-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HuW5AQnxgFqE5ewKYeubnjgML/ydpkt1t+ea0cBFJBwTWSZ7CrS1UHeRriioMM+M frqSydAxJfihF8366tPiZA== 0000950123-96-002702.txt : 19960525 0000950123-96-002702.hdr.sgml : 19960525 ACCESSION NUMBER: 0000950123-96-002702 CONFORMED SUBMISSION TYPE: DEFS14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960626 FILED AS OF DATE: 19960524 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCURRENT COMPUTER CORP/DE CENTRAL INDEX KEY: 0000749038 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 042735766 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13150 FILM NUMBER: 96572427 BUSINESS ADDRESS: STREET 1: 2 CRECENT PLACE CITY: OCEANPORT STATE: NJ ZIP: 07757 BUSINESS PHONE: 9088704500 MAIL ADDRESS: STREET 1: 2 CRECENT PLACE CITY: OCEANPORT STATE: NJ ZIP: 07757 FORMER COMPANY: FORMER CONFORMED NAME: MASSACHUSETTS COMPUTER CORP DATE OF NAME CHANGE: 19881018 DEFS14A 1 CONCURRENT COMPUTER CORPORATION 1 SCHEDULE 14A INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement /X/ Definitive Additional Materials / / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Concurrent Computer Corporation - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): / / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). /X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: Not Applicable ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: Not Applicable ------------------------------------------------------------------------- (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): The amount on which the filing fee is calculated was determined pursuant to Rule 0-11(a)(4) and (c) of the Exchange Act by multiplying 1/50th of 1% by the sum of (i) $10 million, the stated value of the Concurrent Preferred Stock to be issued in the transaction, and (ii) a product of (A) $2.98, the average of the reported high and low sale price of a share of Concurrent Common Stock on May 23, 1996, and (B) 10,000,000, the number of shares of Concurrent Common Stock to be issued in the transaction. (4) Proposed maximum aggregate value of transaction: $39,800,000 ------------------------------------------------------------------------- (5) Total fee paid: $7,960 ------------------------------------------------------------------------- /X/ Fee paid previously with preliminary materials.* * $4,679.73 of the filing fee was paid upon the filing of the preliminary 14A on December 14, 1995. 2 CONCURRENT COMPUTER CORPORATION LOGO May 23, 1996 Dear Fellow Shareholder: You are cordially invited to attend a Special Meeting of Shareholders of Concurrent Computer Corporation ("Concurrent"), to be held at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309 at 3:30 p.m., local time, on June 26, 1996 (the "Concurrent Special Meeting"). A Notice of the Concurrent Special Meeting, a proxy and a Joint Proxy Statement containing information about the matters to be acted upon at the Concurrent Special Meeting are enclosed. All holders of outstanding shares of Concurrent's common stock, par value $.01 per share ("Concurrent Common Stock"), as of the close of business on May 14, 1996 (the "Record Date") are entitled to notice of and to vote at the Concurrent Special Meeting. At the Concurrent Special Meeting, Concurrent's shareholders will be asked to consider and vote upon proposals pursuant to a Purchase and Sale Agreement, dated as of March 26, 1996, as amended and restated on May 23, 1996 (the "Purchase and Sale Agreement"), between Harris Computer Systems Corporation, a Florida corporation ("Harris"), and Concurrent for (i) the issuance of shares of Concurrent Common Stock and (ii) an amendment (the "Concurrent Stock Plan Amendment") to the Concurrent 1991 Restated Stock Option Plan (the "Concurrent Stock Plan") described in greater detail in the accompanying Joint Proxy Statement. Issuance of the Concurrent Common Stock Consideration and the Additional Common Shares (as such terms are defined below) and implementation of that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares are each conditioned upon the approval of the other proposal. Implementation of the remaining portions of the Concurrent Stock Plan Amendment is conditioned upon the approval of both (i) the issuance of the Concurrent Common Stock and the Additional Common Shares and (ii) the increase in the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 such shares pursuant to the Concurrent Stock Plan Amendment. As explained in greater detail in the accompanying Joint Proxy Statement, the Purchase and Sale Agreement provides for the acquisition by Concurrent of the assets (the "Assets") of Harris's real-time computer business (the "Harris Real-Time Business"), together with 683,178 newly issued shares (the "Purchased Harris Shares") of the common stock of Harris, par value $.01 per share (the "Harris Common Stock"). The Purchased Harris Shares will represent approximately 9% of the shares of Harris Common Stock expected to be outstanding immediately after the issuance of the Purchased Harris Shares and after giving effect to the vesting and exercise of all currently outstanding options with respect to Harris Common Stock. In exchange for the Assets and the Purchased Harris Shares, Concurrent will (i) issue to Harris 10,000,000 shares of Concurrent Common Stock (the "Concurrent Common Stock Consideration") which will represent approximately 23% of the shares of Concurrent Common Stock expected to be outstanding immediately after the issuance of the Concurrent Common Stock Consideration and after giving effect to the vesting and exercise of all outstanding options with respect to Concurrent Common Stock (approximately 29% assuming full conversion of the Concurrent Preferred Stock and Debentures into the Additional Common Shares, each as defined below), (ii) issue to Harris shares of convertible exchangeable preferred stock (the "Concurrent Preferred Stock") with a 9% cumulative annual dividend payable quarterly in arrears and a liquidation preference of $10,000,000, subject to adjustment to reflect, among other things, the amount of net current assets of the Harris Real-Time Business transferred in the Transaction (as defined below) (the "Preferred Stock Consideration"), and (iii) assume liabilities of Harris relating to the Harris Real-Time Business (the "Assumed Liabilities"). Pursuant to the terms of the Concurrent Preferred Stock and the terms 3 of the debentures (the "Debentures") into which the Concurrent Preferred Stock is exchangeable, a maximum of 4,000,000 shares, subject to anti-dilution adjustment, of Concurrent Common Stock (the "Additional Common Shares") may be issuable upon the conversion of the Concurrent Preferred Stock and the Debentures. The sale to Concurrent of the Assets and the Purchased Harris Shares in exchange for the Concurrent Common Stock Consideration, the Preferred Stock Consideration and the Assumed Liabilities and all other transactions contemplated thereby are referred to as the "Transaction". The Purchase and Sale Agreement also contemplates the execution in connection with the closing of the Transaction of an agreement (the "Share Holding Agreement") that will contain certain standstill, governance, transfer and registration provisions. Pursuant to the Purchase and Sale Agreement and the Share Holding Agreement, immediately after closing, Concurrent's Board of Directors will consist of not more than nine directors, including three directors designated by Harris and Harris's Board of Directors will consist of not more than seven directors, including one director designated by Concurrent. A copy of the Purchase and Sale Agreement is attached as Annex A and the form of Share Holding Agreement is attached as Annex F to the accompanying Joint Proxy Statement. We urge you to read and consider them carefully. Concurrent's Board of Directors has unanimously approved the Transaction and recommends a vote FOR approval and adoption of the issuance of both the Concurrent Common Stock Consideration and the Additional Common Shares and approval of the Concurrent Stock Plan Amendment by Concurrent shareholders. The Board reached its conclusion regarding approval of the Transaction after careful consideration of a number of factors, including the opinion of Berenson Minella & Company ("Berenson Minella"), Concurrent's financial advisor, to the effect that the purchase by Concurrent of the Assets and the Purchased Harris Shares for the Concurrent Common Stock Consideration and the Preferred Stock Consideration and the assumption of the Assumed Liabilities, taken as a whole, are fair to Concurrent's shareholders from a financial point of view. The full text of Berenson Minella's opinion is attached as Annex B to the Joint Proxy Statement. SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY FOR A DISCUSSION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND SCOPE OF THE REVIEW UNDERTAKEN IN RENDERING SUCH OPINION. SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER "SPECIAL FACTORS" BEFORE VOTING ON THE MATTERS TO BE CONSIDERED AT THE CONCURRENT SPECIAL MEETING. With respect to the proposals to be considered by the holders of Concurrent Common Stock entitled to vote, the affirmative vote of a majority of the following is required for approval: (i) the total votes cast by the holders of Concurrent Common Stock with respect to the issuance of both the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) in a separate vote, the total votes cast by the holders of Concurrent Common Stock with respect to the Concurrent Stock Plan Amendment. In addition, the Transaction is conditioned upon approval by Harris's shareholders of the Transaction and an amendment to the Harris Stock Plan (as defined in the Joint Proxy Statement). In view of the importance of the actions to be taken at the Concurrent Special Meeting, we urge you to read the enclosed materials carefully and to complete, sign and date the enclosed proxy card and return it promptly in the enclosed prepaid envelope whether or not you plan to attend the Concurrent Special Meeting. If you attend the Concurrent Special Meeting, you may vote your shares personally whether or not you have previously submitted a proxy. Your prompt response will be greatly appreciated. Sincerely yours, /s/ John T. Stihl John T. Stihl Chairman, President and Chief Executive Officer Oceanport, New Jersey 2 4 CONCURRENT COMPUTER CORPORATION LOGO NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To be held on June 26, 1996 ------------------------ TO THE SHAREHOLDERS OF CONCURRENT COMPUTER CORPORATION: NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Concurrent Computer Corporation, a Delaware corporation ("Concurrent"), will be held on June 26, 1996 at 3:30 p.m., local time, at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309 (the "Concurrent Special Meeting"), for the following purposes: 1. To consider and vote upon a proposal pursuant to the Purchase and Sale Agreement, dated as of March 26, 1996, as amended and restated on May 23, 1996 (the "Purchase and Sale Agreement"), between Harris Computer Systems Corporation ("Harris") and Concurrent for the issuance of both (i) 10,000,000 shares of common stock, par value $.01 per share ("Concurrent Common Stock"), which will represent approximately 23% of the shares of Concurrent Common Stock expected to be outstanding immediately after the issuance of the shares and after giving effect to the vesting and exercise of all currently outstanding options with respect to Concurrent Common Stock (approximately 29% assuming full conversion of the preferred stock and debentures into the Additional Common Shares, as discussed herein below) and (ii) a maximum of 4,000,000 shares, subject to anti-dilution adjustment, of Concurrent Common Stock (the "Additional Common Shares") which will be issuable upon the conversion of the convertible exchangeable preferred stock of Concurrent to be issued to Harris upon consummation of the Purchase and Sale Agreement and the debentures into which such preferred stock is exchangeable pursuant to the terms of such stock. Such securities are to be issued in connection with the proposed acquisition by Concurrent of the assets of the real-time computer business of Harris Computer Systems Corporation ("Harris") together with 683,178 newly issued shares of the common stock of Harris, par value $.01 per share (the "Harris Common Stock"), which will represent approximately 9% of the shares of Harris Common Stock expected to be outstanding immediately after such issuance and after giving effect to the vesting and exercise of all currently outstanding options with respect to the Harris Common Stock. 2. To consider and vote upon an amendment to the Concurrent 1991 Restated Stock Option Plan (the "Concurrent Stock Plan") to increase the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 shares of Concurrent Common Stock. 3. To consider and vote upon an amendment to the Concurrent Stock Plan to (i) increase the number of shares of Concurrent Common Stock underlying the options initially granted to each non-employee director following the adoption of such amendment to 20,000 shares of Concurrent Common Stock, (ii) provide for the automatic grant to continuing non-employee directors of options to purchase 3,000 shares of Concurrent Common Stock on the date of each annual meeting of shareholders and (iii) provide that each option granted to the non-employee directors shall expire on the earlier of the tenth anniversary of the date of grant or the resignation or removal (other than by reason of death or disability) of such non-employee director. 4. To transact such other business as may properly come before the Concurrent Special Meeting. 5 Adoption of proposals 1 and 2 are each conditioned upon the approval of the other. Adoption of proposal 3 is conditioned upon the approval of both proposals 1 and 2. Only holders of record of shares of Concurrent Common Stock, as of the close of business on May 14, 1996, are entitled to notice of and to vote at the Concurrent Special Meeting. The list of Concurrent shareholders entitled to vote at the Concurrent Special Meeting will be available for examination by any shareholder, for any purpose germane to the Concurrent Special Meeting, during normal business hours, for ten days prior to the Concurrent Special Meeting at the principal executive offices of Concurrent, Two Crescent Place, Oceanport, New Jersey 07757. Holders of Concurrent Common Stock do not have rights of appraisal under Delaware law in connection with the matters to be considered at the Concurrent Special Meeting. YOUR VOTE IS IMPORTANT. PLEASE COMPLETE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ADDRESSED ENVELOPE ENCLOSED. By Order of the Board of Directors Kevin J. Dell Secretary Oceanport, New Jersey May 23, 1996 2 6 CONCURRENT COMPUTER CORPORATION TWO CRESCENT PLACE OCEANPORT, NEW JERSEY 07757 HARRIS COMPUTER SYSTEMS CORPORATION 2101 WEST CYPRESS CREEK ROAD FORT LAUDERDALE, FLORIDA 33309 ------------------------ JOINT PROXY STATEMENT ------------------------ This Joint Proxy Statement (the "Joint Proxy Statement") is being furnished to the shareholders of Concurrent Computer Corporation, a Delaware corporation ("Concurrent"), and Harris Computer Systems Corporation, a Florida corporation ("Harris"). The Joint Proxy Statement is being furnished in connection with the solicitation of proxies by Concurrent's Board of Directors (the "Concurrent Board") for use at the Special Meeting of Shareholders of Concurrent (the "Concurrent Special Meeting") to be held at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309, on June 26, 1996, at 3:30 p.m., local time. At the Concurrent Special Meeting, shareholders will be asked to consider and vote on a proposal for the issuance of both (i) 10,000,000 shares (the "Concurrent Common Stock Consideration") of Concurrent's common stock, par value $.01 per share (the "Concurrent Common Stock"), which will represent approximately 23% of the shares of Concurrent Common Stock expected to be outstanding immediately after the issuance of the Concurrent Common Stock Consideration and after giving effect to the vesting and exercise of currently outstanding options (the "Concurrent Options") with respect to Concurrent Common Stock (approximately 29% assuming full conversion of the Concurrent Preferred Stock and Debentures into the Additional Common Shares, each as defined below) and (ii) a maximum of 4,000,000 shares, subject to anti-dilution adjustment, of Concurrent Common Stock (the "Additional Common Shares") which will be issuable upon the conversion of the Concurrent Preferred Stock and the Debentures into which the Concurrent Preferred Stock is exchangeable pursuant to its terms. The Concurrent Common Stock Consideration and the Additional Common Shares are issuable in connection with the proposed acquisition by Concurrent of (a) the assets (the "Assets") of the real-time computer business (the "Harris Real-Time Business") of Harris Computer Systems Corporation, a Florida corporation ("Harris"), together with (b) 683,178 newly issued shares (the "Purchased Harris Shares") of the common stock of Harris, par value $.01 per share (the "Harris Common Stock"), which will represent approximately 9% of the shares of Harris Common Stock expected to be outstanding immediately after the issuance of the Purchased Harris Shares and after giving effect to the vesting and exercise of certain currently outstanding options with respect to Harris Common Stock. Pursuant to the Purchase and Sale Agreement dated as of March 26, 1996, as amended and restated on May 23, 1996 (the "Purchase and Sale Agreement"), between Concurrent and Harris, Concurrent shareholders will also be asked to consider and vote upon an amendment (the "Concurrent Stock Plan Amendment") to the Concurrent 1991 Restated Stock Option Plan (the "Concurrent Stock Plan") to (w) increase the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 shares of Concurrent Common Stock, (x) increase the number of shares of Concurrent Common Stock underlying the options initially granted to each non-employee director following the adoption of such amendment to 20,000 shares of Concurrent Common Stock, (y) provide for the automatic grant to continuing non-employee directors of options to purchase 3,000 shares of Concurrent Common Stock on the date of each annual meeting of shareholders and (z) provide that each option granted to the non-employee directors shall expire on the earlier of the tenth anniversary of the date of grant or the resignation or removal (other than by reason of death or disability) of such non-employee director. Issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and implementation of that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares are each conditioned upon the approval of the other proposal, and approval by the Harris shareholders of the Purchase and Sale Agreement and the transactions contemplated thereby. Implementation of the remaining portions of the Concurrent Stock Plan Amendment is conditioned upon the approval by the Concurrent shareholders of both (i) the issuance of 7 the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) the increase in the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 such shares. See "THE PROPOSED TRANSACTION," "TERMS OF THE TRANSACTION," "AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN" and "OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS." Upon the terms and subject to the conditions of the Purchase and Sale Agreement, Concurrent will acquire the Assets and the Purchased Harris Shares in exchange for (i) the Concurrent Common Stock Consideration, (ii) shares of convertible exchangeable preferred stock of Concurrent (the "Concurrent Preferred Stock") with a 9% cumulative annual dividend payable quarterly in arrears and a liquidation preference of $10,000,000, subject to adjustment to reflect, among other things, the amount of net current assets of the Harris Real-Time Business transferred in the Transaction (the "Preferred Stock Consideration"), and (iii) the assumption of liabilities of Harris relating to the Harris Real-Time Business (the "Assumed Liabilities"). The sale to Concurrent of the Assets and the Purchased Harris Shares in exchange for the Concurrent Common Stock Consideration, the Preferred Stock Consideration and the Assumed Liabilities and all other transactions contemplated thereby is referred to as the "Transaction". See "TERMS OF THE TRANSACTION." This Joint Proxy Statement is also being furnished in connection with the solicitation of proxies by Harris's Board of Directors (the "Harris Board") for use at the Special Meeting of Shareholders in lieu of an annual meeting of Harris (the "Harris Special Meeting") to be held at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309 on June 26, 1996 at 2:00 p.m., local time. At the Harris Special Meeting, Harris's shareholders will be asked to consider and vote on (i) the Purchase and Sale Agreement and the transactions contemplated thereby; (ii) an amendment (the "Harris Stock Plan Amendment") to the Harris Stock Incentive Plan (the "Harris Stock Plan") to increase the number of shares of Harris Common Stock authorized for issuance thereunder to 2,025,000 shares of Harris Common Stock and to amend the director's options portion of the plan; (iii) an amendment to Harris's Articles of Incorporation to change Harris's corporate name to CyberGuard Corporation (the "Name Change"); (iv) the election of the class of directors whose term ends at the 1998 Annual Meeting of Harris shareholders; (v) under certain circumstances, the adjournment of the Harris Special Meeting; and (vi) the appointment of KPMG Peat Marwick LLP ("KPMG") as Harris's independent accountants for fiscal year 1996. The Transaction is conditioned upon the approval by Concurrent's shareholders of the issuance of both the Concurrent Common Stock Consideration and the Additional Common Shares and that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares, and the approval by Harris's shareholders of the Harris Stock Plan Amendment. Other than the Transaction, none of the proposals to be considered at the Harris Special Meeting is conditioned on the approval of any other proposal. See "THE PROPOSED TRANSACTION," "TERMS OF THE TRANSACTION," and "OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS." The Harris Real-Time Business represented approximately 82% of the assets of Harris as of March 30, 1996 and accounted for 83%, 89% and 87% of Harris's revenues for the six months ended March 30, 1996 and the fiscal years ended September 30, 1995 and June 30, 1994, respectively. All information contained in this Joint Proxy Statement relating to Harris and its subsidiaries has been supplied by Harris and all information relating to Concurrent and its subsidiaries has been supplied by Concurrent. Concurrent Common Stock and Harris Common Stock are traded in the over-the-counter market and price quotations therefor are reported on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") National Market System(R) ("Nasdaq/NMS") under the symbols "CCUR" and "NHWK", respectively. The last reported sale prices per share of Concurrent Common Stock and Harris Common Stock as of May 22, 1996 (the latest practicable trading day before the printing of this Joint Proxy Statement) were $3 1/16 and $19 1/2, respectively. See "MARKET PRICE AND DIVIDENDS." 2 8 Only shareholders of record of Concurrent Common Stock and Harris Common Stock at the close of business on May 14, 1996 (the "Record Date") are entitled to notice of and to vote at the Concurrent Special Meeting and the Harris Special Meeting, respectively. Each shareholder of Concurrent or Harris, as the case may be, is entitled to one vote per share on any matter that may properly come before the Concurrent Special Meeting or the Harris Special Meeting, respectively. On the Record Date there were 30,652,680 shares of Concurrent Common Stock and 5,998,415 shares of Harris Common Stock outstanding. This Joint Proxy Statement and the accompanying form of proxy are first being sent to Concurrent and Harris shareholders on or about May 28, 1996. ------------------------ SEE "SPECIAL FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY SHAREHOLDERS OF BOTH CONCURRENT AND HARRIS IN CONNECTION WITH THEIR CONSIDERATION OF THE TRANSACTION. ------------------------ THE DATE OF THIS JOINT PROXY STATEMENT IS MAY 23, 1996. 3 9 Concurrent expects to file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (the "Concurrent Form S-3") with respect to the registration of Concurrent Common Stock issuable to Harris in connection with the Concurrent Common Stock Consideration and the Additional Common Shares issuable upon conversion of the Preferred Stock Consideration. In addition, Concurrent expects to file with the Commission a registration statement on Form S-3 in connection with Concurrent Common Stock (i) to be sold in connection with the funding of certain severance obligations of Concurrent, (ii) to be sold to fund the payment to Berenson Minella & Company ("Berenson Minella"), financial advisor to Concurrent, pursuant to the engagement letter, dated June 5, 1995, as amended, between Concurrent and Berenson Minella of a portion of the advisory fees due thereunder and (iii) to be sold in connection with the satisfaction of certain obligations to John T. Stihl, Chairman, President and Chief Executive Officer of Concurrent pursuant to an amendment, dated November 5, 1995, to the Employment Agreement, dated August 25, 1993, by and between Concurrent and John T. Stihl. The Form S-3s to be filed by Concurrent are referred to herein as the Concurrent S-3s. Harris expects to file with the Commission a separate registration statement on Form S-3 (the "Harris Form S-3") with respect to the registration of Harris Common Stock issuable to Concurrent, pursuant to the terms of the Transaction. For information concerning the effect on Concurrent's share price and Harris's share price with respect to shares which may become issuable as a result of the Transaction, see "SPECIAL FACTORS -- Fluctuation in Value of the Consideration to be Issued in the Transaction; Changes in Market Prices of Concurrent or Harris Common Stock." INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents which have been filed with the Commission by Concurrent pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated by reference in this Joint Proxy Statement: (1) Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Concurrent Annual Report"). (2) Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 1995, December 31, 1995 and March 31, 1996. (3) All documents subsequently filed by Concurrent pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the Concurrent Special Meeting. Any statement incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Joint Proxy Statement to the extent that a statement contained herein or in any other subsequently filed document which 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 a part of this Joint Proxy Statement. THIS JOINT PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS RELATING TO CONCURRENT WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THIS JOINT PROXY STATEMENT IS ACCOMPANIED BY A COPY OF THE CONCURRENT ANNUAL REPORT. A COPY OF CONCURRENT'S QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 1996 AND THE OTHER DOCUMENTS INCORPORATED BY REFERENCE (NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO KEVIN J. DELL, VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY, CONCURRENT COMPUTER CORPORATION, TWO CRESCENT PLACE, OCEANPORT, NEW JERSEY 07757, TELEPHONE NUMBER (908) 870-4354. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY REQUESTED DOCUMENT PRIOR TO THE CONCURRENT SPECIAL MEETING, REQUESTS SHOULD BE MADE BY JUNE 17, 1996. 4 10 TABLE OF CONTENTS
