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EXHIBIT 4.19
PRIVATE SECURITIES SUBSCRIPTION AGREEMENT
CyberGuard Corporation/Capital Ventures International
May 15, 1997
THIS PRIVATE SECURITIES SUBSCRIPTION AGREEMENT (this "AGREEMENT") has
been executed by the undersigned in connection with the sale pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
of certain shares of common stock, par value $0.01 per share (the "COMMON
STOCK") of CyberGuard Corporation, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, a corporation organized under the laws of Florida
("SELLER") to Capital Ventures International, c/o Heights Capital Management,
located at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, a
corporation organized under the laws of the Cayman Islands ("BUYER"). Seller
and Buyer (collectively, the "PARTIES") each hereby represents, warrants and
agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Seller and Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), and Rule 506 under Regulation D ("REGULATION D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act;
(ii) Buyer hereby subscribes for Seven Million Five Hundred
Thousand United States Dollars ($7,500,000) of Seller's Common Stock (said
shares of Common Stock being subscribed for by Buyer pursuant to this Agreement
are referred to herein as the "COMMON SHARES") payable in United States Dollars
as hereinafter provided, which purchase constitutes 100% of an offering (the
"OFFERING") of Seven Million Five Hundred Thousand United States Dollars
($7,500,000) of Common Stock, more fully described herein and in the Offering
Memorandum (as defined herein); and
(iii) Seller will file, not later than 30 days after the
Commitment Date (as hereinafter defined), a Registration Statement (the
"REGISTRATION STATEMENT") with the SEC to register the resale of the Common
Shares by Buyer and shall cause the Registration Statement to become effective
within ninety (90) days after the Commitment Date. The date on which this
Agreement has been signed by both Seller and Buyer is referred to herein
as the "COMMITMENT DATE."
2. BUYER'S REPRESENTATIONS AND AGREEMENTS
Buyer represents, warrants and agrees as follows:
(i) Buyer understands that the Common Shares have not been
registered under the Securities Act, or any other applicable securities law,
and, accordingly, none of the Common Shares may be offered, sold, transferred,
pledged, hypothecated or otherwise disposed of unless registered pursuant to,
or in a transaction exempt from registration under, the Securities Act and any
other applicable securities law. Buyer agrees not to sell any Common Shares
except either (a) in accordance with the Registration Statement, in which case
Buyer
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agrees to deliver a current prospectus to the extent required, or (b) in
accordance with Rule 144 under the Securities Act, in which case Buyer agrees
to comply with such rule.
(ii) Buyer has been duly organized and is validly existing
and in good standing in the jurisdiction of its organization. Buyer is an
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3), or (7) of
Regulation D (an "ACCREDITED INVESTOR") that is acquiring the Common Shares.
Buyer has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of an investment in the Common
Shares. Buyer has had a reasonable opportunity to ask questions of and
received answers from Seller concerning Seller and the offering of the Common
Shares. Buyer is not subscribing for the Common Shares as a result of any
"general solicitation" or "general advertising" as such terms are defined by
the interpretive materials of the SEC when used in connection with an offering
exempt from registration under Section 4(2) of the Securities Act and
Regulation D. Buyer is aware that it may be required to bear the economic risk
of an investment in the Common Shares for an indefinite period, and Buyer is
able to bear such risk for an indefinite period.
(iii) Buyer is acquiring the Common Shares for its own account
for investment purposes and not with a view to, or for offer or sale in
connection with, the distribution thereof (subject to any requirement of law
that the disposition of its property remains within its control) other than
pursuant to this Agreement, the Registration Statement or in compliance with
Rule 144 promulgated under the Securities Act. Notwithstanding anything to the
contrary in this Agreement, by making the representations herein, Buyer does
not agree to hold the Common Shares for any minimum other specified period and
reserves the right to dispose of the Common Shares at any time pursuant to
effective registration or exemption from registration.
(iv) Buyer acknowledges that Seller or the transfer agent for
Seller's Common Stock (the "TRANSFER AGENT") shall register the transfer or
exchange of any of the Common Shares only upon receipt of the certificate(s)
evidencing such Common Shares with the customary documentation necessary for
such transfer or exchange, it being understood by the parties that no opinion
of counsel shall be required for any transfer contemplated by the
Registration Statement;
(v) Following each Call For Proceeds, Buyer may sell on any
day only a number of Common Shares which does not exceed the trading volume on
the previous Trading Day (as defined herein), as reported by Bloomberg, L.P.
("BLOOMBERG"). The number of Common Shares which may be sold each day
thereafter shall be determined based upon the volume of the previous Trading
Day. "TRADING DAY" shall mean a business day on which the Common Stock trades
at least 1,000 shares in the Principal Market (as defined herein).
(vi) Buyer acknowledges that Seller and others will rely upon
the truth and accuracy of the foregoing acknowledgments, representations and
agreements and further agrees that if any of such acknowledgments,
representations and agreements made by Buyer are no longer accurate during such
time as the Registration Statement is in effect, Buyer will promptly notify
Seller.
(vii) Buyer has received all information relating to the
business, finances and operations of the Seller and materials relating to the
offer and sale of the Common Shares which have been requested by the Buyer.
Without limiting the generality of the foregoing, the Buyer had the opportunity
to review the Seller's Annual Report on Form 10-K for the fiscal
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year ended June 30, 1996, as amended by Amendment No. 1 thereto, the Quarterly
Reports on Form 10-Q for the quarterly periods ended September 30, 1996 and
December 31, 1996, and the Offering Memorandum, dated May 15, 1997, prepared by
Seller (the "OFFERING MEMORANDUM");
(viii) This Agreement has been duly authorized, validly executed,
and delivered on behalf of Buyer and is a valid and binding agreement upon
Buyer enforceable in accordance with its terms, subject to general principles
of equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally; and
(ix) Buyer and Buyer's affiliates over which Buyer exercises
investment discretion have no existing short position with respect to the
common stock of Seller. Except at any time when the Closing Price (as
hereinafter defined) of the Common Shares is greater than $15.50 per share,
Buyer shall not, and shall cause Buyer's affiliates over which Buyer exercises
investment discretion not to, enter into any short sales or other hedging
transactions with respect to shares of Common Stock at any time after the
execution of this Agreement by Buyer except with respect to shares of Common
Stock with respect to which Buyer has received a Call for Proceeds (as
hereinafter defined) by Seller; provided, however, that in no event shall the
number of shares sold short exceed such number of shares as is issuable on the
date of any such short sale to Buyer upon subsequent Calls for Proceeds, based
on a Closing Price of $15.50 per share. If so requested by Seller, Buyer shall
deliver a certificate of an executive officer or any other authorized
representative of Buyer as to Buyer's compliance with the provisions of this
Section 2(ix).
3. SELLER'S REPRESENTATIONS
Seller represents and warrants as follows:
(i) Seller has not conducted any general solicitation or
general advertising (as defined in Regulation D) with respect to any of the
securities offered hereby.
(ii) Each tranche of the Common Shares when issued, delivered
and paid for at the price provided herein will be duly and validly authorized
and issued, fully-paid and nonassessable and will not subject the holders
thereof to personal liability by reason of being such holders. There are no
preemptive rights of any shareholder of Seller with respect to the Common
Shares. The Common Stock is included in the Nasdaq National Market ("NASDAQ")
and no suspension of trading in the Common Stock is in effect. Seller has
submitted a notice to the National Association of Securities Dealers, Inc. (the
"NASD") relating to the proposed issuance of the Common Shares and is not aware
of any reason why inclusion of the Common Shares, subject to official notice of
issuance, will not be approved by the NASD.
(iii) Each of Seller and its subsidiaries, if any, (a) have been
duly incorporated and are validly existing and in good standing under the laws
of their respective jurisdictions of incorporation and have the requisite
corporate power to own their respective properties and to carry on their
businesses as now being conducted; and (b) are duly qualified as foreign
corporations to do business and are in good standing in every jurisdiction in
which the nature of their respective businesses makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on or
development in the business, operations, properties, financial condition,
results of operation or prospects of Seller or any of its subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby. Seller has
registered its common stock pursuant to
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Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and is in full compliance with all reporting requirements of
either Section 13(a) or 15(d) of the Exchange Act.
(iv) Seller has the requisite corporate power and authority to
enter into and perform this Agreement and the Registration Rights Agreement
being executed and delivered contemporaneously herewith, in the form attached
to this Agreement as Exhibit A (the "REGISTRATION RIGHTS AGREEMENT"), and to
issue and sell the Common Shares in accordance with the terms hereof. The
execution and delivery of this Agreement and the Registration Rights Agreement
by Seller and the consummation by it of the transactions contemplated hereby
(including without limitation the issuance of the Common Shares), have been
duly authorized by Seller's Board of Directors and no further consent or
authorization of Seller, its Board or Directors, or its stockholders is
required (under Rule 4460(i) promulgated by the NASD or otherwise). This
Agreement and the Registration Rights Agreement have been duly executed and
delivered by Seller. This Agreement and the Registration Rights Agreement
constitute valid and binding obligations of Seller enforceable against Seller
in accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other laws
affecting creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or
in equity) are in full force and effect as of the date hereof, and the Investor
is entitled to the rights set forth therein. Seller shall provide Buyer with a
written update of this representation signed by Seller's Chief Executive
Officer or Chief Financial Officer on behalf of Seller as of the date of each
closing (as defined herein) hereunder.
