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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER,
Dated May 29, 1998,
among
CYBERGUARD CORPORATION,
ARCA ACQUISITION CORPORATION,
ARCA SYSTEMS, INC.
and
EACH OF THE SHAREHOLDERS OF
ARCA SYSTEMS, INC. WHO ARE SIGNATORIES HERETO
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TABLE OF CONTENTS
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ARTICLE I Definitions............................................................................................1
ARTICLE II The Merger.............................................................................................5
2.1 The Merger.............................................................................................5
2.2 Closing; Effective Time of the Merger..................................................................5
2.3 Effects of the Merger..................................................................................5
2.4 Certificate of Incorporation and Bylaws................................................................5
2.5 Directors and Officers.................................................................................5
2.6 Conversion of ARCA Common Stock and ARCA Preferred Stock...............................................6
2.7 Impact on ARCA Stock Options...........................................................................6
2.8 Conversion of Acquisition Common Stock.................................................................7
2.9 Exchange of and Payment for ARCA Common Stock and ARCA Preferred Stock.................................7
2.10 No Further Transfers of ARCA Common Stock or ARCA Preferred Stock......................................8
2.11 Cash in Lieu of Fractional Shares......................................................................8
2.12 Dissenters' Rights.....................................................................................8
ARTICLE III Representations and Warranties of CyberGuard and Acquisition...........................................9
3.1 ORGANIZATION, STANDING AND POWER.......................................................................9
3.2 AUTHORIZATION OF AGREEMENT.............................................................................9
3.3 NO VIOLATION OR CONFLICT...............................................................................9
3.4 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES........................................................9
3.5 SECURITIES AND EXCHANGE COMMISSION FILINGS.............................................................9
3.6 VALIDITY OF CYBERGUARD COMMON STOCK...................................................................10
3.7 PREEMPTIVE RIGHTS.....................................................................................10
3.8 PROXY STATEMENT.......................................................................................10
3.9 BROKER AND FINDERS....................................................................................10
3.10 TAX MATTERS...........................................................................................10
3.11 POOLING OF INTERESTS..................................................................................10
3.13 DISCLOSURE............................................................................................11
ARTICLE IV Representations and Warranties of ARCA and the Party Shareholders.....................................11
4.1 ORGANIZATION, STANDING AND POWER......................................................................11
4.2 AUTHORITY; LEGAL, VALID AND BINDING AGREEMENT.........................................................11
4.3 AUTHORITY TO DO BUSINESS..............................................................................11
4.4 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS....................................................11
4.5 SUBSIDIARIES..........................................................................................12
4.6 CAPITALIZATION........................................................................................12
4.7 RIGHTS, WARRANTS, OPTIONS.............................................................................12
4.8 FINANCIAL STATEMENTS..................................................................................12
4.9 ABSENCE OF UNDISCLOSED LIABILITIES....................................................................13
4.10 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS....................................................13
4.11 REAL PROPERTY.........................................................................................13
4.12 INSURANCE.............................................................................................13
4.13 LABOR RELATIONS.......................................................................................14
4.14 LICENSES..............................................................................................14
4.15 PROPRIETARY RIGHTS....................................................................................14
4.16 MAJOR CUSTOMERS AND SUPPLIERS.........................................................................15
4.17 LITIGATION............................................................................................15
4.18 NO VIOLATION OR CONFLICT..............................................................................15
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4.19 TRANSACTIONS WITH AFFILIATES..........................................................................16
4.20 LIST OF ACCOUNTS......................................................................................16
4.21 LIST OF PERSONNEL.....................................................................................16
4.22 GUARANTIES............................................................................................16
4.23 YEAR 2000 COMPLIANCE..................................................................................16
4.24 EMPLOYEE BENEFIT PLANS................................................................................16
4.25 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES.......................................................17
4.26 ABSENCE OF MATERIAL ADVERSE CHANGES...................................................................17
4.27 TAXES AND TAX MATTERS.................................................................................18
4.28 MATERIAL AGREEMENTS...................................................................................18
4.29 COMPLIANCE; GOVERNMENT AUTHORIZATION..................................................................18
4.30 BROKERS AND FINDERS...................................................................................19
4.31 PROXY STATEMENT.......................................................................................19
4.32 NO PRIOR AGREEMENT....................................................................................19
4.33 ENVIRONMENTAL MATTERS.................................................................................19
4.34 REORGANIZATION........................................................................................20
4.35 PROPOSALS.............................................................................................20
4.36 GOVERNMENT CONTRACTS AND AUDITS.......................................................................20
4.37 POOLING-OF-INTERESTS..................................................................................20
4.38 LOANS.................................................................................................20
4.39 DISCLOSURE............................................................................................20
4.1B AUTHORITY; LEGAL, VALID AND BINDING AGREEMENT.........................................................21
4.2B CAPITALIZATION........................................................................................21
4.3B LITIGATION............................................................................................21
4.4B NO VIOLATION OR CONFLICT..............................................................................21
4.5B CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES.......................................................21
4.6B BROKERS AND FINDERS...................................................................................22
4.7B NO PRIOR AGREEMENT....................................................................................22
4.8B DISCLOSURE............................................................................................22
ARTICLE V Covenants.............................................................................................22
5.1 Interim Operations of ARCA............................................................................22
5.2 Access................................................................................................23
5.3 Confidentiality.......................................................................................23
5.4 Notification..........................................................................................24
5.5 Consent of Governmental Authorities and Others........................................................24
5.6 Acquisition Proposals; No Solicitation................................................................24
5.7 Commercially Reasonable Efforts.......................................................................24
5.8 Public Announcements..................................................................................25
5.9 Approval by ARCA's Shareholders.......................................................................25
5.10 Investment Intent Letters.............................................................................25
5.11 Forbearance by CyberGuard.............................................................................25
5.12 Affiliates' Letters...................................................................................25
5.13 Registration Agreement................................................................................26
5.14 Preparation of Proxy Statement........................................................................26
5.15 Employment Agreements, Confidentiality Agreements
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreements........................................................................27
5.16 Personal Guaranties...................................................................................27
5.17 Pooling...............................................................................................27
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ARTICLE VI Additional Agreements.................................................................................27
6.1 Employees and Benefit Plans...........................................................................27
6.2 Investigation; Notices................................................................................27
6.3 Survival of the Representations, Warranties, Covenants and Agreements.................................27
6.4 Indemnification.......................................................................................28
6.5 General Release.......................................................................................29
6.6 Restrictive Covenants.................................................................................30
6.7 Tax Treatment of the Merger...........................................................................30
ARTICLE VII Closing; Conditions Precedent; Termination............................................................30
7.1 Closing...............................................................................................30
7.2 Mutual Conditions Precedent...........................................................................30
7.3 Conditions Precedent to the Obligations of CyberGuard.................................................30
7.4 Conditions Precedent to the Obligations of ARCA.......................................................32
7.5 Termination...........................................................................................33
ARTICLE VIII Miscellaneous.........................................................................................34
8.1 Notices...............................................................................................34
8.2 Entire Agreement......................................................................................34
8.3 Assignment............................................................................................34
8.4 Waiver and Amendment..................................................................................34
8.5 No Third Party Beneficiary............................................................................34
8.6 Severability..........................................................................................34
8.7 Expenses; Termination Fee.............................................................................34
8.8 Headings..............................................................................................35
8.9 Counterparts..........................................................................................35
8.10 Litigation; Prevailing Party..........................................................................35
8.11 Injunctive Relief.....................................................................................35
8.12 Governing Law.........................................................................................35
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is entered into as of May 29, 1998,
among CyberGuard Corporation, a Florida corporation ("CYBERGUARD"), ARCA
Acquisition Corporation, a Florida corporation and a wholly owned subsidiary of
CyberGuard ("ACQUISITION"), ARCA Systems, Inc., a California corporation
("ARCA"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") and R.
▇▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇") (▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇ are sometimes hereinafter
referred to individually as a "PARTY SHAREHOLDER" and collectively as the "PARTY
SHAREHOLDERS").
PRELIMINARY STATEMENT
ARCA and CyberGuard believe that the mutual best interests of ARCA and
CyberGuard and their respective shareholders will be served by the merger of
Acquisition with and into ARCA upon the terms and subject to the conditions of
this Agreement.
AGREEMENT
In consideration of the preliminary statement and the respective
covenants, representations and warranties contained in this Agreement, the
parties agree as set forth below.
ARTICLE I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the meanings indicated below:
"ACQUISITION COMMON STOCK" means the common stock of Acquisition, par
value $.01 per share.
"AFFILIATE" has the meaning specified in Rule 144 promulgated by the
Commission under the Securities Act.
"AFFILIATE LETTER" has the meaning specified in SECTION 5.12 of this
Agreement.
"AGREEMENT" means this Agreement and Plan of Merger together with all
exhibits and schedules referred to herein.
"ARCA COMMON STOCK" means the common stock of ARCA, no par value per
share.
"ARCA PLAN" has the meaning specified in SECTION 2.7 of this Agreement.
"ARCA SERIES A PREFERRED STOCK " means the Series A Preferred Stock of
ARCA, no par value per share.
"ARCA SERIES B PREFERRED STOCK "means the Series B Preferred Stock of
ARCA, no par value per share.
"ARCA MAJORITY SHAREHOLDERS" has the meaning specified in SECTION 4.2
of this Agreement.
"ARCA OPTION" has the meaning specified in SECTION 2.7 of this
Agreement.
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"ARCA PLANS" has the meaning specified in SECTION 4.24 of this
Agreement.
"ARCA PREFERRED STOCK" means the ARCA Series A Preferred Stock and the
ARCA Series B Preferred Stock.
"BASKET LIMITATION" has the meaning specified in SECTION 6.4(d) of this
Agreement.
"CALIFORNIA ACT" means the California General Corporation Law.
"CERTIFICATE OF MERGER" has the meaning specified in SECTION 2.2 of
this Agreement.
"CLOSING" has the meaning specified in SECTION 2.2 of this Agreement.
"CLOSING DATE" has the meaning specified in SECTION 2.2 of this
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"CYBERGUARD COMMON STOCK" means the common stock of CyberGuard, par
value $.01 per share.
"CYBERGUARD DISCLOSURE MATERIALS" means the latest Proxy Statement of
CyberGuard, Form 10-K, any interim 10-Qs of CyberGuard and any other materials
required under the 1933 Act Rule 502(b)(2) to be included in the Proxy Statement
concerning CyberGuard or otherwise provided by CyberGuard for delivery to the
Shareholders in the Proxy Statement.
"DISSENTING SHARES" has the meaning specified in SECTION 2.12 of this
Agreement.
"EFFECTIVE TIME" shall have the meaning set forth in SECTION 2.2 of
this Agreement.
"ENVIRONMENTAL LAWS" has the meaning specified in SECTION 4.33(a) of
this Agreement.
"ENVIRONMENTAL PERMITS" has the meaning specified in SECTION 4.33(b) of
this Agreement.
"ERISA" has the meaning specified in SECTION 4.24 of this Agreement.
"ESCROW AGENT" has the meaning specified in SECTION 6.4(a) of this
Agreement.
"ESCROW AGREEMENT" has the meaning specified in SECTION 6.4(a) of this
Agreement.
"ESCROWED CONSIDERATION" has the meaning specified in SECTION 6.4(a) of
this Agreement.
"EXCHANGE ACT" has the meaning specified in SECTION 3.5 of this
Agreement.
"EXCHANGE AGENT" has the meaning specified in SECTION 2.9(a) of this
Agreement.
"FINANCIAL STATEMENTS" means ARCA's unaudited balance sheets and the
related unaudited statements of operations, stockholders' equity and cash flow
as at and for the year ended December 31, 1996, the audited balance sheets and
the related audited statements of operations, stockholders' equity and cash flow
as at and for the year ended December 31, 1997 and ARCA's unaudited balance
sheets and the related statements of operations as at and for the three-month
period ended March 31, 1998.
"FLORIDA ACT" means the Florida Business Corporation Act.
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"GAAP" has the meaning specified in SECTION 4.8 of this Agreement.
"GUARANTY" means, as to any Person, any contract, agreement or
understanding of such Person pursuant to which such Person guarantees the
indebtedness, liabilities or obligations of others, directly or indirectly, in
any manner, including agreements to purchase such indebtedness, liabilities or
obligations, or to supply funds to or in any manner invest in others, or to
otherwise assure the holder of such indebtedness, liabilities or obligations
against loss, but excluding endorsement of checks in the ordinary course of
business.
"HAZARDOUS SUBSTANCES" has the meaning specified in SECTION 4.33(a) of
this Agreement.
"INDEMNIFIED PARTY" has the meaning specified in SECTION 6.4(c) of this
Agreement.
"INDEMNIFYING PARTY" has the meaning specified in SECTION 6.4(c) of
this Agreement.
"INTANGIBLE PROPERTY" has the meaning specified in SECTION 4.15 of this
Agreement.
"IRS" means the Internal Revenue Service.
"INVESTMENT INTENT LETTER" has the meaning specified in SECTION 5.10 of
this Agreement.
"KNOWLEDGE" or "KNOWN" have two different meanings in this Agreement:
(a) When matters are being referred to as "to the best of" a
party's knowledge or "to the best knowledge" of a party (or
any similar phrase), the reference shall mean, with respect to
any representation or warranty or other statement in this
Agreement, that such party has made a diligent investigation
as to the matters that are the subject of such representation,
warranty or other statement. Where reference is made "to the
best of ARCA's knowledge" or "to the best knowledge of ARCA"
(or any similar phrase), such reference shall mean the
knowledge of the executive officers and directors of ARCA, all
having conducted the diligent investigation contemplated by
this definition. Where reference is made "to the best of
CyberGuard's knowledge" or "to the best knowledge of
CyberGuard" (or any similar phrase), such reference shall mean
the knowledge of the executive officers of CyberGuard, all
having conducted the diligent investigation contemplated by
this definition.
(b) The words "knowledge" or "known" when used without the
qualifying language "to the best of" or "to the best knowledge
of" (or any similar phrase) shall mean the actual knowledge of
the Person whose knowledge is at issue. For these purposes the
word "actual" shall not, except as provided in Section 3.11
hereof, designate merely the Person's state of mind, but also
shall include information and data: that the Person has
learned; that in the ordinary course of business has been
reported to the Person; and that is ordinarily maintained as
part of the Person's business files (both computer and hard
files). Where reference is made to the "knowledge of ARCA" or
"to ARCA's knowledge" (when used without the qualifying
language "to the best of" or "to the best knowledge of"), such
reference shall mean the actual knowledge of the executive
officers and directors of ARCA. Where reference is made to the
"knowledge" of CyberGuard (when used without the qualifying
language "to the best of" or "to the best knowledge of"), such
reference shall mean the actual knowledge of the executive
officers of CyberGuard.
"LICENSE" has the meaning specified in SECTION 4.14 of this Agreement.
"LOAN AMOUNT" has the meaning specified in SECTION 4.38 of this
Agreement.
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"LOANS" has the meaning specified in SECTION 4.38 of this Agreement.
"LOSSES" has the meaning specified in SECTION 6.4(A) of this Agreement.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the business, operations, financial condition, results of
operations or business prospects of such Person and its Subsidiaries on a
consolidated basis, except for any such material adverse effect arising out of
the execution of this Agreement and the consummation of the transactions
contemplated hereby or out of general economic conditions or, in the case of
ARCA, the general conditions of the information technology consulting industry,
or, in the case of CyberGuard, the general conditions of the internet or
intranet security solutions industry.
