SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
C U R R E N T R E P O R T
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 12, 1996
Date of Report (Date Of Earliest Event Reported)
CONCURRENT COMPUTER CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
Delaware
(State Or Other Jurisdiction Of Incorporation)
0-13150 04-2735766
(Commission File Number) (IRS Employer Identification No.)
2101 West Cypress Creek Road, Fort Lauderdale, Florida 33309
(Address Of Principal Executive Offices) (Zip Code)
(954) 974-1700
(Registrant's Telephone Number, including Area Code)
2 Crescent Place, Oceanport, New Jersey 07757
(Former Name Or Former Address, If Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 27, 1996, Concurrent Computer
Corporation ("Concurrent"), completed its acquisition of
the assets of the real-time computer business (the "Real-
Time Business") of CyberGuard Corporation ("CyberGuard")
(formerly known as Harris Computer Systems Corporation)
together with 683,178 shares of newly issued common stock
of CyberGuard (the "Purchased CyberGuard Shares")
pursuant to a Purchase and Sale Agreement, dated as of
March 26, 1996, as amended and restated on May 23, 1996
(the "Purchase and Sale Agreement"), by and between
Concurrent and CyberGuard, in exchange for (i) 10,000,000
newly issued shares of common stock of Concurrent, par
value $.01 per share (the "Concurrent Common Stock
Consideration"); (ii) convertible exchangeable preferred
stock of Concurrent (the "Concurrent Preferred Stock")
paying a 9% cumulative annual dividend quarterly in
arrears with a liquidation preference of $8,200,000; and
(iii) the assumption by Concurrent of certain liabilities
(the "Assumed Liabilities"). The sale of the Real-Time
Business and the Purchased CyberGuard Shares in exchange
for the Concurrent Common Stock Consideration, the
Concurrent Preferred Stock and the assumption by
Concurrent of the Assumed Liabilities is referred to
herein as the "Transaction." As part of the Transaction,
certain ancillary agreements were entered into by
Concurrent and CyberGuard upon the closing of the
Transaction, including a Share Holding Agreement which
contains certain standstill, governance, transfer and
registration provisions, and provisions relating to the
composition of the Board of Directors of CyberGuard and
Concurrent. The Transaction did not include certain
liabilities of CyberGuard or those assets and liabilities
held by CyberGuard in connection with the development,
manufacture and marketing of CyberGuard trusted systems
and network security products.
A copy of the Purchase and Sale Agreement is
incorporated by reference herein as an Exhibit to
Concurrent's Schedule 13D, dated July 8, 1996. The
foregoing description of the Transaction does not purport
to be complete and is qualified in its entirety by
reference to the Purchase and Sale Agreement.
Capitalized terms which are not otherwise defined herein
shall have the meaning set forth in the Purchase and Sale
Agreement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The financial statements of the Real-Time
Business are incorporated herein by reference to the
financial information concerning the Real-Time Business
set forth in the Joint Proxy Statement for the Special
Meetings of Stockholders of Concurrent and CyberGuard
(the "Joint Proxy Statement") held on June 26, 1996 which
was filed on May 23, 1996, copies of which financial
statements are attached as Exhibit 99.1 to this Form 8-K.
(b) Pro Forma Financial Information.
The pro forma financial information relating to
the Transaction is incorporated herein by reference to
the financial information concerning the Real-Time
Business set forth in the Joint Proxy Statement copies of
which financial information is attached as Exhibit 99.2
to this Form 8-K.
(c) The following exhibits are filed as part of
this Form 8-K:
Exhibit
Number Description Method of Filing
2.1 Purchase and Sale Agreement dated Incorporated by reference
March 26, 1996 as amended and to the Exhibits to
restated on May 23, 1996, between Concurrent's Schedule 13D,
Concurrent Computer Corporation dated July 8, 1996.
and CyberGuard Corporation
(formerly known as Harris
Computer Systems Corporation).
4.1 Certificate of Designation,
Preferences and Rights of Class B
Convertible Preferred Stock.
4.2 Share Holding Agreement dated June Incorporated by reference
27, 1996 between Concurrent and to the Exhibits to
Harris. Concurrent's Schedule 13D,
dated July 8, 1996.
4.3 Amendment, dated June 27, 1996, to
Rights Agreement, dated July 31,
1992.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP
99.1* Financial Statements of CyberGuard
Corporation
99.2 Unaudited Pro Forma Condensed
Consolidated Financial Statements
* Contains certain information concerning CyberGuard.
CyberGuard is subject to the informational requirements in
the Securities Exchange Act of 1934, as amended, and in
accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"), to which reference is made for detailed
financial and other information regarding CyberGuard. Such
reports, proxy statements, and other information can be
inspected and copied at the Commission's offices at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2551 and can be inspected and copied
at the National Association of Securities Dealers, Inc., 1735
K Street, N.W., Washington, D.C. 20006, on which the
CyberGuard Common Stock is listed. The Commission does not
approve or disapprove or pass upon the accuracy or the
adequacy of reports, proxy statements or other information
filed with it. Concurrent does not warrant the accuracy or
completeness of such reports, proxy statements, or other
information nor that there have not occurred events not yet
publicly disclosed by CyberGuard which would affect either the
accuracy or the completeness of the information concerning
CyberGuard included herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
CONCURRENT COMPUTER CORPORATION
Date: July 12, 1996
By: /s/ Daniel S. Dunleavy
Daniel S. Dunleavy
Vice President and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
2.1 Purchase and Sale Agreement dated Incorporated by reference
March 26, 1996 as amended and to the Exhibits to
restated on May 23, 1996, between Concurrent's Schedule 13D,
Concurrent Computer Corporation dated July 8, 1996.
("Concurrent") and CyberGuard
Corporation (formerly known as
Harris Computer Systems
Corporation).
4.1 Certificate of Designation,
Preferences and Rights of Class B
Convertible Preferred Stock.
4.2 Share Holding Agreement dated June Incorporated by reference
27, 1996 between Concurrent and to the Exhibits to
Harris. Concurrent's Schedule 13D,
dated July 8, 1996.
4.3 Amendment, dated June 27, 1996, to
Rights Agreement, dated July 31,
1992.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP
99.1* Financial Statements of CyberGuard
Corporation
99.2 Unaudited Pro Forma Condensed
Consolidated Financial Statements
* Contains certain information concerning CyberGuard.
CyberGuard is subject to the informational requirements in
the Securities Exchange Act of 1934, as amended, and in
accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"), to which reference is made for detailed
financial and other information regarding CyberGuard. Such
reports, proxy statements, and other information can be
inspected and copied at the Commission's offices at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2551 and can be inspected and copied
at the National Association of Securities Dealers, Inc., 1735
K Street, N.W., Washington, D.C. 20006, on which the
CyberGuard Common Stock is listed. The Commission does not
approve or disapprove or pass upon the accuracy or the
adequacy of reports, proxy statements or other information
filed with it. Concurrent does not warrant the accuracy or
completeness of such reports, proxy statements, or other
information nor that there have not occurred events not yet
publicly disclosed by CyberGuard which would affect either the
accuracy or the completeness of the information concerning
CyberGuard included herein.
EXHIBIT 4.1
DESIGNATION, PREFERENCES AND RIGHTS OF CLASS B
CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND NUMBER OF SHARES. The
designation of such series shall be 9.00% Class B
Convertible Preferred Stock (the "Convertible Preferred
Stock"), and the number of shares constituting such
series initially shall be 1,000,000.
2. PAR VALUE; PREEMPTIVE RIGHTS. As provided
in Article Fourth of the Corporation's Restated
Certificate of Incorporation, the Convertible Preferred
Stock shall have a par value of $.01 per share. Holders
of Convertible Preferred Stock shall not be entitled to
any preemptive rights to acquire shares of any class or
series of capital stock of the Corporation.
3. RANK. The Convertible Preferred Stock
shall rank, with respect to rights to receive dividends
and rights to receive distributions upon the liquidation,
winding up or dissolution of the Corporation (whether
voluntary or involuntary): (a) senior to the
Corporation's Common Stock, par value $.01 per share (the
"Common Stock"), and senior to any class or series of
capital stock, including any preferred stock, issued by
the Corporation, other than the Class A Preferred Stock
(the "Junior Stock"), and (b) on a parity with the Class
A Preferred Stock (the "Parity Stock").
4. DIVIDENDS AND DISTRIBUTIONS; METHOD OF
PAYMENT. (a) The holders of shares of Convertible
Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds
legally available for such purpose, dividends at the rate
per annum of 9.00% of the Liquidation Preference (as
defined in Section 8 hereof) of such shares. Such
dividends shall be fully cumulative, shall accumulate
from the date of original issuance of the Convertible
Preferred Stock, and shall be payable quarterly in
arrears in cash on each September 30, December 31, March
31 and June 30, commencing September 30, 1996 (provided,
that if any such date is not a Business Day, then such
dividend shall be payable without interest on the next
succeeding Business Day), to holders of record as they
appear on the stock books of the Corporation on such
record dates as shall be fixed by the Board of Directors.
Such record dates shall be not more than 60 nor less than
10 days preceding the respective dividend payment dates.
The amount of dividends payable per share of Convertible
Preferred Stock for each full quarterly dividend period
shall be computed by dividing the annual dividend amount
by four. The amount of dividends payable for the initial
dividend period and for any other period shorter than a
full quarterly dividend period shall be computed on the
basis of a 360-day year of twelve 30-day months.
Dividends on account of arrears for any past
dividend periods may be declared and paid at any time,
without reference to any regular dividend payment date,
to holders of record of Convertible Preferred Stock on
such date, not exceeding 45 days preceding the payment
date thereof, as may be fixed in advance by the Board of
Directors.
Dividends shall not be paid or declared and set
apart for payment on any Parity Stock for any period
unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for
payment on the Convertible Preferred Stock for all
dividend periods terminating on or prior to the date of
payment of such full cumulative dividends. Dividends
shall not be paid or declared and set apart for payment
on the Convertible Preferred Stock for any period unless
full cumulative dividends have been, or contemporaneously
are, paid or declared and set apart for payment on any
Parity Stock for all dividend periods terminating on or
prior to the date of payment of such full cumulative
dividends. When dividends are not paid in full upon the
Convertible Preferred Stock and any Parity Stock, the
Corporation may make dividend payments on account of
arrears on the Convertible Preferred Stock or any such
Parity Stock, provided that the Corporation shall make
such payments ratably upon all outstanding shares of
Convertible Preferred Stock and such Parity Stock in
proportion to the respective amounts of dividends in
arrears upon all such outstanding shares of Convertible
Preferred Stock and Parity Stock to the date of such
dividend payment.
So long as any Convertible Preferred Stock
shall be outstanding, the Corporation shall not declare
or pay any dividends on the Common Stock or any other
Junior Stock, or make any payment on account of, or set
apart money for, a sinking fund or other similar fund or
agreement for the purchase, redemption or other
retirement of any shares of Junior Stock, or make any
distribution in respect thereof, whether in cash or
property or in obligations or stock of the Corporation,
other than (A) the Rights (as defined in Section 13
hereof) and (B) a distribution consisting solely of
Junior Stock (such dividends, payments, setting apart and
distributions being herein called "Junior Stock
Payments"), unless the following conditions shall be
satisfied at the date of such declaration in the case of
any such dividend, or the date of such setting apart in
the case of any such fund, or the date of such payment or
distribution in the case of any other Junior Stock
Payment:
(i) full cumulative dividends shall have been
paid or declared and set apart for payment
on all outstanding shares of Convertible
Preferred Stock through the last quarterly
dividend payment date established pursuant
to this Section 4(a) that immediately
precedes such dividend, setting apart,
payment or distribution; and
(ii) the Corporation shall not be in default or
in arrears with respect to any redemption
(whether optional or mandatory) of any shares
of Convertible Preferred Stock.
Holders of shares of Convertible Preferred
Stock shall not be entitled to any dividend in excess of
full cumulative dividends on such shares. No interest,
or sum of money in lieu of interest, shall be payable in
respect of any dividend payment that is in arrears.
(a) The Corporation may pay dividends pursuant to
this Section 4 and any redemption payments pursuant to
Sections 5 and 6 hereof to holders of record of
Convertible Preferred Stock by checks payable to such
holders in money of the United States.
5. REDEMPTION AT OPTION OF THE CORPORATION.
Whenever the Current Market Price (as defined in Section
13) exceeds $3.75 (the "Triggering Price"), as such price
may be adjusted pursuant to Section 9(e) hereof, prior
to the date of any notice of redemption, the Corporation
may, at its option, redeem all or a portion of the shares
of Convertible Preferred Stock, at any time or from time
to time, at a price per share equal to the Liquidation
Preference. The Corporation's right to redeem pursuant
to this provision is subject to the payment of all
accrued and accumulated but unpaid dividends, whether or
not declared, without interest, to the Redemption Date
(as defined below) on the shares to be redeemed; and
dividends on the shares to be redeemed will cease to
accrue on the Redemption Date.
Notice of any redemption pursuant to this
Section 5 shall be given by the Corporation by first
class mail, postage prepaid, not more than 30 days after
the end of the period during which the applicable Current
Market Price is determined and not less than 30 or more
than 90 days prior to the date fixed for redemption (the
"Redemption Date"), to each holder of record of the
shares to be redeemed, at such holder's address as shown
on the stock register of the Corporation. Each such
notice shall state: (a) the Redemption Date; (b) the
number of shares of Convertible Preferred Stock to be
redeemed and, if less than all such shares held by such
holder are to be redeemed, the number of such shares to
be redeemed from such holder; (c) the Redemption Price;
(d) the place or places where certificates for such
shares are to be surrendered for payment of the
Redemption Price; (e) the then effective Conversion Price
(as defined in Section 9(a) hereof); (f) that the right
of holders of Convertible Preferred Stock called for
redemption to exercise their conversion rights pursuant
to Section 9 hereof shall cease and terminate as to such
shares at the close of business on the Redemption Date
(provided that there is no default in payment of the
Redemption Price); (g) that payment of the Redemption
Price will be made upon presentation and surrender of
certificates representing the shares of Convertible
Preferred Stock called for redemption; (h) that, in
accordance with the second sentence of the first
paragraph of this Section 5, accumulated but unpaid
dividends to the Redemption Date on the shares to be
redeemed will be paid on the Redemption Date; and (i)
that dividends on the shares to be redeemed will cease to
accrue on the Redemption Date. If a notice is mailed to
a holder in the manner provided above within the time
prescribed, it is duly given with respect to such holder.
Notice having been mailed as aforesaid, from and after
the Redemption Date (unless default shall be made by the
Corporation in providing money for the payment of the
Redemption Price) dividends on the shares of Convertible
Preferred Stock so called for redemption shall cease to
accrue, and such shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as
shareholders of the Corporation by virtue of the
ownership of such shares (except the right to receive
from the Corporation the Redemption Price without
interest) shall cease. Upon surrender in accordance with
such notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the notice
shall so state), the Corporation shall redeem such shares
at the Redemption Price.
