such continued
participation is possible under the general terms and provisions of such benefit
plans, programs and arrangements.
In the event that participation in any benefit plan, program
or arrangement described above is barred, or any such benefit plan, program or
arrangement is discontinued or the benefits thereunder materially reduced, the
Company shall arrange to provide Employee and his dependents for six months
after the date of termination with benefits substantially similar to those that
they were entitled to receive under such benefit plans, programs and
arrangements immediately prior to the date of termination. Notwithstanding any
time period for continued benefits stated in this Paragraph 7b.iii., all
benefits in this Paragraph 7b.iii. will terminate on the date that Employee
becomes an employee of another employer and eligible to participate in the
employee benefit plans of such other employer. To the extent that Employee was
required to contribute amounts for the benefits described in this Paragraph
7b.iii. prior to his termination, he shall continue to contribute such amounts
for such time as these benefits continue in effect after termination.
iv. OTHER COMPENSATION. Any awards previously made to
Employee under any of the Company's compensation plans or programs and not
previously paid shall immediately vest on the date of his termination and shall
be paid on that date and included as compensation in the year paid.
v. SAVINGS AND OTHER PLANS. Except as otherwise more
specifically provided herein or under the terms of the respective plans relating
to termination of employment, Employee's active participation in any applicable
savings, retirement, profit sharing or supplemental employee retirement plans or
any deferred compensation or similar plan of the Company or any of its
subsidiaries shall continue only through the last day of his employment. All
other provisions, including any distribution and/or vested rights under such
plans, shall be governed by the terms of those respective plans.
vi. NON-COMPETITION/NON-SOLICITATION PERIOD. The
provisions of Paragraphs 14 and 15 shall continue, beyond the time periods set
forth in such paragraphs, to apply with respect to Employee for six (6) months
following the date of termination. The non-competition and non-solicitation
provisions of this Agreement shall no longer apply to Employee if the Company
fails to pay the amounts required under the provisions of Paragraph 7b.i. for an
uninterrupted 10-day period and such failure is not cured within 5 days after
written notice of such
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failure is delivered to the Company.
c. The provisions of this Paragraph 7 shall apply if
Employee's employment is terminated prior to or more than one year after the
occurrence of a Change of Control (as defined in Paragraph 8c.). From the
occurrence of any Change of Control until the first anniversary of such Change
of Control, the provisions of Paragraph 8 shall apply in place of this Paragraph
7, except that in the event that Employee's employment is terminated by Employee
after a Change of Control without Good Reason, then the provisions of Paragraph
8 shall not apply and the provisions of Paragraph 7a. shall apply. Termination
upon death, disability and retirement are covered by Paragraphs 9, 10, and 11,
respectively.
8. PAYMENT AND OTHER PROVISIONS AFTER CHANGE OF CONTROL.
a. SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS. In the event
Employee's employment with the Company is terminated within one year following
the occurrence of a Change of Control (other than as a consequence of his death
or disability, or of his normal retirement under the Company's retirement plans
and practices) either (i) by the Company for any reason whatsoever or (ii) by
Employee with Good Reason as provided in Paragraph 6, then Employee shall be
entitled to receive from the Company, the following:
i. BASE SALARY. An amount equal to twice the
Employee's annual Base Salary as in effect at the date of termination shall be
paid on the date of termination; and
ii. OTHER BENEFITS. All benefits under Paragraphs
7.b.ii., 7b.iii., 7b.iv. and 7b.v. shall be extended to Employee as described in
such paragraphs.
b. NON-COMPETITION/NON-SOLICITATION PERIOD. In the event of a
termination under the circumstances described in Paragraph 8a., the provisions
of Paragraphs 14 and 15 shall be without force and effect and shall not apply to
Employee.
c. For purposes of this Agreement, the term "Change of
Control" shall mean:
i. The acquisition, other than from the Company, by
any individual, entity or group (within the meaning of ss. 13(d)(3) or ss.
