<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
CyberGuard Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
CyberGuard Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[CYBERGUARD LETTERHEAD]
October XX, 1999
Dear CyberGuard Corporation Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders to be held on December 8, 1999, at 10:00 a.m., at the Courtyard by
Marriott at Cypress Creek, 2440 W. Cypress Creek Road, Fort Lauderdale,
Florida, 33309.
The Annual Meeting will begin with a report on Company operations,
followed by discussion and voting on the matters described in the accompanying
Notice of Annual Meeting and Proxy Statement.
Whether or not you plan to attend, you can ensure that your shares are
represented at the Annual Meeting by promptly completing, signing, dating and
returning the enclosed proxy card in the envelope provided.
Sincerely,
/s/ DAVID R. PROCTOR
-----------------------------------------------
David R. Proctor
Chairman, President and Chief Executive Officer
<PAGE> 3
CYBERGUARD CORPORATION
2000 WEST COMMERCIAL BOULEVARD, SUITE 200
FORT LAUDERDALE, FLORIDA 33309
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 8, 1999
------------------------
The Annual Meeting of Shareholders (the "Annual Meeting") of
CyberGuard Corporation, a Florida corporation (the "Company"), will be held on
December 8, 1999, at 10:00 a.m., local time, at the Courtyard by Marriott at
Cypress Creek, 2440 W. Cypress Creek Road, Fort Lauderdale, Florida, 33309, for
the following purposes:
1. To elect two directors to serve for a term of two years and until
their respective successors are duly elected and qualified and to
elect one director to serve for a term of two years and until his
respective successor is duly elected and qualified;
2. To consider and vote upon an amendment to CyberGuard's Amended
and Restated Articles of Incorporation to increase the number of
shares of Common Stock authorized for issuance from 20,000,000 to
50,000,000 shares of Common Stock; and
3. To transact such other business as may properly come before the
Annual Meeting and any and all adjournments and postponements
thereof.
The Board of Directors has fixed the close of business on October 25,
1999 as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting and any adjournment or postponement
thereof.
The enclosed proxy is solicited by the Board of Directors of the
Company. Reference is made to the accompanying Proxy Statement for further
information with respect to the business to be transacted at the Annual
Meeting.
A complete list of the shareholders entitled to vote at the Annual
Meeting will be available during ordinary business hours for examination by any
shareholder, for any purpose germane to the Annual Meeting, for a period of at
least ten days prior to the Annual Meeting, at the Company's corporate offices,
2000 West Commercial Boulevard, Suite 200, Fort Lauderdale, Florida 33309.
The Board of Directors urges you to complete, sign, date and return
the enclosed proxy card promptly. You are cordially invited to attend the
Annual Meeting in person. The return of the enclosed proxy card will not affect
your right to revoke your proxy or to vote in person if you do attend the
Annual Meeting.
By order of the Board of Directors,
TERRENCE A. ZIELINSKI
Chief Financial Officer
Fort Lauderdale, Florida
October XX, 1999
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY SHARES YOU OWNED ON THE RECORD DATE.
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND
SIGN IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR
CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN MAILING YOUR PROXY PROMPTLY.
<PAGE> 4
CYBERGUARD CORPORATION
2000 WEST COMMERCIAL BOULEVARD, SUITE 200
FORT LAUDERDALE, FLORIDA 33309
------------------------
PROXY STATEMENT
------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of CyberGuard Corporation, a Florida
corporation ("CyberGuard" or the "Company"), for use at the Company's 1999
Annual Meeting of Shareholders (together with any and all adjournments and
postponements thereof, the "Annual Meeting") to be held on December 8, 1999, at
10:00 a.m., local time, at the Courtyard by Marriott at Cypress Creek, 2440 W.
Cypress Creek Road, Fort Lauderdale, Florida, 33309, for the purposes set forth
in the accompanying Notice of Annual Meeting of Shareholders. This Proxy
Statement, together with the foregoing Notice and the enclosed proxy card, are
first being sent to shareholders on or about November 2, 1999.
The Board of Directors has fixed the close of business on October 25,
1999 as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting. On the record date, there were
[9,123,771] shares of Common Stock of the Company, par value $.01 per share
("Common Stock"), outstanding and entitled to vote. Each share of Common Stock
is entitled to one vote per share on each matter properly brought before the
Annual Meeting. Shares can be voted at the Annual Meeting only if the
shareholder is present in person or is represented by proxy. The presence, in
person or by proxy, at the Annual Meeting of shares of Common Stock
representing at least a majority of the total number of shares of Common Stock
outstanding on the record date will constitute a quorum for purposes of the
Annual Meeting.
The Board of Directors knows of no matters that are to be brought
before the Annual Meeting other than those set forth in the accompanying Notice
of Annual Meeting of Shareholders. If any other matters properly come before
the Annual Meeting, the persons named in the enclosed proxy card, or their duly
appointed substitutes acting at the Annual Meeting, will be authorized to vote
or otherwise act thereon in accordance with their judgment on such matters. If
the enclosed proxy card is properly executed and returned before voting at the
Annual Meeting, the shares represented thereby will be voted in accordance with
the instructions marked thereon. In the absence of instructions, shares
represented by executed proxies will be voted as recommended by the Board of
Directors.
Any proxy may be revoked at any time prior to its exercise by
attending the Annual Meeting and voting in person, by notifying the Secretary
of the Company of such revocation in writing or by delivering a duly executed
proxy bearing a later date, provided that such notice or proxy is actually
received by the Company prior to the taking of any vote at the Annual Meeting.
The cost of solicitation of proxies for use at the Annual Meeting will
be borne by the Company. Solicitations will be made primarily by mail or by
facsimile, but regular employees of the Company may solicit proxies personally
or by telephone.
Brokers, banks and other nominee holders will be requested to obtain
voting instructions of beneficial owners of stock registered in their names.
Shares represented by a duly completed proxy submitted by a nominee holder on
behalf of beneficial owners will be counted for quorum purposes, and will be
voted to the extent instructed by the nominee holder on the proxy card. The
rules applicable to a nominee holder may preclude it from voting the shares
that it holds on certain kinds of proposals unless it receives voting
instructions from the beneficial owners of the shares (sometimes referred to as
"broker non-votes").
<PAGE> 5
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Amended and Restated Articles of Incorporation and the By-laws of
the Company provide that the number of directors (which is to be not less than
three) is to be determined from time to time by resolution of the Board of
Directors. The Board is currently comprised of six persons.
Pursuant to the Company's Amended and Restated Articles of
Incorporation, the members of the Board of Directors are divided into three
classes. Each class is to consist, as nearly as may be possible, of one-third
of the whole number of members of the Board. The terms of four of the Company's
directors expire at the Annual Meeting. The term of the remaining class of
directors will expire at the 2000 Annual Meeting of Shareholders.