PAGE ---- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 4 SUMMARY OF JOINT PROXY STATEMENT...................................................... 9 The Companies....................................................................... 9 The Concurrent Special Meeting...................................................... 10 The Harris Special Meeting.......................................................... 11 The Proposed Transaction............................................................ 12 SELECTED HISTORICAL FINANCIAL DATA OF CONCURRENT...................................... 17 SELECTED HISTORICAL FINANCIAL DATA OF HARRIS.......................................... 18 SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF CONCURRENT.................... 19 MARKET PRICE AND DIVIDENDS............................................................ 20 SPECIAL FACTORS....................................................................... 21 Fluctuation in Value of the Consideration to be Issued in the Transaction; Changes in Market Prices of Concurrent or Harris Common Stock............................ 21 No Public Market for Concurrent Preferred Stock; Value of Concurrent Preferred Stock............................................................................ 22 Conditions to the Consummation of the Transaction; Material Adverse Effect.......... 22 Uncertainties in Successfully Integrating the Harris Real-Time Business and Achieving Cost Savings........................................................... 23 Impact of Transaction-Related Charges and Costs on Financial Performance; Uncertainty of Transaction-Related Charges and Costs............................. 23 Declining Trend in Net Sales........................................................ 24 History of Operating Losses; Accumulated Deficit.................................... 25 Potential Shortfall in Liquidity.................................................... 25 Potentially Adverse Customer Reaction............................................... 27 Lag in Customer Orders; Long Sales Cycle............................................ 27 Shift in Emphasis Away from Proprietary Systems..................................... 27 Product Obsolescence; Significant Research and Development Expenditures............. 28 Need to Establish Additional Marketing Relationships................................ 29 Harris's Limited Operating History in Trusted Market; Unpredictability of Operating Results.......................................................................... 29 Limited Protection of Intellectual Property and Proprietary Rights; Risk of Litigation; Reliance on Licensed Technology........................................................... 31 Reliance on Government Business..................................................... 31 Harris's Transition to the Commercial Market........................................ 32 Dependence on International Operations.............................................. 32 Competition......................................................................... 33 Limited Sources of Supply........................................................... 33 Potential Need to Expand Infrastructure............................................. 35 Dependence on Key Employees......................................................... 35 Dividend Policy..................................................................... 36 Certain Barriers to Changes of Control; Effects of Changes of Control............... 36 Inadvertent Investment Company...................................................... 36 Limitations on the Use of Certain Tax Loss Carryforwards............................ 37 THE CONCURRENT SPECIAL MEETING........................................................ 38 General............................................................................. 38 Purpose of the Concurrent Special Meeting........................................... 38
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PAGE ---- Place.......................39Record Date; Shares Outstanding....................... 39 Voting at the Concurrent Special Meeting............................................ 39 Solicitation of Proxies............................................................. 40 Effect of Abstentions and "Broker Non-Votes"........................................ 40 Appraisal Rights.................................................................... 40 THE HARRIS SPECIAL MEETING............................................................ 41 General............................................................................. 41 Purpose of the Harris Special Meeting............................................... 41 Date, Time and Place................................................................ 41 Record Date; Shares Outstanding..................................................... 41 Voting at the Harris Special Meeting................................................ 42 Adjournment of the Harris Special Meeting........................................... 42 Solicitation of Proxies............................................................. 43 Effect of Abstentions and "Broker Non-Votes"........................................ 43 Dissenter's Rights.................................................................. 43 THE PROPOSED TRANSACTION.............................................................. 44 General............................................................................. 44 Background of the Transaction....................................................... 44 Recommendations of the Board of Directors of Concurrent and Concurrent's Reasons for the Transaction.................................................................. 48 Opinion of Concurrent's Financial Advisor........................................... 50 Recommendations of the Special Committee and the Board of Directors of Harris and Harris's Reasons for the Transaction............................................. 56 Opinion of Harris's Financial Advisor............................................... 58 Interests of Certain Persons in the Transaction..................................... 63 Operations of Harris Following the Transaction...................................... 66 Operations of Concurrent Following the Transaction.................................. 66 TERMS OF THE TRANSACTION.............................................................. 67 The Purchase and Sale Agreement..................................................... 67 The Share Holding Agreement......................................................... 79 Non-Competition Agreement........................................................... 86 Concurrent Preferred Stock.......................................................... 86 Debentures.......................................................................... 90 Accounting Treatment................................................................ 93 Regulatory Filings and Approvals.................................................... 93 State Anti-Takeover Statutes........................................................ 93 Certain Federal Income Tax Consequences of the Transaction.......................... 93 Appraisal Rights.................................................................... 94 DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION......................................................................... 95 Executive Officers.................................................................. 95 Directors........................................................................... 95 DIRECTORS AND EXECUTIVE OFFICERS OF HARRIS AFTER CONSUMMATION OF THE TRANSACTION...... 98 Executive Officers.................................................................. 98 Changes in the Composition of the Harris Board...................................... 98
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PAGE ---- Incumbent Directors Remaining on the Harris Board................................... 99 Directors Whose Terms Expire at the Harris Special Meeting.......................... 99 AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN......................................... 100 Description of the Concurrent Stock Plan............................................ 100 Reasoning Behind the Proposal....................................................... 102 Federal Income Tax Aspects of the Concurrent Stock Plan............................. 102 OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS................................ 104 Amendment to the Harris Stock Plan.................................................. 104 Change of Harris's Corporate Name................................................... 108 Election of Directors............................................................... 108 Adjournment of the Harris Special Meeting........................................... 109 Approval of Independent Accountants................................................. 109 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT................... 110 Management's Discussion of the Pro Forma Condensed Consolidated Financial Statements of Concurrent.................................................................... 117 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARRIS....................... 119 PROJECTED FINANCIAL INFORMATION....................................................... 125 CERTAIN INFORMATION REGARDING CONCURRENT.............................................. 127 General............................................................................. 127 Management.......................................................................... 127 Identity of Directors and Officers.................................................. 128 Corporate Governance................................................................ 129 Executive Compensation.............................................................. 130 Option Grants....................................................................... 131 Option Exercises and Values as of March 31, 1996.................................... 133 Severance Arrangements.............................................................. 133 Security Ownership of Certain Beneficial Owners and Management...................... 134 CERTAIN INFORMATION REGARDING HARRIS.................................................. 136 General............................................................................. 136 The Transaction..................................................................... 136 Markets............................................................................. 136 Customers........................................................................... 138 Products and Services -- Real-Time Division......................................... 138 Products and Services -- Trusted Division........................................... 139 Maintenance......................................................................... 140 Products in Development............................................................. 140 Distribution........................................................................ 140 Research and Development............................................................ 141 Manufacturing Operations............................................................ 141 Sources of Supply................................................................... 141 Competition......................................................................... 141 Intellectual Property............................................................... 142 Employees........................................................................... 142 Backlog............................................................................. 142 Properties.......................................................................... 142
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PAGE ---- Environmental Matters............................................................... 143 Legal Proceedings................................................................... 143 Regulatory Compliance............................................................... 143 Management.......................................................................... 143 General Information Relating to the Board of Directors.............................. 144 Summary Compensation Table.......................................................... 145 Compensation Plans.................................................................. 147 Compensation and Stock Option Committee Report on Executive Compensation............ 148 Performance Graph................................................................... 152 HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................... 153 Results of Operations............................................................... 153 Liquidity and Capital Resources..................................................... 157 Inflation........................................................................... 158 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................................................................... 159 OTHER MATTERS......................................................................... 159 DATE FOR SUBMISSION OF PROPOSALS OF HARRIS SHAREHOLDERS............................... 159 INDEX TO FINANCIAL STATEMENTS......................................................... F-1 ANNEXES ANNEX A PURCHASE AND SALE AGREEMENT ANNEX B OPINION OF BERENSON MINELLA & COMPANY ANNEX C OPINION OF BEAR, STEARNS & CO. INC. ANNEX D AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN ANNEX E AMENDMENT TO THE HARRIS STOCK PLAN ANNEX F FORM OF SHARE HOLDING AGREEMENT ANNEX G FORM OF CERTIFICATE OF DESIGNATION OF CONCURRENT PREFERRED STOCK ANNEX H DEBENTURE TERM SHEET FOR CONCURRENT SERIES A DEBENTURES
8 14 SUMMARY OF JOINT PROXY STATEMENT The following is a summary of certain information contained elsewhere in this Joint Proxy Statement, including the Annexes hereto, which are a part of this Joint Proxy Statement. It is not, and is not intended to be, complete in itself. Reference is made to, and this summary is qualified in its entirety by, the more detailed information contained elsewhere in this Joint Proxy Statement. Shareholders are encouraged to read carefully all of the information contained in the Joint Proxy Statement. Unless otherwise defined herein, capitalized terms used in this summary have the respective meanings ascribed to them in this Joint Proxy Statement. Unless otherwise indicated, references to Harris Common Stock have been adjusted to give effect to a three-for-one stock split declared in March 1996. The Joint Proxy Statement contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Such statements include, but are not limited to, projected sales, gross margin, net income, adequacy of capital resources, plans concerning products and market acceptance, customer reaction to the Transaction and cost savings to be achieved by the Transaction. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements herein. Important factors that could contribute to such differences are set forth below under "SPECIAL FACTORS." See also "PROJECTED FINANCIAL INFORMATION." FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY CONCURRENT AND HARRIS SHAREHOLDERS IN CONNECTION WITH THEIR CONSIDERATION OF THE TRANSACTION, SEE "SPECIAL FACTORS." THE COMPANIES Concurrent Computer Corporation.............. Concurrent is engaged in the business of providing and servicing high-performance real-time computer systems. The principal executive offices of Concurrent are located at Two Crescent Place, Oceanport, New Jersey 07757, and its telephone number is (908) 870-4500. See "CERTAIN INFORMATION REGARDING CONCURRENT" and the Concurrent Annual Report, a copy of which is included with this Joint Proxy Statement. Harris Computer Systems Corporation.............. Harris is engaged in the business of providing and servicing high-performance real-time and trusted (i.e., secure) computer systems. The principal executive offices of Harris are located at 2101 West Cypress Creek, Fort Lauderdale, Florida 33309, and its telephone number is (305) 974-1700. See "CERTAIN INFORMATION REGARDING HARRIS." Trading Markets............ Concurrent Common Stock and Harris Common Stock are traded in the over-the-counter market and price quotations therefor are reported on the Nasdaq/NMS under the symbols "CCUR" and "NHWK", respectively. The closing prices of Concurrent Common Stock and Harris Common Stock on November 3, 1995, the last full trading day immediately prior to the public announcement of a proposed merger between Concurrent and Harris (which merger was abandoned in favor of the Transaction) were $1 17/32 and $4 1/4 per share, respectively, and on February 7, 1996, the last full trading day prior to the public announcement of the Transaction, were $ 25/32 per share and $6 1/2 per share, respectively. On May 22, 1996, the most recent practicable date prior to the printing of this Joint Proxy Statement, those closing prices were $3 1/16 and $19 1/2, respectively. See "MARKET PRICE AND DIVIDENDS." 9 15 THE CONCURRENT SPECIAL MEETING Time, Date and Place....... The Concurrent Special Meeting will be held on June 26, 1996, at 3:30 p.m., local time, at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309. See "THE CONCURRENT SPECIAL MEETING -- General." Purpose of the Meeting..... Shareholders will consider and vote upon proposals to (i) approve the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) amend the Concurrent Stock Plan to (w) increase the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 shares of Concurrent Common Stock, (x) increase the number of shares of Concurrent Common Stock underlying the options initially granted to each non-employee director following the adoption of such amendment to 20,000 shares of Concurrent Common Stock, (y) provide for the automatic grant to continuing non-employee directors of options to purchase 3,000 shares of Concurrent Common Stock on the date of each annual meeting of shareholders and (z) provide that each option granted to a non-employee director shall expire on the earlier of the tenth anniversary of the date of grant or the resignation or removal (other than by reason of death or disability) of such non-employee director. See "THE CONCURRENT SPECIAL MEETING," "THE PROPOSED TRANSACTION" and "AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN." Record Date................ Shareholders of record of Concurrent Common Stock at the close of business on May 14, 1996 (the "Record Date") are entitled to notice of and to vote at the Concurrent Special Meeting. See "THE CONCURRENT SPECIAL MEETING -- Record Date; Shares Outstanding." Voting Rights.............. Each share of Concurrent Common Stock is entitled to one vote with respect to all matters presented at the Concurrent Special Meeting. See "THE CONCURRENT SPECIAL MEETING -- Voting at the Concurrent Special Meeting." Vote Required.............. The affirmative vote of a majority of the following is required for approval: (i) the total votes cast by the holders of Concurrent Common Stock with respect to the issuance of both the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) in a separate vote, the total votes cast by the holders of Concurrent Common Stock with respect to the Concurrent Stock Plan Amendment. Issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and implementation of that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares are each conditioned upon the approval of the other proposal. Implementation of the remaining portions of the Concurrent Stock Plan Amendment is conditioned upon the approval of both (i) the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) the increase in the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 such shares. In addition, the Transaction is conditioned upon the approval by Harris's shareholders of the Transaction (other than the Harris Stock Plan Amendment) and, in a separate vote, the Harris Stock Plan Amendment. See "THE CON- 10 16 CURRENT SPECIAL MEETING -- Voting at the Concurrent Special Meeting." Revocability of Proxy...... Any Concurrent shareholder who executes and returns a proxy may revoke such proxy at any time before it is voted by (i) notifying in writing the Corporate Secretary of Concurrent at Two Crescent Place, Oceanport, New Jersey 07757, (ii) granting a subsequent proxy or (iii) appearing in person and voting at the Concurrent Special Meeting. Attendance at the Concurrent Special Meeting will not in and of itself constitute revocation of a proxy. See "THE CONCURRENT SPECIAL MEETING -- Voting at the Concurrent Special Meeting." THE HARRIS SPECIAL MEETING Time, Date and Place....... The Harris Special Meeting will be held on June 26, 1996 at 2:00 p.m., local time, at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309. See "THE HARRIS SPECIAL MEETING -- General." Purpose of the Meeting..... Shareholders will consider and vote upon proposals (i) to approve the Transaction; (ii) to approve the Harris Stock Plan Amendment to increase to 2,025,000 the number of shares of Harris Common Stock authorized for issuance thereunder and to amend the director's options portion of the plan; (iii) to approve an amendment to Harris's Articles of Incorporation to change Harris's corporate name to CyberGuard Corporation; (iv) to elect the class of directors whose term ends at the 1998 Annual Meeting of Harris shareholders; (v) under certain circumstances, to adjourn the Harris Special Meeting; and (vi) to approve the appointment of KPMG as Harris's independent accountants for fiscal year 1996. See "THE HARRIS SPECIAL MEETING." Record Date................ Shareholders of record of Harris Common Stock as of the close of business on the Record Date are entitled to notice of and to vote at the Harris Special Meeting. See "THE HARRIS SPECIAL MEETING -- Record Date; Shares Outstanding." Voting Rights.............. Each share of Harris Common Stock is entitled to one vote with respect to all matters presented at the Harris Special Meeting. See "THE HARRIS SPECIAL MEETING -- Voting at the Harris Special Meeting." Vote Required.............. The affirmative vote of the holders of a majority of the outstanding shares of Harris Common Stock is required to approve the Transaction and the Name Change. The affirmative vote of the holders of a majority of the total votes cast by holders of Harris Common Stock is required to approve the Harris Stock Plan Amendment, the election of directors, the adjournment of the Harris Special Meeting and the appointment of Harris's independent accountants. Consummation of the Transaction is conditioned upon the approval by Concurrent's shareholders of the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares, and the approval by Harris's shareholders of the Transaction (other than the Harris Stock Plan Amendment) and, in a separate vote, the Harris Stock Plan Amendment. See "THE HARRIS SPECIAL MEETING -- Voting at the Harris Special Meeting." 11 17 Revocability of Proxy...... Any Harris shareholder who executes and returns a proxy may revoke such proxy at any time before it is voted by (i) notifying in writing the Corporate Secretary of Harris at 2101 West Cypress Creek Road, Fort Lauderdale, Florida 33309, (ii) granting a subsequent proxy, or (iii) appearing in person and voting at the Harris Special Meeting. Attendance at the Harris Special Meeting will not in and of itself constitute revocation of a proxy. See "THE HARRIS SPECIAL MEETING -- Voting at the Harris Special Meeting." Adjournment................ The Harris Special Meeting may be adjourned to another date and/or place for any proper purpose (including, without limitation, for the purpose of soliciting additional proxies or in order to obtain necessary regulatory approvals). See "THE HARRIS SPECIAL MEETING -- Adjournment of the Harris Special Meeting." THE PROPOSED TRANSACTION Effects of the Transaction................ Concurrent will, upon the terms and subject to the conditions of the Purchase and Sale Agreement, acquire the Assets and the Purchased Harris Shares. In exchange, Concurrent will (i) deliver to Harris the Concurrent Common Stock Consideration and Preferred Stock Consideration and (ii) assume the Assumed Liabilities. Upon consummation of the Transaction, Harris will own approximately 23% of the shares of Concurrent Common Stock expected to be outstanding immediately after the issuance of the Concurrent Common Stock Consideration and after giving effect to the vesting and exercise of all currently outstanding options with respect to Concurrent Common Stock (approximately 29% assuming full conversion of the Concurrent Preferred Stock and Debentures into the Additional Common Shares) and Concurrent will own approximately 9% of the shares of Harris Common Stock expected to be outstanding immediately after the issuance of the Purchased Harris Shares and after giving effect to the vesting and exercise of certain currently outstanding options with respect to Harris Common Stock. As more fully described under "TERMS OF THE TRANSACTION -- The Purchase and Sale Agreement," the Purchase and Sale Agreement also contemplates certain post-closing adjustments that may result in reductions or increases in the liquidation preference of Concurrent Preferred Stock received by Harris at the Closing. Conditions to the Transaction................ The Purchase and Sale Agreement provides that the obligations of the parties to consummate the Transaction are subject to certain conditions including, among others, approval by the requisite vote of Concurrent shareholders with respect to the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares, approval by the requisite vote of Harris shareholders with respect to the Transaction and the Harris Stock Plan Amendment, the absence of any material adverse change in the business, operations or prospects of Harris or Concurrent, as the case may be, the consents of all necessary third parties and effectiveness of the registration statements filed by Concurrent and Harris with respect to the shares of each party issued to the other pursuant to the terms of the Purchase and Sale Agreement and the transactions contemplated 12 18 thereby. See "TERMS OF THE TRANSACTION -- The Purchase and Sale Agreement." Concurrent has received the consent of its primary lender with respect to the Transaction. In addition, Concurrent is in discussions with such lender to modify the lending agreement, specifically to increase the amount available under its revolving credit facility and to modify various covenants to become effective upon the closing of the Transaction. The condition under the Purchase and Sale Agreement to Concurrent's and Harris's obligation to consummate the Transaction that Concurrent obtain additional specified consents has been waived by Concurrent and Harris. The Purchase and Sale Agreement provides, as a condition to consummation of the Transaction, that Harris receive consents under certain agreements, leases and licenses with third parties. Harris has received oral consents as to all but one of such third-party arrangements. As to the remaining arrangement, the Purchase and Sale Agreement provides a mechanism to consummate the Transaction in the event a consent is not received. The cost of using this mechanism is not expected to be material to the results of operations of Harris or Concurrent. Closing.................... The Transaction is expected to be consummated as soon as practicable following the satisfaction (or waiver) of the conditions set forth in the Purchase and Sale Agreement or at such later date, time or place as the parties shall mutually agree (the "Closing Date"). See "TERMS OF THE TRANSACTION -- The Purchase and Sale Agreement." Share Holding Agreement.... At the Closing Date, Concurrent and Harris will execute a Share Holding Agreement (the "Share Holding Agreement") which contains certain standstill and governance provisions designed to restrict each party's ability to control the other party and to protect each party's public shareholders. The Share Holding Agreement further provides Concurrent and Harris with certain registration rights and transfer restrictions with respect to the shares of the other party to be issued to each pursuant to the Transaction. See "TERMS OF THE TRANSACTION -- The Share Holding Agreement." Non-Competition Agreement.................. The Purchase and Sale Agreement provides that the parties will enter into a mutually agreed Non-Competition/Distribution Agreement (the "Non-Competition Agreement") prior to the Closing Date. Recommendations of the Concurrent Board and Concurrent's Reasons for the Transaction.......... Concurrent's Board of Directors (the "Concurrent Board") has unanimously concluded that the Transaction is fair to and in the best interests of Concurrent and its shareholders, has approved the Purchase and Sale Agreement and recommends that Concurrent shareholders vote for the approval of (i) the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) the Concurrent Stock Plan Amendment (collectively referred to as the "Concurrent Proposals"). The Concurrent Board considered many factors in reaching its conclusion to approve the Purchase and Sale Agreement and to recommend that Concurrent shareholders vote for the approval of the Concurrent Proposals. See "THE PROPOSED TRANSACTION -- Recommendations of the Board of Directors of Concurrent and Concur- 13 19 rent's Reasons for the Transaction," and "AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN -- Reasoning Behind the Proposal." Recommendations of the Harris Board and Harris's Reasons for the Transaction.......... The Harris Board has unanimously concluded that the Transaction is fair to and in the best interests of Harris and its shareholders, has approved the Transaction and recommends that Harris shareholders vote to approve the Transaction (other than the Harris Stock Plan Amendment) and, in a separate vote, the Harris Stock Plan Amendment. The Harris Board considered many factors in reaching its conclusion to approve the Transaction (including the recommendation of the Special Committee of the Harris Board) and the Harris Stock Plan Amendment and to recommend their approval to Harris shareholders. See "THE PROPOSED TRANSACTION -- Recommendations of the Special Committee and the Board of Directors of Harris and Harris's Reasons for the Transaction" and "OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS." Opinion of Financial Advisors................... Berenson Minella has delivered a written opinion to the Concurrent Board, dated as of the date of this Joint Proxy Statement, to the effect that the purchase by Concurrent of the Assets and the Purchased Harris Shares for the Concurrent Common Stock Consideration and the Preferred Stock Consideration and the assumption of the Assumed Liabilities, taken as a whole, are fair to Concurrent's shareholders from a financial point of view. See "THE PROPOSED TRANSACTION -- Opinion of Concurrent's Financial Advisor." Bear, Stearns & Co. Inc. ("Bear Stearns") has delivered a written opinion to the Special Committee of the Harris Board, dated as of the date of this Joint Proxy Statement, to the effect that the Transaction is fair to Harris's shareholders from a financial point of view. See "THE PROPOSED TRANSACTION -- Opinion of Harris's Financial Advisor." Termination; Amendment and Waiver............... Notwithstanding the approval by the Concurrent shareholders of the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares, and, in separate votes, the Concurrent Stock Plan Amendment, and the approval by the Harris shareholders of the Transaction (other than the Harris Stock Plan Amendment) and, in a separate vote, the Harris Stock Plan Amendment, under certain circumstances, the Purchase and Sale Agreement may be terminated and the Transaction abandoned prior to the Closing Date. See "TERMS OF THE TRANSACTION -- The Purchase and Sale Agreement." Under certain circumstances, upon termination of the Purchase and Sale Agreement a termination fee will be payable. See "TERMS OF THE TRANSACTION -- The Purchase and Sale Agreement." At any time prior to the Closing Date, Harris and Concurrent may (i) extend the time for the performance of any of the obligations or other acts to be performed by the other parties, (ii) waive any inaccuracies in the representations and warranties by the other parties contained in the Purchase and Sale Agreement or in any document delivered pursuant to the Purchase and Sale Agreement and (iii) waive compliance with any of the agreements of the other parties or conditions contained in the 14 20 Purchase and Sale Agreement, but only by an instrument in writing signed by Harris and Concurrent. Neither Concurrent nor Harris intends to re-solicit its shareholders for approval in the event that conditions to consummation of the Transaction are waived. The Purchase and Sale Agreement may be amended by a written agreement signed by Harris and Concurrent. See "TERMS OF THE TRANSACTION -- The Purchase and Sale Agreement." Interests of Certain Persons.................... In considering the recommendations of the Concurrent Board and the Harris Board with respect to the Purchase and Sale Agreement, shareholders should be aware that certain members of Concurrent's and Harris's management and the Concurrent and Harris Boards have certain interests in the Transaction that are in addition to the interests of shareholders of Concurrent and Harris generally. These interests include that upon consummation of the Transaction certain executive officers and directors of Harris are expected to become executive officers and directors of Concurrent and certain outstanding stock options held by employees of Harris and all outstanding stock options held by employees of Concurrent will become fully vested and immediately exercisable and restrictions on shares of Harris Common Stock held by certain executive officers of Harris will lapse. Each company's board of directors was aware of these interests and considered them, among other matters, in approving the Purchase and Sale Agreement and the transactions contemplated thereby. See "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction." Accounting Treatment....... The Transaction will be accounted for under the "purchase" method of accounting; the purchase price will be allocated based on the fair value of the assets acquired and the liabilities assumed. See "TERMS OF THE TRANSACTION -- Accounting Treatment." Regulatory Filings and Approvals................ The consummation of the Transaction may be subject to certain regulatory approvals. With respect to governmental review under the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act"), Concurrent and Harris were informed on May 23, 1996 that the waiting period under the HSR Act has been terminated. Certain Federal Income Tax Consequences of the Transaction.............. Neither Concurrent nor Harris will recognize gain or loss for federal income tax purposes in connection with the issuance of the Concurrent Common Stock Consideration or the issuance of the Preferred Stock Consideration or the Purchased Harris Shares. The sale of the Harris Real-Time Business will be a taxable transaction to Harris under applicable federal, state, and local tax laws. Both Harris's and Concurrent's obligation to consummate the Transaction is conditioned upon Harris and Concurrent receiving an opinion from Holland & Knight, counsel to Harris, concerning the effect of the Transaction on certain covenants made by Harris in connection with its 1994 spin-off from Harris Corporation. See "TERMS OF THE TRANSACTION -- Certain Federal Income Tax Consequences of the Transaction." 15 21 Appraisal and Dissenter's Rights..................... Holders of Concurrent and Harris Common Stock do not have appraisal or dissenter's rights, respectively, in connection with the Transaction. See "TERMS OF THE TRANSACTION -- Appraisal Rights." Concurrent Stock Plan Amendment................ At the Concurrent Special Meeting, Concurrent's shareholders will be asked to consider and vote upon the Concurrent Stock Plan to (i) increase the number of shares of Concurrent Common Stock authorized for issuance from 4,014,725 to 9,000,000 shares of Concurrent Common Stock, (ii) increase the number of shares of Concurrent Common Stock underlying the options initially granted to each non-employee director following the adoption of such amendment to 20,000 shares of Concurrent Common Stock, (iii) provide for the automatic grant to continuing non-employee directors of options to purchase 3,000 shares of Concurrent Common Stock on the date of each annual meeting of shareholders and (iv) provide that each option granted to a non- employee director shall expire on the earlier of the tenth anniversary of the date of grant or the resignation or removal (other than by reason of death or disability) of such non-employee director. See "AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN." Issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and implementation of that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares are conditioned upon the approval of each other and the approval of the Transaction by the Harris shareholders. Implementation of the remaining portions of the Concurrent Stock Plan Amendment is conditioned upon the approval of both (i) the issuance of the Concurrent Common Stock and the Additional Common Shares and (ii) the increase in the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 such shares. See "AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN." Other Matters for Consideration by Harris Shareholders... At the Harris Special Meeting, Harris's shareholders will be asked to consider and vote upon the Harris Stock Plan Amendment to increase to 2,025,000 the number of shares of Harris Common Stock available for issuance thereunder and to amend the director's options portion of the Harris Stock Plan. Other than the consummation of the Transaction, which is conditioned upon approval of the Harris Stock Plan Amendment, none of the proposals for consideration by Harris shareholders at the Harris Special Meeting is conditioned on the approval of any other proposal. In addition, at the Harris Special Meeting, Harris's shareholders will be asked to vote on and approve an amendment to Harris's Articles of Incorporation to change Harris's corporate name to CyberGuard Corporation. Harris shareholders will also be asked to consider and to elect the class of directors whose term ends at the 1998 Annual Meeting of Harris shareholders, under certain circumstances, to adjourn the Harris Special Meeting and to approve the appointment of KPMG as Harris's independent accountants for fiscal year 1996. The approval of such proposals is not conditioned on the approval of any other matter to be considered at the Harris Special Meeting, including the Transaction. 16 22 SELECTED HISTORICAL FINANCIAL DATA OF CONCURRENT The following table sets forth selected historical consolidated financial data for Concurrent for each of the last five years in the period ended June 30, 1995, and for the nine month periods ended March 31, 1995 and 1996. Such data have been derived from, and should be read in conjunction with, the audited consolidated financial statements and other financial information contained in Concurrent's Annual Reports on Form 10-K and the unaudited consolidated interim financial statements contained in Concurrent's Quarterly Report on Form 10-Q for the nine months ended March 31, 1996, including the notes thereto, incorporated by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
UNAUDITED NINE MONTHS ENDED MARCH 31, FISCAL YEARS ENDED JUNE 30, ------------------- --------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------- -------- -------- -------- -------- --------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA Net sales.................... $77,108 $109,638 $140,144 $179,031 $220,464 $ 221,572 $254,945 Gross margin................. 32,682 47,447 60,667 76,041 104,841 104,711 93,659 Income (loss) before extraordinary gain (loss) and cumulative effect of change in accounting principles................. (5,656) (2,271) (2,006) (11,631) 3,869 (955) (66,834) Net income (loss)............ (5,656) (2,271) (2,006) (39,824) 3,869 60,147 (66,834) Income (loss) per share: Income (loss) before extraordinary gain (loss) and cumulative effect of change in accounting principles............... $ (0.19) $ (0.08) $ (0.07) $ (0.41) $ 0.40 $ (0.13) $ (35.46) Net income (loss) per share...................... $ (0.19) $ (0.08) $ (0.07) $ (1.42) $ 0.40 $ 8.00 $ (35.46)
UNAUDITED AT MARCH 31, AT JUNE 30, ------------ --------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------ -------- -------- -------- --------- -------- BALANCE SHEET DATA Cash and short-term investments............. $ 3,078 $ 5,728 $ 9,374 $ 30,422 $ 20,611 $ 23,439 Working capital........... 7,239 1,865 (616) 36,673 22,742 (146,937) Total assets.............. 80,506 98,359 123,170 157,086 158,136 213,351 Long-term debt............ 7,129 9,536 13,240 67,938 61,613 2,131 Redeemable preferred stock................... -- -- -- -- -- 900 Shareholders' equity (deficiency)............ 30,283 35,170 35,048 18,503 14,739 (69,195) Book value per share...... $ 0.99 $ 1.16 $ 1.18 $ 1.94 $ 1.61 $ (36.15)
17 23 SELECTED HISTORICAL FINANCIAL DATA OF HARRIS The following table sets forth selected historical financial data for Harris. The financial data as of September 30, 1995 and 1994 and for the three months ended September 30, 1994, and the fiscal year ended September 30, 1995 have been derived from the consolidated financial statements of Harris for such periods audited by KPMG Peat Marwick LLP. The statement of operations data for the six months ended March 30, 1996 and March 31, 1995 and the balance sheet data as of March 30, 1996 are unaudited and, in the opinion of Harris, include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. The results for the six months ended March 30, 1996 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 1996 or future periods. Such data have been derived from, and should be read in conjunction with, the unaudited consolidated financial statements and other financial information, including the notes thereto, appearing elsewhere in this Joint Proxy Statement. The consolidated historical financial data as of June 30, 1994 and 1993 and for the fiscal years ended June 30, 1994 and 1993 have been derived from consolidated financial statements audited by Ernst & Young LLP. The summary consolidated historical financial data as of June 30, 1992 and 1991 and for the fiscal years ended June 30, 1992 and 1991 have been derived from unaudited consolidated financial statements. Because Harris did not become an independent entity until October 1994, the historical financial statements for prior periods do not necessarily reflect the results of operations or financial position that would have been attained if Harris had been a separate independent company. See "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "CONSOLIDATED FINANCIAL STATEMENTS OF HARRIS."
THREE MONTHS SIX MONTHS ENDED ENDED FISCAL YEARS ENDED --------------------- ------------- --------------------------------------------------------- MARCH 30, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1996 1995 1994(A) 1995 1994 1993 1992 1991 --------- --------- ------------- ------------- -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Gross sales............ $25,564 $27,786 $ 7,748 $ 45,111 $ 64,640 $ 55,450 $ 60,368 $ 64,866 Cost of sales.......... 13,330 13,323 5,466 25,764 31,236 29,863 30,295 32,975 Gross Income........... 12,234 14,463 2,282 19,347 33,404 25,677 30,073 31,891 Operating income (loss)............... (3,432) (9) (5,327) (11,540) 5,564 (2,062) 1,578 5,212 Net income (loss)...... (3,275) 215 (7,590) (11,088) 4,392 (457) 1,298 2,740 Net income (loss) per common share(b)...... (0.55) 0.04 (1.28) (1.88)
MARCH 30, SEPTEMBER 30, JUNE 30, --------- ------------------------- ---------------------------------------------- 1996 1995 1994 1994 1993 1992 1991 --------- --------- ------------- ------------- -------- -------- -------- BALANCE SHEET DATA: Total assets........... 38,552 41,431 54,929 62,092 46,229 43,599 35,411 Total shareholders' equity............... 29,140 32,096 42,793 50,126 28,701 27,501 25,089 Book value per share(b)............. 4.86 5.42 7.24
- --------------- (a) During fiscal year 1995, Harris changed its fiscal year end from June 30 to September 30. (b) Calculation for fiscal years 1991 through June 30, 1994 is not provided because Harris was not an independent company until its spin-off from Harris Corporation effective October 7, 1994. 18 24 SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF CONCURRENT The following table sets forth selected unaudited pro forma combined financial data for Concurrent for the fiscal year ended June 30, 1995 and for the nine month period ended March 31, 1996, which are presented to reflect the estimated impact of the Transaction on the historical consolidated financial statements of Concurrent, which will be accounted for as a purchase, and the issuance of the Concurrent Common Stock Consideration and the Preferred Stock Consideration (assuming a $1.7 million reduction to the liquidation preference thereof based on the net current assets of Harris's Real-Time Business at March 31, 1996, as provided under the Purchase and Sale Agreement and the Certificate of Designation, as defined below) and the Berenson Minella Shares (as defined below). The income statement data assume that the Transaction had been consummated at the beginning of each period presented. The income statement data for the year ended June 30, 1995 include the results of operations for Concurrent for the year ended June 30, 1995 and for the Harris Real-Time Business for the year ended September 30, 1995. The balance sheet data assume that the Transaction was consummated on March 31, 1996. The unaudited pro forma combined financial data do not reflect any synergies anticipated by Concurrent's and Harris's management as a result of the Transaction (such as savings expected from consolidation of manufacturing, research and development, selling, marketing, administrative and other functions). For a description of such synergies see "THE PROPOSED TRANSACTION -- Recommendations of the Board of Directors of Concurrent and Concurrent's Reasons for the Transaction," and "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT." The resulting pro forma combined financial data are not necessarily indicative of the results of operations or the financial position which would have occurred had the Transaction been consummated at the beginning of each period presented, nor are they necessarily indicative of Concurrent's future results of operations or financial position. The unaudited pro forma combined financial data should be read in conjunction with the historical consolidated financial statements of Concurrent, Harris and the unaudited pro forma combined financial information, including the notes thereto, incorporated by reference or appearing elsewhere in this Joint Proxy Statement. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "TERMS OF THE TRANSACTION -- Accounting Treatment," "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT," "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARRIS," "PROJECTED FINANCIAL INFORMATION" and "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION."
NINE MONTHS ENDED FISCAL YEAR ENDED MARCH 31, 1996 JUNE 30, 1995 ------------------ ------------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA Net sales................................................. $106,087 $180,438 Gross margin.............................................. $ 48,510 $ 80,216 Net loss.................................................. $ (7,567) $ (7,403) Net loss per share........................................ $ (0.20) $ (0.20)
AT MARCH 31, 1996 ------------------ BALANCE SHEET DATA Cash and short-term investments............................................... $ 3,155 Working capital............................................................... $ 28,167 Total assets.................................................................. $109,451 Long-term debt................................................................ $ 7,129 Shareholders' equity.......................................................... $ 40,383 Book value per common share................................................... $ 0.99(a)
- --------------- (a) Calculated by dividing pro forma shareholders' equity by the sum of Concurrent Common Stock outstanding as of March 31, 1996 (30,569,049) plus the number of shares provided to purchase the Harris Real-Time Business (10,000,000 shares of common stock), plus the pro forma estimated number of shares of Concurrent Common Stock (320,802) at March 31, 1996 (based on an estimated average price at such time of $1.43 per share) to be sold by Concurrent to fund the payment to Berenson Minella of a portion of its financial advisory fees. Does not include shares of Concurrent Common Stock issuable upon exercise of options (the "Concurrent Options") or warrants (the "Concurrent Warrants") or upon the conversion of the Concurrent Preferred Stock, as well as shares which may be issuable in connection with the funding of certain severance obligations to certain employees of Concurrent. See "SPECIAL FACTORS -- Fluctuation in Value of the Consideration to be Issued in the Transaction; Changes in Market Prices of Concurrent or Harris Common Stock." 19 25 MARKET PRICE AND DIVIDENDS Concurrent Common Stock is quoted and traded on the Nasdaq/NMS under the symbol "CCUR." Harris Common Stock is quoted and traded on the Nasdaq/NMS under the symbol "NHWK." The table below sets forth, for the quarters indicated, the high and low bid prices of Harris Common Stock and Concurrent Common Stock, as reported by the Nasdaq/NMS. Neither Concurrent nor Harris currently pays, or has in the past paid, cash dividends.
