<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
HARRIS COMPUTER SYSTEMS CORPORATION*
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
FLORIDA 65-510339
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
---------------------
2101 WEST CYPRESS CREEK ROAD
FORT LAUDERDALE, FLORIDA 33309
(954) 974-1700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
ROBERT L. CARBERRY
2101 WEST CYPRESS CREEK ROAD
FORT LAUDERDALE, FLORIDA 33309
(954) 974-1700
(Name, Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent For Service)
COPIES TO:
<TABLE>
<S> <C>
BRIAN FOREMNY, ESQ. ANDREW R. KELLER, ESQ.
HARRIS COMPUTER SYSTEMS CORPORATION SIMPSON THACHER & BARTLETT
2101 WEST CYPRESS CREEK ROAD 425 LEXINGTON AVENUE
FORT LAUDERDALE, FLORIDA 33309 NEW YORK, NEW YORK 10017
(954) 974-1700 (212) 455-2000
TELECOPIER NO. (954) 463-2030 TELECOPIER NO. (212) 455-2502
</TABLE>
* The Registrant's Board of Directors has approved, and recommended to the
Registrant's shareholders for approval at a meeting to take place on or about
June 26, 1996, an amendment to the Registrant's Articles of Incorporation to
change the Registrant's corporate name to CyberGuard Corporation.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are offered pursuant to
dividend or interest reinvestment plans, please check the following box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS TO BE OFFERING PRICE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(2) FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.......... 2,875,000 $17.25 $49,593,750 $17,102
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares of Common Stock to be sold in this offering. Includes
shares issuable upon exercise of an over-allotment option granted to the
Underwriters. This Registration Statement also relates to the Rights to
purchase fractional shares of Preferred Stock of the Registrant which will
be attached to all shares of Common Stock outstanding as of, and issued
subsequent to, September 29, 1994, pursuant to the terms of the Registrant's
Rights Agreement, dated as of September 29, 1994. Until the occurrence of
certain prescribed events, the Rights are not exercisable, are evidenced by
the certificates of Common Stock and will be transferred with and only with
such stock.
(2) Estimated solely for purposes of calculating the registration fee on the
basis of the average of the high and low sale prices for the Common Stock of
the Registrant on May 16, 1996, as reported by the National Association of
Securities Dealers Automated Quotation System.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS.
SUBJECT TO COMPLETION, DATED MAY 23, 1996
PROSPECTUS
2,500,000 SHARES
CYBERGUARD CORPORATION
COMMON STOCK
------------------------------
Of the 2,500,000 shares (the "Shares") of Common Stock, par value $.01 per
share ("Common Stock," which term includes a Right (as defined herein)), of
CyberGuard Corporation (the "Company") offered hereby, 1,798,165 shares are
being offered by the Company and 701,835 shares are being offered by certain
shareholders of the Company (the "Selling Shareholders.") The Company will not
receive any proceeds from the sale of Shares by the Selling Shareholders. See
"Principal and Selling Shareholders."
The Common Stock is included for quotation on the Nasdaq National Market
under the symbol "NHWK." On May 22, 1996, the last reported sale price of the
Common Stock as reported by the Nasdaq National Market was $19 1/2 per share.
See "Price Range of Common Stock."
THE SECURITIES OFFERED HEREBY REPRESENT A SIGNIFICANT DEGREE OF RISK.
INVESTORS SHOULD CAREFULLY CONSIDER CERTAIN RISKS AND OTHER CONSIDERATIONS
RELATING TO THE COMMON STOCK AND THE COMPANY. SEE "RISK FACTORS" COMMENCING ON
PAGE 6.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting respective expenses of the offering of approximately
$ payable by the Company and approximately $ payable by
certain Selling Shareholders.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 375,000 additional shares of
Common Stock solely to cover over-allotments, if any. See "Underwriting." If
all such shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Shareholders will be $ , $ , $ and $ ,
respectively.
------------------------------
The Shares are offered subject to prior sale, when, as and if delivered and
accepted by the Underwriters and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify the offer and
reject orders in whole or in part. It is expected that delivery of the Shares
will be made against payment therefor on or about , 1996 at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
FURMAN SELZ
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR IN THE
OVER-THE-COUNTER-MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed by the Company can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at the regional offices of the SEC at 7 World
Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material also
may be obtained at prescribed rates from the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Common
Stock is traded on the Nasdaq National Market (Symbol: NHWK). Reports and other
information concerning the Company can also be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
This Prospectus constitutes part of a Registration Statement on Form S-3
(the "Registration Statement") and does not contain all the information set
forth in the Registration Statement, certain portions of which have been omitted
in accordance with the rules and regulations of the SEC. For further information
with respect to the Company and the securities offered hereby, reference is made
to the Registration Statement and to the exhibits and schedules thereto.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed by the Company with the SEC are
incorporated herein by reference: (1) the Company's Annual Report on Form 10-K
for the year ended September 30, 1995; (ii) the Company's Quarterly Reports on
Form 10-Q for the fiscal quarters ended December 29, 1995 and March 30, 1996;
(iii) the Company's Current Report on Form 8-K dated April 10, 1996; and (iv)
the description of the Company's Common Stock contained in the Registration
Statement on Form 10 filed with the SEC on September 29, 1994.
In addition, all reports and documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Shares shall be
deemed to be incorporated by reference herein and made a part hereof from the
date of the filing of such documents. Any statement contained or incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral request
of such person to CyberGuard Corporation, 2101 West Cypress Creek Road, Fort
Lauderdale, Florida 33309 (telephone (954) 974-1700), Attention: Investor
Relations, a copy of any or all documents referred to above (other than exhibits
to such documents) that have been incorporated by reference in this Prospectus.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere and incorporated by reference
in this Prospectus. Unless otherwise indicated, all share information has been
adjusted to give retroactive effect to a three-for-one split of the Company's
Common Stock effective March 18, 1996 and no effect is given in this Prospectus
to the exercise of the Underwriters' over-allotment option or any options
granted pursuant to the Company's Stock Incentive Plan. Unless otherwise
indicated, references to the Company's business and operations with respect to
periods prior to October 7, 1994 refer to the Company's network security
business and operations as part of the Computer Systems Division of Harris
Corporation and, with respect to periods thereafter but prior to June 30, 1996,
to the Company's Trusted Systems Division, which carried on the network security
business described herein. See "Recent Events" below and "Certain Transactions."
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
The Company is a leading developer and marketer of commercial network
security products designed to protect data on computer networks from access by
unauthorized users. The Company was among the first companies to establish a
business unit devoted to developing and marketing network security products. As
early as 1989 the Company had developed and begun to market an integrated secure
operating system and secure networking software solution. With the announcement
of its firewall application in 1994, the Company began offering multi-level
secure network security solutions to the commercial market through its
CyberGuard Firewall suite of products.
The Company has combined its secure operating system and secure networking
software with its firewall application to produce the CyberGuard Firewall, which
provides a barrier to unauthorized access to a customer's enterprise networks,
including unauthorized access from (i) the Internet, (ii) networks of other
enterprises or (iii) other intranet users within the same enterprise network.
The CyberGuard Firewall's secure operating system and secure networking software
are designed to protect the firewall itself from attack, a distinction not
shared by most commercially available firewall products. The superior level of
security of the Company's product, together with its high network throughput
capabilities, permits the CyberGuard Firewall to address network security
markets having the most demanding performance requirements, such as the
healthcare and financial services markets. The CyberGuard Firewall is the only
commercially available firewall built on integrated secure operating system and
secure networking software components that are rated B1 by the National Computer
Security Center ("NCSC"). For information regarding NCSC security ratings, see
"Business -- The CyberGuard Solution."
The Company has established a broad range of distribution channels through
which to market its products in the United States and internationally, including
more than 30 value added resellers ("VARs"), distributors and manufacturers'
representatives, as well as direct sales representatives. During the six months
ended March 30, 1996, indirect channels accounted for approximately 40% of the
Company's sales of CyberGuard Firewalls and related network security products,
and sales to customers in international markets accounted for approximately 55%
of CyberGuard Firewall sales during the same period. The Company's strategy is
to expand indirect channels to generate a 75% indirect sales level and to
maintain a 50% sales level in the international markets. Also, during the six
months ended March 30, 1996, sales to commercial customers accounted for 74% of
the Company's sales and 82% of unit sales. To strengthen the commercial appeal
of the CyberGuard Firewall, the Company is currently "porting" its secure
operating system, secure networking software and firewall application from a
Motorola microprocessor-based Night Hawk computer platform to the more widely
used Intel PC-compatible computer platform. The Company plans to make the
CyberGuard Firewall available on such platform, and also plans to make available
a software-only solution, by December 1996.
The Company's address is 2101 West Cypress Creek Road, Fort Lauderdale,
Florida 33309. The Company's telephone number is (954) 974-1700. The Company's
Internet home page is www.cybg.com.
3
<PAGE> 5
RECENT EVENTS
In May 1995, the Company separated its business operations into two units:
the "Real-time Business," consisting of the assets and liabilities associated
with the manufacture and marketing of real-time computer systems, and the
"Trusted Systems Division," consisting of the assets and liabilities of the
Company's network security business described herein. See "Business." Effective
June 30, 1996, pursuant to a Purchase and Sale Agreement dated as of March 26,
1996 (the "Purchase and Sale Agreement") with Concurrent Computer Corporation
("Concurrent"), the Company has sold its Real-time Business and issued 683,178
shares of its Common Stock to Concurrent in exchange for (i) 10,000,000 newly
issued shares (the "Concurrent Common Stock Consideration") of common stock of
Concurrent, par value $.01 per share ("Concurrent Common Stock"); (ii) 1,000,000
newly issued shares of convertible exchangeable preferred stock of Concurrent
("Concurrent Preferred Stock") with a 9% cumulative annual dividend payable
quarterly in arrears and a liquidation preference of $10.00 per share (subject
to adjustment under certain circumstances); and (iii) the assumption by
Concurrent of certain (but not all) of the liabilities of the Real-time Business
(the "Assumed Liabilities"). The sale of the Real-time Business and the issuance
of the 683,178 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 "Real-time Sale." The Real-time
Business represented approximately 82% of the assets of the Company as of March
30, 1996, and accounted for 83%, 89% and 87% of the Company's sales for the six
months ended March 30, 1996 and the fiscal years ended September 30, 1995 and
June 30, 1994, respectively. See "Certain Transactions." As a result of the
Real-time Sale, the Company will own approximately 23% of the Concurrent Common
Stock issued and outstanding (29% if the Concurrent Preferred Stock were to be
converted into Concurrent Common Stock) and Concurrent will own approximately
10% of the issued and outstanding shares of Common Stock of the Company
(one-half of which are offered hereby). See "Risk Factors."
In connection with the Real-time Sale, the Company and Concurrent entered
into certain ancillary agreements, including a Share Holding Agreement,
effective June 30, 1996 (the "Share Holding Agreement"), that contains certain
standstill, transfer and registration provisions relating to the Concurrent
Common Stock Consideration and the Common Stock held by Concurrent, and
provisions relating to the composition of the Board of Directors of the Company
and Concurrent. See "Certain Transactions."
Following the Real-time Sale, the Company intends to sell a portion of the
Concurrent Common Stock. The Company does not intend to be a long-term holder of
the remaining Concurrent securities.
Concurrent is engaged in the business of providing and servicing
high-performance real-time computer systems, including (upon consummation of the
Real-time Sale) the Night Hawk. Concurrent's revenues were $77 million during
the nine months ended March 31, 1996 and $140 million, $179 million and $220
million for the fiscal years ended June 30, 1995, 1994 and 1993, respectively.
Concurrent reported net losses of $5.7 million, $2.0 million and $39.8 million
and net income of $3.9 million for such periods, respectively. Concurrent
expects that its revenues for the quarter ending June 30, 1996 will be the
lowest quarterly revenues for its fiscal year. In addition, Concurrent expects
to take a material pre-tax charge and to adjust negative goodwill, as
appropriate, in the quarter in which the Real-time sale occurs (expected to be
the quarter ending June 30, 1996) to cover costs related to the Real-time Sale
and other business integration costs. As of the date hereof, the estimated
aggregate charge for these items is in the range of $29 million to $32 million,
approximately $18 million of which is expected to be paid out in cash in the
next two years. See "Risk Factors."
4
<PAGE> 6
THE OFFERING
Common Stock Offered by:
The Company.............. 1,798,165 shares
Selling Shareholders..... 701,835 shares
Total................. 2,500,000 shares
Common Stock Outstanding
after
the Offering............. 8,477,486 shares(1)
Use of Proceeds............ The net proceeds of the offering are intended to be
used (i) to expand the Company's research and
development efforts; (ii) to expand the Company's
sales and marketing efforts; (iii) to repay
outstanding short-term borrowings, if any; and (iv)
for working capital and other general corporate
purposes. A portion of the proceeds may be used in
the future for strategic acquisitions; however, the
Company is not currently seeking an acquisition
target and no acquisition target has been
identified.
Nasdaq Symbol(2)........... CYBG
- ---------------
(1) Assumes the Underwriters' over-allotment option is not exercised and
excludes an aggregate of 1,723,630 shares of Common Stock issuable upon
exercise of currently outstanding options. See "Shares Eligible for Future
Sale."
(2) The Common Stock is included for quotation on the Nasdaq National Market. In
conjunction with its proposed name change from Harris Computer Systems
Corporation to CyberGuard Corporation, the Company expects to change its
stock trading symbol from NHWK to CYBG on or about June 26, 1996.
5
<PAGE> 7
SUMMARY FINANCIAL DATA
The following table sets forth (i) summary financial data derived from the
financial statements of the Company's Trusted Systems Division and the Company
appearing elsewhere or incorporated by reference in this Prospectus and (ii)
summary pro forma data derived from the pro forma financial statements of the
Company appearing elsewhere in this Prospectus. The data should be read in
conjunction with such financial statements and any notes thereto and other
financial information herein.
The Company expects to report certain charges in the quarter ending June
30, 1996. The Company estimates that it will incur a loss of approximately $8.5
million on the sale of the Real-time Business (based on an assumed market price
of Concurrent Common Stock of $2.50 per share); approximately $0.4 million in
charges related to certain grants of Common Stock; and approximately $1.4
million in additional expenses related to the Real-time Sale.
In addition, the Company will report approximately 23% of any losses
reported by Concurrent in the same period.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------
FISCAL YEAR
SIX MONTHS ENDED ENDED
-------------------------------- JUNE 30,
MARCH 30, MARCH 31, FISCAL YEAR ENDED ---------------
1996 1995 SEPTEMBER 30, 1995 1994 1993
----------------- ------------ ------------------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Sales.............................. $ 4,395 $ 3,489 $ 4,817 $8,464 $5,974
Cost of sales...................... 2,915 2,103 3,140 3,842 2,992
Gross profit....................... 1,480 1,386 1,677 4,622 2,982
Operating expenses................. 3,908 2,309 4,834 4,493 3,165
Operating income (loss)............ (2,428) (923) (3,157) 129 (183)
Net income (loss).................. $ (2,423) $ (727) $ (3,108) $ 109 $ (41)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
MARCH 30, 1996 SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Sales.............................. $ 4,395 $ 4,817
Cost of sales...................... 2,915 3,140
Gross profit....................... 1,480 1,677
Operating expenses................. 4,763 5,142
Operating loss..................... (3,283) (3,465)
Net loss........................... $ (3,347) $ (5,063)
Net loss per common share.......... $ (.51) $ (.77)
Weighted average number of common
shares outstanding............... 6,607 6,595
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1996
-----------------------------------------------------
ACTUAL(3) PRO FORMA(4) AS ADJUSTED(5)
----------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 1,307 $ --
Working capital.................... 14,271 22,311
Total assets....................... 38,552 35,080
Total liabilities.................. 9,412 3,595
Total shareholders' equity......... $ 29,140 $ 31,485
</TABLE>
- ---------------
(1) In 1994, the Company changed its fiscal year end from June 30 to September
30.
(2) Includes only financial information attributable to the Company's Trusted
Systems Division and the Company's network security business and operations
as part of the Computer Systems Division of Harris Corporation prior to
October 7, 1994.
(3) Represents Harris Computer Systems Corporation historical consolidated
financial information.
(4) Assumes the Real-time Sale had occurred as of such date.
(5) Adjusted to give effect to the sale of 1,798,165 shares of Common Stock
offered by the Company hereby, at an assumed offering price of $
per share, after deducting underwriting discounts and estimated offering
expenses of the Company. See "Use of Proceeds," "Capitalization" and
"Underwriting."
6
<PAGE> 8
RISK FACTORS
Investment in the Shares offered hereby involves a high degree of risk. In
addition to the other information contained in this Prospectus and incorporated
by reference herein, prospective investors should consider carefully the
following factors in evaluating the Company before purchasing any Shares.
LIMITED OPERATING HISTORY IN THE COMMERCIAL NETWORK SECURITY MARKET;
UNPREDICTABILITY OF OPERATING RESULTS
Although the Company has been developing network security products since
1989, the Company has operated in the commercial network security market only
since October 1994. In view of, among other things, the Company's short
operating experience in, and the rapidly changing and intensely competitive
nature of, the commercial network security market, the uncertainty of acceptance
of the Company's products, the reliance of such products on the Internet, the
mix of distribution channels through which the Company's products are sold, and
the dependence of the Company on Concurrent as the sole supplier of computer
platforms on which the Company's products are currently sold, there is no
assurance that the Company will be profitable in future years. The Company's
results of operations may become increasingly unpredictable from quarter to
quarter as a result of numerous other factors, including market acceptance of
the Company's products, fluctuations in the development and growth of the
commercial network security industry in general, the timing of orders and
shipments of products, the introduction of new products by the Company, or the
introduction or the announcement of competitive products. In addition, a
substantial portion of the Company's sales occurs during the last few weeks of
each quarter; therefore, any delays in orders or shipments are more likely to
result in revenue not being recognized until the following quarter. The
Company's current and planned expense levels are based in part on its
expectations of future sales and, as a result, net income for a given period
could be disproportionately affected by any reduction in sales. There can be no
assurance that the Company will be able to achieve significant sales of products
in the future or that the level of sales in the future will not decrease from
past levels. There can be no assurance that in future quarters the Company's
sales or operating results will meet the expectations of stock market securities
analysts and investors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LIQUIDITY AND CAPITAL REQUIREMENTS; DEPENDENCE ON OFFERING PROCEEDS;
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company's cash requirements have historically been funded from the
Company's working capital and operating cash flow provided by the Company's
Real-time Business. As a result of the sale of the Real-time Business, the
Company expects that funds generated from operations will be insufficient to
satisfy the Company's anticipated cash requirements. The Company may obtain a
line of credit that is likely to be secured by all the assets of the Company
(including all or a substantial part of the Concurrent Common Stock
Consideration and the Concurrent Preferred Stock) and, if drawn upon, may be
subject to, among other things, a number of financial ratios, levels of cash
flow and net worth, and restrictions on indebtedness, asset dispositions, and
investments and corporate transactions, all of which may affect the operating
flexibility of the Company and subject the Company's assets to seizure upon
default. While the Company also may sell or pledge part of the Concurrent Common
Stock Consideration or Concurrent Preferred Stock to generate cash, the
Company's ability to sell or pledge these Concurrent securities is subject to a
number of limitations and conditions imposed in connection with the Share
Holding Agreement and any line of credit. These limitations and conditions may
affect the Company's flexibility in generating cash through sales of the Common
Stock Consideration or Concurrent Preferred Stock and may require the Company to
seek alternative sources of cash, including borrowings and equity sales. In
addition, the timing of any such sales and the prices at which the Common Stock
Consideration or Concurrent Preferred Stock may be sold may be affected by other
factors beyond the Company's control, such as general market conditions and
changes in the business, operations or prospects of Concurrent. See "Fluctuation
in Value of Concurrent Common Stock and Concurrent Preferred Stock Held by the
Company" below. In the event that the Company requires financing from additional
outside sources, there can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. Any additional
financing may involve dilution of the interests of the
7
<PAGE> 9
Company's then existing shareholders. If adequate funds are not available, the
Company may be required to curtail certain activities, including product
development, marketing and sales activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Certain Transactions."
FLUCTUATION IN VALUE OF CONCURRENT COMMON STOCK AND CONCURRENT PREFERRED STOCK
HELD BY THE COMPANY
The Concurrent Common Stock Consideration, consisting of 10,000,000 shares
of Concurrent Common Stock, represented approximately 23% of the Concurrent
Common Stock outstanding as of the Real-time Sale (29% if the Concurrent
Preferred Stock were to be converted into Concurrent Common Stock). The
Concurrent Common Stock Consideration and Concurrent Preferred Stock would have
constituted in the aggregate approximately 80% of the Company's assets on a pro
forma basis as of March 30, 1996. The market price of the Concurrent Common
Stock will vary from time to time as the result of changes in the business,
operations or prospects of Concurrent, its ability to integrate the Real-time
Business into its operations and achieve related cost savings and operating
efficiencies, restructuring charges, including those related to the Real-time
Sale, any continuing declines in sales, any operating losses or shortfalls in
liquidity, its success in shifting from proprietary to open systems, regulatory
considerations, general market, economic and industry conditions and other
factors. In addition, the trading price of the Concurrent Common Stock may be
adversely affected by future issuances of Concurrent Common Stock, including up
to 6,046,704 shares available as of the date hereof for future grants or awards
pursuant to the Concurrent 1991 Restated Stock Option Plan (the "Concurrent
Stock Plan"). In connection with the Real-time Sale, approximately 4.3 million
shares of Concurrent Common Stock will become issuable and freely tradeable,
including options to purchase approximately 2.6 million shares (being all
options then outstanding under the Concurrent Stock Plan) and approximately 1.7
million additional shares issuable as severance or other compensation to, among
others, Concurrent's employees, contractors and financial advisors pursuant to
outstanding warrants to purchase Concurrent Common Stock, or pursuant to certain
contracts entered into by Concurrent in connection with the Real-time Sale. The
market price of Concurrent Common Stock may also be adversely affected by sales
of such stock by the Company. See "Liquidity and Capital Requirements;
Dependence on Offering Proceeds; Possible Need for Additional Financing" above,
"Certain Transactions" and "Business -- Interest in Concurrent."
The Company's assets also include Concurrent Preferred Stock. There is no
public market for Concurrent Preferred Stock and it is not anticipated that a
trading market will ever develop. Concurrent has agreed to register the
Concurrent Common Stock issuable upon conversion of the Concurrent Preferred
Stock but not the Concurrent Preferred Stock. See "Certain Transactions -- Share
Holding Agreement." Absent such registration, the transferability of the
Concurrent Preferred Stock is subject to restrictions under applicable federal
and state securities laws. Therefore, the Company may be unable to sell the
Concurrent Preferred Stock for an indefinite period of time. Due to the
convertibility of the Concurrent Preferred Stock into Concurrent Common Stock,
the Concurrent Preferred Stock is expected to fluctuate in value based on
factors which are substantially similar to the factors that influence the price
of the Concurrent Common Stock.
INABILITY TO INFLUENCE CONCURRENT OPERATIONS; DECLINING TRENDS IN CONCURRENT
RESULTS
As a result of the Real-time Sale, the Company received approximately 23%
of the Concurrent Common Stock issued and outstanding (29% if the Concurrent
Preferred Stock were to be converted into Concurrent Common Stock). Despite the
Company's ownership of the Concurrent Common Stock Consideration and the
Concurrent Preferred Stock and its right to designate up to three of
Concurrent's nine members of its Board of Directors, the Company will not be
able to control Concurrent's strategic direction or influence the day-to-day
management of Concurrent's business or the future results of Concurrent's
operations.
Concurrent's revenues were $220 million, $179 million, $140 million and $77
million for the fiscal years ended June 30, 1993, 1994 and 1995 and the nine
months ended March 31, 1996, respectively. The general decline in Concurrent's
revenues is largely the result of a decline in sales of proprietary real-time
computer systems without a corresponding increase in the sales of open systems.
Concurrent reported net income of $3.9 million and net losses of $39.8 million,
$2.0 million and $5.7 million for the same periods, respectively.
8
<PAGE> 10
Concurrent expects that revenues for the quarter ending June 30, 1996 will be
the lowest quarterly revenues for the fiscal year, and currently expects to take
charges related to the Real-time Sale in such quarter in an aggregate amount in
the range of $29 million to $32 million. There can be no assurance that
Concurrent will be able to achieve profitability, or if achieved, that such
profitability can be maintained, or that Concurrent will not take additional
charges or write-downs of inventories or other assets in the foreseeable future.
Although the purchase by Concurrent of the Real-time Business and the
planned integration and consolidation of the combined development and
manufacturing operations could improve Concurrent's liquidity by permitting
additional borrowing availability, there can be no assurance that the
integration of the Real-time Business into Concurrent's operations will be
successful or that cash flow from the combined real-time operations will be
sufficient to fund Concurrent's transaction costs related to the Real-time Sale,
its anticipated restructuring costs and its ongoing working capital
requirements.
Many factors including, but not limited to, a continued deterioration of
Concurrent's business, operations or prospects and the inability of Concurrent
to successfully integrate the Real-time Business to achieve its planned
operational improvements may have a negative effect on the price of Concurrent
Common Stock and may therefore have a negative effect on the Company's Common
Stock.
DEPENDENCE ON PRINCIPAL PRODUCT; UNCERTAINTY OF PRODUCT ACCEPTANCE
Sales of the Company's CyberGuard Firewall in the commercial network
security market account for a substantial portion of the Company's sales, and
the Company expects the portion of its sales attributable to the CyberGuard
Firewall to increase. As a result, any factor adversely affecting sales of this
product could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's future success
depends on the continued adoption of the Company's CyberGuard Firewall and other
network security products by users. The market acceptance of the Company's
products is difficult to estimate due in large measure to the recent emergence
of the market for network security products and the effect of a number of new
products, applications or product enhancements that have been introduced into
the market. Competitive products are currently available that have comparable or
more favorable price characteristics and that may be perceived to have
comparable performance characteristics. There can be no assurance that the
Company's products, particularly its CyberGuard Firewall, will continue to
achieve acceptance in the network security market, and the failure of the
Company's products to achieve such continued market acceptance could have a
material adverse effect on the Company's business, operating results and
financial condition. Moreover, the Company anticipates that its existing and new
competitors will introduce additional competitive products, particularly if
demand for enterprise-wide network security products increases, which could
reduce future market acceptance of the Company's products.
As the network security industry continues to evolve, the Company's future
financial performance will depend in part on the successful development,
introduction and market acceptance of new products, applications and product
enhancements. There can be no assurance that the Company will be able to develop
new products or that such products will satisfy evolving consumer preferences
and achieve market acceptance or, if market acceptance is achieved, that the
Company will be able to maintain such acceptance for a significant period of
time. Any significant delay in the introduction of the Company's future products
could result in loss of market share and could have a material adverse effect on
the Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH NETWORK SECURITY MARKET
The market for the Company's products is only beginning to emerge. The
rapid development of the Internet and enterprise-wide computing has increased
the vulnerability of proprietary information to access by unauthorized persons
and has in recent years increased demand for computer and network security
products. However, there is no assurance that demand for network security
products will continue at current levels or increase. Moreover, because the
market for network security products is only beginning to develop, it is
difficult to assess the size of this market and the product features and prices,
the optimal distribution strategy and the competitive environment that will
develop in this market. Declines in demand for network security products,
whether as a result of technological change, the public's perception of the need
for network security products, developments in the hardware and software
environments in which these products operate, general
9
<PAGE> 11
economic conditions or other factors, could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON THE INTERNET AND INTRANETS
The Company's products are designed primarily for computer network
environments, such as the Internet and certain enterprise-wide networks that are
based upon the Transmission Control Protocol/Internet Protocol ("TCP/IP")
network protocol. Accordingly, sales of the Company's current products will
depend in large part upon a robust industry and infrastructure for providing
Internet access and carrying Internet traffic. Because global commerce and the
exchange of information on the Internet and other similar open wide area
networks are new and evolving, it is difficult to predict with any assurance
whether the complementary products or other factors necessary to make the
Internet a viable commercial marketplace will be developed. The failure of the
Internet to become a viable commercial marketplace could have a material adverse
effect on the Company's business, financial condition and results of operations.
Additionally, the Company plans to continue to develop products for use by
customers with TCP/IP-based enterprise-wide intranet applications. The failure
of the TCP/IP protocol to gain wide acceptance as an enterprise-wide network
protocol could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Industry
Background."
RECENT TRANSITION TO THE COMMERCIAL MARKET
The Company has targeted the world-wide commercial market as its principal
focus for sales of network security products. The Company believes it has
accomplished the transition from its historically focused government products
market to the commercial network security products market with sales to
commercial customers reaching 74% of sales during the six-month period ended
March 30, 1996, up from 42% for the fiscal year ended September 30, 1995. As the
Company's commercial sales have increased relative to its government-related
sales, gross profit margins have declined. Since the transition to the
commercial market has occurred recently, there can be no assurance that gross
margins can be sustained at current levels given the different competitive
nature of the commercial market as compared to the government market.
Furthermore, the Company, until recently, has not relied on the commercial
market as the primary source of its sales and there can be no assurance that the
Company will be successful competing in the commercial market against
competitors that have more experience in such market.
The Company expects to continue to derive a significant portion of its
near-term sales from sales to the government market. Government business is, in
general, subject to additional special risks, including delays in funding, the
need to comply with diverse rules and regulations, termination of contracts at
the convenience of the government, changes in governmental policies and
budgetary restraints. In addition, even if funds are appropriated or remain
available, delays in payment may occur that could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Markets and Customers."
CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS; SIGNIFICANT RESEARCH AND
DEVELOPMENT EXPENDITURES
The network security industry is characterized by rapid changes, including
evolving industry standards, frequent new product introductions, continuing
advances in technology and changes in customer requirements and preferences. The
introduction of new technologies could render the Company's existing products
obsolete or unmarketable. Advances in techniques employed by individuals and
entities seeking to gain unauthorized access to networks could expose the
Company's existing products to new and unexpected attacks and require
accelerated development of new products. There can be no assurance that the
Company will be able to counter challenges to its current products, that the
Company's future product offerings will keep pace with technological changes
implemented by competitors or persons seeking to breach network security, that
the Company will be able to establish and maintain any strategic technical
alliances necessary to achieve a competitive advantage or that the Company will
be successful in developing and marketing products for any future technology.
The development cycle for the Company's new products may be significantly longer
than the Company's historical product development cycle or significantly longer
than anticipated, resulting in
10
<PAGE> 12
higher development costs or a loss in market share. Failure to develop and
introduce new products and product enhancements on a timely basis could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the costs of developing new products, and
related sales and marketing expenses, are expected to be significant before such
products are in a position to deliver significant sales or cash flow to the
Company. There can be no assurance that new product introduction will be
executed without materially and adversely affecting the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business -- The
CyberGuard Solution" and "-- Product Development."
COMPETITION
The market for network security products and services is intensely
competitive, rapidly evolving and characterized by frequent technological
change. The Company expects competition to persist and intensify in the future.
The Company's principal current competitors include Advanced Network & Services
Inc. ("ANS", which is owned by America Online, Inc.), CheckPoint Systems, Inc.
("Checkpoint"), Raptor Systems, Inc. ("Raptor"), Secure Computing Corporation
("Secure Computing") and Trusted Information Systems, Inc. ("TIS"). In addition,
companies such as Digital Equipment Corporation ("DEC"), International Business
Machines Corporation ("IBM"), and Sun Microsystems, Inc. ("Sun") sell products
with similar features and functions that could be considered competitors of the
Company. Several other companies offering other network and other
computer-related products, including Microsoft Corporation ("Microsoft"), are
expected to enter the commercial network security market in the near future.
Many of the Company's current and potential competitors have greater name
recognition, larger installed customer bases and significantly greater
financial, technical or marketing resources than the Company. As a result, they
may be able to adapt more quickly to new or emerging technologies or changes in
customer requirements or to devote greater resources to the promotion and sale
of their products than the Company. Competition could increase if new companies
enter the market or if existing competitors expand their product lines. An
increase in competition could result in price reductions and loss of market
share for the Company. Such competition and any resulting reduction in pricing
and gross margins could have a material adverse effect on the Company's
business, financial condition and results of operations.
There can be no assurance that the Company's competitors will not develop
network security products using approaches substantially similar to or different
from the Company's that may be more effective than the Company's current or
future products or that the Company's technologies and products would not be
rendered obsolete by such developments. Certain of the Company's competitors
have also submitted their commercial network fire wall products for evaluation
by the NCSC, and certain of these products could receive B1 or higher ratings
upon completion of the process. Competitors may also employ litigation or the
threat of litigation relating to patents and other intellectual property to gain
a competitive advantage. See "Business -- Competition."
DEPENDENCE ON RESELLERS; NEED TO ESTABLISH COLLABORATIVE MARKETING ARRANGEMENTS
In marketing its products, the Company depends substantially, and expects
to increase its dependence, upon the performance of indirect sales channels,
including systems integrators and VARs, over which the Company does not have
complete authority. The Company's relationships with most of its resellers have
been established within the last year, and the Company is unable to predict with
accuracy the extent to which its resellers will be successful in marketing and
selling the Company's products. Moreover, the Company's future success will
depend in part on its ability to establish collaborative marketing relationships
in other indirect sales channels. There can be no assurance that the Company's
existing or contemplated collaborative relationships will be commercially
successful, that the Company will be able to negotiate additional collaborative
relationships, that such additional collaborations will be available to the
Company on acceptable terms or that any such relationships, if established, will
be commercially successful. In addition, there can be no assurance that parties
with whom the Company has established collaborative relationships will not
pursue alternative technologies or develop alternative products in addition to
or in lieu of the Company's products either on their own or with others,
including the Company's competitors. The loss of any of the Company's
11
<PAGE> 13
major resellers, either to competitive products offered by other companies or to
products developed internally by the resellers, could have a material adverse
effect on the Company's business, financial condition or results of operations.
If the Company is successful in expanding its network of indirect sales
channels, the Company will need to add substantially to its pre-sales, field
support, and marketing staffs in order to support the sales activities of an
expanded distribution network. There can be no assurance that such internal
expansion will be successfully completed, that the cost of such expansion will
not exceed the sales generated thereby, or that the Company's sales and
marketing organization will successfully compete against the more extensive and
well-funded sales and marketing operations of many of the Company's current and
future competitors. See "Business -- Sales and Marketing."
DEPENDENCE ON SOLE-SOURCE SUPPLIERS
The Company's products were developed to function in an open architecture,
real-time environment, based upon UNIX operating system technology. The Company
currently uses only Night Hawk computers, which have certain essential
multiprocessing capabilities, on which to install its secure operating system,
secure networking software and CyberGuard Firewall software applications for
resale. See "Business -- Products" and "Certain Transactions." The Company also
has a relationship with the Santa Cruz Operation, Inc. ("SCO"), which provides
the core UNIX operating system technology into which the Company's computer
security enhancements are integrated.
Concurrent is the only source of supply for Night Hawk computers. The
unavailability of, or any delay in receiving, Night Hawk computers could result
in delays in shipping the Company's products and in loss of sales during such
period. Pursuant to the Shared Services Agreement, the Company may buy Night
Hawk computers at the price and subject to the delivery terms quoted by
Concurrent for Night Hawks as of the day that the Company submits a purchase
order. A substantial increase in the price of Night Hawks or a change in the
delivery terms thereof would result in an increase in the price of the Company's
products, which could result in decreased profit margins or loss of sales. The
Company is actively seeking alternative platforms on which to install its
products; however, there is no assurance that the Company will be successful in
its attempts to market its products on platforms other than the Night Hawk or
that such products will be successful in the marketplace. There can further be
no assurance that such alternative platforms will continue to be manufactured or
that the price and delivery terms of such platforms will be favorable to the
Company. Should the Company be successful in marketing its products on platforms
other than the Night Hawk, the Company will remain obliged to continue to
support the Night Hawk to satisfy existing customer expectations for the
availability and support of the Night Hawk platform. This support requirement
may place significant burdens on the Company's resources.
SCO's UNIX operating system technology has been purchased by the Company as
the basis for the computer security enhancements for the Company's products. The
Company depends upon SCO to develop its UNIX operating system technology and to
provide specific enhancements and features necessary to ensure that the UNIX
operating system remains competitive in the general computer marketplace. In
particular, the Company depends upon SCO to ensure that support is provided for
new and emerging hardware technologies (e.g., Intel processor chipsets, new
communication technologies) and new and emerging software features (e.g.,
standards compliance, DOS/Windows applications support). Should SCO discontinue
development efforts related to the UNIX operating system technology, or should
such technology no longer be offered for sale by SCO to the Company, the Company
would be required to initiate internally funded development to support new
hardware and/or software features or choose an alternate UNIX operating system
supplier. Any such internally funded development would likely preclude the
Company from delivering a competitive product offering into the marketplace in a
timely manner and would likely result in substantial development expenses.
Likewise, choosing an alternate UNIX operating system supplier would require the
Company to transfer a significant number of computer security enhancements into
the alternate UNIX operating system which would place a substantial strain on
the Company's product development resources and could have a material adverse
effect on the Company's business, financial condition and results of operations.
12
<PAGE> 14
RISK OF ERRORS OR FAILURES
Products as complex as those offered by the Company may contain undetected
errors when first introduced or when new versions are released. The Company has
in the past discovered software errors in certain of its product offerings after
their introduction and has experienced delays in revenue recognition during the
period required to correct these errors. There can be no assurance that errors
will not be found in new products or releases after commencement of commercial
shipments by the Company, particularly as the Company undertakes to develop
network security products for platforms other than the Night Hawk that may be
characterized by a wide variety of non-standard configurations that make
pre-release testing for programming or compatibility errors very difficult and
time-consuming. A computer break-in or other disruption experienced by one of
the Company's customers, if caused by errors or failures in the Company's
products, could result in product recalls and liability under the Company's
warranties or otherwise. A well publicized actual or perceived breach of network
security at a customer site could adversely affect the market's perception of
the Company or its products. Alleviating such problems could require significant
expenditures of capital and resources by the Company, could cause interruptions,
delays or cessation of service to the Company's customers and could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company attempts to limit its liability to customers,
including liability arising from a failure of the security features contained in
the Company's products, through contractual limitations of warranties and
remedies. However, some courts have held similar contractual limitations of
liability, or the "shrinkwrap licenses" in which they are often embodied, to be
unenforceable. Accordingly, there can be no assurance that such limitations will
be enforced. Moreover, to the extent such limitations are enforced as to
licensees, there can be no assurance that they will be enforceable as to other
users of the Company's products or as against parties who have an interest in
data stored on networks that might be compromised by a failure of the Company's
product. While the Company currently has product liability insurance to protect
against these risks, there can be no assurance that such insurance will cover
all losses from failures of the Company's products or will be available to the
Company on commercially reasonable terms or at all.
ANTICIPATED INCREASES IN CERTAIN EXPENSES TO PROVIDE NEW INFRASTRUCTURE
Many of the Company's sales and administrative personnel and facilities
were transferred to Concurrent in connection with the Real-time Sale. In
connection with the Real-time Sale, the Company expects to enter into a Shared
Services Agreement with Concurrent, expected to expire on December 30, 1996,
pursuant to which Concurrent will provide certain administrative and
personnel-related services for the Company. The Company believes that Concurrent
provides these services costs equal to or below that which the Company would
incur if the Company were to provide these services for itself. Upon expiration
of the Shared Services Agreement, the Company will be required to acquire the
necessary skills, staff and systems to provide these services for itself.
Acquiring such skills, staff and systems could substantially increase the
Company's operating expenses. There can be no assurance that the Company will be
able to make the transition to providing for itself the services covered by the
Shared Services Agreement, and to continue to provide such services in the
future, without incurring costs that could have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, the Company currently leases approximately 9,120 square feet
of office and development space from Concurrent at a price that the Company
believes is below market rates for substantially equivalent space. The Company's
lease with Concurrent expires in June 1997, subject to earlier termination under
certain circumstances. Following the expiration or termination of the lease, the
Company will be required to lease substantially equivalent space at market
rates. There can be no assurance that the Company will be able to offset such
additional costs with corresponding increases in revenues or without having a
material adverse effect on the Company's business, financial condition and
results of operations.
NEW MANAGEMENT TEAM
In April 1996, in anticipation of the Real-time Sale, the Company engaged a
new Chief Executive Officer, appointed a new Chief Financial Officer from a
management position within the Company's Trusted Systems Division sales force
and appointed other executive officers from positions inside the Company's
Trusted Systems Division. These individuals have not previously worked together
as senior managers and are
13
<PAGE> 15
in the process of integrating as a management team. With the exception of the
Company's new Chief Executive Officer and the Vice President of International
Sales, none of these senior managers has previously served as an executive
officer of a publicly held corporation.
POTENTIAL ACQUISITIONS
In the normal course of its business, the Company evaluates potential
acquisitions of businesses, products and technologies that could complement or
expand the Company's network security business. To date, the Company has not
made any acquisitions. In the event the Company were to identify an appropriate
acquisition candidate, there is no assurance that the Company would be able to
successfully negotiate the terms of any such acquisition, finance such
acquisition and integrate such acquired business, products or technologies into
the Company's existing business and operations. Furthermore, the integration of
an acquired business could cause a diversion of management time and resources.
There can be no assurance that a given acquisition, when consummated, would not
materially adversely affect the Company's business, financial condition and
results of operations. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in large part on its ability to attract and
retain highly qualified engineering, management and marketing personnel.
Although the Company maintains key man life insurance on the Company's Chief
Executive Officer, the loss of the services of the Company's Chief Executive
Officer or other key employees of the Company could have a material adverse
effect on the Company. Competition for such personnel is intense and there can
be no assurance that the Company will be able to attract and retain all
personnel necessary for the development and operation of its business. The loss
of the services of key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Employees" and "Management."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; RISK OF
LITIGATION
The Company relies upon license agreements with customers, trademark,
copyright and trade secret laws, and employee conflict of interest and
third-party non-disclosure agreements and other methods to protect its
proprietary rights. The Company currently does not hold any patents and has no
pending patent applications to cover any aspects of its technology. The Company
intends to file patent applications in relevant jurisdictions to protect aspects
of its technology; however, there can be no assurance that any future patent
applications will be granted or that any future patents will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
competitive advantages to the Company. There can also be no assurance that the
Company's conflict of interest or non-disclosure agreements will provide
meaningful protection of the Company's proprietary information. Further, the
Company may be subject to additional risk as it enters into transactions in
countries where intellectual property laws are not well developed or are poorly
enforced. The Company's inability to maintain a competitive advantage based on
proprietary rights could have a material adverse effect on the Company's
business, financial condition and results of operations.
As the number of network security products in the industry increases and
the functionality of these products further overlaps, software developers and
publishers may increasingly become subject to infringement claims. There can be
no assurance that others will not independently develop similar technologies or
duplicate any technology developed by the Company or that the Company's
technology will not infringe upon patents or other rights owned by others.
Likewise, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future products. Although the Company is not currently the subject of any
intellectual property litigation, there has been substantial litigation
regarding patent, copyright, trademark and other intellectual property rights
involving computer software companies. Any claims or litigation, with or without
merit, could be costly and could result in a diversion of management's
attention, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Adverse determinations in such
claims or
14
<PAGE> 16
litigation could also have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Patents and
Proprietary Technology."
INTERNATIONAL SALES RISKS
For the six months ended March 30, 1996 and the fiscal years ended
September 30, 1995 and June 30, 1994, 46%, 31% and 64%, respectively, of the
Company's total trusted sales were attributable to sales outside the United
States. The Company expects to continue to expand its marketing efforts abroad.
International sales are subject to certain risks, such as currency fluctuations,
that could make the Company's products less competitive in foreign markets and
contribute to fluctuations in the Company's operating results. Other risks
affecting international sales include political instability, difficulties in
staffing and managing international operations, potential insolvency of
international resellers, longer receivable collection periods and difficulty in
collecting accounts receivable. In addition, the laws of certain countries do
not protect the Company's products and intellectual property rights to the same
extent as the laws of the United States. There can be no assurance that these
factors would not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Sales and
Marketing."
EFFECT OF GOVERNMENT REGULATION OF TECHNOLOGY EXPORTS
The Company's international sales and operations may be subject to risks
such as the imposition of governmental controls, export license requirements,
restrictions on the export of critical technology, trade restrictions and
changes in tariffs. In particular, because of governmental controls on the
exportation of encryption technology, the Company may be unable to export its
most robust network security products. As a result, foreign competitors that
face less stringent controls on their products may be able to compete more
effectively than the Company in the global network security market. There can be
no assurance that these factors would not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Regulation."
INADVERTENT INVESTMENT COMPANY
The Concurrent Common Stock Consideration and the Concurrent Preferred
Stock, which the Company will own immediately following the Real-time Sale,
would have comprised approximately 80% of the Company's total assets on a pro
forma basis as of March 30, 1996. As a result, the Company may be deemed to be
an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "1940 Act"), which defines an investment company as one
engaged in the business of investing or holding securities and owning
"investment securities" having a value exceeding 40% of the value of such
company's total assets. Generally, an investment company is required to register
as such with the Securities and Exchange Commission, subjecting itself to
extensive regulation, compliance with which would have a material adverse effect
on the Company's business, financial condition and results of operations.
A company is deemed not to be an investment company for one year if it has
a bona fide intent to be engaged in a business other than investing, holding or
trading in securities. Following the Real-time Sale, the Company intends to sell
a portion of the Concurrent Common Stock Consideration. The Company does not
intend to remain a long-term holder of the remaining Concurrent securities or of
any investment securities having a value exceeding 40% of the value of its total
assets when the one-year exemption period expires in June 1997. There is no
assurance that the Company will be successful in its efforts to reduce its
holdings of Concurrent securities, or that, if successful, it can do so at a
favorable price. The Company's ability to sell or pledge the Concurrent Common
Stock or the Concurrent Preferred Stock is subject to the limitations imposed in
the Share Holding Agreement. In addition, the Company's ability to sell such
securities may be affected by factors beyond the Company's control, such as
general market conditions and changes in the business, operations or prospects
of Concurrent. See "Fluctuation in Value of Concurrent Common Stock and
Concurrent Preferred Stock Held by the Company" above and "Certain
Transactions -- Share Holding Agreement."
15
<PAGE> 17
SHARES ELIGIBLE FOR FUTURE SALE
No assurance can be given as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares of Common Stock for future
sales, will have on the market price of the Common Stock from time to time.
Future sales of shares of Common Stock (including shares issued upon exercise of
stock options), or the possibility that such sales could occur, could adversely
affect the prevailing market price of the Common Stock and could also impair the
Company's ability to raise capital through an offering of its equity securities.
Immediately following completion of the offering, there will be 8,477,486 shares
of Common Stock outstanding, all of which (including the 2,500,000 shares sold
in this offering) will be immediately tradable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"). Of these, 341,589
shares of Common Stock will be subject to the Share Holding Agreement between
the Company and Concurrent pursuant to which such shares may be sold by
Concurrent subject to certain restrictions on transfer (including when the
Company is engaged in or is preparing to engage in a public offering of its
Common Stock) and on the volume of sales by Concurrent of the Company's Common
Stock. See "Certain Transactions." An additional 1,723,630 shares of Common
Stock are issuable upon exercise of currently outstanding options and 504,206
shares of Common Stock or options thereon are available for future issuance
under the Company's Stock Incentive Plan. The Company, together with each of its
executive officers and directors and the Selling Shareholders, including
Concurrent (holding in the aggregate 1,483,738 shares of Common Stock or options
to purchase Common Stock upon consummation of this offering), have agreed not to
offer, sell, contract to sell or otherwise dispose of, directly or indirectly,
any Common Stock or securities convertible into Common Stock until 180 days
after the date of this Prospectus, without the prior consent of the
Underwriters; at the expiration of such 180 days, such shares will be freely
tradable subject to compliance with Rule 144 under the Securities Act with
respect to shares held by affiliates. See "Shares Eligible for Future Sale" and
"Underwriting."
ABSENCE OF DIVIDENDS
The Company does not intend to pay any cash dividends for the foreseeable
future. The Company intends to follow a policy of retaining earnings, if any, to
finance the development and expansion of its business. See "Dividend Policy."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and By-laws contain certain
anti-takeover provisions that could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. These provisions
include a staggered Board of Directors, certain super-majority voting
requirements with respect to removal of directors and amendments of the Articles
of Incorporation and By-laws, requirements concerning the filling of board
vacancies, adoption of Florida's Control Share Acquisition Act, elimination of
shareholder action by written consent, creation of a class of "blank check"
preferred stock and an increase in the percentage of shareholder votes required
to call a special meeting of shareholders. The Company also has adopted and
implemented a Shareholder Rights Agreement that will expire by its terms on
September 20, 2004 pursuant to which each share of Common Stock has attached to
it a right to purchase a share of preferred stock under certain circumstances.
These provisions and agreements are intended to encourage a person interested in
acquiring the Company to negotiate with, and to obtain the approval of, the
Board of Directors in connection with such a transaction. However, certain of
these provisions and agreements may discourage a future acquisition of the
Company, including an acquisition in which shareholders might otherwise receive
a premium for their shares. As a result, shareholders who might desire to
participate in such a transaction may not have the opportunity to do so. See
"Description of Capital Stock."
USE OF PROCEEDS
The net proceeds to be received by the Company from the offering are
estimated to be $ , or $ if the Underwriters'
over-allotment option is exercised in full. The Company's intent is to use these
proceeds (i) to expand the Company's research and development efforts to enhance
the capabilities and performance of its CyberGuard Firewall product and to
expand the Company's overall product offering; (ii) to expand the Company's
sales and marketing staff to increase its indirect sales efforts and provide
infrastructure
16
<PAGE> 18
and support for an expected increasing number of VARs; (iii) to repay
outstanding short-term borrowings, if any, and (iv) for working capital and
other general corporate purposes.
Amounts expended for these purposes will vary significantly depending on a
number of factors including the annual cash generated from the Company's
operations, the Company's ability to establish a competitive position within
selected vertical markets, the progress of the Company's efforts to rapidly
introduce innovative products and the ability of the Company to sustain its
rapid growth rate.
Consistent with the Company's efforts to expand the breadth of its product
offering and its marketing efforts in selected vertical markets, the Company may
make one or more strategic business acquisitions. The goal of such acquisitions
would be to acquire complementary technologies or products to further enhance
the Company's CyberGuard Firewall product or to provide a larger, more effective
distribution network for the Company's products. The Company is not currently
seeking, nor has the Company identified, any specific acquisition targets.
Pending application of the net proceeds of the offering to the uses
described above, the Company intends to invest such proceeds in short-term,
investment grade, interest-bearing marketable instruments.
The Company will not receive any of the proceeds from the sale of Shares
being offered by the Selling Shareholders.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock. The Company
intends to retain earnings, if any, to finance future operations and expansion
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future. Any future payment of dividends will depend upon the financial
condition, capital requirements and earnings of the Company, as well as upon
other factors that the Board of Directors may deem relevant.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded over-the-counter and is included for
quotation on the Nasdaq National Market. In connection with its proposed name
change from Harris Computer Systems Corporation to CyberGuard Corporation, the
Company expects to change its stock trading symbol changed from NHWK to CYBG.
The following table sets forth the range of high and low bid prices for the
Common Stock for the periods indicated, as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
BID PRICES(2)
-----------------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR 1995
Quarter Ended December 30, 1994(1).................................... $ 5 11/64 $2 21/64
Quarter Ended March 31, 1995.......................................... 6 3 37/64
Quarter Ended June 30, 1995........................................... 5 53/64 4 5/64
Quarter Ended September 30, 1995...................................... 5 3/4 3 53/64
FISCAL YEAR 1996
Quarter Ended December 31, 1995....................................... 5 1/2 3 5/64
Quarter Ended March 31, 1996.......................................... 16 21/64 3 35/64
Period from April 1, 1996 to May 22, 1996............................. 19 1/2 13 3/4
</TABLE>
- ---------------
(1) Prior to October 1994, there was no established public trading market for
the Common Stock.
(2) Adjusted to reflect a three-for-one split of the Company's Common Stock
effective March 18, 1996.
On May 22, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $19 1/2 per share. There were approximately 6,660
holders of record of Common Stock as of May 14, 1996.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization and pro forma
capitalization of the Company at March 30, 1996, and the capitalization as of
such date as adjusted to give effect to the sale of 1,798,165 shares of Common
Stock offered by the Company hereby at the offering price of $ per share.
The information set forth in the table below should be read in conjunction with
the Consolidated Financial Statements of the Company and the notes thereto
incorporated herein by reference and with the Pro Forma Condensed Consolidated
Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 30, 1996
-------------------------------------
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' equity:
Preferred Stock, $.01 par value; 5,000,000 authorized;
none issued or outstanding........................... -- --
Common Stock, $.01 par value; 25,000,000 shares
authorized; 5,996,143 shares outstanding at March 30,
1996; 6,679,321 shares outstanding on a pro forma
basis; 8,477,486 shares outstanding upon completion
of this offering(3).................................. $ 60 $ 67
Additional paid-in-capital................................ 44,144 55,601
Accumulated deficit....................................... (14,363) (24,183)
Cumulative translation adjustment......................... (701) --
-------- --------
Total shareholders' equity........................... 29,140 31,485
-------- --------
Total capitalization................................. $ 29,140 $ 31,485
======== ========
</TABLE>
- ---------------
(1) Assumes that the Real-time Sale had occurred as of such date.
(2) Adjusted to give effect to the sale of 1,798,165 shares of Common Stock
offered by the Company hereby, at the offering price of $ per share,
after deducting underwriting discounts and estimated offering expenses of
the Company. See "Underwriting."
(3) Assumes the Underwriters' over-allotment option is not exercised and
excludes an aggregate of 1,723,630 shares of Common Stock issuable upon
exercise of currently outstanding options. See "Management" and "Principal
and Selling Shareholders."
18
<PAGE> 20
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements have been prepared
to give effect to the Real-time Sale. See "Certain Transactions." These
financial statements do not purport to represent what the results of operations
or financial position actually would have been had the Real-time Sale occurred
on the dates when they are reflected to have occurred in the pro forma financial
statements, or to project the results of operations or financial condition for
any future period or date.
The pro forma condensed consolidated statements of operations for the year
ended September 30, 1995 and for the six months ended March 30, 1996 have been
prepared assuming the Real-time Sale occurred as of the beginning of each of the
respective periods. The pro forma condensed consolidated statement of operations
for the year ended September 30, 1995 includes the Company's equity interest in
the losses of Concurrent for the year ended June 30, 1995. The pro forma
condensed consolidated statement of operations for the six months ended March
30, 1996 includes the Company's equity interest in the losses of Concurrent for
the six months ended March 31, 1996. The pro forma condensed consolidated
balance sheet at March 30, 1996 has been prepared assuming the Real-time Sale
had occurred as of that date.
The pro forma condensed financial statements should be read in conjunction
with (i) the consolidated financial statements of the Company incorporated by
reference in this Prospectus and (ii) the financial statements related to the
Company's Trusted Systems Division appearing elsewhere in this Prospectus. The
financial statements related to the Company's Trusted Systems Division exclude
corporate assets and liabilities not specifically identifiable to the division.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
19
<PAGE> 21
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 30, 1996
<TABLE>
<CAPTION>
HARRIS LESS OTHER
HISTORICAL REAL-TIME PRO FORMA
CONSOLIDATED BUSINESS(A) ADJUSTMENTS PRO FORMA
------------ ----------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales
Equipment......................................... $ 18,942 $ (14,765) $ 4,177
Maintenance....................................... 6,622 (6,404) 218
------------ ----------- ---------
Total sales......................................... 25,564 (21,169) 4,395
Cost of sales
Equipment......................................... 10,051 (7,228) 2,823
Maintenance....................................... 3,279 (3,187) 92
------------ ----------- ---------
Total cost of sales................................. 13,330 (10,415) 2,915
------------ ----------- ---------
Gross profit........................................ 12,234 (10,754) 1,480
Operating expenses
Research and development.......................... 3,580 (3,003) 577
Selling, general and administrative expenses...... 11,266 (8,054) 154(b) 3,366
Transaction expenses.............................. 820 -- 820
------------ ----------- ---------- ---------
Total operating expenses............................ 15,666 (11,057) 154 4,763
------------ ----------- ---------- ---------
Operating loss...................................... (3,432) 303 (154) (3,283)
Equity interest in losses of Concurrent............. (141)(c) (141)
Dividends on Concurrent Preferred Stock............. 51(d) 51
Interest income..................................... 155 (129) 26
Other expense....................................... 2 (2) --
------------ ----------- ---------- ---------
Net loss............................................ $ (3,275) $ 172 $ (244) $(3,347)
========= ========= ======== ========
Net loss per common share........................... $(.55) $(.51)
Weighted average number of common shares
outstanding....................................... 5,924 6,607
</TABLE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma adjustments were made to the Company's
historical condensed consolidated statements of operations for the six months
ended March 30, 1996 to give effect to the Real-time Sale as if it had occurred
as of the beginning of such period:
(a) To subtract the operating results of the Company's Real-time Business.
(b) To record the amortization of compensation for the Common Stock granted to
Messrs. Siegel and Dunleavy in consideration for non-competition agreements
between each of them and the Company. The amount represents the pro-rated
amortization expense over five years.
(c) To record the Company's equity interest in the net losses of Concurrent
based on its percentage ownership of Concurrent Common Stock.
(d) To record preferred stock dividends on Concurrent Preferred Stock received
as partial consideration for the Real-time Sale.
20
<PAGE> 22
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HARRIS LESS OTHER
HISTORICAL REAL-TIME PRO FORMA
CONSOLIDATED BUSINESS(A) ADJUSTMENTS PRO FORMA
------------ --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales
Equipment........................................ $ 31,184 $ (26,650) $ 4,534
Maintenance...................................... 13,927 (13,644) 283
------------ --------- ---------
Total sales........................................ 45,111 (40,294) 4,817
Cost of sales
Equipment........................................ 18,550 (15,549) 3,001
Maintenance...................................... 7,214 (7,075) 139
------------ --------- ---------
Total costs of sales............................... 25,764 (22,624) 3,140
------------ --------- ---------
Gross profit....................................... 19,347 (17,670) 1,677
Operating expenses
Research and development......................... 7,903 (7,068) 835
Selling, general and administrative expenses..... 22,984 (18,985) 308(b) 4,307
------------ --------- ----------- ---------
Total operating expenses........................... 30,887 (26,053) 308 5,142
------------ --------- ----------- ---------
Operating loss..................................... (11,540) 8,383 (308) (3,465)
Equity interest in losses of Concurrent............ (1,850)(c) (1,850)
Dividends on Concurrent Preferred Stock............ 203(d) 203
Interest income.................................... 456 (407) 49
Other expense...................................... (4) 4 0
------------ --------- ----------- ---------
Net loss........................................... $(11,088) $ 7,980 $(1,955) $(5,063)
========= ======== ========= ========
Net loss per common share.......................... $(1.88) $(.77)
Weighted average number of common shares
outstanding...................................... 5,911 6,595
</TABLE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma adjustments were made to the Company's
historical condensed consolidated statements of operations for the year ended
September 30, 1995 to give effect to the Real-time Sale as if it had occurred as
of the beginning of such period:
(a) To subtract the operating results of the Company's Real-time Business.
(b) To record the amortization of compensation for the Common Stock granted to
Messrs. Siegel and Dunleavy in consideration for non-competition agreements
between each of them and the Company. The amount represents the pro-rated
amortization expense over five years.
(c) To record the Company's equity interest in the net losses of Concurrent
based on its percentage ownership of Concurrent Common Stock.
(d) To record preferred stock dividends on Concurrent Preferred Stock received
as partial consideration for the Real-time Sale.
21
<PAGE> 23
HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 30, 1996
<TABLE>
<CAPTION>
HARRIS LESS OTHER PRO
HISTORICAL REAL-TIME FORMA
CONSOLIDATED BUSINESS(A) ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 1,307 $ (1,307) $ --
Concurrent Common Stock available for sale...... 21,400(b) 21,400
Accounts receivable............................. 15,335 (12,709) 2,626
Inventories..................................... 6,381 (6,294) 87
Prepaid expenses................................ 660 1,540(c) 1,793
------------ ---------
(407)
Total current assets.................. 23,683 25,906
Property, plant and equipment................... 5,912 (4,878) 1,034
Capitalized software............................ 8,135 (5,409) 2,726
Concurrent Preferred Stock available for sale... 5,384(b) 5,384
Other assets.................................... 822 (792) 30
------------ ---------
Total assets.......................... $ 38,552 $35,080
========= ========
Accounts payable................................ 4,565 (4,100) 465
Deferred revenue................................ 628 (591) 37
Accrued expenses................................ 4,219 (3,326) 2,200(d) 3,093
------------ ---------
Total current liabilities............. 9,412 3,595
Equity.......................................... 29,140 1,540(c) 31,485
(2,200)(d)
(8,459)(e)
11,464(f)
------------ ---------
Total liabilities and equity.......... $ 38,552 $35,080
========= ========
</TABLE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma adjustments were made to the
historical condensed consolidated balance sheet as of March 30, 1996 to
give effect to the Real-time Sale as if it had occurred as of such date:
(a) To reflect the sale of the assets and liabilities of the Company's
Real-time Business.
(b) To reflect the receipt of Concurrent Common Stock and Concurrent
Preferred Stock valued at $21,400 and $5,384, respectively, as part of
the Real-time Sale. The value of the Concurrent Common Stock is the
average of the closing prices for Concurrent Common Stock from May 1 to
May 7, 1996. The value of Concurrent Preferred Stock is based on the
assumptions (i) that no cash dividends will be paid until the redemption
of the Concurrent Preferred Stock; (ii) that such redemption will occur
in 2006; and (iii) that the value of Concurrent Preferred Stock is
discounted at a rate of 14% per annum. The Share Holding Agreement
contains restrictions on the volume of sales of Concurrent Common Stock
by the Company in certain circumstances.
(c) To reflect the issuance of shares of Common Stock to Mr. Siegel (78,000
shares) and Mr. Dunleavy (13,800 shares) at $16.78 per share (the
average of the closing prices from May 1 through May 7, 1996) in
consideration for their respective five-year non-competition agreements
with the Company.
(d) To reflect the accrual of estimated expenses relating to the Real-time
Sale of $2,200.
(e) To reflect the book loss on the Real-time Sale; such amount is subject
to change based on the value of the Concurrent Common Stock
Consideration and Concurrent Preferred Stock at the time of the closing
of the Real-time Sale.
(f) To reflect the issuance of 683,178 shares of Common Stock valued at
$11,464 to Concurrent as part of the Real-time Sale. The value of the
stock is the average of the closing prices of the Common Stock from May
1 through May 7, 1996.
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical financial data
for the Company's Trusted Systems Division, which exclude the Company's
corporate assets and liabilities not specifically identifiable to the division.
The financial data for the six months ended March 30, 1996 and for the fiscal
year ended September 30, 1995 have been derived from audited financial
statements of the Company for such periods audited by KPMG Peat Marwick LLP.
Such data have been derived from, and should be read in conjunction with, the
audited financial statements and other financial information, including the
notes thereto, appearing elsewhere in this Prospectus. The statement of
operations data set forth for the six months ended March 30, 1996 are not
necessarily indicative of results for the entire year. Financial data for the
six months ended March 31, 1995 and for the fiscal years ended June 30, 1994 and
1993 has been derived from unaudited financial statements that include all
adjustments that the Company considers necessary for a fair presentation of the
financial data set forth therein, in accordance with generally accepted
accounting principles. The financial data included herein may not necessarily
reflect the results of operations of the Company in the future or what the
results of operations of the Trusted Systems Division would have been had it
been a separate, stand-alone entity during the period covered.
<TABLE>
<CAPTION>
FISCAL
SIX MONTHS ENDED FISCAL YEAR ENDED JUNE
------------------------ YEAR ENDED 30,
MARCH 30, MARCH 31, SEPTEMBER 30, ---------------
1996 1995 1995 1994 1993
------------ --------- ------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales........................................ $ 4,395 $ 3,489 $ 4,817 $8,464 $5,974
Cost of sales................................ 2,915 2,103 3,140 3,842 2,992
------------ --------- ------------- ------ ------
Gross profit................................. 1,480 1,386 1,677 4,622 2,982
Selling, general and administrative
expenses................................... 3,330 1,879 3,999 3,677 2,467
Research and development..................... 578 430 835 816 698
------------ --------- ------------- ------ ------
Operating income (loss)...................... (2,428) (923) (3,157) 129 (183)
Interest income (expense), net............... 26 18 49 (1) --
Other income (expense), net.................. (21) 5 -- 7 5
------------ --------- ------------- ------ ------
Net income (loss) before income tax.......... (2,423) (900) (3,108) 135 (178)
Income tax expense (benefit)................. -- (173) -- 26 (137)
------------ --------- ------------- ------ ------
Net income (loss)............................ $ (2,423) $ (727) $(3,108) $ 109 $ (41)
========= ======= ========== ====== ======
</TABLE>
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors." References to the Company's results of operations from October
7, 1994 are to the Company's Trusted Systems Division and, prior to such time,
to the Company's network security business and operations as part of the
Computer Systems Division of Harris Corporation. The following information
should be read in conjunction with the financial statements of the Company's
Trusted Systems Division, including the notes thereto, appearing elsewhere in
this Prospectus. See "Selected Financial Data."
OVERVIEW
The Company is a leading developer and marketer of commercial network
security products designed to protect data on computer networks from
unauthorized users. The Company began marketing its CX/SX secure operating
system in 1989 and its LAN/SX secure networking software in 1990. In 1993, these
products received a B1 rating from the NCSC, which qualified the products for a
number of government and civilian applications and resulted in increased
marketability of such products. Until the introduction of the CyberGuard
Firewall during the first quarter of fiscal year 1995, the Company's sales were
attributable exclusively to sales of its secure operating systems and secure
networking software on Night Hawk computer platforms, and largely to government
customers. During fiscal year 1993 and 1994, the Company derived substantial
revenues from two contracts: a multi-unit government contract with the British
Ministry of Defence ("British MOD") and a secure operating system porting
contract with IBM.
In May 1995, in response to initial and anticipated market acceptance of
the CyberGuard Firewall, the Company established a sales force separate from the
sales force of its former Real-time Business to focus on the Company's network
security products. At the same time, the Company began an aggressive expansion
of indirect sales channels to market its products in the United States and
internationally and since May 1995 has formed relationships with more than 30
VARs, distributors and manufacturers' representatives. As a result of these and
other efforts since such time, which coincided with greater market acceptance of
firewall products in general, sales of the Company's network security products
have shown strong quarter-to-quarter increases. See "Quarterly Comparisons"
below. However, given the Company's short operating history in the commercial
network security market, the Company believes that period-to-period comparisons
of its financial results are not necessarily meaningful and should not be relied
upon as an indicator of future performance.
Following the Real-time Sale, the Company intends to increase its marketing
staff to promote its products and also to continue to invest a significant
amount of resources in the continued development of the CyberGuard technologies,
including software-only products that support other computer platforms and
networks. The Company's planned levels of investment are based on an expectation
of higher revenue from increased product sales. As a result, net income for a
given period could be disproportionately affected by any reductions in sales.
See "Use of Proceeds," "Business -- Strategy" and "Risk Factors."
Prior to June 30, 1996, the Company's operations included the Real-time
Business, which provided significant cash flows and certain economies of scale
with respect to sales, general and administrative costs. Many of the Company's
sales and administrative personnel and facilities were transferred to Concurrent
in connection with the Real-time Sale. As a result, the Company expects to incur
significant costs typically associated with new operating companies. The Company
has entered into a Shared Services Agreement effective June 30, 1996 with
Concurrent, which expires December 30, 1996, pursuant to which Concurrent will
provide certain administrative and personnel-related services for the Company.
The Company believes that it receives these services at costs equal to or below
that which the Company would incur if the Company were to provide these services
itself. Upon expiration of the Shared Services Agreement, the Company will be
required to provide these services for itself, which may increase the Company's
operating expenses. Also, the Company currently leases its office and
development facilities from Concurrent at below-market rates. The lease
terminates at the earlier of June 1997 or upon 90 days' written notice from
Concurrent. Upon such
24
<PAGE> 26
termination the Company anticipates its lease costs to increase. The Company
expects such additional costs to be offset in part by increased sales; however,
there can be no assurance that such additional sales will be generated. The
failure of the Company to increase sales sufficiently to offset these additional
expenses would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company expects to report certain charges in the quarter ending June
30, 1996. The Company estimates that it will incur a loss of approximately $8.5
million on the sale of the Real-time Business (based on an assumed market price
of Concurrent Common Stock of $2.50 per share); approximately $0.4 million in
charges related to certain grants of Common Stock; and approximately $1.4
million in additional expenses related to the Real-time Sale. In addition, the
Company will report approximately 23% of any losses reported by Concurrent in
the same period. See "Certain Transactions."
The Company was incorporated in August 1994 for the purpose of
consolidating in a corporate subsidiary the activities of the former Computer
Systems Division performed by Harris Corporation and its subsidiary, Lanier
Worldwide, Inc. ("Lanier"). The Harris Computer Systems Division had been
established in 1974. On October 7, 1994, all of the Company's Common Stock was
distributed on a pro rata basis to Harris Corporation shareholders. In May 1995
the Company separated its business operations into two units: the Real-time
Business and the Trusted Systems Division. Effective June 30, 1996, the Company
has sold to Concurrent its Real-time Business, representing approximately 82% of
the Company's total assets as of March 30, 1996. See "Certain Transactions." The
Company's focus is now exclusively on the development and marketing of network
security products. As a result of the Real-time Sale, the Company's assets
include Concurrent Common Stock and Concurrent Preferred Stock, the value of
which may vary from time to time. See "Risk Factors -- Fluctuation in Market
Value of Concurrent Common Stock and Concurrent Preferred Stock Held by the
Company."
RESULTS OF OPERATIONS
The following table sets forth certain items in the Trusted Systems
Division statements of operations as a percentage of sales on a historical basis
for the six-month periods ended March 30, 1996 and March 31, 1995 and for the
fiscal years ended September 30, 1995 and June 30, 1994 and 1993.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL
------------------- YEAR ENDED
MARCH MARCH FISCAL JUNE 30,
30, 31, YEAR ENDED -----------
1996 1995 SEPT. 30, 1995 1994 1993
-------- -------- -------------- ---- ----
<S> <C> <C> <C> <C> <C>
Sales............................................. 100% 100% 100% 100% 100%
Cost of sales..................................... 66 60 65 45 50
-------- -------- ------- ---- ----
Gross profit...................................... 34 40 35 55 50
Operating expenses:
Selling, general and administrative............. 76 55 84 43 41
Research and development........................ 13 12 17 10 12
-------- -------- ------- ---- ----
Total operating expenses.......................... 89 67 101 53 53
Operating income (loss)........................... (55) (27) (66) 2 (3)
Interest/other income (expense)................... -- 1 1 -- --
-------- -------- ------- ---- ----
Net income (loss) before taxes.................... (55) (26) (65) 2 (3)
Income tax expense................................ -- (5) -- -- (2)
-------- -------- ------- ---- ----
Net income (loss)................................. (55)% (21)% (65)% 2% (1)%
======= ======= ========== ==== ====
</TABLE>
Six Months Ended March 30, 1996 Compared to Six Months Ended March 31, 1995
Net Sales. Net sales consist primarily of product sales, systems
integration services and sales related to porting the Company's secure operating
system. Net sales increased $0.9 million to $4.4 million for the six months
ended March 30, 1996 compared to the same period ended March 31, 1995. The 1996
period included
25
<PAGE> 27
sales of 91 network security firewalls compared to 62 such units in the 1995
period. The six months ended March 31, 1995 included a $1.9 million sale (or 39%
of total sales) to one government-related customer for 43 units; the six month
period ended March 30, 1996 included sales to the British MOD of approximately
$0.6 million (or 13% of total sales). There were no sales in the six months
ended March 30, 1996 for more than five units to any one customer. The increase
in product sales is the result of increased acceptance in the commercial
marketplace for the CyberGuard Firewall. During the six months ended March 30,
1996, 74% of the Company's sales were to commercial customers, compared to 35%
for the same period of fiscal year 1995.
International sales increased $1.1 million to $2.0 million for the period
ended March 30, 1996. Domestic sales decreased $0.2 million to $2.4 million. The
domestic sales figure for the period ended March 31, 1995 includes $1.9 million
in sales to one domestic customer.
Gross Profit. The Company's gross profit increased $0.1 million to $1.5
million for the period ended March 30, 1996 from the period ended March 31,
1995. The Company's gross margin decreased to 33.7% for the period ended March
30, 1996 from 39.7% for the 1995 period. This decrease in gross margin is the
result of the change in the mix of the Company's product sales to include a
greater percentage of CyberGuard Firewalls, which have significantly lower gross
margin than the Company's secure operating system and secure networking software
that, until the first quarter of fiscal year 1995, represented the Company's
primary products.
Net Income. The Company's operating expenses increased $1.6 million to
$3.9 million during the six months ended March 30, 1996, compared to the same
period in the prior year, due to an increase in selling, general and
administrative, and research and development expenses. These increased expenses
were incurred to enhance and market the CyberGuard Firewall in the commercial
network security market. The Company also incurred expenses of $0.1 million in
connection with the Real-time Sale. As a result primarily of these expenditures
and costs, the Company incurred a loss of $2.4 million for the period ended
March 30, 1996, compared to a loss of $0.7 million for the period ended March
31, 1995.
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended June 30,
1994
Net Sales. Net sales decreased to $4.8 million for fiscal year 1995
compared to $8.5 million for fiscal year 1994. Sales in fiscal year 1994
included $5.4 million in sales of the Company's secure operating system to the
British MOD for a project involving the deployment of secure office automation
systems and $1.6 million in sales of the Company's secure operating system to
IBM. Sales in fiscal year 1995 included sales of $1.9 million (or 39% of total
sales) to a government-related customer and sales of approximately $0.7 million
(or 14% of total sales) related to porting the Company's secure operating system
to Groupe Bull S.A.'s Escala workstation. Sales of CyberGuard Firewalls,
introduced during the first quarter of fiscal year 1995, represented $2.5
million in sales (including sales of $1.9 million to the government-related
customer). During the fiscal year ended September 30, 1995, sales to customers
in commercial markets accounted for 42% of the Company's sales.
Overall domestic sales were $3.0 million for both fiscal years 1995 and
1994. International sales decreased $3.9 million to $1.5 million for fiscal year
1995. The higher international sales for fiscal year 1994 were attributable to
the contract with the British MOD for sales of the Company's secure operating
system. International sales in fiscal year 1995 related primarily to sales of
the CyberGuard Firewall. International sales represented approximately 31% of
total sales, compared to approximately 64% in fiscal year 1994; the decrease is
attributable to the British MOD contract that ended during fiscal year 1994.
Gross Profit. The Company's gross profit decreased $2.9 million to $1.7
million in fiscal year 1995. This decrease is the result of lower sales and
significantly lower profit margins for CyberGuard Firewalls when compared to
sales of secure operating systems and secure networking software. Gross margin
decreased to 34.8% for fiscal year 1995 from 54.6% for fiscal year 1994.
Net Income. The Company experienced a net loss of $3.1 million for fiscal
year 1995, compared to net income of $0.1 million for fiscal year 1994. The net
loss is the result of lower product sales and gross margins and increased
operating expenses incurred to establish sales and marketing programs for the
commercial introduction of the CyberGuard Firewall.
26
<PAGE> 28
Fiscal Year Ended June 30, 1994 Compared to Fiscal Year Ended June 30, 1993
Net Sales. Net sales increased to $8.5 million for fiscal year 1994 from
$6.0 million for fiscal year 1993. Sales in fiscal years 1994 and 1993 precede
the introduction of the CyberGuard Firewall and are primarily attributable to
the contract with the British MOD ($5.4 million and $4.3 million in fiscal years
1994 and 1993, respectively) and the contract with IBM ($1.6 million and $1.0
million in fiscal years 1994 and 1993, respectively).
Sales to domestic customers increased to $3.0 million from approximately
$1.6 million in fiscal year 1993. During fiscal year 1994, the NCSC rated the
Company's secure operating system and networking software at a B1 level, which
contributed in large part to the increase in sales. The Company's contract with
IBM accounted for approximately $0.6 million of the increase in domestic sales.
International sales increased to $5.4 million from $4.4 million as product
shipments increased to complete the British MOD contract.
Gross Profit. Gross profit increased $1.6 million from approximately $3.0
million in fiscal year 1993 to $4.6 million in fiscal year 1994. Gross margin
increased to 54.6% from 49.9% as a result of increased sales. The increase in
gross margin is also attributable to the initial contract start-up expenses for
the IBM and British
MOD contracts that were incurred during fiscal year 1993.
Net Income. Total indirect expenses increased $1.3 million to $4.5 million
for fiscal year 1994 from $3.2 million for fiscal year 1993. Selling, general
and administrative expenses increased $1.2 million to $3.7 million for fiscal
year 1994 as the Company marketed its certified product to government agencies
and prime contractors around the world. The increase in sales offset by an
increase in selling, general and administrative expenses increased net income to
$0.1 million from a net loss of $41,000 in fiscal year 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's historical uses of cash have been to fund net losses from
operations, machinery and equipment acquisitions and software development costs.
Capital expenditures for the six months ended March 30, 1996 and the fiscal year
ended September 30, 1995 were $0.4 million and $0.6 million respectively.
Capitalized software development costs were $1.4 million and $0.7 million,
respectively, during the same periods. The Company has funded these cash
requirements from its working capital and cash flow provided from its Real-time
Business. As a result of the Real-time Sale, it is expected that cash flows from
operations will be insufficient to satisfy the Company's ongoing cash
requirements.
The future liquidity of the Company will be affected by numerous factors,
including sales volumes, gross margins, the levels of selling, general and
administrative expenses required to fully implement product sales to commercial
customers, levels of required capital expenditures and access to external
sources of financing. The Company expects expenditures to increase commensurate
with increased development and marketing of CyberGuard Firewalls and other
network security products. Estimated cash expenditures relating to the Real-time
Sale are $2.2 million. The Company also anticipates certain one-time
expenditures approximating $0.7 million to $0.8 million for leasehold
improvements and related expenses as the Company relocates to a new facility
prior to June 1997. Leasehold expense and general and administrative expenses
also may increase upon the termination of the Shared Services Agreement.
A principal source of liquidity will be the Concurrent Common Stock
Consideration and the Concurrent Preferred Stock. The Company may obtain a line
of credit that is likely to be secured by all of its assets (including these
Concurrent securities). Additionally, immediately following the Real-time Sale,
the Company intends to sell a portion of the Concurrent Common Stock. The
Company does not intend to be a long-term holder of the remaining Concurrent
securities. The Company's ability to sell or pledge these Concurrent securities
will be subject to limitations imposed in the Share Holding Agreement and in any
line of credit obtained. See "Certain Transactions -- Share Holding Agreement."
These limitations and conditions may affect the Company's flexibility in
generating cash through sales of the Concurrent Common Stock Consideration and
the Concurrent Preferred Stock and may require the Company to seek alternative
sources of cash, including borrowings and equity sales. In addition, the timing
of such sales may be affected by other factors beyond the Company's control,
such as general market conditions and changes in the business,
27
<PAGE> 29
operations or prospects of Concurrent. If adequate funds are not available, the
Company may be required to curtail certain activities, including product
development, marketing and sales activities. Although there can be no assurance
that additional financing will be available to the Company on acceptable terms,
the Company believes that the net proceeds of this offering together with
proceeds from sales or pledges of the Concurrent securities and any additional
financing will be sufficient to satisfy the Company's operations and capital
requirements for the foreseeable future.
QUARTERLY COMPARISONS
The following table presents selected financial information for the
three-month periods indicated. The information presented is derived from
unaudited financial information of the Company that, in the opinion of
management, reflects all adjustments necessary for a fair presentation of such
data. Data for each quarter is not necessarily indicative of the results that
may be expected for any other quarterly period or for the entire fiscal year.
<TABLE>
<CAPTION>
FISCAL YEAR 1995
------------------------------------------------
DECEMBER 29, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 29, MARCH 30,
1994 1995 1995 1995 1995 1996
------------ --------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Product sales
Domestic.......................... $ 442 $ 2,001 $ 210 $ 404 $ 663 $ 1,494
International..................... 137 777 137 426 1,082 938
------------ --------- -------- ------------- ------------ ---------
Total product sales................. 579 2,778 347 830 1,745 2,432
Other............................... 66 66 84 67 80 138
------------ --------- -------- ------------- ------------ ---------
Total sales......................... 645 2,844 431 897 1,825 2,570
Cost of sales
Product sales..................... 402 1,636 329 635 1,084 1,739
Other............................. 32 33 42 32 36 56
------------ --------- -------- ------------- ------------ ---------
Total cost of sales................. 434 1,669 371 667 1,120 1,795
------------ --------- -------- ------------- ------------ ---------
Gross profit........................ 211 1,175 60 230 705 775
Operating expenses
Research and development.......... 219 211 156 250 307 271
Selling, general and
administrative................. 497 1,382 834 1,285 1,602 1,728
------------ --------- -------- ------------- ------------ ---------
Total operating expenses............ 716 1,593 990 1,535 1,909 1,999
------------ --------- -------- ------------- ------------ ---------
Operating loss...................... (505) (418) (930) (1,305) (1,204) (1,224)
Other income (expense).............. -- 5 (4) (1) -- (21)
Interest income..................... 7 11 8 23 13 13
------------ --------- -------- ------------- ------------ ---------
Net loss before income tax.......... (498) (402) (926) (1,283) (1,191) (1,232)
Income tax expense (benefit)........ (173) -- 173 -- -- --
------------ --------- -------- ------------- ------------ ---------
Net loss............................ $ (325) $ (402) $ (1,099) $(1,283) $ (1,191) $(1,232)
========== ======= ======= ========== ========== =======
</TABLE>
28
<PAGE> 30
BUSINESS
The following information contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors." References to the "Company" with respect to periods before the
Real-time Sale are to the Company's Trusted Systems Division.
OVERVIEW
The Company is a leading developer and marketer of commercial network
security products designed to protect data on computer networks from access by
unauthorized users. The Company was among the first companies to establish a
business unit devoted to developing and marketing network security products. As
early as 1989 the Company had developed and begun to market an integrated secure
operating system and secure networking software solution. With the announcement
of its firewall application in 1994, the Company began offering multi-level
secure network security solutions to the commercial market through its
CyberGuard Firewall suite of products.
The Company has combined its secure operating system and secure networking
software with its firewall application to produce the CyberGuard Firewall, which
provides a barrier to unauthorized access to a customer's enterprise network,
including unauthorized access from (i) the Internet, (ii) networks of other
enterprises or (iii) other intranet users within the same enterprise network.
The CyberGuard Firewall's secure operating system and secure networking software
are designed to protect the firewall itself from attack, a distinction not
shared by most commercially available firewall products. The superior level of
security of the Company's product, together with its high network throughput
capabilities, permits the CyberGuard Firewall to address network security
markets having the most demanding performance requirements such as the
healthcare and financial services markets. The CyberGuard Firewall is the only
commercially available firewall built on integrated secure operating system and
secure networking software components that are rated B1 by the NCSC. For
information regarding NCSC security ratings, see "The CyberGuard Solution"
below.
The Company has established a broad range of channels through which to
market its products in the United States and internationally, including more
than 30 VARs, distributors and manufacturers' representatives, as well as direct
sales representatives. During the six months ended March 30, 1996, indirect
channels accounted for approximately 40% of the Company's sales of CyberGuard
Firewalls and related network security products. Sales to customers in
international markets accounted for approximately 55% of the Company's
CyberGuard Firewall sales during the same period. The Company's strategy is to
expand indirect channels to achieve a 75% indirect sales level and to broaden
international channels while maintaining a 50% sales level in the international
markets. To strengthen the commercial appeal of the CyberGuard Firewall, the
Company is currently "porting" its secure operating system, secure networking
software and firewall application from a Motorola microprocessor-based Night
Hawk computer to the more widely used Intel PC-compatible computer platform. The
Company plans to make the CyberGuard Firewall available on such platforms, and
plans to make available a software-only solution, by December 1996.
The Company is the former Computer Systems Division of Harris Corporation
("Harris") and was incorporated in August 1994 for the purposes of consolidating
such division's real-time and trusted computer businesses in a separate
corporate entity. On October 7, 1994, Harris effected a tax-free distribution,
on a pro rata basis to its shareholders, of all of the Company's issued and
outstanding capital stock. In May 1995 the Company separated its business
operations into two units: the Real-time Business and the Trusted Systems
Division, which developed network security products. Effective June 30, 1996,
the Company sold to Concurrent the assets of its real-time computer business,
representing approximately 82% of the Company's total assets. See "Certain
Transactions." With the completion of this transaction, the Company is now
focused solely on the business of developing and marketing firewalls and other
network security products.
29
<PAGE> 31
INDUSTRY BACKGROUND
The Internet. Interest in computer networking changed dramatically in the
1990s with the rise in public access to the Internet. The Internet is a global
"network of networks," an interconnection of commercial, academic and
governmental computer networks and host computers. Computers connected to the
Internet use a variety of incompatible operating systems, and in order to
communicate with each other, data is transmitted back and forth between host
computers using a standard known as Transmission Control Protocol/Internet
Protocol or TCP/IP. As of September 1995, INPUT estimated that the number of
Internet users around the world will grow from more than 53 million in 1995 to
250 million in 2000. Much of the recent growth of the Internet has been
attributed to an increase in commercial Internet access providers and
organizations seeking to advertise or provide products or services to Internet
users as well as the commercial availability of PC-based World Wide Web ("WWW")
browser software such as Netscape's Navigator. See "Risk Factors -- Dependence
on the Internet and Intranets."
Intranets. In recent years, organizations have increasingly begun using
the TCP/IP protocol for their enterprise networks or using the Internet as an
inexpensive alternative to establishing their own wide area networks. An
enterprise network that uses the TCP/IP protocol is called an "intranet." An
intranet can extend internal information systems and enterprise applications to
geographically dispersed facilities, remote offices and mobile employees using
personal computers running on incompatible operating systems. Using any "web
browser," an employee can view electronic information notwithstanding the
incompatible operating systems utilized by the employee and the information
source. In many cases, different departments within the same organization can
create "home pages" used to share information among co-workers. The increasing
ability to interconnect with disparate enterprise units has increased the use of
mobile or "nomadic" computing by which users connect to enterprise networks from
remote offices and while traveling. The increasing use of the non-proprietary
TCP/IP network protocol for internal network communications is due, in large
part, to (i) the widely distributed nature of such protocol, (ii) the fact that
TCP/IP network protocol support is available on nearly all types of computer
systems currently manufactured, and (iii) cost considerations.
The Growth in the Market for Firewalls and Other Network Security
Products. Network security has historically been the focus of primarily those
businesses in security-sensitive industries such as healthcare, financial
services, insurance, telecommunications, government and others. Businesses in
these industries historically maintained a secure network environment by
isolating their networks privately and allowing only authorized users to connect
to their privately managed networks.
As popularity and use of the Internet and intranets has increased,
companies have become increasingly concerned that data collected and stored
electronically by organizations might be vulnerable to access by unauthorized
users, including certain of a company's own employees. This concern is due in
part to the fact that the TCP/IP protocol is particularly susceptible to
penetration, and, as a result, interest in and purchases of firewall software to
protect enterprise networks have increased. In February 1996, International Data
Corporation ("IDC") estimated that the worldwide firewall market would grow from
$160 million in 1995 to an estimated $987 million in 2000. As of September 1995,
INPUT estimated that by 2000 the international market for firewall and software
services will grow from 28% of the total worldwide market to about half of the
worldwide market.
The Company believes that more than half of the firewall software and
services market is related to the use of firewalls within intranets. This is
because each intranet subnet can use a firewall to protect its data from the
numerous other subnets of the same intranet, whereas firewalls for Internet
access may protect only a small number of Internet connections, often only one.
The intranet-related firewall market is generally comprised of large, often
multinational corporations that typically segment their internal networks into a
number of subnets.
30
<PAGE> 32
Spectrum of Network Security Technologies. The network security market
consists of a large number of companies offering a range of network security
products using widely diverse technologies. Some of the broad categories of
network security products are depicted in the graphic presentation below. Each
of these approaches to network security provides varying degrees of protection,
with the most secure solution represented by having no external connections to
the network at all (depicted below as "no access") and the least secure being
one or more external connections with no attempt to provide network security
(depicted below as "full access").
[Graphic Omitted]
Generally, these technologies build on each other so that the most secure
technologies can also perform the functions of the less secure ones and,
depending on price and other factors, can serve markets for such products. A
more detailed description of these technologies follows:
- Router-Based Packet Filtering. Routers can be configured with "packet
filters," that is, devices that determine the source and destination of
the communication between networks and the type of "service" requested
(e.g., file transfer, electronic mail ("e-mail")). Packet filters,
however, are not generally considered to provide a high level of security
because they make security decisions based on the address of the
communication packet, which can be easily "spoofed."
- Proxy Application Firewalls. A level of protection beyond that offered
by a packet filtering router is provided by a "firewall," which monitors
traffic between one network and another -- such as an intranet and the
Internet or between different segments of an intranet -- and blocks access
to data according to predefined security parameters. Most firewalls
operate using "proxy" applications that look beyond the source and
destination of a communication and also monitor certain details regarding
the communication's content. Proxy application firewalls can suffer from
performance-related problems, such as the inability to support the types
of network service and/or network protocol to be used, and degradation of
network throughput and performance.
- Hybrid Firewalls. A hybrid firewall is a proxy application firewall
offering other security options and features, such as encryption, token
authentication and others. Encryption refers to the alteration of data
such that during the transmission of the data an attacker is unable to see
the "original" information and instead only observes what would appear to
be a random sequence of information. Token authentication refers to a
system of dynamically changing passwords. Hybrid firewall systems
generally provide the packet filtering, proxy application, encryption and
token authentication features in an integrated firewall security product,
and, as a result, represent a more complete network security solution.
- Hybrid Firewall with Secure Operating System. The most complete security
solution is provided by a hybrid firewall with a secure operating system
and secure networking software; the Company's CyberGuard Firewall is such
a system. A secure operating system and secure networking software form
the only network security solution that is self-protecting by requiring
network communications to pass through the firewall application and
preventing penetration through the operating system and networking
software.
31
<PAGE> 33
THE CYBERGUARD SOLUTION
The Company's secure operating system and secure networking software
technologies allow it to position the CyberGuard product suite to address the
full range of the commercial network security market. Generically speaking, a
firewall consists of a firewall application, an operating system and networking
software, each playing an important role in the receipt and processing of data
through the firewall. In standard network security products, only the firewall
application has been designed to resist penetration by an attacker, leaving the
operating system and network software unsecure. Therefore, an attacker can
penetrate a standard firewall through the unsecure operating system or
networking software. The Company's CyberGuard Firewall uses a secure operating
system and secure networking software to prevent network penetration by
requiring network communication to pass through the firewall application.
The graphic presentation below depicts the three major components of a
firewall system and demonstrates the fundamental security deficiency of an
application-only solution as compared to the CyberGuard Firewall.
[Graphic Omitted]
Both the secure operating system and secure networking software are based
on multi-level security ("MLS"), that is, they restrict access to information
based on the sensitivity of the information and the access authorization of
system users. In an MLS system, a user cannot read data that has been labeled at
a level more sensitive than the security level given the user and cannot create
or modify data having a different security label. The operating system and
programs reside at a protected level that cannot be read or modified by network
users.
The Company's secure operating system and networking software have been
rated by the NCSC at a B1 level. The NCSC ratings range from D (systems with
minimal security) to A1 (systems with assured security). Certain agencies of the
United States government have incorporated the NCSC ratings into their
procurement requirements, and commercial users, while not having specific
NCSC-rating requirements, often look to an NCSC rating as an indication of the
product's proven reliability. The Company's CyberGuard Firewall is the only
commercially available firewall built on an integrated operating system and
networking software with a rating as high as B1. These components have also been
successfully evaluated by the Centre d'Electronique de l'Armement ("CELAR") in
France and are in evaluation in the United Kingdom against the European
Information Technology Security Evaluation Criteria ("ITSEC"). The Company's
product is currently in evaluation for the NCSC's higher B2 rating. The Company
believes that systems having a NCSC
32
<PAGE> 34
rating higher than B2 are impractical for use in commercial firewall
applications. The Company has substantially completed a two-year evaluation
process with Logica U.K. and expects to receive an E3 rating for its products
which, in the Company's opinion, will increase the marketability of the
CyberGuard Firewall in international markets. Logica U.K. is an international
industry-sponsored agency.
The Company's CyberGuard Firewall also addresses the high performance end
of the commercial network security market because the underlying operating
system and networking software were designed for demanding security
environments. The Company's secure operating system is designed to function as a
high performance, real-time operating system able to process high levels of
throughput without time-consuming failures. This same operating system
technology underlies the Company's secure networking software and firewall
technology.
The CyberGuard Firewall product is the basis for the Company's ability to
offer a complete suite of enterprise-wide security products including mobile
security applications, secure data base application, and network access control
filters.
STRATEGY
The Company's strategy is to increase its sales and profits by broadening
its indirect marketing channels, capitalizing on its existing international
market penetration, concentrating on selected vertical markets, promoting the
CyberGuard Firewall's strengths beyond network security, and expanding its
product line to provide an enterprise-wide solution, support for other computer
platforms and networks, and software-only products. The key components of the
Company's strategy, many of which are interrelated, are as follows:
- Broaden Indirect Distribution Channel Coverage. The Company has
established a broad range of channels through which to market its products
in the United States and internationally, including more than 30 VARs,
distributors and manufacturers' representatives. The Company intends to
continue to expand its indirect channels by concentrating its marketing
through indirect distribution channels, including extensive VAR
relationships. The Company attracts resellers by providing them broad
support as part of what it believes is one of the most comprehensive
reseller programs in the network security industry. During the six months
ended March 30, 1996, indirect sales channels accounted for approximately
24% of the Company's sales; the Company's goal is to have its indirect
channels account for 75% of its sales by the end of fiscal year 1997.
- Capitalize on Existing International Penetration. During the first two
quarters of fiscal year 1996, the Company's international channels
accounted for 46% of the Company's revenues. The Company intends to expand
these relationships with VARs in Western and Eastern Europe and Asia to
address the international commercial firewall market. The Company believes
that the international market represents a high-growth market.
- Pursue Selected Vertical Markets. The Company intends to continue to
focus its marketing efforts on selected vertical markets, such as
healthcare, financial services, insurance, telecommunications, and travel,
that the Company perceives as having a need for network security due to
the confidential nature of data they collect or due to the devastating
potential impact of computer "hacking." Early experience in these vertical
markets has given the Company insight necessary to address industry
specific security requirements. The Company intends to expand on its
strategic relationships, such as its alliance with Coopers & Lybrand LLP,
which has helped to accelerate sales of the CyberGuard Firewall within the
financial industry. The Company intends to pursue these selected vertical
markets both with its direct sales force and through indirect channels
such as VARs and systems integrators who already serve such markets.
- Broaden Product Platforms and Compatibility. The Company intends to
broaden the appeal of the Company's CyberGuard Firewall by "porting" its
secure operating system, networking software and firewall application to
the more widely used Intel-based PC compatible platforms currently
available in a wide range of multiprocessor systems. The Company further
plans to introduce products that are compatible with other network
protocols, such as Novell Inc.'s NetWare, in addition to TCP/IP. In
33
<PAGE> 35
moving to address the widely used Intel platform and NetWare protocol, the
Company believes its solutions will more closely match the requirements
and expectations of its customers.
- Introduce Software-only Product Offerings. The Company plans to
introduce a software-only version of the CyberGuard Firewall, consisting
of an integrated operating system, networking software and base security
software, and to offer upgrades to be priced and sold separately. This
software-only product will allow the Company to competitively position its
CyberGuard Firewall product against lower-priced competitors while
maintaining or increasing its gross margins.
- Provide an Enterprise-Wide Network Security Solution. The Company
intends to emphasize all of the CyberGuard Firewall's network security
capabilities for, among others, secure communication, access control,
encryption, mobile computing (both through remote network connections and
dial-up systems), and secure databases (through alliances such as with
Informix, Inc.) to provide an enterprise-wide solution, particularly for
enterprises in selected vertical markets. The Company believes that each
element of an enterprise-wide solution will broaden the appeal of its
products in these markets.
- Promote CyberGuard Beyond Network Security. The Company intends to
promote CyberGuard's MLS capabilities for additional applications such as
tracking network usage and other network management control functions. In
this regard, the Company intends to capitalize on its expertise in network
security by providing such tools to specific customers and targeted
markets, such as Internet service providers and Internet-based retailers
of subscription products and services.
PRODUCTS AND SERVICES
Products
The Company's products provide a comprehensive, secure and high-performance
network security solution. These products include the CyberGuard Firewall and
related products, products offered by the Company with its strategic partners,
and secure operating systems and secure networking software sold separately from
the CyberGuard Firewall. The table below contains a summary of the Company's
products, their respective dates of first shipment, and a brief description of
each. Additional information regarding each product follows the table.
<TABLE>
<CAPTION>
DATE OF FIRST SHIPMENT
PRODUCTS (CALENDAR QUARTERS) DESCRIPTION
- ------------------------------------ ---------------------- -------------------------------------------
<S> <C> <C>
CyberGuard Firewall................. Q4 1994 Commercial firewall built on an evaluated
secure operating system and secure
networking software
Packet Filtering.................. Q4 1994 Guarantees a basic level of security for
all network traffic
Security Auditing and Alarms...... Q4 1994 Real-time alarm capability
Application Proxies............... Q3 1995 Enhanced security customized to network
applications
Remote Administration............. Q3 1995 Firewall administration from remote site
Network Address Translation....... Q4 1995 Hides internal network addresses to
complicate hacker attempts
Graphical User Interface.......... Q1 1996 Point-and-click administration
Split Domain Name Service......... Q1 1996 Hides internal host names to complicate
hacker attempts
Private Virtual Networking.......... Q4 1995 Encrypted firewall-to-firewall link
WebTrack URL Blocker................ Q1 1996 Monitors and controls access to selected
WWW sites
Token Authentication Devices
Enigma Logic...................... Q3 1995 Authenticates network users through use
Security Dynamics................. Q2 1996 of token authentication cards in place of
static password
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
DATE OF FIRST SHIPMENT
PRODUCTS (CALENDAR QUARTERS) DESCRIPTION
- ------------------------------------ ---------------------- -------------------------------------------
<S> <C> <C>
applicationsCX/SX Secure Operating Q2 1989 B1-evaluated secure operating system
System............................
LAN/SX Secure Networking Software... Q3 1990 B1-evaluated secure networking software
PowerSX Secure B2 Operating System.. Q2 1994 Latest generation secure operating system
currently in evaluation by NCSC for B2
rating
PowerProtocols Secure B2 Networking Q2 1996 Latest generation secure networking
Software.......................... software currently in evaluation by NCSC
for B2 rating
</TABLE>
CyberGuard Firewall. The CyberGuard Firewall and related products build
upon the Company's B1-evaluated secure operating system and secure networking
software. The CyberGuard Firewall includes the following features:
- Packet Filtering. The CyberGuard Firewall implements packet filtering
technology allowing the firewall to expressly permit or deny connections
using criteria based upon source and destination host or network and the
type of network service being requested.
- Security Auditing and Alarms. The CyberGuard Firewall incorporates a
built-in auditing and alarm function that permits administrators to review
a chronological record of system activities allowing the reconstruction of
security sensitive activities. The CyberGuard Firewall can be configured
to dynamically process the security auditing information and, in
real-time, take explicit actions in response to actions deemed security
sensitive or possible attempts to attack the network or firewall.
- Application Proxies. The CyberGuard Firewall supports a number of
security enhanced application proxies for many network services, including
remote login ("rlogin"), terminal emulation ("Telnet"), file transfer
protocol ("FTP"), hypertext transport protocol ("HTTP") (used with the
WWW), network news transport protocol ("NNTP"), simple mail transport
protocol ("SMTP"), and simple network management protocol ("SNMP").
- Remote Administration. The CyberGuard Firewall supports the ability to
remotely monitor and administer a firewall from a "Network Operations
Center." Using this remote administration capability, a CyberGuard
Firewall can be managed from a remote site as if the system administrator
were physically located with the firewall.
- Network Address Translation. The CyberGuard Firewall can be configured
to translate all internal addresses to the firewall's network address.
From the Internet, the firewall appears to be the only machine connected,
reducing the risk of possible penetration attacks against the internal
network.
- Graphical User Interface. The CyberGuard Firewall provides a Motif-based
graphical user interface, or "GUI," designed to facilitate system
configuration and administration. A GUI is generally considered easier to
use than the traditional command-line interface.
- Split Domain Name Service. The CyberGuard Firewall can function as a
Domain Name Service ("DNS") server. With Split DNS, the network responds
to queries differently depending on their source. For example, responses
to requests from the Internet might contain only the CyberGuard Firewall
information; responses from internal requests might contain a complete
list of hosts.
Private Virtual Networking. The CyberGuard Firewall supports an optional
Private Virtual Networking ("PVN") product that provides a mechanism for
establishing a logically separate network between multiple CyberGuard Firewall
systems. This logical network supports fully encrypted communication among the
machines of the network. PVN supports high-performance encrypted communication
between CyberGuard Firewalls and allows the customer to locally replace the
encryption algorithm with their locally preferred algorithm.
35
<PAGE> 37
In addition, through strategic alliances, the Company offers certain
network security products for use with the CyberGuard Firewall. See "Strategic
Alliances" below. These products include:
WebTrack URL Blocking. Together with its CyberGuard Firewall, the Company
offers WebTrack, a product developed by Webster Network Strategies (which has
entered into an agreement to be acquired by Secure Computing). WebTrack is a
software product that monitors and controls access to non-business related WWW
sites such as pornography, hate speech, on-line shopping, job searching and
sports. The Company offers WebTrack through a strategic alliance with Webster
Network Strategies and the CyberGuard Firewall is the only commercial firewall
that supports WebTrack.
Token Authentication Products. With the CyberGuard Firewall, the Company
offers a number of third-party token authentication devices, including those
offered by the Company through alliances with Security Dynamics and Enigma
Logic, among others. Token authentication devices provide for an alternative to
the use of static passwords for user authentication, resulting in reduced
likelihood of system penetration through the reuse of an old password.
Informix Online/Secure Client Server Systems. The Company, through a
strategic alliance with Informix, Inc. ("Informix"), offers the Informix
Online/Secure B1-evaluated secure relational database management system
("Online/Secure"). Online/Secure extends the Company's security policy into the
relational database product technology of Informix, providing a fully secure,
high-performance, multi-level secure database environment for secure transaction
processing and secure database applications.
Secure Operating Systems. The Company offers secure operating systems
based on Power PC and non-Power PC technology. The Company's PowerSX product is
a high assurance, secure multi-threaded operating system based on UNIX System V
Extended Security/Multi-Processing operating system with additional security
features developed by the Company. The Company's CX/SX operating system is a
multi-threaded, fully preemptive operating system for high performance, secure
Unix-based applications. The Company's CX/SX operating system has received
rigorous evaluation from the NCSC in the United States and CELAR in France. The
NCSC performed an evaluation of the Company's CX/SX operating system and
subsequently granted it a B1 security rating. The NCSC is currently evaluating
the Company's PowerSX operating system against the higher B2 security rating
criteria. For information regarding NCSC security ratings, see "The CyberGuard
Solution" above.
Secure Networking Software. The Company's LAN/SX product is a secure
network software product that provides a multi-level secure interface between
CX/SX and a heterogeneous networking environment. The Company's PowerProtocols
product is a secure network software product that provides a multi-level secure
interface between PowerSX and a heterogeneous networking environment. The NCSC
performed an evaluation of the Company's LAN/SX operating system and
subsequently granted it a B1 rating. The NCSC is currently evaluating the
Company's PowerProtocols networking software at the higher B2 security rating
criteria. For information regarding NCSC security ratings, see "The CyberGuard
Solution" above.
Systems Integration Services
The Company offers a number of systems integration services, both directly
and through strategic alliances, with the purpose of offering customers network
security expertise for their particular networking environment. In addition, the
Company markets several specific types of pre-packaged consulting services
relating to, among others, penetration testing, Internet gateway security and
technical evaluation, system security, corporate data security policies and
management control, network security policy and management control, Internet
security policy and management controls, network security analysis, and
information security training.
The Company's CyberGuard Firewall and related security products accounted
for 92% and 86% of the Company's sales for the six months ended March 30, 1996
and the fiscal year ended September 30, 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The remaining
portion of the Company's sales in each such period are related to porting the
Company's secure operating system to Groupe Bull S.A.'s Escala line of computer
systems.
36
<PAGE> 38
PRODUCT DEVELOPMENT
The Company's research and development efforts are focused in the near term
on porting the Company's secure operating system, secure networking software and
firewall application from a Motorola microprocessor-based Night Hawk platform to
the more widely used Intel PC-compatible computer platform. The following table
shows the significant products and product enhancements that the Company expects
to introduce during the last two quarters of calendar year 1996 and during
calendar year 1997.
<TABLE>
<CAPTION>
EXPECTED DATE OF
INTRODUCTION
PRODUCT (CALENDAR QUARTERS) DESCRIPTION
- ---------------------------------------- -------------------- -----------------------------------------------------
<S> <C> <C>
Intel Pentium/Pentium Pro-compatible
CyberGuard Firewall................... Q4 1996 Low-cost, software-only CyberGuard Firewall product
Remote/Mobile PC Secure Link............ Q4 1996 Encrypted protection for PC and laptop connections to
host networks
Virus Scanning.......................... Q4 1996 Helps prevent viruses from infecting host computers
RSA Encryption.......................... Q4 1996 Largest commercially available encryption product
High Availability CyberGuard Firewall... Q4 1996 Enhancement to current CyberGuard feature designed to
ensure minimal network down time
CyberGuard Intranet Firewall............ Q4 1996 Novell NetWare support and other intranet-specific
features
TerraMax ISP Solution................... Q2 1997 Multiple virtual firewalls
Fortezza Encryption..................... Q2 1997 Government-sponsored encryption process
X.400 Secure Message Handling........... Q4 1997 Secure X.400 e-mail service
</TABLE>
The expected dates of introduction in the above table are forward looking
statements and are based on certain assumptions, including certain assumed
levels of staffing and capital resources, contractual arrangements with
suppliers, customers or strategic allies, market conditions, overall product
development costs and related sales and marketing expenses, the nature of
available competing and complementary technologies and products, and other
assumptions. Should these assumptions change or prove to be inaccurate, or
should the Company's plans change due to certain unforeseen factors, the
development of such products may be delayed or discontinued. See "Risk Factors"
for a discussion of other factors that may cause such assumptions to differ from
actual results.
Development of new products and features is performed by the Company's
internal engineering staff and through third-party licensing. The Company has 30
employees devoted to product development and expects to increase this number
modestly during fiscal year 1996. The Company supplements the development staff
from time to time with contract engineers as needed to meet product demands in
the market. For the six months ended March 30, 1996 and the fiscal years ended
September 30, 1995 and June 30, 1994, the Company spent $2.0 million, $1.5
million and $1.6 million, respectively, on research and development, an
equivalent of 44%, 31%, and 18% of total sales during such periods,
respectively. These amounts include software development costs that have been
capitalized during such periods.
STRATEGIC ALLIANCES
To complement CyberGuard Firewall product sales, the Company offers
consulting and security products through a series of strategic alliances with
prominent organizations. The Company has formed alliances with several
consulting partners world-wide, including with EG&G, Inc. and Coopers & Lybrand
Consulting since 1995 and with Coopers & Lybrand L.L.P. since February 1996.
Consulting services include network and on-site analysis services, network
penetration testing, security policy and management control, migration planning
and security training.
The Company has alliances for the purpose of reselling the Company's
products with several strategic partners, including Lucent Technologies, Inc.
(formerly AT&T Corporation, now "Lucent"), Electronic Data Systems Corp., and
TRW Inc. The Company has additional strategic resellers outside the United
States, which include Nissin Electric Co., Ltd. (Japan) ("Nissin"), Lukon
Financial Industrial Company (Russia) and Singapore Engineering and Electronic
Limited (Singapore).
37
<PAGE> 39
The Company has also entered into product-related strategic alliances with
Enigma Logic, Inc., Security Dynamics, Inc., VASCO Corporation and CryptoCard to
offer a variety of identification and token authentication capabilities. In
March 1996, the Company announced a strategic alliance with Webster Network
Strategies to provide the WebTrack Internet monitoring and blocking service on
the CyberGuard Firewall. In April 1996, the Company announced strategic
alliances with Trend Micro, Inc and PC Security Limited to support virus
scanning and encrypted data tunneling, respectively. The Company also has
strategic alliances with Informix, Inc. and Oracle Corporation to provide
database or database proxy support on the Company's secure operating system.
CUSTOMERS AND MARKETS
The Company's current and prospective commercial customers include medium
to large domestic and multinational companies and other commercial enterprises
that routinely create and store proprietary or highly sensitive information and
have high throughput requirements. These customers are likely to consider
network security and performance to be high priorities when purchasing a
firewall. During the fiscal year ended September 30, 1995, sales related to
porting the Company's secure operating system to Groupe Bull S.A.'s Escala line
of computer systems accounted for 14% of the Company's sales.
The specific uses and applications of the CyberGuard Firewall and related
products vary significantly among market sectors and business organizations.
Examples of the uses of the Company's products by customers include:
- Southwest Airlines uses the CyberGuard to secure their "Home Gate" web
site, which allows customers to schedule flights and purchase tickets
on-line through the Internet. Ticket purchases include the required
transmission of credit card numbers, a process in which security is a
critical concern.
- A leading enterprise-wide software application developer distributes
enhancements and fixes to its maintenance customers using a CyberGuard
Firewall.
- A multi-national bank processes loan applications using the CyberGuard
Firewall's Virtual Private Network to communicate sensitive financial
information between branch offices and the bank's central approval
department.
- A Fortune 150 high technology conglomerate uses the CyberGuard Firewall
to allow controlled Internet access to nearly 12,000 employees. Data
traffic that could cause harm to the customer's internal management
information systems is blocked while allowing legitimate requests for
product descriptions.
- A major aircraft designer and manufacturer uses the CyberGuard Firewall
to strictly control access to human resource information on the customer's
intranet.
New customers accounted for 82% of the Company's sales in the six months
ended March 30, 1996 and 28% of sales in the fiscal year ended September 30,
1995. Of sales to new customers during such periods, 96% and 100%, respectively,
represented non-government customers and related to sales of the Company's
CyberGuard Firewall and related products.
The Company's customers represent a broad geographic distribution of the
Company's products with a relatively even concentration throughout the United
States and abroad. Of these, international sales accounted for 46% of the
Company's sales in the six months ended March 30, 1996 and 31% of sales in
fiscal year ended September 30, 1995. Of sales to international customers during
such periods, 55% and 49%, respectively, represented sales of the Company's
CyberGuard Firewall and related products. The Company strategy includes
capitalizing on existing international penetration to increase its sales abroad
with a focus on the CyberGuard Firewall.
Sales of CyberGuard Firewalls and related products include
government-related customers, but are sold on the same terms and conditions as
to non-government-related commercial customers. During the six months ended
March 30, 1996 and the fiscal year ended September 30, 1995, sales of CyberGuard
Firewalls and
38
<PAGE> 40
related products to agencies of the United States government and its contractors
accounted for 26% and 58%, respectively of overall sales for such products.
Sales of secure operating systems and secure networking software sold separately
from CyberGuard Firewalls have been primarily to government agencies (both in
the United States and internationally), including the United States government
and government contractors. During the six months ended March 30, 1996, total
sales to the British MOD were 13% of the Company's sales, and during the fiscal
year ended September 30, 1995, a single government-related customer accounted
for 39% of the Company's sales.
SALES AND MARKETING
The Company has established a broad range of indirect channels by which to
market its products in the United States and internationally, including VARs,
distributors and manufacturers' representatives, as well as direct sales
representatives. Within the last year, the Company has entered into contracts
with 30 VARs, distributors, and manufacturing representatives for its products,
including EMJ America, Inc., Lucent, UUNet Technologies, Inc. (Pipex), and
Nissin. During the six months ended March 30, 1996, the indirect marketing
channels for the Company's products accounted for 40% of the Company's sales.
See "Strategic Alliances" above. The Company is seeking to expand its indirect
sales channels for the marketing of its products and has a goal to have its
indirect channels account for 75% of its sales by the end of fiscal year 1997.
See "Risk Factors -- Dependence on Resellers; Need to Establish Collaborative
Marketing Relationships."
In May 1995, the Company established a sales force separate from that of
its former Real-time Business to focus on sales of its network security
products. The Company employs 12 sales representatives and maintains sales
offices in Atlanta, Georgia; Chicago, Illinois; Dayton, Ohio; Fort Lauderdale,
Florida; Houston, Texas; Los Angeles, California; New York, New York; St. Louis,
Missouri; Washington, D.C.; London, England; and Ottawa, Canada. The sales force
focuses its sales and marketing efforts towards customers and VARs in selected
vertical markets such as healthcare, financial services, insurance,
telecommunications and travel. The Company's sales staff also solicits
prospective customers and provides technical advice and support with respect to
the Company's products.
In support of its sales efforts, the Company markets its products through
direct mail, advertising, seminars, trade shows, telemarketing, and on-going
customer and third-party communications programs. The Company has entered into
strategic marketing relationships with various vendors of communications,
security and network management products and consulting services. Certain of
these vendors recommend the Company's products along with their own solutions to
meet a customer's security needs. The Company also seeks to generate interest
in, and to educate potential customers about, computer and network security
through its speaking engagements, contributed articles, interviews and
documentaries.
The Company focuses its direct and indirect marketing efforts on, among
other things, selected vertical markets, such as healthcare, financial services,
insurance, telecommunication, and travel, that the Company perceives as having a
need for network security due to the sensitive nature of data they collect or
due to the devastating potential impact of computer "hacking." The Company
intends to address this market both with its direct sales force and through
indirect channels such as VARs and systems integrators who already serve such
markets. The Company also believes its products are particularly well suited to
Internet service providers and Internet-based retailers of subscription products
and services. See "Risk Factors -- Dependence on Principal Product; Uncertainty
of Product Acceptance."
COMPETITION
The market for network security products is intensely competitive and
characterized by frequent technological change. The Company believes that
competition in this market is likely to persist and to intensify if demand for
network security products increases.
In the market segments requiring the highest levels of security, the
Company competes with Secure Computing, which also offers a firewall with a
security enhanced operating system. The Company also competes with manufacturers
of proxy application firewalls and hybrid systems, such as ANS and Raptor, whose
products lack a secure operating system but might nonetheless be considered
competing products by
39
<PAGE> 41
some consumers. The Company competes with a number of manufacturers, such as
CheckPoint, whose products consist mainly of packet filtering systems or routers
but whose products may be considered to be alternatives to the Company's. In
addition, companies such as IBM, DEC and Sun sell products with similar features
and functions that could be considered competitors of the Company's. Several
other companies offering other network and other computer-related products,
including Microsoft Corporation, are expected to enter the commercial network
security market in the near future. While the Company believes that it does not
compete against manufacturers of other classes of security products, such as
token authentication or encryption, due to the complementary functions performed
by such other classes, the Company's customers may perceive such other companies
as competitors of the Company.
Certain of the Company's competitors offer software-only products that will
compete with the Company's products. The Company believes that its customer base
will broaden as a result of the commercial introduction of an integrated
software-only version of the Company's operating system, networking software and
firewall application on platforms other than that of the Night Hawk. However,
there can be no assurance that the Company can maintain its competitive position
against current and potential competitors, especially those with significantly
greater financial, marketing, service, support, technical and other competitive
resources.
The Company believes that the principal competitive factors affecting the
market for computer and network security products include the product's level of
security, performance and reliability (particularly maximum levels of
throughput), technical features, ease of use, capabilities, customer service and
support, distribution channels and price. Based upon its understanding of the
features of the products and services offered by the Company's competitors, the
Company believes that its products currently compete favorably with respect to
such factors. Based upon its experience and understanding of the existing
network security market, the Company believes that potential purchasers of the
Company's security products who do not differentiate between the level of
security provided by competing security products are as likely to base their
purchasing decisions on price, ease of use, or other considerations as they are
to base such decisions on the level of security provided. In circumstances where
a potential purchaser's primary concern is the level of security provided by
products being considered, the Company, based upon its understanding of the
features in products and of the services offered by the Company's competitors,
believes that its products compete favorably.
Additionally, the Company believes a key competitive factor in the network
security market is a computer system's security rating by intelligence and other
government agencies such as the NCSC. The CyberGuard is the only commercially
available firewall built on an integrated secure operating system and secure
networking software components that are rated B1 by the NCSC. The Company's
secure operating system has also successfully completed evaluation by CELAR and
is currently in evaluation in the United Kingdom against ITSEC requirements. The
Company's PowerPC-based operating system and networking products are designed
for, and being evaluated against, the B2 rating security requirements. Certain
of the Company's competitors have also submitted their commercial network
firewall products for evaluation by the NCSC, and certain of these products
could receive B1 or higher ratings upon completion of the evaluation process.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company relies upon license agreements with customers; trademark,
copyright and trade secret laws; employee conflict of interest and third-party
non-disclosure agreements and other methods to protect the trade secrets,
proprietary know-how and other proprietary rights on which the Company's
business depends. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known to or independently
developed by competitors. The Company currently does not hold any patents and
has no pending patent applications to cover any aspects of it technology. The
Company intends to introduce patent applications to protect aspects of its
technology; however, there can be no assurance that any future patent
applications will be granted or that any future patent applications will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to the Company.
40
<PAGE> 42
The Company is not aware of any patent infringement charge or any violation
of other proprietary rights claimed by any third party relating to the Company
or the Company's products. The computer technology market is characterized by
frequent and substantial intellectual property litigation. Intellectual property
litigation is complex and expensive, and the outcome of such litigation is
difficult to predict.
The Company has applied for registration in the United States, Canada and
certain other countries for its "CyberGuard Firewall" marks and its CyberGuard
logo.
REGULATION
The Company is not currently subject to direct regulation by any government
agency other than regulations applicable to businesses generally. Export
controls on cryptographic products may place limits on the export of the
Company's products to certain countries identified from time to time by the U.S.
Department of State. In addition, certain of the Company's government products
are subject to U.S. government contracting regulations and to the International
Trade in Arms Regulation ("ITAR"), which restricts the exports of certain
products affecting national security. These regulations could restrict the
Company's ability to sell its products to foreign governments and businesses
identified from time to time by the U.S. Department of State, creating delays in
the introduction of the Company's products in international markets.
There are currently few laws or regulations directly applicable to access
to or commerce on the Internet. The Communications Decency Act, which applies
to, among other things, communications over the Internet, has recently become
effective, and additional laws and regulations could be adopted with respect to
the Internet, covering issues such as user privacy, pricing and characteristics
and quality of products and services. The Company believes that some regulations
could be addressed by application of the Company's Internet-related network
security products and that certain types of regulation would be beneficial to
the Company. However, the adoption of laws or regulations may decrease the
growth of the Internet, which could in turn decrease the demand for the
Company's products and increase the Company's cost of doing business or
otherwise have an adverse effect on the Company's business, operating results or
financial condition.
EMPLOYEES
At April 15, 1996, the Company employed 56 full-time employees.
Additionally, from time to time the Company employs contract engineers on a
temporary basis for software development or documentation. No employee of the
Company is represented by a labor union or is subject to a collective bargaining
agreement. All employees are bound by agreements containing confidentiality and
conflict of interest provisions. The Company believes it maintains good
relations with its employees.
OPERATIONS
The Company's production operations consist primarily of the purchasing of
assembled and tested hardware components and the installation of the Company's
products on such platforms. The Company sells its CyberGuard Firewall on Night
Hawk real-time computers purchased from Concurrent. Night Hawk real-time
computers were formerly developed and manufactured by the Company. See "Risk
Factors -- Dependence on Sole Source Suppliers" and "Certain Transactions." The
Company sells its products with memory, displays, power supplies and peripherals
such as hard drives and network interface cards purchased from other third-party
vendors. The Company also purchases software media and user documentation for
its software products and uses subcontractors for its duplication services.
PROPERTIES
The Company's principal administrative, sales and marketing, development,
engineering, production and support facilities are located in Fort Lauderdale,
Florida. The Company is currently subleasing office and manufacturing space from
Concurrent and will be relocating to separate facilities within 12 months.
41
<PAGE> 43
LEGAL PROCEEDINGS
The Company is not involved in any pending or, to its knowledge, threatened
litigation.
INTEREST IN CONCURRENT
The Company owns approximately 23% of the outstanding Concurrent Common
Stock and $10 million liquidation preference of Concurrent Preferred Stock. The
Company's ownership of Concurrent Common Stock would be 29% if the Concurrent
Preferred Stock were to be converted into Concurrent Common Stock. See "Certain
Transactions." Concurrent is engaged in the business of providing and servicing
high-performance real-time computer systems and services, including the Night
Hawk. "Real-time" systems acquire, analyze, store, display and control analog,
digital and network data to provide time critical information as real-world
events occur. Concurrent has over 25 years of experience in real-time systems,
including specific expertise in systems, applications software, productivity
tools and networking. Concurrent's real-time systems offer networked and
distributed computing solutions and may be configured to provide fault
tolerance. Concurrent sells its systems worldwide to end-users as well as to
original equipment manufacturers, systems integrators, independent software
vendors and value-added resellers who combine Concurrent's products with other
equipment or with additional application software for resale to end-users. End
uses of Concurrent's systems include product design and testing; flight
simulation; air traffic control and weather forecasting; intelligence data
acquisition and analysis; financial trading; and hospital information
management. Concurrent designs, manufactures, sells, and supports real-time
proprietary and standards-based open systems. Concurrent also offers traditional
maintenance and support services and professional services, such as performance
and capacity analysis and systems integration.
Concurrent is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the SEC, to which reference is made for detailed financial and
other information regarding Concurrent. Such reports, proxy statements and other
information can be inspected and copied at the offices of the SEC and the
National Association of Securities Dealers, Inc. The Company 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 Concurrent which would affect either the accuracy or the completeness of the
information concerning Concurrent included herein or therein.
Concurrent's revenues were $77 million during the nine months ended March
31, 1996 and $140 million, $179 million and $220 million for the fiscal years
ended June 30, 1995, 1994 and 1993, respectively. Concurrent reported net losses
of $5.7 million, $2.0 million, and $39.8 million and net income of $3.9 million
for such periods, respectively. Concurrent expects that its revenues for the
quarter ending June 30, 1996 will be the lowest quarterly revenues for its
fiscal year. In addition, Concurrent expects to take a material pre-tax charge
and to adjust negative goodwill, as appropriate, in the quarter in which the
Real-time Sale occurs (expected to be the quarter ending June 30, 1996) to cover
costs related to the Real-time Sale and other business integration costs. As of
the date hereof, the estimated aggregate charge for these items is in the range
of $29 million to $32 million, approximately $18 million of which is expected to
be paid out in cash in the next two years.
The Company accounts for its interest in Concurrent using the equity method
whereby its proportionate share of Concurrent's earnings or losses will be
included in income. See Notes to Pro Forma Condensed Consolidated Statement of
Operations for certain additional information regarding the Company's equity in
Concurrent.
42
<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Certain biographical information concerning the Company's executive
officers and directors is presented below(1).
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Robert L. Carberry................... 53 President, Chief Executive Officer and Chairman
of the Board of Directors(2)
Patrick O. Wheeler................... 37 Chief Financial Officer and Vice President
Finance
Katherine K. Hutchison............... 38 Vice President Marketing
Bradley C. Lesher.................... 60 Vice President International Operations
Robert Perks......................... 52 Vice President Sales
Rick A. Siebenaler................... 33 Vice President Software Development
Brian Foremny........................ 47 General Counsel, Secretary and Director(2)
C. Shelton James..................... 56 Director(3)(5)
Michael F. Maguire................... 69 Director(4)(5)
Richard F. Rifenburgh................ 64 Director(3)
</TABLE>
- ---------------
(1) The information in "Management" assumes the consummation of the Real-time
Sale, expected to take place on or about June 30, 1996.
(2) Member of the class of directors whose term expires at the annual meeting to
be held in 1999. See "Description of Capital Stock -- Certain Anti-takeover
Provisions Included in the Company's Articles of Incorporation and Bylaws."
(3) Member of the class of directors whose term expires at the annual meeting to
be held in 1998.
(4) Member of the class of directors whose term expires at the annual meeting to
be held in 1997.
(5) Member of the Audit and Compensation and Stock Options Committees of the
Board of Directors.
Robert L. Carberry. Mr. Carberry was appointed President of the Company's
Trusted Systems Division in April 1996 in anticipation of the Real-time Sale and
President and Chief Executive Officer of the Company upon the consummation of
the Real-time Sale. Before joining the Company, Mr. Carberry was Vice President,
New Technology at Blockbuster/Viacom Group and Vice President, Managing
Executive for Blockbuster Technology Holding Corporation from 1994 and, before
that, was President of Multimedia Investment Organization, a division of IBM.
Patrick O. Wheeler. Mr. Wheeler was appointed Chief Financial Officer and
Vice President Finance of the Company's Trusted Systems Division in April 1996
in anticipation of the Real-time Sale and continues in such position for the
Company. Prior thereto, Mr. Wheeler held various positions with the Company
including Director of Accounting, Senior Account Manager and most recently,
Midwest Regional Sales Manager. Mr. Wheeler joined the Company following its
spin-off from Harris Corporation, which Mr. Wheeler joined in 1984 from Price
Waterhouse LLP.
Katherine K. Hutchison. Ms. Hutchison was appointed Vice President
Marketing, of the Company's Trusted Systems Division in April 1996 in
anticipation of the Real-time Sale and continues in such position for the
Company. Prior thereto, Ms. Hutchison served in positions of increasing
responsibility, most recently as Director of Marketing for the Company's Trusted
Systems Division. Ms. Hutchison joined Harris Corporation in 1993 from a
position as Program Manager and Technical Marketing Manager in the Information
Technology Group of Texas Instruments.
Robert Perks. Mr. Perks was appointed Vice President Sales of the
Company's Trusted Systems Division in April 1996 in anticipation of the
Real-time Sale and continues in such position for the Company. Mr. Perks joined
the Computer Systems Division of Harris Corporation in 1977. He was employed by
Real
43
<PAGE> 45
Time Products Corporation from 1992 to 1995 as Director, Customer Support and
rejoined the Company in May 1995 as Director of Trusted Sales for the Company.
Rick A. Siebenaler. Mr. Siebenaler was appointed Vice President Software
Development of the Company's Trusted Systems Division in April 1996 in
anticipation of the Real-time Sale and continues in such position for the
Company. Prior thereto, Mr. Siebenaler served as Director of Software
Development of the Company's Trusted Systems Division from 1994 and, before
that, as Chief Engineer from 1991. Mr. Siebenaler joined Harris Corporation in
1991 from the NCSC where he was a Commercial Products Evaluator in the Trusted
Products Evaluation Division.
Brian Foremny. Mr. Foremny is an attorney and, since 1995, a partner with
the law firm of Holland & Knight where he maintains a law practice in addition
to his service as the Company's General Counsel. Prior thereto, Mr. Foremny was
a partner of the law firm of Kirkpatrick & Lockhart LLP beginning in 1983.
C. Shelton James. Since May 1991, Mr. James has served as Chief Executive
Officer of Elcotel, Inc., a public company that manufactures telecommunications
equipment. Mr. James is President of Fundamental Management Corporation, an
investment management firm specializing in active investment in small
capitalization companies, where he was Executive Vice President from 1990 to
April 1993. Prior to 1990, Mr. James was Executive Vice President of Gould,
Inc., a diversified electronics company, and President of Gould's Computer
Systems Division. Mr. James is Chairman of the Board of Directors of Elcotel,
Inc. and serves on the boards of directors of CSPI, NAI Technologies, Inc.,
Fundamental Management Corporation and SK Technologies, Inc.
Michael F. Maguire. Since 1984, Mr. Maguire has served as President,
director and sole shareholder of Maguire Investment Management, Inc., a
management consulting company. For more than 13 years, Mr. Maguire served as an
executive at Harris Corporation, most recently as Senior Vice President from
1979 to 1986. Mr. Maguire serves on the board of directors of Autosight, Inc.,
as well as several non-profit corporations.
Richard P. Rifenburgh. Mr. Rifenburgh is expected to join the Company's
Board of Directors in June 1996 following the Real-time Sale as the designee of
Concurrent. See "Certain Transactions -- Share Holding Agreement." Mr.
Rifenburgh is Chairman of the Board of Moval Management Corporation, a privately
held company specializing in restoring companies in financial distress. He is,
or in the past five years has been, a member of the Board of Directors of the
following public companies: Concurrent since 1991; Tristar Corporation (formerly
known as Ross Cosmetics Distribution Centers, Inc.) since June 1992 and Chairman
since August 1992; Miniscribe Corporation (manufacturer of disc drives for
personal computers), Chairman and CEO from 1989 to 1991; and Library Bureau
(manufacturer of library furniture) from 1976 to 1995.
COMPENSATION OF EXECUTIVE OFFICERS
Employment Agreements. The Company and Mr. Carberry entered into an
agreement dated as of March 5, 1996 (the "Carberry Employment Agreement"),
effective as of April 12, 1996. The Carberry Employment Agreement provides for
the employment of Mr. Carberry as Chairman of the Board, President and Chief
Executive Officer of the Company at an annual base salary of $200,000, $225,000
and $250,000 for the first, second and third twelve-month periods, respectively,
of the Carberry Employment Contract. The Carberry Employment Agreement provides,
as of March 5, 1996, for Mr. Carberry to be granted options to purchase 339,000
shares of the Company's Common Stock at an exercise price of $10.67 per share
and becoming exercisable in three equal installments of 113,000 on each of March
5, 1997, 1998, and 1999. The Carberry Employment Agreement provides for Mr.
Carberry to have a target bonus for the achievement of certain performance
objectives to be established by the Company of 50% of his annual base salary.
The Company may terminate the Carberry Employment Agreement for "cause."
The Carberry Employment Agreement defines "cause" as willful acts against the
Company intended to enrich Mr. Carberry at the expense of the Company, the
conviction of Mr. Carberry for a felony involving moral turpitude, willful and
gross neglect by Mr. Carberry of his duties or the intentional failure of Mr.
Carberry to observe policies of
44
<PAGE> 46
the Company's Board of Directors that have or will have a material adverse
effect on the Company. If the Carberry Employment Agreement is terminated by the
Company other than for "cause" or the death, disability or normal retirement of
Mr. Carberry or by Mr. Carberry for "good reason," Mr. Carberry will receive
severance pay of two times his annual base salary and two times his target bonus
as in effect immediately prior to termination, and all of Mr. Carberry's stock
options and stock appreciation rights will be exercisable at termination. If Mr.
Carberry's employment with the Company is terminated within one year following a
"change in control" of the Company other than for "cause" or the death,
disability or normal retirement of Mr. Carberry or by Mr. Carberry for "good
reason," Mr. Carberry will receive severance pay of three times his annual base
salary and three times his target bonus as in effect immediately prior to
termination, and all of Mr. Carberry's stock options and stock appreciation
rights will become exercisable at termination. If Mr. Carberry's employment is
terminated at any time by the Company for "cause" or by Mr. Carberry other than
for "good reason," the Carberry Employment Agreement prohibits Mr. Carberry from
engaging in any business competitive with the business of the Company for a
one-year period following the effective date of termination. If Mr. Carberry's
employment is terminated by the Company other than for "cause" or the death,
disability or normal retirement of Mr. Carberry or by Mr. Carberry for "good
reason," other than within one year of a "change in control," the Carberry
Employment Agreement prohibits Mr. Carberry from engaging in any business
competitive with the business of the Company for a two-year period following the
effective date of termination.
In addition to the Carberry Employment Agreement, the Company has
employment agreements with Mr. Lesher and Mr. Foremny and expects to enter into
employment agreements with the other executive officers. Such employment
agreements, other than the Carberry Employment Agreement, are referred to herein
as the "Executive Employment Agreements." The initial base salaries under such
Employment Agreements are or are expected to be, as the case may be, $100,000
for Mr. Wheeler, $90,000 for Ms. Hutchison, $90,000 for Mr. Perks, $90,000 for
Mr. Siebenaler, $115,500 for Mr. Lesher, and $120,000 for Mr. Foremny (based on
part-time service). The Executive Employment Agreements with Mr. Lesher and Mr.
Foremny expire on September 30, 1996 and February 28, 1998, respectively.
Certain of the Executive Employment Agreements also provide or are expected to
provide, as the case may be, for bonuses based on certain Company performance
targets in initial amounts based upon the following percentages of base salary:
Mr. Wheeler -- 40%; Ms. Hutchison -- 50%; Mr. Perks -- 50%; Mr.
Siebenaler -- 40%; Mr. Lesher -- 50% and Mr. Foremny -- 16.7%.
Certain of the Executive Employment Agreements will provide for the Company
to issue to such officers options to purchase Common Stock at a price of $5.50
per share, as follows: Mr. Wheeler -- 75,000 options; Ms. Hutchison -- 50,000
options; Mr. Perks -- 60,000 options; and Mr. Siebenaler -- 60,000 options. Such
options will vest in three equal annual installments beginning one year from the
date of the respective Executive Employment Agreement. The agreement with Mr.
Foremny provides for Mr. Foremny to receive options to purchase 72,000 shares of
Harris Common Stock at a price of $5.50 per share, vesting in three equal annual
installments beginning March 1, 1996. The Agreement with Mr. Lesher provides for
Mr. Lesher to receive options to purchase 60,000 shares of Common Stock at a
price of $2.58 per share, all of which have vested. Certain executive officers
also have been granted options to purchase shares in the following amounts at
the indicated prices: Mr. Wheeler -- 3,000 shares at $2.58 per share; Ms.
Hutchinson -- 12,000 shares at $2.58 per share and 600 shares at $3.71 per
share; Mr. Lesher -- 9,000 shares at $4.71 per share and 30,000 shares at $5.50
per share; Mr. Perks -- 6,000 shares at $3.83 per share; and Mr.
Siebenaler -- 12,000 shares at $2.58 per share and 600 shares at $4.92 per
share.
The Executive Employment Agreements relating to Messrs. Lesher and Foremny
may be terminated by either the Company or the respective executive officer at
any time. In the event the executive officer resigns without "good reason" or is
terminated for "cause," compensation under the employment agreements will end.
In the event any such employment agreement is terminated by the Company without
"cause" or the executive officer resigns for "good reason," the terminated
executive officer will receive, among other things, severance compensation equal
to a specified multiple of such employee's annual base salary and target bonus
under the Company's bonus program. In addition, all non-statutory options and
stock appreciation rights of all such executive officers will be immediately
exercisable upon termination of employment and certain other awards previously
made under any of the Company's compensation plans or programs and previously
not paid will
45
<PAGE> 47
immediately vest on the date of such termination. Termination by the Company or
by the executive (except for such terminations occurring within three years
after a change of control) give rise to certain noncompetition and
nonsolicitation provisions (except in the case of Mr. Foremny, who maintains a
legal practice apart from the Company). The other Executive Agreements are
expected to contain similar termination provisions.
The Executive Employment Agreements with Messrs. Lesher and Foremny contain
severance provisions that apply if the executive officer's employment is
terminated within three years after the occurrence of a change of control. In
the event that any such employee is terminated by the Company within three years
following the occurrence of a change in control or by such employee for "good
reason", such employee will be entitled to receive on the date of such
termination an amount equal to, among other things, a specific multiple of such
employee's base salary, target bonus under the Company's bonus program, and any
performance award payable under the Stock Incentive Plan or similar plan, as
well as any other benefits which any such employee would be entitled to where
termination was without "cause" or with "good reason" by employee. The other
Executive Employment Agreements are expected to contain similar severance
provisions.
Stock Incentive Plan. The Company has adopted the CyberGuard Corporation
Stock Incentive Stock Plan (the "Stock Incentive Plan"), as amended, pursuant to
which 2,025,000 shares of Common Stock have been authorized for issuance. The
primary purpose of the Stock Incentive Plan is to attract and retain capable
executives and employees by offering them a greater personal interest in the
Company's business through stock ownership. The Stock Incentive Plan is
administered by the Incentive and Stock Option Committee of the Company's Board
of Directors (the "Committee"), which determines, among other things, the nature
and the terms of any award granted thereunder. The Stock Incentive Plan provides
for the granting of stock options (including incentive stock options meeting the
requirements of the Internal Revenue Code), restricted stock, stock appreciation
rights, performance awards, and other stock-based awards. In the case of stock
options, the Stock Incentive Plan provides that the exercise price of any stock
option granted under the Stock Incentive Plan must be equal to the fair market
value of the shares underlying the option on the date of grant, or, in the case
of incentive stock options, 110% of fair market value of the shares underlying
the option on the date of the grant. Any stock options granted under the Stock
Incentive Plan expire no later than ten years from the date of their granting.
No award under the Stock Incentive Plan is transferable except upon the death of
the optionee. The Committee has the power to impose additional limitations,
conditions and restrictions in connection with the grant of any option. In the
event of a change of control of the Company, all outstanding awards become
immediately exercisable prior to the occurrence of the change in control, in the
manner determined by the Committee. A change in control is deemed to occur if
any person or entity acquires 20% or more of the outstanding shares of the
Company or if, as a result of any tender or exchange offer, merger or other
business combination, sale of assets or contested election, there is a change of
a majority of the directors. As of the date hereof, 504,206 shares are available
for grant or award of options under the Stock Incentive Plan.
The Stock Incentive Plan provides that non-employee directors of the
Company will receive options to purchase shares of the Company's common stock.
Upon joining the Board of Directors, all non-employee directors receive 6,000
such options. In addition, on the date of each annual meeting of shareholders,
each director who is not an employee of the Company will automatically be
granted an option to purchase 1,500 shares of common stock of the Company. In
addition, the Stock Incentive Plan provides for non-employee directors who
served in such capacity on February 4, 1996 to receive options to purchase
15,000 shares of the Company's Common Stock at an exercise price of $5.50 per
share. All such options will be non-statutory stock options and priced at 100%
of the fair market value on the date of grant. In the event of a director's
retirement, the options which are exercisable at the date of retirement will be
exercisable for three months thereafter, and, in the event of a director's
death, the options which are exercisable at the date of death will be
exercisable for the next succeeding twelve months. Neither the Board of
Directors nor any committee of the Board of Directors will have any discretion
with respect to options granted to non-employee directors pursuant to the Stock
Incentive Plan.
46
<PAGE> 48
COMPENSATION OF DIRECTORS
In addition to grants pursuant to the Stock Incentive Plan, non-employee
directors of the Company receive a $15,000 annual retainer payable upon election
as a director of the Company at an annual meeting of shareholders (and a pro
rata amount to any non-employee who becomes a director of the Company
thereafter, payable at the time of becoming a director) and $1,000 per Board of
Directors meeting attended. In addition, directors receive $750 ($1,000 for the
Chairman) for attendance at any meeting of a committee of the Board of
Directors, payable at any such meeting, except for committee meetings held on
the same day as Board of Directors meetings, in which case no such fee will be
payable. Directors are also reimbursed for travel and lodging expenses in
connection with Board of Directors and committee meetings.
CERTAIN TRANSACTIONS
Effective June 30, 1996, pursuant to the Purchase and Sale Agreement, the
Company sold the assets of its Real-time Business and issued 683,178 shares of
its Common Stock (representing the Shares offered hereby) to Concurrent in
exchange for the Concurrent Common Stock Consideration (consisting of 10,000,000
newly issued shares of Concurrent Common Stock); (ii) Concurrent Preferred Stock
(consisting of 1,000,000 newly issued shares of convertible exchangeable
preferred stock of with a 9% cumulative annual dividend payable quarterly in
arrears and a liquidation preference of $10.00 per share (subject to
adjustment)); and (iii) the assumption by Concurrent of the Assumed Liabilities.
As a result of the Real-time Sale, the Company received approximately 23% of the
Concurrent Common Stock issued and outstanding (29% if the Concurrent Preferred
Stock were to be converted into Concurrent Common Stock as set forth in the
Purchase and Sale Agreement and as described generally below), and Concurrent
received approximately 10% of the issued and outstanding shares of Common Stock
of the Company (one-half of which are included in this offering).
CONCURRENT PREFERRED STOCK
The terms and conditions of the Concurrent Preferred Stock are set forth in
a Certificate of Designation containing generally the terms and conditions
described below. The description below is qualified entirely by reference to the
form of Certificate of Designation, which is incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part.
Designation and Number of Shares. The Concurrent Preferred Stock is 9.00%
Class B Convertible Preferred Stock, and the number of shares constituting such
series is 1,000,000, par value $0.01 per share. Holders of Concurrent Preferred
Stock do not have preemptive rights to acquire shares of any class or series of
capital stock of Concurrent.
Rank. The Concurrent Preferred Stock ranks, with respect to rights to
receive dividends and rights to receive distributions upon the liquidation,
winding up or dissolution of Concurrent: (a) senior to the Concurrent Common
Stock, and senior to any class or series of capital stock, including any
preferred stock, issued by Concurrent, other than the Class A Preferred Stock
("junior stock") and (b) on a parity with the Class A Preferred Stock ("parity
stock"), none of which was issued or outstanding as of the Real-time Sale.
Dividends and Distributions. Holders of shares of Concurrent Preferred
Stock are entitled to receive, when, as and if declared by the Concurrent's
Board of Directors (the "Concurrent Board") out of funds legally available for
such purpose, dividends at the rate per annum of 9.00% of the liquidation
preference (as defined below) of such shares. Such dividends are fully
cumulative, accumulate from the date of original issuance of the Concurrent
Preferred Stock, and are payable quarterly in arrears in cash at the end of each
calendar quarter, commencing with the last business day of the first calendar
quarter which commences following the Closing Date.
No dividends or other distributions to shareholders may be paid or declared
and set apart for payment on any junior stock (including the Concurrent Common
Stock) for any period nor may any payment be made or set apart for the purchase,
redemption or other retirement of any shares of junior stock, except the Rights
(as defined below) and a distribution consisting solely of junior stock, unless
(i) full cumulative dividends have
47
<PAGE> 49
been, or contemporaneously are, paid or declared and set apart for payment on
the Concurrent Preferred Stock for all dividend periods terminating on or prior
to the date of payment of such full cumulative dividends and (ii) Concurrent
shall not be in default or in arrears with respect to any redemption of
Concurrent Preferred Stock.
Dividends may not be paid or declared and set apart for payment on the
Concurrent Preferred Stock or parity 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 or the Concurrent Preferred Stock, as the case
may be, 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
Concurrent Preferred Stock and any parity stock, Concurrent may make dividend
payments on account of arrears on the Concurrent Preferred Stock or any such
parity stock, provided that Concurrent shall make such payments ratably upon all
outstanding shares of Concurrent Preferred Stock and such parity stock in
proportion to the respective amounts of dividends in arrears upon all such
outstanding shares of Concurrent Preferred Stock and such parity stock to the
date of such dividend payment.
Conversion Rights. Each holder of Concurrent Preferred Stock has the
right, at the option of such holder, at any time to convert, subject to certain
terms and conditions, one or more shares of Concurrent Preferred Stock into
fully paid and nonassessable shares of Concurrent Common Stock. Such conversion
will be made at a conversion rate of one share of Concurrent Preferred Stock for
a number of shares of Concurrent Common Stock equal to (x) the liquidation
preference divided by (y) the conversion price of Concurrent Common Stock at the
time of conversion. The conversion price will initially be $2.50, subject to
adjustment for stock splits, stock dividends, or subdivisions or
reclassifications of the Concurrent Common Stock. Assuming the initial
conversion price of $2.50 and a liquidation preference of $10,000,000, a total
of 4,000,000 shares of Concurrent Common Stock would be issuable upon conversion
of all the shares of the Concurrent Preferred Stock. 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 Concurrent Preferred Stock is
to be paid on the effective date of the conversion through the last quarterly
payment date that immediately precedes the effective date of the conversion. A
holder's right to convert the Concurrent Preferred Stock terminates on the date
such stock is redeemed by Concurrent. See "Redemption" below.
In the event that Concurrent shall be a party to any transaction pursuant
to which Concurrent 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 each holder of Concurrent Preferred Stock then
outstanding shall thereafter have the right to convert such share only into the
kind of securities, cash or other property receivable by a holder of Concurrent
Common Stock.
Exchange. Concurrent may, at its option, cause shares of Concurrent
Preferred Stock, as a whole or in part, at any time and from time to time, to be
exchanged for debentures (the "Debentures"). See "Debentures" below. Such
exchange of shares of Concurrent Preferred Stock for the Debentures will be made
at an exchange rate of Debentures in the principal amount equal to the
liquidation preference. On the effective date of the exchange, Concurrent will
pay holders of the Concurrent 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 Concurrent
Preferred Stock through the last quarterly dividend payment date that
immediately precedes the effective date of the exchange.
Each holder of Concurrent Preferred Stock will have the right at any time
after September 1, 1998, at the option of such holder, whenever dividends due
for four quarterly periods have not been paid, to exchange such shares of
Concurrent Preferred Stock, as a whole or in part, for the Debentures. Such
exchange of shares of Concurrent Preferred Stock for the Debentures shall be at
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 exchange occurs.
48
<PAGE> 50
Redemption. Whenever the Current Market Price (as defined below) exceeds
$3.75, as such price may be adjusted pursuant to stock splits, stock dividends,
subdivisions or reclassifications, prior to the date of any notice of
redemption, Concurrent may, at its option, redeem all or a portion of the shares
of Concurrent Preferred Stock, at any time or from time to time, at a price per
share equal to the liquidation preference, plus all accrued and accumulated but
unpaid dividends, whether or not declared, without interest, to the date fixed
for redemption. Dividends on the shares to be redeemed will cease to accrue on
such redemption date. "Current Market Price" means the average of the daily
closing sale prices per share of Concurrent Common Stock for the 30 consecutive
trading days immediately prior to the date in question as such price is quoted
on the principal national securities exchange or quotation system on which such
security is quoted or listed or admitted to trading.
Concurrent is required to redeem all Concurrent Preferred Stock on June 30,
2006 at a price per share equal to the liquidation preference, plus accrued and
accumulated but unpaid dividends, whether or not declared, without interest, to
the date fixed for redemption. Dividends on the shares to be redeemed will cease
to accumulate on such redemption date.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of Concurrent, whether voluntary or involuntary, each holder of
Concurrent Preferred Stock is entitled to receive out of the assets of
Concurrent available for distribution to shareholders, before any distribution
of assets shall be made to the holders of Concurrent Common Stock or of any
other shares of junior stock, a liquidating distribution in the amount of the
liquidation preference of $10.00 per share ("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 that the liquidation preference is subject to adjustment
based on an audit of the value of assets of the Real-time Business transferred
to Concurrent. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of Concurrent, the assets available for distribution are insufficient
to pay in full the amounts payable with respect to the Concurrent Preferred
Stock and any other outstanding shares of parity stock, the holders of the
Concurrent Preferred Stock and of such other parity stock share ratably in any
distribution of assets of Concurrent in proportion to the full respective
preferential amounts to which they are entitled.
Voting. Except as otherwise provided by applicable law, the holders of
shares of the Concurrent Preferred Stock have no voting rights with respect to
the election of directors or for any other purpose, except that the holders of a
majority of the outstanding shares of Concurrent Preferred Stock, voting
separately as a class, must approve any amendment, alteration or repeal of any
provision of Concurrent's Certificate of Incorporation or the Certificate of
Designation if such action would (a) increase or decrease the aggregate number
of authorized shares of Concurrent 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 Concurrent
Preferred Stock so as to affect them adversely, provided 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 Concurrent Preferred Stock.
DEBENTURES
The terms of the Debentures into which the Concurrent Preferred Stock may
be converted are set forth in a term sheet (the "Debenture Term Sheet") and are
described generally below. The description below is qualified entirely by
reference to the form of Debenture Term Sheet incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part.
Principal Amount. If the Concurrent Preferred Stock is converted into
Debentures pursuant to Concurrent's conversion privilege in accordance with the
Certificate of Designation, the initial principal amount shall equal the Total
Liquidation Preference of the Concurrent Preferred Stock outstanding on the date
that such Concurrent Preferred Stock is converted (the "Conversion Date") into
the Debentures in accordance with the Certificate of Designation. If the
Concurrent Preferred Stock is converted into Debentures by the holder thereof,
the initial principal amount shall equal the Total Liquidation Preference of the
Concurrent Preferred Stock outstanding on the Conversion Date plus all dividends
which are accrued and
49
<PAGE> 51
accumulated but unpaid, whether or not declared and without interest, up to the
calendar quarter immediately preceding the quarter in which the Conversion Date
occurs. The principal amount of the Debentures issuable upon conversion of
Concurrent Preferred Stock is subject to adjustment in a manner similar to
adjustments to the liquidation preference of Concurrent Preferred Stock. See
"Concurrent Preferred Stock -- Liquidation Preference" below.
Payment-in-Kind. Interest payments on the Debentures may be paid in cash
or in kind.
Interest Rate. The Debentures will bear interest at the rate of 9% per
annum, accruing from the first day of the calendar quarter (the "Accrual Date")
during which the Conversion Date occurred, and payable quarterly at the end of
each calendar quarter commencing on the Accrual Date.
Maturity Date. The Debentures will mature on the tenth anniversary of the
date of issuance of the Concurrent Preferred Stock.
Redemption. Subject to certain adjustments for stock splits, stock
dividends and similar transactions, whenever the Current Market Price (as
defined in the Certificate of Designation) of Concurrent Common Stock exceeds
$3.75, Concurrent may, at its option, redeem all or a portion of the Debentures,
at any time or from time to time, at par plus any accrued interest thereon. On
June 30, 2006, Concurrent is required to redeem all of the Debentures then
outstanding at par plus any accrued interest thereon or at any time the
outstanding principal amount of the Debentures is less than an amount to be
determined.
Conversion of Debentures. Each holder of a Debenture shall have the right,
at the option of such holder, at any time or from time to time, in whole or in
part, to convert such Debenture into fully paid and nonassessable shares of
Concurrent Common Stock. Such conversion of Debentures to shares of Concurrent
Common Stock shall be made at a conversion rate equal to (x) the principal
amount of such Debenture (plus any accrued and unpaid interest thereon) divided
by (y) the applicable conversion price per share of Concurrent Common Stock at
the time of conversion. The conversion price will initially be $2.50, subject to
certain adjustments for stock splits, stock dividends, or subdivisions or
reclassifications of the Concurrent Common Stock. Notwithstanding any other
provision to the contrary, the maximum number of shares in which the Debentures
shall be convertible shall be 4,000,000 (subject to adjustment on a basis
similar to the anti-dilution adjustments contained in the Certificate of
Designation for the Concurrent Preferred Stock).
Ranking. The Debentures will be general unsecured indebtedness of
Concurrent and will rank pari passu in right of payment to existing unsecured
indebtedness.
Modification of Debenture Terms. Modifications to provisions of the
indenture or similar instrument for the Debentures (the "Debenture Indenture")
will be effected by majority of outstanding principal amount, with certain
exceptions involving certain fundamental changes which shall require unanimous
approval.
Certain Restrictions. The terms of the Debentures will provide that,
subject to certain exceptions, Concurrent will not (i) declare or pay any
dividend or make any distribution on account of any of its capital stock or of
its subsidiaries; (ii) purchase or redeem for value any of its capital stock of
Concurrent, any subsidiary or other affiliates; nor (iii) purchase or redeem for
value or make any cash interest payment on any indebtedness of Concurrent that
is subordinated to the Debentures, unless at the time of such payment no default
or event of default will have occurred and be continuing with respect to the
Debentures for the four calendar quarters immediately preceding the quarter in
which such payment occurs. The Debenture Indenture will further provide that
Concurrent may not consolidate or merge or sell or lease all or substantially
all of its properties and assets as an entirety, unless (i) the surviving entity
(if other than Concurrent) is an entity organized in the United States and
assumes all the obligations of Concurrent under the Debenture Indenture and (ii)
immediately before and after giving effect to such transaction, no event of
default with respect to the Debentures will have occurred and be continuing.
Events of Default. The terms of the Debentures will provide that each of
the following constitutes an event of Default: (i) default in the payment when
due of interest on the Debentures for a number of days to be determined by
Concurrent and the Company; (ii) default in payment when due of the principal
of, or premium, if any, on the Debentures; (iii) failure by Concurrent to comply
with any of its other agreements in
50
<PAGE> 52
the Debenture Indenture or the Debentures for a number of days to be determined
by Concurrent and the Company after notice; and (iv) certain events of
bankruptcy or insolvency with respect to Concurrent or any of its subsidiaries.
THE SHARE HOLDING AGREEMENT
In connection with the Real-time Sale, the Company and Concurrent entered
into a Share Holding Agreement relating to the Purchased Shares and the
Concurrent Common Stock Consideration. The Share Holding Agreement is described
generally below. The description below is qualified entirely by reference to the
Share Holding Agreement, which is incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part. All references to
numbers of shares are subject to adjustment for stock splits or stock dividends
and similar transactions.
Corporate Governance. Pursuant to the Share Holding Agreement, the
Concurrent Board must consist of no more than nine directors, including the
initial directors designated by the Company. The initial designees of the
Company are E. Courtney Siegel (formerly the President and Chief Executive
Officer of the Company), C. Shelton James and Michael F. Maguire. Until
September 30, 1997, the Company will be entitled to designate three members of
the Concurrent Board, provided that if the Company beneficially owns less than
2,400,000 shares of Concurrent Common Stock on the date of the mailing of the
proxy statement for the next annual meeting of Concurrent, the Company will not
be entitled to any representation on the Concurrent Board. After September 30,
1997, as long as the Company beneficially owns at least 10,700,000 shares,
4,700,000 shares or 2,400,000 shares of Concurrent Common Stock, the Company
will be entitled to designate three directors, two directors or one director,
respectively, on the Concurrent Board and Concurrent will maintain a board of
directors of no more than nine directors.
Pursuant to the Share Holding Agreement, the Company's Board of Directors
will consist of no more than seven directors, including Richard P. Rifenburgh,
who is designated by Concurrent. So long as Concurrent beneficially owns at
least 375,000 shares of the Company's Common Stock, Concurrent is entitled to
name one nominee to the Company's Board of Directors, provided that if
Concurrent beneficially owns less than 375,000 shares of the Company's Common
Stock on the date of the mailing of the proxy statement for the next annual
meeting of the Company's shareholders, Concurrent will not be entitled to any
representation on the Company's Board of Directors.
Voting of Shares. Until Concurrent beneficially owns less than 341,589
shares of the Company's Common Stock (the number of shares Concurrent will own
immediately following this offering), Concurrent must be present for all
shareholder meetings for purposes of establishing a quorum and must vote all
securities of the Company owned by it and entitled to vote in favor of matters
recommended by the Company's Board of Directors for approval by shareholders. So
long as either (i) the Company beneficially owns at least 4,700,000 shares of
Concurrent Common Stock or (ii) the Company beneficially owns at least at least
2,400,000 shares of Concurrent Common Stock and at least one member of the
existing Concurrent Board (other than the Chief Executive Officer) is a designee
of the Company, the Company must be present for all shareholder meetings for
purposes of establishing a quorum and must vote all securities of Concurrent
owned by it and entitled to vote in favor of matters recommended by the
Concurrent Board for approval by shareholders.
Transfer Restrictions. Except in connection with any transfers in
accordance with clause (ii) under "Third Party Offers" below, neither the
Company nor Concurrent nor their subsidiaries may, directly or indirectly, sell,
transfer or otherwise dispose of any securities of the other except (i) pursuant
to a sale to any other person of any such securities in an amount of less than
5% of the outstanding securities of any class of Concurrent or the Company, as
the case may be (including open market transactions that are not intended to
assist the buyer in acquiring over 5% of the securities of the other or, if to
certain institutional investors eligible to file a statement on Schedule 13G,
greater than 5% but less than 10%); (ii) pursuant to a merger, consolidation or
other business combination if the surviving or purchasing entity agrees to be
bound by the terms of the Share Holding Agreement; (iii) certain intracompany
transfers; (iv) pursuant to the pledge provisions described below; and (v) in
order to, and only to the extent necessary to, comply with applicable
51
<PAGE> 53
law. For purposes of the provisions regarding restrictions on transfer, the
Concurrent Preferred Stock shall be deemed to be the same class of securities as
the Concurrent Common Stock.
The Company or Concurrent may pledge the securities of the other received
in connection with the Real-time Sale to secure borrowings or other indebtedness
as extended from time to time if (i) the pledgee agrees in writing not to sell,
transfer or otherwise dispose of the securities pledged to it other than
pursuant to an effective registration statement on Form S-3 or an applicable
exemption from registration under the Securities Act; (ii) the pledgee agrees in
writing to be bound by the terms of the Share Holding Agreement; and (iii) all
certificates representing securities pledged to such pledgee bear an appropriate
restrictive legend.
Standstill. Until December 30, 1999, neither Concurrent nor the Company
nor any of their controlled affiliates may, directly or indirectly, seek (i) to
acquire or affect control of the other; (ii) to propose or support any merger,
business combination, change of control of the other or their subsidiaries;
(iii) to gain additional representation on the Board of Directors of the other,
remove directors from the other's Board or change size or composition of such
Board; (iv) to propose any security holder proposal without the approval of the
Board of Directors of the other; (v) deposit any securities of the other in a
voting trust or similar arrangement; (vi) disclose or take any action that would
require disclosure of any intent, purpose, plan, arrangement or proposal
inconsistent with the foregoing; (vii) make any request to amend or waive any
portion of the standstill provision in the Share Holding Agreement, which
request would require public disclosure under applicable law, rule or
regulation; (viii) take any action challenging the validity or enforceability of
the foregoing; (ix) or assist, advise, encourage or negotiate with any person
with respect to, or seek to do, any of the foregoing.
Third Party Offers. As long as the Company beneficially owns more than 10%
of the outstanding voting securities of Concurrent, the Company may either (i)
exercise its right of first refusal with respect to offers by any third party to
acquire Concurrent that has been approved by a majority of the Concurrent Board
or (ii) support such third party offer, including tender or sale of all the
Concurrent securities owned by it and its controlled affiliates to the third
party offeror.
Registration. The Share Holding Agreement requires Concurrent and the
Company to register the shares of their respective common stock received by the
other in connection with the Real-time Sale (or issuable upon conversion of the
Concurrent Preferred Stock) on Form S-3 (to be maintained effective for three
years plus the amount of time during such period that certain standstill
provisions, described below, shall have been in effect) and to list such shares
for trading on the Nasdaq National Market System. For certain periods when the
Company or Concurrent is "in registration" with respect to a public offering of
its shares and the other party holds certain threshold numbers of shares, the
party not in registration is subject to certain standstill provisions
restricting sales of the securities of the other. However, each such restricted
party has the right to include a certain number of shares in the public offering
of the other. An amount of 341,589 shares of Common Stock held by Concurrent is
included in this offering pursuant to the registration provisions of the Share
Holding Agreement. The Share Holding Agreement provides both the Company and
Concurrent certain cross indemnification rights for losses incurred in
connection with the registration of securities, including for liabilities
arising under the Securities Act.
Termination. The Share Holding Agreement will automatically terminate upon
the last to occur of all of the following (i) any standstill period has expired
and (ii) each of the Company and Concurrent own less than 5% of the common stock
of the other.
OTHER
Upon the closing of the Real-time Sale, 640,229 options outstanding to
purchase Common Stock will become vested and exercisable. In addition,
restrictions on 39,000 and 13,800 shares of Common Stock owned, respectively, by
E. Courtney Siegel, the Company's president and Chief Executive Officer prior to
the Real-time Sale, and Daniel S. Dunleavy, the Company's Chief Financial and
Chief Administrative Officer prior to the Real-time Sale, will lapse upon
consummation of the Real-time Sale. The Company also will issue 78,000 and
13,800 shares of Common Stock, respectively, to Messrs. Siegel and Dunleavy as
consideration for their entering into non-competition agreements with the
Company that become effective upon consummation of the Real-time Sale.
52
<PAGE> 54
PRINCIPAL AND SELLING SHAREHOLDERS
The following sets forth, as of April 30, 1996 and as adjusted at that date
to reflect the sale of the Company's Common Stock offered hereby and the
consummation of the Real-time Sale, information with respect to the beneficial
ownership of the Company's Common Stock by: (i) each Selling Shareholder; (ii)
each person known by the Company to beneficially own more than 5% of the
outstanding shares of the Company's Common Stock; (iii) each director of the
Company; (iv) each of the Company's named executive officers; and (v) all
directors and executive officers as a group. Unless otherwise indicated, each of
the shareholders named in this table: (a) has sole voting and investment power
with respect to all shares of Common Stock beneficially owned and (b) has the
same address as the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
----------------------- SHARES TO BE --------------------------
NUMBER OF SOLD IN NUMBER
NAME/ADDRESS SHARES PERCENT OFFERING OF SHARES PERCENT(1)
- -------------------------------------- --------- ------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Concurrent Computer Corporation....... 683,178 10.23% 341,589 341,589 4.03%
2 Crescent Place
Oceanport, New Jersey 07757
Okabena Partnership K................. 522,300 7.82 0 522,300 6.16
5140 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
David L. Babson & Co., Inc............ 491,700 7.36 0 491,700 5.80
One Memorial Drive
Cambridge, Massachusetts 02142
Paul Tudor Jones II................... 451,500 6.76 0 451,500 5.33
c/o Tudor Investment Corporation
One Liberty Plaza, 51st Floor
New York, New York 10006(2)
Austin W. Marxe....................... 366,915 5.49 0 366,915 4.33
153 East 53 Street
New York, New York 10022(3)
E. Courtney Siegel(4)(5).............. 164,763 2.45 150,837 13,863 *
Daniel S. Dunleavy(4)(5).............. 122,559 1.78 61,279 61,280 *
Michael N. Smith(4)................... 75,802 1.10 37,901 37,901 *
Robert T. Menzel(4)................... 90,815 1.32 37,907 52,908 *
Robert E. Chism(4).................... 75,644 1.10 37,822 37,822 *
Robert L. Carberry.................... 0 * 0 0 *
Patrick O. Wheeler(4)................. 3,000 * 0 3,000 *
Katherine K. Hutchison(4)............. 12,900 * 0 12,900 *
Bradley C. Lesher(4).................. 70,596 1.03 34,500 36,096 *
Robert F. Perks(4).................... 6,000 * 0 6,000 *
Rick A. Siebenaler(4)................. 11,301 * 0 11,301 *
Brian Foremny(4)...................... 30,000 * 0 30,000 *
C. Shelton James(6)................... 276,000 4.06 0 276,000 3.21
Michael F. Maguire.................... 21,000 * 0 21,000 *
All directors and officers as a group
(9) persons...................... 430,797 5.78% 34,500 396,297 4.28%
</TABLE>
- ---------------
* Less than 1% (footnotes continued on following page)
53
<PAGE> 55
(1) Assumes that the Underwriters' over-allotment option is not exercised.
(2) Includes 146,600 shares of Harris Common Stock owned by The Raptor Global
Fund Ltd. ("Raptor Ltd."), 77,400 shares of Harris Common Stock owned by
The Raptor Global Fund L.P. ("Raptor L.P."), 30,100 shares of Harris Common
Stock owned by Tudor Arbitrage Partners L.P. ("TAP"), 30,100 shares of
Harris Common Stock owned by Tudor Global Trading LLC ("TGT") and 197,400
shares of Harris Common Stock owned by Tudor BVI Futures, Ltd. ("Tudor
BVI"). Tudor Investment Corporation ("TIC"), Raptor L.P.'s general partner,
shares voting and investment power with respect to shares owned by Raptor
Ltd., Raptor L.P., TAP and Tudor BVI. In addition, Paul Tudor Jones II
("Mr. Jones"), the principal shareholder and executive officer of TIC,
shares voting and investment power with respect to shares owned by TIC.
TGT, sole general partner of TAP, shares voting and investment power with
respect to shares owned by TAP.
(3) Includes 97,705 shares of Common Stock owned by Special Situations Fund III,
L.P. (the "Fund") and 24,600 shares of Common Stock owned by Special
Situations Cayman Fund, L.P. (the "Cayman Fund"). MGP Advisors Limited
Partnership ("MGP"), the Fund's general partner, shares voting and
investment power as to the shares of Common Stock owned by the Fund. AWM
Investment Company, Inc. ("AWM"), the general partner of MGP and the Cayman
Fund, and Austin W. Marxe, the principal shareholder and executive officer
of AWM, share voting and investment power as to the shares of Common Stock
beneficially owned by the MGP, the Fund, and the Cayman Fund.
(4) Includes options that are currently exercisable to purchase Common Stock in
the following amounts: Mr. Siegel -- 39,999 shares; Mr. Dunleavy -- 93,000
shares; Mr. Smith -- 75,000 shares; Mr. Menzel -- 90,000 shares; Mr.
Chism -- 75,000 shares; Mr. Wheeler -- 3,000 shares; Ms.
Hutchison -- 12,600 shares; Mr. Lesher -- 69,000 shares; Mr. Perks -- 6,000
shares; Mr. Siebenaler -- 11,301 shares; Mr. Foremny -- 30,000 shares; Mr.
James -- 21,000 shares; and Mr. Maguire -- 21,000 shares.
(5) Includes 78,000 shares of Common Stock, in the case of Mr. Siegel, and
13,800 shares of Common Stock, in the case of Mr. Dunleavy, issued in
connection with the Real-time Sale pursuant to the change of control
provisions in their respective employment agreements.
(6) Includes options to purchase 21,000 shares of Common Stock that are
currently exercisable and 255,000 shares that are deemed beneficially owned
by Mr. James as a result of his serving as an executive officer and
director of various investment limited partnerships.
54
<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value of $.01 per share and 5,000,000 shares of Preferred
Stock, par value $.01 per share. As of April 30, 1996, 5,998,415 shares of
Common Stock and no shares of preferred stock were outstanding. An additional
1,693,630 shares of Common Stock may be issued upon the exercise of outstanding
options.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Shareholders do not have the right to cumulate their votes in elections of
directors. Accordingly, holders of a majority of the issued and outstanding
Common Stock will have the right to elect all the Company's directors and
otherwise control the affairs of the Company.
Holders of Common Stock are entitled to dividends on a pro rata basis upon
declaration of dividends by the Board of Directors. Dividends are payable only
out of funds legally available for the payment of dividends. The Board of
Directors is not required to declare dividends, and it currently expects to
retain earnings to finance the development of the Company's business. See
"Dividend Policy."
Upon a liquidation of the Company, holders of the Common Stock will be
entitled to a pro rata distribution of the assets of the Company, after payment
of all amounts owed to the Company's creditors, and subject to any preferential
amount payable to holders of Preferred Stock of the Company, if any. Holders of
Common Stock have no preemptive, subscription, conversion, redemption or sinking
fund rights.
PREFERRED STOCK
The Articles of Incorporation permit the Company's Board of Directors to
issue shares of Preferred Stock in one or more series and to fix the relative
rights, preferences and limitations of each series. Among such rights,
preferences and limitations are dividend rates, provisions of redemption, rights
upon liquidation, conversion privileges and voting powers. Should the Board of
Directors elect to exercise this authority, the rights and privileges of holders
of Common Stock could be made subject to the rights and privileges of any such
series of Preferred Stock. The Board of Directors of the Company currently has
no plans to issue any shares of Preferred Stock. The issuance of Preferred Stock
could have the effect of making it more difficult for a third party to acquire,
or discouraging a third party from acquiring, a majority of the outstanding
voting stock of the Company.
CERTAIN ANTI-TAKEOVER PROVISIONS INCLUDED IN THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
The Articles of Incorporation provide for a Board of Directors divided into
three classes, as nearly equal in number as possible. The directors are elected
for three-year terms, which are staggered so that the terms of approximately
one-third of the directors expire each year. The Articles of Incorporation
permit removal of directors only for cause by the shareholders of the Company at
a meeting by the affirmative vote of at least 60% of the outstanding shares
entitled to vote for the election of directors (the "Voting Stock"). The
Articles of Incorporation provide that any vacancy on the Board of Directors may
be filled only by the remaining directors then in office.
The Articles of Incorporation also contain provisions which require: (i)
the affirmative vote of 60% of the Voting Stock to amend the Articles of
Incorporation or Bylaws of the Company; and (ii) the demand of not less than 50%
of all votes entitled to be cast on any issue to be considered at a proposed
special meeting to call a special meeting of shareholders. In addition, the
Articles of Incorporation require that all shareholder action, including the
election of directors, be taken by means of a vote at a duly convened
shareholders meeting and not by use of written consents.
The Bylaws establish an advance notice procedure for the nomination of
candidates for election as directors by shareholders as well as for shareholder
proposals to be considered at shareholders' meetings.
55
<PAGE> 57
The above-described provisions may have certain anti-takeover effects. Such
provisions, in addition to the provisions described below, may make it more
difficult for persons, without the approval of the Company's Board of Directors,
to make a tender offer or acquire substantial amounts of the Common Stock or
launch other takeover attempts that a shareholder might consider in such
shareholder's best interests, including attempts that might result in the
payment of a premium over the market price for the Common Stock held by such
shareholder.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to certain anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law including the
Florida Control Share Acquisition Act (the "Control Share Act"). The Control
Share Act prohibits the voting of shares in a publicly-held Florida corporation
that are acquired in a "control share acquisition" unless the holders of a
majority of the corporation's voting shares (exclusive of shares held by
officers of the corporation, inside directors or the acquiring party) approve
the granting of voting rights as to the shares acquired in the control share
acquisition or unless the acquisition is approved by the corporation's board of
directors. A "control share acquisition" is defined as an acquisition that
immediately thereafter entitles the acquiring party to voting power within each
of the following ranges: (i) one-fifth or more but less than one-third of such
voting power; (ii) one-third or more but less than a majority of such voting
power; or (iii) a majority or more of such voting power.
RIGHTS AGREEMENT
The Company has adopted and implemented a Shareholder Protection Rights
Agreement (the "Rights Agreement"), dated September 29, 1994, with Society
National Bank, N.A. as "Rights Agent." Pursuant to the terms of the Rights
Agreement, each share of Common Stock has attached a preferred stock purchase
right (the "Rights"). Each Right entitles its holder to purchase from the
Company, after the Separation Time (as defined below), one hundredth of a share
of Preferred Stock, par value $.01 per share, or, at the option of the Company,
one share of Common Stock for $12.67 (the "Exercise Price"), subject to
adjustment. The Rights do not trade separately from the Common Stock unless and
until the Separation Time.
The Rights are evidenced by certificates of the Company's Common Stock
until the close of business on the earlier of (either, the "Separation Time"):
(i) the tenth business day (or such later date as the Board of Directors may
from time to time fix by resolution adopted prior to the Separation Time that
would otherwise have occurred) after the date on which any Person (as defined in
the Rights Agreement) commences a tender or exchange offer that, if consummated,
would result in such Person's becoming an Acquiring Person (as defined below);
and (ii) the first date (the "Flip-in Date") of public announcement by the
Company that a Person has become an Acquiring Person, other than as a result of
a Flip-over Transaction or Event (as defined below); provided that if a tender
or exchange offer referred to in clause (i) is cancelled, terminated or
otherwise withdrawn prior to the Separation Time without the purchase of any
Common Stock pursuant thereto, such offer will be deemed never to have been
made.
An Acquiring Person is any Person having Beneficial Ownership (as defined
in the Rights Agreement) of 15% or more of the outstanding Common Stock, which
term does not include: (i) the Company, any wholly-owned subsidiary of the
Company or any employee stock ownership or other employee benefit plan of the
Company; (ii) any Person who becomes the Beneficial Owner of 15% or more of the
outstanding Common Stock solely as a result of an acquisition of Common Stock by
the Company, until such time as such Person acquires additional Common Stock,
other than through a dividend or stock split; (iii) any Person who becomes an
Acquiring Person without any plan or intent to seek or affect control of the
Company if such Person, upon notice by the Company, promptly divests sufficient
securities such that such 15% or greater Beneficial Ownership ceases; or (iv)
any Person who beneficially owns Common Stock consisting solely of (A) shares
acquired pursuant to the grant or exercise of an option granted by the Company
in connection with an agreement to merge with, or acquire, the Company at a time
at which there is no Acquiring Person, (B) shares owned by such Person and its
affiliates and associates at the time of such grant and (C) shares, amounting to
less than 1% of the outstanding Common Stock, acquired by affiliates and
associates of such Person after the time of such grant.
56
<PAGE> 58
The Rights Agreement provides that, until the Separation Time, the Rights
will be transferred only with the Common Stock. Common Stock certificates issued
after the Record Time but prior to the Separation Time will evidence one Right
for each share of Common Stock represented thereby and will contain a legend
incorporating by reference the terms of the Rights Agreement (as such may be
amended from time to time). Promptly following the Separation Time, separate
certificates evidencing the Rights (the "Rights Certificates") will be mailed to
holders of record of Common Stock at the Separation Time.
The Rights are not be exercisable until the business day following the
Separation Time. The Rights will expire on the earliest of: (i) the Exchange
Time (as defined below); (ii) the close of business on the tenth year
anniversary of the date the Company enters into the Rights Agreement; and (iii)
the date on which the Rights are terminated as described below (in any such
case, the "Expiration Time").
The Exercise Price and the number of Rights outstanding, or in certain
circumstances the securities purchasable upon exercise of the Rights, are
subject to adjustment from time to time to prevent dilution in the event of a
Common Stock dividend on, or a subdivision or a combination into a smaller
number of shares of, Common Stock, or the issuance or distribution of any
securities or assets in respect of, in lieu of or in exchange for Common Stock.
In the event that prior to the Expiration Time a Flip-in Date occurs, the
Company must take such action as necessary to ensure that each Right (other than
Rights beneficially owned by the Acquiring Person or any affiliate or associate
thereof, which Rights will become void) will constitute the right to purchase
from the Company, upon its exercise, that number of shares of Common Stock of
the Company having an aggregate Market Price (as defined in the Rights
Agreement), on the date of the public announcement of a Person becoming an
Acquiring Person (the "Stock Acquisition Date"), equal to twice the Exercise
Price for an amount in cash equal to the then current Exercise Price. In
addition, the Board of Directors may, at any time after a Flip-in Date and prior
to the time that an Acquiring Person becomes the Beneficial Owner of more than
50% of the outstanding Common Stock, elect to exchange all (but not less than
all) the then outstanding Rights (other than Rights beneficially owned by the
Acquiring Person or any affiliate or associate thereof, which Rights become
void) for shares of Common Stock at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date of the Separation Time
(the "Exchange Ratio"). Immediately upon such action by the Board of Directors
(the "Exchange Time"), the right to exercise the Rights will terminate and each
Right will thereafter represent only the right to receive a number of shares of
Common Stock equal to the Exchange Ratio.
Whenever the Company becomes obligated as described in the preceding
paragraph to issue shares of Common Stock upon exercise of or in exchange for
Rights, the Company may substitute therefor shares of Preferred Stock, at a
ratio of one hundredth of a share of Preferred Stock for each share of Common
Stock so issuable.
In the event that prior to the Expiration Time the Company enters into,
consummates or permits to occur a transaction or series of transactions after
the time an Acquiring Person has become such in which, directly or indirectly,
(i) the Company shall consolidate or merge or participate in a binding share
exchange with any other Person if, at the time of the consolidation, merger or
share exchange or at the time the Company enters into an agreement with respect
to such consolidation, merger or share exchange, the Acquiring Person controls
the Board of Directors and any term of, or arrangement concerning the treatment
of shares of, capital stock in such consolidation, merger or share exchange
relating to the Acquiring Person is not identical to the terms and arrangements
relating to other holders of Common Stock or (ii) the Company shall sell or
otherwise transfer (or one or more if its subsidiaries shall sell or otherwise
transfer) assets (A) aggregating more than 50% of the assets (measured by either
book value or fair market value) or (B) generating more than 50% of the
operating income or cash flow of the Company and its subsidiaries (taken as a
whole) to any other Person (other than the Company or one or more of its
wholly-owned subsidiaries) or two or more such Persons which are affiliated or
otherwise acting in concert, if, at the time of such sale or transfer of assets
or at the time the Company (or any such subsidiary) enters into an agreement
with respect to such sale or transfer, the Acquiring Person controls the Board
of Directors (a "Flip-over Transaction or Event"), the Company must
57
<PAGE> 59
take such action as is necessary to ensure, and must not enter into, consummate
or permit to occur such Flip-over Transaction or Event until it has entered into
a supplemental agreement with the Person engaging in such Flip-over Transaction
or Event or the parent corporation thereof (the "Flip-over Entity"), for the
benefit of the holders of the Rights, providing, that upon consummation or
occurrence of the Flip-over Transaction or Event (i) each Right will thereafter
constitute the right to purchase from the Flip-over Entity, upon its exercise,
that number of shares of common stock of the Flip-over Entity having an
aggregate Market Price on the date of consummation or occurrence of such
Flip-over Transaction or Event equal to twice the Exercise Price for an amount
in cash equal to the then current Exercise Price and (ii) the Flip-over Entity
will thereafter be liable for, and must assume, by virtue of such Flip-over
Transaction or Event and such supplemental agreement, all the obligations and
duties of the Company pursuant to the Rights Agreement. For purposes of the
foregoing description, the term "Acquiring Person" includes any Acquiring Person
and its Affiliates and Associates counted together as a single Person.
The Board of Directors may, at any time prior to the Flip-in Date,
terminate the Rights without any payment to the holders thereof. Immediately
upon the action of the Board of Directors to terminate the Rights, without
further action and without any notice, the right to exercise the Rights will
terminate and each Right will thereafter be null and void.
The holders of Rights will, solely by reason of their ownership of Rights,
have no rights as shareholders of the Company, including the right to vote or to
receive dividends.
The Company and the Rights Agent may from time to time supplement or amend
the Rights Agreement without the approval of any holders of Rights: (i) prior to
the Flip-in Date, in any respect; and (ii) after the Flip-in Date, to make any
changes that the Company may deem necessary or desirable and that do not
materially adversely affect the interests of the holders of Rights generally or
in order to cure any ambiguity or to correct or supplement any provision
contained therein which may be inconsistent with any other provision therein or
otherwise defective.
The Rights will not prevent a takeover of the Company. However, the Rights
may cause substantial economic and voting dilution to a person or group that
acquires 15% or more of the Common Stock unless the Rights are first terminated
by the Board of Directors. Nevertheless, management believes that the Rights
should not interfere with a transaction that is in the best interests of the
Company and its shareholders because the Rights can be terminated on or prior to
the Flip-in Date, before the consummation of such transaction.
As long as the Rights are attached to the Common Stock, the Company will
issue one Right with each new share of Common Stock, including the shares
offered by the Company hereby, so that all shares will have Rights attached. The
Company's Board of Directors intends to reserve for issuance upon exercise of
the Rights approximately 60,000 shares of Preferred Stock.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of the offering, the Company will have 8,477,486 shares of
Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option). All of these shares (including the 2,500,000 offered
hereby) are or will be tradable without restriction or further registration
under the Securities Act, unless purchased by "affiliates" of the Company, as
that term is defined under Rule 144 promulgated under the Securities Act ("Rule
144"). Of these, 341,589 shares are subject to a Share Holding Agreement that
provides generally for such shares to be freely tradable but subject to certain
restrictions on the nature of the transferees and for certain volume limitations
under certain circumstances. See "Certain Transactions."
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of acquisition of restricted shares from the
Company or any affiliate of the Company, the acquiror or subsequent holder is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of the Company's Common
Stock (approximately 84,775 shares immediately after the offering, assuming no
exercise of the Underwriters' over-allotment option) or the average weekly
trading volume of the Company's Common Stock or the Nasdaq Stock Market's
National Market or reported through the automated quotation system of a
registered securities association during the four calendar weeks preceding the
date on which notice of the sale is filed with the SEC. Sales under Rule 144
58
<PAGE> 60
are also subject to certain manner of sales provisions, notice requirements and
the availability of current public information about the Company. If three years
have elapsed since the later of the date of acquisition of restricted shares
from the Company or from any affiliate of the Company, and the acquiror or
subsequent holder thereof is deemed not to have been an affiliate of the Company
at any time during the 90 days preceding a sale, such person would be entitled
to sell such shares in the public market under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements.
All directors and executive officers of the Company, and the Selling
Shareholders, who together will own an aggregate of 1,483,738 shares of Common
Stock (or options to acquire Common Stock) after the offering, have agreed not
to sell or otherwise dispose of any shares of Common Stock until the expiration
of 180 days after the date of this Prospectus without the prior written consent
of the Representatives. See "Underwriting."
The Company is unable to predict the effect that sales of Common Stock made
under Rule 144, pursuant to future registration statements or otherwise, may
have on any then prevailing market price for shares of the Common Stock.
Nevertheless, sales of a substantial amount of the Common Stock in the public
market, or the perception that such sales could occur, could materially
adversely affect the market price of the Common Stock as well as the Company's
ability to raise additional capital through the sale of its equity securities.
An aggregate of up to 1,816,836 shares of Common Stock issuable under the
Stock Incentive Plan (consisting of options currently outstanding to purchase
1,312,630 shares of Common Stock and 504,206 shares remaining available for
grant or award thereunder) and an additional 411,000 shares issuable upon
exercise of currently outstanding non-plan options may become eligible for sale
without restriction to the extent they are held by persons who are not
affiliates of the Company and by affiliates pursuant to Rule 144. See
"Management -- Stock Incentive Plan," "Certain Transactions" and "Principal and
Selling Shareholders."
TRANSFER AGENT AND REGISTRAR
Society National Bank has been appointed the transfer agent and registrar
for the Common Stock. Its address is KeyCorp Shareholder Services, Inc., P.O.
Box 6477, Cleveland, Ohio 44101-1477.
59
<PAGE> 61
UNDERWRITING
The underwriters named below (collectively, the "Underwriters"), acting
through their representatives, Bear, Stearns & Co. Inc., Cowen & Company and
Furman Selz LLC (the "Representatives"), have severally agreed, subject to the
terms and conditions of the underwriting agreement with the Company and the
Selling Shareholders (the "Underwriting Agreement"), to purchase from the
Company and the Selling Shareholders the respective number of Shares of Common
Stock set forth opposite their respective names below. The underwriters are
committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Bear, Stearns & Co. Inc...........................................................
Cowen & Company...................................................................
Furman Selz LLC...................................................................
---------
Total................................................................... 2,500,000
========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose initially to offer the Shares to the public at the
public offering price and on the terms set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not more
than $ per share and such dealers may re-allow, a concession of not
more than $ per share to certain other dealers. After this offering,
the price and concession and reallowances to dealers may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period following the date of this Prospectus, to purchase up to a
maximum of 375,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the Shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional Shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such Shares only to cover
over-allotments made in connection with this offering.
The Company, its officers and directors and certain shareholders, including
the Selling Shareholders, holding in the aggregate approximately 1,483,738 of
the shares of Common Stock or options to acquire Common Stock, have agreed not
to offer, issue, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
any rights to acquire Common Stock, until the expiration of 180 days following
the date of this Prospectus without the prior written consent of the
Representatives.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
Certain of the Underwriters have from time to time performed various
investment banking services for the Company and its subsidiaries, for which
customary compensation has been received. The Company has
60
<PAGE> 62
retained Bear, Stearns & Co. Inc. ("Bear Stearns") as its financial advisor in
connection with the Real-time Sale. Pursuant to the engagement letter entered
into between the Company and Bear Stearns in connection with such engagement,
Bear Stearns received a customary financial advisory fee as well as the right to
serve as lead underwriter with respect to this offering.
Certain of the Underwriters that currently act as market makers for the
Company's Common Stock may engage in "passive market making" in such securities
on Nasdaq in accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A
permits, upon the satisfaction of certain conditions, underwriters and selling
group members participating in a distribution that are also Nasdaq market makers
in the security being distributed to engage in limited market making
transactions during the period when Rule 10b-6 under the Exchange Act would
otherwise prohibit that activity (the "cooling off period"). It prohibits
underwriters and selling group members engaged in passive market making
generally from entering a bid or effecting a purchase at a price that exceeds
the highest bid for those securities displayed on Nasdaq by a market maker that
is not participating in the distribution. Under Rule 10b-6A, each underwriter or
selling group member engaged in passive market making is subject to a daily net
purchase limitation equal to 30% of that Underwriter's or selling group member's
average daily trading volume during the two full consecutive calendar months
immediately preceding the date of the filing of the registration statement under
the Securities Act pertaining to the security to be distributed. Certain
Underwriters engaged in passive market making in the Company's Common Stock
during the cooling off period pursuant to Rule 10b-6A.
EXPERTS
The consolidated financial statements of Harris Computer Systems
Corporation as of September 30, 1995 and 1994 and for the year ended September
30, 1995 and the three months ended September 30, 1994 have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The financial statements of Harris Computer Systems
Corporation -- Trusted Systems Division (a division of Harris Computer Systems
Corporation) as of March 30, 1996 and September 30, 1995 and for the six months
ended March 30, 1996 and the year ended September 30, 1995 have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of the Company at June 30, 1994 and
1993 and for the years then ended have been incorporated by reference herein in
reliance upon the report of Ernst & Young LLP, as given upon the authority of
such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the offering will be passed upon for
the Company by the law firm of Holland & Knight, One East Broward Boulevard,
Suite 1300, Fort Lauderdale, Florida 33301. Certain legal matters will be passed
upon for the Underwriters by Simpson Thacher & Bartlett (a partnership which
includes professional corporations), 425 Lexington Avenue, New York, New York
10017. Simpson Thacher & Bartlett will rely on Holland & Knight with respect to
matters of Florida law.
61
<PAGE> 63
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Balance Sheets as of March 30, 1996 and September 30, 1995............................ F-3
Statements of Operations and Cumulative Trusted Systems Division Losses for the Six
Months Ended March 30, 1996 and Year Ended September 30, 1995....................... F-4
Statements of Cash Flows for the Six Months Ended March 30, 1996 and Year Ended
September 30, 1995.................................................................. F-5
Notes to Financial Statements......................................................... F-6
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Harris Computer Systems Corporation:
We have audited the accompanying balance sheets of Harris Computer Systems
Corporation -- Trusted Systems Division (a division of Harris Computer Systems
Corporation) as of March 30, 1996 and September 30, 1995 and the related
statements of operations and changes in cumulative Trusted Systems Division
losses and cash flows for the six months ended March 30, 1996 and the year ended
September 30, 1995. These financial statements are the responsibility of the
Company's 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 financial position of Harris Computer Systems
Corporation -- Trusted Systems Division as of March 30, 1996 and September 30,
1995, and the results of its operation and its cash flows for the six months
ended March 30, 1996 and the year ended September 30, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
May 10, 1996
F-2
<PAGE> 65
HARRIS COMPUTER SYSTEMS CORPORATION -- TRUSTED SYSTEMS DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 30, SEPTEMBER 30,
1996 1995
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Accounts receivable, less allowance for uncollectible accounts of $29
at March 30, 1996 and $84 at September 30, 1995.................... $ 2,626 $ 814
Inventories.......................................................... 87 121
Prepaid expenses..................................................... 49 61
--------- -------------
Total current assets....................................... 2,762 996
Machinery and equipment at cost, less accumulated depreciation of
$953 at March 30, 1996 and $828 at September 30, 1995.............. 1,034 716
Capitalized computer software development costs, less accumulated
amortization of $602 at March 30, 1996, and $408 at September 30,
1995............................................................... 2,726 1,545
--------- -------------
Total assets............................................... $ 6,522 $ 3,257
======= ==========
LIABILITIES AND CUMULATIVE TRUSTED SYSTEMS DIVISION LOSSES
Due to Harris Computer Systems Corporation........................... $12,053 $ 6,365
--------- -------------
Total liabilities.......................................... 12,053 6,365
Cumulative Trusted Systems Division losses........................... (5,531) (3,108)
--------- -------------
Total liabilities and Cumulative Trusted Systems Division
losses................................................... $ 6,522 $ 3,257
======= ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 66
HARRIS COMPUTER SYSTEMS CORPORATION -- TRUSTED SYSTEMS DIVISION
STATEMENTS OF OPERATIONS
AND CUMULATIVE TRUSTED SYSTEMS DIVISION LOSSES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 30, SEPTEMBER 30,
1996 1995
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
Sales
Products.......................................................... $ 4,177 $ 4,534
Other............................................................. 218 283
---------- -------------
Total sales............................................... 4,395 4,817
Cost of sales
Products.......................................................... 2,823 3,001
Other............................................................. 92 139
---------- -------------
Total cost of sales....................................... 2,915 3,140
Gross profit........................................................ 1,480 1,677
Other operating expense
Research and development.......................................... 578 835
Selling, general and administrative............................... 3,330 3,999
---------- -------------
Total other operating expenses............................ 3,908 4,834
---------- -------------
Operating loss...................................................... (2,428) (3,157)
Interest income..................................................... 26 49
Other expense....................................................... (21) --
---------- -------------
Total other income........................................ 5 49
---------- -------------
Net loss............................................................ $ (2,423) $(3,108)
======== ==========
Changes in cumulative Trusted Systems Division losses:
Cumulative Trusted Systems Division losses, beginning of period... $ (3,108) $ --
Net loss.......................................................... (2,423) (3,108)
---------- -------------
Cumulative Trusted Systems Division losses, end of period......... $ (5,531) $(3,108)
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 67
HARRIS COMPUTER SYSTEMS CORPORATION -- TRUSTED SYSTEMS DIVISION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED SEPTEMBER
MARCH 30, 30,
1996 1995
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities
Net loss........................................................... $ (2,423) $ (3,108)
Adjustment to reconcile net loss to net cash provided from (used
in) operating activities:
Depreciation.................................................... 125 415
Amortization.................................................... 206 278
Bad debt expense................................................ -- 84
Changes in assets and liabilities
Accounts receivables.......................................... (1,812) 5,062
Inventories................................................... 34 (16)
---------- ------------
Net cash provided from (used in) operating activities...... (3,870) 2,715
---------- ------------
Cash flows from investing activities
Additions to machinery and equipment............................... (443) (635)
Software development costs......................................... (1,375) (653)
---------- ------------
Net cash used in investing activities...................... (1,818) (1,288)
---------- ------------
Cash flows from financing activities
Increase (decrease) in due to Harris Computer Systems Corporation,
net............................................................. 5,688 (1,427)
---------- ------------
Net cash provided from (used in) financing activities...... 5,688 (1,427)
---------- ------------
Net increase in cash and cash equivalents............................ -- --
Cash and cash equivalents, beginning of period....................... -- --
---------- ------------
Cash and cash equivalents, end of period............................. $ -- $ --
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 68
HARRIS COMPUTER SYSTEMS CORPORATION -- TRUSTED SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS
MARCH 30, 1996 AND SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. NATURE OF BUSINESS
Harris Computer Systems Corporation -- Trusted Division (the "Division"),
is a division of Harris Computer Systems Corporation ("Harris"). The Division is
engaged in supplying computer and network security products, including operating
systems and firewall application products, to commercial and government markets
in the United States and abroad.
On November 5, 1995, Harris entered into an agreement and plan of merger
and reorganization with Concurrent Computer Corporation ("Concurrent"). The
transaction contemplated between Harris and Concurrent was revised. On March 26,
1996, Harris and Concurrent signed a Purchase and Sale Agreement. Under the
revised transaction structure, Harris will sell its Real-time computer business
(the "Real-time Business") and 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) 1 million convertible exchangeable preferred
stock of Concurrent paying a 9% cumulative annual dividend quarterly in arrears
with an aggregate liquidation preference of $10,000 subject to adjustment, to
reflect, among other things, the amount of net current assets of the Real-time
Business transferred in the Real-time Sale and (iii) the assumption of certain
liabilities of the Real-time Business hereafter defined as (the "Real-time
Sale"). The Real-time Sale is subject to a number of conditions including
approval of the shareholders of each company.
Immediately following the Real-time Sale, Concurrent's shareholders are
expected to own approximately 77% of Concurrent's outstanding common stock, with
the balance to be owned by Harris. Harris' shareholders will own approximately
90% of its common stock, with Concurrent owning approximately 10%; Harris could
increase its position in Concurrent from approximately 23% to approximately 29%
upon full conversion of the preferred stock.
Harris will retain its Trusted Systems product line after the Real-time
Sale.
2. LIQUIDITY
At March 30, 1996, the Division had net current assets of $2,762 comprised
mainly of accounts receivables, inventory and other prepaid expenses compared to
$996 at September 30, 1995. The Division increased its investment in machinery
and equipment and capitalized software by $443 and $1,375 respectively for the
six months ended March 30, 1996 and by $635 and $653, respectively, for the year
ended September 30, 1995.
Since the formation of Harris Computer Systems Corporation in August 1994,
the Division has relied upon the Real-time Business to fund its operating
working capital and capital asset purchase requirements. Inception-to-date
funding of the Division by the Real-time Business is disclosed as "Due to Harris
Computer Systems Corporation" in the "Liabilities and Cumulative Trusted
Division Losses" section of the Balance Sheet. Continued operational funding of
the Division by the Real-time Business is expected to continue until the sale of
the Real-time Business assets to Concurrent is complete.
Following the Real-time Sale, the Division expects to fund its operational
requirements through various means. Initially, the Division expects to reduce
its stock holding in Concurrent Corporation. While the Company may sell or
pledge part of the Concurrent Common Stock consideration to generate cash, the
Company's ability to do so is subject to certain restrictions set forth in the
Share Holding Agreement. The proceeds from the Concurrent Stock Sale are
expected to be utilized to provide working capital for the Company's operations.
At the present time, Division management is not able to predict whether
funding sources from operations and the sale of Concurrent stock will be
sufficient to support its long-term working capital and capital
F-6
<PAGE> 69
HARRIS COMPUTER SYSTEMS CORPORATION -- TRUSTED SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expenditure requirements. If management determines that additional funding is
required to support its on-going or strategic requirements, external financing
may be sought. These external financing sources may include, but are not limited
to, asset-backed lines of credit and/or funds generated through the issuance of
additional shares of Harris' stock. Although there can be no assurance that
external sources of financing will be available, or that, if available, such
financing will be on acceptable terms, management believes that such funding
should be available if required.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting -- The accompanying financial statements include the
operations, assets and liabilities of the Division. The financial statements do
not include Harris' corporate assets and liabilities not specifically
identifiable to the Division. Further, certain cost of goods sold components and
operating expense items were also allocated based on reasonable allocation
methods. The financial information included herein may not necessarily reflect
the financial position and results of operations of the Division in the future
or what the financial position and results of operations of the Division would
have been had it been a separate, stand-alone entity during the periods covered.
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 Division 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.
Due to Harris Computer Systems Corporation -- The Due to Harris Computer
Systems Corporation represents the net amount assumed to have been paid for or
accrued for by Harris on behalf of the Division since October 1, 1994. This
assumption is reasonable in light of the fact that Real-Time and the Division
share the same operating infrastructure, substantially all operating costs are
commingled, and the predominance of Real Time to Harris.
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 -- For the periods presented, the Division was included in the
consolidated Federal income tax return of Harris. The income tax provision
presented has been determined, as if the Division was a stand-alone business
filing separate tax returns for the six months ended March 30, 1996 and the year
ended September 30, 1995.
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
F-7
<PAGE> 70
HARRIS COMPUTER SYSTEMS CORPORATION -- TRUSTED SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Use of Estimates -- Management of the Division has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
4. SOFTWARE DEVELOPMENT COSTS
Software development costs capitalized were $1,375 and $653 for the six
months ended March 30, 1996 and the year ended September 30, 1995, respectively.
Software amortization expenses were $194 and $234 for the six months ended March
30, 1996 and the year ended September 30, 1995, respectively.
5. INCOME TAXES
As disclosed in Note 1, Harris Computer Systems Corporation -- Trusted
Systems Division is a division of Harris Computer Systems Corporation. The
deferred tax inventory shown below reflects deferred tax assets and liabilities
as though the Division was a separate company and not part of a consolidated
filing for U.S. Federal income tax purposes.
There is no provision for income taxes because the Division incurred
operating losses for both book and tax purposes during the six months ended
March 30, 1996 and the year ended September 30, 1995.
The components of deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
MARCH 30, SEPTEMBER 30,
1996 1995
--------- -------------
<S> <C> <C>
Net operating losses........................................... $ 2,380 $ 1,315
Depreciation................................................... (52) (39)
Capitalized software........................................... (927) (525)
Accrued vacation............................................... 41 39
All other -- net............................................... 56 26
Valuation allowance............................................ (1,498) (816)
--------- -------------
Net deferred income taxes............................ $ -- $ --
======= ==========
</TABLE>
The net increase in the total valuation allowance for the six months ended
March 30, 1996 was $682.
A reconciliation of the effective income tax rate and the statutory United
States income tax rate follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 30, SEPTEMBER 30,
1996 1995
----------------- -------------
<S> <C> <C>
Statutory U.S. income tax rate.......................... (34.0)% (34.0)%
Operating loss carryforwards............................ 31.0 32.2
Other Items............................................. 3.0 1.8
------ ------
Effective income tax rate............................... --% --%
============== ==========
</TABLE>
F-8
<PAGE> 71
HARRIS COMPUTER SYSTEMS CORPORATION -- TRUSTED SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of March 30, 1996, the Division has U.S. net operating loss
carryforwards of approximately $7,000. The Division's net operating loss
carryforwards begin to expire in 2010.
6. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 30, SEPTEMBER 30,
1996 1995
--------- -------------
<S> <C> <C>
Work in Process.............................................. $87 $ 31
Raw materials................................................ -- 90
--- ------
$87 $ 121
======= ==========
</TABLE>
7. MACHINERY AND EQUIPMENT, NET
Machinery and equipment, net is summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
MARCH 30, SEPTEMBER 30, USEFUL LIFE
1996 1995 (IN YEARS)
--------- ------------- -----------
<S> <C> <C> <C>
Machinery and equipment.................................. $ 1,334 $ 1,143 5-10
Loan equipment and service parts......................... 653 401 1-5
--------- -------------
Gross machinery and equipment............................ 1,987 1,544
Less: Accumulated depreciation........................... 953 828
--------- -------------
Net machinery and equipment.............................. $ 1,034 $ 716
======= ==========
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The employees of Harris Computer Systems Corporation -- Trusted Systems
Division are eligible to participate in the Harris Computer Systems Corporation
401(k) savings plan (the "Plan"). 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 is discretionary and shall be determined based on a
percentage of adjusted net income before taxes. Each participant may contribute
up to 12% of his compensation into the Plan. Matching contributions are made on
behalf of each participant for the first 6% of their individual contribution.
Participant's profit-sharing and matching contributions vest over a seven-year
period. The Division's contributions to the Plan were $99 and $195 for the six
months ended March 30, 1996 and the year ended September 30, 1995, respectively.
9. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Division to a
concentration of credit risk principally consist of trade receivables.
Concentrations of credit risk with respect to receivables are limited due to the
Division's large number of customers.
10. GEOGRAPHIC INFORMATION
The Division operates exclusively in the computer systems industry. A
significant portion of the Division's sales are to contractors who resell the
Division's computer and network systems to the U.S. Government and its agencies
as the ultimate end-user. These sales represented approximately 24% and 58% of
the Division's sales for the six months ended March 30, 1996 and the year ended
September 30, 1995, respectively. The Division had two significant commercial
customers, who combined, accounted for 20% and 14% of total sales
F-9
<PAGE> 72
HARRIS COMPUTER SYSTEMS CORPORATION -- TRUSTED SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for the periods ended March 30, 1996 and September 30, 1995, respectively. No
other customers individually represented more than 5% of total sales for the
referenced periods.
A summary of the Division's operations by geographic area is summarized
below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 30,
1996
--------------------------
U.S. EUROPEAN TOTAL
------ -------- ------
<S> <C> <C> <C>
Net Sales................................................... $3,357 $1,038 $4,395
====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1995
--------------------------
U.S. EUROPEAN TOTAL
------ -------- ------
<S> <C> <C> <C>
Net Sales................................................... $4,356 $ 461 $4,817
====== ======= ======
</TABLE>
U.S. export sales were $983 and $1,016 for the six months ended March 30,
1996 and for the year ended September 30, 1995, respectively.
Identifiable assets relating to European operations were $958 and $287 at
March 30, 1996 and September 30, 1995, respectively.
Foreign operations principally represent sales offices and disclosure of
separate operating profit is not meaningful.
F-10
<PAGE> 73
------------------------------------------------------------
------------------------------------------------------------
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OR PROJECTIONS OF FUTURE PERFORMANCE
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND ANY SUCH OTHER INFORMATION,
PROJECTIONS OR REPRESENTATIONS IF GIVEN OR MADE MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED. THE DELIVERY OF THIS PROSPECTUS OR ANY SALE HEREUNDER
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 2
Incorporation of Certain Information by
Reference................................ 2
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 16
Dividend Policy............................ 17
Price Range of Common Stock................ 17
Capitalization............................. 18
Pro Forma Condensed Consolidated Financial
Statements............................... 19
Selected Financial Data.................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 24
Business................................... 29
Management................................. 43
Certain Transactions....................... 47
Principal and Selling Shareholders......... 53
Description of Capital Stock............... 55
Shares Eligible for Future Sale............ 58
Underwriting............................... 60
Experts.................................... 61
Legal Matters.............................. 61
Index to Financial Statements.............. F-1
</TABLE>
------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
2,500,000 SHARES
CYBERGUARD CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
--------------------
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
FURMAN SELZ
, 1996
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth expenses and costs (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities being registered and payable by the
Company. All amounts are estimated except for the SEC registration fee and the
NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................................... $17,102
NASD filing fee.................................................................... 5,460
Nasdaq fees........................................................................ *
Transfer agent and registrar fees.................................................. *
Legal fees and expenses............................................................ *
Accounting fees and expenses....................................................... *
Blue Sky fees and expenses......................................................... *
Printing and engraving expenses.................................................... *
Miscellaneous...................................................................... *
-------
Total.................................................................... $ *
=======
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act ("FBCA") and the Company's Articles of
Incorporation provide, in certain cases, for each officer and director of the
Company to be indemnified by the Company against certain costs, expenses and
liabilities which he or she may incur in his or her capacity as such.
The Company's Articles provide:
To the fullest extent permitted by the Florida Business Corporation
Act, the Corporation shall indemnify, or advance expenses to, any person
made, or threatened to be made, a party to any action, suit or proceeding
by reason of the fact that such person (i) is or was a director of the
Corporation; (ii) is or was serving at the request of the Corporation as a
director of another corporation; (iii) is or was an officer of the
Corporation, provided that such person is or was at the time a director of
the Corporation; or (iv) is or was serving at the request of the
Corporation as an officer of another corporation, provided that such person
is or was at the time a director of the Corporation or a director of such
other corporation, serving at the request of the Corporation. Unless
otherwise expressly prohibited by the Florida Business Corporation Act, and
except as otherwise provided in the previous sentence, the Board of
Directors of the Corporation shall have the sole and exclusive discretion,
on such terms and conditions as it shall determine, to indemnify, or
advance expenses to, any person made, or threatened to be made, a party to
any action, suit or proceeding by reason of the fact that such person is or
was an officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as an officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
No person falling within the purview of this paragraph may apply for
indemnification or advancement of expenses to any court of competent
jurisdiction.
FBCA 607.0850 "Indemnification of officers, directors, employees and
agents" provides:
(1) A corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of,
the corporation), by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against liability incurred in connection with such proceeding, including
any
II-1
<PAGE> 75
appeal thereof, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any
proceeding by judgment, order, settlement, or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in, or not opposed to, the best interests of
the corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person, who was or
is a party to any proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the estimated expense
of litigating the proceeding to conclusion, actually and reasonably
incurred in connection with the defense or settlement of such proceeding,
including any appeal thereof. Such indemnification shall be authorized if
such person acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the corporation, except
that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been
adjudged to be liable unless, and only to the extent that, the court in
which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of
any proceeding referred to in subsection (1) or subsection (2), or in
defense of any claim, issue, or matter therein, he shall be indemnified
against expenses actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsection (1) or subsection (2). Such determination shall be
made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable, by
majority vote of a committee duly designated by the board of directors
(in which directors who are parties may participate) consisting solely
of two or more directors not at the time parties to the proceeding;
(c) By independent legal counsel;
1. Selected by the board of directors prescribed in paragraph
(a) or the committee prescribed in paragraph (b); or
2. If a quorum of the directors cannot be obtained for paragraph
(1) and the committee cannot be designated under paragraph (b),
selected by majority vote of the full board of directors (in which
directors who are parties may participate); or
(d) By the shareholders by a majority vote of a quorum consisting
of shareholders who were not parties to such proceeding or, if no such
quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the
II-2
<PAGE> 76
determination of permissibility is made by independent legal counsel,
persons specified by paragraph (4)(c) shall evaluate the reasonableness of
expenses and may authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil
or criminal proceeding may be paid by the corporation in advance of the
final disposition of such proceeding upon receipt of an undertaking by or
on behalf of such director or officer to repay such amount if he is
ultimately found not to be entitled to indemnification by the corporation
pursuant to this section. Expenses incurred by other employees and agents
may be paid in advance upon such terms or conditions that the board of
directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and a corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office. However, indemnification or advancement of expenses shall not
be made to or on behalf of any director, officer, employee, or agent if a
judgment or other final adjudication establishes that his actions, or
omissions to act, were material to the cause of action so adjudicated and
constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee, or
agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of sec. 607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or
in the right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee,
or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person, unless otherwise provided when authorized
or ratified.
(9) Unless the corporation's articles of incorporation provide
otherwise, notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary determination of the board or of
the shareholders in the specific case, a director, officer, employee, or
agent of the corporation who is or was a party to a proceeding may apply
for indemnification or advancement of expenses, or both, to the court
conducting the proceeding, to the circuit court, or to another court of
competent jurisdiction. On receipt of an application, the court, after
giving any notice that it considers necessary, may order indemnification
and advancement of expenses, including expenses incurred in seeking
court-ordered indemnification or advancement of expenses, if it determines
that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification under subsection (3), in which case the court
shall also order the corporation to pay the director reasonable expenses
incurred in obtaining court-ordered indemnification or advancement of
expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or
both, in view of all the relevant circumstances, regardless of whether
II-3
<PAGE> 77
such person met the standard of conduct set forth in subsection (1),
subsection (2), or subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger, so that any person who is or was a director, officer, employee, or
agent of a constituent corporation, or is or was serving at the request of
a constituent corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, is in the same position under this section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(11) For purposes of this section;
(a) The term "other enterprises" includes employee benefit plans;
(b) The term "expenses" includes counsel fees, including those for
appeal;
(c) The term "liability" includes obligations to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect
to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit, or other type of proceeding, whether civil,
criminal, administrative, or investigative and whether formal or
informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation" includes
any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties
relating to an employee benefit plan and its participants or
beneficiaries; and
(g) The term "not opposed to the best interest of the corporation"
describes the actions of a person who acts in good faith and in a manner
he reasonably believes to be in the best interests of the participants
and beneficiaries of an employee benefit plan.
(12) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of this section.
ITEM 16. EXHIBITS
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1.01 -- Form of Underwriting Agreement****
2.01 -- Purchase and Sale Agreement between Concurrent Computer Corporation and the Company
dated March 26, 1996**
3.01 -- Amended and Restated Articles of Incorporation****
4.01 -- Form of Common Stock Certificate*
4.02 -- Form of Stockholder Rights Plan*
4.03 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994 between the
Company and Robert E. Chism***
</TABLE>
II-4
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
4.04 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994 between the
Company and Robert T. Menzel***
4.05 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994 between the
Company and Michael N. Smith***
4.06 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994 between the
Company and Bradley C. Lesher***
4.07 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994 between the
Company and Daniel S. Dunleavy***
4.08 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994 between the
Company and E. Courtney Siegel***
4.09 -- Restricted Stock Award Agreement dated as of October 8, 1994 between the Company
and Daniel S. Dunleavy***
4.10 -- Restricted Stock Award Agreement dated as of October 8, 1994 between the Company
and E. Courtney Siegel***
4.11 -- Form of Share Holding Agreement between Concurrent Computer Corporation and the
Company
5.01 -- Opinion of Holland & Knight****
23.01 -- Consent of KPMG Peat Marwick LLP, independent Certified Public Accountants
23.02 -- Consent of Ernst & Young LLP, independent Certified Public Accountants
23.05 -- Consent of Holland & Knight (included in Exhibit 5)
24.01 -- Power of Attorney (included on signature page of this Registration Statement)
27 -- Financial Data Schedules
</TABLE>
- ---------------
* Filed with Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form 10, dated September 29, 1994, File No. 0-24544 and
incorporated herein by reference.
** Filed with the Company's Current Report on Form 8-K dated March 26, 1996
and incorporated herein by reference.
*** Filed with the Company's Quarterly Report on Form 10-Q for the period
ending December 30, 1994 and incorporated herein by reference.
**** To be filed by amendment.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of a Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to
II-5
<PAGE> 79
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a
part of this Registration Statement as of the time it was declared effective.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-6
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Lauderdale, State of Florida on May 23, 1996.
Harris Computer Systems Corporation
By: /s/ E. COURTNEY SIEGEL
------------------------------------
E. Courtney Siegel
President, Chairman and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints E. Courtney Siegel, Daniel S. Dunleavy, Robert L.
Carberry and Pat Wheeler, and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and revocation, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any Registration Statement (and any and all amendments thereto) related to
this Registration Statement and filed pursuant to Rule 462(b) promulgated by the
Securities and Exchange Commission, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- -------------
<C> <S> <C>
/s/ E. COURTNEY SIEGEL President, Chairman and Chief May 23, 1996
- --------------------------------------------- Executive Officer (Principal
E. Courtney Siegel Executive Officer)
/s/ DANIEL S. DUNLEAVY Vice-President, Chief May 23, 1996
- --------------------------------------------- Administrative Officer and
Daniel S. Dunleavy Chief Accounting Officer
(Principal Financial and
Principal Accounting Officer)
/s/ BRIAN FOREMNY Secretary, General Counsel, and May 23, 1996
- --------------------------------------------- Director
Brian Foremny
/s/ ROBERT L. CARBERRY Director May 23, 1996
- ---------------------------------------------
Robert L. Carberry
/s/ C. SHELTON JAMES Director May 23, 1996
- ---------------------------------------------
C. Shelton James
/s/ MICHAEL F. MAGUIRE Director May 23, 1996
- ---------------------------------------------
Michael F. Maguire
</TABLE>
II-7
<PAGE> 81
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ----------------------------------------------------------------------- -------------
<C> <C> <S> <C>
1.01 -- Form of Underwriting Agreement****
2.01 -- Purchase and Sale Agreement between Concurrent Computer Corporation and
the Company dated March 26, 1996**
3.01 -- Amended and Restated Articles of Incorporation****
4.01 -- Form of Common Stock Certificate*
4.02 -- Form of Stockholder Rights Plan*
4.03 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994
between the Company and Robert E. Chism***
4.04 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994
between the Company and Robert T. Menzel***
4.05 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994
between the Company and Michael N. Smith***
4.06 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994
between the Company and Bradley C. Lesher***
4.07 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994
between the Company and Daniel S. Dunleavy***
4.08 -- Non-Statutory Stock Option Agreement dated as of October 8, 1994
between the Company and E. Courtney Siegel***
4.09 -- Restricted Stock Award Agreement dated as of October 8, 1994 between
the Company and Daniel S. Dunleavy***
4.10 -- Restricted Stock Award Agreement dated as of October 8, 1994 between
the Company and E. Courtney Siegel***
4.11 -- Form of Share Holding Agreement between Concurrent Computer Corporation
and the Company
5.01 -- Opinion of Holland & Knight****
23.01 -- Consent of KPMG Peat Marwick LLP, independent Certified Public
Accountants
23.02 -- Consent of Ernst & Young LLP, independent Certified Public Accountants
23.05 -- Consent of Holland & Knight (included in Exhibit 5)
24.01 -- Power of Attorney (included on signature page of this Registration
Statement)
27 -- Financial Data Schedules
</TABLE>
- ---------------
* Filed with Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form 10, dated September 29, 1994, File No. 0-24544 and
incorporated herein by reference.
** Filed with the Company's Current Report on Form 8-K dated March 26, 1996
and incorporated herein by reference.
*** Filed with the Company's Quarterly Report on Form 10-Q for the period
ending December 30, 1994 and incorporated herein by reference.
**** To be filed by amendment.
<PAGE> 1
EXHIBIT 4.11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARE HOLDING AGREEMENT
DATED AS OF
[ ], 1996
BETWEEN
CONCURRENT COMPUTER CORPORATION
AND
HARRIS COMPUTER SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
Definitions........................................................................... 1
SECTION 1.1. Definitions........................................................... 1
ARTICLE II
Corporate Governance.................................................................. 3
SECTION 2.1. The Concurrent Board of Directors..................................... 3
SECTION 2.2. The Harris Board of Directors......................................... 4
SECTION 2.3. Initial Designees..................................................... 4
SECTION 2.4. Resignations and Replacements......................................... 4
SECTION 2.5. Solicitation and Voting of Shares..................................... 5
ARTICLE III
Standstill............................................................................ 5
SECTION 3.1. Standstill............................................................ 5
SECTION 3.2. Third Party Offers.................................................... 6
ARTICLE IV
Transfer Restrictions................................................................. 6
SECTION 4.1. Restrictions.......................................................... 6
SECTION 4.2. Pledge of Stock....................................................... 7
SECTION 4.3. Effect................................................................ 8
ARTICLE V
Termination........................................................................... 8
SECTION 5.1. Termination........................................................... 8
ARTICLE VI
Registration.......................................................................... 8
SECTION 6.1. Registration.......................................................... 8
SECTION 6.2. Indemnification; Contribution......................................... 10
ARTICLE VII
Miscellaneous......................................................................... 12
SECTION 7.1. Effectiveness......................................................... 12
SECTION 7.2. Notices............................................................... 12
SECTION 7.3. Interpretation........................................................ 13
SECTION 7.4. Severability.......................................................... 13
SECTION 7.5. Counterparts.......................................................... 13
SECTION 7.6. Entire Agreement; No Third Party Beneficiaries........................ 13
SECTION 7.7. Further Assurances.................................................... 13
SECTION 7.8. Governing Law; Equitable Remedies..................................... 13
SECTION 7.9. Consent to Jurisdiction............................................... 13
SECTION 7.10. Amendments; Waivers................................................... 13
SECTION 7.11. Assignment............................................................ 14
</TABLE>
i
<PAGE> 3
SHARE HOLDING AGREEMENT dated as of [ ], 1996, between CONCURRENT
COMPUTER CORPORATION, a Delaware corporation ("Concurrent"), and HARRIS COMPUTER
SYSTEMS CORPORATION, a Florida corporation ("Harris").
WHEREAS Harris and Concurrent are parties to a Purchase and Sale Agreement
dated as of March 26, 1996 (the "Purchase and Sale Agreement") and upon
consummation of the transactions contemplated therein (the "Transactions"),
Harris will Beneficially Own 10,000,000 shares of Concurrent Common Stock and
Concurrent will Beneficially Own 683,178 shares of Harris Common Stock (as such
terms are defined below); and
WHEREAS the parties hereto wish to set forth their agreement concerning
certain governance matters of Concurrent and Harris following consummation of
the Transactions as well as certain matters relating to Concurrent's and
Harris's ownership of Voting Securities (as such term is defined below).
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
An "affiliate" of any Person means any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person. For purposes of the definition
of affiliate, "control" has the meaning specified in Rule 12b-2 under the
Exchange Act as in effect on the date of this Agreement.
An "associate" has the meaning set forth in Rule 12b-2 under the Exchange
Act as in effect on the date of this Agreement.
A Person shall be deemed to "Beneficially Own", to have "Beneficial
Ownership" of, or to be "Beneficially Owning" any securities (which securities
shall also be deemed "Beneficially Owned" by such Person) that such Person is
deemed to "beneficially own" within the meaning of Rule 13d-3 under the Exchange
Act as in effect on the date of this Agreement.
"Best Efforts" with respect to any action subject to such a Best Efforts
obligation shall mean all efforts to take such action as may be taken in a
commercially reasonable manner.
"Change of Control" with respect to Concurrent or Harris, as the case may
be, shall be deemed to have occurred at such time as a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) (i)
becomes the Beneficial Owner, directly or indirectly, of more than 50% of the
Voting Securities of Concurrent or Harris, as the case may be or (ii) otherwise
obtains control of Concurrent or Harris, as the case may be.
"Closing Date" means the date of the closing of the Purchase and Sale
Agreement.
"Concurrent", together with any subsidiary of Concurrent that holds shares
of Harris Common Stock, has the meaning set forth in the recitals to this
Agreement.
"Concurrent Board" means the board of directors of Concurrent.
"Concurrent Common Stock" means the common stock of Concurrent, par value
$0.01 per share.
"Concurrent Designee" means such person as is so designated by Concurrent
in accordance with Section 2.2(b) to serve as a member of the Harris Board
pursuant to Section 2.3 hereof.
1
<PAGE> 4
"Concurrent Liquidity Restrictions" means restrictions, which shall become
effective only in accordance with the provisions of Article VI hereof and only
so long as Concurrent Beneficially Owns at least the Triggering Number of Harris
Shares, pursuant to which Concurrent may not sell more than 45,000 shares of
Harris Common Stock (subject to adjustment for stock splits, stock dividends and
similar transactions) in any consecutive thirty day period (which 45,000 share
limit shall be reduced by sales of Harris Common Stock by Lenders during such 30
day period, if any) and will not permit more than 35% of the Current Market
Value (up to $13.35 per share, subject to adjustment) of Harris Common Stock
plus (ii) 25% of the Current Market Value (in excess of $13.35 per share) of
Harris Common Stock (in each case measured as of the date such stock is pledged)
to serve as collateral for a margin loan from any Lender.
"Concurrent President" means the President and Chief Executive Officer of
Concurrent.
"Current Market Value" means the average of the daily closing prices for
the ten consecutive trading days immediately prior to the relevant measuring
date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Governmental Entity" means any court of competent jurisdiction,
administrative agency, regulatory body, commission or other governmental
authority, board, bureau or instrumentality, domestic or foreign and any
subdivision thereof.
A "group" has the meaning set forth in Section 13(d) of the Exchange Act as
in effect on the date of this Agreement.
"Harris", together with any subsidiary of Harris that holds shares of
Concurrent Common Stock, has the meaning set forth in the recitals to this
Agreement.
"Harris Board" means the board of directors of Harris.
"Harris Common Stock" means the common stock of Harris, par value $0.01 per
share.
"Harris Designees" means such Persons as are so designated by Harris in
accordance with Section 2.1(b), as such designations may change from time to
time in accordance with this Agreement, to serve as members of the Concurrent
Board pursuant to Section 2.3 hereof.
"Harris Liquidity Restrictions" means restrictions, which shall become
effective only in accordance with the provisions of Article VI hereto and only
so long as Harris Beneficially Owns at least the Triggering Number of Concurrent
Shares, pursuant to which Harris may not sell more than 260,000 shares of
Concurrent Common Stock (subject to adjustment for stock splits, stock dividends
and similar transactions) in any consecutive thirty day period (which 260,000
share limit shall be reduced by sales of Concurrent Common Stock by Lenders
during such 30 day period, if any) and will not permit more than (A) 35% of the
Current Market Value (up to $1.25 per share, subject to adjustment) of
Concurrent Common Stock plus (B) 25% of the Current Market Value (in excess of
$1.25 per share, subject to adjustment) of Concurrent Common Stock (in each case
measured as of the date such stock is pledged) to serve as collateral for a
margin loan from any Lender; provided, however, the above restrictions shall not
prevent Harris from obtaining a margin or other loan secured by Concurrent
Common Stock with a principal amount equal to the product of $.50 and the number
of shares of Concurrent Common Stock issued to Harris on the Closing Date
(subject to adjustment for stock splits, stock dividends and similar
transactions) Beneficially Owned by Harris at the time of the execution of the
applicable loan agreement.
"Lender" shall mean any bank, broker-dealer or other lender who grants
either party hereto a margin loan or other similar loans secured by the
securities of either party hereto.
"Minimum Number of Owned Concurrent Shares"means 2,000,000 shares of
Concurrent Common Stock Beneficially Owned by Harris (subject to adjustment for
stock splits, stock dividends and similar transactions) less the total of all
shares of Concurrent Common Stock sold by Harris or a Lender of Harris between
the date hereof and the applicable date.
2
<PAGE> 5
"Minimum Number of Owned Harris Shares" means 341,589 shares of Harris
Common Stock Beneficially Owned by Concurrent (subject to adjustment for stock
splits, stock dividends and similar transactions) less the total of all shares
of Harris Common Stock sold by Concurrent or a Lender of Concurrent between the
date hereof and the applicable date.
"in registration" means, with respect to any party hereto, any period
during which such party (i) has a good faith intention to complete a Public
Offering (as defined below) within three calendar months of the date such
intention is communicated in writing to the other party hereto and (ii) is
actively taking steps to complete such an offering (including steps which may
predate the filing of a registration statement for a Public Offering).
"Other Concurrent Holders" means the holders of the Other Concurrent
Shares.
"Other Concurrent Shares" means Voting Securities of Concurrent not
Beneficially Owned by Harris or any of its affiliates.
"Person" means any individual, group, corporation, firm, partnership, joint
venture, trust, business association, organization, Governmental Entity or other
entity.
"Public Offering" means any underwritten offering of stock registered under
the Securities Act.
"Purchase and Sale Agreement" has the meaning set forth in the recitals to
this Agreement.
"SEC" means the Securities and Exchange Commission or any successor
Governmental Entity.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Standstill Period" means the period commencing on the date hereof and
expiring [the date which is 42 months following the Closing Date].
"Subsidiary" means, with respect to any Person, as of any date of
determination, any other Person as to which such Person owns, directly or
indirectly, or otherwise controls, more than 50% of the voting shares or other
similar interests.
"Third Party Offer" means a bona fide offer to enter into a transaction by
a Person other than Harris or any of its respective affiliates or any other
Person acting on behalf of Harris or any of its respective affiliates which
would result in a Change of Control of Concurrent or a transfer of all or
substantially all of the assets of Concurrent.
"Transactions" has the meaning set forth in the recitals to this Agreement.
"Triggering Number of Concurrent Shares" means 2,000,000 shares of
Concurrent Common Stock, subject to adjustment for stock splits, stock dividends
and similar transactions.
"Triggering Number of Harris Shares" means 341,589 shares of Harris Common
Stock, subject to adjustment for stock splits, stock dividends and similar
transactions.
"Voting Securities" means Concurrent Common Stock or Harris Common Stock,
as the case may be, and any other securities of Concurrent or Harris, as the
case may be, entitled to vote generally in the election of directors of
Concurrent or Harris, as the case may be.
ARTICLE II
CORPORATE GOVERNANCE
SECTION 2.1. The Concurrent Board of Directors.
(a) At Closing, the Concurrent Board shall consist of no more than nine
directors, including the individuals identified in Section 2.3(a) hereto as the
initial Harris Designees.
3
<PAGE> 6
(b) After September 30, 1997, so long as Harris Beneficially Owns at least
the number of shares of Concurrent Common Stock (including the Concurrent
Preferred Stock assuming full conversion of all such shares) set forth below, as
such numbers may be appropriately adjusted for stock dividends, stock splits or
similar transactions, Concurrent shall exercise all authority under applicable
law to maintain a board of directors of no more than nine directors and to cause
any slate of directors presented to stockholders for election to the Concurrent
Board to include such nominees that, if elected, would result in the Concurrent
Board including that number of directors which appears directly opposite the
minimum share ownership set forth below:
<TABLE>
<CAPTION>
MINIMUM NUMBER OF SHARES
OF CONCURRENT COMMON
STOCK BENEFICIALLY OWNED NUMBER OF HARRIS DESIGNEES
BY HARRIS ON CONCURRENT SLATE
---------------------------------------------------- --------------------------
<S> <C>
10,700,000.......................................... 3
4,700,000........................................... 2
2,400,000........................................... 1
less than 2,400,000................................. 0
</TABLE>
Prior to September 30, 1997, Harris shall be entitled to three Harris
Designees unless Harris Beneficially Owns less than 2,400,000 shares of
Concurrent Common Stock, as such number of shares may be appropriately adjusted
for stock dividends, stock splits or similar transactions, on the date of the
mailing of the proxy statement for the next annual meeting of Concurrent
shareholders following the date hereof, in which case the provisions of this
Section 2.1(b) will not apply and Harris shall not be entitled to any
representation on the Concurrent Board in accordance with this Section 2.1(b)
and Section 2.3(a) hereof.
(c) The initial Chairman of the Concurrent Board shall be John T. Stihl.
SECTION 2.2. The Harris Board of Directors.
(a) The Harris Board shall consist of no more than seven directors,
including the individual identified in Section 2.4(b) hereto as the initial
Concurrent Designee.
(b) So long as Concurrent Beneficially Owns at least 375,000 (subject to
adjustment for stock splits, stock dividends and similar transactions) shares of
Harris Common Stock, as such number of shares may be appropriately adjusted for
stock dividends, stock splits or similar transactions, the parties hereto shall
exercise all authority under applicable law to maintain a board of directors of
no more than seven directors and to cause any slate of directors presented to
stockholders for election to the Harris Board to include such nominees that, if
elected, would result in the Harris Board including one Concurrent Designee;
provided, however, that if Concurrent Beneficially Owns less than 375,000
(subject to adjustment for stock splits, stock dividends and similar
transactions) shares of Harris Common Stock, as such number of shares may be
appropriately adjusted for stock dividends, stock splits or similar
transactions, on the date of the mailing of the proxy statement for the next
annual meeting of Harris shareholders following the date hereof, then this
Section 2.2(b) will not apply and Concurrent shall not be entitled to any
representation on the Harris Board in accordance with this Section 2.2(b) and
Section 2.3(b) hereof.