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act)
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(any of the foregoing described in this Paragraph hereafter a "Person") of 30%
or more of either (a) the then outstanding shares of Capital Stock of the
Company (the "Outstanding Capital Stock") or (b) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"), provided, however, that
any acquisition by (x) the Company or any of its subsidiaries, or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any of
its subsidiaries or (y) any Person that is eligible, pursuant to Rule 13d-1(b)
under the Exchange Act, to file a statement on Schedule 13G with respect to its
beneficial ownership of Voting Securities, whether or not such Person shall have
filed a statement on Schedule 13G, unless such Person shall have filed a
statement on Schedule 13D with respect to beneficial ownership of 30% or more of
the Voting Securities or (z) any corporation with respect to which, following
such acquisition, more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Capital Stock and Voting Securities
immediately prior to such acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition, of the Outstanding
Capital Stock and Voting Securities, as the case may be, shall not constitute a
Change of Control; or
ii. Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any individual becoming a
director subsequent to the date hereof whose election or nomination for election
by the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Company (as such terms are used in Rule 14a-11 of Regulation
14A, or any successor section, promulgated under the Exchange Act); or
iii. Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination"), in each
case, with respect to which all or substantially all holders of the Outstanding
Capital Stock and Voting Securities immediately prior to such Business
Combination do not, following such Business Combination, beneficially own,
directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from Business Combination; or
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<PAGE> 9
iv. (a) a complete liquidation or dissolution of the
Company or (b) a sale or other disposition of all or substantially all of the
assets of the Company other than to a corporation with respect to which,
following such sale or disposition, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors is then owned beneficially, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Capital Stock and Voting Securities
immediately prior to such sale or disposition in substantially the same
proportion as their ownership of the Outstanding Capital Stock and Voting
Securities, as the case may be, immediately prior to such sale or disposition.
d. OPTIONS VEST UPON CHANGE OF CONTROL. In the event a Change
of Control occurs during the Term of this Agreement, notwithstanding the vesting
period provided for in any Company stock option plan and any related stock
option agreements between the Company and Employee for Options, all Options
(including without limitation the Option Shares) and Rights shall become
immediately exercisable upon the occurrence of a Change of Control. In addition,
Employee will have the right to exercise all Options and Rights for the
remainder of the period of their exercisability under the terms of the
appropriate documents that grant such Options.
9. TERMINATION BY REASON OF DEATH. If Employee shall die while employed
by the Company both prior to termination of employment and during the effective
Term of this Agreement, all Employee's rights under this Agreement shall
terminate with the payment of such amounts of annual Base Salary as have accrued
but remain unpaid and a prorated amount of targeted bonus under the Company's
Management Bonus Program through the month in which his death occurs, plus three
additional months of the fixed salary and targeted bonus. All benefits under
7b.ii., 7b.iv and 7b.v. shall be extended to Employee's estate as described in
such paragraphs. In addition, Employee's eligible dependents shall receive
continued benefit plan coverage under Paragraph 7b.iii. for three months from
the date of Employee's death.
10. TERMINATION BY DISABILITY. Employee's employment hereunder may be
terminated by the Company for disability. In such event, all Employee's rights
under this Agreement shall terminate with the payment of such amounts of annual
Base Salary as have accrued but remain unpaid as of thirtieth (30th) day after
such notice is given except that all benefits under Paragraphs 7b.ii, 7b.iii,
7b.iv. and 7b.v. shall be extended to Employee as described in such paragraphs.
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For purposes of this Agreement, "disability" is defined to mean that, as a
result of Employee's incapacity due to physical or mental illness:
a. Employee shall have been absent from his duties as an
officer of the Company on a substantially full-time basis for six (6)
consecutive months; and
b. Within thirty (30) days after the Company notifies Employee
in writing that it intends to replace him, Employee shall not have returned to
the performance of his duties as an officer of the Company on a full-time basis.
11. RETIREMENT. A voluntary termination by Employee for reasons of
retirement shall be treated as a voluntary termination without Good Reason and
the provisions of Paragraph 7a. shall apply. If during the Term or any extension
thereof, the Company adopts a retirement plan with respect to executive officers
of the Company, Employee shall have the right to participate in such plan.
12. INDEMNIFICATION. If litigation shall be brought, in the event of
breach or to enforce or interpret any provision contained herein, the
non-prevailing party shall indemnify the prevailing party for reasonable
attorney's fees (including those for negotiations, trial and appeals) and
disbursements incurred by the prevailing party in such litigation, and hereby
agrees to pay prejudgment interest on any money judgment obtained by the
prevailing party calculated at the generally prevailing NationsBank of Florida,
N.A. base rate of interest charged to its commercial customers in effect from
time to time from the date that payment(s) to him should have been made under
this Agreement.
13. (Omitted Intentionally)
14. NON-COMPETITION.
a. At all times during Employee's employ ment hereunder, and
for such additional periods as may otherwise be set forth in this Agreement in
reference to this Paragraph 14, Employee shall not, directly or indirectly,
engage in any business, enterprise or employment, whether as owner, operator,
shareholder, director, partner, creditor, consultant, agent or any capacity
whatsoever that manufactures products designed to compete directly with products
of the Company or markets such products anywhere in the world where the Company
(i) is engaged in business or (ii) has evidenced an intention of engaging in
business. Employee acknowledges that he has read the foregoing and agrees that
the nature of the geographical restrictions are reasonable given the
international nature of the Company's business.