"MATERIAL AGREEMENTS" has the meaning specified in SECTION 4.28 of this
Agreement.
"MERGER" has the meaning specified in SECTION 2.1 of this Agreement.
"1933 ACT" has the meaning specified in SECTION 3.5 of this Agreement.
"OPTIONS" has the meaning specified in SECTION 4.7 of this Agreement.
"PENSION PLAN" has the meaning specified in SECTION 4.24 of this
Agreement.
"PERSON" means any natural person, corporation, unincorporated
organization, partnership, association, joint stock company, joint venture,
trust or government, or any agency or political subdivision of any government,
or any other entity.
"PROXY STATEMENT" means the proxy or information statement relating to
the special meeting of, or solicitation of written consents of, ARCA's
shareholders in connection with the Merger, as amended or supplemented from time
to time.
"REGISTRATION AGREEMENT" has the meaning specified in SECTION 5.13 of
this Agreement.
"REGISTRATION STATEMENTS" means the registration statements on Form S-3
under the 1933 Act (or such other form available) to be filed with the
Commission to register the Shareholders' resale of the shares of CyberGuard
Common Stock to be issued at the Effective Time pursuant to SECTION 2.6 of this
Agreement, as the same may be amended or supplemented from time to time.
"SHAREHOLDERS" means the shareholders of ARCA immediately prior to the
Effective Time.
"STOCK CONVERSION RATIO" has the meaning specified in SECTION 2.6 of
this Agreement.
"SUBSIDIARY" of any Person means any Person, whether or not
capitalized, in which such Person owns, directly or indirectly, an equity
interest of 50% or more, or any Person which may be controlled, directly or
indirectly, by such Person, whether through the ownership of voting securities,
by contract, or otherwise.
"SUBSTITUTE OPTION" has the meaning specified in SECTION 2.7 of this
Agreement.
"SURVIVAL DATE" has the meaning specified in SECTION 6.3 of this
Agreement.
"SURVIVING CORPORATION" has the meaning specified in SECTION 2.1 of
this Agreement.
"TAXES" has the meaning specified in SECTION 4.27 of this Agreement.
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"TERMINATION DATE" has the meaning specified in SECTION 7.5(b) of this
Agreement.
"WELFARE PLAN" has the meaning specified in SECTION 4.24 of this
Agreement.
ARTICLE II
THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Florida Act and the California
Act, at the Effective Time, Acquisition shall be merged (the "MERGER") with and
into ARCA. At the Effective Time, the separate corporate existence of
Acquisition shall cease, and ARCA shall continue as the surviving corporation of
the Merger under the laws of the State of California (the "SURVIVING
CORPORATION"). The corporate existence of CyberGuard shall not be effected by
the Merger.
2.2 CLOSING; EFFECTIVE TIME OF THE MERGER. Unless this Agreement is
terminated in accordance with its terms, the consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of CyberGuard as soon as practicable, and in any event within three business
days, after the satisfaction or waiver of the conditions precedent to the
obligations of the parties set forth in Article VII (the "CLOSING DATE"), or on
such other date and at such other place as may be agreed to by the parties. On
the Closing Date, the parties hereto shall cause the Merger to be consummated by
filing articles of merger and an agreement of merger, substantially in the form
set forth as EXHIBIT A (collectively, the "CERTIFICATE OF MERGER"), with the
Secretary of State of the State of Florida and the Secretary of State of the
State of California, respectively, in such form as required by, and executed in
accordance with the relevant provisions of, the Florida Act and the California
Act (the later of the date and time of the filing of the Certificate of Merger
with the Secretary of State of the State of Florida and the Secretary of State
of the State of California (or such later time as is specified in the
Certificate of Merger) being the "EFFECTIVE TIME").
2.3 EFFECTS OF THE MERGER. From and after the Effective Time, the
Merger shall have the effects set forth under the applicable provisions of the
Florida Act and the California Act.
2.4 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) CERTIFICATE OF INCORPORATION. At the Effective Time, and
until thereafter amended or repealed in accordance with their terms and as
provided by law, the Articles of Incorporation of the Surviving Corporation
shall be the Articles of Incorporation of Acquisition, as in effect immediately
prior to the Effective Time, except that Article I thereof shall be deleted in
its entirety and replaced with the following: "The name of the Corporation is
ARCA Systems, Inc."
(b) BYLAWS. At the Effective Time, the Bylaws of the Surviving
Corporation shall be the Bylaws of Acquisition, as in effect immediately prior
to the Effective Time, until thereafter amended or repealed in accordance with
their terms and the Articles of Incorporation of the Surviving Corporation and
as provided by law.
2.5 DIRECTORS AND OFFICERS. The directors of Acquisition immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation, and the officers of Acquisition immediately prior
to the Effective Time shall be the officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed, as
the case may be, and qualified.
2.6 CONVERSION OF ARCA COMMON STOCK AND ARCA PREFERRED STOCK. At the
Effective Time, each share of ARCA Common Stock which is issued and outstanding
immediately prior to the
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Effective Time (other than Dissenting Shares as defined in SECTION 2.12 and
other than such shares owned by ARCA or CyberGuard or any of its Subsidiaries)
shall be canceled and retired and converted without any action on the part of
the holder thereof into and be exchangeable for .11819 shares of CyberGuard
Common Stock (the "STOCK CONVERSION RATIO") (rounded to the nearest thousandth
of a share), subject to the payment of cash in lieu of fractional shares in
accordance with SECTION 2.11 hereof.
At the Effective Time, each share of ARCA Series A Preferred Stock
which is issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares and other than such shares owned by ARCA or CyberGuard or
any of its Subsidiaries) shall be canceled and retired and converted without any
action on the part of the holder thereof into and be exchangeable for .54817
shares of CyberGuard Common Stock (rounded to the nearest thousandth of a
share), subject to the payment of cash in lieu of fractional shares in
accordance with SECTION 2.11 hereof.
At the Effective Time, each share of ARCA Series B Preferred Stock
which is issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares and other than such shares owned by ARCA or CyberGuard or
any of its Subsidiaries) shall be canceled and retired and converted without any
action on the part of the holder thereof into and be exchangeable for .19361
shares of CyberGuard Common Stock (rounded to the nearest thousandth of a
share), subject to the payment of cash in lieu of fractional shares in
accordance with SECTION 2.11 hereof.
At the Effective Time, the Loans (specified in SECTION 4.38)
outstanding immediately prior to the Effective Time shall be converted into and
be exchangeable for 8,577 shares of CyberGuard Common Stock (rounded to the
nearest thousandth of a share), subject to the payment of cash in lieu of
fractional shares in accordance with SECTION 2.11 hereof.
2.7 IMPACT ON ARCA STOCK OPTIONS. At the Effective Time, each unexpired
and unexercised option to purchase shares of ARCA Common Stock, whether or not
then exercisable (an "ARCA OPTION"), shall be assumed by CyberGuard and each
ARCA Option shall be canceled and retired and converted automatically into an
option ("SUBSTITUTE OPTION") to purchase a number of shares of CyberGuard Common
Stock equal to the number of shares of ARCA Common Stock that could have been
purchased under the ARCA Option multiplied by the Stock Conversion Ratio (except
that upon exercise, any options to purchase fractional shares resulting from the
aggregate of any such adjustment shall be eliminated), at a price per share of
CyberGuard Common Stock equal to the per share option exercise price under the
ARCA Option, divided by the Stock Conversion Ratio (with the resulting exercise
price rounded to the nearest whole cent); provided that in the case of any ARCA
Option intended to qualify as an incentive stock option under Section 422 of the
Code, the option price, the number of shares purchasable pursuant to such option
and the terms and conditions of exercise of such option shall be determined in
compliance with Section 424(a) of the Code. The duration, vesting and other
terms of the Substitute Options shall be the same as the original ARCA Options,
except that references to ARCA shall be deemed to be references to CyberGuard.
As soon as practicable after the Effective Time, CyberGuard shall deliver to the
holders of ARCA Options notice setting forth such holders' rights pursuant
thereto and the grants of ARCA Options shall continue in effect on substantially
the same terms and conditions (subject to the adjustments required by this
Section 2.7 after giving effect to the Merger). CyberGuard shall comply with the
terms of ARCA's 1988 Stock Plan (the "ARCA Plan") and use its commercially
reasonable efforts to seek, to the extent required by, and subject to the
provisions of, the ARCA Plan and Sections 422 and 424(a) of the Code, that ARCA
Options which qualified as incentive stock options prior to the Effective Time
continue to qualify as incentive stock options after the Effective Time.
CyberGuard shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of CyberGuard Common Stock for delivery upon
exercise of ARCA Options assumed in accordance with this Section 2.7. As soon as
practicable after the Effective Time and in any event no later than 10 business
days after the Closing, CyberGuard shall file a registration statement on Form
S-8 (or any successor or other appropriate forms) under the 1933 Act or another
appropriate form with respect to the shares of CyberGuard Common Stock subject
to such options and shall use its commercially reasonable efforts to maintain
the effectiveness of such
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registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
2.8 CONVERSION OF ACQUISITION COMMON STOCK. At the Effective Time, each
share of Acquisition Common Stock that is issued and outstanding immediately
prior to the Effective Time shall thereafter represent one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.
2.9 EXCHANGE OF AND PAYMENT FOR ARCA COMMON STOCK AND ARCA PREFERRED
STOCK.
(a) At or as soon as practicable after the Effective Time,
CyberGuard will cause the exchange agent selected by CyberGuard (the "EXCHANGE
AGENT") to send to each record holder of shares of ARCA Common Stock and ARCA
Preferred Stock which shall have been converted in the Merger an appropriate
letter of transmittal for purposes of such shareholder's obtaining certificates
representing the CyberGuard Common Stock into which it was converted, which
letter of transmittal shall be mailed to such shareholder's address of record
provided by ARCA. As soon as practicable after the Effective Time and after
surrender to the Exchange Agent of a properly executed letter of transmittal and
any certificates which immediately prior to the Effective Time shall have
represented any then issued and outstanding shares of ARCA Common Stock and ARCA
Preferred Stock, CyberGuard shall, subject to the provisions of SECTIONS 2.9(c)
AND 6.4(a) hereof, cause to be distributed to the person in whose name such ARCA
Common Stock and ARCA Preferred Stock shall have been registered, certificates
registered in the name of such person representing the shares of CyberGuard
Common Stock into which such shares of ARCA Common Stock and ARCA Preferred
Stock shall have been converted at the Effective Time and a check payable to
such person representing the payment of cash in lieu of fractional shares
determined in accordance with SECTION 2.11 hereof. Until surrendered as
contemplated by the preceding sentence, each certificate which immediately prior
to the Effective Time shall have represented any then issued and outstanding
shares of ARCA Common Stock and ARCA Preferred Stock shall be deemed at and
after the Effective Time to represent only the right to receive, upon such
surrender, the certificates and payment contemplated by the preceding sentence.
(b) No dividends or other distributions declared after the
Effective Time with respect to shares of CyberGuard Common Stock and payable to
the holders of record thereof after the Effective Time shall be paid with
respect to ARCA Common Stock and ARCA Preferred Stock converted in the Merger
until such properly executed letter of transmittal and any unsurrendered
certificates representing such shares of ARCA Common Stock and ARCA Preferred
Stock are surrendered as provided herein. Upon the surrender of such letter of
transmittal and any such outstanding certificates, however, there shall be paid
to the record holder of the certificates of CyberGuard Common Stock issued in
exchange for the shares of ARCA Common Stock or ARCA Preferred Stock, the
aggregate amount of dividends and distributions, if any, which theretofore
became payable in respect of the shares of CyberGuard Common Stock into which
such ARCA Common Stock or ARCA Preferred Stock is converted, subject in any case
to any applicable escheat laws and unclaimed property laws. No interest shall be
payable on or in respect of the payment of such dividends or cash in lieu of
fractional shares on surrender of outstanding certificates.
(c) If any cash or certificate representing shares of
CyberGuard Common Stock are to be paid to or issued in a name other than that in
which the certificate surrendered in exchange therefor is registered, it shall
be a condition of the payment or issuance thereof that the certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of a certificate
representing shares of CyberGuard Common Stock in any name other than that of
the registered holder of the certificate surrendered.
(d) Any portion of the CyberGuard Common Stock or cash in lieu
of fractional shares payable hereunder that remains unclaimed by the
shareholders of ARCA for 12 months after the
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Effective Time shall, if on deposit with the Exchange Agent, be paid to
Surviving Corporation. Any shareholders of ARCA who have not theretofore
complied with this Article II shall thereafter look only to Surviving
Corporation or CyberGuard for payment of the shares of CyberGuard Common Stock
or cash in lieu of any fractional shares and any unpaid dividends and
distributions on the CyberGuard Common Stock deliverable in respect of each
share of ARCA Common Stock or ARCA Preferred Stock such shareholder holds as
determined pursuant to this Agreement without any interest thereon.
Notwithstanding the foregoing, none of ARCA, Acquisition, CyberGuard, Surviving
Corporation, the Exchange Agent or any other person shall be liable to any
former holder of shares of ARCA Common Stock or ARCA Preferred Stock for any
amount delivered in good faith to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(e) In the event any certificate which, immediately prior to
the Effective Time, represented ARCA Common Stock or ARCA Preferred Stock shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such certificate to be lost, stolen or destroyed as
indemnity against any claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed certificate the shares of CyberGuard Common Stock and any cash in lieu
of fractional shares deliverable in respect thereof pursuant to this Agreement.
2.10 NO FURTHER TRANSFERS OF ARCA COMMON STOCK OR ARCA PREFERRED STOCK.
After the Effective Time, there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of ARCA
Common Stock or ARCA Preferred Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, certificates representing such
outstanding shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for certificates representing the shares of CyberGuard
Common Stock or cash in lieu of fractional shares into which they were
converted, or both, as provided in this Article II.
2.11 CASH IN LIEU OF FRACTIONAL SHARES. Notwithstanding any other
provision of this Agreement, no certificates or scrip representing fractional
shares of CyberGuard Common Stock shall be issued upon the conversion of shares
which prior to the Effective Time shall have represented any then outstanding
shares of ARCA Common Stock or ARCA Preferred Stock, no dividend or distribution
of CyberGuard shall relate to any fractional share otherwise issuable pursuant
to the terms hereof and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a shareholder of CyberGuard. In lieu
of any fractional shares, there shall be paid to each holder of shares of ARCA
Common Stock or ARCA Preferred Stock, who otherwise would be entitled to receive
a fractional share of CyberGuard Common Stock, an amount of dollars in cash
(without interest) determined by multiplying such fraction by $13.39.
2.12 DISSENTERS' RIGHTS. Notwithstanding anything in this Agreement to
the contrary and unless otherwise provided by applicable law, each share of ARCA
Common Stock and ARCA Preferred Stock which is owned by Shareholders who,
pursuant to applicable law, have exercised such holder's dissenter's rights in
accordance with Chapter 13 of the California Act and who, as of the Effective
Time, have not effectively withdrawn or lost such dissenter's rights (the
"Dissenting Shares"), shall not be converted into the right to receive, or be
exchangeable for, the merger consideration specified in SECTION 2.6, but,
instead, the holders thereof shall be entitled to such rights as are provided in
Chapter 13 of the California Act. CyberGuard shall have the right to participate
in any proceeding involving dissenters' rights.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CYBERGUARD AND ACQUISITION
CyberGuard and Acquisition hereby jointly and severally represent and
warrant to ARCA and the Shareholders as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of CyberGuard and
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, and has all requisite
right, power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
3.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement by CyberGuard and Acquisition and the consummation by them of
the transactions contemplated hereby have been duly and effectively authorized
by all requisite corporate action. This Agreement constitutes the legal, valid
and binding obligation of each of CyberGuard and Acquisition, enforceable
against them in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights and
general principles of equity.