(v) The execution and delivery of this Agreement and the
Registration Rights Agreement, the issuance of the Common Shares and the
transactions contemplated by this Agreement do not and will not (a) conflict
with or result in a breach by Seller, or any of its subsidiaries, if any, of
any of the terms or provisions of, or constitute a default under, the
certificate of incorporation or bylaws of Seller, or any of its subsidiaries,
if any, or (b) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which Seller is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including U.S. federal and state securities laws and regulations) applicable
to Seller or by which any property or asset of Seller is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Seller is not in violation of its certificate
of incorporation, bylaws or other organizational documents and is not in
default (and no event has occurred which, with notice or lapse of time or both,
would put Seller in default) under, nor has there occurred any event giving
others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which Seller is a party, except for possible defaults or rights
as would not, individually or in the aggregate, have a Material Adverse Effect.
The business of Seller is not being conducted, and shall not be conducted so
long as Buyer owns any of the Shares, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Seller is not in violation of the listing requirements of
Nasdaq and does not reasonably anticipate that the Common Stock will be
delisted by Nasdaq for the foreseeable future.
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(vi) Other than (a) approval of the inclusion of the Common
Shares by the NASD, which approval shall be obtained on or prior to the first
closing date, (b) the requirements of any applicable blue sky laws, and (c) a
Form D to be filed in connection with the Offering under Regulation D under the
Securities Act, no authorization, approval or consent of or filing or
registration with any court or federal, state or local governmental agency or
body, any regulatory or self-regulatory agency, any stock exchange or market or
any shareholder of the Seller is required for the execution, delivery or
performance by Seller of any of its obligations under this Agreement in
accordance with the terms hereof, including, without limitation the issuance
and sale of the Common Shares as contemplated hereby;
(vii) Since June 30, 1996, Seller has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Exchange Act (all of
the foregoing, together with any Current Reports on Form 8-K, if any, filed
prior to the date hereof and after June 30, 1996, and all exhibits included
therein and financial statements and schedules thereto and documents (other
than exhibits) incorporated by reference therein, being referred to herein as
the "SEC DOCUMENTS"). Seller has delivered to Buyer true and complete copies
of each SEC Document which it has requested (except for such exhibits,
schedules and incorporated documents), including without limitation copies of
Seller's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, as
amended by Amendment No. 1 thereto and the Quarterly Reports on Form 10-Q for
the quarterly periods ended September 30, 1996 and December 31, 1996. As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the respective times they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Seller has delivered to Buyer a true and correct copy of the
Offering Memorandum. The Offering Memorandum, including the information
incorporated by reference therein, as of the date thereof and the date of this
representation, does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of Seller included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they may include footnotes or may be condensed or summary statements)
and fairly present in all material respects the consolidated financial position
of Seller and its subsidiaries, if any, as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of Seller
included in the SEC Documents, Seller has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such financial statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the
aggregate, are not material to the financial condition or operating results of
Seller. Since June 30, 1996, there has been no Material Adverse Effect, except
as disclosed in the SEC Documents or the Offering
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Memorandum. Seller has not provided to Buyer any information which, according
to applicable law, rule or regulation, should have been disclosed publicly by
Seller but which has not been so disclosed.
(viii) There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Seller or any of its subsidiaries, threatened against or
affecting the Seller or any of its subsidiaries, wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Seller to perform its obligations under, this Agreement or any of
such other documents.
(ix) The capitalization of Seller as of the date hereof,
including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to Seller's
stock option plans, the number of shares reserved for issuance pursuant to
securities exercisable for, or convertible into or exchangeable for any shares
of Common Stock is set forth on Schedule 3(ix). All of such outstanding shares
of capital stock have been, or upon issuance will be, validly issued, fully
paid and nonassessable. No shares of capital stock of Seller (including the
Common Shares), are subject to preemptive rights or any other similar rights
of the stockholders of Seller or any liens or encumbrances. Except as
disclosed in Schedule 3(ix) or as contemplated herein, as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of Seller, or arrangements by which Seller is or may
become bound to issue additional shares of capital stock of the Company, and
(ii) there are no agreements or arrangements under which Seller is obligated to
register the sale of any of its or their securities under the Securities Act.
Seller has furnished to Buyer true and correct copies of Seller's articles of
incorporation and bylaws, and all other instruments and agreements governing
securities convertible into or exercisable or exchangeable for Common Stock of
Seller.
(x) All information relating to or concerning Seller set forth
in this Agreement or provided to Buyer in connection with the transactions
contemplated hereby is true and correct in all material respects and Seller has
not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or
exists with respect to Seller or its businesses, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by Seller but which has
not been so publicly announced or disclosed.
(xi) Seller acknowledges and agrees that Buyer is not acting as
financial advisor or fiduciary of Seller (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, and any
advice given by Buyer or any of its representatives or agents, in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to each Investor's purchase of Common Shares. Seller further
represents to Buyer that Seller's decision to enter into this Agreement has
been based solely on an independent evaluation by Seller and its
representatives.
(xii) Seller is currently eligible to register the resale of its
Common Stock on a registration statement on Form S-3 under the Securities Act.
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(xiii) Neither Seller, nor any of its affiliates, nor to
Seller's Actual Knowledge (as defined herein) any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offerers to buy any security under circumstances that would
require registration of the Shares being offered hereby under the Securities
Act. For purposes of the preceding sentence, the term "ACTUAL KNOWLEDGE" means
the actual knowledge of Seller's Chief Executive Officer, Chief Financial
Officer or General Counsel.
(xiv) Seller owns or possesses adequate and enforceable rights
to use all patents, patent applications, trademarks, trademark applications,
trade names, service marks, copyrights, copyright applications, licenses,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) and other
similar rights and proprietary knowledge (collectively, "INTANGIBLES")
necessary for the conduct of its business as now being conducted and as
described in Seller's Annual Report on Form 10-K for the fiscal year ended June
30, 1996. Seller does not infringe nor is it in conflict with any right of any
other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
(xv) Neither Seller, nor any director, officer, agent, employee
or other person acting on behalf of, Seller, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
4. SELLER'S COVENANTS
Seller covenants and agrees as follows:
(i) Seller will file a Form D with respect to the Common
Shares as required under Regulation D and provide a copy thereof to Buyer
promptly after such filing. Seller will, prior to the initial closing date,
take such action as Seller shall reasonably determine as necessary to qualify
the Common Shares for, or obtain the exemption for the Common Shares for, sale
to Buyer at the closing dates pursuant to this Agreement under applicable
securities or "blue sky" laws of the State of California and the Commonwealth
of Pennsylvania, and shall provide evidence of any such action so taken to the
Buyer on or prior to the initial closing date.
(ii) On or before the initial closing date Seller will file a
request for inclusion of the Common Shares with the NASD and provide evidence
of such filing to Buyer. For a period of three years after the final closing
date so long as Buyer beneficially owns any of the Common Shares, Seller will
file all reports to be filed with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act, and Seller will not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.
(iii) On or prior to each closing date Seller will instruct the
Transfer Agent to issue the Common Shares purchased hereunder to be registered
in the name of Buyer
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or its nominee in such denominations as are specified by Buyer at least one
business day prior to the applicable closing date. Seller agrees that no
instruction other than such instructions referred to in this subsection will be
given by Seller to the Transfer Agent with respect to the Common Shares, that
no legend restricting transfer of the Common Shares will appear on any
certificate representing Common Shares and that the Common Shares shall be
freely transferable on the books and records of Seller as and to the extent
provided in this Agreement and the Registration Rights Agreement.
(iv) Seller shall notify the SEC and Nasdaq, the American Stock
Exchange or the New York Stock Exchange (whichever is the principal trading
market for the Common Stock, hereinafter called the "PRINCIPAL MARKET") and any
other applicable market in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of all of the Common Shares to
Buyer.
(v) Seller will cause its Common Stock to continue to be
registered under Section 12(b) or 12(g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under said act, will comply
with all requirements related to the Registration Statement, and will not take
any action or file any document (whether or not permitted by said Act or the
rules thereunder) to terminate or suspend such Registration Statement or to
terminate or suspend its reporting and filing obligations under the Exchange
Act, except as permitted herein. The Company will take all action necessary to
continue the listing or trading of its Common Stock (including the Common
Shares) on the Principal Market, including taking all action necessary to cause
the Common Shares that are issuable under this Agreement to be authorized for
listing or trading on the Principal Market, subject to official notice of
issuance and will comply in all respects with the Seller's reporting, filing
and other obligations under the bylaws or rules of the Principal Market.
(vi) Prior to the first call for proceeds, Seller may
terminate the transaction within 120 days after the Commitment Date. In such
event, Seller agrees to issue to Buyer three (3) year warrants to purchase an
aggregate of 170,000 Common Shares at the Closing Price on such termination
date. The form of such warrants is attached to this Agreement as Exhibit B.
(vii) In the event the Registration Statement is not declared
effective by the SEC within ninety (90) days after the Commitment Date, Buyer's
obligations to purchase the Common Shares may be terminated upon the election
of the Buyer by notice to Seller; provided, however, that Buyer in its sole
discretion may (but shall not be required to) extend this 90-day period for an
additional 90 days. In the event that the Registration Statement is not
declared effective by the SEC within 180 days after the Commitment Date, Buyer
may terminate the transaction within 15 days of the end of such period, and, if
so terminated, Seller agrees to issue to Buyer warrants to purchase 170,000
Common Shares at the Closing Price on such termination date.
(viii) If Seller has made Calls for Proceeds with respect to at
least $3,750,000 of the Common Shares within the one-year period following the
Effective Date (as defined herein), Seller may, in its sole discretion, elect
to extend the period during which Seller may make Calls for Proceeds by an
additional six (6) months.