If less than all the then outstanding shares of
Convertible Preferred Stock are to be redeemed, the
Corporation shall effect such redemption pro rata (as
nearly as practicable) among all holders of Convertible
Preferred Stock. If fewer than all the shares
represented by a surrendered certificate or certificates
are redeemed, the Corporation shall issue a new
certificate representing the unredeemed shares.
Notwithstanding the foregoing, the Corporation shall not
redeem less than all the outstanding shares of
Convertible Preferred Stock pursuant to this Section 5,
or purchase or acquire any shares of Convertible
Preferred Stock otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of
shares of Convertible Preferred Stock, unless full
cumulative dividends shall have been paid upon all
outstanding shares of Convertible Preferred Stock for all
past dividend periods.
6. MANDATORY REDEMPTION. On June 1, 2006 (the
"Mandatory Redemption Date"), the Corporation shall
redeem all of the Convertible Preferred Stock then
outstanding at the Liquidation Preference. Accrued and
accumulated but unpaid dividends, whether or not
declared, without interest, to the Mandatory Redemption
Date will be paid on the Mandatory Redemption Date and on
and after the Mandatory Redemption Date, dividends will
cease to accumulate on the Convertible Preferred Stock.
Notice of such redemption shall be given by the
Corporation by first class mail, postage prepaid, not
less than 30 or more than 90 days prior to the Mandatory
Redemption Date, to each holder of record of the shares
to be redeemed, at such holder's address as shown on the
stock register of the Corporation. Each such notice
shall state: (a) the Mandatory Redemption Date; (b) the
Redemption Price; (c) the place or places where
certificates for such shares are to be surrendered for
payment of the Redemption Price; (d) the then effective
Conversion Price; (e) that the right of holders of
Convertible Preferred Stock to exercise their conversion
rights pursuant to Section 9 hereof shall cease and
terminate at the close of business on the Mandatory
Redemption Date (provided that there is no default in
payment of the Redemption Price); (f) that payment of the
Redemption Price will be made upon presentation and
surrender of certificates representing the shares of
Convertible Preferred Stock; (g) that, in accordance with
the second sentence of the first paragraph of this
Section 6, accumulated but unpaid dividends to the
Mandatory Redemption Date will be paid on the Mandatory
Redemption Date; and (h) that on and after the Mandatory
Redemption Date, dividends will cease to accumulate on
the Convertible Preferred Stock. If a notice is mailed
to a holder in the manner provided above within the time
prescribed, it is duly given with respect to such holder.
On or after the Mandatory Redemption Date, each
holder of the shares of outstanding Convertible Preferred
Stock (other than shares which have been duly surrendered
for conversion at or before the close of business on the
Mandatory Redemption Date) shall surrender the
certificate or certificates evidencing such shares to the
Corporation at the place designated in the redemption
notice and shall thereupon be entitled to receive payment
of the Redemption Price. If, on the Mandatory Redemption
Date, funds necessary for the redemption shall be
available therefor and shall have been irrevocably
deposited or set aside, then, notwithstanding that the
certificates evidencing any shares to be redeemed shall
not have been surrendered, the dividends with respect to
such shares shall cease to accumulate on and after the
Mandatory Redemption Date, such shares shall no longer be
deemed to be outstanding, the holders thereof shall cease
to be shareholders of the Corporation by virtue of the
ownership of such shares, and all rights whatsoever with
respect to such shares (except the right of the holders
thereof to receive the Redemption Price without interest
upon surrender of their certificates) shall terminate.
7. VOTING.
(a) No General Voting Rights. Except as
otherwise provided from time to time by the laws of
Delaware or this Corporation's Restated Certificate of
Incorporation, the entire voting power for the election
of directors of the Corporation and for all other
purposes shall be vested in the holders of Common Stock
which shall vote as a single class, with the holder of
each share of Common Stock being entitled to one vote in
respect of such shares.
(b) Other Voting Rights. Without the consent
or affirmative vote of the holders of a majority of the
outstanding shares of Convertible Preferred Stock, voting
separately as a class to the exclusion of holders of any
other shares of capital stock of the Corporation (either
in writing without a meeting, if permitted by the
Certificate of Incorporation and applicable law, or by
vote at any meeting called for that purpose), the
Corporation may not amend, alter or repeal (by any means
whatsoever, including, without limitation, by merger or
consolidation any provision of the Certificate of
Incorporation, any amendment or supplement thereto or
this Certificate of Designations (or any similar document
relating to any series or class of preferred stock of the
Corporation), if such action would (a) increase or
decrease the aggregate number of authorized shares of
Convertible Preferred Stock, (b) increase or decrease the
par value of such shares or (c) amend, alter, repeal or
change the powers, rights, privileges or preferences of
the holders of shares of Convertible Preferred Stock so
as to affect them adversely, provided, however, that the
creation, issuance or increase in the amount of
authorized shares of any series of Junior Stock will not
be deemed to adversely affect such powers, rights,
privileges or preferences of the Convertible Preferred
Stock.
For purposes of the foregoing provisions of
this Section 7, each share of Convertible Preferred Stock
shall have one vote per share. The foregoing provisions
of this Section 7 shall not apply if, at or prior to the
time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding
shares of Convertible Preferred Stock shall have been
redeemed or called for redemption and sufficient funds
shall have been irrevocably deposited in trust to effect
such redemption and all other steps necessary or
desirable to effect such redemption shall have been
taken.
8. LIQUIDATION PREFERENCE. (i) In the event
of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the
holders of Convertible Preferred Stock shall be entitled
to receive out of the assets of the Corporation available
for distribution to shareholders, before any distribution
of assets shall be made to the holders of the Common
Stock or of any other shares of Junior Stock, a
liquidating distribution in the total amount of
$8,200,000 (the "Total Liquidation Preference") or an
amount equal to $8.20 per share (the "Liquidation
Preference") plus an amount equal to any accrued and
accumulated but unpaid dividends thereon to the date of
final distribution to such holders, whether or not
declared, without interest; provided, however, if in
accordance with the provisions of the Purchase and Sale
Agreement, dated as of March 26, 1996, as amended and
restated on May 23, 1996, between the Corporation and
Harris Computer Systems Corporation (the "Purchase and
Sale Agreement") the amount of the net current assets
(the "Net Assets")shown on the Final Net Current Asset
Reconciliation (as defined in the Purchase and Sale
Agreement)(such amount shown, the "Actual Net Asset
Amount") is less than $12,600,000 (such lesser amount,
the "Applicable Amount"), then the Total Liquidation
Preference shall be adjusted by reducing it, dollar for
dollar, to the extent of the difference (the
"Difference") between the Actual Net Asset Amount and the
Applicable Amount. The Liquidation Preference shall then
be reduced by the amount (rounded to the nearest $0.01)
determined by dividing the Difference by the number of
issued and outstanding shares of Convertible Preferred
Stock as of the date of the Final Net Current Asset
Reconciliation or, if later, the date any Reconciliation
Disagreement (as defined in the Purchase and Sale
Agreement) is resolved. Alternatively, if the amount of
the Net Assets shown on the Final Net Current Asset
Reconciliation after resolution of all reconciliation
Disagreements (as defined in the Purchase and Sale
Agreement) is in excess of the Net Assets shown on the
Projected Net Current Asset Reconciliation (as defined in
the Purchase and Sale Agreement), then the Total
Liquidation Preference shall be increased, dollar for
dollar, to the extent of such excess up to $10,000,000
(such excess up to $10,000,000, the "Excess"). The
Liquidation Preference shall then be increased by the
amount (rounded to the nearest $0.01) determined by
dividing the Excess by the number of issued and
outstanding shares of Convertible Preferred Stock as of
the date of the Final Net Current Asset Reconciliation
or, if later, the date any Reconciliation Disagreement is
resolved.
(ii) The Total Liquidation Preference
shall also be further reduced to the extent that the
parties to the Purchase and Sale Agreement or a court of
competent jurisdiction determines (which determination by
such court shall be final and nonappealable) that any
Asset (as defined in the Purchase and Sale Agreement)
required to be transferred by the Purchase and Sale
Agreement was not in fact transferred, such reduction
(the "Net Asset Reduction") to be equal to the book value
of such Asset on the Final Net Current Asset
Reconciliation or with respect to non-current assets the
Audited Balance Sheet (as defined in the Purchase and
Sale Agreement) less any cash paid to the Corporation in
respect thereof. The Liquidation Preference shall then
be reduced by the amount (rounded to the $0.01)
determined by dividing the Net Asset Reduction by the
number of issued and outstanding shares of Convertible
Preferred Stock as of the date the amount of the Net
Asset Reduction is determined. In addition, in
accordance with the terms of the Purchase and Sale
Agreement, the Total Liquidation Preference shall be
further reduced by the amount of any Damages (as defined
in the Purchase and Sale Agreement), less any cash paid
to the Corporation in respect thereof (the "Net
Damages"), incurred by the Corporation and its
Representatives (as defined in the Purchase and Sale
Agreement) as a result of a wilful breach by Harris of a
representation or warranty contained in the Purchase and
Sale Agreement. The Liquidation Preference shall then be
reduced by the amount (rounded to the nearest dollar)
determined by dividing the Net Damages by the number of
issued and outstanding shares of Convertible Preferred
Stock as of the date the total amount of the Net Damages
is determined.
If, upon any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation, the assets available for distribution are
insufficient to pay in full the amounts payable with
respect to the Convertible Preferred Stock and any other
outstanding shares of Parity Stock, the holders of the
Convertible Preferred Stock and of such other Parity
Stock shall share ratably in any distribution of assets
of the Corporation in proportion to the full respective
preferential amounts to which they are entitled.
After payment to the holders of the Convertible
Preferred Stock of the full preferential amounts provided
for in this Section 8, the holders of the Convertible
Preferred Stock shall not be entitled to any further
participation in any distribution of assets by the
Corporation.
For purposes of this Section 8, neither a
consolidation or merger of the Corporation with or into
another person nor a sale or transfer of all or
substantially all of the assets of the Corporation will
be deemed a liquidation, dissolution or winding up of the
Corporation.
9. CONVERSION AND EXCHANGE RIGHTS.
(a) General Rights to Convert. Each holder of
a share of Convertible Preferred Stock shall have the
right, at the option of such holder, at any time to
convert, upon the terms and provisions of this Section 9,
one or more shares of Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock of
the Corporation (and such other securities and property
as such holder may be entitled to as hereinafter
provided). Such conversion of shares of Convertible
Preferred Stock to shares of Common Stock shall be made
at a conversion rate of one share of Convertible
Preferred Stock for a number of shares of Common Stock
equal to (x) the Liquidation Preference divided by (y)
the conversion price applicable per share of Common Stock
at the time of conversion (the "Conversion Price"). The
Conversion Price shall initially be $2.50. The
Conversion Price shall be adjusted in certain instances
as provided below.
An amount in cash equal to the full cumulative
dividends accrued and accumulated but unpaid, whether or
not declared and without interest, on such shares of
Convertible Preferred Stock shall be paid on the
effective date of the conversion through the last
quarterly payment date that immediately precedes the
effective date of the conversion.
(b) Mechanics of Conversion. In order to
convert shares of Convertible Preferred Stock into Common
Stock, the holder or holders thereof shall surrender the
certificate or certificates evidencing such shares of
Convertible Preferred Stock at the office of the transfer
agent for the Convertible Preferred Stock (or if there is
no such transfer agent, to the secretary of the
Corporation), which certificate or certificates shall be
duly endorsed to the Corporation or in blank, or
accompanied by proper instruments of transfer,
accompanied by (i) a written notice to the Corporation
that the holder elects so to convert all or a specified
number of such shares of Convertible Preferred Stock and
specifying the name or names (with address or addresses)
in which a certificate or certificates evidencing shares
of Common Stock are to be issued and (ii) if required
pursuant to Section 9(j) hereof, an amount sufficient to
pay any transfer or similar tax (or evidence reasonably
satisfactory to the Corporation demonstrating that such
taxes have been paid). If more than one share of
Convertible Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of
full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate
number of shares of Convertible Preferred Stock so
surrendered.
Shares of Convertible Preferred Stock shall be
deemed to have been converted immediately prior to the
close of business on the day of the surrender of such
shares for conversion in accordance with the foregoing
provisions, and the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders
of such Common Stock at such time. As promptly as
practicable on or after the surrender of a certificate or
certificates for conversion and the receipt of the notice
relating thereto (and in any event within five Business
Days thereafter), the Corporation shall deliver or cause
to be delivered to the person or persons entitled to
receive the same: (i) a certificate or certificates for
the number of full shares of Common Stock issuable upon
such conversion; (ii) any cash owed in lieu of any
fraction of a share, determined in accordance with
Section 9(i) hereof; (iii) if less than the full number
of shares of Convertible Preferred Stock evidenced by the
surrendered certificate or certificates is being
converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number
of shares being converted; and (iv) subject to the
provisions of the second paragraph of Section 9(a), an
amount in cash equal to the full cumulative dividends
accrued but unpaid on such shares of Convertible
Preferred Stock through the last quarterly dividend
payment date established pursuant to Section 4 hereof
that immediately precedes the effective date of
conversion. If for any reason the Corporation is unable
to pay any accrued dividends on the Convertible Preferred
Stock being converted, the Corporation will pay such
dividends to the converting holder as soon thereafter as
funds of the Corporation are legally available for such
payment and may be paid under applicable credit
agreements with interest thereon, accruing at a rate of
9.00% per annum. At the request of any such converting
holder, the Corporation shall deliver to such holder a
due bill or other appropriate instrument evidencing the
Corporation's obligation to such holder. A payment or
adjustment shall not be made by the Corporation upon any
conversion on account of any dividends on the Common
Stock issued upon conversion.
(c) Rights to Exchange. (i) Corporation may,
at its option, cause shares of Convertible Preferred
Stock, as a whole or in part, at any time and from time
to time, to be exchanged for debentures of the
Corporation having the terms set forth in Exhibit B to
the Purchase and Sale Agreement (the "Debentures"). Such
exchange of shares of Convertible Preferred Stock for the
Debentures pursuant to this Section 9(c)(i) shall be made
at an exchange rate of Debentures in the principal amount
equal to the Liquidation Preference.
On the effective date of the exchange pursuant
to this Section 9(c)(i), the Corporation shall pay
holders of Convertible Preferred Stock to be exchanged an
amount in cash equal to the full cumulative dividends
accrued and accumulated but unpaid, whether or not
declared and without interest, on such shares of
Convertible Preferred Stock through the last quarterly
dividend payment date that immediately precedes the
effective date of the exchange.
(ii) Each holder of shares of Convertible
Preferred Stock shall have the right at any time after
September 1, 1998 upon the terms and conditions set forth
in this Section 9(c)(ii), at the option of such holder,
whenever dividends due for four quarterly periods have
not been paid, to exchange such shares of Convertible
Preferred Stock, as a whole or in part, for Debentures.