3.3 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 3.3, the
execution, delivery and performance of this Agreement by CyberGuard and
Acquisition, and the consummation by them of the transactions contemplated
hereby, and compliance by CyberGuard and Acquisition with the provisions hereof
(i) do not and will not violate or conflict with any provision of law or
regulation, or any writ, order or decree of any court, governmental or
regulatory authority or agency, or any term or provision of the respective
Articles or Certificate of Incorporation or Bylaws of CyberGuard or Acquisition
and (ii) do not and will not, with or without the passage of time or the giving
of notice, result in the breach of, or constitute a default or require any
consent under, or result in the creation of any lien, charge or encumbrance upon
any property or assets of CyberGuard or Acquisition pursuant to, any material
instrument or agreement to which CyberGuard or Acquisition is a party or by
which CyberGuard or Acquisition or any of their respective properties may be
bound or affected.
3.4 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES. Except as set
forth on SCHEDULE 3.4, no consent, approval or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or administrative agency is
required in connection with the execution, delivery or performance by CyberGuard
and Acquisition of this Agreement or any agreement, instrument or document
contemplated hereby or the consummation by CyberGuard and Acquisition of the
transactions contemplated hereby and thereby.
3.5 SECURITIES AND EXCHANGE COMMISSION FILINGS. CyberGuard has
heretofore furnished or made available to ARCA and its shareholders and option
holders a true and complete copy of each form, report or document filed by
CyberGuard with the Securities and Exchange Commission ("COMMISSION") pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), since
June 30, 1997. Since January 1, 1995, CyberGuard has timely filed all reports
and other documents required to be filed by it with the Commission under the
Exchange Act. As of the respective dates they were filed with the Commission,
such reports or other documents complied in all material respects with the
Exchange Act and the rules and regulations of the Commission and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except as heretofore disclosed in filings with the Commission, as
otherwise publicly announced or as disclosed to ARCA in writing, since June 30,
1997, CyberGuard and its Subsidiaries have conducted their respective businesses
only in the ordinary and usual course and there has not occurred any Material
Adverse Effect with respect to CyberGuard. CyberGuard currently meets the
"registrant eligibility" requirements set forth in the general instructions to
Form S-3 under the
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Securities Act of 1933, as amended (the "1933 Act"). Except as set forth in
SCHEDULE 3.5, there has been no material change in CyberGuard's authorized or
outstanding capitalization, or in the number of shares of CyberGuard capital
stock subject to options or other rights to acquire them, from the date of its
last filing with the Commission.
3.6 VALIDITY OF CYBERGUARD COMMON STOCK. The CyberGuard Common Stock to
be issued in the Merger will, when issued, be duly and validly authorized,
issued and outstanding, fully paid and non-assessable. CyberGuard will reserve
for issuance a sufficient number of shares of CyberGuard Common Stock for the
exercise of the Substitute Options and such CyberGuard Common Stock will, when
issued, be duly and validly authorized, issued and outstanding, fully paid and
non-assessable. The issuance of CyberGuard Common Stock in the Merger and upon
exercise of the Substitute Options will be made in accordance with all
applicable securities laws.
3.7 PREEMPTIVE RIGHTS. The CyberGuard Common Stock is not subject to
any statutory or contractual preemptive rights.
3.8 PROXY STATEMENT. None of the information supplied or to be supplied
by CyberGuard for inclusion in the Proxy Statement will, at the dates mailed to
ARCA's shareholders or at the time of any meeting of ARCA's shareholders to be
held in connection with the Merger (subject, if required, to a reasonable period
of time for the parties hereto to take such action as is necessary to supplement
or amend the same), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. No representation is made by CyberGuard with respect to
statements made therein based on information supplied by ARCA or its
shareholders for inclusion in the Proxy Statement.
3.9 BROKER AND FINDERS. Neither CyberGuard nor any of its Subsidiaries
and, to the best of their knowledge, no shareholder of CyberGuard has, employed
any financial advisor, broker or finder and none of them have incurred nor will
incur any broker's, finder's or similar fees, commissions or broker's or
finder's expenses in connection with the transactions contemplated by this
Agreement.
3.10 TAX MATTERS. CyberGuard has no present plan or intention following
the Merger to cause the Surviving Corporation to issue additional shares of
stock that would result in CyberGuard losing control of the Surviving
Corporation within the meaning of Section 368(c) of the Code. CyberGuard has no
present plan or intention following the Merger to reacquire any of its shares
issued in the transaction. CyberGuard has no present plan or intention following
the Merger to liquidate the Surviving Corporation, merge the Surviving
Corporation with or into another corporation, sell or otherwise dispose of the
stock of the Surviving Corporation or cause the Surviving Corporation to sell or
otherwise dispose of any of its assets, except for dispositions made in the
ordinary course of business. Following the Merger, CyberGuard will cause the
Surviving Corporation to continue its historic business or use a significant
portion of its business assets in a business. CyberGuard is not an investment
company as defined in Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the
Code. CyberGuard has no knowledge of any reason or facts or circumstances why
the Merger would fail to qualify as a tax-free reorganization under Section 368
of the Code.
3.11 POOLING OF INTERESTS. As of the date of this Agreement, to
CyberGuard's best knowledge, there are no facts or circumstances relating
specifically to CyberGuard or the structure of this transaction which would
disqualify CyberGuard's acquisition of ARCA pursuant to this Agreement for
pooling-of-interests accounting treatment and to the actual knowledge (without
any investigation) of CyberGuard, there are no facts or circumstances relating
specifically to ARCA which would disqualify CyberGuard's acquisition of ARCA
pursuant to this Agreement for pooling-of-interests treatment.
3.12 CONFIDENTIALITY AND ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ AGREEMENTS. The
confidentiality and works for hire and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ agreements described in
Section 5.15 hereto (or substantially similar agreements)
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have been signed by all employees of CyberGuard who hold positions that are
similar in rank or level of responsibility to the positions to be held after the
Effective Time by those ARCA employees who are being asked to sign such
agreements.
3.13 DISCLOSURE. No representation or warranty of CyberGuard herein
(including the exhibits and schedules hereto), and no certificate or affidavit
furnished or to be furnished by or on behalf of CyberGuard to ARCA or its
Shareholders or their agents, contains or will, at the time it is made, contain
any untrue statement of a material fact or omits or will, at the time it is
made, omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading, in light of the circumstances under
which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ARCA AND THE PARTY SHAREHOLDERS
A. In order to induce CyberGuard and Acquisition to enter into this
Agreement and to consummate the transactions contemplated hereby, ARCA hereby
represents and warrants to CyberGuard and Acquisition as follows:
4.1 ORGANIZATION, STANDING AND POWER. ARCA is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
4.2 AUTHORITY; LEGAL, VALID AND BINDING AGREEMENT. ARCA has full and
unrestricted right, power and authority to enter into and consummate the
transactions contemplated hereby. To ARCA' s knowledge, each of the shareholders
and option holders of ARCA resides in the state set forth opposite such Person's
name on SCHEDULE 4.2 hereof. This Agreement and all other agreements executed by
ARCA in connection with any of the transactions contemplated hereunder
constitute the legal, valid and binding obligations of ARCA, enforceable in
accordance with their respective terms, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights and general principles of
equity. The execution, delivery and performance of this Agreement by ARCA and
the consummation by it of the transactions contemplated hereby have been duly
and effectively authorized by all requisite corporate action on the part of
ARCA, subject to the receipt of requisite approval of the Shareholders of ARCA.
A vote in favor of the Merger by each of the shares of ARCA Common Stock and
ARCA Preferred Stock held by the holders of ARCA Common Stock and ARCA Preferred
Stock("ARCA MAJORITY SHAREHOLDERS") listed on SCHEDULE 4.2 would be sufficient
for shareholder approval of the Merger on behalf of ARCA. Each of the ARCA
Majority Shareholders has executed a voting agreement, substantially in the form
of EXHIBIT B. To ARCA's knowledge, such voting agreements constitute valid and
binding obligations of the ARCA Majority Shareholders, enforceable against them
in accordance with their terms.
4.3 AUTHORITY TO DO BUSINESS. ARCA has all requisite power and
authority to own and operate its properties and to conduct its business in the
manner and in the jurisdictions where now conducted. SCHEDULE 4.3 sets forth (i)
those jurisdictions in which ARCA owns or leases properties and (ii) all
jurisdictions in which ARCA is qualified to do business. ARCA is duly qualified
to do business as a foreign corporation in all jurisdictions where the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect on ARCA.
4.4 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. A true and
complete copy of the Articles or Certificate of Incorporation (as amended and in
effect), Bylaws (as amended and in effect) and minute books of ARCA have been
delivered by ARCA to CyberGuard. The minute books of ARCA in the form of the
copies supplied to CyberGuard have embodied therein copies of all minutes and
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actions by written consent which have been prepared since such entity's
inception. The minutes and actions by written consent delivered to ARCA reflect
all material actions taken by the Boards of Directors, any committees thereof,
the incorporators or the Shareholders of ARCA since their incorporation.
4.5 SUBSIDIARIES. ARCA has no direct or indirect equity interest by
stock ownership or otherwise in any other Person nor is ARCA engaged in a
partnership, joint venture or other similar arrangement (whether written or
oral) with any Person.
4.6 CAPITALIZATION. As of the date hereof, the authorized capital stock
of ARCA consists of: (i) 20,000,000 shares of ARCA Common Stock, of which
3,726,667 shares are issued and outstanding; and (ii) 10,000,000 shares of ARCA
Preferred Stock, of which (A) 100,000 shares have been designated ARCA Series A
Preferred Stock and of which 76,130 shares of ARCA Series A Preferred Stock are
issued and outstanding, and (B) 750,000 shares have been designated ARCA Series
B Preferred Stock and of which 515,000 shares of ARCA Series B Preferred Stock
are issued and outstanding. To ARCA's knowledge, all of the issued and
outstanding shares of ARCA Common Stock and ARCA Preferred Stock are owned
beneficially and of record by Persons and in the amounts set forth on SCHEDULE
4.6, free and clear of any and all liens, claims, charges, security interests,
voting agreements or encumbrances of any nature whatsoever created by ARCA. As
of the date hereof, ARCA has no treasury shares. All shares of ARCA's
outstanding capital stock have been duly authorized, are validly issued and
outstanding, and are fully paid and nonassessable. No securities issued by ARCA
from the date of its incorporation to the date hereof were issued in violation
of any statutory, contractual or common law preemptive rights. There are no
dividends or distributions which have accrued or been declared but are unpaid on
the capital stock of ARCA. Except as set forth on SCHEDULE 4.6, ARCA has not
declared or paid any dividends or distributions since December 31, 1997. All
taxes (including documentary stamp taxes) required to be paid in connection with
the issuance by ARCA of ARCA's capital stock have been paid. All authorizations
required to be obtained from or registrations required to be effected with any
Person in connection with the issuances of securities by ARCA from its date of
incorporation to the date hereof have been obtained or effected and all
securities of ARCA have been issued in accordance with the provisions of all
applicable securities and other laws. ARCA has no equity investment in any other
corporation, association, partnership, joint venture or other entity.
4.7 RIGHTS, WARRANTS, OPTIONS. Except as set forth on SCHEDULE 4.7,
ARCA has no commitment to issue or sell, has not granted, issued or entered into
any rights, subscriptions, warrants, options, conversion rights or agreements of
any kind ("Options") (other than this Agreement) to issue, purchase or to
otherwise acquire, any shares of stock, or securities or obligations of any kind
convertible or exchangeable into any shares of stock of any class of capital
stock of ARCA. All outstanding Options are held by the Persons and in the amount
set forth on SCHEDULE 4.7. To ARCA's knowledge, there are no Options (other than
this Agreement) to purchase or to otherwise acquire, any shares of stock or
other securities presently owned by any Shareholder or other equity interest
holder of ARCA.
4.8 FINANCIAL STATEMENTS. ARCA has delivered to CyberGuard true and
correct copies of the Financial Statements. The Financial Statements, as of the
dates thereof and for the periods covered thereby, present fairly, in all
material respects, the financial position, results of operations, and cash flows
of ARCA. Except as otherwise noted in SCHEDULE 4.8, the Financial Statements
were prepared in conformity with generally accepted accounting principles
applied on a consistent basis ("GAAP"), except, the unaudited December 31, 1996
Financial Statements will not have notes and will be subject to normal year-end
adjustments, none of which will be material. The December 31, 1997 Financial
Statements and supporting schedules were audited by independent public
accountants within the meaning of the rules promulgated by the Commission.
ARCA's accounts receivable, as set forth in the Financial Statements, arose in
the ordinary course of business, constitute valid and undisputed claims which
are not subject to any counterclaims or offsets and are reasonably believed to
be collectible at their recorded amounts, net of any reserves for doubtful
accounts, in accordance with past practices and GAAP.
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4.9 ABSENCE OF UNDISCLOSED LIABILITIES. There is no claim, liability,
commitment or obligation of any nature, whether absolute, accrued, contingent or
otherwise, and whether due or to become due, and, to the best of ARCA's
knowledge, there is no basis for assertion of any such claim, liability,
commitment or obligation, which is not included, disclosed or noted in the
December 31, 1997 Financial Statements (i) except for liabilities incurred since
December 31, 1997 in the ordinary course of business consistent with past
practice to Persons who are not, to ARCA's knowledge, Affiliates of any Party
Shareholder of ARCA or any officer or director of ARCA, (ii) except for matters
that would not be required to be recorded by GAAP where the claim, liability or
obligation involves an amount less than $10,000, and (iii) except as set forth
in SCHEDULE 4.9 hereto and as specifically cross-referenced therein.
4.10 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS. ARCA has good
and valid title to all personal property, as reflected on the December 31, 1997
Financial Statements (other than non-material property and inventory disposed of
in the ordinary course of business consistent with past practices to Persons who
are not Affiliates of ARCA and other than changes in ARCA's cash balances) and
to each item of personal property acquired since December 31, 1997, free and
clear of any security interests, liens, claims, charges or encumbrances
whatsoever, except for liens for Taxes not yet due and payable, statutory
non-material mechanics and materialmen's liens and except as set forth in
SCHEDULE 4.10 hereto. SCHEDULE 4.10 hereto contains a true and complete list of
each item of tangible personal property presently owned by ARCA having a value
in excess of $5,000. All equipment, machinery, fixtures and other personal
property owned or utilized by ARCA are in good operating condition taken as a
whole and in a good state of maintenance and repair, ordinary wear and tear
excepted, and are adequate for the conduct of their business as previously
conducted. Except for the leasehold interests and other leased properties
specifically identified in either SCHEDULE 4.10 OR 4.11 hereto and software or
other intellectual property subject to a license in favor of ARCA, there are no
assets owned by any third party which are used by ARCA in the operations of its
business as presently conducted or proposed to be conducted.
4.11 REAL PROPERTY.
(a) ARCA owns no real property.
(b) SCHEDULE 4.11 hereto sets forth a list of all of ARCA's
real property leases, true and complete copies of which have been provided or
made available to CyberGuard. No notice of violation of any ordinance or
administrative regulation (including any zoning or building law) has been
received by ARCA with respect to any real property leased by ARCA. The property
leased by ARCA is in a state of good maintenance and repair and is adequate and
suitable for the purposes for which it is presently being used. To ARCA's
knowledge, neither the whole nor any portion of such real property is being
condemned or otherwise taken by any public authority, nor is any such
condemnation or taking to ARCA's knowledge threatened or contemplated.