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(ix) After one year from the Effective Date, or one year and
six months after the Effective Date in the event Seller has extended the call
period pursuant to Section 4(viii):
(a) Seller agrees to issue to Buyer warrants to purchase
Common Shares based on the following: (x) if Seller has made Calls for Proceeds
with respect to the full $7,500,000 of Common Shares, Buyer shall be issued no
warrants; (y) if Seller has not made a Call for Proceeds with respect to any
Common Shares, Buyer shall be issued warrants to purchase 170,000 Common
Shares; and (z) if Seller has made Calls for Proceeds with respect to some, but
less than the full $7,500,000 of Common Shares, Buyer shall be issued warrants
to purchase Common Shares on a pro rata basis. (For example, if Seller has
made Calls for Proceeds with respect to $3,000,000 of Common Shares, Buyer
shall be issued warrants to purchase 102,000 Common Shares.) In each such
case, the warrant exercise price shall be the Closing Price on the Trading Date
that is one year (or one year and six months, as the case may be), after
the Effective Date.
(b) In the alternative to the receipt of warrants
pursuant to Section 4(ix)(a), Buyer may, in its sole discretion, elect to
purchase from Seller such number of Common Shares at $15.50 per share as is
equal to the quotient obtained by dividing (x) the difference of $7,500,000
less the aggregate dollar amount of all prior Calls for Proceeds by (y)
15.50.
(x) In the event of a merger, consolidation or sale of all or
substantially all of Seller's assets prior to the termination of this
Agreement, Buyer may, in its sole discretion, elect either to: (i) purchase
such dollar amount of Common Shares as is equal to the difference of $7,500,000
less the aggregate dollar amount of all prior Calls for Proceeds at the lesser
of (a) $15.50 per share or (b) the Closing Price as of the Trading Day
immediately preceding the public announcement of such merger, consolidation or
acquisition or (ii) deem such merger, consolidation or acquisition to be an
immediate termination of this Agreement in which case Seller shall issue to
Buyer warrants to purchase Common Shares on a pro rata basis (determined in
accordance with the terms and provisions of Section 4(ix)(a)), the exercise
price of which warrants shall be equal to the Closing Price as of the Trading
Day immediately preceding the public announcement of such merger, consolidation
or acquisition.
(xi) Seller agrees that it will not issue a press release or
other communication to the public containing Buyer's name or other information
that could identify Buyer without Buyer's written consent.
5. CALLS FOR PROCEEDS
(i) During the 12-month period, and during any period of
extension pursuant to Section 4(viii), following the date on which the
Registration Statement is declared effective by the SEC (the "EFFECTIVE DATE"),
Seller may deliver written notices pursuant to the terms of Section 12 hereof
to Buyer (each such notice hereinafter referred to as a "CALL FOR PROCEEDS,"
and the date such a notice is given hereinafter called a "CALL DATE") stating a
dollar amount (the "DOLLAR AMOUNT") of Common Shares which Seller intends to
sell to Buyer three business days following the Call Date. Notice constituting
each Call for Proceeds shall be given by Seller by telecopy after the Principal
Market has closed but by no later than 5:30 p.m., New
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York time, and such notice shall not be effective unless given to Buyer care of
its offices in San Francisco and Bala Cynwyd. "BUSINESS DAY" shall mean any
day on which Nasdaq (or, if on such day the Principal Market is not Nasdaq,
such Principal Market) is open for trading.
(ii) (a) If the Closing Price (as defined herein) is greater
than $8.00 on the Call Date for the first Call for Proceeds (the "DESIGNATED
FIRST CALL FOR PROCEEDS"), the aggregate amount of the Designated First Call
for Proceeds may not be more than three (3) times the Trading Volume (as
defined herein). "TRADING VOLUME" shall mean the dollar amount of the average
daily trading volume of the Common Stock, calculated based upon the average
closing bid price and average daily trading volume over the twenty (20) Trading
Days preceding the applicable Call Date, in each case as reported by
Bloomberg.
(b) With respect to each Call for Proceeds (other than
the Designated First Call for Proceeds, if any), the aggregate amount of such
Call for Proceeds may not be more than one and one-half (1.5) times the
Trading Volume.
(iii) There must be at least fifteen (15) Business Days between
each Call for Proceeds; provided, however, that there must be at least forty
(40) Business Days between the Designated First Call for Proceeds, if any, and
the Call for Proceeds immediately subsequent thereto if the aggregate amount of
the Designated First Call for Proceeds exceeds one and one-half (1.5) times the
Trading Volume.
(iv) The closing (each, a "CLOSING") for the number of Common
Shares to be sold pursuant to each Call for Proceeds shall occur on the third
Business Day following the Call Date with respect to such Call for Proceeds
(each, a "CLOSING DATE"). The number of Common Shares to be sold at the
Closing that occurs on the applicable Closing Date shall be the greater of (a)
the quotient obtained in dividing the Dollar Amount in the applicable Call for
Proceeds by $15.50 and (b) the sum of (x) the quotient obtained in dividing the
Dollar Amount up to one and one-half (1.5) times the Trading Volume by 88% of
the Call Price (as defined herein), plus, with respect to the Designated First
Call for Proceeds, (y) the quotient obtained in dividing the Dollar Amount, if
any, in excess of one and one-half (1.5) times the Trading Volume by 80% of the
Call Price, rounding any fractional share up to a full share. The "CALL PRICE"
with respect to any Call for Proceeds shall mean the average Closing Price (as
defined herein) during the five Trading Days immediately preceding the Call
Date relating to such Call for Proceeds, appropriately adjusted to reflect any
pending stock dividend, stock split or similar transaction. With respect to
any Trading Day, the "CLOSING PRICE" shall mean the closing bid price as
reported by Bloomberg for the Common Stock on such Trading Day. The first
Closing Date is sometimes referred to herein as the "INITIAL CLOSING DATE" and
the last closing date is sometimes referred to herein as the "FINAL CLOSING
DATE." The Closing that occurs on the initial closing date is sometimes
referred to herein as the "INITIAL CLOSING" and the Closing that occurs on the
final closing date is sometimes referred to herein as the "FINAL CLOSING."
(v) Seller may Call for Proceeds only when the Closing Price
for the Common Stock on the Call Date with respect to such Call for Proceeds is
equal to or greater than the average Closing Price during the five Trading Days
preceding such Call Date.
(vi) On or before the Closing Date for the Closing with
respect to each Call for Proceeds, Seller shall deliver to Buyer a certificate
or certificates (in denominations as instructed by Buyer) for the Common
Shares, registered in the name of Buyer or Buyer's
11
nominee. Promptly, but no later than one business day following receipt of the
certificate(s) representing the Common Shares to be issued in connection with
such Call for Proceeds, Buyer shall pay the purchase price for such Common
Shares by wire transfer pursuant to the instructions of Seller. Such
instructions shall be provided by notice to Buyer no later than the Call Date
for such Call for Proceeds.
(vii) Notwithstanding the foregoing, in no event may Seller
issue to Buyer a number of Common Shares which exceeds nineteen and nine-tenths
percent (19.9%) of the number of shares of Common Stock outstanding on the
Commitment Date. In the event such number of Common Shares is reached, no
additional Calls for Proceeds may be made nor may additional Common Shares be
issued pursuant to this Agreement
6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER TO
PURCHASE COMMON SHARES ON ANY CLOSING DATE
The obligation of Buyer hereunder to acquire and pay for Common
Shares on any Closing Date is subject to the satisfaction, at or before such
Closing Date of each of the following conditions set forth below, which
conditions are for Buyer's sole benefit and may be waived by Buyer at any time
in its sole discretion:
(i) The representations and warranties of Seller shall be
true and correct in all material respects as of the date when made and as of
such Closing Date, as though made at that time (except for representations and
warranties that speak as of a particular date or refer to a particular point in
time which shall be true and correct as of such date or time).
(ii) Seller shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by Seller at or
prior to such Closing Date.
(iii) As of such Closing Date, no statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(iv) On or prior to such Closing Date, Buyer shall have
received an opinion of counsel to Seller (in substantially the form of Exhibit
C), dated such Closing Date, and such other certificates, opinions of other
counsel, and documents as Buyer or its counsel shall reasonably require
incident to the Closing scheduled to occur on such Closing Date.
(v) As of such Closing Date, the Registration Statement shall
be effective and no stop order or other suspension suspending the effectiveness
of the Registration Statement shall have been instituted or shall be pending.
(vi) On or prior to such Closing Date, Seller and Buyer shall
have entered into the Registration Rights Agreement, and, as of such Closing
Date, such agreement shall be in full force and effect.
(vii) As of such Closing Date, the Registration Statement
(including information or documents incorporated by reference therein) and any
amendments or supplements thereto shall not contain any untrue statement of a
material fact or omit to state any
12
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(viii) As of such Closing Date, trading of the Common Stock on
the Principal Market shall not been have been suspended or limited, and trading
in securities generally as reported by the Principal Market shall not have been
suspended or limited.
(ix) On or prior to such Closing Date, Buyer shall have
received a certificate from the Chief Executive Officer and/or the Chief
Financial Officer of Seller, dated such Closing Date, in substantially the form
of Exhibit D hereto.
(x) Since the Commitment Date, and on or prior to such Closing
Date, there shall not have occurred any event which would constitute a Material
Adverse Effect.
(xi) On or prior to such Closing Date, there shall have been
no filing of a petition in bankruptcy, either voluntarily or involuntarily,
with respect to Seller and there shall not have commenced any proceedings under
any bankruptcy or insolvency laws, or any laws relating to the relief of
debtors, readjustment of indebtedness or reorganization of debtors and there
shall have been no calling of a meeting of creditors of Seller or appointment
of a committee of creditors or liquidating agents or offering of a composition
or extension to creditors by, for, with or without the consent or acquiescence
of Seller.
(xii) As of such Closing Date, the Common Shares to be delivered
on such Closing Date shall have been approved for trading on the Principal
Market, subject to official notice of issuance.
All representations, warranties and covenants shall survive each Closing
and termination of this Agreement.