HARRIS CONCURRENT COMMON STOCK* COMMON STOCK -------------- ------------- HIGH LOW HIGH LOW ----- ---- ---- ---- Fiscal year ended June 30, 1994: First Quarter.............................................. -- -- 3 9/16 2 1/2 Second Quarter............................................. -- -- 3 1/4 1 1/2 Third Quarter.............................................. -- -- 2 5/16 1 Fourth Quarter............................................. -- -- 2 3/8 1 3/8 Fiscal year ended June 30, 1995: First Quarter.............................................. -- -- 2 7/16 1 15/16 Second Quarter............................................. 5 11/6 2 21/6 1 15/16 1 1/4 Third Quarter.............................................. 6 3 37/6 1 5/8 25/3 Fourth Quarter............................................. 5 53/6 4 5/6 2 1/2 3/4 Fiscal year ending June 30, 1996: First Quarter.............................................. 5 3/4 3 53/6 2 21/32 1 1/2 Second Quarter............................................. 5 1/2 3 5/6 2 1 1/4 Third Quarter.............................................. 16 21/64 3 35/6 1 7/8 3/4 Fourth Quarter (through May 22, 1996)...................... 19 1/2 13 3/4 3 7/32 1 5/8
- --------------- * Harris's fiscal year ends September 30. Because Harris was not an independent entity until October 7, 1994, the Harris Common Stock was not publicly traded prior to that time. Thus, the per share data with respect to Harris is represented commencing with the fiscal year ended September 30, 1994. The closing bid prices of Concurrent Common Stock and Harris Common Stock on November 3, 1995, the last full trading day immediately prior to the public announcement of a proposed merger between Concurrent and Harris (which merger was abandoned in favor of the Transaction) as reported on the Nasdaq/NMS were $1 17/32 and $4 1/4 per share, respectively, and on February 7, 1996, the last full trading day prior to the public announcement of the Transaction, as reported by the Nasdaq/NMS, were $ 25/32 per share and $6 1/2 per share, respectively. The closing prices of Concurrent Common Stock and Harris Common Stock on May 22, 1996, the most recent practicable date prior to the printing of this Joint Proxy Statement, as reported by the Nasdaq/NMS, were $3 1/16 per share and $19 1/2 per share, respectively. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS. 20 26 SPECIAL FACTORS In considering whether to approve and adopt the issuance of the Concurrent Common Stock Consideration and the Additional Common Stock and the Concurrent Stock Plan Amendment, the shareholders of Concurrent should consider, and in considering whether to approve and adopt the Transaction and the Harris Stock Plan Amendment, the shareholders of Harris should consider, the following matters. FLUCTUATION IN VALUE OF THE CONSIDERATION TO BE ISSUED IN THE TRANSACTION; CHANGES IN MARKET PRICES OF CONCURRENT OR HARRIS COMMON STOCK General Market Risk Pursuant to the Purchase and Sale Agreement, Concurrent will issue 10,000,000 shares of Concurrent Common Stock to Harris, and Harris will issue 683,178 shares of Harris Common Stock to Concurrent. The prices of each of the Concurrent and Harris Common Stock may vary from such prices at the date of this Joint Proxy Statement and at the date of the Harris Special Meeting and the Concurrent Special Meeting and may continue to fluctuate thereafter. Such variations may be the result of changes in the business, operations or prospects of Concurrent or Harris, market assessments of the likelihood that the Transaction will be consummated and the timing thereof, regulatory considerations, general market, economic and industry conditions, the results of operations, liquidity and the market's perception of prospects of Concurrent or Harris, as well as other factors affecting Harris and Concurrent including the Special Factors set forth below. Issuance of Additional Shares The trading price of the Concurrent Common Stock may be adversely affected by shares of Concurrent Common Stock that may be issued and become publicly tradable at or shortly after the Closing Date. These include (i) shares issuable upon exercise of options held by optionees of Concurrent Common Stock as described in "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction" (the "Option Shares"), (ii) the shares to be sold by Concurrent to fund the payment of a portion of the fees of its financial advisor, Berenson Minella, in connection with Berenson Minella's engagement letter described in "THE PROPOSED TRANSACTION -- Opinion of Concurrent's Financial Advisor" (the "Berenson Minella Shares"), (iii) the shares that may be issuable to John T. Stihl, Chairman, President and Chief Executive Officer of Concurrent, in connection with an amendment to Mr. Stihl's employment agreement as described in "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction" (the "Stihl Shares"), (iv) shares which may be issuable in connection with funding certain severance obligations under Concurrent's existing severance contracts and policies as described in "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction" (the "Severance Shares") and (v) shares issuable upon exercise of Concurrent Warrants to purchase 361,544 shares of Concurrent Common Stock at $3 per share (the "Warrant Shares"). An aggregate of approximately 4.3 million Option Shares, Berenson Minella Shares, Stihl Shares, estimated Severance Shares and Warrant Shares will become issuable and publicly tradable, representing approximately 9.6% of the shares of Concurrent Common Stock expected to be outstanding immediately following the Transaction. Additionally, the Concurrent Preferred Stock is convertible at the option of the holder into a maximum of 4,000,000 shares of Concurrent Common Stock (assuming no adjustments to the liquidation preference thereof as provided under the Purchase and Sale Agreement and the Certificate of Designation (as defined below)). When the Additional Common Shares issuable upon conversion of the Concurrent Preferred Stock (assuming full conversion thereof) are aggregated with the Concurrent Common Stock Consideration, and shares of Concurrent Common Stock issuable upon exercise of options (the "Concurrent Options"), the Berenson Minella Shares, the Stihl Shares, the Severance Shares and the Warrant Shares, the total number of shares of Concurrent Common Stock issuable upon consummation of the Transaction represents approximately 40.9% of the shares of Concurrent Common Stock outstanding immediately following the Transaction. As a result of the Transaction, Concurrent expects that approximately 14 million shares of Concurrent Common Stock may be issued in the near future consisting of the Concurrent Common Stock Consideration, the Option Shares, the Berenson Minella Shares, the Severance Shares, and the Stihl Shares. 21 27 For purposes of the calculations set forth above, the number of Berenson Minella Shares, Stihl Shares and Severance Shares was determined based on a per share market price for the Concurrent Common Stock of $3 1/16 (the closing price on May 22, 1996). To the extent the per share price increases above $3 1/16, the number of Berenson Minella Shares would increase and the number of Stihl Shares and Severance Shares would decrease. To the extent the per share price decreases below $3 1/16, the number of Berenson Minella Shares would decrease and the number of Stihl Shares and Severance Shares would increase. Accordingly, the foregoing numbers are merely estimates and the total dilution could be greater than or less than that described above. The trading price of the Harris Common Stock may be adversely affected by shares of Harris Common Stock that may be issued and become publicly tradable at or shortly after the Closing Date due to (i) the issuance to Concurrent of the Purchased Harris Shares, (ii) the shares issuable upon exercise of options held by optionees of Harris Common Stock and (iii) shares of Harris Common Stock issued and publicly traded as the result of an underwritten public offering of Harris Common Stock that may be effected shortly after the consummation of the Transaction. If such an offering is undertaken, such offering will be registered pursuant to the Securities Act of 1933, as amended (the "Securities Act"), may include shares of Harris Common Stock to be issued to Concurrent pursuant to the Transaction and those held by certain other selling shareholders, and will be made only by means of a prospectus meeting the requirements of state and federal securities laws. This is not such a prospectus. Assuming (i) all the outstanding options to purchase shares of Harris Common Stock (the "Harris Options") are exercised (all of the Harris Options are in-the-money), (ii) the grant of 91,800 shares of Harris Common Stock to Mr. Siegel (78,000 shares) and Mr. Dunleavy (13,800 shares) in connection with a non-competition agreement and (iii) the expiration of all restrictions on the restricted shares granted to Messrs. Siegel and Dunleavy, an aggregate of approximately 926,230 shares of Harris Common Stock would become issuable and publicly tradable, representing approximately 13.3% of the shares of Harris Common Stock expected to be outstanding immediately following the Transaction, not including the Purchased Harris Shares. NO PUBLIC MARKET FOR CONCURRENT PREFERRED STOCK; VALUE OF CONCURRENT PREFERRED STOCK There is no public market for the 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. Absent such registration, the transferability of the Concurrent Preferred Stock is subject to restrictions under applicable federal and state securities laws. Therefore, Harris 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. CONDITIONS TO THE CONSUMMATION OF THE TRANSACTION; MATERIAL ADVERSE EFFECT The Purchase and Sale Agreement contemplates a number of conditions which must be satisfied or waived prior to the Closing (as defined below) of the Transaction which include, among other things, that (i) certain third party consents shall have been obtained, (ii) the Non-Competition Agreement and the other Ancillary Agreements (as defined below) shall have been executed and delivered by Concurrent and Harris, (iii) Concurrent and Harris shall have reached mutual agreement with respect to the transfer of stock and assets of the Transferred Subsidiaries (as defined in the Purchase and Sale Agreement), (iv) Concurrent shall have approved schedules which will provide for the transfer of a portion of the Assets and the assumption of a portion of the Assumed Liabilities, (v) from the date of the Purchase and Sale Agreement through the Closing Date, there shall not have occurred any change in the financial condition, business, operations or prospects of Concurrent or Harris that would have or would be reasonably likely to have a material adverse effect on Concurrent or Harris, as the case may be, other than any such change that affects both parties in a substantially similar manner, (vi) the fairness opinions of Berenson Minella and Bear Stearns shall not have been withdrawn and (vii) registration statements of Harris covering the Purchased Harris Shares and of 22 28 Concurrent covering the Concurrent Common Stock Consideration shall be effective under the Securities Act and such shares shall have been approved for inclusion on the Nasdaq/NMS, subject to official notice of issuance. If any of the conditions set forth in the Purchase and Sale Agreement are not satisfied, the Transaction would only be consummated if such condition is waived. There can be no assurance, however, that such a waiver will occur. However, if such a waiver does occur neither Concurrent nor Harris intends to re-solicit its shareholders with respect to approval of any of the matters that shareholders are being asked to approve in this Joint Proxy Statement. For a more complete description of conditions to consummation of the Transaction, see "TERMS OF THE TRANSACTION--The Purchase and Sale Agreement." Moreover, to the extent that any of the special factors mentioned in this Joint Proxy Statement have or would be reasonably likely to have a material adverse effect on the business, properties, assets, liabilities, financial performance, results of operations or financial condition of Concurrent or Harris, it is possible that a number of conditions under the Purchase and Sale Agreement would remain unsatisfied which, if not waived, could result in the Transaction not being consummated. UNCERTAINTIES IN SUCCESSFULLY INTEGRATING THE HARRIS REAL-TIME BUSINESS AND ACHIEVING COST SAVINGS In determining that the Transaction is advisable and in the best interest of its shareholders, each of the Concurrent Board and the Harris Board considered, among other things, the potential cost savings, operating efficiencies and other synergies expected to result from the consummation thereof. Cost savings actions were assumed to begin on the date of the Transaction with full implementation being reached six months after the Transaction. These savings will require significant reductions in employees, as well as consolidation of facilities worldwide and other miscellaneous cost savings actions. Obtaining these savings through the consolidation of functions, the integration of departments, systems and procedures and the relocation of staff present significant management challenges. The consolidation of development and manufacturing operations are especially challenging. The failure to effectively consolidate development functions may result in delays in introduction of the next generation of products. Similarly, the failure to effectively consolidate manufacturing operations could result in a delay in the shipment of certain customer orders and could affect the quality of the goods delivered. Such failures could have a material adverse effect on the future financial performance, results of operations and financial condition of Concurrent following the Transaction. There can be no assurance that such potential cost savings, operating efficiencies and other synergies will be successfully accomplished or accomplished within the time periods initially contemplated, particularly since liquidity issues (which are discussed below) may constrain Concurrent's ability to integrate the real-time business of Concurrent and Harris. Moreover, although the primary purpose of such actions will be to realize direct cost savings and other operating efficiencies, there can be no assurance of the extent to which such cost savings and efficiencies will be achieved. IMPACT OF TRANSACTION-RELATED CHARGES AND COSTS ON FINANCIAL PERFORMANCE; UNCERTAINTY OF TRANSACTION-RELATED CHARGES AND COSTS As described below, Concurrent expects to take a pre-tax charge and to adjust goodwill in the quarter in which the Transaction is consummated to cover the transaction costs of the Transaction and the costs of integrating the real-time businesses of Concurrent and Harris, including the cost of facility closings and employee terminations to eliminate duplicate facilities and excess capacity and other non-recurring items. As described in "THE PROPOSED TRANSACTION -- Recommendations of the Board of Directors of Concurrent and Concurrent's Reasons for the Transaction," the amount of these transaction-related charges and costs was estimated to be $22.2 million at the time the Transaction was considered by the Concurrent Board. Concurrent expects to take a material pre-tax charge and to adjust negative goodwill, as appropriate, in the quarter in which the Transaction is consummated to cover the Transaction and business integration costs. At the time this Joint Proxy Statement was finalized, Concurrent estimated the aggregate charge for these items to be in the range of $29 to $32 million. Approximately $18 million of these costs are expected to be paid out in cash over the next two years (primarily fiscal year 1997), $9 to $11 million of the total charge are expected to be non-cash fixed asset carrying cost adjustments and approximately $2 to $3 million are expected to be obligations settled using the proceeds from the issuance of Concurrent Common Stock. Such preliminary estimates indicate that approximately $8 million of the future cash payments are expected to be 23 29 incremental to the current cash flow run-rate of the two real-time businesses on a stand alone basis combined. Such costs include Transaction expenses (such as investment banker, legal and accounting fees), employee, facility and equipment relocation costs and employee out-placement costs. The $10 million of remaining cash payments are expected to be a continuation of current funding requirements and, after their full satisfaction, are expected to positively impact Concurrent's liquidity. For example, cash expenditures for employee severance costs are expected to be paid out over time without increasing payroll costs; payroll costs are expected to decline as severance payments cease. There can be no assurances as to the actual amount of these charges or adjustments, and such charges or adjustments could be higher than current estimates. In addition, there may be adjustments in future periods relating to the cost of integrating the real-time businesses of Concurrent and Harris. However, the amount of such future adjustments cannot currently be determined. Harris In connection with the Transaction, Harris expects to report certain charges in the quarter ending June 30, 1996. Harris estimates that such charges will consist of, among other things, a loss of approximately $8.5 million on the Transaction (based on $2.14 per share, the average of the closing prices for Concurrent Common Stock from May 1 through May 7, 1996), approximately $1.8 million in charges related to certain stock grants and approximately $1.4 million in additional charges. In addition, Harris will report approximately 23% of any losses reported by Concurrent in the same period. In addition, there may be further charges by Concurrent or Harris in future periods relating to the cost of integrating the real-time business of Concurrent and Harris. However, the amount of such future charges cannot currently be determined. DECLINING TREND IN NET SALES Over the past five years, annual net sales of Concurrent generally have declined from a high of approximately $255 million to an annualized rate in the current fiscal year of approximately $100 million. With the exception of the quarter ended June 30, 1995, where net sales increased $162,000 over the prior quarter, net sales of Concurrent declined quarter to quarter during the fiscal year ended June 30, 1995 from $41.5 million in the first quarter to $30.5 million in the fourth quarter for total net sales during the period of $140.1 million. The trend continued in the first two quarters of the fiscal year ending June 30, 1996. Net sales for the three months ended September 30, 1995 were $26.5 million, a decrease of $15.0 million from the prior year period and a decrease of $4 million from the previous quarter. Net sales for the three months ended December 31, 1995 were $24.5 million, a decrease of $13.3 million from the prior year quarter and a decrease of $2 million from the previous quarter. Net sales for the three months ended March 31, 1996 were $26.2 million, a decrease of $4.2 million from the prior year quarter and an increase of $1.7 million from the previous quarter. As a result of the distractions and uncertainties associated with the Transaction, net sales for the quarter ended June 30, 1996 are expected to be the lowest quarterly revenues for the fiscal year ending June 30, 1996. The general decline in net sales is largely the result of the anticipated decline in sales of proprietary systems, including reduced shipments under the U.S. Department of Commerce's Next Generation Weather Radar (NEXRAD) program without a corresponding increase in the sales of open systems. Declining sales of computer systems consequently results in fewer maintenance contracts. This, together with a decline in renewal rates on maturing maintenance contracts as installed systems are decommissioned and competitive discounting from third party maintenance providers, has led to a declining trend in service revenues. Harris's net sales have varied and may continue to fluctuate from quarter to quarter. Net sales for its fiscal year ended September 30, 1995 were $45.1 million compared to $64.1 million for the fiscal year ended June 30, 1994. (Harris changed its fiscal year end from June 30 to September 30 effective in the year beginning October 1, 1994.) Net sales for the four quarters of the 1995 fiscal year were $13.3 million, $14.5 million, $8.6 million and $8.7 million, respectively. Net sales for the quarters ending December 29, 1995 and March 30, 1996 were $12.5 million and $13.1 million, respectively, a decrease of $.8 million and $1.4 million, respectively from the previous year periods. See "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." 24 30 The future growth of Concurrent's business and its future financial performance will depend on, among other things, its ability to increase net sales by continuing to develop and market competitive real-time open systems products, and to expand its revenue base through a combination of internal growth and strategic alliances. There can be no assurance as to the future growth of Concurrent's business and financial performance or as to the success of its products and strategic alliances. HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT As of March 30, 1996, Harris had an accumulated deficit of $14.6 million. For the six month period ended March 30, 1996 and the fiscal year ended September 30, 1995, Harris incurred net losses of $3.3 million and $11.1 million, respectively. On a pro forma basis, Harris's trusted business would have experienced a loss of approximately $3.2 million for the six months ended March 30, 1996, assuming the Transaction had been consummated at the beginning of such period. There can be no assurance that Harris will be able to achieve profitability, or if achieved, that such profitability can be maintained. See "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARRIS." For the nine months ended March 31, 1996, and for the fiscal years ended June 30, 1995 and 1994, Concurrent experienced losses (before extraordinary items and the cumulative effect of changes in accounting principles) of approximately $5.7 million, $2.0 million and $11.6 million, respectively. Concurrent recorded net income of $3.9 million for the fiscal year ended June 30, 1993. On a pro forma basis, Concurrent would have experienced losses of approximately $7.6 million and $7.4 million for the nine months ended March 31, 1996, and the fiscal year ended June 30, 1995, respectively, assuming the Transaction had been consummated at the beginning of each such period. There can be no assurance that Concurrent will be able to achieve profitability, or if achieved, that such profitability can be maintained. For the nine months ended March 31, 1996, and for the fiscal years ended June 30, 1994, 1993 and 1992, Concurrent also experienced a decline in assets. On a pro forma basis, to reflect the Transaction, Concurrent had assets of approximately $109.5 million at March 31, 1996. The pro forma consolidated balance sheet at March 31, 1996 does not reflect certain restructuring adjustments which may result from the integration of the Concurrent and Harris Real-Time Business, such as the write-down of the carrying value of property, plant and equipment which may become excess to the needs of the Combined Real-Time Company. Such write-downs may exceed $10 million. There can be no assurance that Concurrent's assets will not continue to decline following consummation of the Transaction. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT." POTENTIAL SHORTFALL IN LIQUIDITY Concurrent. Although the purchase of the Harris Real-Time Business and the integration and consolidation of development and manufacturing operations is expected to improve Concurrent's liquidity by permitting additional borrowing availability, there can be no assurance that cash flow from the combined real- time operations will be sufficient to fund transaction costs related to the Transaction including relocation of Concurrent's operations to Florida, anticipated restructuring costs, and ongoing working capital requirements. Concurrent's liquidity is dependent on many factors, including sales volume, operating profit ratio, debt service and the efficiency of asset use and turnover. The future liquidity of Concurrent after consummation of the Transaction will depend to a significant extent on (i) the actual versus anticipated decline in sales of proprietary systems and service maintenance revenue; (ii) revenue growth from open systems; (iii) both the related costs and the length of time to realize the anticipated benefits from the combination of the real-time businesses of Concurrent and Harris; and (iv) ongoing cost control actions. Liquidity will also be affected by: (i) the timing of shipments which predominantly occur during the last month of the quarter; (ii) the increasing percentage of sales derived from outside the United States where there are generally longer accounts receivable collection cycles and which receivables are not included in Concurrent's borrowing base under its revolving credit facility; (iii) the sales level in the United States where related accounts receivable are included in the borrowing base of Concurrent's revolving credit facilities; and (iv) the number of countries 25 31 in which Concurrent will operate, which may require maintenance of minimum cash levels in each country and, in certain cases, may restrict the repatriation of cash, such as cash held on deposit to secure office leases. Concurrent may sell or pledge some or all of the Purchased Harris Shares to generate cash. To the extent Harris consummates a public offering of its stock, Concurrent intends to sell at least one-half of the Purchased Harris Shares owned by it in connection with such public offering. In addition, under the terms of the agreements relating to the Transaction, Concurrent may sell a portion of its stock even if a public offering is not consummated. However, Concurrent's ability to sell or pledge the Purchased Harris Shares is subject to a number of limitations and conditions imposed by the Purchase and Sale Agreement and the Share Holding Agreement. See "TERMS OF THE TRANSACTION -- The Share Holding Agreement." These limitations and conditions may affect Concurrent's flexibility in generating cash through sales of Purchased Harris Shares. In addition, upon the Closing of the Transaction, all of the issued and outstanding options to purchase shares of Concurrent Common Stock will become fully vested and exercisable. If all of the "in-the-money" options as of the date of this Joint Proxy Statement were exercised, approximately $2.9 million in cash proceeds would be generated for Concurrent. In addition, if all of the Warrant Shares were issued as a result of the exercise of the Concurrent Warrants, approximately $1.1 million in additional cash proceeds would be generated for Concurrent. The Concurrent Warrants underlying the Warrant Shares expire on July 22, 1996. Concurrent is in discussions with its primary lender to modify the lending agreement, specifically to increase the amount available under its revolving credit facility and to modify various covenants to become effective upon the closing of the Transaction. Assuming such modifications are obtained, Concurrent believes that incremental borrowings may be available under its revolving credit facility based on the higher borrowing base resulting from the combination of the real-time businesses of the two companies. Concurrent anticipates that the capital resources available upon completion of the Transaction will be adequate to satisfy its capital requirements through June 1997, assuming quarterly net sales of the combined real-time businesses in the range of $30 million. Concurrent's future capital requirements, however, will depend on many factors, including its ability to successfully market and sell its commercial products, the cost and timing of the integration of the real-time businesses of Concurrent and Harris to realize potential synergies and cost savings and the cost of developing, marketing and selling competitive products. To the extent that the funds generated by operations are insufficient to satisfy Concurrent's capital requirements, Concurrent may seek additional equity or debt financing or obtain additional credit facilities. Any equity or debt financing, if available at all, may be on terms which are not favorable to Concurrent and, in the case of equity or convertible debt offerings, could result in dilution to Concurrent's then existing shareholders. Concurrent is also considering various additional financing alternatives, including a possible sale or sale and partial leaseback of its Oceanport, New Jersey facility to improve its financial flexibility. If adequate funds are not available, Concurrent may be required to curtail certain activities, including product development, marketing and sales activities. Harris's cash requirements have historically been funded from its working capital and operating cash flow. As a result of the Transaction it is expected that cash flows generated from operations will be insufficient to satisfy Harris's ongoing cash requirements. Harris may obtain a line of credit that is likely to be secured by all its assets (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 Harris's operating flexibility and subject Harris's assets to seizure upon default. Harris expects to effect an underwritten public offering of Harris Common Stock that may be effected shortly after the consummation of the Transaction. There can be no assurance that any offering will be undertaken or that, if undertaken, that such offering will be successful. If such an offering is undertaken, such offering will be registered pursuant to the Securities Act, may include shares of Harris Common Stock to be issued to Concurrent pursuant to the Transaction and those held by certain other selling shareholders, and will be made only by means of a prospectus meeting the requirements of state and federal securities laws. This is not such a prospectus. 