At each Annual Meeting, the directors elected to succeed those whose
terms expire are of the same class as the directors they succeed and are
elected for a term to expire at the third Annual Meeting of Shareholders after
their election and until their successors are duly elected and qualified. A
director elected to fill a vacancy is elected to the same class as the director
he succeeds, and a director elected to fill a newly created directorship holds
office until the next election of the class to which such director is elected.
Three directors are nominees for election this year. Two directors,
Mr. Proctor and Mr. Manning, are nominees for a two-year term expiring at the
2001 Annual Meeting of Shareholders, and one director, Mr. Scott, is a nominee
for a three-year term expiring at the 2002 Annual Meeting of Shareholders.
Leland R. Reiswig, Jr. has advised the Company that he will retire from the
Board effective on the date of the Annual Meeting, and the Board expects to
fill that vacancy at a later time. In the election, the persons who receive the
highest number of votes actually cast for each class of directors will be
elected. Broker non-votes will not be treated as votes cast. The proxies named
in the proxy card intend to vote for the election of the four nominees listed
below unless otherwise instructed. If a holder does not wish his or her shares
to be voted for a particular nominee, the holder must identify the exception in
the appropriate space provided on the proxy card, in which event the shares
will be voted for the other listed nominees. If any nominee becomes unable to
serve, the proxies may vote for another person designated by the Board of
Directors or the Board may reduce the number of directors. The Company has no
reason to believe that any nominee will be unable to serve.
Set forth below is certain information with regard to each of the
nominees for election at the Annual Meeting and each continuing director.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
NOMINEES--(TERM EXPIRING AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS)
David L. Manning. Age 49. Mr. Manning has held positions in public
finance, information services and healthcare during his career. As Commissioner
of Finance and Administration for the State of Tennessee from 1987 to 1995, Mr.
Manning managed the State's finances and provided the State's information
technology leadership, enhancing Tennessee's information infrastructure to a
leading position in the U.S. In 1995, he joined Columbia/HCA Healthcare
Corporation, rising to the position of Senior Vice President with
responsibilities for healthcare data analysis and the company's relationships
with state governments. After leaving that position in early 1998, Mr. Manning
was a consultant for healthcare projects, including the development of the
Health Network.com. He currently serves as Director of Finance for the
Metropolitan Government of Nashville and Davidson County and serves on the
boards of directors of Outlook Nashville, Inc. (non-profit organization
providing services to individuals with disabilities) and Public Health Resource
Institute (non-profit corporation researching and providing information
regarding efficiency of health services to the public).
David R. Proctor. Age 59. Mr. Proctor was appointed Chairman of the
Board of Directors and Chief Executive Officer of the Company in March 1999.
Mr. Proctor has been a director of the Company since April 1997. He previously
served as President and Chief Operating Officer of Platinum Software
Corporation from May 1994 to December 1995; as Vice President of the Personal
Software Products Division of IBM from April 1993 to May 1994; and as President
2
<PAGE> 6
and Chief Operating Officer of Ashton-Tate from April 1991 to November 1991. He
also served as Executive Vice President of Development for Ashton-Tate from May
1990 to April 1991 and was instrumental in restoring the company to
profitability. He served on the board of directors of MTI Corporation from
October 1995 to August 1998. He was a business and technical consultant for a
number of companies from November 1991 to April 1993 and from January 1996 to
December 1998. Prior to 1991, Mr. Proctor spent 23 years with IBM in several
executive capacities.
NOMINEE--(TERM EXPIRING AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS)
William G. Scott. Age 48. Mr. Scott, Certified Public Accountant, who
joined the Company's Board of Directors in September 1999 has held several
financial and operations positions over the past 25 years. He is currently a
business and tax consultant. From April 1997 until April 1999, Mr. Scott was
Vice President of Strategic Resource Solutions, a division of Carolina Power
and Lights Corporation, and serving as Chief Operating Officer of their
Lighting Division responsible for the integration and return to profitability
of that division. From December 1991 until April 1997, Mr. Scott was Chief
Financial Officer and later President and member of the board or directors of
Markay Plastics, Inc., a plastic blowmolder company. Prior to December 1997, he
spent 2 years with the Didde Corporation, a printing press manufacturer,
responsible for acquisition diligence and management reporting. For the 15
years prior to December 1991, Mr. Scott served as Vice President, Chief
Financial Officer and member of the board of directors of Temperature
Industries Inc., a company sold to York International, Inc. in May 1989, which
is a manufacturer, installer, and consultant to the HVAC industry. From
December 1971 until February 1975, he was an accountant for Ernst and Ernst.
CONTINUING DIRECTORS
C. Shelton James. Age 56. 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 Concurrent Computer Corporation,
CSPI, Inc., Fundamental Management Corporation, Techni Source, Inc., DRS
Technologies, Inc. and SK Technologies, Inc.
Richard P. Rifenburgh. Age 64. Mr. Rifenburgh joined the Company's
Board of Directors in June 1996 following the sale of the Company's real-time
computer business. Mr. Rifenburgh is Chairman of the Board of Directors 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 Computer Corporation 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.
3
<PAGE> 7
GENERAL INFORMATION RELATING
TO THE BOARD OF DIRECTORS
The Company's Board of Directors met ten times during fiscal year
ended June 30, 1999.
COMMITTEES OF THE BOARD
The Company's Board of Directors has a Compensation and Stock Option
Committee, an Audit Committee, and an Executive Committee. The Company's
Compensation and Stock Option Committee consists of those members of the Board
of Directors who are not executive officers of the Company. The Compensation
and Stock Option Committee is responsible for setting and approving the
salaries, bonuses and other compensation for the Company's executive officers,
establishing compensation programs, and determining the amounts and conditions
of all grants of awards under the Company's Stock Incentive Plan. During the
fiscal year ended June 30, 1999, the Compensation and Stock Option Committee
consisted of C. Shelton James and Leland R. Reiswig, Jr. The Compensation and
Stock Option Committee held two meetings during the fiscal year ended June 30,
1999.
The Company's Audit Committee consists of those members of the Board
or Directors who are not executive officers of the Company. The Audit Committee
of the Board of Directors recommends to the Board of Directors the independent
accountants to be engaged by the Company, reviews the scope of the accountants'
engagement, including the remuneration to be paid, and reviews the independence
of the accountants. The Audit Committee, with the assistance of the Company's
Chief Financial Officer and other appropriate personnel, reviews the Company's
annual financial statements and the independent auditor's report, including
significant reporting or operational issues; corporate policies and procedures
as they relate to accounting and financial reporting and financial controls;
litigation in which the Company is a party; and, if necessary, use by the
Company's executive officers of expense accounts and other non-monetary
perquisites, if any. The Audit Committee may direct the Company's legal counsel,
independent auditors and internal audit staff to inquire into and report to it
on any matter having to do with the Company's accounting or financial procedures
or reporting. During the fiscal year ended June 30, 1999, the members of the
Audit Committee were C. Shelton James, David R. Proctor (until March 15, 1999),
and Richard P. Rifenburgh. The Audit Committee held eleven meetings during the
1999 fiscal year.