Such exchange of shares of Convertible Stock for the
Debentures shall be of an Exchange Rate of Debentures in
the principal amount equal to the Liquidation Preference
plus all dividends which are accrued and accumulated but
unpaid, whether or not declared and without interest up
to the calendar quarter immediately preceding the
calendar quarter in which the date of conversion occurs.
(d) Mechanics of the Exchange. In connection
with the exchange shares of Convertible Preferred Stock
for the Debentures, the holder or holders thereof shall
surrender the certificate or certificates evidencing such
shares of Convertible Preferred Stock at the office of
the transfer agent (or the secretary of the Corporation
if there is no such transfer agent) for the Convertible
Preferred Stock, which certificate or certificates shall
be duly endorsed to the Corporation or in blank, or
accompanied by proper instruments of transfer,
accompanied by (i) a written notice to the Corporation
that the holder shall thereby exchange all or the number
specified by the Corporation and specifying the name or
names (with address or addresses) in which a certificate
or certificates evidencing the Debentures are to be
issued and (ii) if required pursuant to Section 9(i)
hereof, an amount sufficient to pay any transfer or
similar tax (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been
paid). When more than one share of Convertible Preferred
Stock is to be surrendered for exchange at one time by
the same holder, the principal amount of the Debentures
issuable upon exchange thereof shall be computed on the
basis of the aggregate number of shares of Convertible
Preferred Stock so surrendered.
Shares of Convertible Preferred Stock shall be
deemed to have been exchanged immediately prior to the
close of business on the day of the surrender of such
shares for exchange in accordance with the foregoing
provisions, and the person or persons entitled to receive
the Debentures issuable upon such exchange shall be
treated for all purposes as the record holder or holders
of such Debentures at such time. As promptly as
practicable on or after the surrender of a certificate or
certificates for exchange and the receipt of the notice
relating thereto (and in any event within five Business
Days thereafter), the Corporation shall deliver or cause
to be delivered to the person or persons entitled to
receive the same: (i) a certificate or certificates for
the principal amount of the Debentures issuable upon such
conversion; (ii) any cash owed in lieu of any fraction of
a Debenture in accordance with Section 9(j) hereof; (iii)
if less than the full number of shares of Convertible
Preferred Stock evidenced by the surrendered certificate
or certificates is being exchanged, a new certificate or
certificates, of like tenor, for the number of shares
evidenced by such surrendered certificate or certificates
less the number of shares being exchanged; and (iv) if
exchanged pursuant to Section 9(c)(i), subject to the
provisions of the second paragraph of Section 9(c)(i), an
amount in cash equal to the full cumulative dividends
accrued but unpaid on such shares of Convertible
Preferred Stock through the last quarterly dividend
payment date established pursuant to Section 4 hereof
that immediately precedes the effective date of exchange.
If for any reason the Corporation is unable to pay any
accrued dividends on the Convertible Preferred Stock
being exchanged pursuant to Section 9(c)(i), the
Corporation will pay such dividends to the converting
holder as soon thereafter as funds of the Corporation are
legally available for such payment and may be paid under
applicable credit agreements with interest thereon,
accruing at a rate of 9.00% per annum. At the request of
any such holder converting pursuant to Section 9(c)(i),
the Corporation shall deliver to such holder a due bill
or other appropriate instrument evidencing the
Corporation's obligation to such holder.
(e) Adjustments to Conversion Price and the
Triggering Price. The Conversion Price and Triggering
Price shall be adjusted from time to time as follows:
(i) In case the Corporation shall pay or
make a dividend or other distribution on any
class of capital stock of the Corporation in
Common Stock, the Conversion Price and
Triggering Price in effect at the close of
business on the date fixed for the
determination of shareholders entitled to
receive such dividend or other distribution
shall be reduced to a price determined by
multiplying such Conversion Price and
Triggering Price each by a fraction of which
the numerator shall be the number of shares of
Common Stock outstanding at the close of
business on the date fixed for such
determination and of which the denominator
shall be the sum of such number of shares and
the total number of shares constituting such
dividend or other distribution, such reduction
to become effective at the opening of business
on the day following the date fixed for such
determination. In the event that such dividend
or distribution is not so paid or made, the
Conversion Price and Triggering Price shall be
readjusted to be the Conversion Price and
Triggering Price which would then be in effect
if such date fixed for the determination of
shareholders entitled to receive such dividend
or other distribution had not been fixed.
(ii) In case the Corporation shall issue
rights or warrants to all holders of its
outstanding shares of Common Stock entitling
them to subscribe for or purchase shares of
Common Stock (or securities convertible into
(which for purposes of this paragraph (ii)
shall also mean exchangeable for) Common Stock)
at a price per share less than the Current
Market Price (as defined in Section 13 hereof)
of Common Stock on the date fixed for the
determination of shareholders entitled to
receive such rights or warrants, the Conversion
Price and Triggering Price in effect at the
close of business on the date fixed for such
determination shall be reduced to a price
determined by multiplying such Conversion Price
and Triggering Price each by a fraction of
which the numerator shall be the total number
of shares of Common Stock outstanding at the
close of business on the date fixed for such
determination plus the number of shares of
Common Stock which the aggregate of the
offering price of the total number of shares of
Common Stock so offered for subscription or
purchase (or the aggregate conversion price of
the convertible securities so offered) would
purchase at such Current Market Price and of
which the denominator shall be the number of
shares of Common Stock outstanding at the close
of business on the date fixed for such
determination plus the total number of
additional shares of Common Stock so offered
for subscription or purchase (or into which the
convertible securities so offered are
convertible), such reduction to become
effective at the opening of business on the day
following the date fixed for such
determination. To the extent that shares of
Common Stock are not delivered after the
expiration of such rights or warrants, the
Conversion Price and Triggering Price shall be
readjusted to the Conversion Price and
Triggering Price which would then be in effect
had the adjustments made upon the issuance of
such rights or warrants been made on the basis
of delivery of only the number of shares of
Common Stock actually delivered. In the event
that such rights or warrants are not so issued,
the Conversion Price and Triggering Price shall
be readjusted to be the Conversion Price and
Triggering Price which would then be in effect
if the date fixed for the determination of
shareholders entitled to receive such rights or
warrants had not been fixed.
(iii) In case outstanding shares of
Common Stock shall be subdivided into a greater
number of shares of Common Stock, the
Conversion Price and Triggering Price in effect
at the close of business on the date upon which
such subdivision becomes effective shall be
proportionately reduced, and, conversely, in
case outstanding shares of Common Stock shall
each be combined into a smaller number of
shares of Common Stock, the Conversion Price
and Triggering Price in effect at the close of
business on the date upon which such
combination becomes effective shall be
proportionately increased, such reduction or
increase, as the case may be, to become
effective at the opening of business on the day
following the date upon which such subdivision
or combination becomes effective.
(iv) Notwithstanding any other provision
of this Section 9, no adjustment in the
Conversion Price or Triggering Price shall be
required unless such adjustment would require
an increase or decrease of at least 1% in the
Conversion Price or Triggering Price, as the
case may be ; provided, however, that any
adjustments which by reason of this paragraph
(iv) are not required to be made shall be
carried forward and taken into account in
determining whether any subsequent adjustment
shall be required. Once the cumulative effect
of any such adjustments that are carried
forward would result in an increase or decrease
of at least 1% in the Conversion Price or
Triggering Price, then the Conversion Price or
Triggering Price shall be changed to reflect
all adjustments called for by this Section 9
and not previously made.
(v) Notwithstanding any other provision
of this Section 9, no adjustment to the
Conversion Price or Triggering Price shall
reduce the Conversion Price or Triggering Price
below the then par value per share of the
Common Stock, and any such purported adjustment
shall instead reduce the Conversion Price or
Triggering Price to such par value.
(vi) Whenever the Conversion Price or
Triggering Price is adjusted as provided
herein, the Corporation shall compute the
adjusted Conversion Price or Triggering Price
in accordance with this Section 9 and shall
prepare a certificate signed by the Treasurer
of the Corporation setting forth the adjusted
Conversion Price or Triggering Price and
showing in reasonable detail the facts upon
which such adjustment is based, and the
corporation shall mail a copy of such
certificate as soon as practicable to the
holders of record of the shares of Convertible
Preferred Stock.
(vii) In any case in which this Section 9
shall require that an adjustment shall become
effective on the day following a record date
for an event, the Corporation may defer until
the occurrence of such event (i) issuing to the
holder of any share of Convertible Preferred
Stock, if such share is converted after such
record date and before the occurrence of such
event, the additional Common Stock issuable
upon such conversion by reason of the
adjustment required by such event over and
above Common Stock issuable upon such
conversion before giving effect to such
adjustment and (ii) paying to such holders any
amount in cash in lieu of a fractional share of
Common Stock pursuant to paragraph (i) of this
Section 9; provided, that, upon request of any
such holder, the Corporation shall deliver to
such holder a due bill or other appropriate
instrument evidencing such holder's right to
receive such additional Common Stock and such
cash, upon the occurrence of the event
requiring such adjustment; and provided,
further, that the failure of such event to
occur shall relieve the Corporation of the
obligation to make an additional distribution
upon conversion by reason of the adjustment
required by the occurrence of such event.
(viii) The Corporation may make such
reductions in the Conversion Price, in addition
to those required by this Section 9, as the
Board of Directors considers to be advisable in
order that any event treated for Federal income
tax purposes as a dividend or distribution of
stock (or rights to acquire stock) shall not be
taxable to the recipients. The Corporation at
any time or from time to time, as permitted by
applicable law and to the extent the Board of
Directors determines that such reduction would
be in the best interests of the Corporation,
may reduce the Conversion Price by any amount
for any period of time, if the period is at
least twenty (20) days and if the reduction is
irrevocable during the period.
(ix) Whenever the Conversion Price is reduced
by the Corporation pursuant to paragraph (viii) of
this Section 9(e), the Corporation shall mail to
holders of the Convertible Preferred Stock a notice
of the reduction. The Corporation shall mail such
notice by first class mail, postage prepaid, at
least fifteen (15) days before the date the reduced
Conversion Price takes effect, to each holder of
record of shares of Convertible Preferred Stock at
such holder's address as shown on the stock register
of the Corporation. The notice shall state the
reduced Conversion Price and the period it will be
in effect. If a notice is mailed to a holder in the
manner provided above within the time prescribed, it
is duly given with respect to such holder.
(f) Reclassification, Consolidation, Merger or
Sale of Assets. In the event that the Corporation shall
be a party to any transaction (including without
limitation any (i) recapitalization or reclassification
of the Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination
of the Common Stock), (ii) any consolidation or merger of
the Corporation with or into any other person or any
merger of another person into the Corporation (other than
a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding
shares of Common Stock of the Corporation), (iii) any
sale or transfer of all or substantially all of the
assets of the Corporation, or (iv) any compulsory share
exchange) pursuant to which the Common Stock shall be
exchanged for, converted into, acquired for or constitute
solely the right to receive other securities, cash or
other property, then appropriate provision shall be made
as part of the terms of such transaction whereby the
holder of each share of Convertible Preferred Stock then
outstanding shall thereafter have the right to convert
such share only into the kind and amount of securities,
cash and other property receivable upon such
recapitalization, reclassification, consolidation,
merger, sale, transfer or share exchange by a holder of
the number of shares of Common Stock into which such
share of Convertible Preferred Stock might have been
converted immediately prior to such transaction. The
Corporation or the person formed by such consolidation or
resulting from such merger or which acquired such assets
or which acquired the Corporation's shares, as the case
may be, shall make provisions in its certificate or
articles of incorporation or other constituent document
to establish such right. Such certificate or articles of
incorporation or other constituent document shall provide
for adjustments which, for events subsequent to the
effective date of such certificate or articles of
incorporation or other constituent document, shall be as
nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The above
provisions shall similarly apply to successive
transactions of the type described in this paragraph.
(g) Prior Notice of Certain Events. In case
at any time:
(i) the Corporation shall (1) declare any
dividend or any other distribution on its
Common Stock, other than (A) a dividend payable
solely in shares of Common Stock or (B) the
Rights or (2) declare or authorize a redemption
or repurchase of any of the then outstanding
shares of Common Stock or any other Junior
Stock; or
(ii) the Corporation shall authorize the
granting to all holders of Common Stock of
rights or warrants to subscribe for or purchase
any shares of stock of any class or of any
other rights or warrants; or
(iii) of any reclassification of Common
Stock (other than a subdivision or combination
of the outstanding Common Stock), or of any
consolidation or merger to which the
Corporation is a party and for which approval
of any shareholders of the Corporation shall be
required, or of the sale or transfer of all or
substantially all of the assets of the
Corporation or of any compulsory share exchange
whereby the Common Stock is converted into
other securities, cash or other property; or
(iv) of the voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation;
then, in any such case, the Corporation shall cause to be
mailed to the holders of record of the Convertible
Preferred Stock, at their last addresses as they shall
appear upon the stock transfer books of the Corporation,
at least twenty (20) days prior to the applicable record
date or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption,
repurchase or granting of rights or warrants or, if a
record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such
dividend, distribution, redemption, rights or warrants
are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer,
share exchange, liquidation, dissolution or winding up is
expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer,
share exchange, liquidation, dissolution or winding up.
No failure to mail such notice or any defect therein or
in the mailing thereof shall affect the validity of the
corporate action required to be specified in such notice.
(h) Reservation of Shares, etc. The
Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its
authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of shares of
Convertible Preferred Stock, the full number of shares of
Common Stock then deliverable upon the conversion of all
shares of Convertible Preferred Stock then outstanding.
If the Corporation shall issue any securities or make any
change in its capital structure which would change the
number of shares of Common Stock into which each share of
the Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time
also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for
conversion of the outstanding Convertible Preferred Stock
on the new basis.
If any Debentures or shares of Common Stock
required to be reserved for purposes of exchange or
conversion of the Convertible Preferred Stock hereunder
require registration with or approval of any governmental
authority under any Federal or State law before such
debentures or shares may be issued upon exchange or
conversion, the Corporation will in good faith and as
expeditiously as possible endeavor to cause such
debentures or shares to be duly registered or approved,
as the case may be. The Corporation will, in good faith
and as expeditiously as possible, endeavor, if permitted
by the rules of the applicable exchange or quotation
system, list and keep listed or quote and keep quoted on
the principal exchange or quotation system of its Common
Stock, as the case may be, upon official notice of
issuance or quotation, all Debentures or shares of Common
Stock issuable upon exchange or conversion of the
Convertible Preferred Stock.
(i) No Fractional Shares or Debentures. No
fractional shares or scrip representing fractional shares
of Common Stock shall be issued upon conversion of
Convertible Preferred Stock. Instead of any fraction of
a share which would otherwise be issuable upon conversion
of any shares of Convertible Preferred Stock, the
Corporation shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of
the Closing Price (as defined in Section 13 hereof) of a
share of Common Stock (or, if there is no such Closing
Price, the fair market value of a share of Common Stock,
as determined in good faith by the Board of Directors or
in any manner prescribed by the Board of Directors) at
the close of business on the Trading Day immediately
preceding the date of conversion.
The Debentures will be issued in denominations
of $1,000 and integral multiples thereof. No fractional
interests in the Debentures shall be issued upon exchange
of conversion of Convertible Preferred Stock. Instead of
any fraction of a Debenture which would otherwise be
issuable upon exchange of any shares of Convertible
Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal
to the same fraction of the Closing Price (as defined in
Section 13 hereof) of a Debenture in the principal amount
of $1,000 (or, if there is no such Closing Price, the
fair market value of a Debenture in such principal
amount, as determined in good faith by the Board of
Directors or in any manner prescribed by the Board of
Directors) at the close of business on the Trading Day
immediately preceding the date of exchange.
(j) Transfer Taxes, etc. The Corporation will
pay any and all taxes that may be payable in respect of
the issue or delivery of shares of Common Stock or
Debentures on conversion or exchange of shares of
Convertible Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common
Stock or Debentures in a name other than that in which
the shares of Convertible Preferred Stock so exchanged or
converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such
tax, or has established to the satisfaction of the
Corporation that such tax has been paid.
10. EXCHANGES. Certificates representing
shares of Convertible Preferred Stock shall be
exchangeable, at the option of the holder, for a new
certificate or certificates of the same or different
denominations representing in the aggregate the same
number of shares of Convertible Preferred Stock.
11. OUTSTANDING SHARES. For purposes of this
Certificate of Designations, all shares of Convertible
Preferred Stock shall be deemed outstanding except for
(a) shares of Convertible Preferred Stock held of record
or beneficially by the Corporation or any subsidiary of
the Corporation; (b) from the date of surrender of
certificates representing Convertible Preferred Stock for
conversion pursuant to Section 9 hereof, all shares of
Convertible Preferred Stock which have been converted
into Common Stock or other securities or property
pursuant to Section 9 hereof; and (c) from the date fixed
for redemption pursuant to Section 5 or 6 hereof, all
shares of Convertible Preferred Stock which have been
called for redemption, provided that funds necessary for
such redemption are available therefor and have been
irrevocably deposited or set aside for such purpose and
all other steps necessary to effect such redemption shall
have been taken.
12. STATUS OF CONVERTIBLE PREFERRED STOCK UPON
RETIREMENT. Shares of Convertible Preferred Stock which
are acquired or redeemed by the Corporation or converted
pursuant to Section 9 shall return to the status of
authorized and unissued shares of Preferred Stock of the
Corporation, without designation as to series. Upon the
acquisition or redemption by the Corporation or
conversion pursuant to Section 9 of all outstanding
shares of Convertible Preferred Stock, all provisions of
this Certificate of Designations shall cease to be of
further effect.
13. DEFINITIONS. For purposes of this
Certificate of Designation, the following terms shall
have the meanings indicated:
(a) "Board of Directors" shall mean the board
of directors of the Corporation or any committee
authorized by such board of directors to perform any of
its responsibilities with respect to the Convertible
Preferred Stock.
(b) "Business Day" shall mean any day other
than a Saturday, Sunday, or a day on which commercial
banks in the State of New York are authorized or required
by law or executive order to close or a day which is or
is declared a national or New York state holiday;
(c) "Closing Price" with respect to any
securities on any day shall mean the closing sale price
regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing
bid and asked prices, regular way, in each case on the
principal national securities exchange or quotation
system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange
or quotation system, the average of the closing bid and
asked prices of such security on the over-the-counter
market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similarly generally
accepted reporting service, or if not so available, in
such manner as furnished by any New York Stock Exchange
member firm selected from time to time by the Board of
Directors of the Corporation for that purpose or a price
determined in good faith by the Board.
(d) "Current Market Price" shall mean the
average of the daily Closing Prices per share of Common
Stock for the thirty consecutive Trading Days immediately
prior to the date in question.
(e) "fair market value" shall mean the amount
which a willing buyer would pay a willing seller in an
arm's length transaction.
(f) "full cumulative dividends" shall mean,
with respect to the Convertible Preferred Stock, or any
other capital stock of the Corporation, as of any date
the amount of accumulated, accrued and unpaid dividends
payable on such shares of Convertible Preferred Stock, or
other capital stock, as the case may be, whether or not
earned or declared and whether or not there shall be
funds legally available for the payment thereof.
(g) "record date" shall mean, with respect to
any dividend, distribution or other transaction or event
in which the holders of Common Stock have the right to
receive any cash, securities or other property or in
which the Common Stock (or other applicable security) is
exchanged or converted into any combination of cash,
securities or other property, the date fixed for
determination of shareholders entitled to receive such
cash, securities or other property (whether such date is
fixed by the Board of Directors or by statute, contract
or otherwise), and with respect to any subdivision or
combination of the Common Stock, the effective date of
such subdivision or combination.
(h) "Rights" shall mean the rights of the
Corporation that are issuable under the Corporation's
Rights Agreement, dated July 31, 1992 and as amended from
time to time, or rights to purchase any capital stock of
the Corporation under any successor stockholder rights
plan or plans adopted in replacement of the Corporations
Rights Agreement.
(i) "Trading Day" shall mean (x) if the
applicable security is quoted on the Nasdaq National
Market of The Nasdaq Stock Market, a day on which trades
may be made on such Nasdaq National Market or (y) if the
applicable security is listed or admitted for trading on
the New York Stock Exchange or another national
securities exchange, a day on which the New York Stock
Exchange or another national securities exchange is open
for business or (z) if the applicable security is not so
listed, admitted for trading or quoted, any day other
than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or
obligated by law or executive order to close.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Designations to be duly executed in its
corporate name this 27th day of June, 1996.
CONCURRENT COMPUTER CORPORATION
By: /s/ John T. Stihl
_____________________________
Name: John T. Stihl
Title: Chairman, President and
Chief Executive Officer
EXHIBIT 4.3
AMENDMENT TO RIGHTS AGREEMENT
Amendment (the "Amendment"), dated as of June
27, 1996, to the Rights Agreement, dated as of July 31,
1992 (the "Rights Agreement"), between Concurrent
Computer Corporation, a Delaware corporation (the
"Company"), and The First National Bank of Boston, a
national banking association (the "Rights Agent").
WITNESSETH
WHEREAS, no Distribution Date (as defined in
Section 3(a) of the Rights Agreement) has occurred as of
the date of this Amendment;
WHEREAS, the Company and Harris Computer
Systems Corporation ("Harris") have entered into a
Purchase and Sale Agreement dated March 26, 1996, as
amended and restated May 23, 1996 (the "Purchase and Sale
Agreement"), pursuant to which Harris shall receive
shares of capital stock of the Company as consideration
for the transactions contemplated therein;
WHEREAS, the Company and the Rights Agent
desire to amend the Rights Agreement to provide that the
consummation of the transactions contemplated by the
Purchase and Sale Agreement shall not cause Harris or its
subsidiaries or affiliates to be deemed Beneficial Owners
of such shares for purposes of being an "Acquiring
Person" and the consequent exercisability of the Rights;
WHEREAS, Section 26 of the Rights Agreement
permits the Company from time to time to supplement and
amend the Rights Agreement; and
WHEREAS, the Board of Directors of the Company
has approved and adopted this Amendment and directed that
the proper officers take all appropriate steps to execute
and put into effect this Amendment.
NOW, THEREFORE, the parties hereby agree as
follows:
1. Section 1(a) of the Rights Agreement is
hereby amended by deleting the word "and" between clause
(A) and clause (B) in the second sentence and is further
amended by inserting the following clause (C) after the
last word of the second sentence of Section 1(a) and
before the period at the end of such sentence:
"; and (C) neither Harris Computer
Systems Corporation ("Harris") nor
any Subsidiary of Harris shall be
deemed to be an Acquiring Person by
virtue of the fact that Harris is the
Beneficial Owner of Voting Capital
Stock as a result of the consummation
of the transactions contemplated by
the Purchase and Sale Agreement,
between Harris and the Company, dated
March 26, 1996, as amended May 23,
1996."
2. This Amendment shall be effective immediately
upon its execution and the Rights Agreement shall
continue in full force and effect as amended hereby.
3. This Amendment shall be limited solely to the
matters expressly set forth herein and shall not (i)
prejudice any right or rights which the Company may now
have or may have in the future under or in connection
with the Rights Agreement or any instruments or
agreements referred to therein or (ii) except to the
extent expressed as set forth herein, modify the Rights
Agreement or any instruments or agreements referred to
therein.
4. Capitalized terms used in this Amendment and
not defined herein shall have the meanings assigned
thereto in the Rights Agreement.
5. This Amendment may be executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and their respective
corporate seals to be hereunto affixed and attested, all
as of the day and year first above written.
CONCURRENT COMPUTER CORPORATION
ATTEST:
By: /s/ Kevin J. Dell
By /s/ David A. Jaffe Name: Kevin J. Dell
Title: Vice President,
General Counsel and
Secretary
THE FIRST NATIONAL BANK OF BOSTON
ATTEST:
By: /s/ Gordon C. Stevenson
By Name: Gordon C. Stevenson
Title: Administrative Manager
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
___________
We consent to the inclusion of our report dated November 3, 1995,
except as to the stock split noted in note 2, which is as of
March 18, 1996, and to note 15, which is as of July 3, 1996, with
respect to the consolidated balance sheets of Harris Computer
Systems Corporation and subsidiaries as of September 30, 1995 and
1994, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the year ended September 30,
1995 and the three months ended September 30, 1994, which appears in
the Form 8-K of Concurrent Computer Corporation dated July 12, 1996.
/s/ KPMG PEAT MARWICK L.L.P.
Miami, Florida
July 12, 1996
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
___________
We consent to the incorporation by reference in this Form 8-K of
our report dated July 13, 1994, with respect to the financial statements
of Harris Computer Systems Corporation included in the Joint Proxy
Statement for the Special Meetings of Stockholders of Concurrent and
CyberGuard filed with the Securities and Exchange Commission on May 23,
1996.
/s/ ERNST & YOUNG L.L.P.
Orlando, Florida
July 12, 1996
EXHIBIT 99.1*
* Financial Statements of CyberGuard Corporation. References in
Exhibit 99.1 to "Harris Computer Systems Corporation" or 'the
Company" refer to CyberGuard Corporation, a Florida corporation
("CyberGuard").
CyberGuard is subject to the informational requirements in the
Securities Exchange Act of 1934, as amended, and in accordance
therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"), to
which reference is made for detailed financial and other
information regarding CyberGuard. Such reports, proxy statements,
and other information can be inspected and copied at the
Commission's offices at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2551 and can be
inspected and copied at the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, on
which the CyberGuard Common Stock is listed. The Commission does
not approve or disapprove or pass upon the accuracy or the adequacy
of reports, proxy statements or other information filed with it.
Concurrent does not warrant the accuracy or completeness of such
reports, proxy statements, or other information nor that there have
not occurred events not yet publicly disclosed by CyberGuard which
would affect either the accuracy or the completeness of the
information concerning CyberGuard included herein.
HARRIS COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors Report........................................................... F-2
Report of Independent Certified Public Accountants.................................... F-3
Consolidated Balance Sheets -- as of September 30, 1995, 1994 and March 30, 1996
(unaudited)......................................................................... F-4
Consolidated Statements of Operations -- Year Ended September 30, 1995; and the three
months ended September 30, 1994, and the six months ending March 30, 1996 and March
31, 1995 (unaudited)................................................................ F-5
Consolidated Statements of Cash Flow -- Year Ended September 30, 1995; and the three
months ended September 30, 1994, and the six months ending March 30, 1996 and March
31, 1995 (unaudited)................................................................ F-6
Consolidated Statements of Shareholders' Equity....................................... F-7
Notes to Consolidated Financial Statements............................................ F-8
Consolidated Balance Sheet Information -- as of September 30, 1995.................... F-17
Consolidated Statement of Operations Information -- Year Ended September 30, 1995..... F-18
Notes to Consolidated Financial Information........................................... F-19
Combined Statements of Operations -- Year Ended June 30, 1994 and June 30, 1993....... F-20
Consolidated Statements of Cash Flows -- Year Ended June 30, 1994 and June 30, 1993... F-21
Notes to Financial Statements of Harris Computer Systems Business..................... F-22
</TABLE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Harris Computer Systems Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Harris
Computer Systems Corporation and subsidiaries as of September 30, 1995 and 1994,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year ended September 30, 1995 and the three months ended
September 30, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harris
Computer Systems Corporation and subsidiaries as of September 30, 1995 and 1994,
and the results of their operations and their cash flows for the year ended
September 30, 1995 and the three months ended September 30, 1994 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The combining information is
presented for purposes of additional analysis and is not a required part of the
basic consolidated financial statements. Such information has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as a
whole.
KPMG PEAT MARWICK LLP
November 3, 1995, except as to the
stock split noted in note 2, which is as
of March 18, 1996 and to note 15,
which is as of July 3, 1996
Miami, Florida
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Harris Corporation:
We have audited the accompanying combined statements of operations and cash
flows of the Harris Computer Systems Business for each of the two years in the
period June 30, 1994. These financial statements are the responsibility of the
Business' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined results of operations and cash flows of
Harris Computer Systems Business for the years ended June 30, 1994 and 1993 in
conformity with generally accepted accounting principles.
As discussed in Note E to the financial statements, effective July 1, 1993 the
Business changed its method of accounting for postretirement benefits other than
pensions.
Ernst & Young LLP
Orlando, Florida
July 13, 1994
HARRIS COMPUTER SYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 30,
1995 1994 1996
-------- ------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Cash and cash equivalents.................................. $8,265 $7,649 $1,307
Accounts and notes receivable, less allowance for
uncollectible accounts of $1,513 and $213 at September
30, 1995 and 1994, respectively (Note 11)................ 9,994 11,387 15,335
Due from Harris Corporation (Note 6)....................... -0- 6,369 --
Inventories (Note 8)....................................... 9,080 14,078 6,381
Prepaid expenses........................................... 530 1,529 660
-------- ------- --------
Total current assets.................................. 27,869 41,012 23,683
Machinery and equipment, net (Note 10)..................... 5,947 7,493 5,912
Capitalized computer software development costs, less
accumulated amortization of $6,870 and $5,565 at
September 30, 1995 and 1994, respectively (Note 4)....... 6,734 5,715 8,135
Other assets............................................... 881 709 822
-------- ------- --------
Total assets............................................... $41,431 $54,929 $38,552
======== ======= ========
Accounts payable........................................... 3,493 4,694 4,565
Deferred revenue........................................... 401 784 628
Accrued expenses (Note 9).................................. 5,441 6,492 4,219
-------- ------- --------
Total current liabilities............................. 9,335 11,970 9,412
Deferred income taxes (Note 7)............................. -- 166 --
-------- ------- --------
Total liabilities..................................... 9,335 12,136 9,412
Shareholders' equity (Note 12)
Common stock par value $0.01 authorized 20,000,000 shares;
issued and outstanding 5,911,437 shares at September 30,
1995 and 1994, and 5,996,143 shares at March 30, 1996.... 59 59 60
Additional paid in capital............................... 43,662 43,662 44,144
Accumulated deficit...................................... (11,088) -- (14,363)
Cumulative translation adjustment.......................... (537) (928) (701)
-------- ------- --------
Total shareholders' equity................................. 32,096 42,793 29,140
-------- ------- --------
Total liabilities and shareholders' equity................. $ 41,431 $54,929 $ 38,552
======== ======= ========
</TABLE>
See notes to the accompanying consolidated financial statements
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED ---------------------------
SEPTEMBER 30, SEPTEMBER 30, MARCH 30, MARCH 30,
1995 1994 1996 1995
------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales
Equipment.............................. $31,184 $4,242 $18,942 $20,848
Maintenance............................ 13,927 3,506 6,622 6,938
--------- --------- --------- ---------
45,111 7,748 25,564 27,786
Cost of sales
Equipment.............................. 18,550 3,443 10,051 9,711
Maintenance............................ 7,214 2,023 3,279 3,612
--------- --------- --------- ---------
25,764 5,466 13,330 13,323
Gross profit............................. 19,347 2,282 12,234 14,463
Operating expenses
Research and development............... 7,903 1,517 3,580 3,890
Selling, general and administrative.... 22,984 4,836 11,266 10,582
Restructuring (Note 6)................. -- 1,256 -- --
Transaction costs relating to spin off
(Note 6)............................ -- 2,500 820 --
--------- --------- --------- ---------
Total other operating expenses...... 30,887 10,109 15,666 14,472
--------- --------- --------- ---------
Operating loss........................... (11,540) (7,827) (3,432) (9)
Interest income (expense), net........... 456 (69) 155 207
Other income (expense), net.............. (4) (72) 2 25
--------- --------- --------- ---------
452 (141) 157 232
Net income (loss) before income tax
provision (benefit).................... (11,088) (7,968) (3,275) 223
Income tax provision (benefit)........... -- (378) -- 8
--------- --------- --------- ---------
Net income (loss)........................ (11,088) (7,590) (3,275) 215
Earnings (loss) per common share......... $(1.88) $(1.28) $(0.55) $0.04
========= ========= ========= =========
Weighted average number of shares
outstanding............................ 5,911,437 5,911,437 5,924,287 5,911,437
========= ========= ========= =========
</TABLE>
See notes to the accompanying consolidated financial statements
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED ---------------------------
SEPTEMBER 30, SEPTEMBER 30, MARCH 30, MARCH 30,
1995 1994 1996 1995
------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)...................... $ (11,088) $(7,590) $(3,275) $215
Adjustment to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation........................... 3,446 1,134 1,389 2,005
Amortization........................... 1,305 326 1,066 653
Compensation expense................... -- -- 321 --
Deferred income taxes.................. (166) (1,075) -- 1,414
Changes in assets and liabilities
Receivables......................... 1,393 12,333 (5,341) (6,351)
Due from Harris Corporation......... 6,369 (6,369) -- 6,386
Inventories......................... 4,998 (863) 2,699 1,893
Accounts payable.................... (1,201) 2,142 1,073 (822)
Accrued expenses.................... (1,051) 1,502 (1,222) (2,422)
Deferred revenue.................... (383) (344) 227 336
Prepaid expenses and other assets... 827 (510) -- --
Other............................... 391 257 (235) 596
-------- ------- ------- -------
Net cash provided (used) by operating
activities............................. 4,840 943 (3,298) 3,903
-------- ------- ------- -------
Cash flows from investing activities
Additions to machinery and equipment... (1,900) (1,151) (1,354) (1,281)
Software development costs.......... (2,324) (569) (2,467) (854)
-------- ------- ------- -------
Net cash used by investing activities.... (4,224) (1,720) (3,821) (2,135)
-------- ------- ------- -------
Cash flows from financing activities
Issuance of common stock............... -- -- 161 0
-------- ------- ------- -------
Net cash provided by financing
activities............................. -- -- 161 0
======== ======= ======= =======
Net increase (decrease) in cash and cash
equivalents............................ 616 (777) (6,958) 1,768
Cash and cash equivalents at beginning of
the period............................. 7,649 8,426 8,265 7,649
-------- ------- ------- -------
Cash and cash equivalents at end of the
period................................. $8,265 $7,649 $1,307 $9,417
======== ======= ======= =======
</TABLE>
See notes to the accompanying consolidated financial statements
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL CUMULATIVE NET
------------------ PAID IN ACCUMULATED TRANSLATION INVESTMENT
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT BY HARRIS TOTAL
--------- ------ ---------- ----------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1994............ -- -- -- -- (1,185) 51,311 50,126
Net loss to distribution
date (Note 1).................. -- -- -- -- -- (7,590) (7,590)
Issuance of common stock to
Harris Corporation's
shareholders................... 5,911,437 $ 59 43,662 -- -- (43,721) --
Translation adjustments.......... -- -- -- -- 257 -- 257
--------- --- ------- -------- ------- ------- --------
Balance September 30, 1994....... 5,911,437 $ 59 43,662 -- (928) -- 42,793
Net loss......................... -- -- -- (11,088) -- -- (11,088)
Translation adjustments.......... -- -- -- -- 391 -- 391
--------- --- ------- -------- ------- ------- --------
Balance September 30, 1995....... 5,911,437 $ 59 43,662 (11,088) (537) -- 32,096
Issuance of common stock
(unaudited).................... 84,706 1 482 -- -- -- 483
Net loss (unaudited)............. -- -- -- (3,275) -- -- (3,275)
Translation adjustments
(unaudited).................... -- -- -- -- (164) -- (164)
--------- --- ------- -------- ------- ------- --------
Balance March 30, 1996
(unaudited).................... 5,996,143 $ 60 44,144 (14,363) (701) -- 29,140
========= === ======= ======== ======= ======= ========
</TABLE>
See notes to the accompanying consolidated financial statements
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. ORGANIZATION OF THE COMPANY
Harris Computer Systems Corporation and Subsidiaries (the "Company") became
an independent company effective September 29, 1994 (the "Distribution Date")
when Harris Corporation ("Harris") spun off its Harris Computer Systems
Division. The Company develops real-time and multi-level secure computer
systems, solutions and software for commercial and government markets. One share
of the Company's common stock, together with the associated preferred stock
purchase rights (Note 12), was issued for every twenty shares of Harris common
stock, outstanding to shareholders of record on October 7, 1994. The terms of
the spin-off resulted in net assets of $43,721 being transferred from Harris to
the Company.
The Company sells products to Harris and its subsidiaries. Sales to these
operations were $439 for the year ended September 30, 1995; $644 for the three
months ended September 30, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements include those of
Harris Computer Systems Corporation and its wholly-owned subsidiaries. All
intercompany transactions between entities have been eliminated.
INVENTORIES -- Inventories are carried at the lower of cost, determined by
the First-In-First-Out (FIFO) method, or market.
MACHINERY AND EQUIPMENT -- Machinery and equipment is carried on the basis
of cost. Depreciation is computed by the straight-line method using the
estimated useful lives of the assets.
SOFTWARE DEVELOPMENT COSTS -- The Company capitalizes costs related to the
development of certain software products. Capitalization begins when
technological feasibility has been established and ends when the product is
available for general release to customers. Software development costs incurred
prior to technological feasibility are considered research and development costs
and are expensed as incurred. Capitalized costs are amortized as the greater of
the amount computed using the ratio that current gross revenues for a product
bear to the total current and anticipated future gross revenues for that product
or the straight-line method. Capitalized software costs are stated net of
accumulated amortization of $6,870 and $5,565 at September 30, 1995 and 1994,
respectively.
REVENUE RECOGNITION -- Revenue is recognized from sales when a product is
shipped, from rentals as they accrue, and from services and maintenance when
performed. Unearned income on service contracts is amortized by the
straight-line method over the term of the contracts. Revenue from long-term
software contracts is accounted for by the percentage of completion method
whereby income is recognized based on the estimated stage of completion of
individual contracts using costs incurred as a percentage of total estimated
costs at completion. Losses on long-term contracts are recognized in the period
in which such losses are determined.
FOREIGN CURRENCY TRANSLATION -- The assets and liabilities of the foreign
operations are translated using the local currency as the functional currency.
INCOME TAXES -- Prior to the Distribution Date, the Company followed the
liability method of accounting for income taxes and was included with its
parent, Harris Corporation, in a consolidated federal income tax return. Harris
required each of its companies to provide taxes on financial statement pre-tax
income or loss at applicable statutory tax rates. Amounts receivable or payable
for current and prior years' income taxes were treated as intercompany
transactions in accordance with Harris policy and, accordingly, flowed through
the net investment by Harris. Deferred income taxes resulting from temporary
differences
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
between the financial statements and the tax basis of assets and liabilities
were separately classified on the balance sheets.
For the periods after the Distribution Date, the Company files a
consolidated Federal income tax return. Certain items of revenue and expense are
reported for Federal income tax purposes in different periods than for financial
reporting purposes and are accounted for under the asset and liability method as
required by the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS No. 109").
FAS No. 109 requires the asset and liability method of accounting for
income taxes. Under the asset and liability method, a deferred tax asset or
liability is recognized for temporary differences between financial reporting
and income tax bases of assets and liabilities, tax credit carryforwards and
operating loss carryforwards. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that such deferred tax assets
will not be realized.
Harris and the Company have entered into a tax disaffiliation agreement
based on the principle that Harris will be responsible for all current tax
liabilities generated through the Distribution Date with the Company being
responsible for all tax liabilities generated after the Distribution Date.
CASH EQUIVALENTS -- The Company considers all investments purchased with an
original maturity of three months or less to be cash equivalents.
LOSS PER COMMON SHARE -- Loss per common share is calculated by dividing
the net loss by the weighted-average number of common shares outstanding during
the year. Common stock equivalents are excluded due to their anti-dilutive
effect.
STOCK SPLIT -- On March 5, 1996, the Board of Directors declared a
three-for-one common stock split distributable on March 29 to shareholders of
record at the close of business on March 18, 1996. All applicable share and per
share data have been restated for the stock split.
UNAUDITED INTERIM FINANCIAL STATEMENTS -- The consolidated financial
statements for the six months ended March 30, 1996 and March 30, 1995 and as of
March 30, 1996, are unaudited and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary for
the fair presentation of the results for the interim periods. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes therefore for the periods ended September 30,
1994 and 1995. The results of operations for the six months ended March 30, 1996
are not necessarily indicative of the results for the entire fiscal year ending
September 30, 1996.
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. CHANGE IN FISCAL YEAR
The Company changed its fiscal year end from June 30, to September 30,
effective in the year beginning October 1, 1994. The three-month transition
period ended September 30, 1994, is presented within the body of the Company's
basic financial statements. Comparative condensed income statement data is shown
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Sales............................................. $7,748 $14,160
-------- -------
Gross margin...................................... 2,282 7,131
-------- -------
Income (loss) before income taxes................. (7,968) 378
Income tax provision (benefit).................... (378) 3
-------- -------
Net earnings (loss)............................... $(7,590) $375
======== =======
</TABLE>
4. SOFTWARE DEVELOPMENT COSTS
Software development costs capitalized were $2,324 in 1995 and $569 for the
three months ended September 30, 1994. Software amortization expenses were
$1,305 in 1995 and $326 for the three months ended September 30, 1994.
5. LEASE COMMITMENTS
Rent expense was $1,814 for the year ended September 30, 1995 and $478 for
the three months ended September 30, 1994, including $828 and $238,
respectively, to Harris.
Total future minimum rental commitments under non-cancelable operating
leases, primarily for land, buildings and equipment, for the years following
September 30, 1995 are: 1996 - $756; 1997 - $351; 1998 - $103; 1999 - $64;
2000 - $64; and 2001 and thereafter - $64.
6. RESTRUCTURING CHARGES AND SPIN-OFF COSTS
Restructuring charges of $1,256 were accrued for during the period ended
September 30, 1994, due to significant workforce reduction actions which were
taken to streamline and centralize the Company's operations. The number of
employees terminated under this plan was 44. All amounts accrued have been paid
as of September 30, 1995.
Costs associated with the spin-off totaled $2.5 million. These costs relate
to investment banking, legal and public accounting fees, and employee retention
and incentive costs incurred directly related to the spin-off. The net
settlement amount for the spin-off of $6,369, which is due from Harris
Corporation at September 30, 1994 has been included on the Company's balance
sheet.
Costs associated with the sale of the real-time business to Concurrent
Computer Corporation were $820 for the six months ended March 30, 1996. Total
costs for the transaction are estimated to be $2.2 million (unaudited).
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
7. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- ------------------
<S> <C> <C>
Current:
United States...................................... -- (1,833)
International...................................... -- --
State and local.................................... -- (157)
Tax on dividend from German subsidiary............. -- 1,739
--- -------
Current Total........................................ -- (251)
Deferred:
United States...................................... -- (127)
International...................................... -- --
State and local.................................... --
--- -------
Total................................................ -- (378)
=== =======
</TABLE>
The components of deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
------ -------
<S> <C> <C>
Inventory valuations.............................................. 1,705 1,209
Depreciation...................................................... (247) (501)
Capitalized software.............................................. (2,357) (2,000)
Restructuring costs............................................... 24 391
Accrued vacation.................................................. 259 302
Net operating losses.............................................. 4,288 1,477
All other -- net.................................................. 198 433
Valuation allowance............................................... (3,870) (1,477)
------ ------
Net deferred income tax liability................................. -- (166)
====== ======
</TABLE>
A reconciliation of the effective income tax rate and the statutory United
States income tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30,
1995 1994
------------- ------------------
<S> <C> <C>
Statutory U.S. income tax rate....................... (34.0%) (34.0%)
State taxes.......................................... -- (1.9%)
Capitalized restructuring costs...................... -- 9.3%
Operating loss carryforwards......................... 32.2% --
Payment of tax to Parent on German dividend.......... -- 21.8%
Other items.......................................... 1.8% .1%
----- -----
Effective income tax rate............................ -0- (4.7%)
===== =====
</TABLE>
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Prior to the Distribution Date, United States income taxes had not been
provided on the undistributed earnings of international subsidiaries because
Harris had intended to reinvest these earnings. If the Company distributes
international earnings, a U.S. tax would be provided in future periods. As of
September 30, 1995, the Company does not intend to distribute international
earnings; therefore, no U.S. tax has been projected. The determination of the
amount of these undistributed earnings and any related unrecognized deferred
U.S. tax liability is not practicable.
As of September 30, 1995, the Company has U.S. net operating loss
carryforwards of approximately $8 million. The Company's net operating loss
carryforwards begin to expire in 2010.
At September 30, 1995, the Company had net European income tax loss
carryforwards of approximately $4 million. Loss carryforwards are available for
specified periods of time and have been offset by valuation allowances.
Pretax income (loss) from European operations was $(3,136) for the year
ended September 30, 1995 and ($664) for the three months ended September 30,
1994.
8. INVENTORIES
Inventories consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1995 1994
------- -------
<S> <C> <C>
Finished goods................................................... 356 333
Work in process.................................................. 7,416 11,409
Raw materials.................................................... 5,702 5,483
------ ------
13,474 17,225
Reserves for obsolete and slow-moving inventory.................. (4,394) (3,147)
------ ------
Net inventory.................................................... 9,080 14,078
====== ======
</TABLE>
9. ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1994
------ ------
<S> <C> <C>
Retirement plan accruals........................................... 1,396 1,313
Salaries, wages and other compensation............................. 2,613 3,479
Accrued interest and sundry taxes.................................. 706 1,093
Other.............................................................. 726 607
----- -----
5,441 6,492
===== =====
</TABLE>
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
10. MACHINERY AND EQUIPMENT, NET
Machinery and equipment, net is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- ESTIMATED USEFUL
1995 1994 LIFE (IN YEARS)
-------- -------- ----------------
<S> <C> <C> <C>
Buildings and leasehold improvements........... 96 86 3 - 5
Machinery and equipment........................ 25,504 28,292 5 - 10
Loan equipment and service parts............... 4,976 5,905 1 - 5
------- -------
Gross machinery and equipment.................. 30,576 34,283
Less: Accumulated depreciation................. (24,629) (26,790)
------- -------
Net machinery and equipment.................... 5,947 7,493
======= =======
</TABLE>
11. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
Changes in the allowance for uncollectible accounts follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- ------------------
<S> <C> <C>
Balance at beginning of year......................... 213 213
Additions charged to expense......................... 1,660 --
Less net write offs of uncollectible accounts........ (360) --
----- ---
Balance at end of year............................... 1,513 213
===== ===
</TABLE>
Bad debt expense is included in "Selling, general, and administrative
expenses" on the Income Statement.
12. SHAREHOLDERS' EQUITY
Each share of the Company's common stock has attached to it one right. Each
right entitles its registered holder to purchase from the Company after the
"Separation Time," as hereinafter defined, one-hundredth of a share of
Participating Preferred Stock, par value $.01 per share, for an amount
calculated in accordance with the Agreement. The rights will not trade
separately from the common stock unless and until the Separation Time. The
Separation Time is defined as the earlier of the tenth business day after the
date on which any person commences a tender or exchange offer which, if
consummated, would result in an acquisition, and the first date of public
announcement by the Company of such offering. In the event of any voluntary, or
involuntary liquidation of the Company, the holders of the Preferred Stock shall
be paid an amount as calculated in accordance with the Preferred Stock
Agreement.
Effective October 8, 1994, the Company adopted a Stock Incentive Plan which
permits the issuance of stock options, stock appreciation rights, performance
awards, restricted stock and/or other stock based awards to directors and
salaried employees. The plan reserves 975,000 shares of common stock for grant.
The option price shall be determined by the Board Committee effective on the
Grant Date. The option price shall not be less than one hundred percent of the
Fair Market Value of a share of common stock on the Grant Date. If the Incentive
Stock Options are granted to a participant who on the Grant Date is a ten
percent holder, such price shall be not less than one hundred and ten percent of
the Fair Market Value of a share of common stock on the Grant Date. All options
become immediately exercisable upon the occurrence of a Change in Control of the
Company. See SUBSEQUENT EVENTS in Note 15. No stock appreciation rights or
performance
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
awards were made during 1995 under this plan. On October 28, 1994, the Company
granted restricted stock awards for 52,800 shares of common stock at an option
price of $2.58 per share, pursuant to the Stock Incentive Plan to two employees.
None of the restricted shares may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of for the "Restricted Period." The Restricted
Period is from October 28, 1994 (date of the agreement) until the earlier of 21
months from the date of the agreement or upon the occurrence of a change in
control. During 1995, 715,200 stock option shares were granted at option prices
ranging from $2.58 to $3.83. At September 30, 1995 options to purchase 207,000
shares were available for grant.
13. EMPLOYEE BENEFIT PLANS
Prior to the Distribution Date, Harris provided retirement benefits to
substantially all United States-based employees, primarily through a retirement
plan having profit-sharing and savings elements. Contributions to the retirement
plan were based on Harris profits and employees' savings with no other funding
requirements. Related retirement plan expense was $431 for the three months
ended September 30, 1994.
Subsequent to the Distribution Date, the Company began a 401(k) Savings
Plan (the "Plan") which covers the eligible employees of Harris Computer Systems
Corporation, and any related company. An employee is eligible to participate in
the Plan on the date he completes one year of service. The amount of
profit-sharing contributions made by the Company into the Plan is discretionary
and shall be determined based on a percentage of the Company's adjusted net
income before taxes. Each participant may contribute up to 12% of his
compensation into the Plan. The Company makes a matching contribution on behalf
of each participant for the first 6% of their individual contribution.
Participant's profit-sharing and matching contribution vests over a seven year
period. The Company contributions to the Plan were $966 in 1995.
14. POSTRETIREMENT HEALTH CARE BENEFITS
Prior to the Distribution Date, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". Health care benefits were provided on a limited
cost-sharing basis to domestic-based retirees who had 10 or more years of
service. This adoption resulted in a one-time charge of $135, net of income tax
credits of $83. The on-going expense of this plan was not material and the
liability for these benefits had not been funded. Subsequent to the Distribution
Date, the Company canceled this post retirement health care plan.
15. SUBSEQUENT EVENTS
(a) Sale of real-time Computing business
On November 5, 1995, the Company entered into an Agreement and Plan of
Merger and Reorganization with Concurrent Computer Corporation ("Concurrent").
The transaction contemplated between the Company and Concurrent was revised. On
March 26, 1996, the Company and Concurrent signed a Purchase and Sale Agreement
effective as of that date and amended and restated as of May 23, 1996. This
agreement was approved by the shareholders of both companies on June 23, 1996.
Under the revised transaction structure, the Company sold its real-time
computing business and approximately 683,178 shares of its common stock to
Concurrent in exchange for (i) 10 million newly issued shares of Concurrent
common stock, par value $0.01 per share, (ii) convertible exchangeable preferred
stock of Concurrent paying a 9% cumulative annual dividend quarterly in arrears
with a liquidation preference of $8,200,000 subject to adjustment to reflect,
among other things, the amount of net current assets of the Harris Real-Time
Business transferred in the Transaction and (iii) the assumption of certain
liabilities (hereafter defined as the "Transaction").
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Immediately following the transaction, Concurrent's shareholders owned
approximately 77% of Concurrent's outstanding common stock, with
the balance owned by the Company. The Company's shareholders owned
approximately 91% of its common stock, with Concurrent owning approximately 9%.
The Company can increase its position in Concurrent from approximately 23% to
approximately 28% upon full conversion of the preferred stock.
The Company retained its Trusted Systems product line after the
transaction and changed its corporate name to CyberGuard Corporation.
Summarized financial data relating to the Company's Trusted Systems
Division which will be retained is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- MARCH 30,
1995 1994 1996
------ ----- -----------
<S> <C> <C> <C>
Current assets......................................... 996 6,170 2,762
------ ----- ------
Noncurrent assets...................................... 2,261 1,622 3,760
------ ----- ------
Current liabilities.................................... -- -- --
------ ----- ------
Noncurrent liabilities................................. 6,365 7,792 12,053
------ ----- ------
Cumulative division losses............................. (3,108) 0 (5,531)
------ ----- ------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS SIX MONTHS YEARS ENDED
ENDED ENDED ENDED JUNE 30,
SEPTEMBER 30, SEPTEMBER 30, MARCH 30, MARCH 31, -------------
1995 1994 1996 1995 1994 1993
------------- ------------- ---------- ----------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales........... 4,817 983 4,395 3,489 8,464 5,974
----- --- ----- ----- ----- -----
Gross income........ 1,677 491 1,480 1,386 4,622 2,982
----- --- ----- ----- ----- -----
Net income (loss)... (3,108) (962) (2,423) (727) 91 (40)
----- --- ----- ----- ----- -----
</TABLE>
(b) Unaudited Loan and Security Agreement
On April 1, 1996, the Company entered into a Loan and Security Agreement
with Foothill Capital Corporation ("Foothill") pursuant to which Foothill
agreed to make revolving advances to the Company in an amount of up to
$5,000,000 subject to certain borrowing base requirements and at an interest
rate equal to the prime or reference rate announced by Norwest Bank Minnesota,
National Association, plus two percent. As collateral for the loan, the
Company granted Foothill a security interest in all of the assets of the
Company (including 7,000,000 shares of the common stock and all of the
preferred stock received by the Company in connection with the Transaction).
Accrued interest on the loan is due and payable monthly. On June 27, 1996,
this agreement was amended to, among other things, substitute CyberGuard
Corporation as the borrower and extend the maturity date to the earlier of
(a) September 30, 1996 or (b) the date on which the Company consummates a
secondary common stock offering, unless sooner terminated pursuant to the
terms of the agreement.
16. CONTINGENCIES
Certain claims have been filed or are pending against the Company. It is
management's opinion that all matters are without merit or are of such kind, or
involve such amounts, as would not have a material effect on the consolidated
financial position of the Company if disposed of unfavorably.
17. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, cash equivalents and
trade receivables. The Company holds any excess cash in short-term
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
investments consisting of commercial paper. Concentrations of credit risk with
respect to receivables are limited due to the Company's large number of
customers.
18. GEOGRAPHIC INFORMATION
The Company operates exclusively in the computer systems industry.
Substantially all revenues result from the sale of computer systems and related
software and services. Major customers during 1995 and 1994 include the United
States Government and Boeing Company. In many cases, agencies of the United
States Government are the ultimate purchasers of the Company's products. Sales
to the United States Government combined with sales for which the Company acted
as subcontractor on government projects have represented approximately 51% and
43% of total sales, respectively. Sales made to Boeing Company as a percentage
of total sales were 4% and 14%, for the periods ended September 30, 1995 and
1994, respectively. All intercompany revenues and expenses are eliminated in
computing revenues and operating income.
A summary of the Company's operations by geographic area is summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1995
---------------------------------------------------
U.S. U.K. FRANCE GERMANY TOTAL
------ ----- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales............................. 36,138 1,770 3,310 3,893 45,111
Operating Profit (loss)............... (9,989) (346) (471 ) (734) (11,540)
Identifiable assets................... 33,245 1,957 2,026 4,204 41,432
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1994
---------------------------------------------------
U.S. U.K. FRANCE GERMANY TOTAL
------ ----- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales............................. 6,647 179 718 204 7,748
Operating Profit (loss)............... (7,437) (181) 71 (280) (7,827)
Identifiable assets................... 44,596 4,526 3,674 2,133 54,929
</TABLE>
U.S. export sales were $2,945 for the year ended September 30, 1995; and
$605 for the three months ended September 30, 1994.
HARRIS COMPUTER SYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET INFORMATION
SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REAL-TIME TRUSTED SYSTEMS
BUSINESS PRODUCT LINE COMBINED
--------- --------------- --------
<S> <C> <C> <C>
Cash and cash equivalents............................... $8,265 $0 $8,265
Accounts receivable..................................... 9,180 814 9,994
Inventories............................................. 8,959 121 9,080
Prepaid expenses........................................ 469 61 530
------- ------- -------
Total current assets............................... 26,873 996 27,869
Property, plant and equipment........................... 5,231 716 5,947
Capitalized software.................................... 5,189 1,545 6,734
Other assets............................................ 881 0 881
------- ------- -------
Total assets.................................. $38,174 $3,257 $41,431
======= ======= =======
Accounts payable........................................ 3,493 0 3,493
Deferred revenue........................................ 401 0 401
Accrued expenses........................................ 5,441 0 5,441
------- ------- -------
Total current liabilities.......................... 9,335 0 9,335
Liability to "Real-time" receivable from "Trusted
Systems" Product Line)................................ (6,365) 6,365 0
Equity (deficit)........................................ 35,204 (3,108) 32,096
------- ------- -------
Total liabilities and equity.................. $38,174 $3,257 $41,431
======= ======= =======
</TABLE>
See Notes to Combining Financial Information
HARRIS COMPUTER SYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REAL-TIME TRUSTED SYSTEMS
BUSINESS PRODUCT LINE COMBINED
--------- --------------- --------
<S> <C> <C> <C>
Sales
Equipment............................................. $26,650 $4,534 $31,184
Maintenance........................................... 13,644 283 13,927
------- ------- -------
40,294 4,817 45,111
Cost of sales
Equipment............................................. 15,549 3,001 18,550
Maintenance........................................... 7,075 139 7,214
------- ------- -------
22,624 3,140 25,764
Gross profit............................................ 17,670 1,677 19,347
Research and development................................ 7,068 835 7,903
Selling, general and admin.............................. 18,985 3,999 22,984
------- ------- -------
26,053 4,834 30,887
Operating loss.......................................... (8,383) (3,157) (11,540)
Interest income......................................... 407 49 456
Other expense........................................... (4) 0 (4)
Net Loss................................................ ($7,980) ($3,108) ($11,088)
======= ======= =======
</TABLE>
See Notes to Combining Financial Information
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
BASIS OF PRESENTATION
The combining financial information is presented to reflect the financial
position and results of operations of the "Real Time Business" ("Business") and
Trusted Systems Product Line ("Product Line") of Harris Computer Systems
Corporation and subsidiaries as of and for the year ended September 30, 1995.
Such information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. The following is a summary
of the methods used to arrive at amounts reflected in the Combining Financial
Information.
BALANCE SHEET INFORMATION
Accounts receivable, inventory, property, plant and equipment and
substantially all capitalized software reflect items specifically identified as
pertaining to the Business or Product Line.
The liability/receivable between the Business and Product Line represents
the net amount assumed to have been paid for or accrued for by the Business on
behalf of the Product Line since July 1, 1990. This assumption is considered
appropriate in light of the fact that the Business and Product Line share the
same operating infrastructure, substantially all operating costs are commingled,
and the predominance of the Business to the combined entity.
STATEMENT OF OPERATIONS INFORMATION
Sales and cost of sales amounts are derived principally by specific
identification. Research and development and selling, general, and
administrative expenses are allocated based on a percentage of sales except for
certain direct research and development, marketing and sales expenses amounting
to $10,182 and $2,510 for the Business and Product Line, respectively.
HARRIS COMPUTER SYSTEMS BUSINESS
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE
30,
-------------------
1994 1993
------- -------
<S> <C> <C>
Sales
Equipment.............................................................. $50,146 $39,398
Maintenance............................................................ 14,494 16,142
------- -------
64,640 55,540
Cost of Sales
Equipment.............................................................. 22,842 20,194
Maintenance............................................................ 8,394 9,669
------- -------
31,236 29,863
Gross Income............................................................. 33,404 25,677
Operating expenses
Research and development............................................... 6,725 6,850
Selling, general and administrative.................................... 19,791 19,770
Harris Corporation expense allocation.................................. 1,324 1,119
------- -------
Total other operating expenses................................. 27,840 27,739
------- -------
Operating income (loss).................................................. 5,564 (2,062)
Interest income (expense), net........................................... (4) 0
Other income (expense) -- net............................................ 53 45
------- -------
49 45
Net income (loss) before income tax provision (benefit) and cumulative
effect of change in accounting principle............................... 5,613 (2,017)
Income tax provision (benefit)........................................... 1,086 (1,560)
------- -------
Net income (loss) before cumulative effect of change in accounting
principle.............................................................. 4,527 (457)
Cumulative effect of change in accounting principle (Note 14)............ (135) 0
------- -------
Net Income (loss)........................................................ $4,392 ($457)
======= =======
</TABLE>
See notes to the accompanying consolidated financial statements.
HARRIS COMPUTER SYSTEMS BUSINESS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE
30,
-------------------
1994 1993
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)...................................................... $4,392 $(457)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation........................................................ 3,223 3,860
Amortization........................................................ 1,396 1,258
Changes in Assets and Liabilities
Receivables....................................................... (4,122) 941
Inventories....................................................... (1,370) (3,895)
Accounts Payable.................................................. (1,654) 236
Accrued Expenses.................................................. 334 69
Deferred Revenue.................................................. (4,044) 4,680
Deferred Income Taxes............................................. 28 657
Other............................................................. (1,819) (119)
Compensation and Benefits......................................... (309) (546)
------- -------
Net Cash Provided (Used) by Operating Activities......................... (3,945) 6,684
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Machinery and Equipment................................... (3,336) (2,568)
Software Development Costs............................................. (2,780) (2,217)
------- -------
Net Cash Used by Investing Activities.................................... (6,116) (4,785)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Short-Term Borrowings....................................... -- (3,465)
Equity Contributions................................................... 18,484 1,566
------- -------
Net Cash Provided by (Used by) Financing Activities...................... 18,484 (1,899)
------- -------
Net Increase in Cash and Cash Equivalents................................ 8,423 --
Cash and Cash Equivalents at beginning of the Period..................... 3 3
------- -------
Cash and Cash Equivalents at end of the Period........................... $8,426 $3
======= =======
</TABLE>
See notes to the accompanying consolidated financial statements.
HARRIS COMPUTER SYSTEMS BUSINESS
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The combined financial statements include the
accounts of the Computer Systems Business (the "Business") of Harris Corporation
("Harris"). The Business develops, manufactures and markets high performance
real-time computer systems. The accompanying combined financial statements
include operations of Computer Systems in Fort Lauderdale, Florida, and Harris
Systemes Electroniques S.A., France, as well as the Computer Systems Business
portion of Harris Systems, Ltd., United Kingdom and Harris GmbH, Germany. In
1994, Harris contributed the remaining assets and liabilities of Harris GmbH to
the Business, making Harris GmbH a wholly owned subsidiary of the Business.
Corporate expense allocations charged by Harris are based on a percentage
of the Business's net sales. Interest expense is provided on direct borrowings
of the Business. Interest expense of Harris has not been allocated to the
Business. It is not practicable to estimate what business equity would have been
if the Business had operated as an unaffiliated entity. In the opinion of
management, the allocation methods used are reasonable.
The effects of all significant transactions between components of the
Business have been eliminated.
The Business sells products to other affiliated operations of Harris. Sales
to these operations were $4,013 in 1994 and $5,023 in 1993.
INVENTORIES -- Inventories are carried at the lower of cost, determined by
the First-In-First-Out (FIFO) method, or market.
DEPRECIATION -- Depreciation of rental equipment is computed by the
straight-line method using estimated useful lives of up to three years. Service
parts are depreciated over five years. Depreciation on machinery and equipment
is carried on the basis of cost and is computed by the straight-line method
using the estimated useful lives of the assets.
SOFTWARE DEVELOPMENT COSTS -- The Business capitalizes costs related to the
development of certain software products. Capitalization begins when
technological feasibility has been established and ends when the product is
available for general release to customers. Software development costs incurred
prior to technological feasibility are considered research and development costs
and are expensed as incurred. Capitalized costs are amortized as the greater of
the amount computed using the ratio that current gross revenues for a product
bear to the total current and anticipated future gross revenues for that product
or the straight-line method over three years in 1993 and prior years an over
five years in 1994. The effect of net income of changing the estimated useful
lives in 1994 was approximately $350.
REVENUE RECOGNITION -- Revenue is recognized from sales when a product is
shipped, from rentals as they accrue, and from services and maintenance when
performed. Unearned income on service contracts is amortized by the
straight-line method over the term of the contracts. Revenue from long-term
software contracts is accounted for by the percentage of completion method
whereby income is recognized based on the estimated stage of completion of
individual contracts using costs incurred as a percentage of total estimated
costs at completion. Losses on long-term contracts are recognized in the period
in which such losses are determined.
INCOME TAXES -- The Business follows the liability method of accounting for
income taxes and was included with its parent, Harris, in a consolidated federal
income tax return. Harris requires each of its businesses to provide taxes on
financial statement pre-tax income or loss at applicable statutory tax rates.
Amounts receivable or payable for current and prior year' income taxes are
treated as intercompany transactions in accordance with Harris policy and,
accordingly, flowed through the Business Equity account.
HARRIS COMPUTER SYSTEMS BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION -- Foreign operations are translated using the
local currency at the functional currency.
NOTE B -- SOFTWARE DEVELOPMENT COSTS
Software amortization expenses were $1,396 in 1994 and $1,258 in 1993.
Amortization expenses are included in Cost of Sales and Rentals in the Combined
Statements of Income.
NOTE C -- INVENTORY PURCHASE COMMITMENT
At June 30, 1994, the Business was committed to purchase $1,600 of
inventory from a supplier. Management believes the cost of this inventory
approximates current market value.
NOTE D -- LEASE COMMITMENTS
Rent expense was $1,897 in 1994 and $1,806 in 1993 including $1,085 and
$1,096 respectively, paid to Harris.
Total future minimum rental commitments under operating leases, primarily
for land and buildings, for the years following June 30, 1994 are: 1995 - $763,
1996 - $267; 1997 - $157; 1998 - $8.
NOTE E -- POSTRETIREMENT HEALTH CARE BENEFITS
In fiscal 1994, the Business adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions". Health care benefits are provided on a limited cost-sharing basis to
domestic-based retirees who had 10 or more years of service. This adoption
resulted in a one-time charge of $135, net of income tax credits of $83. The
on-going expense of this plan is not expected to be material and the liability
for these benefits has not been funded.
NOTE F -- RETIREMENT BENEFIT PLANS
Harris provides retirement benefits to substantially all United
States-based employees, primarily through a retirement plan having
profit-sharing and savings elements. Contributions to the retirement plan are
based on Harris profits and employees' savings with no other funding
requirements. Related retirement plan expense was $2,201 in 1994 and $1,487 in
1993.
In addition, a noncontributory defined benefit pension plan is maintained
in the United Kingdom for substantially all employees of Harris Systems, Ltd.
This plan is fully funded and there have been no charges to
income for the two year period ended June 30, 1994. Separate actuarial
information applicable to the Business' portion of this plan is not available.
HARRIS COMPUTER SYSTEMS BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Current:
United States................................................... $ 367 $(1,594)
International................................................... 721 --
State and local................................................. 74 (322)
------ -------
1,162 1,916
Deferred:
United States................................................... (78) 298
International................................................... -- --
State and local................................................. 2 58
------ -------
(76) 356
------ -------
$1,086 $(1,560)
====== =======
</TABLE>
A reconciliation of the effective income tax rate and the statutory United
States income tax rate follows:
<TABLE>
<CAPTION>
1994 1993
---- -----
<S> <C> <C>
Statutory U.S. income tax rate...................................... 35.0% (34.0)%
State taxes......................................................... 0.9 (8.6)
Operating loss carryforwards........................................ (8.8) (27.4)
Contributions....................................................... (7.5) (2.2)
Other items......................................................... (0.3) (5.1)
---- -----
Effective income tax rate........................................... 19.3% (77.3)%
==== =====
</TABLE>
United States income taxes had not been provided on the undistributed
earnings of international subsidiaries because Harris had intended to reinvest
these earnings. If Harris Computer Systems Corporation distributes international
earnings, a U.S. tax would be provided in future periods. The determination of
the amount of these undistributed earnings and any related unrecognized deferred
U.S. tax liability is not practicable.
At June 30, 1994, the Business had net international income tax loss
carryforwards of approximately $1,564. Loss carryforwards are available for
indefinite periods of time and have been offset by valuation allowances in both
1993 and 1994.
Pretax income from international operations was $1,860 in 1994 and $299 in
1993.
NOTE H -- GEOGRAPHIC INFORMATION
The Business operates exclusively in the computer systems industry.
Substantially all revenues result from the sale of computer systems and related
software and services. Major customers include the United States Government and
Boeing Company. Sales made to the United States Government as a percentage of
total sales were 43 percent and 51 percent for the year 1994 and 1993,
respectively. Sales made to Boeing Company as a percentage of total sales were
14 percent and 4 percent for the years 1994 and 1993, respectively. All
intercompany revenues and expenses are eliminated in computing revenues and
operating income.
HARRIS COMPUTER SYSTEMS BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Business operations by geographic area is summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1994
--------------------------------------------------
U.S. U.K. FRANCE GERMANY TOTAL
------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net Sales.............................. 51,008 7,539 4,691 1,402 64,640
Operating Profit (loss)................ 2,294 2,577 963 (221) 5,613
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1993
--------------------------------------------------
U.S. U.K. FRANCE GERMANY TOTAL
------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net Sales.............................. 42,902 6,773 4,914 951 55,540
Operating Profit (loss)................ (3,640) 1,292 653 (322) (2,017)
</TABLE>
Export Sales were $3,316 in 1994 and $2,145 in 1993. Export sales and net
sales of international operations were principally to Europe, Canada and Asia.
NOTE I -- SHAREHOLDERS EQUITY
Changes in Business equity are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Balance at July 1................................................ $28,701 $27,501
Net income (loss)................................................ 4,392 (457)
Foreign currency translation adjustments......................... (1,451) 91
------- -------
Net cash transfers and billings from Harris Corporation.......... 18,484 1,566
------- -------
$50,126 $28,701
======= =======
</TABLE>
NOTE J -- ALLOWANCE FOR COLLECTION LOSSES
Changes in the allowance for collection losses during the two years ended
June 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Balance at beginning of year.......................................... $631 $693
Additions charged to expense.......................................... 100 5
Effects of foreign currency translation............................... 17 (27)
---- ----
748 671
Less net write-offs of uncollectible accounts......................... 535 40
---- ----
Balance at end of year................................................ $213 $631
==== ====
</TABLE>
NOTE K -- CONTINGENCIES
Certain claims have been filed or are pending against the Business. It is
management's opinion, that all matters are without merit or are of a kind, or
involve such amounts, as would not have a material effect on the consolidated
financial position of the Business if disposed of unfavorably.
EXHIBIT 99.2*
* Unaudited Pro Forma Condensed Consolidated Financial Statements
of Concurrent Computer Corporation. References in Exhibit 99.2 to
"the Company" are to Concurrent; references to the "Transaction"
are to the Transaction described in Item 2 hereof; and references to "Harris"
are to CyberGuard. Cross references contained herein are to sections of
the Joint Proxy Statement.
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF CONCURRENT
The following unaudited pro forma financial statements have been prepared
to give effect to the Transaction which will be accounted for as a purchase. See
"TERMS OF THE TRANSACTION -- Accounting Treatment."
These financial statements do not purport to represent what the Combined
Real-Time Company's results of operations or financial position actually would
have been had the Transaction occurred on the dates when they are reflected to
have occurred in the pro forma financial statements, or to project the Combined
Real-Time Company's results of operations or financial condition for any future
period or date. In particular, the financial condition of Concurrent at the date
of the Transaction will be directly affected by the financial performance of
both Concurrent and Harris up to the date of the Transaction and could be
substantially different from that shown in these pro forma financial statements.
The pro forma condensed consolidated statements of operations for the year
ended June 30, 1995 and for the nine months ended March 31, 1996 have been
prepared assuming the Transaction had occurred as of the beginning of each of
the respective periods. The pro forma condensed consolidated statement of
operations for the year ended June 30, 1995 includes the results of operations
for Concurrent for the year ended June 30, 1995 and for Harris's Real-Time
Business for the year ended September 30, 1995. The pro forma condensed
consolidated statement of operations for the nine months ended March 31, 1996
includes the results of operations for Concurrent and Harris's Real-Time
Business for the nine months ended March 31, 1996. The pro forma consolidated
balance sheet at March 31, 1996 has been prepared assuming the Transaction had
occurred as of that date. "Harris as Reported" and "Harris Trusted" data were
obtained from the Combining Financial Information included in Harris's financial
information -- see "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and "HARRIS CONSOLIDATED FINANCIAL
STATEMENTS."
In accordance with generally accepted accounting principles, the purchase
price for the acquisition of the Harris's Real-Time Business will be allocated
to the assets and liabilities received based upon their estimated fair values.
Such fair values are based upon valuations of assets and liabilities and
estimations which are still in process. Accordingly, for purposes of the
following pro forma financial information the pro forma adjustments are stated
on an estimated basis using the most recent information available. No assurance
can be given that the pro forma adjustments will not differ materially from the
amounts ultimately determined. The pro forma financial statements do not reflect
any synergies, operating efficiencies or cost savings anticipated by management
as a result of the Transaction, such as savings expected from consolidation of
manufacturing, research and development, selling, marketing, administrative and
other functions. Such savings will require significant headcount reductions and
present significant management challenges. The resulting pro forma financial
statements are not necessarily indicative of Concurrent's future results of
operations or financial position. For a discussion of anticipated synergies, see
"THE PROPOSED TRANSACTION -- Recommendations of the Board of Directors of
Concurrent and Concurrent's Reasons for the Transaction" and "-- Recommendations
of the Special Committee and the Board of Directors of Harris and Harris's
Reasons for the Transaction."
The pro forma financial statements should be read in conjunction with the
audited consolidated financial statements for the years ended June 30, 1995 and
September 30, 1995 for Concurrent and Harris, respectively, and for Concurrent
the unaudited financial statements for the nine months ended March 31, 1996, and
for Harris the unaudited financial statements for the six months ended March 30,
1996. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "TERMS OF THE
TRANSACTION -- Accounting Treatment" and "PROJECTED FINANCIAL INFORMATION."
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995 NINE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------- --------------------------------------------------------
CONCURRENT HARRIS (LESS) OTHER CONCURRENT HARRIS (LESS) OTHER
AS AS HARRIS PRO FORMA PRO AS AS HARRIS PRO FORMA PRO
REPORTED REPORTED TRUSTED ADJS. FORMA REPORTED REPORTED TRUSTED ADJ. FORMA
---------- -------- ------- --------- -------- ---------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net
sales.... $140,144 $45,111 $(4,817) -- $180,438 $ 77,108 $34,271 $(5,292) $ -- $106,087
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
1,065(a) 1,142(a)
Gross
margin... 60,667 19,347 (1,677 ) 814(b) 80,216 32,682 15,786 (1,710) 610(b) 48,510
(358)(c) (270)(c)
Operating
expenses... 58,585 30,887 (4,834 ) (406)(b) 83,874 33,100 24,844 (6,122) (305)(b) 51,247
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income
(loss)
from
operations... 2,082 (11,540) 3,157 2,643 (3,658) (418) (9,058) 4,412 2,327 (2,737)
Interest
income
(expense)
net...... (2,125) 456 (49) (60)(d) (1,778) (1,658) 250 (49) (45)(d) (1,502)
Other
income
(expense)
net...... (263) (4) -- -- (267) (2,180) 230 22 -- (1,928)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Loss before
provision
for
income
taxes.... (306) (11,088 ) 3,108 2,583 (5,703) (4,256) (8,578) 4,385 2,282 (6,167)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Provision
for
income
taxes.... 1,700 -- -- -- 1,700 1,400 -- -- -- 1,400
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss... $ (2,006) $(11,088) $3,108 $ 2,583 $ (7,403) $ (5,656) $(8,578) $4,385 $ 2,282 $ (7,567)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net (loss)
for
common
shareholders:
Net
(loss)... $ (2,006) $(11,088) $ (7,403) $ (5,656) $(8,578) $ (7,567)
Adjustment
for
preferred
dividend
requirement... -- -- 747(f) -- -- 560(f)
Accretion
on
redeemable
preferred
stock.... -- -- 105(f) -- -- 79(f)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net (loss)
applicable
to common
shares... (2,006) (11,088) (8,255) (5,656) (8,578) (8,206)
Per common
share:
Net loss
per
share.... $ (0.07) $ (1.88) $ (0.20) $ (0.19) $ (1.45) $ (0.20)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Weighted
average
number of
shares
outstanding 30,095 5,910 (5,910) 10,321(e) 40,416 30,482 5,946 (5,946) 10,321(e) 40,803
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
1. Basis of Presentation
The unaudited pro forma condensed consolidated statements of operations are
presented for illustrative purposes only, giving effect to the Transaction and,
therefore, are not necessarily indicative of the financial results that might
have been achieved had the Transaction occurred as of an earlier date, nor are
they necessarily indicative of the financial results which may occur in the
future. The unaudited pro forma condensed consolidated statement of operations
for the year ended June 30, 1995 include the results of operations for
Concurrent for the year ended June 30, 1995 and for Harris's Real-Time Business
for the year ended September 30, 1995. The pro forma condensed consolidated
statement of operations for the nine months ended March 31, 1996 include the
results of operations for Concurrent and Harris's Real-Time Business for the
nine months ended March 31, 1996.
2. Pro Forma Adjustments
The following unaudited pro forma purchase accounting adjustments were made
to the statements of operations for the year ended June 30, 1995 and the nine
months ended March 31, 1996 to give effect to the Transaction as if such
Transaction had occurred as of the beginning of the respective periods:
(a) To eliminate the amortization expense previously recorded on the
capitalized software during the respective periods. The real-time
technology of both companies is similar and as such, the combination of
duplicate technologies does not provide additional benefit to Concurrent.
As a result, Harris's capitalized software of $5.4 million was eliminated
as part of the Transaction. (See Unaudited Pro Forma Consolidated Balance
Sheet Note 1(f))
(b) To reflect the adjustment to depreciation expense resulting from
the decrease in the book value of Harris's property, plant and equipment
acquired, depreciated on a straight-line basis over an average remaining
useful life of four years. The excess of the estimated fair value of net
assets acquired over the purchase price was allocated to reduce
proportionately the values assigned to non-current assets. Such amount is
subject to change pending completion of the valuation of assets acquired.
(c) To reflect the amortization of negative goodwill, which represents
the remainder of the excess of the estimated fair value of net assets
acquired after reducing the values assigned to non-current assets to zero
over the aggregate purchase price. Negative goodwill is amortized on a
straight-line basis over a ten-year period. Such amount is subject to
change pending the completion of the valuation of Assets acquired.
(d) To reflect the decrease in interest income resulting from the use
of approximately $1.2 million in cash to finance the closing costs related
to the Transaction at an average interest rate of 5%.
(e) The number of shares used in computing pro forma net loss per
share for the year ended June 30, 1995 and the nine months ended March 31,
1996 were 40,415,583 and 40,803,089, respectively. Pro forma net loss per
share has been determined based on the historical weighted average of
shares outstanding of Concurrent Common Stock adjusted to give effect to:
1) the issuance of 10,000,000 shares of Concurrent Common Stock; and 2) the
issuance of an estimated 320,802 shares, on a pro forma basis as of March
31, 1996 (based on an estimated average price at such time of $1.43 per
share) to be sold to fund the payment to Berenson Minella of a portion of
its financial advisory fees, assuming such shares had been outstanding for
the entire period. The number of shares is determined as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
1995 1996
---------- -----------
<S> <C> <C>
Historical weighted average number of shares of Concurrent
Common Stock.............................................. 30,094,781 30,482,287
Issuance of shares of Concurrent Common Stock to Harris..... 10,000,000 10,000,000
Issuance of shares of Concurrent Common Stock to investment
banker.................................................... 320,802 320,802
---------- ----------
Total............................................. 40,415,583 40,803,089
========== ==========
</TABLE>
This calculation of total shares excludes all outstanding Concurrent
Options and Concurrent Warrants, as they would have an anti-dilutive effect
on earnings per share.
(f) To reflect earnings per share adjustments for preferred stock
dividends and to accrete Concurrent Preferred Stock to its mandatory
redemption value over the term of the security.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-----------------------------------------------------------------------
CONCURRENT HARRIS (LESS) HARRIS OTHER PRO
AS REPORTED AS REPORTED TRUSTED FORMA ADJS. PRO FORMA
------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 3,078 $ 1,307 $ (1,230)(a) $ 3,155
Securities available for sale....................... 11,149(b) 11,149
Accounts receivable................................. 24,887 15,335 (2,626) 37,596
Inventories......................................... 12,662 6,381 (87) (700)(c) 18,256
(795)(a)
Prepaid expenses and other current assets........... 4,477 660 (253) (196)(d) 3,893
-------- -------- -------- -------- --------
Total current assets.............................. 45,104 23,683 (2,966) 8,228 74,049
(6,678)(h)
Property, plant and equipment -- net................ 32,048 5,912 (1,034) 1,800(e) 32,048
Capitalized software................................ 291 8,135 (2,726) (5,409)(f) 291
(2,000)(h)
Acquired technology................................. 2,000(f) --
Excess of purchase price over estimated value of net
assets
acquired.......................................... 13,050(h)
(13,050)(g) --
Other long-term assets.............................. 3,063 822 (30) (792)(h) 3,063
-------- -------- -------- -------- --------
Total assets............................... $ 80,506 $ 38,552 $ (6,756) $ (2,851) $109,451
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable....................................... $ 5,655 $ 5,655
Current portion of long-term debt................... 824 824
Revolving credit facility........................... 3,843 3,843
Accounts payable and accrued expenses............... 22,933 8,784 (1,358) 30,359
Deferred revenue.................................... 4,610 628 (37) 5,201
-------- -------- -------- -------- --------
Total current liabilities......................... 37,865 9,412 (1,395) 45,882
Long-term debt...................................... 7,129 7,129
Excess of acquired net assets over cost............. 3,580(g) 3,580
Other long-term liabilities......................... 5,229 5,229
Class B 9% cumulative convertible redeemable
exchangeable preferred stock subject to a $8,300
mandatory redemption, $0.01 par value per share
1,000,000 shares authorized -- Issued and
outstanding 830,000 at March 31, 1996 -- pro
forma............................................. 7,248(i) 7,248
Shareholders' equity:
Shares of preferred stock, par value $0.01;
authorized 25,000,000.............................
Shares of common stock, par value $0.01; authorized
100,000,000; Concurrent issued 30,569,049, Harris
issued 5,931,912; and pro-forma 40,889,851........ 306 60 (60) 103(j) 409
Capital in excess of par value...................... 73,737 44,144 (44,144) 9,997(j) 83,734
Accumulated deficit after eliminating Concurrent's
accumulated deficit of $81,826 at December 31,
1991, date of quasi-reorganization................ (42,684) (14,363) 38,720 (24,357)(k) (42,684 )
Shares of treasury stock............................ (58) (58 )
Cumulative translation adjustment................... (1,018) (701) 123 578(k) (1,018 )
-------- -------- -------- -------- --------
Total shareholders' equity........................ 30,283 29,140 (5,361) (13,679) 40,383
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity................................... $ 80,506 $ 38,552 $ (6,756) $ (2,851) $109,451
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
1. PRO FORMA ADJUSTMENTS
The following unaudited pro forma purchase accounting adjustments were made
to the balance sheet at March 31, 1996 to give effect to the Transaction as if
such transaction had occurred as of that date:
(a) To reflect estimated cash expenditures for investment banker,
legal, accounting, printing, proxy solicitation, filing, valuation and
other related fees assumed to be paid by Concurrent in connection with the
Transaction.
(b) To reflect the acquisition of 683,178 shares of Harris Common
Stock, at an assumed market price per share of $16.32 (based on the closing
price on March 29, 1996). Such valuation amount is subject to changes in
the market price of Harris Common Stock from March 29, 1996 to the date of
the Closing of the Transaction. Such shares may be sold in accordance with
the Share Holding Agreement which contains restrictions on the volume of
sales of Harris Common Stock by Concurrent in certain circumstances.
(c) The valuation adjustment to Harris's inventory is based upon the
estimated fair value to be realized from the sale of such inventory through
Harris's existing channels of distribution, taking into consideration
estimated disposal costs and other factors. Such amount is subject to
change pending the integration of the two real-time businesses and
development of the combined company's product plan.
(d) To reflect the elimination of certain deferred items of Harris's
Real-Time Business in conformity with Concurrent's accounting policies.
(e) To reflect the adjustment to Harris's Real-Time Business fixed
assets at their estimated fair value, based upon the preliminary findings
of a valuation which is being prepared in conjunction with the Transaction.
Such amount is subject to change pending completion of the valuation of
assets acquired.
(f) To eliminate capitalized software related to Harris's Real-Time
Business and to reflect the estimated fair value of acquired technology,
based upon the preliminary findings of a valuation which is being prepared
in conjunction with the Transaction. The technology of both companies'
real-time business is similar and as such, the combination of duplicate
technologies does not provide additional benefit to Concurrent. As a
result, capitalized software acquired from Harris was adjusted as part of
the Transaction and included in the valuation of acquired technology.
(g) To reflect the estimated negative goodwill relating to the
Transaction, based upon the estimated aggregate purchase price of
approximately $19,373,000 which includes an estimated $2,425,000 of
Transaction expenses ($1,230,000 in cash plus $795,000 which has been
previously expended and included in prepaid expenses and $400,000 in
Concurrent Common Stock payable to Berenson Minella on a pro forma basis as
of March 31, 1996) assumed to be paid by Concurrent in connection with the
Transaction, and the adjusted value of the net assets acquired from Harris:
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
(UNAUDITED)
------------------------------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Concurrent common shares provided to Harris........ 10,000
</TABLE>
<TABLE>
<S> <C> <C> <C>
Assumed market price per share..................... $ 0.97
------
Estimated fair value of common shares provided..... $ 9,700
Estimated value of Concurrent preferred shares
provided to Harris............................... 7,248
Estimated Transaction expenses..................... 2,425
-------
Estimated aggregate purchase price................. $19,373
Historical cost basis of net assets acquired from
Harris........................................... $23,779
Adjustments to reflect net assets acquired at
estimated fair value -- (see notes (c), (d), (e)
and (f))......................................... (2,505)
Common shares received from Harris................. 683.2
Assumed market price per share..................... $16.32
------
Estimated fair value of common shares received..... $11,149
-------
Estimated fair value of net assets acquired........ $32,423
-------
Estimated fair value of net assets acquired in
excess of purchase price ("negative goodwill")... $13,050
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
(UNAUDITED)
------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Reduction of negative goodwill via allocation to
reduce proportionately the values assigned to
non-current assets to zero -- (see note(h))...... (9,470)
-------
Unallocated net assets acquired in excess of
purchase price................................... $ 3,580
=======
</TABLE>
The negative goodwill calculation is subject to change pending finalization
of the valuation of assets and liabilities acquired. The calculation is
also subject to any change in the net assets of Harris's Real-Time Business
from March 31, 1996 to the Closing of the Transaction. In addition, costs
(such as employee severance, relocation costs and adjustments for the
disposal of duplicative assets) which result from Concurrent's
consolidation plan (such as, integrating the business of Concurrent and the
Harris Real-Time Business, elimination of duplicate facilities and excess
capacity and other non-recurring items) which are directly related to the
Harris Real-Time Business will result in an increase in goodwill (or a
reduction in negative goodwill). Actions which result from Concurrent's
consolidation plan which are directly related to Concurrent will result in
a pre-tax charge to the results of operations. At the date of this Joint
Proxy Statement, the estimated aggregate charge of total costs resulting
from both of these types of actions is estimated to be in the range of $27
million to $30 million, in addition to the estimated Transaction expenses
of approximately $2.4 million noted above. While the split between the cost
of those actions related to Harris and those related to Concurrent is not
currently determinable, it is anticipated that the majority of such costs
will be related to Concurrent.
(h) To reflect the application of the estimated fair value of net
assets acquired in excess of the estimated aggregate purchase price by
allocating such excess amount to reduce proportionately the values assigned
to non-current assets to zero.
(i) To record the issuance of $8.3 million liquidation preference of
Concurrent Preferred Stock to Harris as part of the Transaction, recorded
at its estimated fair value of $7.2 million (based on a 14% discount rate
and other valuation factors). As of March 31, 1996 the Net Current Assets
of the Harris Real-Time Business were estimated to be approximately
$12,700,000. Pursuant to the Purchase and Sale Agreement, if the
Transaction were consummated at March 31, 1996, Concurrent would have been
entitled to $14,400,000 in Net Current Assets of the Harris Real-Time
Business and therefore the Preferred Stock Consideration provided to Harris
would have been reduced by $1,700,000.
(j) To reflect (i) the issuance of 10,000,000 shares of Concurrent
Common Stock, with a par value $0.01, at an assumed market price per share
of $0.97 (based on the average of the closing prices on the day before and
the day of the announcement of the Memorandum of Understanding ); and (ii)
the issuance of an estimated pro forma 320,802 shares of Concurrent Common
Stock at March 31, 1996 (based on an average price at such time of $1.43
per share) to fund the payment to Berenson Minella of a portion of its
financial advisory fees.
(k) To reflect the elimination of the shareholders' equity of Harris.