In the event that these geographical or temporal restrictions are
judicially
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determined to be unreasonable, the parties agree that these restrictions shall
be judicially reformed to the maximum restrictions which are reasonable.
b. Notwithstanding the provisions of the preceding Paragraph
14a., Employee may accept employment with a company that would be deemed to be a
competitor of the Company as described in the previous sentence ("Competitor"),
so long as (i) the Competitor has had annual revenues of at least $1 billion in
each of the prior two fiscal years, (ii) the Competitor's revenues for products
and maintenance in direct competition with the Company does not exceed 50% of
its total revenues and (iii) Employee's responsibilities are solely for
divisions or subsidiaries of the Competitor that do not compete with the
Company.
15. NON-SOLICITATION OF EMPLOYEES AND CUSTOMERS. At all times during
Employee's employment hereunder, or for such additional periods as may otherwise
be set forth in this Agreement in reference to this Paragraph 15, Employee shall
not, directly or indirectly, for himself or for any other person, firm,
corporation, partnership, association or other entity (a) attempt to employ,
employ or enter into any contractual arrangement with any employee or former
employee of the Company, its affiliates, subsidiaries or predecessors in
interest, unless such employee or former employee has not been employed by the
Company, its affiliates, subsidiaries or predecessors in interest during the
twelve months prior to Employee's attempt to employ him, or (b) call on or
solicit any of the actual or targeted prospective customers of the Company or
its affiliates, subsidiaries or predecessors in interest with respect to any
matters related to or competitive with the business of the Company.
16. CONFIDENTIALITY.
a. NONDISCLOSURE. Employee acknowledges and agrees that the
Confidential Information (as defined below) is a valuable, special and unique
asset of the Company's business. Accordingly, except in connection with the
performance of his duties hereunder, Employee shall not at any time during or
subsequent to the term of his employment hereunder disclose, directly or
indirectly, to any person, firm, corporation, partnership, association or other
entity any proprietary or confidential information relating to the Company or
any information concerning the Company's financial condition or prospects, the
Company's customers, the design, development, manufacture, marketing or sale of
the Company's products or the Company's methods of operating its business
(collectively "Confidential Information"). Confidential Information shall not
include information which, at the time of disclosure, is known or available to
the general public by publication or otherwise through no act or failure to act
on the part of Employee.
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b. RETURN OF CONFIDENTIAL INFORMATION. Upon termination of
Employee's employment, for whatever reason and whether voluntary or involuntary,
or at any time at the request of the Company, Employee shall promptly return all
Confidential Information in the possession or under the control of Employee to
the Company and shall not retain any copies or other reproductions or extracts
thereof. Employee shall at any time at the request of the Company destroy or
have destroyed all memoranda, notes, reports, and documents, whether in "hard
copy" form or as stored on magnetic or other media, and all copies and other
reproductions and extracts thereof, prepared by Employee and shall provide the
Company with a certificate that the foregoing materials have in fact been
returned or destroyed.
c. BOOKS AND RECORDS. All books, records and accounts whether
prepared by Employee or otherwise coming into Employee's possession, shall be
the exclusive property of the Company and shall be returned immediately to the
Company upon termination of Employee's employment hereunder or upon the
Company's request at any time.
17. INJUNCTION/SPECIFIC PERFORMANCE SETOFF. Employee acknowledges that
a breach of any of the provisions of Paragraphs 14, 15 or 16 hereof would result
in immediate and irreparable injury to the Company which cannot be adequately or
reasonably compensated at law. Therefore, Employee agrees that the Company shall
be entitled, if any such breach shall occur or be threatened or attempted, to a
decree of specific performance and to a temporary and permanent injunction,
without the posting of a bond, enjoining and restraining such breach by Employee
or his agents, either directly or indirectly, and that such right to injunction
shall be cumulative to whatever other remedies for actual damages to which the
Company is entitled. Employee further agrees that the Company may set off
against or recoup from any amounts due under this Agreement to the extent of any
losses incurred by the Company as a result of any breach by Employee of the
provisions of Paragraphs 14, 15 or 16 hereof.
18. SEVERABILITY. Any provision in this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
19. SUCCESSORS. This Agreement shall be binding upon Employee and inure
to his and his estate's benefit, and shall be binding upon and inure to the
benefit of the Company and any permitted successor of the Company. Neither this
Agreement nor any rights arising hereunder may be assigned or pledged by:
Employee or anyone claiming through Employee; or by the Company, except to any
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corporation which is the successor in interest to the Company by reason of a
merger, consolidation or sale of substantially all of the assets of the Company.