In August 1998, concerns arose regarding the Company's financial
reporting. In response, the Board of Directors formed an Executive Committee
composed entirely, at the time of formation, of non-employee directors to
exercise the full powers of the Company's Board of Directors. During the fiscal
year ended June 30, 1999, the members of the Executive Committee were C. Shelton
James (Chairman), Richard P. Rifenburgh, Leland R. Reiswig, Jr., and David R.
Proctor. During the fiscal year ended June 30, 1999, the Executive Committee met
nine times and acted once by unanimous written consent.
As of June 30, 1999, the Company did not have a standing nominating
committee of the Board of Directors nor a committee performing similar
functions.
4
<PAGE> 8
EXECUTIVE OFFICERS
Certain biographical information concerning the Company's executive
officers is presented below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David R. Proctor(1) 59 President, Chief Executive Officer and Chairman of
the Board of Directors
Terrence A. Zielinski 57 Chief Financial Officer and Vice President Finance
Frederick O. Hawkes 53 Vice President Worldwide Marketing
Robert E. Gelinas 39 Vice President Sales
Michael G. Wittig 35 Vice President Software Development $ Chief
Technical Officer
</TABLE>
- --------------
(1) For biographical information on Mr. Proctor, see "Election of
Directors--Continuing Directors."
Terrence A. Zielinski. Prior to joining the Company as Chief Financial
Officer and Vice President of Finance in 1998, Mr. Zielinski was managing
director of Zielinski & Co., P.A., C.P.A., from 1989 through 1998. He started
his career with Coopers & Lybrand, an international accounting firm. From 1980
through 1988, Mr. Zielinski served as Chief Financial Officer for several
publicly held companies, during which time he negotiated multimillion-dollar
loans and lines of credit from many of the nation's major financial
institutions and completed several initial public offerings ("IPOs"). From
November 1988 through August 1989, he served as Chief Operating Officer for
Resurgens Communications Group, Inc. While guiding the company through a period
of reorganization, which is considered one of the most successful Chapter 11
reorganizations, he served as the company's Chief Financial Officer from
January 1988 through October 1988.
Frederick O. Hawkes. Prior to joining the Company in December 1998,
Mr. Hawkes worked as a senior management consultant supporting several
companies in the areas of mergers and acquisitions, and in business development
for internet commerce and smart cards. From 1993 to 1997, Mr. Hawkes also held
senior management positions at Elcotel, Inc., a public corporation that
manufactures telecommunications equipment. At Elcotel, he was the Vice
President of Engineering and Development for three years and then Vice
President of Marketing and Business Development for one year. Mr. Hawkes has
extensive experience in engineering, marketing and corporate development
initiatives for a diverse combination of technologies, products, and systems.
His background includes over twenty years of experience in results-oriented
senior management positions in Fortune 500 and mid-size companies, including
Gould Incorporated (1984-1989) and Harris Corporation (1989-1993).
Robert E. Gelinas. Mr. Gelinas joined the Company as Vice President of
Sales in August 1999, assuming direct responsibility for sales operations in
the U.S., Canada, Latin America and Asia, and for support operations, including
CyberGuard's Worldwide Support Center. Prior to joining CyberGuard, Mr. Gelinas
has been an Information Security and Networking professional for two decades,
building award-winning sales and marketing organizations. He has served as
Business Development Manager at Global Integrity/SAIC, Director of Sales at
CyberSafe Corporation, Business Unit Director at STK/Network Systems
Corporation, Regional Sales Manager at AXENT Technologies, and Systems
Marketing and Advanced Technology Manager at Motorola Information Systems
Group. He also served over seven years in the United States Air Force.
Michael G. Wittig. Mr. Wittig was appointed the Company's Vice
President of Development for CyberGuard Corporation in February 1998. In
February 1999, Mr. Wittig was also appointed the Company's Chief Technical
Officer. Since joining the Company in 1992, Mr. Wittig has served as Director
of Software Development, as Manager of Software Development, and in various
other software development positions. Mr. Wittig was previously employed by
Gould Incorporated, Computer Systems Division, and served as Chief Engineer for
the Network Products Group.
5
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
annual and long-term compensation of the Company's Chief Executive Officer and
certain of the Company's other executive officers for the fiscal years ended
June 30, 1999, June 30, 1998, and June 30, 1997.
<TABLE>
<CAPTION>
Long Term
Compensation
----------------------
Annual Compensation Awards
- --------------------------------------------------------------------- ----------------------
Other Restricted
Annual Stock All Other
Fiscal Salary Bonus($) Compensation Award(s) Options Compensation
Name and Principal Position Year ($) (1) ($) ($) (#) (2)($)
- --------------------------- -------- ---------- ---------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DAVID R. PROCTOR 1999 62,700 -- -- -- 475,000 3,310
Chairman, President and
Chief Executive Officer
(Became CEO on March 15,
1999)
C. SHELTON JAMES 1999 209,000 -- -- -- 225,000 --
Interim Chief Executive
Officer (Served as
Interim CEO from August
24, 1998 until March 14,
1999)
ROBERT L. CARBERRY(3) 1999 105,769 -- -- -- -- 103,889
Chairman, President and 1998 235,594 -- -- -- -- 7,031
Chief Executive Officer 1997 192,300 103,125 -- -- 100,000 9,500
(Served as CEO until
August 24, 1998)
TERRENCE A. ZIELINSKI 1999 126,923 52,500 -- -- 150,000 3,812
Vice President Finance and
Chief Financial Officer
MICHAEL G. WITTIG(4) 1999 139,269 37,500 -- -- 94,400 9,743
Vice President Software 1998 91,811 21,667 -- -- -- 6,418
Development & Chief
Technical Officer
FREDERICK O. HAWKES 1999 64,615 12,000 -- -- 50,000 2,872
Vice President Marketing
TOMMY D. STEELE(5) 1999 195,923 25,000 3,450 -- 300,000 54,650
President & Chief 1998 123,077 25,000 42,251 32,400 -- 7,379
Operating Officer
(Served until
May 17, 1999)
THOMAS W. PATTERSON(6) 1999 126,305 20,000 -- -- 100,000 10,190
Vice President 1998 115,386 24,000 -- 18,500 -- 7,315
Electronic Commerce
(Served until
April 23, 1999)
</TABLE>
- -------------------
(1) The following amounts of bonuses for the fiscal year ended June 30, 1999
were accrued during such period but were paid in July 1999: Mr.
Zielinski--$30,000; Mr. Wittig--$37,000; and Mr. Hawkes--$12,000. The
following amounts of bonuses for fiscal year ended June 30, 1998 were
accrued during such period but were paid in fiscal year ended June 30,
1999: Mr. Steele--$25,000 and Mr. Patterson--$24,000. The bonus of
$103,125 to Mr. Carberry was accrued during the fiscal year ended June 30,
1997 but was paid in August 1997.