7. THIRD PARTY BENEFICIARY. The parties acknowledge and agree that
Shoreline Pacific, the Institutional Division of Financial West Group
("Shoreline Pacific"), shall be deemed a third party beneficiary of Seller's
agreements and representations set forth in this Agreement, entitled to enforce
the terms thereof, and to indemnification for any damages resulting to
Shoreline Pacific from any actual or threatened breach thereof by Seller, both
in Shoreline Pacific's personal capacity and, should Shoreline Pacific so elect
and Buyer permits, on behalf of Buyer.
8. SHORELINE PACIFIC
(i) Seller's obligations hereunder shall also be conditioned
upon Seller receiving a representation letter from Shoreline Pacific
("SHORELINE") regarding the manner of conducting this offering, in the form
agreed upon by Seller and Shoreline a copy of which is attached hereto as
Exhibit E.
(ii) Seller acknowledges that it shall be solely responsible
for payment of any and all brokerage, finders or similar fees due and owing to
Shoreline in connection with the transactions contemplated under this
Agreement, and that Buyer shall have no liability with respect to such
fees.
13
9. GOVERNING LAW; INTERPRETATION. This Agreement shall be governed
by and interpreted in accordance with the laws of the State of New York
without giving effect to rules governing the conflict of laws.
10. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Registration Rights Agreement contain the entire understanding of the parties
with respect to the transactions contemplated hereby, and supersede all prior
and contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written. No provision of this Agreement may be
amended or waived other than by a written instrument signed by the party
against whom enforcement of any such amendment or waiver is sought.
11. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective upon
hand delivery or delivery by facsimile at the address or facsimile number
designated below (if delivered on a business day during regular business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during regular business
hours where such notice is to be received). The addresses and facsimile
numbers for such communications shall be:
to the Seller:
CyberGuard Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Financial Officer
with copies to:
Holland & Knight
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Phone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: D. ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
to the Buyer:
Capital Ventures International
c/o Heights Capital Management
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
and, if required pursuant to Section 5(i), to:
14
Capital Ventures International
c/o Susquehanna Financial Group
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇
with copies to:
Wolf, Block, ▇▇▇▇▇▇ and ▇▇▇▇▇-▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Phone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
Either party hereto may from time to time change its address or
facsimile number for notices under this Section by giving written notice of
such change to the other party hereto.
13. WAIVERS. No waiver by either party of any default with respect
to any provisions, condition or requirement of this Agreement shall be deemed
to be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of either
party to exercise any right hereunder in any manner impair the exercise of any
such right accruing to it thereafter.
14. HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. The
parties hereto may amend this Agreement without notice to or the consent of any
third party. Neither Buyer nor the Seller shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
(which consent may be withheld for any reason in the sole discretion of the
party from whom consent is sought); provided, however, that Buyer may assign
its rights and obligations hereunder to any acquirer of substantially all of
the assets of Buyer provided that such assignment shall be subject to the
Seller's prior written consent which consent may not be unreasonably withheld.
The assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
15
IN WITNESS WHEREOF, this Agreement was duly executed as of the
date first written above.
CAPITAL VENTURES INTERNATIONAL
By: HEIGHTS CAPITAL MANAGEMENT, as agent
By:
▇▇▇▇▇▇ ▇▇▇▇▇
President
Date: May , 1997
CYBERGUARD CORPORATION
By:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Financial Officer
Date: May , 1997
16
SCHEDULE 3(IX)
CAPITALIZATION OF SELLER
NUMBER OF SHARES
----------------
Authorized capital stock:
Common stock, par value $.01 per share ("Common Stock") 20,000,000
Preferred stock, par value $.01 per share ("Preferred Stock") 5,000,000
Outstanding capital stock (as of May 9, 1997):
Common stock 7,386,315
Preferred stock --
Capital stock reserved for issuance:
Shares of Common Stock reserved for issuance pursuant to the
CyberGuard Corporation Stock Incentive Plan, as amended (the
"Plan") 1,369,211
Shares of Preferred Stock reserved for issuance pursuant to
the CyberGuard Corporation Stockholder Protection Rights
Agreement dated September 15, 1994 20,000
Shares of Common Stock issuable upon exercise of options
currently outstanding pursuant to the Plan 1,025,595
Shares of Common Stock issuable upon exercise of options
currently outstanding (other than pursuant to the Plan) 663,310
Shares of Common Stock issuable upon exercise of warrants
currently outstanding 200,000
Shares of Common Stock issued subject to restrictions (i.e.,
shares of "restricted stock") 15,000
Shares of Common Stock subject to registration rights (other
than shares issuable pursuant to this Agreement) 200,000
17
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 15, 1997 (this
"AGREEMENT"), is made by and among CyberGuard Corporation, a Florida
corporation (the "COMPANY"), and the person named on the signature page hereto
(the "INVESTOR").
W I T N E S S E T H:
WHEREAS, in connection with the Private Securities Subscription Agreement,
of even date herewith between the Investor and the Company (the "SUBSCRIPTION
AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions of the Subscription Agreement, to issue and sell to the Investor
shares and warrants to purchase shares (collectively, the "COMMON SHARES" or
the "SHARES") of Common Stock, $0.01 par value (the "COMMON STOCK");
WHEREAS, the Subscription Agreement relates to an offering (the
"OFFERING") of Seven Million Five Hundred Thousand Dollars U.S. ($7,500,000),
which Subscription Agreement was received and countersigned by the Company on
May 15, 1997 (the "COMMITMENT DATE"), pursuant to which the Investor committed
to purchase the full $7,500,000 of Common Shares; and
WHEREAS, to induce the Investor to execute and deliver the Subscription
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "SECURITIES
ACT"), and applicable state securities laws with respect to the Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investor
hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTOR" or "INVESTORS" means the Investor and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements on Form S-3 or another form acceptable to Investor in compliance
with the Securities Act and pursuant to Rule 415 under the Securities Act or
any successor rule providing for offering securities on a continuous basis
("RULE 415") and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange
Commission ("SEC").
(iii) "REGISTRABLE SECURITIES" means the Shares.
18
(iv) "REGISTRATION STATEMENT" means a registration statement
under the Securities Act.
(v) "RULE 144" means Rule 144 promulgated under the Securities
Act.
(vi) "WARRANTS" means warrants to purchase Common Shares issued
to the Investor in connection with the Subscription Agreement.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) INITIAL REGISTRATION. The Company shall prepare and file with the
SEC within 30 days of the Commitment Date, a registration statement on Form S-3
covering at least 1,470,085 shares of Common Stock as Registerable Securities
hereunder, and which Registration Statement shall state that, in accordance
with Rule 416 under the Securities Act, such Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable to prevent dilution resulting from stock splits, stock dividends or
similar transactions.
(b) PIGGY-BACK REGISTRATIONS. If at any time prior to the date which is
four years, in the case of Shares issuable upon the exercise of Warrants, or 30
months, in the case of other Shares, after the final closing date under the
Subscription Agreement the Company shall file with the SEC a Registration
Statement relating to an underwritten offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
of business or equity securities issuable in connection with stock option or
other employee benefit plans, the Company shall send to each Investor who is
entitled to registration rights under this Section 2(b) written notice of such
determination and, if within twenty (20) days after receipt of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registerable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registerable Securities with respect to which such Investor has
requested inclusion hereunder. Any exclusion of Registerable Securities shall
be made pro rata among the Investors seeking to include Registerable
Securities, in proportion to the number of registerable Securities sought to be
included by such Investors; provided, however, that the Company shall not
exclude any Registerable Securities unless the Company has first excluded all
outstanding securities the holders of which are entitled to inclusion of such
securities in such Registration Statement by reason of piggyback registration
rights, are not entitled to pro rata exclusion with the Registerable
19
Securities and are not entitled by right to inclusion of securities in
such Registration Statement; and provided further, however, that after giving
effect to the immediately preceding proviso, any exclusion of Registerable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registerable Securities under this Section 2(b) shall be
construed to limit any registration required under Section 2(a) hereof. The
obligations of the Company under this Section 2(b) may be waived by Investors
holding a majority in interest of the Registerable Securities and shall expire
after the Company has afforded the opportunity for the Investors to exercise
registration rights under this Section 2(b) for two registrations; provided,
however, that any Investor who shall have had any Registerable Securities
excluded from any Registration Statement in accordance with this Section 2(b)
shall be entitled to include in an additional Registration Statement filed by
the Company the Registerable Securities so excluded. If an offering in
connection with which an Investor is entitled to registration under this
Section 2(b) is an underwritten offering, then each Investor whose Registerable
Securities are included in such Registration Statement shall, unless otherwise
agreed by the Company, offer and sell such Registerable Securities in an
underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
(c) ELIGIBILITY FOR FORM S-3. The Company represents and warrants that
it meets the requirements for the use of Form S-3 for registration of the sale
by the Investor of the Registerable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3.