4.12 INSURANCE. SCHEDULE 4.12 hereto sets forth a true and complete
list of all insurance policies providing insurance coverage of any nature to
ARCA. Since January 1, 1996, timely notice of all material claims has been given
under all such policies. All premiums and other charges under such policies have
been timely paid. ARCA is not in default under any such policy. ARCA is in
material compliance with all such policies. Except as set forth on SCHEDULE 4.12
hereto, to ARCA's knowledge, ARCA has insurance policies of the type and in
amounts customarily carried by Persons conducting similar businesses. Such
insurance policies are sufficient in all material respects for compliance with
all requirements of law and all agreements to which ARCA is a party or by which
any of its assets are bound. During the last five years, ARCA has not been
refused insurance by any insurance carrier to which it has applied for
insurance. Except as set forth in SCHEDULE 4.12, no claims involving an amount
in excess of $10,000 have been asserted under any of the foregoing insurance
policies in the five years preceding the date of this Agreement.
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4.13 LABOR RELATIONS. ARCA is not a party to or otherwise bound by any
labor or collective bargaining agreement and to ARCA's knowledge there have been
no attempts to organize a labor union with respect to any employees of ARCA.
Except as noted on SCHEDULE 4.13 hereto, to ARCA's knowledge no unfair labor
practice complaints have been filed against ARCA with any governmental or
regulatory agency, and ARCA has not received any notice or communication
reflecting an intention or threat to file any such complaint. No Person has
notified ARCA of any claim, and to ARCA's knowledge, there is no basis for any
claim, against ARCA arising out of any statute, ordinance or regulation relating
to discrimination with respect to employees or employment practices. There is no
strike, work stoppage or labor disturbance pending or, to ARCA's knowledge,
threatened that involves any group of employees of ARCA. Except as set forth on
SCHEDULE 4.13 hereto and except as otherwise required by law, the terms of
employment or engagement of all employees, agents, consultants and professional
advisors of ARCA are such that their employment or engagement may be terminated
by not more than two weeks' notice given at any time without liability for
payment of compensation or damages and ARCA has not entered into any agreement
or arrangement for the management of its business or any part thereof other than
with its directors or employees. Except as set forth on SCHEDULE 4.13, no
consultant, employee or agent of ARCA has terminated his or her employment or
business relationship with ARCA since December 31, 1997, except for consultants,
employees or agents who have not received compensation of $25,000 or more from
ARCA in any calendar year; and ARCA has no knowledge that any such consultant,
employee or agent presently intends to so terminate or materially alter his or
her relationship with ARCA.
4.14 LICENSES. ARCA has all material licenses, franchises, approvals,
certificates, permits, planning permissions and authorizations (a "LICENSE") of
any Person necessary for the conduct of its trade or business and all Licenses
are presently in full force and effect and no action or claim is pending, and no
notice of any such claim or action has been received which threatens to revoke,
vary, modify or terminate any License or declare any License invalid in any
respect. ARCA is being operated in material compliance with all Licenses. A true
and complete list of all Licenses is set forth on SCHEDULE 4.14 hereto. Neither
the execution, delivery nor performance of this Agreement shall adversely affect
the status of any License nor permit such License to be terminated whether or
not following the giving of notice or making of payment.
4.15 PROPRIETARY RIGHTS. SCHEDULE 4.15 hereto sets forth a true and
complete list of all patents, patent rights, trademarks, trade names, service
marks, brands and registered copyrights (or pending registrations and
applications therefor) owned or used by ARCA (all such items together with each
invention, protocol, formula, software, trade secret, technology, product
composition, method or process including, but not limited to, the protocol
analyzer, owned or used by ARCA being hereinafter referred to as "INTANGIBLE
PROPERTY"), other than commercially available software programs generally
available to the public. ARCA owns the entire right, title and interest in and
to, or is licensed to use, the Intangible Property, free and clear of any claim
or conflict with the rights of others and no royalties, honorariums or fees are
payable by ARCA to any Person by reason of the ownership or use of the
Intangible Property. ARCA has no knowledge of any act or failure to act by ARCA
or any of its employees, duly authorized attorneys or agents during the
prosecution or registration of, or any other proceeding relating to any of the
Intangible Property or of any other fact, which could make invalid or
unenforceable, or negate the right to issuance of any of the Intangible
Property. The consummation of the transactions contemplated hereby will not
alter or impair any of the Intangible Property or the Surviving Corporation's
ability to use any such Intangible Property on the same terms and basis as
heretofore used by ARCA. Except as set forth in SCHEDULE 4.15, no interest in
any Intangible Property has been assigned, transferred, licensed or sublicensed
by ARCA to third parties and there is not and, to ARCA's knowledge, has not been
any infringement or asserted infringement by ARCA of any foreign or domestic
patents, patent rights, trademarks, trade names, service marks, copyrights or
applications therefor of another. No claim is pending by ARCA against others to
the effect that the present or past operations of such parties infringe upon or
conflict with the rights of ARCA and, to ARCA's knowledge, no grounds for such
action exists. ARCA knows of no pending or threatened cancellation or revocation
of any agreement granting to ARCA rights relating to any Intangible Property.
ARCA has not received
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any notice that any claim is pending that the operation by ARCA of its
businesses or the manufacture or sale of any of its products or the provision of
its services, or any formula, method, process, part or material employed by it
in connection therewith, infringes or conflicts in any way upon any rights of
the type enumerated above owned by others. Each confidentiality or secrecy
agreement obtained by ARCA with respect to any of the Intangible Property, is in
full force and effect and ARCA is not, and to ARCA's knowledge, no other party
to any such agreement is in default thereunder.
4.16 MAJOR CUSTOMERS AND SUPPLIERS. SCHEDULE 4.16 hereto sets forth a
true and complete list of all of the customers and suppliers of ARCA which,
during either of the fiscal years ended December 31, 1996 or December 31, 1997,
received from or paid to ARCA $50,000 or more (in cash or in kind); and such
schedule sets forth with respect to each, the name and address and dollar volume
involved. Except as otherwise indicated on SCHEDULE 4.16, no customer or
supplier of ARCA listed on SCHEDULE 4.16 has (i) canceled, suspended or
otherwise terminated its relationship with it (except for expiration in the
ordinary course of business), or (ii) advised ARCA, any executive officer or
director of ARCA of its intent to cancel, suspend or otherwise terminate such
relationship (except for expiration in the ordinary course of business), or to
materially decrease its services or supplies of products to ARCA or its
purchases from ARCA (except in the case of relationships which expire in the
ordinary course of business) or to materially increase the price or change the
terms on which it supplies or purchases services or products to or of ARCA, or
to materially decrease the price or change the terms on which it purchases
services or products from ARCA. ARCA has no knowledge that "current customers or
suppliers" (as defined below) could reasonably be expected to terminate or
decrease or adversely modify its business relationship with ARCA by reason of
the transactions contemplated hereby. "Current customers or suppliers" means the
customers and suppliers listed on SCHEDULE 4.16.
4.17 LITIGATION. Except as set forth in SCHEDULE 4.17 hereto, there are
no actions, suits, proceedings or investigations pending, or to ARCA's
knowledge, directly or indirectly threatened, nor has any notice of such items
been received by ARCA, in any court or before any governmental agency or
instrumentality against or materially affecting ARCA or, to its knowledge, any
of its officers or directors nor, to its knowledge, has any such action, suit,
proceeding or investigation been pending during the five-year period preceding
the date hereof, nor have any such actions, suits, proceedings or investigations
been settled by ARCA and/or adjudicated for an aggregate amount of $10,000 or
more during the past five years; PROVIDED, HOWEVER, that the foregoing shall not
require disclosure of actions, suits or investigations relating to officers or
directors which are wholly unrelated to ARCA. Except as set forth in SCHEDULE
4.17 hereto, ARCA has no knowledge of any facts which could result in any such
action, suit, proceeding or investigation. ARCA is not in default with respect
to any order, writ, injunction or decree of any court, agency or
instrumentality. To the knowledge of ARCA, there are no actions, suits,
proceedings or investigations pending or threatened in any court or before any
governmental agency or instrumentality affecting any outstanding securities of
ARCA which could prevent, delay or hinder the consummation of the transactions
contemplated hereby. ARCA has no knowledge of any facts which could reasonably
result in any such action, suit, proceeding or investigation.
4.18 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 4.18,
the execution, delivery and performance of this Agreement by ARCA and the
consummation by it of the transactions contemplated hereby, and compliance by
them with the provisions hereof, (i) do not and will not violate or conflict
with any provision of law or regulation, or any writ, order or decree of any
court, governmental or regulatory authority or agency, or any term or provision
of ARCA's Articles of Incorporation or Bylaws, (ii) do not and will not, with or
without the passage of time or the giving of notice, or both, create any right
on the part of any party to any material instrument or Material Agreement to
which ARCA is a party, to unilaterally modify, amend or terminate any such
material instrument or Material Agreement and (iii) do not and will not, with or
without the passage of time or the giving of notice, result in the breach of, or
constitute a default or require any consent or notice under, or result in the
creation of any lien, charge or encumbrance upon any property or assets
(including, without limitation, Intangible Property) of ARCA pursuant to, any
material instrument or
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Material Agreement to which ARCA is a party or by which ARCA or any of its
properties are bound or affected.
4.19 TRANSACTIONS WITH AFFILIATES. Except as set forth in SCHEDULE
4.19, there are no, and since December 31, 1997 there have been no, contracts,
agreements or arrangements of any kind (including, but not limited to those
relating to, the sharing of overhead, intercompany loans, the furnishing of
services and the lease of facilities) between any Affiliate of ARCA, on the one
hand, and ARCA, on the other hand. Without limiting the generality of the
foregoing, except as set forth on SCHEDULE 4.19, (i) no Affiliate of ARCA has
any interest in any property (real or personal, tangible or intangible, or
otherwise) used in ARCA's business, (ii) ARCA has no indebtedness to any
shareholder, officer or director or any of their Affiliates and (iii) ARCA is
not owed any indebtedness by any shareholder, officer or director or any of
other Affiliates.
4.20 LIST OF ACCOUNTS. SCHEDULE 4.20 hereto contains a list (including
account numbers, where applicable) of (i) all banks and other institutions in
which ARCA has an account or safe deposit box and of all cash management, money
market and similar accounts of ARCA and the addresses of all such institutions
and names and telephone numbers of the contact persons at such institutions and
(ii) the names of all persons authorized to draw thereon, make withdrawals
therefrom or have access thereto.
4.21 LIST OF PERSONNEL. SCHEDULE 4.21 hereto contains: the names of all
incumbent directors and officers of ARCA; the names, job designations and annual
compensation of all Persons who have been employees or consultants of ARCA since
December 31, 1996; a detailed itemization of all accrued but unpaid benefits,
emoluments, bonuses, sums or amounts of any nature whatsoever (other than
salaries accrued since the end of the last payroll period) which are or may
become due to any such employee or consultant in connection with services
rendered prior to the date hereof, including, but not limited to, accrued
vacation and sick leave; and a true and complete list of all employee policies,
employee benefit manuals or other manuals including employee work rules or
policies, vacation policies, sick leave policies, compensation plans, and any
other employee benefit policies or benefit plans currently in effect for ARCA.
SCHEDULE 4.21 further sets forth any contracts or arrangements with any
director, officer, consultant or employee which provides for payments to be made
to such party in connection with the termination of any office or employment or
retention of such Person. Except as set forth in SCHEDULE 4.21, since December
31, 1997, ARCA has not paid or given any increase in or improvement to the
benefits of any nature of or any bonus or compensation to any of its directors,
officers, consultants or employees, and ARCA is not under any obligation to
increase or improve any such benefits or bonuses or compensation with or without
retrospective operation, except for increased sales commissions paid or payable
to any individual resulting solely from, and directly correlated with, increased
sales by such individual. Except as disclosed in SCHEDULE 4.21, there are no
amounts which are or may become due or owing to any employee or consultant of
ARCA for any accrued benefit, emolument, bonus, sum or amount, including without
limitation, amounts due for accrued vacation or sick leave, except for salaries
accrued since the end of the last payroll period.
4.22 GUARANTIES. Except as disclosed on SCHEDULE 4.22, ARCA has not
guaranteed any obligation or indebtedness of any Person or granted any power of
attorney, and no Person has guaranteed any obligation or indebtedness of ARCA or
granted it a power of authority.
4.23 YEAR 2000 COMPLIANCE. Except as set forth on SCHEDULE 4.23, ARCA
has no contractual obligations with any of its customers or any other Person
which requires ARCA to be Year 2000 compliant. In the event ARCA is required to
be Year 2000 compliant, ARCA has taken all necessary steps to comply with the
requirements and terms of its contracts.
4.24 EMPLOYEE BENEFIT PLANS. SCHEDULE 4.24 sets forth a complete list
of all pension, retirement, stock purchase, stock bonus, stock ownership, stock
option, profit sharing, savings, medical, disability, hospitalization,
insurance, deferred compensation, bonus, incentive, welfare or any other
employee benefit plan, policy, agreement, commitment, arrangement or practice
currently or previously
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maintained by ARCA for any of directors, officers, consultants, employees or
former employees of ARCA (the "ARCA PLANS"). SCHEDULE 4.24 also identifies each
ARCA Plan which constitutes an "employee pension benefit plan" ("PENSION PLAN")
or an "employee welfare benefit plan" ("WELFARE PLAN"), as such terms are
defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). None of the ARCA Plans is a "multiemployer plan," as such term is
defined in ERISA, or is subject to Title IV of ERISA. ARCA has delivered or made
available to CyberGuard true and complete copies of the following for each ARCA
Plan, if applicable: (i) the Plan document; (ii) summary plan description of the
ARCA Plan; (iii) the trust agreement, insurance policy or other instrument
relating to the funding of the ARCA Plan; (iv) the most recent Annual Report
(Form 5500 series) and accompanying schedules filed with the IRS or Department
of Labor with respect to the ARCA Plan; (v) the most recent audited financial
statement for the ARCA Plan; and (vi) the most recent determination letter
issued by the IRS with respect that to the ARCA Plan that is intended to qualify
under Section 401(a) of the Code.
Each Pension Plan has been determined by the IRS to be qualified under
Section 401(a) of the Code, and each such Plan remains so qualified; and to
ARCA's knowledge, no facts or circumstances exist which could result in the
revocation of such qualification. Each Welfare Plan which is intended to meet
the requirements for tax-favored treatment under the Code to ARCA's knowledge
meets such requirements. Each ARCA Plan has been administered in all material
respects in accordance with its terms and the Code, and each Pension Plan and
Welfare Plan has been administered in all material respects in accordance with
ERISA. No facts or circumstances exist which might give rise to any material
liability with respect to any ARCA Plan, to CyberGuard, ARCA, Acquisition or any
of their Subsidiaries or to any other Person. ARCA has paid all amounts required
under applicable law, any Pension Plan and any Welfare Plan to be paid as a
contribution to each Pension Plan and Welfare Plan through the date hereof. ARCA
has set aside adequate reserves to meet contributions which are not yet due
under any Pension Plan or Welfare Plan. Neither ARCA, nor any other Person has
engaged in any transaction or taken any other action with respect to any ARCA
Plan which would subject ARCA, CyberGuard, Acquisition or any of their
Subsidiaries or any other Person to: (A) any tax, penalty or liability for
prohibited transactions under ERISA or the Code; (B) any tax under Code Sections
4971, 4972, 4976, 4977 or 4979; or (C) a penalty under ERISA Sections 502(c) or
502(l). ARCA, to the extent it is a fiduciary with respect to any Pension Plan
or Welfare Plan, has not breached any of its responsibilities or obligations
imposed upon fiduciaries under ERISA or the Code or which could result in any
material claim being made under, by or on behalf of any Pension Plan or Welfare
Plan or any participant or beneficiary thereof other than benefit claims in the
ordinary course of business. Each Welfare Plan which is a group health plan
within the meaning of Code Section 5000(b)(1) complies with and in each and
every case has complied with the applicable requirements of Code Section 4980B
and Part 6 of Title I of ERISA. Except as set forth in SCHEDULE 4.24, no ARCA
Plan, other than an ARCA Plan which is an employee pension benefit plan (within
the meaning of Section 3(2)(A) of ERISA), provides benefits, including without
limitation, death, health or medical benefits (whether or not insured), with
respect to current or former employees of ARCA beyond their retirement or other
termination of service with ARCA, other than coverage mandated by applicable
law.