(2) Amounts reported represent contributions to the Company's Retirement Plan
and term life insurance premiums paid by the Company.
(3) Mr. Carberry's salary for fiscal year ended June 30, 1999 reflects
payments made by the Company until he was suspended on August 24, 1998 and
thereafter until his separation from the Company on December 8, 1999.
6
<PAGE> 10
(4) The options issued during the fiscal year ended June 30, 1999 include an
option for 50,000 shares and a repriced option for 44,400 shares. The
repriced option replaced five old options which were issued to Mr.
Wittig on various dates from 1996 through 1998. See Options Exchange.
(5) The options issued during the fiscal year ended June 30, 1999 include an
option for 125,000 shares and a repriced option for 175,000 shares. The
repriced option replaced an old option which was issued to Mr.
Steele on November 10, 1997.
(6) The option issued during the fiscal year ended June 30, 1999 includes a
repriced option for 100,000 shares. This option replaced an old option
which was issued to Mr. Patterson on July 21, 1997.
OPTION GRANTS IN THE FISCAL YEAR ENDED JUNE 30, 1999
The following table shows all grants during the fiscal year ended June
30, 1999 and thereafter of stock options under the Company's Stock Incentive
Plan (the "Stock Incentive Plan") and Employee Stock Option Plan ("Stock Option
Plan") to the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------------------
Percent of Potential Realizable
Total Value At Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation for
Underlying Employees in Exercise or Option Term(1)
Option Fiscal Year Base Price ------------------------
Name Granted (#) (%)(2) ($/Sh) Expiration Date 5%($) 10%($)
- ---------------------------- -------------- -------------- --------------- ----------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
David R. Proctor 375,000 13.20 1.25 3/9/04 129,507 286,177
100,000 3.52 1.00 5/2/04 27,628 61,051
C. Shelton James 225,000 7.92 1.31 9/7/03 81,434 179,948
Terrence A. Zielinski 150,000 5.28 1.31 9/7/03 54,289 119,965
Michael G. Wittig 50,000 1.76 1.31 9/7/03 18,096 39,988
15,000 * 1.125 2/02/01 4,662 10,302
400 * 1.125 1/01/02 79 167
4,000 * 1.125 6/30/02 919 1,969
25,000 * 1.125 3/09/03 6,922 15,102
Frederick O. Hawkes 50,000 1.76 2.09 12/30/03 28,871 63,798
Tommy D. Steele(3) 125,000 4.40 1.31 5/17/01 22,944 47,809
175,000 6.16 1.125 5/17/01 27,706 57,746
Thomas W. Patterson(4) 100,000 3.52 1.125 4/23/00 9,329 18,944
</TABLE>
- ------------------
* Less than 1.0%
(1) The potential realizable values set forth under these columns result from
calculations assuming 5% and 10% annualized stock price growth rates from
grant dates to expiration dates as set by the Commission and are not
intended to forecast future price appreciation of the Company's Common
Stock based upon growth at these prescribed rates. The Company is not
aware of any formula that will determine with reasonable accuracy a
present value based on future unknown factors. Actual gains, if any, on
stock option exercises are dependent on the future performance of the
Company. There can be no assurance that the amounts reflected in this
table will be achieved.
(2) The amount of total options granted to employees during the fiscal year
ended June 30, 1999 (2,840,443 shares) includes all options issued in
connection with the Company's options exchange program, but excludes
options issued to or repriced for the members of the Company's Board of
Directors.
(3) In connection with Mr. Steele's separation from the Company, the
expiration dates of Mr. Steele's five-year options were extended to May
17, 2001.
(4) In connection with Mr. Patterson's separation from the Company, the total
amount of Mr. Patterson's exercisable shares was increased to 65,000, and
the expiration dates of Mr. Patterson's five-year options were extended
to April 24, 2000.
OPTION EXERCISES AND PERIOD-END VALUES
The following table provides information as to the number and value of
unexercised options to purchase the Company's Common Stock held by the named
executive officers at June 30, 1999, based on a closing sale price of $1.25 on
June 30, 1999. None of the named executive officers exercised any options
during the fiscal year ended June 30, 1999.
7
<PAGE> 11
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options At Fiscal
At Fiscal Year-End (#) Year-End ($)
Name Exercisable/unexercisable Exercisable/Unexercisable (1)
------------------------------------ -------------------------------- ----------------------------------
<S> <C> <C>
David R. Proctor 187,500 / 287,500 0 / 25,000
C. Shelton James 112,500 / 112,500 0 / 0
Terrence A. Zielinski 75,000 / 75,000 0 / 0
Micheal G. Wittig 25,066 / 69,334 3,133 / 2,417
Frederick O. Hawkes 0 / 50,000 0 / 0
Tommy D. Steele 300,000 / 0 21,875 / 0
Robert L. Carberry 235,490 / 0 0 / 0
Thomas W. Patterson 65,000 / 0 8,125 / 0
</TABLE>
- ------------------
(1) Based on the difference between the closing price of the Company's
common stock on June 30, 1999 ($1.25) and the exercise price of
the options. On October 25, 1999, the closing price of the
Company's common stock was $_____ per share.
OPTIONS EXCHANGE
As part of the overall program to incentivize its personnel, during
September 1998 the Company offered its employees, officers and directors the
opportunity to exchange their existing stock options for new options, with an
exercise price equal to the market price per share on the date the Board of
Directors adopted the exchange program ($1.125 per share). The weighted-average
exercise price per share prior to this exchange offer was $7.58 per share. The
new options retained the replaced options' vesting schedules and expiration
dates. Employees who did not voluntarily terminate their employment with the
Company before May 6, 1999 were eligible for the Company's offer. Option
holders holding options on 1,140,007 shares of Company Common Stock accepted
this offer.