(d) SALES UNDER RULE 144. Notwithstanding the registration of
Registerable Securities in accordance with Section 2(a), if at any time of
offer and sale of such Registerable Securities by an Investor such Registerable
Securities can be sold pursuant to Rule 144 promulgated under the Securities
Act or any other similar rule or regulation of the SEC that may at anytime
permit the Investor to sell securities of the Company to the public without
registration ("RULE 144") in the manner, amount and on such terms as such
Investor wishes to offer and sell such Registerable Securities, such Investor
may endeavor to offer and sell such Registerable Securities pursuant to Rule
144; provided, however, that such Investor shall not be required to limit the
amount or manner of sale or otherwise modify such offer or sale to use Rule
144; and provided further, however, that such Investor shall have no liability
to the Company under this Section 2(d) if such Investor does not offer and sell
such Registerable Securities pursuant to Rule 144 notwithstanding the
availability thereof.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the
Registrable Securities, the Company shall:
(a) prepare promptly and file with the SEC promptly (but in no event
later than the applicable time periods set forth in Section 2(a)) a
Registration Statement or Statements with respect to all Registrable Securities
to be included therein, and thereafter use its best efforts to cause the
Registration Statement to become effective as soon as possible after such
filing, and keep the Registration Statement, if the Registration Statement
utilizes to Rule 415, effective at all times until such date as is four years,
in the case of Shares issuable upon the exercise of Warrants, or 30 months, in
the case of other Shares, after the date such Registration Statement is first
ordered effective by the SEC. In any case, the Registration Statement
(including any
20
amendments or supplements thereto and prospectuses contained therein)
filed by the Company shall not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that, subject to the conditions set
forth in Section 4(a) below, each Investor may notify the Company in writing
that it wishes to exclude all or a portion of its Registrable Securities from
such Registration Statement; provided further, however, that if at any time one
year or more after the final closing date under the Subscription Agreement the
Investor shall be entitled to sell all Registrable Securities held by the
Investor pursuant to Rule 144, in a period of three consecutive months then the
Company shall, so long as it meets the current public information requirements
of Rule 144, thereafter no longer be required to maintain the registration of
Registrable Securities pursuant to this Agreement.
(b) prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until such
date as is two years or, two years and six months in the case where Seller has
exercised its option to extend the call period pursuant to the last paragraph
of Section 5 of the Subscription Agreement, after the date such Registration
Statement is first ordered effective by the SEC, and, during such period,
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are included in
the Registration Statement, (i) promptly after the same is prepared and
publicly distributed, filed with the SEC or received by the Company, one copy
of the Registration Statement and any amendment thereto, each preliminary
prospectus and prospectus and each amendment or supplement thereto and, in the
case of the Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of the SEC, each
item of correspondence from the SEC or the staff of the SEC, in each case
relating to such Registration Statement and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements, (iii) take such other actions as
may be necessary to maintain such registrations and qualifications in effect at
all times until such date as is the earlier of four years, in the case of
Shares issuable upon the exercise of Warrants, or 30 months, in the case of
other Shares, after the date such Registration Statement is first ordered
effective by the SEC and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (I) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (II) subject itself to general taxation in any such jurisdiction,
(III) file a general consent to service of process in any such jurisdiction,
(IV) provide any undertakings that cause more than nominal expense or
21
burden to the Company or (V) make any change in its charter or bylaws,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders;
(e) as promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold pursuant to such
registration of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request;
(f) as promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold pursuant to such
registration of the issuance by the SEC of any stop order or other suspension
of effectiveness of the Registration Statement at the earliest possible time;
(g) permit a single firm of counsel designated as selling stockholders'
counsel by the Investors who hold a majority in interest of the Registrable
Securities being sold pursuant to such registration to review the Registration
Statement and all amendments and supplements thereto a reasonable period of
time prior to their filing with the SEC, and shall not file any document in a
form to which such counsel reasonably objects;
(h) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions
of Rule 158 under the Securities Act) covering a twelve-month period beginning
not later than the first day of the Company's fiscal quarter next following the
date of the Registration Statement;
(i) make available for inspection by any Investor whose Registrable
Securities are being sold pursuant to such registration, any underwriter
participating in any disposition pursuant to the Registration Statement and any
attorney, accountant or other agent retained by any such Investor or
underwriter (collectively, the "INSPECTORS"), all pertinent financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "RECORDS"), as shall be reasonably necessary to enable each
Inspector to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; provided, however,
that each Inspector shall hold in confidence (making such confidential
information known only to officers, agents or employees thereof who have a need
to know), shall not use any information so obtained for any purpose other than
preparation or review of the registration statement, and shall not make any
disclosure (except to an Investor or underwriter) of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (ii) the release of such Records is
requested pursuant to a subpoena or other order from a court or government body
of competent jurisdiction, or (iii) the information in such Records
22
has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector or
Investor until and unless such Investor or Inspector shall have entered into
confidentiality agreements (in a form as is customary in similar circumstances)
with the Company with respect thereto, substantially in the form of this
Section 3(i). Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and
allow the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor, to undertake, at Investor's expense,
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information;
(j) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on
which similar securities issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of
such exchange or (ii) secure designation of all the Registrable Securities
covered by the Registration Statement as a National Association of Securities
Dealers Automated Quotations System ("NASDAQ") "national market system
security" within the meaning of Rule 11Aa2-1 of the SEC under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the quotation of the
Registrable Securities on the Nasdaq National Market System; or, if, despite
the Company's best efforts to satisfy the preceding clause (i) or (ii), the
Company is unsuccessful in satisfying the preceding clause (i) or (ii), to
arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities;
(k) provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(l) cooperate with the Investors who hold Registrable Securities being
sold and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be sold pursuant to the
denominations or amounts as the case may be, and registered in such names as
the Investors may reasonably request; and, within three business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investor whose Registrable Securities are
included in such Registration Statement) instructions to the transfer agent to
issue new stock certificates without a legend and an opinion of such counsel
that the shares have been registered; and
23
(m) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of the
Registrable Securities, the Investors shall have the following
obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to each
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of the Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least fifteen (15) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such Investor (the
"REQUESTED INFORMATION") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If within five
(5) business days prior to the filing date the Company has not received the
Requested Information from an Investor (a "NON-RESPONSIVE INVESTOR"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;
(d) In the event Investors holding a majority in interest of
Registerable Securities being registered determined to engage the services of
an underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registerable Securities, unless such Investor has notified
the Company in writing of such Investor's election to exclude all of such
Investor's Registerable Securities from the Registration Statement; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registerable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably requested under the
24
terms of such underwriting arrangements and (iii) agrees to pay its pro rata
share of all underwriting discounts and commissions and other fees and
expenses of investment bankers and any manager or managers of such underwriting
and legal expenses of the underwriters applicable with respect to its
Registerable Securities, in each case to the extent not payable by the Company
pursuant to the terms of this Agreement.
5. EXPENSES OF REGISTRATION. All expenses (other than brokerage commissions
or discounts and, in connection with securities registered pursuant to
Section 2(b) hereof, the pro rata portion of state and federal filing
fees) incurred in connection with registrations, filings or qualifications
pursuant to Section 3, including, without limitation, all registration,
listing and qualifications fees, printers and accounting fees and the fees
and disbursements of counsel for the Company, shall be borne by the
Company; provided, however, that the Investors shall bear the fees and
out-of-pocket expenses of the one legal counsel selected by the Investors
pursuant to Section 3(g) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act, any underwriter (as defined in the Securities Act) for the
Investors, the directors, if any, of such underwriter and the officers, if any,
of such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively "CLAIMS") to which any of them
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations in the Registration Statement, or any
post-effective amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained
in any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act or any state securities law or any rule or regulation under
the Securities Act, the Exchange Act or any state securities law (the matters
in the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS").
Subject to the restrictions set forth in Section 6(d) with respect to the
number of legal counsel, the Company shall reimburse the Investors and each
such underwriters or controlling person, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) (I) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in
conformity with information
25
furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (II) with respect to any preliminary
prospectus shall not inure to the benefit of any such person from whom the
person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of any person controlling such person)
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (III) shall not be available to the extent
such Claim is based on a failure of the Investor to deliver or cause to be
delivered the prospectus made available by the Company; and (IV) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Persons
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act (collectively and together with an
Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which any of
them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
(I) in reliance upon and in conformity with written information furnished to
the Company by such Investor expressly for use in connection with such
Registration Statement or (II) the Investor's violation of Regulation M; and
such Investor will promptly reimburse any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a
Claim as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer
of the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then amended
or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
26
(d) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable written opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party or other party represented by such
counsel in such proceeding. The Company shall pay for only one separate legal
counsel for the Investors; such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities included
in the Registration Statement to which the claim relates. The failure to
deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification provided for herein is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6, (b) no
seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation and (c) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of
the Company to the public without Registration, until such time as the
Investors have sold all the Registrable Securities pursuant to a
Registration Statement or Rule 144, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
27
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investor to sell such securities pursuant to Rule 144 without Registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to transferees or assignees of all
or any portion of such securities only if:
(a) (i) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (x) the name and address of such
transferee or assignee and (y) the securities with respect to which such
registration rights are being transferred or assigned, (ii) immediately
following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, (iii) at or before the time the Company
received the written notice contemplated by clause (i) of this subsection the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, and (iv) the transferee or assignee acquires
(or has the right to acquire) at least 100,000 shares of Common Stock as a
result of such transfer or assignment;
(b) in the case of a transfer or assignment which constitutes a transfer
or assignment of rights pursuant to the Subscription Agreement, such transfer
or assignment is not in violation of Section 15 of the Subscription Agreement;
or
(c) such transfer or assignment is made to an affiliate of any Investor or
a clearing or other agent of any Investor in connection with the customary
trading activities of such Investor.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with
the written consent of the Company and Investor who hold a majority in
interest of the Registrable Securities. Any amendment of waiver effected
in accordance with this Section 10 shall be binding upon each Investor and
the Company.