26 32 While Harris also may sell or pledge part of the Concurrent Common Stock Consideration or Concurrent Preferred Stock to generate cash, Harris'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. See "TERMS OF THE TRANSACTION -- The Share Holding Agreement." These limitations and conditions may affect Harris's flexibility in generating cash through sales of the Concurrent Common Stock Consideration or Concurrent Preferred Stock and may require Harris 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 Concurrent Common Stock Consideration or Concurrent Preferred Stock may be sold may be affected by other factors beyond Harris's control, such as general market conditions and changes in the business operations or prospects of Concurrent. See "Fluctuations in Value of Securities to be Issued in the Transaction; Changes in Market Prices of Concurrent and Harris Common Stock." In the event that Harris requires financing from additional outside sources, there can be no assurance that any additional financing will be available to Harris on acceptable terms, or at all. Any additional financing may involve dilution of the interests of Harris's then existing shareholders. If adequate funds are not available, Harris may be required to curtail certain activities, including product development, marketing and sales activities. POTENTIALLY ADVERSE CUSTOMER REACTION While Concurrent and Harris expect that their customers generally will favor the Transaction due to the resulting broadening of Concurrent's product line, the more concentrated focus by Harris on its trusted systems product line and the other operational benefits of the Transaction, there can be no assurances as to such customer reaction. Adverse reactions by Harris or Concurrent customers could have a material adverse effect on the financial performance, results of operations and financial condition of Harris or Concurrent, as the case may be. LAG IN CUSTOMER ORDERS; LONG SALES CYCLE Whereas both companies pursue significant programs with the potential for high volume unit sales of its systems, neither company currently has or relies on fixed term or fixed quantity contracts for future sales. Consequently, both companies rely on customer orders in a given quarter for net sales for the quarter and on internal forecasts of customer demand to plan operating expenditures. The internal forecasts generally have proven to be optimistic. The ability to match expenditures to anticipated sales is further complicated by the trend of a majority of customers to delay orders to the last month of a quarter. Further, the manufacture of systems in anticipation of firm orders introduces the risk of over-production and investing limited cash resources in potential excess inventory. As a result, substantial efforts must be undertaken on a continuous basis to maintain existing levels of business and to manage expenditures consistent with anticipated sales. The sales of real-time products generally involve significant education and commitment of capital by prospective customers, with the attendant delays frequently associated with large capital expenditures and lengthy procurement procedures. For these and other reasons, the expected sales cycle associated with the sale of Concurrent's and Harris's real-time products is typically long and subject to a number of significant risks over which neither Concurrent nor Harris has significant control. As a result, both companies may expend significant resources pursuing potential sales that will not be consummated, which in turn would result in decreased revenues and cash flow, potentially resulting in a material adverse effect on the financial performance, results of operations and financial condition of Concurrent or Harris, as the case may be. SHIFT IN EMPHASIS AWAY FROM PROPRIETARY SYSTEMS Many of the target customers of Concurrent and Harris have undergone or are undergoing a shift away from "proprietary" to "open" systems. For Concurrent, sales related to its proprietary systems, while declining, continue to represent more than 50% of its total systems sales. For Harris, sales related to its proprietary systems, consisting largely of replacement parts, represent approximately 11% of its total systems sales for the fiscal year ended September 30, 1995. Concurrent had approximately $25 million in open system sales and $47 million in proprietary systems sales in its fiscal year ended June 30, 1995 and $15 million in open systems sales and $21 million in proprietary systems sales for the nine months ended March 31, 1996. Comparatively, Harris 27 33 had open systems sales of $27.9 million and proprietary systems sales of $3.3 million in its fiscal year ended September 30, 1995 and open systems sales of $18.2 million and proprietary systems sales of $.7 million for the six months ended March 30, 1996. Although Concurrent's installed base of proprietary systems is currently its largest market, Concurrent's growth and its long-term financial performance following consummation of the Transaction will depend largely on its ability to continue to develop and market industry leading open systems that meet the real-time computing needs of its targeted customers. Concurrent plans to capitalize on the trend to open systems by focusing on its target markets as well as entering into strategic alliances with third parties to bring to market new solutions and software applications for new and existing customers. The current open system product line uses Concurrent's real-time UNIX (RTU(TM)) operating system with the processor technology identified below. Performance currently ranges from 3 to 460 SPECMarks with typical prices ranging from approximately $22,000 to approximately $170,000. SPECMarks is a standard suite of benchmark programs developed by Systems Performance Evaluation Cooperative (SPEC), a nonprofit organization formed in 1988, that characterize overall system performance by using a single stream, compute intensive set of tests to provide a consistent measurement of processor performance capabilities. The MAXION multiprocessor system, the first model of Concurrent's new next-generation open systems using the MIPS R4400 microprocessor, was introduced in October 1993. Concurrent does not expect the shift in emphasis to open systems to result in either significant incremental costs over current cost levels or incremental capital investment. A shift in emphasis to open systems may, however, result in lower gross margins on systems sales. Currently, gross margins on open systems are lower than gross margins on proprietary systems. Concurrent's operating income would be adversely affected by such a shift unless total net sales increase, the gross margins on its open systems improve and/or total operating expenses are reduced. Servicing Concurrent's large installed base, particularly its proprietary systems, is an important element in Concurrent's business strategy and generates significant revenue and cash flow to Concurrent. The shift in emphasis to open systems may also have an adverse impact on maintenance revenues. Generally, open systems require less maintenance and can, in many cases, be serviced by the customers themselves or by third party providers. For Concurrent, the shift in emphasis, together with declining systems sales, resulted in the decline of service revenue from $87.6 million for the year ended June 30, 1993 to $68.1 million for the year ended June 30, 1995. For the nine months ended March 31, 1996, Concurrent's service revenue was $41.4 million compared to $51.8 million in the prior year period. Similarly, Harris's service revenue declined for the fiscal years ended June 30, 1993, June 30, 1994 and September 30, 1995 from $16.1 million, to $14.5 million to $13.9 million, respectively. For the six months ended March 30, 1996, Harris's service revenues were $6.6 million compared to $6.9 million for the six months ended March 1995. There can be no assurance that the decline in service revenue will not continue. Should such decline continue, Concurrent's or Harris's operating income would be adversely affected by such a decline unless non-service revenues increase and/or total operating expenses are reduced. PRODUCT OBSOLESCENCE; SIGNIFICANT RESEARCH AND DEVELOPMENT EXPENDITURES The information technology industry is characterized by rapid advances in technology and demand for more cost effective "solutions". The technologies incorporated by Concurrent and Harris into their respective products and future products are in a continuous state of development and tend to be surpassed by new developments within 18-24 months of initial commercial use. Continued rapid advances in technology will further accelerate the technological obsolescence of these products as well as those of their competitors, which may affect the financial performance, results of operations and financial condition of both companies. Concurrent's and Harris's success will depend, to a significant extent, upon the ability to enhance existing products, to integrate the best technologies of Concurrent and Harris and to introduce new products and features in a timely manner to meet changing customer requirements. It will also be dependent on the success of strategic technological alliances. In order to accomplish these objectives, both Concurrent and Harris must maintain certain levels of investment in research and development and effectively use this investment. Following the Transaction, Concurrent must obtain and incorporate new hardware, software, communications and peripheral technologies that are primarily developed by others. There can be no assurance that the new product development activities will be successful, that new technologies will be available to either Concurrent or Harris or, following the consummation of the Transaction, that either will be able to deliver commercial 28 34 products in a timely manner or that their products will achieve market acceptance. The business of both Concurrent and Harris following the consummation of the Transaction will be adversely affected if either company, its strategic partners, or its suppliers incur delays in developing new products or enhancements, or if such products or enhancements do not gain market acceptance because of competing technology. In addition, some new product introductions are intended to replace existing products. Although reasonable commercial efforts will be made to monitor and manage new product introductions, there can be no assurance that a new product introduction will not result in a material amount of obsolete inventory. Consequently, there may be a material adverse effect on liquidity of either Concurrent or Harris following the consummation of the Transaction in the event there is significant inventory that such company is unable to dispose of in a reasonable time frame at an aggregate value approximately equal to its aggregate book value. There can be no assurance that new product introductions will be executed without a material adverse effect on the financial performance, results of operations or financial condition of the company making such introductions. It is expected that following the consummation of the Transaction, Concurrent will develop products in the real-time computing and multimedia sectors and that Harris will develop products in the trusted systems and firewall sectors. The costs of developing future products in each of these markets is expected to be significant. While the real-time computing sectors are well developed and have an extensive operational history, Concurrent's multimedia sector and Harris's trusted systems and firewall sectors are in the relatively early stages of market development and are likely to require extensive development, sales and marketing expense before they may be in a position to contribute significant revenue or cash flow to their respective companies. There can be no assurance as to the cost of funding future products in either company's product sectors or on the ability of these product sectors to contribute to the revenues or cash flows of either company following the consummation of the Transaction. NEED TO ESTABLISH ADDITIONAL MARKETING RELATIONSHIPS A significant business strategy of Concurrent and Harris will be to enter into strategic marketing alliances or other similar collaborative relationships. There can be no assurance that the existing or contemplated collaborative relationships will be commercially successful, that Concurrent or Harris will be able to negotiate additional collaborative relationships, that such additional collaborations will be available to either company on acceptable terms or that any such relationships, if established, will be commercially successful. The potential increased revenues from such relationships may be reduced by requirements to provide volume price discounts and other allowances, and potential significant costs incurred in customizing products. In addition, there can be no assurance that parties with whom either company establishes collaborative relationships will not pursue alternative technologies or develop alternative products in addition to or in lieu of Concurrent's or Harris's products, as the case may be, either on their own or in collaboration with others, including Concurrent's or Harris's competitors. Such alternative technologies or products, if developed, may be in direct competition with Concurrent's and Harris's technologies or products and may significantly erode the benefits of such strategic marketing alliances or collaborative relationships. HARRIS'S LIMITED OPERATING HISTORY IN TRUSTED MARKET; UNPREDICTABILITY OF OPERATING RESULTS Although Harris has been developing network security products since 1989, Harris has operated in the commercial trusted business only since October 1994. In view of, among other things, Harris's short operating experience in, and the rapidly changing and intensely competitive nature of, the commercial network security market, the uncertainty of acceptance of Harris's products, the reliance of such products on the Internet, the mix of distribution channels through which Harris's products are sold, and dependence of Harris in the near future on Concurrent as the sole supplier of computer platforms on which Harris's products are sold, there is no assurance that Harris will be profitable in future years. Harris's results of operations may become increasingly unpredictable from quarter to quarter as a result of these and numerous other factors, including customer acceptance of Harris'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 Harris, or the introduction or the announcement of competitive products. In addition, a substantial portion of Harris's revenue 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. 29 35 Harris'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 Harris will be able to achieve significant sales from 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 Harris's sales or operating results will meet the expectations of stock market securities analysts and investors. In such event, the price of Harris Common Stock could be materially and adversely affected. See "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." In particular, the market for Harris's network security products is only beginning to emerge. Although 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, 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 level of demand and the product features and prices, the optimal distribution strategy and the competitive environment that will develop. Declines in demand for network security products, whether as a result of technological change, the public's perception of the need for security products, developments in the hardware and software environments in which these products operate, general economic conditions or other factors, could have a material adverse effect on Harris's financial condition and results of operations. Harris's success depends on the timely adoption of Harris's firewall and other network security products by users. The market acceptance of Harris'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 which may be perceived to have comparable performance characteristics. There can be no assurance that Harris's network security products, particularly its CyberGuard Firewall, will achieve acceptance among network security customers, and the failure of Harris's products to achieve such customer acceptance would have a material adverse effect on Harris's business, operating results and financial condition. Moreover, Harris anticipates that its existing and new competitors will introduce additional competitive products, particularly if demand for enterprise-wide security products increases, which could reduce future customer acceptance of Harris's products. As the network security industry continues to evolve, Harris's future financial performance will depend in part on the successful development, introduction and market acceptance of additional products, applications and product enhancements in a timely manner to meet changing customer requirements. There can be no assurance that Harris will be able to develop new products or that such products will satisfy evolving customer preferences and achieve market acceptance or, if market acceptance is achieved, that Harris will be able to maintain such acceptance for a significant period of time. Any significant delay in the introduction of Harris's future products could result in loss of sales volume and would have a material adverse effect on Harris's business, financial condition and results of operations. Moreover, Harris's commercial network security products were designed primarily for computer network environments, that are based upon the Transmission Control Protocol/Internet Protocol ("TCP/IP") network protocols. Accordingly, sales of Harris's current network security 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 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 Harris's business, financial condition and results of operations. Additionally, Harris plans to continue to develop products for use by customers with TCP/IP-based enterprise-wide internet 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 Harris's business, financial condition and results of operations. 30 36 LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; RISK OF LITIGATION; RELIANCE ON LICENSED TECHNOLOGY Both companies rely on trademark, copyright and trade secret laws, employee and third-party non-disclosure agreements and other methods to protect their proprietary rights. Concurrent holds patents and may apply for patents which cover certain aspects of their technology. Although Harris currently does not hold any patents and has no pending patent applications to cover any aspects of its technology, Harris may file patent applications in relevant jurisdictions to protect aspects of its technology. There can be no assurance that any pending or future patent applications will be granted or that any current or future patents will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to Concurrent or Harris. There can be no assurance that Concurrent's or Harris's trade secrets or non-disclosure agreements will provide meaningful protection of its proprietary information. Furthermore, there can be no assurance that others will not independently develop similar technologies or duplicate any technology developed by Concurrent or Harris or that the technology will not infringe upon patents or other rights owned by others. Further, both companies may be subject to risk as they enter into transactions in countries where intellectual property laws are not well developed or are poorly enforced. Legal protections of Concurrent's or Harris's rights may be ineffective in such countries, and technology developed in such countries may not be protectable in jurisdictions where protection is ordinarily available. Concurrent's or Harris's inability to maintain a competitive advantage based on proprietary rights would have a material adverse effect on such company's financial performance, results of operations and financial condition. 