4.25 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES. Except as set
forth on SCHEDULE 4.25, no consent, approval or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or administrative agency is
required in connection with the execution, delivery or performance by ARCA of
this Agreement or any agreement, instrument or document contemplated hereby or
the consummation by ARCA of the transactions contemplated hereby and thereby.
4.26 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth in
SCHEDULE 4.26, since December 31, 1997: (A) ARCA has conducted its business in
the ordinary and usual course; (B) there has been no Material Adverse Effect
with respect to ARCA; and (C) ARCA has not engaged or agreed to engage in any of
the actions enumerated in the second sentence of SECTION 5.1.
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4.27 TAXES. Except as set forth in SCHEDULE 4.27: (A) there have been
timely filed (and shall timely be filed prior to the Effective Time) all returns
and reports with respect to ARCA required to be filed with any taxing authority
with respect to Taxes for any period ending on or before the Effective Time,
taking into account any extension of time to file granted to or obtained on
behalf of ARCA; (B) all Taxes shown to be payable on such returns or reports
that are due prior to the Effective Time have been paid or shall be paid (prior
to the Effective Time), and all such returns or reports accurately reflect the
proper amount of Taxes payable for the applicable periods; (C) no deficiency for
any Tax has been asserted or assessed by a taxing authority against or with
respect to ARCA; (D) ARCA has provided adequate reserves in its Financial
Statements for any Taxes that have not been paid, whether or not shown as being
due on any returns; (E) the income tax returns of ARCA have never been audited;
and (F) ARCA has not waived any restrictions on assessment or collection of
Taxes or consented to the extension of any statute of limitations relating to
Taxes. As used in this Agreement, "TAXES" shall mean any and all taxes, fees,
levies, duties, tariffs, imposts and other charges of any kind (together with
any and all interest, penalties, additions to tax and additional amounts imposed
with respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs and
similar charges.
4.28 MATERIAL AGREEMENTS. SCHEDULE 4.28 sets forth a list of all
written and oral agreements, leases (whether capitalized or otherwise),
arrangements or commitments to which either ARCA is a party or by which it or
any of the assets it owns, leases or utilizes is bound which are expected to
result in the receipt or payment of $10,000 or more (in cash or in kind) by ARCA
or which are material to the financial position, results of operations or
prospects of ARCA on a consolidated basis or to the ability of ARCA to
consummate the transactions contemplated hereby (the "MATERIAL AGREEMENTS").
ARCA has furnished CyberGuard with true and complete copies of all Material
Agreements. The Material Agreements are each in full force and effect and are
the valid and legally binding obligations of ARCA and to ARCA's knowledge, are
valid and binding obligations of the other parties thereto; and ARCA is not in
breach of any Material Agreement. Except as set forth on SCHEDULE 4.28, ARCA has
no: (A) agreement, contract or commitment which requires the making of any
charitable contributions; (B) material agreement, contract or commitment which
is not terminable without penalty, liability or premium upon notice of 30 days
or less; (C) agreement, contract or commitment containing any severance
provisions, or any employment, consulting or similar agreement, contract or
commitment; (D) outstanding obligation for borrowed money; (E) outstanding loan
or advance to any Person; (F) power of attorney outstanding; (G) agreement,
contract or commitment relating to joint ventures, partnerships, debt or equity
investments; (H) agreements, contracts or commitments relating to
non-competition or employee non-disclosure, or non-solicitation or other similar
restrictive covenants; (I) agreements, contracts or commitments relating to the
registration of any of ARCA's securities; and (J) agreement, contract or
commitment relating to the voting or other rights with respect to any securities
of ARCA.
4.29 COMPLIANCE; GOVERNMENT AUTHORIZATION. ARCA (and the properties
used by it) is in material compliance with all federal, state, local and foreign
laws, ordinances, regulations, judgments, rulings, orders and other legal
requirements applicable to it, its properties or its operations. ARCA has
furnished CyberGuard with true and correct copies of all correspondence from
governmental authorities asserting that ARCA is not or was not in material
compliance with any laws, ordinances, regulations, judgments, rulings, orders or
other requirements. All material deficiencies noted in any such report furnished
to CyberGuard in accordance with this SECTION 4.29 have been corrected. There is
no existing governmental or judicial order or decree directed expressly at ARCA
or its assets. ARCA is, and during the past five years has been, in material
compliance with all defense contract accounting standards and all related and
similar standards, laws, rules, regulations, guidelines and the like. A list of
all material investigations, proceedings, actions, notices, reports, assessments
and correspondence or other
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communications from or to any governmental entity during the past five years
with respect to defense contract accounting standards is set forth on SCHEDULE
4.29. Except as set forth on SCHEDULE 4.29, no material deficiency has been
asserted against ARCA with respect to the foregoing matters, and each such
deficiency has been corrected without cost or adverse impact to ARCA.
4.30 BROKERS AND FINDERS. ARCA has not employed any financial advisor,
broker or finder and it has not incurred nor will incur any broker's, finder's
or similar fees, commissions or broker's or finder's expenses in connection with
the transactions contemplated by this Agreement.
4.31 PROXY STATEMENT. None of the information contained or incorporated
by reference in the Proxy Statement will at the dates mailed to ARCA's
Shareholders and at the times of any meetings of ARCA's Shareholders to be held
in connection with the Merger (subject, if required, to a reasonable period of
time for the parties hereto to take such action as is necessary to supplement or
amend the same), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. No representation has been made by ARCA with respect to
information supplied or to be supplied by CyberGuard for inclusion or
incorporation by reference in the Proxy Statement. The Proxy Statement,
including any amendments thereto, will comply with and be distributed to ARCA's
Shareholders in accordance with ARCA's charter and bylaws and all applicable
laws and regulations, and will be distributed in every instance with a copy of
the CyberGuard Disclosure Materials.
4.32 NO PRIOR AGREEMENT. To ARCA's knowledge, there is no written or
oral agreement or understanding with respect to the disposition of any
securities of ARCA owned by any of the Party Shareholders, any portion thereof,
or any rights attendant or relating thereto, other than this Agreement.
4.33 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings: (A) "HAZARDOUS SUBSTANCES" means: (i)
those substances defined in or regulated under the following federal statutes
and their state counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act, the Toxic Substances Control Act and the Clean Air Act; (ii) petroleum and
petroleum products, byproducts and breakdown products including crude oil and
any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures
thereof; (iv) polychlorinated biphenyls; (v) any other chemicals, materials or
substances defined or regulated as toxic or hazardous or as a pollutant or
contaminant or as a waste under any applicable Environmental Law; and (vi) any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation; and (B)
"ENVIRONMENTAL LAWS" means any federal, state, foreign, or local law, rule or
regulation, now or hereafter in effect and as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment, health, safety or natural resources, including, without limitation,
those relating to (i) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances or (ii) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances.
(b) ENVIRONMENTAL STATUS. Except as described in SCHEDULE 4.33
hereto: (A) ARCA is and has been in compliance with all applicable Environmental
Laws; (B) ARCA has obtained all permits, approvals, identification numbers,
licenses or other authorizations required under any applicable Environmental
Laws ("ENVIRONMENTAL PERMITS") and is and has been in compliance with their
requirements; (C) such Environmental Permits do not, in connection with the
Merger, require the
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consent or approval of, or any filing with or notice to, any governmental
authority; (D) to ARCA's knowledge, there are no underground or aboveground
storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons
in which Hazardous Substances are being or have been treated, stored or disposed
of on any leased real property; (E) to ARCA's knowledge, there is no asbestos or
asbestos- containing material on any leased real property in violation of
applicable Environmental Laws; (F) ARCA has not released, discharged or disposed
of Hazardous Substances except in compliance with Environmental Laws at any real
property owned by any third party or any real property leased; (G) ARCA is not
undertaking, and has not completed, any investigation or assessment or remedial
or response action relating to any such release, discharge or disposal of or
contamination with Hazardous Substances at any site, location or operation,
either voluntarily or pursuant to the order of any governmental authority or the
requirements of any Environmental Law; and (H) there are no past or pending or,
to the knowledge of ARCA, threatened actions, suits, demands, demand letters,
claims, liens, notices of non-compliance or violation, notices of liability or
potential liability, investigations, proceedings, consent orders or consent
agreements relating in any way to Environmental Laws, any Environmental Permits
or any Hazardous Substances against ARCA which is outstanding or has been
outstanding during the past two years, and to ARCA's knowledge, there are no
circumstances that could be expected to form the basis for any of the foregoing.
ARCA has made available to CyberGuard copies of any environmental reports,
studies or analyses in its possession relating to owned or leased real property
or the operations of ARCA.
4.34 REORGANIZATION. ARCA has no knowledge of any reason or facts or
circumstances why the Merger would fail to qualify as a tax-free reorganization
under Section 368 of the Code.
4.35 PROPOSALS. SCHEDULE 4.35 sets forth a list of all written and oral
proposals and offers pursuant to which, during the past 180 days, ARCA has
proposed or offered to provide services and which remain open for possible
acceptance. ARCA has furnished CyberGuard with true and correct copies of all of
such proposals and offers.
4.36 GOVERNMENT CONTRACTS AND AUDITS. Since December 31, 1997, ARCA has
not experienced a decrease in Independent Research And Development (IRAD or
similar items) or IRAD funding (or commitments for the same) from any
governmental entity. To ARCA's knowledge, the execution, delivery and
performance of this Agreement and the transactions contemplated in connection
herewith will not cause or result in any decrease in the number or dollar volume
of government contracts or subsidies, otherwise adversely affect ARCA's business
relationship with, and prospects for continued business with, any governmental
entity, or adversely affect any status, qualification or other standard which
ARCA currently enjoys.
4.37 POOLING-OF-INTERESTS. As of the date of this Agreement, to ARCA's
knowledge, it has not taken or agreed to take any action which would, to ARCA's
knowledge, disqualify CyberGuard's acquisition of ARCA pursuant to this
Agreement for pooling-of-interests accounting treatment.
4.38 LOANS. As of the date hereof, ARCA's existing bank, shareholder
loans or any other loans identified on Schedule 4.38 hereto (the "Loans") do not
exceed $610,000 (the "Loan Amount").
4.39 DISCLOSURE. No representation or warranty of ARCA herein
(including the exhibits and schedules hereto), and no certificate or affidavit
furnished or to be furnished by or on behalf of ARCA to CyberGuard or its
agents, contains or will, at the time it is made, contain any untrue statement
of a material fact or omits or will, at the time it is made, omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading, in light of the circumstances under which they were
made.
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B. In order to induce CyberGuard and Acquisition to enter into this
Agreement and to consummate the transactions contemplated hereby, each Party
Shareholder hereby severally represents and warrants to CyberGuard and
Acquisition with respect to such Party Shareholder as follows:
4.1B AUTHORITY; LEGAL, VALID AND BINDING AGREEMENT. Such Party
Shareholder has full and unrestricted right, power and authority to enter into
and consummate the transactions contemplated hereby. This Agreement and all
other agreements executed by such Party Shareholder in connection with any of
the transactions contemplated hereunder constitutes the legal, valid and binding
obligations of such party, enforceable in accordance with their respective
terms, except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights and general principles of equity. Such Party
Shareholder has executed a voting agreement, substantially in the form of
EXHIBIT B.
4.2B CAPITALIZATION. Such Party Shareholder owns ARCA Common Stock,
ARCA Preferred Stock and options to acquire the same as described on SCHEDULE
4.6, free and clear of any and all liens, claims, charges, security interests,
voting agreements or encumbrances of any nature whatsoever.
4.3B LITIGATION. Except as set forth in SCHEDULE 4.17 hereto, such
Party Shareholder has not received any notice of any actions, suits, proceedings
or investigations pending, or directly or indirectly threatened, in any court or
before any governmental agency or instrumentality against or affecting ARCA or
any of its officers or directors nor has such Party Shareholder received any
notice that any such action, suit, proceeding or investigation has been pending
during the five-year period preceding the date hereof, nor has he received any
notice that any such actions, suits, proceedings or investigations have been
settled by ARCA and/or adjudicated for an aggregate amount of $10,000 or more
during the past five years; PROVIDED, HOWEVER, that the foregoing shall not
require disclosure of actions, suits or investigations relating to officers or
directors which are wholly unrelated to ARCA; PROVIDED, HOWEVER, that,
notwithstanding the immediately preceding proviso, the foregoing shall require
disclosure of all actions, suits, proceedings and investigations relating to
each of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇ except as set forth in SCHEDULE 4.17 or
disclosed to CyberGuard in writing.
4.4B NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 4.18,
the execution, delivery and performance of this Agreement by such Party
Shareholder and the consummation by him of the transactions contemplated hereby,
and compliance by such Party Shareholder with the provisions hereof, (i) do not
and will not violate or conflict with any provision of law or regulation, or any
writ, order or decree of any court, governmental or regulatory authority or
agency, or any term or provision of ARCA's Articles of Incorporation or Bylaws,
(ii) do not and will not, with or without the passage of time or the giving of
notice, or both, create any right on the part of any party to any material
instrument or Material Agreement to which ARCA is a party, to unilaterally
modify, amend or terminate any such material instrument or Material Agreement
and (iii) do not and will not, with or without the passage of time or the giving
of notice, result in the breach of, or constitute a default or require any
consent or notice under, or result in the creation of any lien, charge or
encumbrance upon any property or assets (including, without limitation,
Intangible Property) of ARCA pursuant to, any material instrument or Material
Agreement to which ARCA is a party or by which ARCA or any of its properties are
bound or affected.
4.5B CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES. Except as set
forth on SCHEDULE 4.25, no consent, approval or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or administrative agency is
required in connection with the execution, delivery or performance by such Party
Shareholder of this Agreement or any agreement, instrument or document
contemplated hereby or the consummation by such Party Shareholder of the
transactions contemplated hereby and thereby.
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4.6B BROKERS AND FINDERS. Such Party Shareholder has not employed any
financial advisor, broker or finder and has not incurred nor will incur any
broker's, finder's or similar fees, commissions or broker's or finder's expenses
in connection with the transactions contemplated by this Agreement.
4.7B NO PRIOR AGREEMENT. There is no written or oral agreement or
understanding with respect to the disposition of any securities of ARCA owned by
such Party Shareholder, any portion thereof, or any rights attendant or relating
thereto, other than this Agreement.