11. MISCELLANEOUS.
(a) If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or when sent by registered mail, return receipt requested, addressed (i) if to
the Company, at CyberGuard Corporation, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: Mr. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Chief Financial Officer,
and (ii) if to the Investor, at the address set forth under its name in the
Subscription Agreement, or at such other address as each such party furnishes
by notice given in accordance
28
with this Section 11(b), and shall be effective, when personally
delivered, upon receipt, and when so sent by certified mail, four business days
after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of New York applicable to the agreements
made and to be performed entirely within such state, without giving effect to
rules governing the conflict of laws. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in the Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
29
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CYBERGUARD CORPORATION
By
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Chief Financial Officer
Date: May 15, 1997
CAPITAL VENTURES INTERNATIONAL
BY: HEIGHTS CAPITAL MANAGEMENT, as agent
By
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇,
President, Heights Capital Management
Date: May 15, 1997
30
EXHIBIT B
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON [ ], 2000
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR THE SECURITIES LAWS OF ANY STATE. THE
SECURITIES REPRESENTED HEREBY AND THEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE
SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS,
SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
Right to Purchase Common Shares,
par value $0.01 per share
Date:____________, 1997
CYBERGUARD CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CAPITAL VENTURES
INTERNATIONAL, a corporation organized under the laws of the Cayman Islands
("CVI"), or its registered assigns, is entitled to purchase from CYBERGUARD
CORPORATION, a corporation organized under the laws of the State of Florida
(the "COMPANY"), at any time or from time to time during the period specified
in Section 2 hereof, _______________ (_________) fully paid and nonassessable
shares of the Company's Common Stock, par value $0.01 per share (the "COMMON
STOCK"), at an exercise price per share (the "EXERCISE PRICE") of $_____ per
share (and in no event less than $0.01). The number of shares of Common Stock
purchasable hereunder (the "WARRANT SHARES") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "WARRANTS" means this
Warrant and the other warrants, if any, of the Company issued in connection
with the Private Securities Subscription Agreement by and between the Company
and CVI, dated April ___, 1997 (the "SUBSCRIPTION AGREEMENT").
This Warrant is subject to the following terms, provisions, and
conditions:
12. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, including, without limitation, the
limitations contained in Section 7 hereof, this Warrant may be exercised
by the holder hereof, in whole or in part by the surrender of this
Warrant, together with a completed exercise agreement in the form attached
hereto (the "EXERCISE AGREEMENT"), to the Company during normal business
31
hours on any business day at the Company's principal executive offices (or
such other office or agency of the Company as it may designate by notice
to the holder hereof), and upon (i) payment to the Company in cash, by
certified or official bank check or by wire transfer for the account of
the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), delivery to the Company of a written notice of an
election to effect a Cashless Exercise (as defined in Section 11(c) below) for
the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on
the date on which this Warrant shall have been surrendered, the completed
Exercise Agreement shall have been delivered, and payment shall have been made
for such shares as set forth above. Certificates for the Warrant Shares so
purchased, representing the aggregate number of shares specified in the
Exercise Agreement, shall be delivered to the holder hereof within a reasonable
time, not exceeding three (3) business days, after this Warrant shall have been
so exercised. The certificates so delivered shall be in such denominations as
may be requested by the holder hereof and shall be registered in the name of
such holder or such other name as shall be designated by such holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the holder a new Warrant representing the number of
shares with respect to which this Warrant shall not then have been exercised.
13. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from time
to time on or after the date on which this Warrant is issued and before
5:00 p.m., New York City time on the third (3rd) anniversary of the date
of issuance (the "EXERCISE PERIOD").
14. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and
encumbrances.
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
shares of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such listing
of, any other shares of capital stock of the Company issuable upon the exercise
of this Warrant if and so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
32
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter 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 by it hereunder, but will at all times
in good faith assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may reasonably be requested by the
holder of this Warrant in order to protect the exercise privilege of the holder
of this Warrant against dilution or other impairment, consistent with the tenor
and purpose of this Warrant. Without limiting the generality of the foregoing,
the Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.
15. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Sections 4(c) and
4(e) hereof, if and whenever on or after the date of the first closing under
the Subscription Agreement, the Company issues or sells, or in accordance with
Section 4(b) hereof is deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share less than the
Market Price (as hereinafter defined) on the date of issuance ("DILUTIVE
ISSUANCE"), then effective immediately upon the Dilutive Issuance, the Exercise
Price will be adjusted in accordance with the following formula:
E = E~x~{O+P OVER M} OVER CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in Section 4(1));
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section 4(b)
hereof, received by the Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding
(as defined in Section 4(1)) immediately after the Dilutive Issuance
33
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "OPTIONS") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Market Price on the date of issuance ("BELOW MARKET
OPTIONS"), then the maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Market Options (assuming full exercise,
conversion or exchange of Convertible Securities, if applicable) will, as of the
date of the issuance or grant of such Below Market Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Below Market Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Below
Market Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Below Market
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Below Market Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange thereof at the
time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Market Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Below Market Options or upon the exercise, conversion
or exchange of Convertible Securities issuable upon exercise of such Below
Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Market Price on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon such exercise,
conversion or exchange" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
34
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price on the date
of issuance of such Convertible Security was 75% of the Market Price on such
date (the "ASSUMED VARIABLE MARKET PRICE"). Further, if the Market Price at any
time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 4 with respect to
any Variable Rate Convertible Security, the Exercise Price in effect at such
time shall be readjusted to equal the Exercise Price which would have resulted
if the Assumed Variable Market Price at the time of issuance of the Variable
Rate Convertible Security had been 75% of the Market Price existing at the time
of the adjustment required by this sentence.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is
a change at any time in (i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted,issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or
sale. In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company will be the
fair market value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the Market Price thereof as of the date of receipt. In case
any Common Stock, Options or Convertible Securities are issued in connection
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
market value of such portion of the net assets and business of the non-
35
surviving corporation as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in good faith by
an investment banker or other appropriate expert of national reputation
selected by the Company and reasonably acceptable to the holder hereof, with
the costs of such appraisal to be borne by the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
of the first closing under the Subscription Agreement in accordance with the
terms of such securities as of such date; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose; or (iii) upon the exercise of the Warrants.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company
at any time after the first closing under the Subscription Agreement subdivides
(by any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time after the first closing
under the Subscription Agreement combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior
to such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any consolidation
of the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company at any time after the first closing under the Subscription Agreement,
then as a condition of such consolidation, merger or sale or conveyance,
adequate provision will be made whereby the holder of this Warrant will have the
right to acquire and receive upon exercise of this Warrant in lieu of the shares
of Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Section 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the
36
successor corporation (if other than the Company) assumes by written
instrument the obligations under this Section 4 and the obligations to deliver
to the holder of this Warrant such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the holder may be entitled to
acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "DISTRIBUTION") at any time after the first closing under the
Subscription Agreement, then the holder of this Warrant shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares of Common
Stock subject hereto, to receive the amount of such assets (or rights) which
would have been payable to the holder had such holder been the holder of such
shares of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to
the holders of the Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
37
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a
record shall be taken for determining the holders of Common Stock entitled to
receive any such dividend, distribution, or subscription rights or for
determining the holders of Common Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock shall
be entitled to receive such dividend, distribution, or subscription rights or
to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company's books are closed in respect thereto. Failure to give any such
notice or any defect therein shall not affect the validity of the proceedings
referred to in clauses (i), (ii), (iii) and (iv) above.
(k) CERTAIN EVENTS. If, at any time after the first closing
under the Subscription Agreement, any event occurs of the type contemplated by
the adjustment provisions of this Section 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Section 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the holder
shall be neither enhanced nor diminished by such event.
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number
of shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in the case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise
of the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment
is required, as of the date of issuance of such Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means the average of
the closing bid prices for the shares of Common Stock as reported on the Nasdaq
National Market for the five (5) trading days immediately preceding such date,
or (ii) if the Nasdaq National Market is not the principal trading market for
the shares of Common Stock, the average of the last reported bid prices on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by
38
the Company and reasonably acceptable to the holder, with the costs of the
appraisal to be borne by the Company. The manner of determining the Market
Price of the Common Stock set forth in the foregoing definition shall apply
with respect to any other security in respect of which a determination as to
market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Shares,
par value $0.01 per share, in respect of which this Warrant is exercisable, or
shares resulting from any subdivision or combination of such Common Stock, or
in the case of any reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Section 4(e) hereof, the stock or other
securities or property provided for in such Section.
16. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than the holder of this
Warrant.
17. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence
of affirmative action by the holder hereof to purchase Warrant Shares, and
no mere enumeration herein of the rights or privileges of the holder
hereof, shall give rise to any liability of such holder for the Exercise
Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
18. TRANSFER. EXCHANGE. REDEMPTION AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable with the prior written consent of
the Company, in whole or in part, upon surrender of this Warrant, together with
a properly executed assignment in the form attached hereto, at the office or
agency of the Company referred to in Section 7(e) below, provided, however,
that any transfer or assignment shall be subject to the conditions set forth in
Section 7(f) and (g) hereof and to the provisions of Section 2(i) of the
Subscription Agreement and provided, further, that no consent of the Company
shall be required for transfers to affiliates of the holder and to clearing
firms that execute trades on behalf of the holder. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the registration
rights described in Section 8 hereof are assignable only in accordance with the
provisions of that certain Registration Rights Agreement, dated as of
____________, 1997, by and among the Company and the other signatory thereto
(the "REGISTRATION RIGHTS AGREEMENT").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different
39
denominations representing in the aggregate the right to purchase the number
of shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 7.
(e) WARRANT REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as
it may designate by notice to the holder hereof), a register for this Warrant,
in which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the
Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such exercise, transfer, or
exchange, (i) that the holder or transferee of this Warrant. as the case may
be, furnish to the Company a written opinion of counsel (which opinion shall be
in form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "ACCREDITED INVESTOR" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act.
(g) ADDITIONAL RESTRICTIONS ON EXERCISE OR TRANSFER.