<TABLE>
<CAPTION>
Number of Market Price Exercise Length of Original
Securities of Stock At Price At Option Term
Underlying Time of Time of New Remaining At Date
Options/Repriced Repricing or Repricing or Exercise of Repricing or
Name Date or Amended (#) Amendment($) Amendment($) Price ($) Amendment
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DAVID R. PROCTOR (1) 9/04/98 3,000 1.125 4.625 1.125 1/28/08
Chairman, President and 9/04/98 15,000 1.125 10.50 1.125 3/17/07
Chief Executive Officer 9/04/98 14,875 1.125 10.50 1.125 3/17/07
(Became CEO on March 15, 9/04/98 6,000 1.125 8.825 1.125 3/27/07
1999)
C. SHELTON JAMES (2) 9/04/98 3,000 1.125 4.625 1.125 1/27/08
Interim Chief Executive 9/04/98 15,000 1.125 5.50 1.125 2/01/06
Officer (Served as 9/04/98 1,500 1.125 11.75 1.125 12/02/06
Interim CEO from August 9/04/98 6,000 1.125 4.25 1.125 10/18/04
24, 1998 until March 14,
1999)
MICHAEL G. WITTIG 9/04/98 15,000 1.125 5.50 1.125 02/02/01
Vice President Software 9/04/98 400 1.125 2.50 1.125 01/01/02
Development & Chief 9/04/98 4,000 1.125 8.875 1.125 6/30/02
Technical Officer 9/04/98 15,000 1.125 7.75 1.125 3/09/03
9/04/98 10,000 1.125 7.75 1.125 3/09/03
TOMMY D. STEELE 9/04/98 175,000 1.125 7.375 1.125 11/09/02
President & Chief
Operating Officer
(Served until May 17,
1999)
THOMAS W. PATTERSON 9/04/98 100,000 1.125 9.25 1.125 7/21/02
Vice President Electronic
Commerce (Served until
April 23,1999)
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
Number of Market Price Exercise Length of Original
Securities of Stock At Price At Option Term
Underlying Time of Time of New Remaining At Date
Options/Repriced Repricing or Repricing or Exercise of Repricing or
Name Date or Amended (#) Amendment($) Amendment($) Price($) Amendment
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ROBERT L. CARBERRY (3) 12/08/98 202,156 2.75 10.67 7.37 3/06/01
Chairman, President and 12/08/98 33,334 2.75 9.25 5.50 7/24/01
Chief Executive Officer
(Served as CEO until
August 24, 1998)
</TABLE>
- ------------------------
(1) Represent options that were granted by the Company to Mr. Proctor as
member of the Company's Board of Directors, and not as the Company's
Chief Executive Officer.
(2) Represent options that were granted by the Company to Mr. James as member
of the Company's Board of Directors, and not as the Company's Chief
Executive Officer.
(3) In connection with Mr. Carberry's separation from the Company, the total
amount of Mr. Carberry's exercisable shares was decreased to 235,490
shares, the options were repriced at the shown prices, and the expiration
dates of Mr. Carberry's options were extended to December 7, 2000.
COMPENSATION PLANS
The Company and Mr. Proctor entered into an agreement effective as of
March 15, 1999 and amended as of May 4, 1999 (the "Proctor Employment
Agreement"). The Proctor Employment Agreement provides for the employment of
Mr. Proctor as Chairman of the Board, President and Chief Executive Officer of
the Company at an annual base salary of $260,000. The Proctor Employment
Agreement provides, as of March 11, 1999, for Mr. Proctor to be granted options
to purchase 375,000 shares of the Company's Common Stock at an exercise price
of $1.25 per share and becoming exercisable in two equal installments of
187,500 on each of March 11, 1999 and March 11, 2000, and in addition, as of
May 4, 1999, for Mr. Proctor to be granted options to purchase 100,000 shares
of Company's Common Stock at an exercise price of $1.00 per share and becoming
exercisable in three equal installments of 33,333 on each May 4, 2000, 2001 and
2002. The Proctor Employment Agreement provides for Mr. Proctor to have a
target bonus for the achievement of certain performance objectives to be
established by the Company of 100% of his annual base salary.
The Company may terminate the Proctor Employment Agreement for
"cause." The Proctor Employment Agreement defines "cause" as acts of willful
misconduct or gross negligence by Mr. Proctor in performance of his material
duties or obligations to the Company, or conviction of Mr. Proctor of a felony
involving moral turpitude, or a material act of dishonesty or breach of trust
by Mr. Proctor, intended to enrich Mr. Proctor at the expense of the Company.
If the Proctor Employment Agreement is terminated by the Company other than for
"cause" or the death, disability or normal retirement of Mr. Proctor or by Mr.
Proctor for "good reason," Mr. Proctor will receive severance pay of two times
his annual base salary as in effect immediately prior to termination, and all
of Mr. Proctor's stock options and stock appreciation rights will be
exercisable at termination. If Mr. Proctor's employment with the Company is
terminated within one year following a "change in control" of the Company
(other than as consequence of death, disability or normal retirement of Mr.
Proctor) by the Company for any reason whatsoever or by Mr. Proctor for "good
reason," Mr. Proctor will receive severance pay of two times his annual base
salary as in effect immediately prior to termination and all of Mr. Proctor's
stock options and stock appreciation rights will become exercisable at
termination. If Mr. Proctor's employment is terminated at any time by the
Company for "cause" or by Mr. Proctor other than for "good reason," the Company
may, at its sole discretion and upon certain conditions, prohibit Mr. Proctor
from engaging in any business competitive with the business of the Company for
a six-month period following the effective date of termination. If Mr.
Proctor's employment is terminated by the Company other than for "cause" or the
death, disability or normal retirement of Mr. Proctor or by Mr. Proctor for
"good reason," other than within one year of a "change in control," ," the
Company may, at its sole discretion and upon certain conditions, prohibit Mr.
Proctor from engaging in any business competitive with the business of the
Company for a six-month period following the effective date of termination.
In addition to the Proctor Employment Agreement, the Company has
employment agreements with its other executive officers. Such employment
agreements, other than the Proctor Employment Agreement, are referred to herein
as the "Executive Employment Agreements." The initial base salaries under such
9
<PAGE> 13
Employment Agreements are $150,000 for Mr. Zielinski, $150,000 for Mr. Wittig,
and $120,000 for Mr. Hawkes. The Executive Employment Agreements also provide
for bonuses based on certain Company performance targets in initial amounts
based upon the following percentages of base salary: Mr. Zielinski--40%, Mr.
Wittig--40%, and Mr. Hawkes--40%.
The executive officers also were granted options to purchase shares in
the following amounts at the indicated prices: Mr. Zielinski--150,000 shares at
$1.31 per share; Mr. Wittig--50,000 shares at $1.31 per share; and Mr.
Hawkes--50,000 shares at $2.09 per share. Such options will vest in three equal
annual installments beginning one year from the date of the respective
Executive Employment Agreement, with the exception of Mr. Zielinski's options,
which have fully vested on one-year anniversary from the date of his Employment
Agreement.
The Executive Employment Agreements 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 immediately vest on the date of such termination.
Certain of the Executive Employment Agreements contain severance
provisions that apply if the executive officer's employment is terminated
within one year after the occurrence of a change of control. In the event that
any such employee is terminated by the Company within one year 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, Stock Option 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.
Stock Incentive Plan. All salaried employees and non-employee
directors of the Company are eligible to participate in the Stock Incentive
Plan. An eligible employee may receive an award under the Plan, however, only
if selected by the Compensation Committee. The maximum number of shares of
Common Stock that may be issued under the Stock Incentive Plan is 2,400,000.