4.8B DISCLOSURE. No representation or warranty of such Party
Shareholder herein (including the exhibits and schedules hereto), and no
certificate or affidavit furnished or to be furnished by or on behalf of such
Party Shareholder to CyberGuard or its agents, contains or will, at the time it
is made, contain any untrue statement of a material fact or omits or will, at
the time it is made, omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading, in light of the
circumstances under which they were made.
ARTICLE V
COVENANTS
During the period from the date of this Agreement to the Closing Date,
ARCA agrees to perform all of ARCA's covenants and agreements in this Article V
and CyberGuard and Acquisition agree to perform all of their covenants and
agreements in this Article V, all as follows, and the Party Shareholders agree
to execute all agreements or instruments referred to in Sections 5.10, 5.12 and
5.15:
5.1 INTERIM OPERATIONS OF ARCA. ARCA shall operate its business only in
the ordinary and usual course consistent with past practices, procedures and
policies and shall use its commercially reasonable efforts to preserve its their
business organization and material rights, franchises and licenses and the
goodwill of its customers, suppliers, employees and others having business
relations with them and to continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without limiting the foregoing, except as may be
contemplated in, or disclosed in a schedule to, this Agreement without the
written consent of CyberGuard, ARCA shall not: (A) amend its Articles of
Incorporation or Bylaws; (B) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not limited to, by way of
stock split or dividend) or any subscriptions, options, warrants, rights or
convertible securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities, excluding
issuances of shares upon exercise of options disclosed pursuant to (and not in
violation of) this Agreement; (C) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any option, warrant
or other right to purchase or acquire any such shares; (D) declare or pay any
dividend or other distribution (whether in cash, stock or other property) with
respect to its capital stock; (E) voluntarily sell, transfer, surrender, abandon
or dispose of any of its assets or property rights (tangible or intangible),
other than cash and non-material dispositions of other assets, in either case in
the ordinary course of business consistent with past practices; (F) grant or
make any mortgage or pledge or subject itself or any of its properties or assets
to any lien, charge or encumbrance of any kind, except liens for taxes not
currently due or liens not exceeding $20,000 in the aggregate; (G) create, incur
or assume any liability or any indebtedness, except in the ordinary course of
business consistent with past practices, but in no event in an aggregate amount
exceeding $20,000 more than is shown on ARCA's December 31, 1997 Financial
Statements, or cancel any debts or waive any claims or rights in an aggregate
amount in excess of $20,000 (except for changes to the line of credit, which
amount will in no event exceed $300,000); (H) make or commit to make any capital
expenditures in excess of $20,000 in the aggregate; (I) grant any increase in
the compensation payable or to become payable to directors, officers or
employees (including, without limitation, any such increase pursuant to any ARCA
Plan or otherwise), other than merit increases to officers and employees in the
ordinary course of business and consistent with past practices, but in no event
to exceed $20,000 in the aggregate; (J) enter into any agreement,
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arrangement or commitment that, if it existed on the date hereof, would be a
Material Agreement (for purposes of this subsection J only, the dollar amount in
the definition of Material Agreement will be deemed to be $100,000), or amend or
terminate or permit the amendment or termination of any of same or any existing
Material Agreement (other than a termination by virtue of expiration in
accordance with its terms), or enter into, terminate or modify any contract,
agreement or arrangement with any Affiliate thereof (except to the extent
expressly contemplated hereby, and except for salary and benefits described in
subsection Q below); (K) alter the manner of keeping its books, accounts or
records, or change in any manner the accounting practices (including, but not
limited to, those relating to amortization and depreciation) therein reflected;
(L) enter into any material commitment or transaction other than in the ordinary
course of business consistent with past practices; (M) write off the value of
any inventory or accounts receivable or increase the reserve for uncollectible
receivables or obsolete, damaged or otherwise unsalable inventory (collectively,
in excess of $25,000), except as required by GAAP or by law, or discount,
factor, sell or otherwise transfer any account receivable; (N) approve any
increase in the benefits payable under, or establish any new ARCA Plan; (O) take
any action which could reasonably be expected to have a Material Adverse Effect
on ARCA or which could reasonably be expected to materially and adversely impact
employee, customer or supplier relations or hinder or delay ARCA in consummating
the transactions contemplated hereby on or prior to the Termination Date, or
materially reduce or downsize its operations, materially reduce its work force
or eliminate any material operations; (P) make any Guaranty; (Q) apply any of
its assets to the direct or indirect payment, discharge, satisfaction or
reduction of any amount payable directly or indirectly (i) to or for the benefit
of any Affiliate of ARCA (except for salary and benefits as currently in effect
and except in accordance with existing agreements and arrangements which have
been disclosed to ARCA by CyberGuard in writing) or (ii) to any Person, except
in the ordinary course of business consistent with past practices; (R) fail to
discharge its liabilities in the ordinary course of business when they become
due, except for liabilities subject to a good faith dispute; (S) materially
increase its level of operating expenses; or (T) agree, whether in writing or
otherwise, to do any of the foregoing.
5.2 ACCESS. ARCA shall: (A) afford to CyberGuard and its agents and
representatives reasonable access to the properties, books, records and other
information of ARCA, provided that such access shall be granted upon reasonable
notice and at reasonable times during normal business hours and (B) furnish
promptly to CyberGuard all information and documents concerning its business,
assets, liabilities, properties and personnel as CyberGuard may from time to
time reasonably request. CyberGuard shall: (A) afford to ARCA and its agents and
representatives reasonable access to the properties, books, records and other
information of CyberGuard and its Subsidiaries, provided that such access shall
be granted upon reasonable notice and at reasonable times during normal business
hours and (B) furnish promptly to ARCA all information and documents concerning
its business, assets, liabilities, properties and personnel as ARCA may from
time to time reasonably request.
5.3 CONFIDENTIALITY. Except as otherwise required by law or in the
performance of obligations under this Agreement, any nonpublic information
received by a party or its advisors, agents or representatives from the other
party shall be kept confidential and shall not be used or disclosed for any
purpose other than in furtherance of the transactions contemplated by this
Agreement. The obligation of confidentiality shall not extend to information
which: (A) is or becomes generally available to the public other than as a
result of a disclosure by a party in violation of this Agreement; (B) was in the
lawful possession of a party prior to its receipt from the other party; or (C)
becomes available to a party on a nonconfidential basis from a source other than
a party to this Agreement, provided such source is not known to be in violation
of a confidentiality agreement. Upon termination of this Agreement, each party
shall, upon request, promptly return or destroy any confidential information
received from the other party. Notwithstanding anything to the contrary set
forth herein, the parties expressly consent to the disclosure of all information
reasonably required to be disclosed in the Proxy Statement and the Registration
Statements. The covenants of the parties contained in this SECTION 5.3 shall
survive any termination of this Agreement but shall terminate at the Closing, if
it occurs, with respect to information concerning ARCA.
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5.4 NOTIFICATION. ARCA and CyberGuard shall promptly notify the other
in writing of the occurrence, or threatened occurrence, of: (A) any event that
would constitute a breach of this Agreement by such party or could reasonably be
expected to have a Material Adverse Effect on such party or materially and
adversely effect its ability to consummate the transactions contemplated hereby
on or prior to the Termination Date; (B) any event that would cause any
representation or warranty made by such party in this Agreement to be false or
misleading in any material respect (to the extent representations and warranties
are by their terms qualified by materiality, they shall to that extent be true
and correct in all respects after giving effect to the materiality qualification
contained in such representations and warranties); (C) any other matter which
occurs after the date of this Agreement which, if existing on the date of this
Agreement, would have been required to be disclosed herein; provided, however,
that the delivery of any notice under this SECTION 5.4 shall not cure any breach
of any provision set forth in this Agreement or otherwise limit or affect the
remedies available to the party receiving such notice; (D) any notice from any
governmental or regulatory authority relating to the transactions contemplated
hereby; and (E) any notice or communication from any Person suggesting that any
notice, consent, filing or similar item is necessary to consummate the
transactions contemplated hereby. ARCA will provide to CyberGuard true and
complete copies of all reports or notices to and other material communications
with any governmental or regulatory authority relating to ARCA between the date
of this Agreement and the Closing Date.
5.5 CONSENT OF GOVERNMENTAL AUTHORITIES AND OTHERS. Each of ARCA and
CyberGuard agrees to file, submit or request promptly after the date of this
Agreement and to prosecute diligently any and all consents, approvals,
authorizations, registrations, qualifications, filings, applications and notices
appropriate for filing or submission to any governmental authorities, as
provided in Sections 3.4 and 4.25 hereof. Each of ARCA and CyberGuard agrees to
file, submit or request promptly after the date of this Agreement and to
prosecute diligently and reasonably any and all consents, approvals,
authorizations, registrations, qualifications, filings, applications and notices
appropriate for filing or submission to any Person which are described in
Sections 3.3 or 4.18 hereof. Each of ARCA and CyberGuard shall promptly make
available to the other such information as each of them may reasonably request
relating to its business, assets, liabilities, properties and personnel as may
be required by each of them to prepare and file or submit such applications and
notices and any additional information requested by any governmental authority,
and shall update by amendment or supplement any such information given in
writing. Each of ARCA and CyberGuard represents and warrants to the other that
such information, as amended or supplemented, shall be true, correct and
complete and not misleading.
5.6 ACQUISITION PROPOSALS; NO SOLICITATION. ARCA will not and will not
permit any of its directors, officers, employees, advisors or agents to,
directly or indirectly: (A) solicit, initiate, facilitate, encourage or
participate in any negotiations or discussions with respect to any offer or
proposal to, directly or indirectly, acquire all or a substantial portion of the
business or properties, or any of the capital stock or securities, of ARCA,
whether by merger (other than the Merger), consolidation, strategic
relationship, joint venture, partnership, share exchange, business combination,
purchase of assets, lease of assets, exchange of assets, pledge of assets, other
disposition of assets or otherwise, other than the issuance of capital stock
pursuant to the exercise of options existing as of the date hereof and disclosed
on SCHEDULE 4.7 hereto; or (B) except as required by law or in the ordinary
course of business, disclose to any Person, other than CyberGuard or its agents,
any information not customarily disclosed in the ordinary course concerning the
business, assets, liabilities, properties and personnel of ARCA, or afford to
any Person other than CyberGuard and its agents access to the properties, books
or records of ARCA. If ARCA or any of its officers or directors receive or
become aware of any offer or proposal, written or otherwise, of the type
referred to above, ARCA shall promptly inform CyberGuard of such offer or
proposal and furnish CyberGuard with a copy thereof if such offer or proposal is
in writing.
5.7 COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, ARCA and CyberGuard shall use their respective
commercially reasonable efforts in good faith to take or cause to be taken as
promptly as practicable: (A) all reasonable actions that are within
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their control to cause to be fulfilled those conditions precedent to their
obligations to consummate the Merger; and (B) those actions upon which the
conditions precedent to the other party's obligations to consummate the Merger
are dependent.
5.8 PUBLIC ANNOUNCEMENTS. CyberGuard and Acquisition, on the one hand,
and ARCA, on the other hand, will, to the extent reasonably practicable, consult
with each other before issuing, and give each other the opportunity to review
and comment upon, any press release or other public statements with respect to
the transactions contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or national securities quotation system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement shall be in the form heretofore agreed to by the parties.
5.9 APPROVAL BY ARCA'S SHAREHOLDERS. ARCA shall, through its Board of
Directors, as soon as practicable after the date of this Agreement, either
solicit the written consent of its Shareholders or call a special meeting of
Shareholders, for the purpose of approving the Merger, this Agreement and the
other transactions contemplated by this Agreement. ARCA, through it Board of
Directors, shall recommend that ARCA's Shareholders approve the Merger, this
Agreement and the other transactions contemplated by this Agreement, shall
include such recommendation in the Proxy Statement, shall not amend, modify,
revoke or withdraw such recommendation and shall use its commercially reasonable
efforts to obtain the approval of the Merger by ARCA's Shareholders and
otherwise consummate the transactions contemplated by this Agreement.
5.10 INVESTMENT INTENT LETTERS. ARCA shall use its commercially
reasonable efforts to cause each of the Shareholders to deliver to CyberGuard,
prior to the Effective Time, a letter ("INVESTMENT INTENT LETTER") in the form
of EXHIBIT C hereto.
5.11 FORBEARANCE BY CYBERGUARD. Prior to the Effective Time, CyberGuard
shall not make, declare or pay any extraordinary dividend or any stock split or
stock dividend.
5.12 AFFILIATES' LETTERS. SCHEDULE 5.12 sets forth a list of names and
addresses of those persons who, to the best knowledge of ARCA, may be deemed
Affiliates of ARCA or from whom a letter in the form of EXHIBIT D hereto (the
"AFFILIATE LETTER") may be necessary in order for the Merger to qualify as a
pooling-of-interests transaction. ARCA shall provide CyberGuard such information
and documents as CyberGuard shall reasonably request for purposes of reviewing
such list. There shall be added to such list the names and addresses of any
other person who becomes an Affiliate of ARCA at any time after the date hereof
up to and including the time of the ARCA special meeting of Shareholders or the
effectiveness of the written consents contemplated by Section 5.9 hereof, or who
CyberGuard reasonably identifies (by written notice to ARCA) as being a Person
who may be deemed to be an Affiliate of ARCA; PROVIDED, HOWEVER, that no Person
shall be added to such list by CyberGuard if it receives, on or before the
Effective Time, an opinion of counsel satisfactory to CyberGuard to the effect
that such Person is not an Affiliate. ARCA shall use its commercially reasonable
efforts to deliver or cause to be delivered to CyberGuard, concurrent herewith,
or as promptly as practicable after the date hereof, from each of the Affiliates
identified on SCHEDULE 5.12 (as the same may be supplemented as aforesaid), an
Affiliate Letter.
If an Affiliate of ARCA refuses to provide an Affiliate Letter,
CyberGuard shall in lieu of receipt of such letter be entitled to place
appropriate legends on the certificates evidencing the CyberGuard Common Stock
to be received by such Affiliates pursuant to the terms of this Agreement, and
to issue appropriate stock transfer instructions to the transfer agent for the
CyberGuard Common Stock, to the effect that the shares of the CyberGuard Common
Stock received or to be received by such Affiliate pursuant to the terms of this
Agreement may only be sold, transferred or otherwise conveyed, and the holder
thereof may only reduce his interest in or risks relating to such shares of
CyberGuard Common
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Stock, pursuant to an effective registration statement under the 1933 Act or in
accordance with the provisions of Rule 144 promulgated under the 1933 Act or
pursuant to an exemption provided from registration under the 1933 Act and, in
any event, only after financial results covering at least 30 days of combined
operations of CyberGuard and ARCA after the Closing Date shall have been
published. The foregoing restrictions on the transferability of the CyberGuard
Common Stock shall apply to all purported sales, transfers and other conveyances
of the shares of CyberGuard Common Stock received or to be received by such
Affiliate pursuant to this Agreement and to all purported reductions in the
interest in or risks relating to such shares of the CyberGuard Common Stock
whether or not such Affiliate has exchanged the certificates previously
evidencing such Affiliate's shares of the ARCA Common Stock or ARCA Preferred
Stock for certificates evidencing the shares of CyberGuard Common Stock into
which such shares of ARCA Common Stock or ARCA Preferred Stock were converted.
The Proxy Statement shall disclose the foregoing in a reasonably prominent
manner.
5.13 REGISTRATION AGREEMENT. CyberGuard will, at the Effective Time,
execute and deliver a registration agreement ("Registration Agreement"),
substantially in the form of EXHIBIT E to the Shareholders of ARCA, which will
provide, among other things, that CyberGuard will file three Registration
Statements covering the resale to the public by the Shareholders of ARCA of the
CyberGuard Common Stock issued to such Shareholders pursuant to the Merger, and
thereafter use its best efforts to cause each Registration Statement to be
declared effective as soon as practicable following the filing date and to
maintain such effectiveness for a period of two years.