Notwithstanding anything contained herein to the contrary, in no event shall
the holder hereof exercise Warrants to the extent that (a) the number of
shares of Common Stock beneficially owned by such holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unexercised portion of the Warrants or the
unexercised or unconverted portion of any other securities (including, without
limitation, the Preferred Stock) of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (b)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portion thereof) with respect to which the determination described herein is
being
40
made, would result in beneficial Ownership by such holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (a) hereof. In addition, no Subject Holder (as defined below) may
sell or otherwise transfer in a private sale which is not a Permitted Sale (as
defined below) during any ninety (90) day period a portion(s) of the Warrants
or any other securities of the Company subject to limitations on sale or
transfer analogous to the limitations contained herein, which, if exercised for
or converted into Common Stock at the time of the transfer, would represent, in
the aggregate (together with any other shares of Common Stock transferred),
beneficial ownership by the transferee(s) of more than 4.9% of the Common Stock
then outstanding. For purposes of this paragraph, (i) "SUBJECT HOLDER" means
any holder of Warrants who, but for the provisions of the immediately preceding
Section and this Section, may be deemed to beneficially own 5% or more of the
outstanding Common Stock of the Company and (ii) "PERMITTED SALE" means any
sale or transfer (x) to the Company or to a shareholder or a group of
shareholders who immediately prior to the sale control a majority of the
Company's voting shares; (y) to an affiliate of such holder; or (z) in
connection with any merger, consolidation, reorganization or sale of more than
50% of the outstanding Common Stock of the Company. The first holder of this
Warrant, by taking and holding the same, represents to the Company that such
holder is acquiring this Warrant for investment only and not with a view to the
distribution thereof, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act.
(h) REDEMPTION. If, at any time after the first anniversary of
the date of issuance hereof, the closing bid price for the shares of Common
Stock as reported on the Nasdaq National Market (or the then principal
trading market for the Common Stock if not the Nasdaq National Market) (the
"REPORTED PRICE"), shall, for a period of twenty (20) consecutive trading days
(the "DETERMINATION PERIOD"), be greater than or equal to $_____ (subject to
equitable adjustments from time to time for the events described in Section
4(c)), then the Company shall have the right, exercisable on the first trading
day after the Determination Period, by written notice to the holders of this
Warrant (a "REDEMPTION NOTICE") of such exercise at least thirty (30) days
prior to the date of redemption (the "REDEMPTION DATE") to redeem this Warrant
and all, but not less than all, of the other Warrants then outstanding in full
at a redemption price per Warrant equal to the product of (i) the number of
shares of Common Stock issuable upon the exercise of such Warrant, multiplied
by (ii) $.01. Notwithstanding the foregoing, the Company shall not have the
right to redeem this Warrant pursuant to this Section 7(h) unless, on the
seventeenth (17th) day of the Determination Period, the Company notifies the
holder of this Warrant of the Company's potential ability to deliver a
Redemption Notice in three (3) days and the potential redemption price hereof.
Nothing herein shall prevent the exercise of, and the holder shall have the
right to exercise this Warrant at any time during the period after the
Redemption Notice and on or prior to the Redemption Date.
19. REGISTRATION RIGHTS. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights
in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
20. NOTICES. Any notices required or permitted to be given under the terms
of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after
41
being placed in the mail, or upon receipt or refusal of receipt, if
delivered personally or by courier or confirmed telecopy, in each case
addressed to a party. The addresses for such communications shall be:
If to the Company:
CyberGuard Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with copy to:
Holland & Knight
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: D. ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes
by notice given in accordance with this Section 9.
21. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed in the State of New York. The
Company irrevocably consents to the jurisdiction of the United States
federal courts located in Pennsylvania in any suit or proceeding based on
or arising under this Warrant and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The
Company irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company further agrees that
service of process upon the Company mailed by first class mail shall be
deemed in every respect effective service of process upon the Company in
any such suit or proceeding. Nothing herein shall affect the holder's
right to serve process in any other manner permitted by law. The Company
agrees that a final non-appealable judgment in any such suit or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on
such judgment or in any other lawful manner.
22. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the
holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
42
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised at any time during the Exercise
Period, by presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the holder's intention to
effect a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, the holder shall surrender this Warrant for
that number of shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market
Price per share of the Common Stock and the Exercise Price, and the denominator
of which shall be the then current Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
43
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
CYBERGUARD CORPORATION
By:
Name:
Title:
44
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase _______
of the shares of Common Stock of CyberGuard Corporation, a corporation
organized under the laws of the State of Florida (the "COMPANY"), evidenced by
the attached Warrant, and herewith makes payment of the Exercise Price with
respect to such shares in full, all in accordance with the conditions and
provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws, and agrees that the following
legend may be affixed to the stock certificate for the Common Stock hereby
subscribed for if resale of such Common Stock is not registered or if Rule
144(k) is unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN
OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144(K) UNDER
SAID ACT.
ii. The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:
---------------------- Signature of Holder
Name of Holder (Print)
Address:
45
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
---------------- -------------------------------------
and hereby irrevocably constitutes and appoints________________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated:
---------------, ------
In the presence of
-------------------- Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note: The above signature should correspond exactly
with the name on the face of the within
Warrant.
46
EXHIBIT C
[Form of Opinion of Holland & Knight]
We have acted as counsel to CyberGuard Corporation, a Florida
corporation (the "Company"), in connection with the Private Securities
Subscription Agreement dated May __, 1997 (the "Agreement"), between the
Company and you. This opinion is provided to you at the request of the Company
pursuant to 6(iv) of the Agreement.
In connection with this opinion, we have examined executed copies of the
following documents:
1. The Agreement;
2. The Registration Rights Agreement among the Company and you dated
May __, 1997;
3. The form of Warrants attached to the Agreement as Exhibit B;
4. The Company's Articles of Incorporation, as amended, as
certified by the Secretary of State of the State of Florida on
___________;
5. The Company's Bylaws;
6. A certificate of good standing for the Company issued on _________
by the Secretary of State of Florida; and
7. Certificates, dated as of the date hereof, containing certain
representations and executed by certain officers of the Company in
connection with the Closing.
8. The Offering Memorandum, including the material incorporated there
in by reference.
9. Certificates, dated as of the date hereof, containing certain
representations and executed by certain officers of the Company in
connection with the Closing.
The documents numbered 1 through 3 listed above are hereinafter
collectively referred to as the "Transaction Documents" and the documents
numbered 4 through 7 listed above are hereinafter collectively referred to as
the "Constituent Documents".
This opinion is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage, and other limitations, all as
more particularly described in the Accord, and this opinion should be read in
conjunction therewith. The law covered by the opinions expressed herein is
limited to the federal laws of the United States and the laws of the State of
Florida. Except as otherwise indicated herein, capitalized terms used in this
opinion are defined as set forth in the Agreement or the Accord.
With respect to factual matters, we have relied upon the representations
made by the Company in Section 2 of the Agreement and the certificate referred
to in Item 9, above. With respect to our opinions expressed below relating to
valid existence and good standing, we have relied, without independent
investigation, upon the certificate of good standing referred to above.
To the extent that the laws of New York govern the Transaction Documents,
we assume that the interpretation and application of those laws to the
Transaction Documents will be the same as if they were governed by the laws of
Florida.The General Qualifications, the Bankruptcy
47
and Insolvency Exception, the Equitable Principles Limitation, and the
Other Common Qualifications apply to the opinions expressed below.
The phrase "Primary Lawyer Group," as used in the Accord, is hereby
modified for purposes of applying the Accord to this Opinion to mean the
lawyers in this firm who have given substantive legal attention to
representation of the Company in connection with the Transactions.
Based upon and subject to the foregoing, we are of the opinion that:
(1) The Company and its subsidiaries are corporations duly incorporated,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation, have all requisite corporate power and
authority to conduct their respective businesses as described in the Offering
Memorandum, or the materials incorporated by reference therein, own or lease
all of the assets owned or leased by them, and are duly licensed or qualified
as foreign corporations to do business in each jurisdiction in which the nature
of the business conducted by them makes such license or qualification necessary
and in which the failure to become so licensed or so qualify would have a
material adverse effect on the Company taken as a whole.
(2) The Company is not an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940, as amended, and, if the Company conducts
its business as described in the Offering Memorandum, or the materials
incorporated reference therein, will not become an "investment company" and
will not be required to register under the Investment Act.
(3) (i) The Company has the requisite corporate power and authority to
enter into and perform the Transaction Documents and to issue the Common Shares
and the Warrants, (ii) the execution and delivery of the Transaction Documents
and the Warrants by the Company and the consummation by the Company of the
transactions contemplated thereby have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board or Directors, or its stockholders is required, (iii) the Transaction
Documents have been duly authorized, executed and delivered by the Company and
(iv) the Transaction Documents constitute, and the Warrants, when duly executed
and delivered, will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
(4) The Common Shares have been validly issued and are fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. The delivery of the Common Shares pursuant to the terms of the
Transaction Agreements will pass title to the Common Shares to you, free and
clear of all liens, encumbrances and claims. The number of shares of Common
Stock issuable upon exercise of the Warrants has been duly reserved for such
issuance.
(5) As of the date hereof, the authorized capital stock of the Company
consists of (i) 20,000,000 shares of Common Stock, par value $0.01 per share,
of which ________ shares are issued and outstanding, and ________ shares are
reserved for issuance as follows:__________________, and (ii) 5,000,000 shares
of Preferred Stock, par value $0.01 per share, of which no shares are issued
and outstanding. All of such outstanding shares have been duly authorized and
validly issued and are fully paid and non-assessable. No shares of Common
Stock or Preferred Stock of the Company are subject to preemptive rights or any
other similar rights of the stockholders of the Company pursuant to the
Articles of Incorporation or Bylaws or by statute or pursuant to any agreement
by which the Company is bound of which we are aware, or have been issued in
48
violation of any statutory preemptive rights or, to our Actual Knowledge,
similar contractual rights, and, to our Actual Knowledge, are not subject to
any liens or encumbrances. The Common Stock has been duly authorized for
quotation in the Nasdaq National Market. To our Actual Knowledge, except for
the rights contemplated under the Transaction Agreements, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries, and there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act of 1933, as
amended (the "Securities Act"), except the Registration Rights Agreement.