Employee Stock Option Plan. All salaried employees are eligible to
participate in the Employee Stock Option Plan. The Company's Board of Directors
adopted the Employee Stock Option Plan on September 4, 1998. On August 10,
1999, the Board of Directors increased the number of shares available for grant
under the Plan from 1,400,000 to 2,500,000 shares of Common Stock.
Director Compensation. Upon joining the Board of Directors, all
non-employee directors receive 6,000 options to purchase Common Stock of the
Company. In addition, on the date of each annual meeting of shareholders, each
director who is not an employee of the Company is automatically granted an
option to purchase 3,000 shares of Common Stock of the Company. All such
options are non-statutory stock options, immediately exercisable, 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 has any discretion with
respect to options granted to non-employee directors pursuant to the Stock
Incentive Plan or Stock Option Plan. During September 1998, options of then
current directors were repriced in connection with the option exchange program
offered by the Company.
In addition to grants pursuant to the Stock Incentive Plan or Stock
Option 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 $1,000 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.
10
<PAGE> 14
COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
During the fiscal year ended June 30, 1999, the Compensation and Stock
Option Committee of the Company's Board of Directors consisted of Mr. James and
Mr. Reiswig, neither of whom are executive officers of the Company although Mr.
James served as Interim Chief Executive Officer during the period from August
1998 to March 1999. The Compensation and Stock Option Committee is responsible
for setting and approving the salaries, bonuses and other compensation for the
Company's executive officers, establishing compensation programs, and
determining the amounts and conditions of all grants of awards under the Stock
Incentive Plan.
The Compensation and Stock Option Committee Objectives. The Company's
compensation programs are designed by the Compensation and Stock Option
Committee to achieve four fundamental objectives: (1) to provide competitive
salary levels and compensation incentives that attract and retain qualified
executives; (2) to motivate executives to achieve specific strategic short-term
and long-term objectives of the Company; (3) to recognize individual
performances and achievements as well as the performance of the Company
relative to its peers; and (4) to link the interests of senior management with
the long-term interest of the Company's stockholders through compensation
opportunities in the form of stock ownership. At present, these objectives are
met through a program comprised of salary, annual cash bonus, which is directly
tied to the Company's operating performance, stock price or similar criteria,
and long-term incentive opportunities in the form of stock options and
performance stock.
Executive Salaries. Base salaries for management employees are
determined initially by evaluating the responsibilities of the position, the
experience of the individual, internal comparability considerations, as
appropriate, the competition in the marketplace for management talent, and the
compensation practices among industry competitors and for public companies of
the size of the Company. Salary adjustments are determined and normally made at
12-month intervals.
Annual Bonuses. The Company offers a bonus program for executives
designed to provide year-end incentive bonuses to executives who contributed
materially to the Company's success during the most recently completed fiscal
year. The bonus program is intended to enable the Company executives to
participate in the Company's success as well as to provide incentives for
future performance. In determining amounts to be awarded as bonuses, the
Compensation and Stock Option Committee takes into account a number of factors,
including the Company's gross revenue, net income, cash flow, and individual
performance and achievement.
During the fiscal year ended June 30, 1999, the Company did not issue
any bonus to any of the Company's Chief Executive Officers serving during the
fiscal year, Mr. Proctor, Mr. James or Mr. Carberry.
Long Term Incentives. Under the Company's stock plans, the
Compensation and Stock Option Committee may grant to certain employees of the
Company a variety of long-term incentives, including non-qualified stock
options, incentive stock options, stock appreciation rights, exercise payment
rights, grants of stock or performance awards.
Option Repricing. As part of the overall program to incentivize its
personnel, during September 1998, the Company offered its employees, officers
and directors the opportunity to exchange their existing stock options for new
options, with an exercise price equal to the market price per share on the date
the Board of Directors adopted the exchange program ($1.125 per share). The
weighted-average exercise price per share prior to this exchange offer was
$7.58 per share. Employees who did not voluntarily terminate their employment
with the Company before May 6, 1999 were eligible for the Company's offer.
Option holders holding options on 1,140,007 shares of Company common stock
accepted this offer.
11
<PAGE> 15
In addition, during the fiscal year ended June 30, 1999, the Company
Compensation Committee approved grants of stock options that had an exercise
price of not less than the fair market value of the underlying stock on the
date of the grant. The majority of the issued stock options became exercisable
in equal annual installments over three years. Such stock options were granted
during September 1998, at an exercise price of $1.31 per share.
SUBMITTED BY THE COMPENSATION AND STOCK OPTION
COMMITTEE:
C. SHELTON JAMES, CHAIRMAN
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1999, C. Shelton James, while
serving as Chairman of the Company's Compensation and Stock Option Committee,
was the Company's Interim Chief Executive Officer and Interim Chairman of the
Board, concerning executive officer compensation.
12
<PAGE> 16
OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS
C. Shelton James, who serves as a member of the Board of Directors of
the Company, also served as the Company's Interim Chief Executive Officer and
Interim Chairman of the Board of Directors from August 24, 1998 until March 14,
1999. As compensation for his services, Mr. James received (in addition to his
daily rate for services performed) an option to purchase 225,000 shares of
Common Stock at a price of $1.31 per share.
RELATED TRANSACTIONS
In August 1999, the Company entered into a financing transaction with
Fernwood Partners II, LLC ("Fernwood") and certain officers, directors and
employees of the Company, through which the Company obtained a total amount of
$4,313,484 (the "Fernwood Financing"). In the Fernwood Financing, Fernwood
provided $3,699,484, Mr. Scott provided $100,000 and Mr. Proctor agreed to
provide $150,000. The remaining $364,000 was provided by certain other
directors, executive officers and employees of the Company. All of the financing
consisted of promissory notes convertible into the Company's Common Stock at $1
per share and warrants to purchase an equivalent number of shares of the
Company's Common Stock at $2.00 per share. The Fernwood Financing bears interest
at a rate of 11.5% per annum and is secured by a lien on all of the Company's
assets. The officers, directors and employees of the Company participating in
the Fernwood Financing have granted to Fernwood the right to act as their agent
for purposes of enforcing their rights in the event that the Company should
default on its obligations. Part of the proceeds from this financing was used to
repay a $1,125,000 loan and accrued interest to Fernwood Partners, LLC, a
limited liability company that provided financing to the Company in December
1998. At the time the Fernwood Financing was undertaken, Mr. Proctor funded only
$50,000 of the $150,000 to be lent by him to the Company. Mr. Proctor has agreed
to fund the remaining amount by contributing his salary payments to the Company
until the full amount is funded. This obligation is evidenced by a promissory
note to the Company in the principal amount of $100,000. Mr. Proctor's note
bears no interest, but if Mr. Proctor chooses to receive interest under the
Company's note to him, then Mr. Proctor will pay interest at the rate of 11.5%
on the amount remaining to be funded. Approximately $86,000 remains to be
funded.
Mr. William G. Scott, a member of the Company's Board of Directors, is
the brother of Mr. Richard Scott, who, with his wife, is a major equity holder
of Fernwood. Mr. Richard Scott is also a major equity holder of Fernwood
Partners, LLC.
13
<PAGE> 17
PERFORMANCE GRAPH
The following graph shows the Company's cumulative total return to
shareholders, based on an initial investment of $100, compared to Standard &
Poor's 500 Index and the Old Peer Group (defined below) and New Peer Group
(defined below) over the period from October 14, 1994, the first day that the
Company's shares were traded publicly, and the end of the fiscal year ended
June 30, 1999. Total shareholder return assumes dividend reinvestment. The
stock performance shown on the following graph is not indicative of future
price performance.
The Old Peer Group is comprised of Security Dynamics Technologies and
Secure Computing Corporation. The New Peer Group is comprised of Security
Dynamics Technologies, Secure Computing Corporation, Networks Associates
Incorporated, and Axent Technologies Incorporated. These companies' shares were
first publicly traded as follows: Security Dynamics Technologies on December
14, 1994; Secure Computing Corporation on November 17, 1995; Networks
Associates Incorporated on October 10, 1994; and Axent Technologies
Incorporated on April 2, 1996.
During the fiscal year 1996, the Company changed its fiscal year end
from September 30 to June 30.
COMPARISON OF 56 MONTH CUMULATIVE TOTAL RETURN*
AMONG CYBERGUARD CORPORATIONK, THE S&P 500 INDEX,
A NEW PEER GROUP AND AN OLD PEER GROUP
<TABLE>
<CAPTION>
Research Data Group Peer Group Total Return Worksheet
CYBERGUARD CORP
Cumulative Total Return
-------------------------------------------------------------
10/10/94 9/30/95 6/30/96 6/30/97 6/30/98 6/30/99
<S> <C> <C> <C> <C> <C> <C>
CYBERGUARD CORPORATION 100 218 669 344 373 39
NEW PEER GROUP 100 432 935 1,633 1,858 593
OLD PEER GROUP 100 292 892 842 377 494
S&P 500 100 121 152 205 267 328
</TABLE>
14
<PAGE> 18
PROPOSAL NUMBER 2
INCREASE IN THE NUMBER OF
SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
FROM 20,000,000 TO 50,000,000
The Board of Directors has adopted a resolution to submit to a vote of
the shareholders at the Annual Meeting a proposal to amend the Company's
Amended and Restated Articles of Incorporation to increase the number of shares
of Common Stock which the Company is authorized to issue from 20,000,000 to
50,000,000.
If the proposed amendment is approved by the Company's shareholders,
the additional 25,000,000 shares of Common Stock will have voting and other
rights and privileges identical to those of the currently authorized shares of
Common Stock. However, because shareholders have no preemptive rights to
purchase any additional shares of Common Stock which may be issued, the
issuance of additional shares will reduce the percentage interest of current
shareholders in the total outstanding shares. The proposed amendment will not
increase the number of shares of preferred stock authorized. The relative
rights and limitations of the Common Stock and preferred stock would remain
unchanged under the proposed amendment. The proposed amendment to the Amended
and Restated Articles of Incorporation is attached hereto as Exhibit A.
The Board of Directors recommends the proposed amendment and believes
it is in the best interests of the Company to increase the authorized number of
shares of Common Stock to enable the Company to satisfy its anticipated
obligations. In August 1999, the Company entered into the Fernwood Financing
transaction for approximately $4.3 million. The lenders in the Fernwood
Financing received a promissory note, convertible into Company's stock at a
rate of $1 of loan principal for each share, and warrants to purchase
approximately 4.3 million shares of the Company's Common Stock at $2.00 per
share. The Company needs to assure sufficient supply of shares for potential
conversion of theses notes and the potential exercise of these warrants, and
for other corporate matters.
If this proposal is approved, the Board of Directors does not intend
to seek further shareholder approval prior to the issuance of any additional
shares of authorized Common Stock in future transactions unless required by
law, the Company's Bylaws, the Amended and Restated Articles of Incorporation
or the rules of any stock exchange on which the Common Stock may be listed.
The issuance of additional shares of Common Stock may, among other
things, have a dilutive effect on earnings per share and on shareholders'
equity and voting rights. The issuance of additional shares, or the perception
that additional shares may be issued, may also adversely affect the market
price of the Common Stock. The increase in the number of authorized shares of
Common Stock also could have the effect of rendering more difficult or
discouraging an attempt to obtain control of the Company. The Company is not
aware of any efforts to obtain control of the Company.
Approval to the Amendment to the Company's Amended and Restated
Articles of Incorporation to increase capitalization requires the affirmative
vote of the holders of a majority of the shares present in person or
represented by proxy at the Annual Meeting. If a proxy card is specifically
marked as abstaining from voting on the proposal, the shares represented
thereby will not be counted as having been voted for or against the proposal.
Broker non-votes will not be treated as votes cast. Unless authority to so vote
is withheld, the persons named in the proxy card intend to vote shares as to
which proxies are received in favor of the Amendment to the Amended and
Restated Articles of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE PROPOSAL TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE.
15
<PAGE> 19
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following sets forth, as of October 25, 1999 information with
respect to the beneficial ownership of the Company's Common Stock by: (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each director of the Company; (iii)
each of the Company's named executive officers; and (iv) 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>
Name/Address Number of Shares Percent of Class
------------ -------------------- -------------------
<S> <C> <C>
David R. Proctor(1)................................................ 539,375 5.59
C. Shelton James(2)................................................ 273,500 2.91
Robert L. Carberry(3).............................................. 235,490 2.52
6494 N.W. 32nd Way,
Boca Raton, FL 33496
Terrence A. Zielinski(3)........................................... 200,000 2.15
Michael G. Wittig(3)............................................... 117,039 1.27
Frederick O. Hawkes(3)............................................. 30,000 *
Tommy D. Steele(3)................................................. 300,000 3.18
Thomas W. Patterson(3)............................................. 65,000 *
Leland R. Reiswig, Jr.(3).......................................... 34,500 *
Richard P. Rifenburgh(3)........................................... 43,500 *
David L. Manning(3)................................................ 26,000 *
William G. Scott(3)................................................ 206,000 2.21
Fernwood Partners II, LLC.......................................... 7,398,968 44.78
100 First Stamford Place, Suite 625,
Stamford, Connecticut 06902
All directors and officers as a group (12) persons................. 2,070,404 18.51
* Less than 1%
</TABLE>
- -------------------
(1) Includes: (a) 229,375 shares in options that are currently exercisable
by Mr. Proctor to purchase Common Stock; (b) 300,000 shares for
convertible note and warrant issued by the Company in connection with
a financing transaction in August 1999; and (c) 10,000 shares of
Common Stock owned by Mr. Proctor.
(2) Includes: (a) 253,500 shares in options that are currently exercisable
by Mr. James to purchase Common Stock; and (b) 20,000 shares for
convertible note and warrant issued by the Company in connection with
a financing transaction in August 1999 and held for the benefit of Mr.
James by C. Shelton James Defined Benefit Keogh Plan.
(3) Includes (a) options that are currently exercisable to purchase Common
Stock in the following amounts: Mr. Carberry--235,490; Mr.
Zielinski--150,000; Mr. Wittig--43,039; Mr. Steele--300,000; Mr.
Patterson--65,000; Mr. Reiswig--13,500 shares; Mr. Rifenburgh--13,500
shares; Mr. Manning--6,000 shares; and Mr. Scott--6,000 shares; and
(b) shares of Common Stock for convertible notes and warrants issued
by the Company in connection with a financing transaction in August
1999, in the following amounts: Mr. Zielinski--50,000; Mr.
Wittig--74,000; Mr. Hawkes--30,000; Mr. Reiswig--20,000 shares; Mr.
Rifenburgh--30,000 shares; Mr. Manning--20,000 shares; and Mr.
Scott--200,000 shares.
16
<PAGE> 20
OTHER MATTERS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, shareholders may present proper proposals for inclusion in the
Company's proxy statement and for consideration at the next Annual Meeting of
Shareholders by submitting such proposals to the Company in a timely manner. In
order to be so included for the 2000 Annual Meeting, shareholder proposals must
be received by the Company no later than August 4, 2000 and must otherwise
comply with the requirements of Rule 14a-8.
Under federal securities laws, the Company's directors, certain
officers, and persons holding more than 10% of the Common Stock of the Company
are required to report, within specified monthly and annual due dates, their
initial ownership and all subsequent acquisitions, dispositions or other
transfers of interest in Common Stock, if and to the extent reportable events
occur which require reporting of such due dates. The Company is required to
describe in this Proxy Statement whether it has knowledge that any person
required to file such report may have failed to do so in a timely manner. To
the Company's knowledge, all such filing requirements of the Company's
directors, officers and each beneficial owner of more than 10% of the Common
Stock were satisfied in full for the fiscal year ended June 30, 1999, with the
exception of Form 3 filings that were filed late for Terrence A. Zielinski,
Michael G. Wittig and Frederick O. Hawkes. The foregoing is based upon reports
furnished to the Company and written representations and information provided
to the Company by the persons required to make such filings.
Shareholders may obtain a copy (without exhibits) of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1999 as filed
with the Securities and Exchange Commission without charge by writing to:
Dolores Hess, CyberGuard Corporation, 2000 West Commercial Boulevard, Fort
Lauderdale, Florida 33309.
17
<PAGE> 21
EXHIBIT A
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE V. CAPITAL STOCK
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 55,000,000 shares, of which
50,000,000 shares of the par value of $0.01 per share shall be designated as
Common Stock and 5,000,000 shares of the par value of $0.01 per share shall be
designated as Preferred Stock. Shares of Preferred Stock may be issued in
series from time to time by the Board of Directors, and the Board of Directors
is expressly authorized to fix by resolution or resolutions the designations,
relative rights, preferences, and limitations of the shares of each series of
Preferred Stock, including without limitation the following:
(a) the distinctive designation of such entries which shall
distinguish it from other series;
(b) the number of shares included in such series, which matter may be
increased or decreased from time to time by the board of directors unless
otherwise provided the Board of Directors in the resolution or resolutions
providing for the issue of such series.
(c) the rate of dividends (or method of determining such dividends)
payable to holders of the shares of such series, any condition on the payment
of such dividends, and the date or dates (or method of determining the date or
dates) upon which such dividends shall be payable;
(d) whether dividends on the shares of such series shall be cumulative
and, in the case of shares of any series having cumulative dividend rights, the
date or dates (or method of determining date or dates) from which dividends on
the shares of such series shall be cumulative;
(e) the amount or amounts which shall be payable out of the assets of
the Corporation to the holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up the Corporation;
(f) the price or prices (or method of determining such price or
prices) at which, the form of payment of such price or prices for which, the
period or periods within which, and the other terms and conditions upon which,
the shares of such series may be redeemed, in whole or in part, at the option
of the Corporation or at the option of the holder or holders thereof or upon
the happening of a specific event or events;
(g) the obligation, if any, of the corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price or
prices at which, the period or periods within which, and the other terms and
conditions upon which, the shares of such series shall be purchased or
redeemed, in whole or in part, pursuant to such obligation;
(h) provisions, if any, for the conversion or exchange of the shares
of such series, at any time or times at the option of the holder or holders
thereof or at the option of the Corporation or upon the happening of a
specified event or events, into shares of any other class or classes of stock
of the Corporation, and the price or prices or rate or rates of exchange or
conversion and any adjustments applicable thereto;
(i) the voting rights, if any, of the holders of the shares of such
series, which may include multiple votes per share; and
(j) the manner in which any facts ascertainable outside the resolution
or resolutions providing for the issue of such series shall operate on the
relative rights, preferences, and limitations of the shares of each series of
Preferred Stock.
<PAGE> 22
APPENDIX A
CYBERGUARD CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING DECEMBER 8, 1999
PROXY
The undersigned stockholder hereby appoints David R. Proctor and
Terrence A. Zielinski, or any of them, attorneys and proxies for the undersigned
with power of substitution in each to act for and to vote, as designated below,
with the same force and effect as the undersigned, all shares of CyberGuard
Corporation Common Stock standing in the name of the undersigned at the Annual
Meeting of Shareholders to be held at the Courtyard by Marriott at Cypress
Creek, 2440 W. Cypress Creek Road, Fort Lauderdale, Florida, 33309, at 10:00
a.m. on December 8, 1999 and at any adjournments thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL GRANT AUTHORITY TO THE PROXY HOLDERS TO VOTE ON BEHALF OF THE
UNDERSIGNED SHAREHOLDER AND WILL BE VOTED "FOR" THE NOMINEES FOR DIRECTOR AND
"FOR" THE OTHER PROPOSALS.
IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED TO VOTE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS
THEREOF. THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE PROXY HOLDERS' BEST
JUDGMENT AS TO ANY OTHER MATTER.
1. ELECTION OF DIRECTORS.
Nominees: David L. Manning
David R. Proctor
William G. Scott
[ ] FOR [ ] WITHHELD
----------------------------
For all nominees except as noted above
2. APPROVAL OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK AUTHORIZED FOR ISSUANCE FROM 20,000,000 TO 50,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
[ ] MARK HERE IF YOU PLAN TO ATTEND THE MEETING
<TABLE>
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<S> <C>
Dated: ___________, 1999 Please mark, date and sign exactly as your name appears
hereon. Joint owners should each sign. If the signer is
a corporation, please sign in full corporate name by a
duly authorized officer. Executors, administrators,
_________________________________ trustees etc. should give full title as such.
SIGNATURE
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