5.14 PREPARATION OF PROXY STATEMENT. ARCA promptly shall prepare the
Proxy Statement and mail the same to its shareholders in accordance with its
charter and bylaws . CyberGuard shall cooperate with and assist ARCA in the
preparation of the Proxy Statement. The Proxy Statement shall, together with the
CyberGuard Disclosure Materials, constitute a disclosure document for the offer
and issuance of the shares of CyberGuard Common Stock to be received by holders
of ARCA Common Stock and ARCA Preferred Stock in the Merger. ARCA and CyberGuard
shall each use commercially reasonable efforts to cause the Proxy Statement to
comply with applicable federal and state securities law requirements. Each of
ARCA and CyberGuard agrees to provide promptly to the other such information
concerning its business affairs and financial statements as, in the reasonable
judgment of the providing party or its counsel, may be required for inclusion in
or with the Proxy Statement, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Proxy Statement.
If any event relating to CyberGuard or any of its Subsidiaries should
be discovered which should be set forth in an amendment of, or a supplement to,
the Proxy Statement, CyberGuard promptly shall so inform ARCA and shall furnish
all necessary information to ARCA relating to such event. If any event relating
to ARCA should be discovered which should be set forth in an amendment of, or a
supplement to, the Proxy Statement, ARCA promptly shall so inform CyberGuard and
shall furnish all necessary information to CyberGuard relating to such event. In
the Proxy Statement, ARCA shall present this Agreement and the Merger for
approval by the holders of ARCA Common Stock and ARCA Preferred Stock either by
written consent or at the special meeting of ARCA Shareholders relating to the
Merger, include the recommendation of ARCA's Board of Directors to its
Shareholders that they vote in favor of the Agreement and the Merger and include
any description of the availability of dissenters' rights required by applicable
law. ARCA shall provide CyberGuard and its counsel with a reasonable opportunity
to review, comment upon and approve the Proxy Statement. ARCA covenants to
CyberGuard that it will distribute the Proxy Statement only to recipients who
also receive a copy of the CyberGuard Disclosure Materials concurrently
therewith and that the Proxy Statement will contain a conspicuous statement in
substantially the following form:
THIS PROXY STATEMENT IS BEING DISTRIBUTED TOGETHER
WITH THE CYBERGUARD DISCLOSURE MATERIALS IN
CONNECTION WITH THE MERGER DESCRIBED HEREIN. THE
CYBERGUARD DISCLOSURE MATERIALS CONTAIN IMPORTANT
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INFORMATION CONCERNING CYBERGUARD CORPORATION AND SHOULD BE
READ TOGETHER WITH THIS PROXY STATEMENT PRIOR TO MAKING A
DECISION TO VOTE ON THE MERGER. IF YOU HAVE RECEIVED THIS
PROXY STATEMENT WITHOUT THE ACCOMPANYING CYBERGUARD DISCLOSURE
MATERIALS PLEASE CONTACT ARCA SYSTEMS, INC. IMMEDIATELY AND A
COPY OF SUCH MATERIALS WILL BE PROVIDED TO YOU FREE OF CHARGE.
In addition, any form of proxy or written consent which is provided to
holders of ARCA's securities for use in voting upon or consenting to this
Agreement and the Merger will contain an acknowledgment that the stockholder
executing the proxy has received and reviewed the CyberGuard Disclosure
Materials.
5.15 EMPLOYMENT AGREEMENTS, CONFIDENTIALITY AGREEMENTS AND ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ AGREEMENTS. ARCA shall cause: (i) each of the Persons listed on SCHEDULE
5.15(a) to enter into an employment agreement with ARCA, substantially in the
form of EXHIBIT F, and (ii) each of the employees of ARCA to enter into a
confidentiality and works for hire agreement, substantially in the form of
EXHIBIT G and an ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ agreement, substantially in the form of EXHIBIT
H.
5.16 PERSONAL GUARANTIES. On the Closing Date, CyberGuard shall obtain
the release of all Shareholder personal guaranties for the Loans.
5.17 POOLING. From and after the date of this Agreement, none of ARCA,
CyberGuard and Acquisition shall take, and each of them shall use commercially
reasonable efforts to cause their respective Affiliates not to take, any action
that would prevent CyberGuard from treating the Merger as a pooling-of-interests
for accounting purposes.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 EMPLOYEES AND BENEFIT PLANS. It is contemplated that, upon
consummation of the Merger, all of the ARCA Plans will be continued by ARCA as
are currently in place except to the extent prohibited by law. Thereafter,
CyberGuard, in its sole discretion, will determine which of the ARCA Plans will
be combined with CyberGuard's existing benefit plans and is under no obligation
to maintain the ARCA Plans as they currently exist; provided, however, that to
the extent CyberGuard determines to include ARCA employees in CyberGuard benefit
plans, CyberGuard will use commercially reasonable efforts to give ARCA
employees credit for purposes of any service requirements for participation for
their period of service with ARCA prior to the Effective Time.
6.2 INVESTIGATION; NOTICES. The representations, warranties and
covenants set forth in this Agreement shall not be affected or diminished in any
way by the receipt of any notice pursuant to SECTION 5.4 or by any investigation
(or failure to investigate) at any time by or on behalf of the party for whose
benefit such representations, warranties and covenants were made. All statements
contained in this Agreement or any schedule hereto, or in any certificate or
notice delivered pursuant hereto shall be deemed to be representations and
warranties for purposes of this Agreement.
6.3 SURVIVAL OF THE REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. All representations and warranties of the parties contained in this
Agreement shall survive the execution and delivery hereof and the Closing and
continue until the first anniversary of the Closing Date and shall not be
affected by an examination made for or on behalf of any party to whom such
representation is made or the knowledge of any of such party's officers,
directors, shareholders, employees or agents; provided
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however, that those representations and warranties of the parties that relate to
contingencies or matters that are subject to resolution through the audit
process shall only survive the execution and delivery hereof and the Closing
until the earlier of (i) the public issuance of the first independent audit
report on CyberGuard following the Closing which covers a period of time
subsequent to the Closing and (ii) the first anniversary of the Closing Date
(collectively, the "Survival Date"). All covenants of the parties shall
terminate as of the Effective Time, except that the agreements set forth in
Article II, Section 5.3 (Confidentiality), this Article VI and Article VIII
shall survive the Closing.
6.4 INDEMNIFICATION.
(a) BY THE PARTY SHAREHOLDERS; ESCROWED CONSIDERATION. Subject
to the limitations set forth in SECTION 6.4(d) hereof, each Party Shareholder of
ARCA severally and pro rata, in proportion to his ownership of ARCA Common Stock
immediately prior to the Effective Time, agrees (and by virtue of the Merger
shall have deemed to have agreed) to indemnify and hold harmless CyberGuard and
its successors and assigns from, against and in respect of, the full amount of
any and all liabilities, damages, claims, deficiencies, fines, assessments,
losses, taxes, penalties, interest, costs and expenses, including, without
limitation, reasonable fees and disbursements of counsel (collectively "LOSSES")
arising from, in connection with, or incident to: (i) any breach or violation of
any of the representations, warranties, covenants or agreements of ARCA or any
Party Shareholder contained in this Agreement or in any document or certificate
delivered by ARCA or any Party Shareholder at or prior to the Closing; and (ii)
any and all actions, suits, proceedings, demands, assessments, judgments, costs
and expenses incidental to any of the foregoing. On the terms and subject to the
conditions set forth in this Agreement, 10% of the CyberGuard Common Stock to be
delivered by CyberGuard pursuant to the Merger, exclusive of the CyberGuard
Common Stock delivered with respect to the Loans payable to Shareholders, shall
be delivered at the Closing to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, P.A., as escrow agent (the "ESCROW AGENT"), to be held and delivered
in accordance with an Escrow Agreement (the "ESCROW AGREEMENT") in the form
attached hereto as EXHIBIT I (the "ESCROWED CONSIDERATION"). The Escrowed
Consideration represents security for the performance by the Party Shareholders
of their indemnity obligations under this Agreement. The Escrow Agreement will
provide for the Escrowed Consideration to be held until the Survival Date or
such longer period pending resolution of any outstanding claims thereunder. The
fees, costs and expenses of the Escrow Agent shall be paid by CyberGuard.
(b) BY CYBERGUARD. Subject to the limitations set forth in
SECTION 6.4(d) hereof, CyberGuard agrees to indemnify and hold harmless ARCA and
the Shareholders of ARCA from, against and in respect of, the full amount of any
and all Losses arising from, in connection with, or incident to: (i) any breach
or violation of any of the representations, warranties, covenants or agreements
of CyberGuard contained in this Agreement or in any document or certificate
delivered by CyberGuard at or prior to the Closing; and (ii) any and all
actions, suits, proceedings, demands, assessments, judgments, costs and expenses
incidental to any of the foregoing.
(c) INDEMNITY PROCEDURE. A party or parties hereto agreeing to
be responsible for or to indemnify against any matter pursuant to this SECTION
6.4 is referred to herein as the "Indemnifying Party" and the other party or
parties claiming indemnity is referred to as the "Indemnified Party." An
Indemnified Party under this Agreement shall, with respect to claims asserted
against such party by any third party, give written notice to each Indemnifying
Party of any liability which might give rise to a claim for indemnity under this
Agreement within ten (10) business days of the receipt of any written claim from
any such third party, and with respect to other matters for which the
Indemnified Party may seek indemnification, give prompt written notice to each
Indemnifying Party; provided, however, that any failure to give such notice will
not waive any rights of the Indemnified Party except to the extent the rights of
the Indemnifying Party are materially prejudiced. The Indemnified Party shall
contest and defend such claims, acting reasonably and in accordance with good
faith business judgment, with counsel reasonably satisfactory to the
Indemnifying Party, and shall not effect any settlement thereof without the
consent of each Indemnifying Party, which consent shall not be unreasonably
withheld. An
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Indemnifying Party shall have the right to participate in such proceedings and
to be represented by separate attorneys of its choice and at its own expense.
Each Indemnified Party and Indemnifying Party agree to afford one another the
opportunity to be present at, and to participate in, conferences with all
Persons asserting claims for which indemnification is sought hereunder. Each
Indemnified Party and Indemnifying Party shall cooperate with and assist the
other to the extent lawful and reasonably possible. Each Indemnifying Party
shall be kept fully informed of the defense of any such claim at all stages
thereof. In the event that an Indemnified Party fails to timely and in good
faith defend against any such claim, each Indemnifying Party shall, after
providing three days prior written notice to the Indemnified Party, have the
right, but not the obligation, to defend and settle the same. In the event that
the Indemnifying Party is, directly or indirectly, conducting a defense against
any such claim, the Indemnified Party shall cooperate with the Indemnifying
Party in any such defense and make available to it all such witnesses, records,
materials and information in its possession or under its control.
(d) LIMITATIONS. Except as otherwise set forth herein, no
party shall have any obligation under the indemnification provisions set forth
in SECTIONS 6.4(a) or 6.4(b): (i) unless notice of a claim for indemnity in
respect of any matter has been given such party on or before the Survival Date
and (ii) unless and until the aggregate of all claims for which CyberGuard, on
the one hand, or the Party Shareholders, on the other hand, is responsible under
the indemnification provisions of Sections 6.4(a) or 6.4(b), respectively,
exceeds $50,000 (the "BASKET LIMITATION"); PROVIDED, HOWEVER, that if an
Indemnifying Party is responsible to an Indemnified Party hereunder for an
aggregate amount in excess of $50,000, the Basket Limitation shall be deemed
inapplicable and the Indemnifying Party shall be responsible to the Indemnified
Party for the full amount of all such claims. None of the limitations of this
Section 6.4(d)(ii) shall apply with respect to indemnification obligations of a
party arising in connection with the breach of any representation, warranty or
covenant set forth in Sections 4.2, 4.5, 4.6, 4.7, 4.10 (only with respect to
title), 4.30, 4.33, 4.38, 4.1B, 4.2B, 4.6B, 6.5, 6.6 and 8.7 hereof and none of
the limitations of this SECTION 6.4(d) shall apply with respect to any action
based upon fraud of any party; and the Basket Limitation shall be inapplicable
with respect to indemnification obligations of a party arising in connection
with the breach of any provision of Article V. Except for any claim involving
fraud, after the Effective Time the sole and exclusive remedy of CyberGuard for
any breach of any representation or warranty by ARCA or any Party Shareholder in
this Agreement shall be the indemnification provisions contained in this Section
6.4; PROVIDED, that in no event will a Party Shareholder have any liability to
CyberGuard other than pursuant to the indemnification provisions contained in
this Section 6.4 and PROVIDED FURTHER that, in the event this Agreement is
terminated before Closing, nothing contained herein will impact CyberGuard's
ability to recover damages against ARCA. Any and all amounts determined to be
owed by any Party Shareholder by reason of this Section 6.4 shall be satisfied
solely out of the Escrowed Consideration by return to CyberGuard by the Escrow
Agent of such number of shares of CyberGuard Common Stock equal to the amount of
any such indemnity obligation (up to and not to exceed the amount of Escrowed
Consideration). For purposes of this Section 6.4(d), the value of each such
share of CyberGuard Common Stock so returned to the Shareholders of ARCA shall
be determined in the manner set forth in the Escrow Agreement. CyberGuard shall
have no recourse against any Shareholder of ARCA by virtue of this Section 6.4,
it being understood that CyberGuard's sole recourse shall be against the
Escrowed Consideration.
6.5 GENERAL RELEASE. As a material inducement for CyberGuard and
Acquisition to enter into this Agreement, effective as the Effective Time,
except as expressly set forth on SCHEDULE 6.5, each Party Shareholder hereby
unconditionally and irrevocably releases and forever discharges, effective as of
the Effective Time, ARCA from any and all rights, claims, demands, judgments,
obligations, liabilities and damages, whether accrued or unaccrued, asserted or
unasserted, and whether known or unknown, suspected or unsuspected, relating to
ARCA which ever existed, now exist, or may hereafter exist, by reason of any
tort, breach of contract, violation of law or other act or failure to act which
shall have occurred at or prior to the Effective Time. Each Party Shareholder
expressly intends that the foregoing release shall be effective regardless of
whether the basis for any claim or right hereby released shall have been known
to or anticipated by him or her. Notwithstanding the foregoing, nothing
contained in this SECTION 6.5 will have any effect on (i) a Party Shareholder's
claim accruing against CyberGuard, whether under this Agreement or any agreement
entered into in connection with the
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transactions contemplated hereby or otherwise, (ii) a Party Shareholder's right
to indemnification (whether statutory or otherwise) as an officer or director of
ARCA provided that (A) the Party Shareholder has met any applicable standard of
conduct to qualify for such indemnification and (B) the basis of a lawsuit
against such officer or director does not otherwise constitute a breach of any
of the representations and warranties made by ARCA or the Party Shareholders in
this Agreement, or (iii) a Party Shareholder's right to compensation and
benefits earned or accrued by the Party Shareholder as an employee or officer of
ARCA to the extent disclosed in the disclosure schedules, incurred in the
ordinary course of business or properly accounted for in the Financial
Statements.
6.6 RESTRICTIVE COVENANTS. Each Party Shareholder recognizes that in
order to assure CyberGuard and Acquisition that CyberGuard will retain the value
of ARCA as a "going concern," it is necessary that each Party Shareholder
undertakes to enter into a restrictive covenant agreement, substantially in the
form attached hereto as EXHIBIT J (the "Restrictive Covenant Agreement").