(6) Other than you and to those persons listed on Schedule 1 hereto, to
our Actual Knowledge no holder of any securities of the Company has the right
to require registration of shares of the Common Stock or other securities of
the Company. The description of the Common Shares contained, or incorporated
by reference, in the Offering Memorandum conforms to the rights set forth in
the instruments defining the same and is in conformity with the requirements of
the Securities Act.
(7) Based upon your representations, warranties and covenants set forth in
the Agreement, the Common Shares and the Warrants may be issued to you without
registration under the Securities Act.
(8) Other than necessary approvals that have been obtained and are in full
force and effect, no authorization, approval, license or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market, the stockholders of the Company, or, to our Actual
Knowledge, any third party is required to be obtained by the Company under the
Securities Act in connection with the (A) authorization, issuance, transfer,
sale or delivery of the Common Shares and the Warrants, or (B) execution,
delivery and performance of the Transaction Documents by the Company, or (C)
taking of any action contemplated in the Transaction Documents or any other
transactions contemplated thereby.
(9) To our Actual Knowledge, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body or any
governmental agency or self-regulatory organization pending or threatened
against or affecting the Company or any of its subsidiaries, wherein an
unfavorable decision, ruling or finding would have a material adverse effect on
the Company taken as a whole or which would adversely affect the validity or
enforceability of or the authority or ability of the Company to perform its
obligations under the Transaction Documents.
(10) The Company is not in violation of any term of its Articles of
Incorporation or Bylaws. Neither the Articles of Incorporation nor the Bylaws
of the Company are in violation of the laws of the State of Florida. The
execution, delivery and performance of, and compliance with, the terms of the
Transaction Documents, the sale and issuance of the Common Shares and Warrants
(and the Common Stock issuable upon conversion or exercise thereof) and the
consummation by the Company of the transactions contemplated in the Transaction
Documents, do not (i) violate, conflict with, result in a breach of any of the
terms of provisions of (a) the Articles of Incorporation or Bylaws of the
Company or, (b) any provision of any applicable United States federal or state
law, rule or regulation; (ii) to our Actual Knowledge, violate or constitute a
default (or give rise to
49
any right of termination, cancellation or acceltion) under (or an event which
with the passage of time or the giving of notice or both would constitute a
default under), or result in the creation of any lien, charge, security
interest or encumbrance on the assets or properties of the Company pursuant to
any indenture, mortgage, deed of trust, voting trust agreement, contract or
other agreement or instrument, binding upon the Company, or any existing
statute, rule or regulation, or any judgment, order or decree of any
government, governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its properties which, individually or
in the aggregate, would have a material adverse effect on the Company taken as
a whole.
(11) To our Actual Knowledge, all of the representations and warranties of
the Company contained in the Agreement or in any certificate or document
contemplated under the Transaction Documents are true and correct as of the
date hereof.
(12) Other than taxes that to our Actual Knowledge have been paid, there
are no transfer or similar taxes payable in connection with the sale and
delivery of the Common Shares or the Warrants (or the issuance of shares of
Common Stock upon the exercise of the Warrants) by the Company to you.
(13) A Registration Statement, Registration Number 333-******, relating to
your resale of the Common Shares (the "Registration Statement"), has been
declared effective under the Securities Act and, to our Actual Knowledge, no
stop order suspending the effectiveness of the Registration Statement has been
issued under the Securities Act or any part thereof and no proceedings for that
purpose have been instituted or threatened under the Securities Act or the
Securities Exchange Act of 1934, as amended.
In the process of our review of the Offering Memorandum, and the materials
incorporated by reference therein, although we have not engaged in any
independent investigation, and do not assume any responsibility for the
accuracy or completeness of the information contained therein, nothing has come
ntion that would lead us to believe that any of the Offering Memorandum or such
materials contains any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of circumstances under which they were made, not misleading, as of
the date thereof, in the case of the Offering Memorandum, or the date of its
filing with the Securities and Exchange Commission, in the case of such
materials.
No opinion is expressed as to consents, authorizations or orders required
under state securities or Blue Sky laws in connection with the purchase and
distribution of the Common Shares or the Warrants.
50
EXHIBIT A
OFFICER'S CERTIFICATE
I, _______________________, Executive Officer of CyberGuard Corporation, a
Florida corporation (the "Company"), do hereby certify that:
1. This Certificate is being delivered to and may be relied upon by
Holland & Knight LLP ("Counsel") in delivering its opinion of counsel
pursuant to the requirements of that certain Private Securities Subscription
Agreement dated May __, 1997 between the Company and Capital Ventures
International, Inc. and the documents related thereto (the "Transaction
Documents"). All initial capital words used herein and not otherwise
defined shall have the same meaning ascribed thereto in the Transaction
Documents.
2. Neither the Company nor any of its properties or assets, are bound
by, subject to or affected by any note, indebtedness, bond, mortgage, lien,
indenture, deed of trust, or other similar instrument or obligation other
than: (i) those set forth on Schedule 1 attached hereto; and (ii) debt
incurred in the ordinary course of business.
3. The Company's subsidiaries are:
4. The Company and its subsidiaries are authorized to do business in
the following jurisdictions:
5. None of the Company nor its subsidiaries is required to do business
in any jurisdiction other than those listed above.
6. There are ____________________ shares of Common Stock of the Company
outstanding and _____________________ shares of Preferred Stock outstanding.
The following shares of common stock are reserved for issuance for the
purposes set forth below:
7. No authorizations, approvals, consents of, and no filings or
registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by the Company of any
of the Transaction Documents to which its is a party or for the validity or
enforceability thereof, except as otherwise referred to in the Transaction
Documents.
8. There are no actions, suits, proceedings or investigations pending
or, threatened, including without limitation, actions, suits or proceedings
relating to product or service liability claims, against or affecting the
Company or any of its properties or business, at law or in equity, or before
or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
whether as plaintiff or defendant, which individually or in the aggregate
could have a Material Adverse Effect. There is no state of facts or
contemplated event which may reasonably be expected to give rise to such
claim, action, suit, proceeding or investigation which could have a Material
51
Adverse Effect. The Company is not operating under, or subject to, or in
default with respect to, any judgment, order, writ, injunction, rule,
regulation or decree of any court or federal, state, municipal or other
governmental agency or body, domestic or foreign.
9. The Company is not in violation of, or default under, and the
execution and delivery of the Transaction Documents, and the performance by
the Company of its obligations thereunder, will not be in conflict with, or
constitute (with or without the passage of time or giving of notice) a breach
of default under, or require any consent or waiver (other than any consents
or waivers that have been obtained) pursuant to, or result in the creation
of any mortgage, pledge, lien, encumbrance or charge upon the assets of the
Company under (i) any provision of the Articles of Incorporation or Bylaws
of the Company or (ii) any instrument, mortgage, deed of trust, contract or
agreement to which the Company is a party or by which it is bound, or (iii)
any judgment, decree or order of a court, tribunal or governmental authority
by which the Company is bound.
10. The schedules attached to the Transaction Documents have been
prepared by officers and employees of the Company and, to the best of my
knowledge, are accurate and complete and do not fail to include therein any
material fact necessary to make the statements therein not misleading.
52
EXHIBIT D
FORM OF OFFICER'S CERTIFICATE
The undersigned, Chief ______________________ Officer of CYBERGUARD
CORPORATION, a Florida corporation (the "Company"), hereby certifies, on behalf
of the Company that:
All of the representations and warranties of the Company contained
in the Private Securities Subscription Agreement (the
"Agreement"), dated May 15, 1997, by and between the Company and
CAPITAL VENTURES INTERNATIONAL, a corporation organized under the
laws of the Cayman Islands, were true and correct on and as of the
date of execution of the Agreement, are true and correct on and as
of the date hereof and have been true and correct as of all times
between the date of such execution and the date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto signed his name this
date of , 1997.
Chief Officer
----------------------
CyberGuard Corporation
53
EXHIBIT E
FORM OF SHORELINE LETTER
[SHORELINE PACIFIC LETTERHEAD]
[date]
CyberGuard Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: Mr. ▇▇▇ ▇▇▇▇▇▇▇, Chief Financial Officer
RE: CYBERGUARD CORPORATION (THE "COMPANY") PRIVATE SECURITIES SUBSCRIPTION
AGREEMENTS (THE "SUBSCRIPTION AGREEMENTS") DATED MARCH ____, 1997 BY AND
AMONG THE COMPANY AND CERTAIN BUYERS OF SHARES OF THE COMPANY'S COMMON
STOCK
Ladies and Gentlemen:
Reference is made to (i) the letter agreement between us dated February
18, 1997 (the "Engagement Letter") and (ii) the Subscription Agreements
executed in connection with the Company's private placement (the "Private
Placement") of shares of its Common Stock (the "Common Shares") for which we
have acted as the placement agent.
We hereby represent and warrant to the Company that we have conducted all
sales and solicitation efforts in a manner consistent with the requirements of
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and Rule
506 under Regulation D as promulgated by the Securities and Exchange Commission
under the Securities Act, both in respect those persons who are buyers of the
Common Shares and those who determined not to purchase Common Shares in the
Private Placement.
Further, we hereby consent and agree that the Company may, at its option,
make reference to ▇▇▇▇▇ & Co. in any press release or tombstone announcement as
having participated in the arranging of this financing for the Company.
Sincerely,
SHORELINE PACIFIC,
THE INSTITUTIONAL DIVISION OF FINANCIAL WEST GROUP
By: