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SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is dated as of August 26, 1999,
between CyberGuard Corporation, a Florida corporation ("Debtor"), and the
persons or entities who have executed the counterpart signature pages attached
hereto (individually, a "Secured Party" and collectively, the "Secured
Parties").
RECITALS:
A. Secured Parties have loaned $4,313,484.38 to Debtor, which loan is
evidenced by Debtor's convertible subordinated promissory notes of even date
herewith (the "Notes").
B. The parties desire for Debtor to enter into this Agreement to, among
other things, grant a security interest in its assets to Secured Parties in
order to secure the full and complete payment and performance of the Notes.
NOW, THEREFORE, in consideration of the foregoing, including in order
to induce Secured Parties to make the loan, Debtor hereby agrees with Secured
Parties as follows:
1. To secure the full and prompt payment of all obligations of Debtor
to Secured Parties, whether direct or indirect, contingent or absolute, now or
hereafter due or owing to Secured Parties from Debtor pursuant to the Loan
Documents, Debtor hereby grants to Secured Parties a security interest in the
following assets (collectively, the "Collateral"):
a. All present and future inventory, equipment, fixtures,
furniture, money, deposit accounts, and all other goods and personal property of
every kind and nature whatsoever, wherever located, now owned or hereafter
acquired by Debtor, and any and all present and future tax refunds of any kind
whatsoever to which Debtor is now or shall hereafter become entitled;
b. All present and future accounts, contracts, contract
rights, chattel paper, documents and general intangibles of Debtor, including,
without limitation, inventories, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill symbolized thereby, names, trade
names, trade secrets, goodwill, copyrights, registrations, licenses, customer
lists, software, source code, intellectual property (including, without
limitation, patents, copyrights, licenses software, source code, and
intellectual property relating to Debtor's Firewall Software and all present and
future products, technology and services), now owned or hereafter acquired or
created by Debtor, and all rights of Debtor now or hereafter existing in and to
all other contracts relating to any such accounts, contracts, contract rights,
chattel paper, rights to payment, documents, instruments, and general
intangibles;
c. all books, records, writings, data bases, information and
other property relating to, used or useful in connection with, evidencing,
embodying, incorporating or referring to, any of the Collateral heretofore
described;
d. All present and future increases, profits, combinations,
reclassifications, improvements, and products of, accessions, attachments, and
other additions to, tools, parts, and equipment used in connection with, and
substitutes and replacements for, all or part of the Collateral heretofore
described;
e. All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash proceeds,
and other rights arising from or by virtue of, or from the voluntary or
involuntary sale, lease, or other disposition of, or collections with respect
to, or insurance proceeds payable with respect to, or proceeds payable by virtue
of warranty or other claims against manufacturers of,
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or claims against any other person with respect to, all or any part of the
Collateral heretofore described in this clause otherwise; and
f. All present and future security for the payment to Debtor
of any of the Collateral heretofore described and goods which gave or will give
rise to any of such Collateral or are evidenced, identified, or represented
therein or thereby.
For purposes of this Agreement, the term "Loan Documents"
shall mean any other documents or instruments executed in connection herewith,
including, without limitation, the Notes and the Loan Agreement of even date
herewith between Debtor and each of the Secured Parties (as the same may be
further amended, restated, or otherwise modified from time to time).
2. Debtor represents, covenants and warrants that:
a. Its principal place of business will continue to be 0000
X. Xxxxxxxxxx Xxxx., Xxxxx 000, Xx. Xxxxxxxxxx, Xxxxxxx 00000.
b. Debtor shall sign and execute any financing statement or
other documents required to perfect Secured Parties' security interest and pay
all costs necessary to protect the security interest under this Agreement
against the rights or interests of third parties, other than the rights of
Debtor's existing secured lender, Coast Business Credit ("Coast").
c. Debtor authorizes Secured Parties to file one or more
financing statements signed only by Secured Parties describing the Collateral in
the same manner as it is described herein and Debtor shall, from time to time,
at the request of Secured Parties, execute one or more financing statements and
such other documents (and pay the cost of filing or recording the same in all
public offices deemed necessary or desirable by Secured Parties) and do such
other acts and things, all as Secured Parties may request, to establish and
maintain a valid security interest in the Collateral. Secured Parties are hereby
appointed Debtor's irrevocable attorney-in-fact, coupled with an interest, to do
all acts and things which Secured Parties may deem necessary to perfect and
continue perfecting the security interest created hereby.
d. Except for (i) the security interest granted to Coast, and
(ii) the security interest granted hereby, Debtor is and shall be the lawful
owner of the Collateral, with good right to pledge, sell, assign or transfer the
same free from any lien, security interest or encumbrance, and Debtor will
defend the Collateral against the claims and demands of all persons at any time
claiming the same (other than Coast).
e. Debtor covenants and agrees that it shall not sell,
transfer, lease or otherwise dispose of any of the Collateral (except for sales,
transfers or dispositions of loaner and demo equipment in the ordinary course of
business or sales of inventory in the ordinary course of business) without
obtaining the prior written consent of Secured Parties to such sale, transfer,
lease or other disposition.
f. Debtor covenants and agrees that it shall not move any item
of equipment from the State in which it is now located (except for loaner and
demo equipment moved in the ordinary course of business), locate at a new place
of business, remove from a place of business as set forth above or establish a
new chief executive office without giving the Secured Parties not less than
thirty (30) days' prior written notice of such move, relocation, removal or
establishment.
g. Debtor is a Florida corporation and the execution, delivery
and performance of this Agreement are within Debtor's power and authority, have
been duly authorized, and are not in contravention of any law or the terms of
Debtor's charter, bylaws, or other incorporational papers, or any indenture,
agreement or undertaking to which Debtor is a party or by which it is bound.
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h. Debtor will collect its accounts receivable only in the
ordinary course of business, will keep accurate and complete records of its
accounts receivable and, from time to time, will permit Secured Parties to
examine its business records and to make copies thereof.
i. As of the date hereof, Debtor is indebted to Coast in the
amount of $1,914,692.00, which amount includes all principal and accrued and
unpaid interest. Debtor covenants that so long as this Agreement is in effect
the total indebtedness of Debtor to Coast will not exceed $2,500,000.
3. Debtor shall be in default under this Agreement upon the happening
of any of the following events, circumstances or conditions:
a. If a default occurs under any of the Loan Documents which
is not cured within any applicable grace period, and Secured Parties shall have
accelerated Debtor's obligations thereunder.
b. Debtor shall have materially violated any covenant,
agreement, representation or warranty contained herein or in any other Loan
Documents.
4. Upon the occurrence of the events, circumstances and conditions of
default as set forth in Paragraph 3 above:
a. At Secured Parties' option, and upon notice to Debtor, all
of the obligations and liabilities of Debtor to Secured Parties evidenced herein
or secured hereby shall immediately be due and payable.
b. Secured Parties shall have all the rights, remedies and
privileges contained herein and in any other Loan Document, and the rights,
remedies and privileges accorded to (a) a secured party by the Uniform
Commercial Code in effect as of the date of this Agreement and as may be
hereafter amended and (b) a creditor under any other applicable law.
c. Secured Parties shall have the right to notify the obligors
under any of the Collateral to make payments owed to Debtor directly to Secured
Parties, and to take control of all proceeds thereof and enforce any and all
obligations of said obligors. The cost of such collection and enforcement,
including attorneys' fees and out-of-pocket expenses, shall be borne solely by
Debtor, whether the same are incurred by Secured Parties or Debtor. In order to
facilitate Secured Parties' rights hereunder, Debtor does hereby irrevocably
designate and appoint Secured Parties as Debtor's true and lawful
attorney-in-fact, either in Debtor's own name, place and stead, or otherwise, at
any time after the occurrence of an event of default, to ask, demand, receive,
receipt and give acquittance for any and all amounts which are now or may
hereafter become due and payable to Debtor and which are part of the Collateral.
d. Upon request of Secured Parties, Debtor shall assemble the
Collateral or evidence thereof and make it available to Secured Parties at a
place designated by Secured Parties.
e. Secured Parties may enter Debtor's premises where any of
the Collateral is located, and take possession of and remove all or any portion
of the Collateral or evidence thereof therefrom for purposes of disposition
pursuant to this Agreement. Any proceeds of any disposition of any of the
Collateral may be first applied by Secured Parties toward the payment of
expenses in connection with the exercise of their rights and remedies hereunder,
including reasonable attorneys' fees and legal expenses, and any balance of such
proceeds shall be applied by Secured Parties toward the payment of the
indebtedness secured hereby, but in such order of application as Secured Parties
may elect in their sole discretion.
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f. Reasonable notification of the time and place of any public
sale of the Collateral, or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be sent to Debtor and to any other person entitled to notice under the
UCC; provided, however, if any of the Collateral threatens to decline speedily
in value or is of the type customarily sold on a recognized market, Secured
Parties may sell or otherwise dispose of the Collateral without notification,
advertisement, or other notice of any kind. It is agreed that notice sent or
given not less than five (5) calendar days prior to the taking of the action to
which the notice relates is reasonable notification and notice.
g. Debtor shall remain liable for any deficiency remaining
after any sale or other disposition of the Collateral or any portion thereof.
h. All of the rights, powers, remedies and privileges of
Secured Parties in the event of default by Debtor, as provided under this
Agreement and under applicable law, including, but not limited to, the Uniform
Commercial Code, shall be cumulative and in addition one to the other, and in
addition to those rights, powers, remedies and privileges afforded Secured
Parties under the provisions of any other Loan Documents.
5. Notwithstanding anything contained in this Agreement to the
contrary, each of the Secured Parties hereby irrevocably appoints and authorizes
the Majority Secured Party, in its sole discretion, to take all actions or
exercise all powers that are granted to the Secured Parties herein. The Majority
Secured Party shall have the right, for the ratable benefit of all Secured
Parties, for the enforcement of this Agreement and the collection of the
Collateral, and may take all actions in connection therewith as it deems
desirable in its sole discretion, without any authorization from the other
Secured Parties. The other Secured Parties agree that they shall have no claim
against the Majority Secured Party with respect to any action taken or not taken
hereunder, or any loss resulting from such action or inaction, except for gross
negligence and willful misconduct of the Majority Secured Party. Under no
circumstance shall the Majority Secured Party be deemed a fiduciary to the other
Secured Parties with respect to this Agreement. For purposes of this Agreement,
the term "Majority Secured Party" shall mean the Secured Party or Secured
Parties, as the case may be, holding fifty-one percent (51%) or more of the sum
of the aggregate principal outstanding balance of the Notes.
6. No waiver of, or acquiescence in, any default shall operate as a
waiver of, or acquiescence in, any other default then existing or thereafter
occurring, whether or not such other default be of the same type as that waived
or acquiesced in. No delay or omission on the part of Secured Parties in
exercising any right, power, remedy or privilege hereunder or otherwise shall
operate as a waiver thereof, and no single or partial exercise by Secured
Parties of any right, power, remedy or privilege shall preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
7. All rights of Secured Parties in connection herewith shall be
subject to any and all subordination agreements, intercreditor agreements and
similar agreements executed by Secured Parties in connection herewith.
8. All rights in the Collateral granted to the Secured Parties
hereunder shall be proportionate to each Secured Party's ratable interest in the
total indebtedness of Debtor to the Secured Parties under the Notes.
9. For the purpose of enabling Secured Parties to exercise rights and
remedies under this Agreement at such time as Secured Parties shall be lawfully
entitled to exercise such rights and remedies and for no other purpose, Debtor
hereby grants to Secured Parties an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to Debtor) to use,
assign or sublicense any of the Collateral, now owned or hereafter acquired by
Debtor and wherever the same may be located, including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof. Until such time as Secured Parties are entitled to exercise
such rights and remedies Debtor is entitled to use the Collateral without
payment of royalty or other compensation to Secured Parties. Upon payment in
full of the indebtedness secured hereby, the license granted to the Secured
Parties hereunder shall terminate.
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10. This Agreement shall be governed by the laws of the State of
Connecticut, without regard to conflict of law principles.
11. Debtor shall neither assign its rights nor delegate the performance
of its duties hereunder without Secured Parties' prior written consent. Secured
Parties may assign their rights and delegate the performance of their duties
hereunder, and if Secured Parties do so, the assignee upon notifying Debtor
shall be entitled to the performance of all Debtor's duties and to all Secured
Parties' rights hereunder.
12. To the full extent Debtor may do so under applicable law, Debtor
agrees that Debtor will not at any time insist upon, plead, claim or take the
benefit or advantage of any law now or hereafter in force providing for any
appraisal or valuation, and Debtor, for Debtor, and for any and all persons ever
claiming any interest in the Collateral, to the extent permitted by law, hereby
WAIVES and RELEASES all rights of redemption, valuation, appraisal, and all
rights to receive notices of presentment, demand, protest, dishonor, default,
intention to mature or declare due the whole or any part of the secured
indebtedness, notice of election to mature or declare due the whole or any part
of the secured indebtedness, and all rights to a marshaling of the assets of
Debtor, including the Collateral.
13. MISCELLANEOUS.
a. All provisions herein shall inure to and become binding
upon the heirs, executors, administrators, successors, representatives,
receivers, trustees and assigns of the parties hereto.
b. Any notices required or allowed hereunder shall be in
writing and shall be deemed satisfactorily given when deposited in the United
States mail, postage prepaid, certified or registered mail, return receipt
requested, or forwarded by a nationally recognized overnight courier service
and, if to the Debtor, addressed to Debtor at the address set forth in Section
2(a) hereof, and if to a Secured Party, addressed to such Secured Party at the
address set forth on the signature pages hereto (or such other address as may be
specified in a written notice forwarded to the parties hereto as herein
specified).
c. This Agreement is intended by the parties as a final
expression of their agreement and is intended as a complete statement of the
terms herein stated. This Agreement may not be modified, amended or changed in
any manner, nor shall any waiver of any provision hereof be effective, except by
an instrument in writing signed by the party against whom enforcement of such
modification, amendment, change or waiver is sought.
d. If any term or provision of this Agreement, application
thereof to any person or circumstance, shall, to any extent, be invalid or
unenforceable, the remainder hereof, or the application of such term or
provision to persons or circumstances other than those to which it is invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law.
e. This Agreement may be executed in a number of identical
counterparts, each of which shall be deemed an original for all purposes and all
of which constitute, collectively, one agreement; but, in making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
f. DEBTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY
HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE
TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY
JURY ARISING FROM ANY SOURCE INCLUDING, BUT NOT LIMITED TO, THE CONSTITUTION OF
THE UNITED STATES OR ANY STATE THEREIN, COMMON LAW OR ANY
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APPLICABLE STATUTE OR REGULATIONS. DEBTOR ACKNOWLEDGES THAT IT IS KNOWINGLY AND
VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.
SIGNATURE PAGE FOLLOWS
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IN WITNESS THEREOF, this Agreement has been duly executed by the
parties as of the date and year first above written.
"DEBTOR"
CYBERGUARD CORPORATION
By:
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Name:
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Title:
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"SECURED PARTY"
By:
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Name:
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Title:
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Address:
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