6.7 TAX TREATMENT OF THE MERGER. CyberGuard and the Surviving
Corporation shall each use its best efforts to cause the Merger to be treated as
a tax free reorganization within the meaning of Section 368(a) of the Code. To
the extent permitted under applicable tax laws, the Merger shall be reported as
a reorganization within the meaning of Section 368(a)(1)(B) of the Code in all
federal, state, and local tax returns after such acquisition occurs.
ARTICLE VII
CLOSING; CONDITIONS PRECEDENT; TERMINATION
7.1 CLOSING. At the Closing, the parties shall deliver to each other
such documents as may be specified, or required to satisfy the conditions set
forth, in SECTIONS 7.2, 7.3 AND 7.4. All proceedings to be taken and all
documents to be executed at the Closing shall be deemed to have been taken,
delivered and executed simultaneously, and no proceeding shall be deemed taken
nor documents deemed executed or delivered until all have been taken, delivered
and executed.
7.2 MUTUAL CONDITIONS PRECEDENT. The respective obligations of the
parties to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions.
(a) GOVERNMENTAL CONSENTS. All material consents and approvals
required by governmental authorities for the consummation of the transactions
contemplated by this Agreement shall have been obtained.
(b) NO INJUNCTION. No injunction shall be pending which
enjoins, prohibits or materially restricts the consummation of the transactions
contemplated by this Agreement.
(c) SHAREHOLDER APPROVAL. The shareholders of ARCA shall have
duly approved the Merger, this Agreement and the transactions contemplated
hereby.
(d) TAX OPINION. Each of ARCA, the ARCA Shareholders and
CyberGuard shall have received an opinion from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.A., dated the Closing Date, substantially in the form of
EXHIBIT K.
7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CYBERGUARD. The
obligations of CyberGuard to consummate the transactions contemplated by this
Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions.
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(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of ARCA and the Party Shareholders contained in this Agreement
and in any certificate or notice delivered pursuant to this Agreement shall be
true and correct in all material respects as of the date of this Agreement (to
the extent representations and warranties are by their terms qualified by
materiality, they shall to that extent be true and correct in all respects after
giving effect to the materiality qualification contained in such representations
and warranties) and as of the Closing Date with the same force and effect as
though made on and as of such date, except to the extent that such
representations and warranties by their terms are expressly limited to an
earlier date.
(b) COVENANTS PERFORMED. The covenants of ARCA contained in
this Agreement to be performed or complied with on or prior to the Closing Date
shall have been duly performed or complied with in all material respects.
(c) NO MATERIAL ADVERSE EFFECT. Since the date of this
Agreement, there shall not have occurred (i) any event or condition of any
character which has adversely affected in any material respect or could
reasonably be expected to adversely affect in any material respect CyberGuard's
ability to operate the business of ARCA or (ii) any Material Adverse Effect with
respect to ARCA.
(d) CONSENTS. ARCA shall have duly and in compliance with
applicable laws delivered all notices, filings and applications and obtained all
consents, approvals, authorizations, registrations and qualifications
contemplated by SECTION 4.18 or SECTION 5.5 to be obtained by ARCA, all of which
shall have been obtained without the imposition of any materially adverse terms
or conditions.
(e) OPINION OF COUNSEL. CyberGuard shall have received from
General Counsel Associates LLP, legal counsel to ARCA, an opinion letter, dated
the Closing Date, in substantially the form set forth in EXHIBIT L to this
Agreement.
(f) CERTIFICATE OF ARCA AND THE PARTY SHAREHOLDERS. ARCA shall
have delivered to CyberGuard a certificate executed by ARCA's President and
Chief Financial Officer, dated the Closing Date, certifying that the conditions
specified in SECTIONS 7.3(a), (b) and (c) above have been fulfilled and each
Party Shareholder shall have delivered to CyberGuard a certificate, dated the
Closing Date, certifying that the conditions specified in SECTION 7.3(A) above
have been fulfilled to the extent such conditions refer to them.
(g) DISSENTERS' RIGHTS. Holders of no more than 5% of the
outstanding shares of ARCA Common Stock or ARCA Preferred Stock shall have
exercised or shall remain entitled to exercise dissenters' appraisal rights in
connection with the Merger under applicable law.
(h) EMPLOYMENT AGREEMENTS. Each of the Persons listed on
SCHEDULE 5.15(a) shall have executed and delivered to CyberGuard an employment
agreement, substantially in the form of EXHIBIT F.
(i) AFFILIATE LETTERS. Each of the persons specified on
SCHEDULE 5.12 as of the Closing Date shall have executed and delivered to
CyberGuard an Affiliate Letter in the form of EXHIBIT D to this Agreement.
(j) INVESTMENT INTENT LETTERS. Each of the Shareholders of
ARCA shall have executed and delivered to CyberGuard an Investment Intent
Letter.
(k) RESIGNATIONS. To the extent requested, each of the
officers and directors of ARCA shall have resigned from such positions.
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(l) CONFIDENTIALITY AGREEMENTS. Each employee of ARCA shall
have executed and delivered to CyberGuard a confidentiality and works for hire
agreement substantially in the form of EXHIBIT G.
(m) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ AGREEMENTS. Each employee of ARCA shall
have executed and delivered to CyberGuard an ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ agreement
substantially in the form of EXHIBIT H.
(n) RESTRICTIVE COVENANT AGREEMENT. Each of the Party
Shareholders shall have executed and delivered to CyberGuard a Restrictive
Covenant Agreement substantially in the form of EXHIBIT J.
(o) AUDITORS' "POOLING" LETTER. CyberGuard shall have received
from KPMG Peat Marwick LLP, a letter dated as of the Closing Date, in form and
substance reasonably satisfactory to CyberGuard, to the effect that the Merger
will qualify for pooling-of-interests accounting treatment if consummated in
accordance with this Agreement; the parties hereto agree that any representation
made by a party in the "pooling" representation letters executed by each of the
parties and delivered to KPMG Peat Marwick LLP will be deemed to be a
representation and warranty of such party under this Agreement.
(p) ESCROW AGREEMENT. Each of the Party Shareholders shall
have executed and delivered to CyberGuard an Escrow Agreement substantially in
the form of EXHIBIT I.
(q) SHAREHOLDERS OF ARCA. No more than 35 holders of ARCA
Common Stock and ARCA Preferred Stock shall exist; the number of shareholders
shall be determined in accordance with Regulation D promulgated under the ▇▇▇▇
▇▇▇.
7.4 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ARCA. The obligations of
ARCA and the Party Shareholders to consummate the transactions contemplated by
this Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions.
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of CyberGuard contained in this Agreement or in any certificate
or notice delivered pursuant to this Agreement shall be true and correct in all
material respects as of the date of this Agreement (to the extent
representations and warranties are by their terms qualified by materiality, they
shall to that extent be true and correct in all respects after giving effect to
the materiality qualifications contained in such representations and warranties)
and as of the Closing Date with the same force and effect as though made on and
as of such date, except to the extent such representations and warranties by
their terms are expressly limited to an earlier date.
(b) COVENANTS PERFORMED. The covenants of CyberGuard contained
in this Agreement to be performed or complied with on or prior to the Closing
Date shall have been duly performed or complied with in all material respects.
(c) NO MATERIAL ADVERSE EFFECT. There shall not have occurred
since the date of this Agreement (i) any event or condition of any character
which has adversely affected in any material respect or could reasonably be
expected to adversely affect in any material respect CyberGuard's ability to
operate the business of ARCA or (ii) any Material Adverse Effect with respect to
CyberGuard; provided, however, that any drop in the market price of CyberGuard
Common Stock shall not in and of itself without other reasons be sufficient to
provide ARCA with a basis for not proceeding with the Merger on the terms and
conditions set forth herein.
(d) OPINION OF COUNSEL. The Shareholders and ARCA shall have
received from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.A., legal
counsel to CyberGuard, an opinion letter, dated the Closing Date, in
substantially the form set forth in EXHIBIT M to this Agreement.
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(e) CYBERGUARD'S CERTIFICATE. CyberGuard shall have delivered
to ARCA a certificate executed by its President or a Vice President, dated the
Closing Date, certifying that the conditions specified in SECTIONS 7.4(a), (b)
and (c) above have been fulfilled.
(f) LISTING. The CyberGuard Common Stock issuable hereunder at
the Effective Time shall have been listed on NASDAQ, subject to official notice
of issuance.
(g) PERSONAL GUARANTIES. All action to be taken under Section
5.16 with regard to the Shareholder guaranties shall have been taken.
(h) REGISTRATION AGREEMENT. CyberGuard shall have executed and
delivered the Registration Agreement.
7.5 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated prior to the Closing:
(a) at any time by mutual consent of the parties;
(b) by CyberGuard or ARCA if the Closing has not occurred on
or prior to September 30, 1998 (the "TERMINATION DATE"), provided the failure of
the Closing to occur by such date is not the result of the failure of the party
seeking to terminate this Agreement to perform or fulfill any of its obligations
hereunder;
(c) by CyberGuard or ARCA, if any governmental entity shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger, and such order,
decree, ruling or other action shall have become final and nonappealable;
(d) by CyberGuard at any time in its sole discretion if any of
the representations or warranties of ARCA or the Party Shareholders in this
Agreement are not in all material respects true and accurate or if ARCA or the
Party Shareholders breach in any material respect any covenant contained in this
Agreement, provided that if such misrepresentation or breach is curable, it is
not cured within ten business days after written notice thereof specifying the
nature of the breach, but in any event prior to the Termination Date; or
(e) by ARCA at any time in its sole discretion if any of the
representations or warranties of CyberGuard or Acquisition in this Agreement are
not in all material respects true and accurate or if CyberGuard or Acquisition
breaches in any material respect any covenant contained in this Agreement,
provided that if such misrepresentation or breach is curable, it is not cured
within ten business days after written notice thereof specifying the nature of
the breach, but in any event prior to the Termination Date.
In the event this Agreement is terminated pursuant to this SECTION 7.5,
this Agreement shall terminate and become void and of no force and effect, the
Merger shall be abandoned without further action by any of the parties to this
Agreement, and no party to this Agreement shall have any liability or further
obligation under this Agreement, except for the agreements contained in SECTIONS
5.3 (Confidentiality), 8.7 (Expenses; Termination Fees), 8.10 (Litigation;
Prevailing Party) and 8.12 (Governing Law); provided that, any termination of
this Agreement pursuant to this SECTION 7.5 shall not relieve any party from any
liability for the willful or intentional breach of any representation, warranty
or covenant contained in this Agreement or be deemed to constitute a waiver of
any remedy available for such breach.
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ARTICLE VIII
MISCELLANEOUS
8.1 NOTICES. Any notice or other communication under this Agreement
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by prepaid overnight
courier to the parties at the addresses set forth below their names on the
signature pages of this Agreement (or at such other addresses as shall be
specified by the parties by like notice), to the attention of the President of
such party. Such notices, demands, claims and other communications shall be
deemed given when actually received or: (A) in the case of delivery by overnight
service with guaranteed next day delivery, the next day or the day designated
for delivery; or (B) in the case of registered U.S. mail, five days after
deposit in the U.S. mail.
8.2 ENTIRE AGREEMENT. This Agreement and each document and agreement
executed by the parties in connection herewith contains every obligation and
understanding among the parties relating to the subject matter hereof and merges
all prior discussions, negotiations and agreements, if any, among them, and none
of the parties shall be bound by any representations, warranties, covenants, or
other understandings, other than as expressly provided or referred to herein.
8.3 ASSIGNMENT. This Agreement may not be assigned by any party without
the written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, and permitted assigns.
8.4 WAIVER AND AMENDMENT. Any representation, warranty, covenant, term
or condition of this Agreement which may legally be waived, may be waived, or
the time of performance thereof extended, at any time by the party hereto
entitled to the benefit thereof, and any term, condition or covenant hereof may
be amended by the parties hereto at any time. No waiver by any party hereto,
whether express or implied, of its rights under any provision of this Agreement
shall constitute a waiver of such party's rights under such provisions at any
other time or a waiver of such party's rights under any other provision of this
Agreement. No failure by any party hereto to take any action against any breach
of this Agreement or default by another party shall constitute a waiver of the
former party's right to enforce any provision of this Agreement or to take
action against such breach or default or any subsequent breach or default by
such other party.
8.5 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any Person
other than the parties hereto (and the Shareholders and option holders of ARCA)
and their respective successors and permitted assigns, any rights or remedies
under or by reason of this Agreement.
8.6 SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written.
8.7 EXPENSES; TERMINATION FEE.
(a) EXPENSES. All expenses (including, without limitation,
legal fees and expenses, investment banking fees, and expenses of accountants)
incurred by a party in connection with the transactions contemplated hereby will
be borne by such party; provided, however, that if the Merger is consummated,
the fees and expenses incurred by or on behalf of ARCA in excess of $100,000
shall be paid jointly and severally by the Party Shareholders; and provided
further that CyberGuard shall pay the fees and expenses of one counsel to the
Shareholders of ARCA up to $10,000.
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(b) TERMINATION FEE. If this Agreement is terminated by ARCA
other than a termination pursuant to SECTIONS 7.5(a), (b), (c) or (e) and ARCA
or the Party Shareholders enter into an agreement, oral or otherwise, to sell
all or substantially all of the business or properties, or all or substantially
all of the capital stock or securities, of ARCA, whether by merger,
consolidation, share exchange, business combination, purchase of assets, other
disposition of assets or otherwise, within six months after the date of
termination and closes such agreement or transaction within one year after such
date, then ARCA shall be liable to pay to CyberGuard an amount equal to
$750,000.
(c) CALCULATION. ARCA agrees that the actual damages accruing
to CyberGuard from termination of this Agreement pursuant to those termination
provisions referenced in this SECTION 8.7 are incapable of precise estimation
and would be difficult to prove, and that the damages stipulated herein bear a
reasonable relationship to the potential injury likely to be sustained in the
event of termination pursuant to such occurrence. The payments stipulated in
this SECTION 8.7 are intended by the parties to provide just compensation in the
event of termination and is not intended to constitute a penalty for
nonperformance.
(d) TIME OF PAYMENT. Any payment required to be made by ARCA
pursuant to this SECTION 8.7 shall be made to CyberGuard not later than five
business days after the occurrence of the event for which CyberGuard is entitled
to payment as provided for herein. All payments required to be made pursuant to
this SECTION 8.7 shall be made by wire transfer of immediate available funds to
an account designated by CyberGuard.
8.8 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Any telecopied
counterpart of a manually executed original shall be deemed a manually executed
original.
8.10 LITIGATION; PREVAILING PARTY. In the event of any litigation with
regard to this Agreement, the prevailing party shall be entitled to receive from
the non-prevailing party and the non-prevailing party shall pay upon demand all
reasonable fees and expenses of counsel for the prevailing party.
8.11 INJUNCTIVE RELIEF. It is possible that remedies at law may be
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies in addition to all other remedies provided hereunder or
available to the parties hereto at law or in equity.
8.12 GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Florida
without reference to the choice of law principles thereof.
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IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
CYBERGUARD CORPORATION INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
-------------------------------
ARCA ACQUISITION CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
-------------------------------
ARCA SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
-------------------------------
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Address:
-------------------------------
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Address:
-------------------------------
---------------------------------------
R. ▇▇▇▇▇▇▇ ▇▇▇▇▇
Address:
-------------------------------
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