SECTION 2.3. Initial Designees.
(a) The initial Harris Designees shall be E. Courtney Siegel (who shall
also be the initial Concurrent President in accordance with Section 6.13 of the
Purchase and Sale Agreement), C. Shelton James and Michael F. Maguire.
(b) The initial Concurrent Designee shall be Richard P. Rifenburgh.
SECTION 2.4. Resignations and Replacements.
(a) If at any time a member of the Concurrent Board resigns or is removed,
a new member shall be designated to replace such member until the next election
of directors. If such director who resigned or was removed was a Harris
Designee, Harris shall designate the replacement of such director. If such
director who
4
<PAGE> 7
resigned or was removed was not a Harris Designee, Concurrent shall designate
the replacement director in accordance with the terms of its by-laws.
(b) If at any time a member of the Harris Board resigns or is removed, a
new member shall be designated to replace such member until the next election of
directors. If such director who resigned or was removed was a Concurrent
Designee, Concurrent shall designate the replacement of such director. If such
director who resigned or was removed was not a Concurrent Designee, Harris shall
designate the replacement director in accordance with the provisions of its
by-laws.
SECTION 2.5. Solicitation and Voting of Shares.
(a) Concurrent or Harris, as the case may be, shall use reasonable efforts
to solicit from its stockholders eligible to vote for the election of directors
proxies in favor of the board designees selected in accordance with Sections
2.1, 2.2 and 2.3.
(b) Until Concurrent Beneficially Owns less than the Triggering Number of
Harris Shares, Concurrent shall and shall cause any of its Subsidiaries to be
present for all stockholders meetings for purposes of establishing a quorum and
shall vote and shall cause any of its Subsidiaries to vote all securities of
Harris owned by it and entitled to vote, in favor of matters recommended by the
Harris Board for approval by stockholders.
(c) So long as either (i) Harris Beneficially Owns 4,700,000 (subject to
adjustment for stock splits, stock dividends) or more shares of Concurrent
Common Stock or (ii) Harris Beneficially Owns 2,400,000 (subject to adjustment
for stock splits, stock dividends) or more shares of Concurrent Common Stock and
at least one member of the existing Concurrent Board (other than the Chief
Executive Officer) was a Harris Designee, Harris shall and shall cause any of
its Subsidiaries to be present for all stockholder meetings for purposes of
establishing a quorum and shall vote and cause any Subsidiary of Harris to vote
all securities of Concurrent owned by it and entitled to vote, in favor of
matters recommended by the Concurrent Board for approval by stockholders.
ARTICLE III
STANDSTILL
SECTION 3.1. Standstill.
(a) During the Standstill Period, except as otherwise expressly provided in
this Agreement (including this Section 3.1 and Section 3.2), without the express
written consent of the other party, neither Harris, Concurrent nor any of their
controlled affiliates, as the case may be, shall, directly or indirectly, (i)
take any action, to acquire or affect control of the other party or to encourage
or assist any other Person or group to do so, (ii) enter, propose to enter into,
solicit or support any merger, business combination, Change of Control,
restructuring or similar transaction involving Concurrent or Harris, as the case
may be, or any of their Subsidiaries, or purchase, acquire, propose to purchase
or acquire or solicit or support the purchase or acquisition of any portion of
the business, assets or securities of Concurrent or Harris or any of their
Subsidiaries, (iii) seek additional representation on the Concurrent or Harris
Board, as the case may be, the removal of any directors from the Concurrent or
Harris Board, as the case may be, or a change in the size or composition of such
board, (iv) initiate or propose any securityholder proposal without the approval
of the Concurrent or Harris Board, as the case may be, granted in accordance
with this Agreement or make, engage in, or in any way participate in, any
"solicitation" of "proxies" (as such terms are used in the proxy rules
promulgated by the SEC under the Exchange Act) to vote, or seek to advise or
influence any Person with respect to the voting of, any securities or request or
take any action to obtain any list of securityholders for such purposes with
respect to any matter (or, as to such matters, solicit any Person in a manner
that would require the filing of a proxy statement under Regulation 14A of the
Exchange Act), (v) deposit any securities in a voting trust or enter into any
voting agreement or arrangement with respect thereto (other than this
Agreement), (vi) disclose any intent, purpose, plan, arrangement or proposal
inconsistent with the foregoing (including any such intent, purpose, plan,
arrangement or proposal that is conditioned on or would require the
5
<PAGE> 8
waiver, amendment, nullification or invalidation of any of the foregoing) or
take any action that would require public disclosure of any such intent,
purpose, plan, arrangement or proposal, (vii) make any request to amend or waive
any provision of this Section 3.1, which request would require public disclosure
under applicable law, rule or regulation, (viii) take any action challenging the
validity or enforceability of the foregoing or (ix) assist, advise, encourage or
negotiate with any Person with respect to, or seek to do, any of the foregoing.
(b) Nothing in this Section 3.1 shall (i) prohibit or restrict Concurrent
or Harris, as the case may be, from responding to any inquiries from any
stockholders of Harris or Concurrent, as the case may be, as to its intention
with respect to the voting of any securities of the other party Beneficially
Owned by it so long as such response is consistent with the terms of this
Agreement; (ii) restrict the right of each Harris Director on the Concurrent
Board or any committee thereof, and each Concurrent Director on the Harris Board
or any committee thereof, to vote on any matter as such individual believes
appropriate in light of his or her duties to the stockholders of Concurrent or
Harris, as the case may be; or (iii) prohibit Harris or Concurrent, as the case
may be, from Beneficially Owning securities of the other party issued as
dividends or distributions in respect of, or issued upon conversion, exchange or
exercise of, securities which Harris or Concurrent, as the case may be, is
permitted to Beneficially Own under this Agreement.
SECTION 3.2. Third Party Offers. If Concurrent becomes the subject of a
Third Party Offer that is approved by a majority of the Board of Directors of
Concurrent at a time when Harris and its controlled affiliates own more than 10%
of the outstanding Voting Securities of Concurrent, promptly after such approval
by the Board of Directors of Concurrent, Concurrent shall deliver a written
notice to Harris, briefly describing the material terms of such Third Party
Offer, and Harris shall, within ten business days after receipt of such notice,
either (i) offer to acquire all or substantially all of the assets of Concurrent
or the Other Concurrent Shares, as the case may be, on terms at least as
favorable to the Other Concurrent Holders as those contemplated by such Third
Party Offer or (ii) confirm in writing that it will support, and at the
appropriate time will support, such Third Party Offer, including by voting and
causing each of its controlled affiliates to vote all its Concurrent Common
Stock eligible to vote thereon in favor of such Third Party Offer or, if
applicable, tendering or selling and causing each of its controlled affiliates
to tender or sell all its securities of Concurrent owned by it to the Person
making such Third Party Offer.
ARTICLE IV
TRANSFER RESTRICTIONS
SECTION 4.1. Restrictions. Except in connection with a Third Party Offer
as provided in Section 3.2, neither Harris, Concurrent, nor any of their
Subsidiaries, as the case may be, shall, directly or indirectly, sell, transfer
or otherwise dispose of any securities of the other party except in accordance
with one of the following: (i) (a) pursuant to a sale to any other Person of any
such securities in an amount of less than 5% of the outstanding securities of
any class of Concurrent or Harris, as the case may be, (and for these purposes,
sales in open market transactions which are not intentionally planned by the
Seller to assist any other person in acquiring over 5% of the outstanding
securities of any class of Concurrent or Harris shall be permitted) or if such
acquiring Person is an institutional investor eligible to file a Statement on
Schedule 13G (a "13G Filer") (or any successor form) with respect to its
investment, greater than 5% but less than 10% of the outstanding securities of
any class of Concurrent or Harris, as the case may be, provided, however, that
such 13G Filer provides a certification to Concurrent or Harris, as the case may
be, that the securities acquired by it were acquired in the ordinary course of
business and were not acquired for the purpose of changing or influencing the
control of the issuer of such securities and were not acquired in connection
with or as a participant in any transaction having such purpose or effect, (ii)
pursuant to a merger, consolidation or other business combination of Harris or
Concurrent or any Harris or Concurrent Entity, as the case may be, where such
party is not the surviving entity or a sale of all or substantially all of such
party's assets; provided, however, that the surviving or purchasing entity
agrees to be bound by the terms of this Agreement, (iii) pursuant to a transfer
of shares of Concurrent or Harris to affiliates of Harris or Concurrent, as the
case may be, provided that such affiliates agree to be bound by the terms of
this Agreement, (iv) pursuant to Section 4.2 hereof or (v) in order to, and only
to the extent necessary to, comply with applicable law. For purposes of Section
4.1(i), the
6
<PAGE> 9
convertible exchangeable preferred stock of Concurrent to be delivered in
connection with the Purchase and Sale Agreement shall be deemed to be the same
class of securities as the Concurrent Common Stock.
SECTION 4.2. Pledge of Stock.
(a) Harris or Concurrent, as the case may be, (each, a "Pledgor") may
pledge the securities of the other party received by it pursuant to the Purchase
and Sale Agreement to a Lender to secure borrowings or other indebtedness as
extended from time to time, provided, however, that as a condition to such
pledge, (i) the Lender shall agree in writing not to sell, transfer or otherwise
dispose of the securities pledged to it other than pursuant to an effective
registration statement on Form S-3 (the "S-3 Registration Statement") with
respect to the disposition of such securities or an applicable exemption from
registration under the Securities Act, (ii) the Lender shall agree in writing
that such Lender will be bound by the terms of this Agreement relating to any
restrictions on such securities, including with respect to the transfer, pledge
or other disposition of securities, applicable to the Pledgor under Article IV
hereof and (iii) all certificates representing securities pledged to such Lender
shall (x) if pledged after the date on which the S-3 Registration Statement is
declared effective, bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF
A SHARE HOLDING AGREEMENT (THE "SHARE HOLDING AGREEMENT"), DATED
, 1996 BY AND BETWEEN CONCURRENT COMPUTER CORPORATION
("CONCURRENT") AND HARRIS COMPUTER SYSTEMS CORPORATION ("HARRIS")
PURSUANT TO WHICH, AMONG OTHER THINGS, [CONCURRENT] [HARRIS] (THE
"ISSUER") HAS FILED, AND THE SEC HAS DECLARED EFFECTIVE, A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT (THE "REGISTRATION
STATEMENT"). THE ISSUER HAS A BEST EFFORTS OBLIGATION TO MAINTAIN THE
EFFECTIVENESS OF THE REGISTRATION STATEMENT UNTIL . THE
PLEDGEE HEREOF SHALL NOT TRANSFER, SELL OR OTHERWISE DISPOSE OF THE
SHARES REPRESENTED BY THIS CERTIFICATE UNLESS SUCH TRANSFER, SALE OR
OTHER DISPOSITION IS UNDERTAKEN PURSUANT TO THE REGISTRATION STATEMENT
(IF THEN EFFECTIVE) OR AN APPLICABLE EXEMPTION FROM REGISTRATION
(CONFIRMED BY AN OPINION OF COUNSEL SATISFACTORY TO [CONCURRENT]
[HARRIS], THE EXPENSE FOR WHICH SHALL BE BORNE BY [CONCURRENT]
[HARRIS]), AND IN ACCORDANCE WITH THE TRANSFER RESTRICTIONS SET FORTH
IN THE SHARE HOLDING AGREEMENT WHICH INCLUDE, AMONG OTHER THINGS,
LIMITS ON THE PERCENTAGE OF SECURITIES WHICH MAY BE SOLD TO ANY PERSON
OR ENTITY. ANY TRANSFERS IN VIOLATION OF THE SHARE HOLDING AGREEMENT
ARE NULL AND VOID.
or (y) if pledged prior to the date on which the S-3 Registration Statement is
declared effective by the SEC, bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF
A SHARE HOLDING AGREEMENT (THE "SHARE HOLDING AGREEMENT"), DATED
, 1996 BY AND BETWEEN CONCURRENT COMPUTER CORPORATION
("CONCURRENT") AND HARRIS COMPUTER SYSTEMS CORPORATION ("HARRIS")
PURSUANT TO WHICH, AMONG OTHER THINGS, [CONCURRENT] [HARRIS] (THE
"ISSUER") HAS A BEST EFFORTS OBLIGATION TO FILE, AND HAVE THE SEC
DECLARE EFFECTIVE, A REGISTRATION STATEMENT UNDER THE SECURITIES ACT
(THE "REGISTRATION STATEMENT"). THE ISSUER ALSO HAS A BEST EFFORTS
OBLIGATION TO MAINTAIN THE EFFECTIVENESS OF THE REGISTRATION STATEMENT
UNTIL . THE PLEDGEE HEREOF SHALL NOT TRANSFER, SELL OR
OTHERWISE DISPOSE OF THE SHARES REPRESENTED BY THIS CERTIFICATE UNLESS
SUCH TRANSFER, SALE OR OTHER DISPOSITION IS UNDERTAKEN PURSUANT TO THE
7
<PAGE> 10
REGISTRATION STATEMENT (IF THEN EFFECTIVE) OR AN APPLICABLE EXEMPTION
FROM REGISTRATION (CONFIRMED BY AN OPINION OF COUNSEL SATISFACTORY TO
[CONCURRENT] [HARRIS], THE EXPENSE FOR WHICH SHALL BE BORNE BY
[CONCURRENT] [HARRIS], AND IN ACCORDANCE WITH THE TRANSFER
RESTRICTIONS SET FORTH IN THE SHARE HOLDING AGREEMENT WHICH INCLUDE,
AMONG OTHER THINGS, LIMITS ON THE PERCENTAGE OF SECURITIES WHICH MAY
BE SOLD TO ANY PERSON OR ENTITY. ANY TRANSFERS IN VIOLATION OF THE
SHARE HOLDING AGREEMENT ARE NULL AND VOID.
(b) If requested by Harris, Concurrent shall, to the extent it has not done
so prior to the Closing, use its Best Efforts to facilitate the receipt by
Harris, at or shortly following the Closing Date net proceeds of $5,000,000 from
the pledge of Concurrent Common Stock; provided, however, neither Concurrent nor
its counsel shall be required to issue an opinion to any Pledgee regarding the
legal status of such securities or the Pledgee.
SECTION 4.3. Effect. Any purported transfer of securities that is
inconsistent with the provisions of this Article IV shall be null and void and
of no force or effect.
ARTICLE V
TERMINATION
SECTION 5.1. Termination.
(a) This Agreement shall automatically terminate upon the last to occur of
all of the following: (i) the Standstill Period has expired, (ii) the percentage
of the Concurrent Common Stock Beneficially Owned by Harris and any affiliate of
Harris, as a group, is less than 5% of the outstanding Concurrent Common Stock
and (iii) the percentage of Harris Common Stock Beneficially Owned by Concurrent
and any affiliate of Concurrent, as a group, is less than 5% of the outstanding
Harris Common Stock.
(b) If either party to this Agreement is in breach of or violates any
material obligation under this Agreement and fails to cure such breach or
violation within 60 days after delivery of written notice from the other party
specifying such breach and requesting its cure, such other party may terminate
its obligations under this Agreement.
ARTICLE VI
REGISTRATION
SECTION 6.1. Registration.
(a) To the extent that an S-3 Registration Statement with respect to the
sale of shares of Harris Common Stock held by Concurrent has not been filed with
the SEC or declared effective by the SEC on or prior to the Closing Date, Harris
shall use its Best Efforts to prepare and file as promptly as practicable after
the Closing Date and shall use its Best Efforts to cause to become effective as
soon as possible after the Closing Date, such S-3 Registration Statement,
including a final prospectus (the "Harris S-3"), in compliance with the
Securities Act, relating to the sale by Concurrent and its permitted pledgees of
shares of Harris Common Stock issued to Concurrent pursuant to the terms of the
Purchase and Sale Agreement. To the extent that an S-3 Registration Statement
with respect to the sale of shares of Concurrent Common Stock held by Harris has
not been filed with the SEC or declared effective by the SEC on or prior to the
Closing Date, Concurrent shall use its Best Efforts to prepare and file as
promptly as practicable after the Closing Date and shall use its Best Efforts to
cause to become effective as soon as possible after the Closing Date, such S-3
Registration Statement, including a final prospectus (the "Concurrent S-3" and
together with a Harris S-3, the "S-3 Registration Statements"), in compliance
with the Securities Act, relating to the sale by Harris and its permitted
pledgees of the shares of Concurrent Common Stock issued to Harris pursuant to
the terms of
8
<PAGE> 11
the Purchase and Sale Agreement and shares issuable upon conversion of the
preferred stock or debentures issued to Harris in connection with the
Transactions (references in this Article VI to "shares of Concurrent Common
Stock held by Harris" shall include the Harris Common Stock issuable upon
conversion of such preferred stock or debentures). To the extent the shares of
Concurrent Common Stock held by Harris at the Closing have not been so approved
on the Closing Date, Concurrent shall also use its Best Efforts to cause the
shares of Concurrent Common Stock issued by it to Harris to be approved for
inclusion on the NASDAQ/NMS on the effective date of the Concurrent S-3, subject
to official notice of issuance. To the extent the shares of Harris Common Stock
held by Concurrent at the Closing have not been so approved on the Closing Date,
Harris shall also use its Best Efforts to cause the shares of Harris Common
Stock issued by it to Concurrent to be approved for inclusion on the NASDAQ/NMS
on the effective date of the Harris S-3, subject to official notice of issuance.
(b) Subject to Article IV and the other provisions of this Article VI, upon
the effectiveness of the applicable S-3 Registration Statement for the sale of
securities, each of Harris and Concurrent shall be permitted to sell shares of
such securities of the other party held by it at any time in accordance with
applicable law; provided, however, no such sales may occur unless and until both
of the S-3 Registration Statements have been declared effective.
(c) So long as Harris is in registration, Concurrent shall be subject to
the Concurrent Liquidity Restrictions. So long as Concurrent is in registration,
Harris shall be subject to the Harris Liquidity Restrictions.
(d) Concurrent shall have the right to sell in any Public Offering by
Harris of shares of Harris Common Stock up to the Minimum Number of Harris Owned
Shares. Harris shall have the right to sell in any Public Offering by Concurrent
of shares of Concurrent Common Stock up to the Minimum Number of Concurrent
Owned Shares.
(e) Subject to Section 6.1(f) below, (i) Harris shall use its Best Efforts
to include for the benefit of Concurrent in any Public Offering of its stock
(including in connection with the exercise by any underwriter of any
over-allotment option) any shares of Harris Common Stock Beneficially Owned by
Concurrent in excess of the Minimum Number of Owned Harris Shares as requested
by Concurrent and (ii) Concurrent shall use its Best Efforts to include for the
benefit of Harris in any Public Offering of its stock (including in connection
with the exercise by any underwriter of any over-allotment option) any shares of
Concurrent Common Stock Beneficially Owned by Harris in excess of the Minimum
Number of Owned Concurrent Shares as requested by Harris.
(f) The Minimum Number of Owned Harris Shares and the Minimum Number of
Owned Concurrent Shares sold for the benefit of Concurrent or Harris, as the
case may be, in a Public Offering may be reduced if (i) the applicable managing
underwriter of such Public Offering advises Concurrent or Harris, as the case
may be, that the distribution of all or a portion of such shares will materially
and adversely affect the distribution of the stock being offering in the
applicable Public Offering and (ii) the Public Offering in which such number of
shares is reduced does not provide for the sale of any shares of stock for the
benefit of any party other than the issuer; provided, however, any such
reduction in the number of shares shall be the smallest reduction possible in
order for the applicable managing underwriter to conclude that the distribution
of such reduced number of shares will not materially and adversely affect the
distribution of the stock in the applicable Public Offering.
(g) If a Public Offering is consummated by Harris in which at least the
Minimum Number of Owned Harris Shares is sold for the benefit of Concurrent (or
at least such lesser number as requested by Concurrent to be included in such
Public Offering), Concurrent shall be subject to a "lock-up" (so long as it
Beneficially Owns at least the Triggering Number of Harris Shares at the time of
such lock-up) for a period of up to 6 months (or up to such lesser lock-up
period which is applicable to any selling shareholder in such Public Offering
who is a director, officer, employee or affiliate of Harris at the time the
Public Offering is consummated). If a Public Offering is consummated by
Concurrent in which at least the Minimum Number of Owned Concurrent Shares is
sold for the benefit of Harris (or at least such lesser number as requested by
Harris to be included in such Public Offering), Concurrent shall be subject to a
lock-up (so long as it Beneficially Owns at least the Triggering Number of
Concurrent Shares at the time of such lock-up) for a
9
<PAGE> 12
period of up to 6 months (or up to such lesser lock-up period which is
applicable to any selling shareholder in such Public Offering who is a director,
officer, or other affiliate of Concurrent at the time the Public Offering is
consummated).
(h) If a Public Offering is consummated by Harris in which less than the
Minimum Number of Owned Harris Shares is sold for the benefit of Concurrent (or
less than such lesser number as requested by Concurrent to be included in such
Public Offering), the Concurrent Liquidity Restrictions shall remain in effect
for a period of up to 6 months (or up to such lesser lock-up period which is
applicable to any selling shareholder in such Public Offering who is a director,
officer, employee or affiliate of Harris at the time the Public Offering is
consummated) but Concurrent shall not be obligated to enter into any other
lock-up provisions in connection with such Public Offering. If a Public Offering
is consummated by Concurrent in which less than the Minimum Number of Owned
Concurrent Shares is sold for the benefit of Harris (or less than such lesser
number as requested by Harris to be included in such Public Offering), the
Harris Liquidity Restrictions shall remain in effect for a period of up to 6
months (or up to such lesser lock-up period which is applicable to any selling
shareholder in such Public Offering who is a director, officer, employee or
affiliate of Concurrent at the time the Public Offering is consummated) but
Harris shall not be obligated to enter into any other lock-up provisions in
connection with such Public Offering.
(i) After such registration statement is declared effective by the SEC,
Harris shall use its Best Efforts to maintain the effectiveness of the Harris
S-3 until the third anniversary of the effective date plus an additional period
beyond the third anniversary equal to the total period of all lock-ups applied
to Concurrent pursuant to Section 6.1(g) above. So long as the Harris S-3
remains effective, Harris shall file any material press releases and report any
material event as soon as practicable in a Current Report of Form 8-K.
(j) After such registration statement is declared effective by the SEC,
Concurrent shall use its Best Efforts to maintain the effectiveness of the
Concurrent S-3 until the third anniversary of the effective date plus an
additional period beyond the third anniversary equal to the total period of all
lock-ups applied to Harris pursuant to Section 6.1(g) above. So long as the
Concurrent S-3 remains effective, Concurrent shall file any material press
releases and report any material event as soon as practicable in a Current
Report of Form 8-K.
SECTION 6.2. Indemnification; Contribution.
(a) In the case of each registration effected by Concurrent or Harris, as
the case may be, (each, a "Registrant") pursuant to this Agreement under the
federal securities laws, the Registrant agrees to indemnify and hold harmless,
to the full extent permitted by law, Harris or Concurrent, as the case may be
(each, a "Holder"), and such Holder's officers, directors, agents and employees
against all losses, claims, damages, liabilities and expenses arising out of or
based upon any untrue or alleged untrue statement of a material fact contained
in the registration statement under which securities of the Registrant owned by
such Holder were registered under the Securities Act, any prospectus or
preliminary prospectus or in any amendment or supplement thereto or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, except insofar as the same arise out of, are based upon or are
contained in any information furnished in writing to the Registrant by such
Holder expressly for use therein or by the Holder's failure to deliver a copy of
the applicable registration statement or final prospectus after the Registrant
has furnished such Holder with a sufficient number of copies of the same.
(b) In connection with any registration statement in which a Holder is
participating, such Holder shall furnish to the Registrant in writing such
information and affidavits as the Registrant reasonably requests for use in
connection with any registration statement or prospectus and agrees to indemnify
and hold harmless, to the full extent permitted by law, the Registrant, its
directors, officers, agents, employees against any losses, claims, damages,
liabilities and expenses arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in the registration statement
under which securities of the Registrant owned by such Holder were registered
under the Securities Act, any prospectus or preliminary prospectus or in any
amendment or supplement thereto or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such
10
<PAGE> 13
untrue or alleged untrue statement or omission or alleged omission is contained
in or should have been contained in any information or affidavit so furnished in
writing by such Holder to the Registrant specifically for inclusion in such
registration statement or prospectus. In no event shall the liability of any
Holder, hereunder be greater in amount than the dollar amount of the proceeds
received by such Holder upon the sale of the securities of the Registrant giving
rise to such indemnification obligation. The Registrant and, to the extent
customary in underwriting agreements at the time, its directors, officers,
agents, employees, shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution to the same extent as provided above with
respect to information so furnished in writing by such Persons specifically for
inclusion in any prospectus or registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
shall seek indemnification and (ii) unless in the reasonable judgment of counsel
to such indemnified party a conflict of interest is likely to exist between such
indemnified party and the indemnifying party with respect to such claim, permit
the indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If the indemnifying party
assumes the defense of such claim, it shall not be obligated to pay the fees and
expenses of more than one counsel with respect to such claim, unless, in the
reasonable judgment of counsel to such indemnified party, a conflict of interest
is likely to exist between such indemnified party and any other indemnified
party with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of one additional counsel with respect to
such claim. Subject to the foregoing, the indemnifying party shall in no event
be liable to an indemnified party for legal and other expenses incurred by such
indemnified party in connection with the defense of a claim subsequent to the
assumption of such defense by such indemnifying party. The indemnifying party
shall not be subject to any liability for any settlement made without its
consent.
(d) If for any reason the indemnification provided for in the preceding
paragraphs of this Section 6.2 is unavailable to an indemnified party or is
insufficient to hold it harmless as contemplated by the preceding paragraphs (a)
and (b), then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such loss, claim, damage, liability or expense in such proportion
as is appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party in connection with the actions
which resulted in such loss, claim, damage, liability or expense, as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 6.2(c) hereof, any legal or other fees
or expenses reasonably incurred by such party in connection with any
investigation or proceeding. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6.2(d) were determined by
pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. No Holder shall be required to contribute in an amount
greater than the dollar amount of proceeds received by such Holder with respect
to the sale of securities of the Registrant held by such Holder.
11
<PAGE> 14
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Effectiveness. This Agreement shall be executed
contemporaneously with the Purchase and Sale Agreement and shall be effective at
the Closing Date.
SECTION 7.2. Notices. All notices, requests and other communications
hereunder shall be in writing (including fax) and shall be sent, delivered or
mailed, addressed, or faxed:
(a) if to Concurrent, to:
Concurrent Corporation
2 Crescent Place
Oceanport, NJ 07757
(908) 870-4500
(F) (908) 870-4779
Attention of Kevin J. Dell
Vice President, Secretary
and General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
(T) (212) 735-3000
(F) (212) 735-2000
Attention: Eric L. Cochran, Esq.
(b) if to Harris, to:
Harris Computer Systems Corporation
2101 West Cypress Creek Road
Fort Lauderdale, FL 33309
(T) (305) 974-1700
(F) (305) 973-5253
Attention of President
with a copy to:
Holland & Knight
One East Broward Boulevard
P.O. Box 14070
Fort Lauderdale, FL 33302
(T) (305) 525-1000
(F) (305) 463-2030
Attention: Brian Foremny, Esq.
Each such notice, request or other communication shall be given (i) by hand
delivery, (ii) by nationally recognized courier service or (iii) by fax, receipt
confirmed. Each such notice, request or communication shall be effective (A) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 5.1 (or in accordance with the latest
unrevoked written direction from such party) and (B) if given by fax, when such
fax is transmitted to the fax number specified in this Section 5.1 (or in
accordance with the latest unrevoked written direction from such party), and the
appropriate confirmation is received.
12
<PAGE> 15
SECTION 7.3. Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "included," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
SECTION 7.4. Severability.
(a) To the extent that any provision of this Agreement, with respect to
either party hereto, is determined to be invalid, unenforceable or excessive in
scope by any court or other body of competent jurisdiction, unless the analogous
provision with respect to the other party hereto is also determined to be
invalid, unenforceable or excessive in scope by such court or other body of
competent jurisdiction, or unless the other party waives the effect of such
provision in writing then this Agreement shall be terminated in its entirety and
of no further force or effect.
(b) If such analogous provision is determined to be invalid, unenforceable
or excessive in scope by such court or other body of competent jurisdiction,
each such provision shall be ineffective only to the most limited extent so as
not to render the Agreement unenforceable, and the remaining provisions shall
remain in full force and effect as if this Agreement had been executed with the
invalid, unenforceable or excessive provision so limited.
SECTION 7.5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall,
taken together, be considered one and the same agreement, it being understood
that both parties need not sign the same counterpart.
SECTION 7.6. Entire Agreement; No Third Party Beneficiaries. This
Agreement together with the Purchase and Sale Agreement (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any Person, other than the parties
hereto, any rights or remedies hereunder.
SECTION 7.7. Further Assurances. Each party shall execute, deliver,
acknowledge and file such other documents and take such further actions as may
be reasonably requested from time to time by the other party hereto to give
effect to and carry out the transactions contemplated herein.
SECTION 7.8. Governing Law; Equitable Remedies. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties hereto shall be entitled to equitable
relief, including in the form of injunctions, in order to enforce specifically
the provisions of this Agreement, in addition to any other remedy to which they
are entitled at law or in equity.
SECTION 7.9. Consent to Jurisdiction. Each party hereto irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the Southern District of Florida or if such court does not have jurisdiction,
the Circuit Court for the Seventeenth Judicial Circuit in and for Broward
County, Florida, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby. Each party
hereto further agrees that service of any process, summons, notice or document
by U.S. registered mail to such party's respective address set forth in Section
5.1 shall be effective service of process for any action, suit or proceeding in
Florida with respect to any matters to which it has submitted to jurisdiction as
set forth above in the immediately preceding sentence. Each party hereto
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (a) the United States District Court for the Southern
District of Florida or (b) the Circuit Court for the Seventeenth Judicial
Circuit in and for Broward County, Florida, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION 7.10. Amendments; Waivers.
13
<PAGE> 16
(a) No provision of this Agreement may be amended or waived unless such
amendment or waiver is in writing and signed, in the case of an amendment, by
the parties hereto, or in the case of a waiver, by the party against whom the
waiver is to be effective; provided that no such amendment or waiver by
Concurrent shall be effective without the approval of a majority of the
directors of Concurrent. Notwithstanding any provision herein to the contrary,
if a majority of the directors of Concurrent determine in good faith to do so,
such directors may seek to enforce, in the name and on behalf of Concurrent, the
terms of this Agreement against Harris.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 7.11. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder shall be assigned by either of the parties hereto without
the prior written consent of the other party, except that either party may
assign all its rights and obligations to the assignee of all or substantially
all of the assets of such party, provided that such party shall in no event be
released from its obligations hereunder without the prior written consent of the
other party. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered, all as of the date first set forth above.
CONCURRENT COMPUTER CORPORATION
By
--------------------------------------------
Name:
Title:
HARRIS COMPUTER SYSTEMS CORPORATION
By
--------------------------------------------
Name:
Title:
14
<PAGE> 1
EXHIBIT 23.01
The Board of Directors
Harris Computer Systems Corporation:
We consent to the use of our reports included herein and incorporated
herein by reference and to the reference to our firm under the headings
"Selected Financial Data" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Miami, Florida
May 23, 1996
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Harris Computer
Systems Corporation for the registration of 2,500,000 shares of its Common Stock
and to the incorporation by reference therein of our report dated July 13, 1994,
with respect to the financial statements of Harris Computer Systems Corporation
included in its Annual Report on Form 10-K for the year ended June 30, 1994,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Jacksonville, Florida
May 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANIES CONSOLIDATED BALANCE SHEETS AT MARCH 30, 1996 AND CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-30-1996
<CASH> 1,307
<SECURITIES> 0
<RECEIVABLES> 16,493
<ALLOWANCES> 1,158
<INVENTORY> 6,381
<CURRENT-ASSETS> 23,683
<PP&E> 31,250
<DEPRECIATION> 25,338
<TOTAL-ASSETS> 38,552
<CURRENT-LIABILITIES> 9,412
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 29,080
<TOTAL-LIABILITY-AND-EQUITY> 38,552
<SALES> 18,942
<TOTAL-REVENUES> 6,622
<CGS> 10,051
<TOTAL-COSTS> 13,330
<OTHER-EXPENSES> 15,666
<LOSS-PROVISION> (84)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,275)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,275)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,275)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