The foregoing sentence shall not be deemed to have any effect upon the rights of
Employee upon a Change of Control.
20. CONTROLLING LAW. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of Florida.
21. NOTICES. Any notice required or permitted to be given hereunder
shall be written and sent by registered or certified mail, telecommunicated or
hand delivered at the address set forth herein or to any other address of which
notice is given:
To the Company: CyberGuard Corporation
2000 West Commercial Boulevard
Fort Lauderdale, Florida 33309
Attention: Chief Financial Officer
To Employee: David R. Proctor
[at such address as appears in the records of the Company
as being the last-known address of the Employee]
22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto on the subject matter hereof and may not be modified
without the written agreement of both parties hereto.
23. WAIVER. A waiver by any party of any of the terms and conditions
hereof shall not be construed as a general waiver by such party.
24. COUNTERPARTS. This Agreement may be executed in counter parts, each
of which shall be deemed an original and both of which together shall constitute
a single agreement.
25. INTERPRETATION. In the event of a conflict between the provisions
of this Agreement and any other agreement or document defining rights and duties
of Employee or the Company upon Employee's termination, the rights and duties
set forth in this Agreement shall control.
26. CERTAIN LIMITATIONS ON REMEDIES. Paragraph 7b. provides that
certain payments and other benefits shall be received by Employee upon the
termination of Employee by the Company other than for Cause and states that
these same provisions shall apply if Employee terminates his employment for Good
Reason. It is the intention of this Agreement that if the Company terminates
Employee other than for Cause (and other than as a consequence of Employee's
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death or disability) or if Employee terminates his employment with Good Reason,
then the payments and other benefits set forth in Paragraph 7b. shall constitute
the sole and exclusive remedies of Employee.
27. SURVIVAL. Notwithstanding the provisions of Paragraph 2, the
provisions of Paragraphs 14, 15, and 16 shall survive the expiration or early
termination of this Agreement.
IN WITNESS WHEREOF, this Employment Agreement has been executed by the
parties as of the date first above written.
COMPANY:
CYBERGUARD CORPORATION
By:_________________________
Its:
EMPLOYEE:
----------------------------
DAVID R. PROCTOR
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AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT ("Amendment"), dated as of May 4, 1999, amends the
EMPLOYMENT AGREEMENT (the "Agreement") that was made and entered into as of
March 11, 1999 by and between CyberGuard Corporation, a Florida corporation (the
"Company"), and David R. Proctor (the "Employee").
WHEREAS, the Company, through its Board of Directors, desires to amend
the Agreement and Employee also desires to amend the Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
A. Section 1 of the Agreement shall be amended by deleting Section 1 in
its entirety and substituting the following in its place:
"1. EMPLOYMENT. During his employment hereunder, Employee will
serve as the Chief Executive Officer, President and Chairman
of the Board of Directors of the Company."
B. Section 4a of the Agreement shall be amended by deleting the words "a
base salary of $182,000 per year" and substituting in its place: "a
base salary of $5,000 per week".
C. Section 4 of the Agreement shall be amended by adding the following
subsection 4g:
g. ADDITIONAL OPTION. In addition to salary, bonus and options
described in the Agreement, Employee is hereby awarded an option to
acquire 100,000 shares ("Additional Option Shares") of Company common
stock under the Stock Option Plan, at an exercise price of $0.75 per
share. The Additional Option Shares shall become exercisable in 1/3
increments on the first, second and third anniversaries of the date on
which Employee becomes President of the Company (by way of example, if
Employee became President of the Company on May 12, 1999, 33,333
Additional Option Shares would become exercisable on May 11, 2000,
33,334 Additional Option Shares would become exercisable on May 11,
2001, and the remaining 33,333 Additional Option Shares would become
exercisable on May 11, 2002). The Additional Option Shares shall become
immediately exercisable upon the occurrence of certain events described
in sections 7 and 8 of this Agreement. An agreement shall be prepared
providing for other terms and conditions regarding the Option Shares
that are typical of other executives option agreements, and this option
agreement shall also provide for anti-dilution in the event that shares
of Company stock are issued in settlement of any lawsuit pending
against the Company.
D. This amendment shall become effective as soon as Employee becomes
President of the Company.
E. Other than as stated in this Amendment, the Agreement shall remain in
full force and effect.
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IN WITNESS WHEREOF, this Amendment to Employment Agreement has been executed by
the parties as of the date first above written.
COMPANY:
CYBERGUARD CORPORATION
By:_________________________
Its:
EMPLOYEE:
----------------------------
DAVID R. PROCTOR
16