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 third parties will not assert infringement claims against Harris or Concurrent in the future with respect to current or future products. There has been substantial litigation regarding patent, copyright, trademark and other intellectual property rights involving computer companies generally. Concurrent has been separately notified by IBM and BTG (British Technology Group), that each believes that certain of Concurrent's technology may infringe on certain patents held by their respective companies. These and 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 such company's financial performance, results of operations and financial condition. Adverse determinations in such claims or litigation could also have a material adverse effect on such company's financial performance, results of operations and financial condition. From time to time, other companies and individuals assert exclusive patent, copyright, trademark and other intellectual property rights to technologies or marks that are important to the computer industry or Harris's or Concurrent's business. Each of Harris and Concurrent evaluates each claim relating to its products and, if appropriate, seeks a license to use the protected technology. The licensing agreements generally do not protect Concurrent and Harris from trade secret, copyright or other violations by either of them or their suppliers in developing or selling these products. There can be no assurance, however, that Concurrent and Harris will be able to obtain licenses to intellectual property of third parties on commercially reasonable terms, if at all. In addition, each of the companies could be at a disadvantage if its respective competitors obtain licenses for protected technologies with more favorable terms than does Concurrent and Harris. If Concurrent or Harris or their respective suppliers are unable to license protected technology used in their respective products, Concurrent or Harris could be prohibited from marketing those products or may have to market products without desirable features. Each of the companies could also incur substantial costs to redesign its respective products or to defend any legal action taken against them. If Concurrent's or Harris's products should be found to infringe protected technology, each could be enjoined from further infringement and required to pay damages to the infringed party. RELIANCE ON GOVERNMENT BUSINESS Both Concurrent and Harris derive a significant portion of their revenues from the supply of systems under government contracts. For its fiscal year ended June 30, 1995, approximately $39.2 million of Concurrent's worldwide revenues were directly or indirectly related to agencies of the U.S. Government. This 31 37 amount represented approximately 28% of Concurrent's worldwide revenues for fiscal year 1995, compared to 31% and 29% for its 1994 and 1993 fiscal years, respectively. For the nine months ended March 31, 1996, approximately $14 million (18%) of Concurrent's revenues were directly or indirectly related to agencies of the U.S. Government. Concurrent's revenues related to sales to the U.S. Government are derived from various federal agencies, no one of which accounted for more than 5% of total revenues (e.g., several agencies participate under the NEXRAD program). Sales to Unisys Corp., as prime contractor, under the NEXRAD program contributed approximately $17.5 million, $23 million and $35 million in revenues for fiscal years 1995, 1994 and 1993, respectively. The program is largely completed and no significant revenue is planned for future periods. For its fiscal year ended September 30, 1995, approximately $23 million of Harris's worldwide revenues were directly or indirectly related to agencies of the U.S. Government. This amount represented approximately 51% of Harris's revenues, compared to 43% and 51% for the comparable period in 1994 and 1993. For the six months ended March 30, 1996, $9.9 million or 39% of Harris sales were related to agencies of the U.S. Government. For each of the quarters ended March 30, 1996 and December 29, 1995, 68% and 83%, respectively, of the revenues attributable to sales of Harris's CyberGuard firewall product have been to commercial customers. Approximately $14.2 million (31%) of Harris's total revenues in fiscal year 1995 were derived from sales directly or indirectly to the U.S. Department of Defense. No other individual government customer accounted for more than 5% of the total product sales by Harris. Government business is, in general, subject to special risks, such as delays in funding, termination of contracts or subcontracts for convenience of the government or for default by the contractor, reduction or modification of contracts or subcontracts, failure to exercise options, changes in governmental policies and the imposition of budgetary constraints. A loss of government contract revenues could have a material adverse effect on the financial performance, results of operations and financial condition of Concurrent or Harris, as the case may be. HARRIS'S TRANSITION TO THE COMMERCIAL MARKET Following the Transaction, Harris will continue to focus its trusted business on the world-wide commercial market as its principal focus for sales of network security products, which have significantly smaller gross margins than Harris's secure real-time products that were sold to government-related customers. Because Harris's transition to the commercial network market has only recently occurred, there can be no assurance that gross margins can be sustained at current levels given the different competitive environments (including pricing, substitute products, short product life cycles and others) of the commercial market as compared to the government market. Furthermore, Harris, until recently, has not relied on the commercial market as the primary source of its sales and there can be no assurance that Harris will be successful competing in the commercial market against competitors that have more experience in such market. DEPENDENCE ON INTERNATIONAL OPERATIONS The financial results of both companies are increasingly dependent on their international operations. For Concurrent, approximately 46% of total revenues for its fiscal year 1995 were derived from international operations. For the nine months ended March 31, 1996, approximately 51% of total revenues were derived from international operations. For Harris, approximately 26% of total revenues for its fiscal year 1995 were derived from international operations. For the six months ended March 30, 1996, approximately 27% of the total revenues were derived from international operations. Both Harris and Concurrent expect international operations to continue to account for a significant percentage of total revenues. Certain risks are inherent in international operations, including exposure to currency fluctuations, the imposition of government controls, export license requirements, restrictions on the export of critical technology, political and economic instability, trade restrictions, changes in tariffs, taxes and freight rates, generally longer payment cycles, difficulties in staffing and managing international operations and general economic conditions. From time to time in the past, financial results of both companies have been affected both favorably and unfavorably by fluctuations in currency exchange rates. Future unfavorable fluctuations in currency exchange rates may have an adverse impact on the financial performance, results of operations and financial condition of both companies after the Transaction is consummated. Although international revenues continue to represent an increasing percentage of total revenues of Concurrent, accounts receivable from such international revenues are not included in the borrowing base under Concurrent's revolving credit facility. 32 38 COMPETITION Both companies operate in highly competitive environments driven by rapid technological innovation. Many of their respective competitors have greater financial and operating resources. In addition, companies with greater resources that currently do not compete may enter into various of the companies' target businesses. The success of each company will depend in part upon the ability of its management to demonstrate to potential customers the performance and reliability of its products and services. There can be no assurance that management will be successful in these efforts. An increase in competition could result in, among other things, price reductions and loss of sales volume. Such competition and any resulting reduction in aggregate revenues and/or gross margins could have a material adverse effect on the future financial performance, results of operations and financial condition of both companies. There can be no assurance that Concurrent's and Harris's competitors will not develop real-time or network security products that may be more effective than Concurrent's and Harris's current or future products or that Concurrent's and Harris's technologies and products will not be rendered obsolete by such developments. Harris's success following the Transaction will depend on, among other things, the success of its network security products in the commercial network security industry. The market for commercial network security products and services is highly competitive, rapidly evolving and characterized by frequent technological change. Harris expects competition to persist, intensify and increase in the future. Harris's principal competitors for trusted systems include CheckPoint Software, Inc., Raptor Systems, Inc., Secure Computing Corporation, Trusted Information Systems, Inc., and Advanced Network & Services, Inc. (which is owned by American Online, Inc.). In addition, companies such as International Business Machines Corporation ("IBM"), Digital Equipment Corporation, and Sun Microsystems, Inc. sell products with similar features and functions that could be considered competitors of Harris. Several other companies offering other network and other computer-related products, including Microsoft Corporation, are expected to enter the commercial network security business in the near future. Many of Harris's current and potential competitors have greater name recognition, larger installed customer bases and significantly greater financial, technical or marketing resources than Harris. 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 can Harris. Competition could increase if new companies enter the business or if existing competitors expand their product lines. An increase in competition could result in price reductions and loss of sales volume for Harris. Such competition and any resulting reduction in pricing and gross margins could have a material adverse effect on Harris's business, financial condition and results of operations. There can be no assurance that Harris's competitors will not develop network security products using approaches substantially similar to or different from than Harris's that may be more effective than Harris's current or future products or that Harris's technologies and products would not be rendered obsolete by such developments. Harris 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 National Computer Security Center ("NCSC"). Harris's secure operating system and networking software have been rated by the NCSC at a B1 level. Certain of Harris'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. LIMITED SOURCES OF SUPPLY In limited cases, Concurrent purchases components from a single supplier to obtain the required technology and the most favorable price and delivery terms. Concurrent estimates that a lead time of up to 16-24 weeks may be necessary to switch to an alternative supplier of certain custom application specific integrated circuits ("ASICS") and printed circuit assemblies. A change in the supplier of these components without the appropriate lead time could result in a material delay in shipments by Concurrent of certain 33 39 products and possibly, a material adverse effect on the financial performance, results of operations and financial condition of Concurrent. Similarly, Harris purchases components, including customized components such as certain computer peripheral equipment incorporated into NightHawk(TM) computers, from a single supplier to obtain the required technology and the most favorable price and delivery terms. For example, the Harris Real-Time Business has historically relied exclusively on Motorola as the sole source of supply of the Motorola 88110 and 88100 microprocessor chips in the manufacture of its NightHawk 5800, 4800 and 4400 computers. In the manufacture of the current generation 6000 series of NightHawk computers, the Harris Real-Time Business depends on the availability of Power PC(TM) chips provided by both IBM and Motorola. In addition, Harris's manufacturing process requires a high volume of quality components that are procured from third-party suppliers. Harris's network security products were developed to function in an open architecture, real-time environment based upon UNIX operating system technology. Harris currently uses only Night Hawk real-time computers -- a product that was manufactured by Harris but will be manufactured by Concurrent following the Transaction -- on which to install its secure operating system, networking software and firewall components for resale. Harris also has a relationship with the Santa Cruz Operation, Inc. ("SCO"), which provides the core UNIX operating system technology into which its computer security enhancements are integrated. Following the Transaction, Concurrent will be the only source of supply for Night Hawks. Pursuant to the terms of the Purchase and Sale Agreement, the parties will enter into a mutually agreed Non-Competition/ Distribution Agreement (the "Non-Competition Agreement") at Closing. The terms of such agreement have not been negotiated, although it is expected that Harris will obtain Night Hawk computers from Concurrent in accordance with such agreement. 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 Harris's products, which could result in decreased profit margins or loss of sales. Harris is actively seeking alternative platforms on which to install its products, however, there is no assurance that Harris 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 Harris. Should Harris be successful in marketing its products on platforms other than the Night Hawk, Harris 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 Harris's resources. Harris has purchased SCO's UNIX operating system technology as the basis for the computer security enhancements for Harris's trusted products. Harris 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, Harris depends upon SCO to ensure that support is provided for new and emerging hardware technologies and new and emerging software features. 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 Harris, Harris 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 Harris 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 Harris to transfer a significant number of computer security enhancements into the alternate UNIX operating system which would place a substantial strain on Harris's product development resources and could have a material adverse effect on Harris's business, financial condition and results of operations. Reliance on suppliers, as well as industry supply conditions, generally involve several risks, including the possibility of defective parts, a shortage of components, increase in component costs, and reduced control over delivery schedules, any or all of which could adversely affect Concurrent's or Harris's respective financial results. Where alternative sources are available, qualification of the alternative suppliers and establishment of 34 40 reliable supplies of components from such sources may result in delays. Problems with supplier performance or delays in delivery of components may cause a delay in shipments of various products. Since revenue is recognized typically upon shipment, any delay in shipment may also result in a delay in revenue recognition, possibly outside the fiscal period originally planned, and, as a result, may adversely affect financial results for that particular period. For a discussion of supply risks associated with Harris's business, see "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." POTENTIAL NEED TO EXPAND INFRASTRUCTURE If Concurrent or Harris at any time in the future experiences rapid growth, of which there can be no assurance, such company will need to continue to improve and expand its infrastructure. There can be no assurance that Concurrent or Harris will be able to manage expansion of its infrastructure to support future growth effectively, if required. Concurrent expects to transition its management information systems to more fully integrate them on an enterprise wide basis, to reduce redundancy and to incorporate enhanced functionality. There can be no assurance that this management information system transition can be accomplished on a timely basis or without disruptions of Concurrent's operations, or management information functions, which could have a material adverse effect on Concurrent's financial performance, results of operations and financial condition. Harris's Trusted Systems Division is currently experiencing a period of rapid growth that has placed, and following the Transaction could continue to place, a significant strain on Harris's financial, operational, managerial and other resources. To manage its growth effectively, Harris will be required to continue to improve its operational, financial and management information systems and to attract, train, motivate, manage and retain key employees. In April 1996, in anticipation of the Transaction, Harris's Trusted Systems Division engaged a new Chief Executive Officer, appointed a new Chief Financial Officer from a management position within Harris's Trusted Systems Division sales force, and appointed other executive officers from positions inside Harris's Trusted Systems Division. These individuals have not previously worked together as senior managers and are in the process of integrating as a management team. With the exception of Bradley C. Lesher, Vice President of International Sales, and Robert L. Carberry, President, Trusted Systems Division, none of these senior managers have previously served as an executive officer of a publicly held corporation. If Harris's executives are unable to manage growth effectively, Harris's financial performance, results of operations and financial condition could be adversely affected. DEPENDENCE ON KEY EMPLOYEES As high technology companies in highly competitive industries, the success of Concurrent and Harris following the consummation of the Transaction will depend in part on each party's ability to attract and retain highly-skilled technical, managerial, sales and marketing employees. Competition for these key employees is intense. The uncertainty as to which employees will remain as part of Concurrent or Harris and the locations of various functions in connection with the integration of the Harris Real-Time Business as well as potential differences in culture between the two companies in the manner in, and processes by, which business is conducted may lead certain employees to choose alternative employment. Although neither company is dependent on any one employee, the loss of a number of key employees in significant positions and the inability to attract and retain qualified replacement employees in a timely manner could adversely affect the financial performance, results of operations and financial condition of Concurrent or Harris, as the case may be. For a description of the expected composition of the executive officers of Concurrent following the Transaction, see "DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION." Of the seven executive officers of Concurrent following the Transaction, four are expected to be former executive officers of Harris, one is expected to be a continuing executive officer of Concurrent and two are expected not to be former officers of either Concurrent or Harris. For a description of the Harris executive officers after the Transaction, see "DIRECTORS AND EXECUTIVE OFFICERS OF HARRIS AFTER CONSUMMATION OF THE TRANSACTION." 35 41 DIVIDEND POLICY It is currently contemplated that neither Harris nor Concurrent will pay cash dividends on their respective shares of common stock in the immediately foreseeable future. Concurrent's and Harris's dividend policy will be reviewed by their respective boards at such future time as may be appropriate in light of relevant factors existing at such times. CERTAIN BARRIERS TO CHANGES OF CONTROL; EFFECTS OF CHANGES OF CONTROL Rights associated with Concurrent Common Stock and Harris Common Stock may have the effect of discouraging a third party from making an acquisition proposal to Concurrent or Harris, as the case may be, and may thereby inhibit a change in control of such company in circumstances that could give the holders of Concurrent Common Stock or Harris Common Stock the opportunity to realize a premium over the then prevailing market prices. Such provisions may also adversely affect the market price of Concurrent Common Stock and Harris Common Stock. In addition, loans under certain credit agreements may be accelerated at the option of the lenders in the event of a "change in control" (as that term is defined in the credit agreements governing such loans) of Concurrent or Harris. The charters and by-laws of each of Concurrent and Harris as well as the Florida Business Corporation Act (the "FBCA") and the Delaware General Corporation Law (the "DGCL") contain certain provisions that may have the effect of inhibiting a non-negotiated merger or other business combination. The Harris and the Concurrent Boards each have the authority to issue shares of preferred stock and to determine the designations, preferences, and rights and the qualifications or restrictions of those shares without any further vote or action by the shareholders. The rights of the holders of Harris Common Stock and Concurrent Common Stock will be subject to, and may be materially adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate actions, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, Concurrent or Harris, as the case may be. With the exception of the Preferred Stock Consideration, neither Concurrent nor Harris has any present plan to issue shares of preferred stock. INADVERTENT INVESTMENT COMPANY The Concurrent Common Stock Consideration and the Concurrent Preferred Stock which Harris will own immediately following the Transaction, would have comprised approximately 80% of Harris's total assets on a pro forma basis as of March 30, 1996. As a result, Harris 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 Commission, subjecting itself to extensive regulation, compliance with which would have a material adverse effect on Harris'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 Transaction, Harris intends to sell a portion of the Concurrent Common Stock Consideration. Harris 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 Harris 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. Harris'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, Harris's ability to sell such securities may be affected by factors beyond Harris's control, such as general market conditions and changes in the business, operations or prospects of Concurrent. See "Fluctuation in Value of the Consideration to be Issued in the Transaction; Changes in the Market Price 36 42 of Concurrent or Harris Common Stock." and "TERMS OF THE TRANSACTION -- The Share Holding Agreement." LIMITATIONS ON THE USE OF CERTAIN TAX LOSS CARRYFORWARDS Concurrent has substantial tax loss carryforwards available to offset future taxable income. Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the use of Concurrent's tax loss carryforwards could be limited in the event of an "ownership change" involving more than 50% of Concurrent's stock, including ownership changes arising by reason of stock issuances by Concurrent. Although Concurrent will be issuing a significant amount of stock in connection with the Transaction, the "ownership shift" resulting from such issuance, when coupled with other ownership shifts involving certain five percent shareholders of Concurrent since July 21, 1993, will not be sufficient to constitute a 50 percent ownership change within the meaning of Section 382 of the Code. Accordingly, it is expected that the Transaction will not impair the availability of these tax loss carryforwards to Concurrent. It is possible, however, that future ownership shifts involving the stock of Concurrent could limit its ability to use these tax loss carryforwards, including changes which occur by reason of additional stock issuances by Concurrent or acquisitions or dispositions of Concurrent Common Stock by persons who are or become owners of five percent or more of Concurrent Common Stock. 37 43 THE CONCURRENT SPECIAL MEETING GENERAL This Joint Proxy Statement is being furnished to holders of Concurrent Common Stock in connection with the solicitation of proxies by the Concurrent Board for use at the Concurrent Special Meeting and any adjournments or postponements thereof. Each copy of this Joint Proxy Statement mailed to holders of Concurrent Common Stock is accompanied by a form of proxy for use at the Concurrent Special Meeting. CONCURRENT SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CONCURRENT IN THE ENCLOSED, POSTAGE-PAID ENVELOPE. PURPOSE OF THE CONCURRENT SPECIAL MEETING At the Concurrent Special Meeting, the holders of Concurrent Common Stock will be asked to consider and vote on the following proposals (each, a "Concurrent Proposal" and collectively, the "Concurrent Proposals") related to the Purchase and Sale Agreement and the Transaction: (1) A proposal by Concurrent to issue the Concurrent Common Stock Consideration and the Additional Common Shares. Because the number of shares of Concurrent Common Stock to be issued upon consummation of the Transaction plus the Additional Common Shares will exceed 20% of the number of shares of Concurrent Common Stock outstanding immediately prior to the consummation of the Transaction, the by-laws of the National Association of Securities Dealers ("NASD") require Concurrent to obtain shareholder approval of the issuance of such shares. (2) An amendment to the Concurrent Stock Plan Amendment to increase, at or prior to the Closing Date, the amount of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan from 4,014,725 shares to 9,000,000 such shares (representing an increase of approximately 5,000,000 shares authorized for issuance under the Concurrent Stock Plan which increase will be reserved for future issuance under the Concurrent Stock Plan). (3) An amendment to the Concurrent Stock Plan to (i) increase the number of shares of Concurrent Common Stock underlying the options initially granted to each non-employee director following the adoption of such amendment from 3,000 to 20,000 shares of Concurrent Common Stock, (ii) provide for the automatic grant to continuing non-employee directors of options to purchase 3,000 shares of Concurrent Common Stock on the date of each annual meeting of shareholders and (iii) provide that each option granted to a non-employee director shall expire on the earlier of the tenth anniversary of the date of grant or the resignation or removal (other than by reason of death or disability) of such non-employee director. (4) The transaction of such other business as may properly come before the Concurrent Special Meeting. Proposals (2) and (3) are collectively referred to throughout this Joint Proxy Statement as the Concurrent Stock Plan Amendment. The (i) issuance of both the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) implementation of proposal (2) regarding that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares are conditioned upon approval of each other. Implementation of proposal (3) regarding the remaining portions of the Concurrent Stock Plan Amendment is conditioned upon the approval of both (i) the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) the increase in the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 such shares (proposal (2)). 38 44 DATE, TIME AND PLACE The Concurrent Special Meeting is scheduled to be held on June 26, 1996 at 3:30 p.m.., local time, at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309. RECORD DATE; SHARES OUTSTANDING The Concurrent Board has fixed the close of business on May 14, 1996 as the Record Date for the determination of Concurrent shareholders entitled to notice of and to vote at the Concurrent Special Meeting. On the Record Date, there were 30,652,681 shares of Concurrent Common Stock issued and outstanding held by approximately 2,340 shareholders of record. All directors and executive officers of Concurrent have indicated their intention to vote all shares over which they exercise voting control (an aggregate of approximately 100,000 shares of Concurrent Common Stock or less than 1% of the outstanding shares on the Record Date) FOR the approval of the issuance of Concurrent Common Stock Consideration and the Concurrent Stock Plan Amendment. VOTING AT THE CONCURRENT SPECIAL MEETING The presence, either in person or by proxy, of the holders of a majority of the issued and outstanding shares of Concurrent Common Stock entitled to vote at the Concurrent Special Meeting is necessary to constitute a quorum at the Concurrent Special Meeting. Each share of Concurrent Common Stock is entitled to one vote with respect to all matters presented at the Concurrent Special Meeting. With respect to the Concurrent Proposals to be considered by the holders of Concurrent Common Stock, the affirmative vote of a majority of the following is required for approval: (i) the total votes cast by the holders of Concurrent Common Stock with respect to the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) in a separate vote, the total votes cast by the holders of Concurrent Common Stock with respect to each proposal relating to the Concurrent Stock Plan Amendment. In addition, the Transaction is conditioned upon the affirmative vote of a majority of the outstanding shares of Harris Common Stock entitled to vote on the approval of the Transaction and of a majority of the total votes cast by holders of Harris Common Stock to approve the Harris Stock Plan Amendment. If a shareholder attends the Concurrent Special Meeting, such shareholder may vote by ballot. However, many of Concurrent's shareholders may be unable to attend the Concurrent Special Meeting. Therefore, the Concurrent Board is soliciting proxies so that each holder of Concurrent Common Stock on the Record Date has the opportunity to vote on the proposals to be considered at the Concurrent Special Meeting. When a proxy is returned properly signed and dated, the shares represented thereby will be voted in accordance with the instructions on the proxy. If a Concurrent shareholder does not return a signed proxy, such shareholder's shares will not be voted. Shareholders are urged to mark the boxes on the proxy to indicate how their shares are to be voted. Each shareholder shall be entitled to cast one vote on each matter to be voted upon at the Concurrent Special Meeting. If a holder of Concurrent Common Stock returns a signed proxy, but does not indicate how such shareholder's shares are to be voted, the shares represented by the proxy will be voted FOR approval of the Concurrent Proposals. The proxy also confers discretionary authority on John T. Stihl, Chairman, President and Chief Executive Officer of Concurrent, and Kevin J. Dell, Vice President, General Counsel and Secretary of Concurrent, each of whom has been appointed by the Concurrent Board and named on the proxy, to vote the shares represented thereby on any other matter that may properly arise at the Concurrent Special Meeting. As of the date of this Joint Proxy Statement, the Concurrent Board does not know of any other matters to be presented for action by Concurrent shareholders at the Concurrent Special Meeting. If, however, any other matters not now known are properly brought before the Concurrent Special Meeting, it is anticipated that the Concurrent proxy holders will vote upon the same according to their discretion and best judgment. Any Concurrent shareholder who executes and returns a proxy may revoke such proxy at any time before it is voted by (i) notifying in writing the corporate Secretary of Concurrent at Two Crescent Place, Oceanport, 39 45 New Jersey 07757, (ii) granting a subsequent proxy or (iii) appearing in person and voting at the Concurrent Special Meeting. Attendance at the Concurrent Special Meeting will not in and of itself constitute revocation of a proxy. SOLICITATION OF PROXIES All expenses of Concurrent's solicitation of proxies, including the cost of preparing and mailing this Joint Proxy Statement to the Concurrent shareholders, will be borne by Concurrent. In addition to solicitation by use of the mails, proxies may be solicited by directors, officers and employees of Concurrent in person or by telephone, telegram or other means of communication. Such directors, officers and employees soliciting proxies will not be additionally compensated, but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. Concurrent has retained Georgeson & Company, a proxy solicitation firm, for assistance in connection with the Concurrent Special Meeting at an estimated expense of approximately $5,000 plus reasonable out-of-pocket expenses. Arrangements will also be made with custodians, nominees and fiduciaries for forwarding of proxy solicitation materials to beneficial owners of shares held of record by such custodians, nominees and fiduciaries, and Concurrent will reimburse such persons for reasonable expenses incurred in connection therewith. EFFECT OF ABSTENTIONS AND "BROKER NON-VOTES" At the Concurrent Special Meeting, abstentions and "broker non-votes" will be counted for purposes of determining the presence or absence of a quorum. In determining whether the Concurrent Proposals have each received the requisite number of affirmative votes, abstentions and broker non-votes have the effect of an abstention since each of the Concurrent Proposals must be approved by a majority of the votes cast. APPRAISAL RIGHTS Holders of Concurrent Common Stock will not be entitled to any appraisal rights in connection with the matters to be voted upon at the Concurrent Special Meeting. See "TERMS OF THE TRANSACTION -- Appraisal Rights". 40 46 THE HARRIS SPECIAL MEETING GENERAL This Joint Proxy Statement is being furnished to holders of Harris Common Stock in connection with the solicitation of proxies by the Harris Board for use at the Harris Special Meeting and any adjournments or postponements thereof. Each copy of this Joint Proxy Statement mailed to holders of Harris Common Stock is accompanied by a form of proxy for use at the Harris Special Meeting. HARRIS SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO HARRIS IN THE ENCLOSED, POSTAGE-PAID ENVELOPE. PURPOSE OF THE HARRIS SPECIAL MEETING At the Harris Special Meeting, the holders of Harris Common Stock will be asked to consider and vote upon the following proposals (collectively, the "Harris Proposals"): (1) Harris's shareholders will be asked to consider and vote upon a proposal to approve the Transaction. Because the Transaction contemplates a sale of "substantially all" of the assets of Harris, Florida corporate law requires Harris to obtain shareholder approval of the Transaction. (2) Harris's shareholders will be asked to consider and vote upon a proposal to approve the Harris Stock Plan Amendment to increase to 2,025,000 the amount of shares of Harris Common Stock available for issuance thereunder and to amend the director's options portion of the Harris Stock Plan. (3) Harris's shareholders will be asked to approve the Name Change, consisting of an amendment to Harris's Articles of Incorporation to change Harris's corporate name to CyberGuard Corporation. (4) Harris's shareholders will be asked to elect the class of directors whose term expires at the 1998 Annual Meeting of Harris shareholders (the Harris Special Meeting is in lieu of an annual meeting). (5) Harris's shareholders will be asked, under certain circumstances, to approve a proposal to adjourn the Harris Special Meeting. (6) Harris's shareholders will be asked to approve the appointment of KPMG as Harris's independent accountants for fiscal year 1996. (7) The transaction of such other business as may properly come before the Harris Special Meeting and any adjournment or postponement thereof. The Transaction is conditioned upon the approval by Concurrent's shareholders of the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares and the approval by Harris's shareholders of the Transaction (other than the Harris Stock Plan Amendment) and, in a separate vote, the Harris Stock Plan Amendment. Other than the foregoing, none of the proposals to be considered at the Harris Special Meeting is conditioned on the approval of any other proposal. DATE, TIME AND PLACE The Harris Special Meeting is scheduled to be held on June 26, 1996 at 2:00 p.m., local time, at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309. RECORD DATE; SHARES OUTSTANDING The Harris Board has fixed the close of business on May 14, 1996 as the Record Date for the determination of holders of Harris Common Stock entitled to notice of and to vote at the Harris Special Meeting and at any adjournment or postponement thereof. Under Florida law, all shareholders as of the 41 47 Record Date are entitled to notice of the Harris Special Meeting. Only holders of Harris Common Stock as of the Record Date will be entitled to vote at the Harris Special Meeting. On the Record Date, there were 5,998,415 shares of Harris Common Stock issued and outstanding held by approximately 6,660 shareholders of record. All directors and executive officers of Harris have indicated their intention to vote all shares over which they exercise voting control (an aggregate of 345,291 shares of Harris Common Stock or approximately 5.8% of the outstanding shares on the Record Date) FOR the approval and adoption of the Transaction, the Harris Stock Plan Amendment, the nominees for director, adjournment of the Harris Special Meeting if proposed by the Chairman of the Harris Special Meeting, and the appointment of KPMG as Harris's independent accountant for fiscal year 1996. VOTING AT THE HARRIS SPECIAL MEETING The presence, either in person or by proxy, of the holders of a majority of the issued and outstanding shares of Harris Common Stock entitled to vote at the Harris Special Meeting is necessary to constitute a quorum at the Harris Special Meeting. Each share of Harris Common Stock is entitled to one vote with respect to all matters presented at the Harris Special Meeting. The affirmative vote of a majority of the following is required for approval of the Harris Proposals: (i) the holders of the outstanding shares of Harris Common Stock with respect to the Transaction (other than the Harris Stock Plan Amendment) and the Name Change and (ii) the total votes cast at the Harris Special Meeting with respect to the Harris Stock Plan Amendment, the election of directors and the appointment of Harris's independent accountant. If a shareholder attends the Harris Special Meeting, such shareholder may vote by ballot. However, many of Harris's shareholders may be unable to attend the Harris Special Meeting. Therefore, the Harris Board is soliciting proxies so that each holder of Harris Common Stock on the Record Date has the opportunity to vote on the Harris Proposals on which each is entitled to vote. When a proxy is returned properly signed and dated, the shares represented thereby will be voted in accordance with the instructions on the proxy. If a Harris shareholder does not return a signed proxy, such shareholder's shares will not be voted. Shareholders are urged to mark a box on the proxy to indicate how their shares are to be voted. If a holder of Harris Common Stock returns a signed proxy, but does not indicate how such shareholder's shares are to be voted, the shares represented by the proxy will be voted FOR approval and adoption of the Harris Proposals. The proxy also confers discretionary authority on E. Courtney Siegel, Chairman, President and Chief Executive Officer of Harris, and Daniel S. Dunleavy, Vice President, Chief Financial Officer and Chief Administrative Officer of Harris, each of whom has been appointed by the Harris Board and named on the proxy to vote the shares represented thereby on any other matter that may properly arise at the Harris Special Meeting. As of the date of this Joint Proxy Statement, the Harris Board does not know of any other matters to be presented for action by Harris shareholders at the Harris Special Meeting. If, however, any other matters not now known are properly brought before the Harris Special Meeting, it is anticipated that the Harris proxy holders will vote upon the same according to their discretion and best judgment. Any Harris shareholder who executes and returns a proxy may revoke such proxy at any time before it is voted by (i) notifying in writing the Corporate Secretary of Harris at 2101 West Cypress Creek Road, Fort Lauderdale, Florida 33309, (ii) granting a subsequent proxy, or (iii) appearing in person and voting at the Harris Special Meeting. Attendance at the Harris Special Meeting will not in and of itself constitute revocation of a proxy. ADJOURNMENT OF THE HARRIS SPECIAL MEETING The Harris Special Meeting may be adjourned or postponed by Harris for any reason. If a quorum is not obtained, or if fewer shares are likely to be voted in favor of approval and adoption of the Transaction than the number required for approval and adoption, the Harris Special Meeting may be adjourned for the purpose of obtaining additional proxies or votes. The Harris Special Meeting may also be adjourned or postponed in order to obtain necessary regulatory approvals. At any subsequent reconvening of the Harris Special Meeting, all 42 48 proxies will be voted in the same manner as such proxies would have been voted at the original meeting (except for any proxies which theretofore have been effectively revoked or withdrawn), notwithstanding that they may have been effectively voted on the same or any other matter at a prior meeting. SOLICITATION OF PROXIES All expenses of Harris's solicitation of proxies, including the cost of preparing and mailing this Joint Proxy Statement to the Harris shareholders, will be borne by Harris. In addition to solicitation by use of the mails, proxies may be solicited by directors, officers and employees of Harris in person or by telephone, telegram or other means of communication. Such directors, officers and employees soliciting proxies will not be additionally compensated, but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. Harris has retained Georgeson & Company, Inc., a proxy solicitation firm, for assistance in connection with the Harris Special Meeting at an estimated expense of approximately $5,000 plus reasonable out-of-pocket expenses. Arrangements will also be made with custodians, nominees and fiduciaries for forwarding of proxy solicitation materials to beneficial owners of shares held of record by such custodians, nominees and fiduciaries, and Harris will reimburse such persons for reasonable expenses incurred in connection therewith. EFFECT OF ABSTENTIONS AND "BROKER NON-VOTES" At the Harris Special Meeting, abstentions and "broker non-votes" will be counted for purposes of determining the presence or absence of a quorum. In determining whether the proposal to approve and adopt the Transaction (other than the Harris Stock Plan Amendment) and the Name Change received the requisite number of affirmative votes, abstentions and broker non-votes will have the same effect as a vote against such proposal since the proposal must be approved by a majority of the outstanding shares entitled to vote. In determining whether the proposals to approve (i) the Harris Stock Plan Amendment, (ii) the election of directors (iii) any adjournment of the Harris Special Meeting and (iv) the appointment of Harris's independent accountants have received the requisite number of affirmative votes, abstentions and broker non-votes will have the same effect as an abstention because each proposal must be approved by a majority of the votes cast. DISSENTER'S RIGHTS Holders of Harris Common Stock do not have dissenter's rights in connection with the Transaction. See "TERMS OF THE TRANSACTION -- Appraisal Rights." 43 49 THE PROPOSED TRANSACTION The following is a summary of certain aspects of the Transaction. This summary does not purport to be complete and is qualified in its entirety by reference to the Purchase and Sale Agreement, a copy of which is attached hereto as Annex A, and the other information contained in this Joint Proxy Statement. GENERAL The Transaction is to be effected pursuant to the terms and conditions of the Purchase and Sale Agreement, the Share Holding Agreement, the Certificate of Designation (the "Certificate of Designation"), the Non-competition Agreement, the Shared Services Agreement (the "Shared Services Agreement"), and the other ancillary agreements (collectively, the "Ancillary Agreements") to be entered into pursuant to the Purchase and Sale Agreement. The Purchase and Sale Agreement provides that Concurrent will acquire the Purchased Harris Shares and the Assets of the Harris Real-Time Business, in exchange for which Concurrent will (i) issue to Harris the Concurrent Common Stock Consideration and the Preferred Stock Consideration and (ii) assume the Assumed Liabilities. For a description of the terms of the Concurrent Preferred Stock, see "TERMS OF THE TRANSACTION -- Concurrent Preferred Stock." The Transaction is conditioned upon, among other things, approval by Concurrent's and Harris's shareholders of the Transaction. The Closing is expected to take place as soon as practicable following the satisfaction or waiver of all conditions to the Transaction set forth in the Purchase and Sale Agreement or as otherwise agreed by Harris and Concurrent. See "TERMS OF THE TRANSACTION -- The Purchase and Sale Agreement." Pursuant to the Share Holding Agreement, which is to be effective upon consummation of the Transaction, each of Concurrent and Harris will have certain rights with respect to representation on the Board of Directors of the other party. Additionally, both parties will have certain rights and restrictions with respect to the voting, transfer and sale of securities of such other party held by it. For a description of the terms of the Share Holding Agreement, see "TERMS OF THE TRANSACTION -- The Share Holding Agreement." BACKGROUND OF THE TRANSACTION For the past several years, the real-time computing industry has been characterized by increasing competition driven by rapid technological innovation and decreasing product life cycles. Concurrent's net sales have declined from $220.5 million in fiscal year 1993 to $140.1 million in fiscal year 1995. This trend continued in the nine months ended March 31, 1996. Net sales for Concurrent for the nine months ended March 31, 1996 were $77.1 million, a decrease of $32.5 million from the prior year period. Net sales for Concurrent for the three months ended March 31, 1996 were $26.2 million, a decrease of $4.2 million from the prior year quarter but an increase of $1.7 million from the previous quarter. Throughout the last two years, Concurrent has continuously reduced its cost structure including headcount reductions of approximately 600 employees. On October 7, 1994, Harris was spun-off from Harris Corporation in a tax-free distribution to shareholders of Harris Corporation. Net sales for Harris decreased to $45.1 million for fiscal year 1995 from $64.6 million for fiscal year 1994. Following an exploratory discussion at a trade show in November 1994, representatives of Concurrent and Harris met in December 1994 to discuss the parties' interest, if any, in a possible business combination. No follow up meeting occurred. In late February 1995, Harris delivered to the Concurrent Board a proposal to acquire Concurrent in a stock-for-stock merger valued at $29.6 million based upon the then prevailing market prices of the common stock of each company. This proposal was rejected. In mid-March 1995, the Concurrent Board rejected another acquisition proposal from Harris at a nominally higher price. In June 1995, Concurrent retained Berenson Minella to advise it in connection with (i) the restructuring and/or refinancing of its bank debt, (ii) the exploration of various options to improve its capital structure without a business combination transaction and (iii) after due consideration of items (i) and (ii), a possible 44 50 sale, merger, acquisition or business combination with respect to all or a substantial portion of the company or its assets, or other strategic alternatives. On June 29, 1995, Concurrent entered into a new senior loan agreement with Foothill Capital Corporation to refinance its prior bank debt. Following the completion of that refinancing, Concurrent asked Berenson Minella to initiate discussions with a limited number of potential combination transaction partners, including Harris. In addition to Harris, Berenson Minella contacted three other companies similar in size to Concurrent which were deemed to have complementary operations. The companies contacted expressed limited or no interest in pursuing a business combination with Concurrent. On September 7, 1995, representatives of Berenson Minella, in connection with its review of various strategic alternatives which might be considered by Concurrent with respect to enhancing shareholder value, met with E. Courtney Siegel, Chairman, President and Chief Executive Officer of Harris, to ascertain Harris's interest in a transaction with Concurrent. Following the meeting, the terms of a possible confidentiality agreement (the "Confidentiality Agreement") were discussed by representatives of Concurrent and Harris. On September 14, 1995 representatives of Bear Stearns met with members of the Harris Board and were retained on September 25, 1995 to represent Harris in connection with a possible transaction with Concurrent. On September 27, 1995, the Concurrent Board met to consider a preliminary presentation by Berenson Minella regarding a proposed transaction with Harris and certain types of companies in similar or related businesses which might be approached to consider alternatives to such transaction, in the form of an acquisition by or of Concurrent, a merger or joint venture or an infusion of equity into Concurrent, which types of companies included general purpose computing companies, real-time and high performance computing companies, vertical niche computing companies, cable and telecommunications companies, defense technology companies, government computer service companies and third party computer maintenance providers. Following such presentation and board discussion, the Concurrent Board determined that, rather than conducting a wide spread search for a strategic alliance, pursuing the proposed transaction with Harris appeared to offer the best immediate opportunity for a transaction which would meet Concurrent's strategic objectives and enhance shareholder value. On September 28, 1995, Concurrent and Harris entered into the Confidentiality Agreement and agreed to an exchange of confidential information. On October 11 and 12, 1995, representatives of Concurrent met with representatives of Harris to conduct a mutual preliminary due diligence investigation and explore the possibility of a transaction. Following such meetings and prior to the end of October, representatives of Concurrent and Harris had discussions on several occasions concerning issues which would be significant to any potential business combination transaction that might be proposed. On October 31, 1995, the Concurrent Board and the Harris Board each held meetings to discuss a possible business combination transaction involving Concurrent and Harris. At the meeting of the Harris Board, Bear Stearns delivered its oral opinion that the Merger (as defined below) was fair, from a financial point of view, to the holders of Harris Common Stock. At these meetings, the Board of Directors of each company authorized their respective managements to pursue further discussions of such a transaction and to negotiate a definitive merger agreement (the "Merger Agreement"). From November 1 through November 5, 1995 representatives of Concurrent and Harris negotiated the final terms of the Merger Agreement. The negotiations culminated in separate meetings of the Boards of Directors of Concurrent and Harris on November 3, 1995, at which the Merger Agreement and related matters were approved subject to satisfactory resolution of certain issues. At a meeting of the Concurrent Board on November 3, 1995, Berenson Minella delivered its oral opinion that the exchange ratio in the Merger was fair, from a financial point of view, to the holders of Concurrent Common Stock. Following resolution of such issues, the Merger Agreement was executed on November 5, 1995. The terms of the proposed merger were announced in a joint press release issued prior to the opening of trading on the morning of November 6, 1995. The terms of the Merger Agreement provided, among other things, (i) that Concurrent's wholly-owned subsidiary would be merged (the "Merger") with and into Harris with Harris surviving the Merger as a wholly-owned subsidiary of Concurrent; (ii) each share of Harris Common Stock outstanding prior to the effective time of the Merger would be converted into and exchangeable for 9.56 shares of Concurrent Common Stock and cash in lieu of any fractional share; (iii) that the Merger Agreement could be terminated by either Harris or Concurrent if the Merger was not consummated by the earlier of eight weeks following the 45 51 declaration of effectiveness of a registration statement related to the Merger or April 30, 1996; (iv) events of termination and the payment of a termination fee upon the occurrence or non-occurrence of certain events, which events of termination and termination fee were substantially similar to provisions of the Purchase and Sale Agreement; (v) that the Concurrent Board would consist of nine directors, three of whom would be designees of Harris and six of whom would be designees of Concurrent; and (vi) that the mailing of the proxy statement would be conditioned upon the receipt by Concurrent and Harris of written fairness opinions from Berenson Minella and Bear Stearns, respectively. Subsequent to the execution of the Merger Agreement, a number of market-related events transpired which adversely affected the viability of the proposed Merger. Chief among these events were (i) the successful initial public offerings of two competitors of Harris in the trusted systems market, (ii) communications from one of Harris's largest shareholders that it intended to oppose the proposed Merger and (iii) the growing disparity in the price per share of Harris and Concurrent Common Stock. On November 17, 1995, Secure Computing ("Secure Computing"), a company with Internet firewall products similar to Harris's CyberGuard product, launched a public offering of 2,000,000 shares of its common stock at an initial offering price of $16 per share. The market price of Secure Computing common stock had risen to $52 per share by December 19, 1995. On December 20, 1995, Okabena Partnership K ("Okabena"), a Minnesota general partnership filed a Schedule 13D with the Commission in which Okabena announced that it had increased its beneficial ownership of Harris Common Stock from 3.5% to 9.4% of the total issued and outstanding shares. In its Schedule 13D, Okabena stated that it had "undertaken a review of the Internet firewall products of Harris's trusted systems division, including an analysis of that segment of [Harris's] business in light of the overall market for products addressing the security needs of Internet users worldwide and the current market valuation of Secure Computing. Included in [its] review were McGraw-Hill's National Software Testing Laboratories' commercial Internet firewall product evaluations published in the November 21, 1995 issue of Data Communications, which supported [Okabena's] view that the CyberGuard Internet firewall product offered by [Harris was] comparable to and competitive with the Side-Winder Internet firewall product offered by [Secure Computing]." Okabena stated that it believed that "Secure Computing's market capitalization reflect[ed] investors' current assessment of the potential for significant worldwide sales of firewall products to the expanding number of users and providers on the Internet." In its Schedule 13D, Okabena advised that "the stock merger proposal of 9.56 shares of Concurrent Common Stock for each share of Harris [was] inadequate, in part, because it imput[ed] an aggregate value of approximately $20 million for [Harris] based on the closing price on December 19, 1995 for Concurrent Common Stock as reported on [Nasdaq/NMS.]" Okabena stated that, "based on its review [as of December 19, 1995] which review is continuing," it intended to vote its shares against the proposed Merger and to consider "other possible courses of action with respect to [Harris] including (i) holding discussions with other [Harris] shareholders concerning the proposed Merger and other business strategies that [Harris] could pursue, (ii) making a decision to solicit other [Harris] shareholder support for such opposition, or (iii) seeking representation on the [Harris Board] and/or otherwise seeking control of [Harris]." Okabena also decided "to engage in discussions with [Harris management] with a view toward enhancing shareholder value, including, but not limited to, a spin-off of its trusted systems division to shareholders prior to completion of the proposed Merger." After the filing of its Schedule 13D, a representative of Okabena engaged in conversations with an officer of Harris in which Okabena's intent to vote against the proposed Merger was confirmed. In these conversations it also was stated that Okabena generally was in favor of a transaction in which the Real-time Business of Harris would be sold and the then-current shareholders of Harris would remain the principal owners of the Trusted Systems Division. No effort was made on the part of Harris or Okabena to include representatives of Okabena in any discussions regarding the details of a possible renegotiation of the proposed transaction with Concurrent. In light of the foregoing, in early January 1996, Harris began to consider possible revisions to the proposed Merger, which was communicated to Concurrent and its financial and legal advisors. Both Harris and Concurrent and their respective financial and legal advisors spent the next several weeks considering their 46 52 rights and obligations under the Merger Agreement and reviewing alternative structures that could be implemented. On February 2, 1996, a joint meeting of the entire Boards of Concurrent and Harris was convened, which included their respective financial and legal advisors, at which Concurrent presented its product development roadmap and Harris explained its reasons for the need to revise the proposed transaction. At that meeting, Bear Stearns stated that it had advised Harris that, if asked as of that date, it would be unable to confirm in writing its oral opinion rendered to the Harris Board on October 31, 1995, that the Merger was fair, from a financial point of view, to the holders of Harris Common Stock, and the reasons therefor. On February 2, 1996 the ratio of the closing bid prices of Harris Common Stock to Concurrent Common Stock had increased to approximately 18.3 to 1 from the ratio of the closing bid prices on November 3, 1995, the last full trading day prior to the public announcement of the proposed Merger, of approximately 8.3 to 1. The boards designated and authorized certain board members, together with their respective advisors, to negotiate certain modifications to the proposed transaction. During the next several days, the authorized board members, with the assistance of their respective legal and financial advisors, engaged in negotiations over the terms of the revised transaction. As described above, the parties previously had analyzed various transaction structures that could be implemented to the extent a revised transaction were to be agreed. Based on such analyses, which consisted principally of reviewing the tax effects of various transaction structures and evaluating the likelihood that a transaction could be consummated using a particular structure, the parties determined to structure the revised transaction as an asset purchase by Concurrent combined with a share exchange of equity securities by the parties. On February 6, 1996, Raptor Systems, Inc. ("Raptor"), another company with Internet firewall products similar to Harris's CyberGuard product, launched a public offering of 2,875,000 shares of its common stock at an initial offering price of $15 per share. The market price per share of Raptor had risen to $24 3/4 by the end of the first day of trading. As of May 22, 1996, the most recent practicable date prior to the printing of this Joint Proxy Statement, the closing price per share of Secure Computing and Raptor common stock was $27 1/2 and $30 7/8, respectively. On February 8, 1996, Concurrent and Harris announced the execution of a memorandum of understanding (the "Memorandum of Understanding") dated February 7, 1996 which provided the basic framework for the Transaction. Pursuant to the Memorandum of Understanding, Concurrent and Harris agreed to use their best efforts to negotiate an agreement with respect to the sale to Concurrent of the Harris Real-Time Business and the Purchased Harris Shares in exchange for the issuance by Concurrent to Harris of the Concurrent Common Stock Consideration and the Preferred Stock Consideration and the assumption of the Assumed Liabilities. The Memorandum of Understanding contemplated that Concurrent and Harris would enter into a definitive agreement that would supersede the Merger Agreement. Between February 8th and March 26th, Concurrent and Harris engaged in detailed negotiations and discussions concerning the assets and liabilities of the Harris Real-Time Business which would be sold to and assumed by Concurrent and the other arrangements and agreements between Harris and Concurrent, including the terms of the Share Holding Agreement, which would be necessary or appropriate in connection with Concurrent's purchase of the Harris Real-Time Business and the issuance of the Concurrent Common Stock Consideration and the Preferred Stock Consideration to Harris and the issuance of the Harris Purchased Shares to Concurrent. During this same time period, a representative of Okabena confirmed to a representative of Harris that, subject to a review of the definitive agreements and receipt of the proxy statement to be provided to Harris shareholders, Okabena was generally in favor of the Transaction. On March 20, 1996, Bear Stearns delivered an oral opinion to the Special Committee of the Harris Board that, as of such date, the Transaction was fair, from a financial point of view, to the shareholders of Harris. On March 21, 1996, the Special Committee unanimously concluded that the Purchase and Sale Agreement and the Transaction were fair to and in the best interests of the Harris shareholders and recommended that the Harris Board also approve them. On March 21, 1996, the Harris Board unanimously concluded that the Purchase and Sale Agreement and the Transaction were fair to and in the best interests of the Harris shareholders and approved them. On March 22, Berenson Minella delivered its oral opinion to the Concurrent Board that, as of such date, the purchase by Concurrent of the Assets and the Purchased Harris Shares for the Concurrent Common Stock Consideration, the Preferred Stock Consideration and the assumption of the Assumed Liabilities, taken as a whole, were fair to the shareholders of 47 53 Concurrent from a financial point of view, and the Concurrent Board approved the Transaction. On March 26, 1996, Concurrent and Harris executed the Purchase and Sale Agreement as amended and restated by Concurrent and Harris on May 23, 1996. With respect to the Merger and the Transaction, the financial advisors for each of Concurrent and Harris provided their respective clients with advice on the financial terms of the transactions and the strategic issues associated therewith. While each financial advisor was involved at times as one of the principal negotiators on behalf of its respective client, in no circumstances did either financial advisor unilaterally establish its client's negotiating position or agree to a particular provision without its client's agreement. RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF CONCURRENT AND CONCURRENT'S REASONS FOR THE TRANSACTION The Concurrent Board unanimously determined that the Transaction is in the best interests of Concurrent and the holders of Concurrent Common Stock and recommends that Concurrent shareholders vote in favor of the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and the Concurrent Stock Plan Amendment. See "AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN." The Concurrent Board believes that the Transaction offers the following significant strategic and financial benefits to Concurrent and its shareholders, as well as to its employees and customers: - Enhanced Competitive Position. Concurrent following the Transaction is expected to be in a better position to meet the challenges of the increasingly competitive environment in the real-time computing industry more effectively than either Concurrent or Harris standing alone. In addition, Concurrent will have access to its own as well as Harris's technology, allowing it to combine the best of both technologies in the next generation of products. - Larger and More Diverse Market Coverage. After the Transaction is consummated, Concurrent's service territory, installed base and product offerings will be larger and more diverse than prior to the consummation of the Transaction. In addition, the combination of the best of the technologies of the two companies is expected to allow for a reduction in the time between the introduction of next generation products within the combined company's product line, resulting in the combined company being less dependent on the success of any individual next generation product. - Cost Savings. The Transaction is expected to generate significant cost savings as early as the first fiscal year after the Transaction. Such savings will be primarily obtained through headcount reductions, as well as facilities cost reductions. These savings are expected to be obtained through a variety of actions including, among others: -- Integration of Corporate Management and Administrative Functions. Concurrent would be able to consolidate administrative functions, thereby eliminating duplicative positions, reducing other non-labor and administrative expenses and limiting or avoiding capital expenditures for administrative facilities. Cost savings are expected to be achieved in the area of personnel reductions through attrition, strictly controlled hiring, reassignment and retraining and severance programs. -- Consolidation of Production and Research and Development Facilities. The Transaction would allow for the potential consolidation of the production and research and development facilities related to the real-time businesses of the two companies. -- Consolidation of Sales/Service Offices. The Transaction would allow Concurrent to eliminate duplicative sales and service offices related to the real-time businesses of the companies in those markets where each company presently maintains an office. - Liquidity. The Transaction is expected to provide Concurrent with potential additional borrowing capacity under its revolving credit facility based on the higher borrowing base resulting from the combination of the real-time businesses of the two companies. Concurrent also may sell or pledge, subject to certain restrictions, part of the Purchased Harris Shares as a means of achieving increased liquidity. For a discussion of certain issues relating to the liquidity of each company and the expected 48 54 liquidity of each company after consummation of the Transaction, see "SPECIAL FACTORS -- Potential Shortfall in Liquidity." For the foregoing reasons, the Concurrent Board unanimously believes that the terms and conditions of the Purchase and Sale Agreement are in the best interests of Concurrent and its shareholders. In reaching its conclusion, the Concurrent Board considered, among other things: (i) information relating to the business, assets, management, competitive position and prospects of Concurrent if it were to continue as an independent company; (ii) the general strategic and other benefits of the Transaction, described above; (iii) the judgment, advice of, and analyses prepared by, Concurrent's management; (iv) the opinions, analyses and presentations of Concurrent's financial advisor, Berenson Minella as described under "-- Opinion of Concurrent's Financial Advisor"; (v) the financial condition and results of operations of Concurrent and Harris, both on an historical and a prospective basis; (vi) the percentage of equity in Concurrent to be received by Harris in relation to the relative contributions of the real-time businesses of Concurrent and Harris based on, among other things, sales, earnings before interest, taxes, depreciation and amortization, and net income, and the financial position of Concurrent on a pro forma combined basis following the Transaction; (vii) the potential value inherent in the Purchased Harris Shares to be received by Concurrent based on the recent stock trading values of other companies in the trusted systems market, particularly those described in "THE PROPOSED TRANSACTION -- Background of the Transaction"; (viii) the potential efficiencies, cost savings and other synergies that should be realized as result of the combination of the real-time businesses of Concurrent and Harris; (ix) historical market prices and trading information with respect to Concurrent Common Stock and Harris Common Stock; (x) the terms and conditions of the Purchase and Sale Agreement and the Ancillary Agreements including (a) the Assets to be acquired by Concurrent, (b) the fact that no long-term non-contingent liabilities of Harris are to be assumed, the types of current liabilities and contingent liabilities to be assumed by Concurrent in the Transaction, and the fact that the liquidation preference of the Concurrent Preferred Stock to be received by Harris will be reduced on a dollar-for-dollar basis to the extent that net current assets to be received by Concurrent are less than $14.4 million, as described in "TERMS OF THE TRANSACTION -- The Purchase and Sale Agreement -- Preferred Stock Adjustment" and "-- Concurrent Preferred Stock -- Liquidation Preference," (c) the consideration to be paid by Concurrent, (d) the obligations imposed on each of the parties, (e) the terms of the Preferred Stock Consideration to be issued to Harris in the Transaction (along with the terms of the debentures into which such preferred stock is exchangeable, pursuant to the terms of such stock) and (f) the terms of the Share Holding Agreement; (xi) the effect of the tax and accounting treatment of the Transaction on Concurrent as described under "SPECIAL FACTORS -- Limitations on Use of Certain Tax Loss Carryforwards", "TERMS OF THE TRANSACTION -- Accounting Treatment" and "-- Certain Federal Income Tax Consequences of the Transaction"; (xii) the history of discussions regarding the Transaction with Harris; (xiii) the expected composition of the Concurrent Board and the Harris Board following the Transaction; (xiv) the many challenges to management associated with successfully integrating the businesses of the two companies and the expected composition of the management team for Concurrent following the consummation of the Transaction; (xv) the expected costs of completing the combination of the real-time businesses of Harris and Concurrent and of developing next generation products in the real-time business; (xvi) the inherent difficulties in combining the two real-time businesses at a time when both are experiencing generally declining revenues and liquidity issues; (xvii) the types of reactions customers might have to the Transaction as customers of each company analyze the Transaction and its effect on Concurrent's commitment to existing product lines and the expected next generations of product improvements; (xviii) the potential significant enhancement of the technological, strategic and market position of Concurrent beyond that achievable by Concurrent prior to the consummation of the Transaction and (xix) the interest of certain members of management of Concurrent in the Transaction described in detail in "-- Interests of Certain Persons in the Transaction". In connection with their consideration of the Transaction, the members of the Concurrent Board were presented with certain projected financial information for fiscal years 1997 and 1998 prepared by the management of Concurrent and Harris referred to herein as the Projections (see "PROJECTED FINANCIAL INFORMATION"). The Projections were prepared by combining separate projections (which are included in the Projections) of Concurrent and Harris (excluding the Trusted Systems Division) and making adjustments thereto based on certain assumptions. These adjustments included (i) $20.0 million and $18.0 49 55 million in negative sales synergies with corresponding volume related material cost adjustments of $4.4 million and $3.8 million for fiscal years 1997 and 1998, respectively, (ii) manufacturing and service consolidation cost savings of $12.2 million and $15.1 million for fiscal years 1997 and 1998, respectively, (iii) selling, general and administrative and research and development cost savings aggregating $13.2 million and $10.8 million for fiscal years 1997 and 1998, respectively, and (iv) a tax rate for the combined operations of 40%, resulting in an increase in taxes of $1.4 million and $4.1 million in fiscal years 1997 and 1998, respectively. In addition, members of the Concurrent Board were presented with an estimate by management of Concurrent of total net Transaction-related charges and costs of $22.2 million. (For a discussion of Transaction-related charges and costs, see "SPECIAL FACTORS -- Impact of Transaction-Related Charges and Costs on Financial Performance; Uncertainty of Transaction-Related Charges and Costs.") The foregoing discussion of the Projections is qualified in its entirety by the disclosure set forth in "PROJECTED FINANCIAL INFORMATION." Pursuant to the engagement letter between Concurrent and Berenson Minella, as amended, Berenson Minella agreed to accept the proceeds from the sale of shares of Concurrent Common Stock as payment of a portion of its fee, and may, at its election, accept delivery of any unsold shares in lieu of additional cash payment. The form of payment was necessitated by the Concurrent Board's desire to conserve cash and had no impact on the Concurrent Board's reliance on the opinion of Berenson Minella. See "-- Opinion of Concurrent's Financial Advisor." The foregoing discussion of the information and factors considered by the Concurrent Board is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the Transaction, except as noted above the Concurrent Board did not, as a group, find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. Individual members of the Concurrent Board may have quantified and given weights to such factors, but such individual members may have quantified and weighted such factors differently. After considering, among other things, the foregoing factors, the Concurrent Board unanimously adopted and approved the Purchase and Sale Agreement and the transactions contemplated thereby and recommended that the shareholders of Concurrent vote to approve the issuance of the Concurrent Common Stock Consideration and the Concurrent Stock Plan Amendment as required to consummate the Transaction. OPINION OF CONCURRENT'S FINANCIAL ADVISOR In June 1995, Concurrent engaged Berenson Minella as its financial advisor to assist the senior management of Concurrent in restructuring and/or refinancing Concurrent's bank debt and to explore various options with respect to raising capital and combination transactions with other parties. Berenson Minella was selected by the Concurrent Board after its consideration of several other financial advisors; such selection was based on, among other things, Berenson Minella's experience and reputation. Berenson Minella is a nationally recognized investment banking firm whose principals have substantial experience in corporate finance, restructurings and transactions such as the Transaction. On June 29, 1995, Concurrent entered into a new senior loan agreement with Foothill Capital Corporation to refinance its prior existing bank debt. Following the completion of that refinancing, Concurrent asked Berenson Minella to initiate discussions with a limited number of potential combination transaction partners, including Harris. In October 1995, the Concurrent Board requested Berenson Minella, as part of its engagement as financial advisor with respect to a possible combination transaction with Harris, to render an opinion to the Board as to the fairness of the exchange ratio in such transaction, from a financial point of view, to Concurrent's shareholders. Thereafter, beginning in January 1996, Berenson Minella assisted the Concurrent Board in connection with the revisions to the proposed transaction which resulted in the negotiation and execution of the Purchase and Sale Agreement. On March 22, 1996, at the request of Concurrent's Board and prior to its approval of the Purchase and Sale Agreement, Berenson Minella rendered its oral opinion (confirmed in a written opinion dated as of the date of this Joint Proxy Statement) that, as of the date of such opinion, and subject to certain assumptions, procedures followed and matters and limitations set forth in such written opinion as described below, the purchase by Concurrent of the Assets and the Purchased Harris Shares for the Concurrent Common Stock 50 56 Consideration and the Preferred Stock Consideration and the assumption of the Assumed Liabilities, taken as a whole, are fair to the shareholders of Concurrent from a financial point of view. Berenson Minella's opinion does not constitute a recommendation to any shareholder of Concurrent as to how any such shareholder should vote with respect to the issuance of Concurrent Common Stock and the Additional Common Shares in connection with the Transaction. A copy of the written opinion of Berenson Minella is attached hereto as Annex B. SHAREHOLDERS OF CONCURRENT ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY FOR A DISCUSSION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND SCOPE OF THE REVIEW UNDERTAKEN IN RENDERING SUCH OPINION. The summary of the opinion set forth below is qualified in its entirety by reference to the full text of such opinion in Annex B. In arriving at its opinion, Berenson Minella, among other things: (i) reviewed the Purchase and Sale Agreement, the Form of Certificate of Designation, Debenture Term Sheet and Form of Share Holding Agreement attached as exhibits thereto, and the Joint Proxy Statement; (ii) reviewed certain publicly-available business and financial information relating to Concurrent, including Concurrent's Annual Reports on Form 10-K for the fiscal years ended June 30, 1994 and 1995, and its Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 1995, December 31, 1995 and March 31, 1996; (iii) reviewed certain publicly-available business and financial information relating to Harris, including Harris's Information Statement dated September 29, 1994, its Quarterly Reports on Form 10-Q and Form 10-Q/A for the period ended September 30, 1994, its Annual Report on Form 10-K for the fiscal year ended September 30, 1995, and its Quarterly Reports on Form 10-Q for the fiscal quarters ended December 29, 1995 and March 30, 1996; (iv) reviewed forecasted combined income statements for Concurrent and the Harris Real-Time Business for the twelve month periods ending June 30, 1997 and 1998, and forecasted combined balance sheets as of the end of each fiscal quarter from June 30, 1996 through June 30, 1998, prepared by Concurrent's management as of March 15, 1996, financial projections for Concurrent and financial projections for the Harris Real-Time Business for the twelve month periods ending June 30, 1997 and 1998, prepared by Concurrent's management as of March 15, 1996, and financial projections for the Harris Real-Time Business for the twelve months ending December 31, 1996 and 1997, prepared by the management of Harris as of March 15, 1996 (collectively referred to herein as the "Projections"; see "PROJECTED FINANCIAL INFORMATION"), and had discussions with the management of each company regarding the Projections; (v) reviewed financial forecasts for Concurrent for the quarters ending March 31, 1996 and June 30, 1996, prepared by Concurrent's management as of January 24, 1996; (vi) discussed with the management of each of Concurrent and Harris their respective businesses and the views of each management regarding the companies' respective technologies and the profitability of such technologies, as well as the operating and strategic benefits and implications of Concurrent's acquisition of the Harris Real-Time Business, including the effect on sales and the operating synergies and cost savings projected to be achieved through the combination of the operations of Concurrent and the Harris Real-Time Business; (vii) considered both the historical and recent sales and earnings trends of each of Concurrent and the Harris Real-Time Business, taking into account the financial condition, including the projected costs associated with Concurrent's acquisition of the Harris Real-Time Business and debt capacity and liquidity, of each, as well as that of the pro forma combined company; (viii) reviewed historical stock prices and trading volumes of Concurrent and Harris; (ix) compared the recent financial performance of each of Concurrent and the Harris Real-Time Business with that of other public companies engaged in businesses deemed similar to those of Concurrent and the Harris Real-Time Business, and compared the recent financial performance of Harris's "trusted systems" business with that of other public companies engaged in businesses deemed similar to those of such "trusted systems" business; (x) reviewed the financial terms of certain other recent business combinations involving companies engaged in businesses deemed similar to those of Concurrent and the Harris Real-Time Business, to the extent publicly available; (xi) compared the relative contribution in terms of sales, operating income, operating cash flow and net income of each of Concurrent and the Harris Real-Time Business to a pro forma combined company and compared such contribution to the pro forma ownership of each of Concurrent's shareholders and Harris in the combined company; and (xii) reviewed such other information and took into account such other factors as Berenson Minella deemed relevant. 51 57 For purposes of rendering its opinion, Berenson Minella assumed and relied upon the accuracy and completeness of the foregoing information and did not assume any responsibility for independent verification of such information or for any independent valuation or appraisal of any of the assets or liabilities of Concurrent or Harris, including without limitation the Assets or the Assumed Liabilities, nor was Berenson Minella furnished with any such valuations or appraisals. With respect to the Projections and financial forecasts, Berenson Minella assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Concurrent as to the future performance of Concurrent and the Harris Real-Time Business, of the management of Harris as to the future performance of the Harris Real-Time Business, and of the managements of Concurrent and Harris with respect to the future performance of the combined operation of Concurrent and the Harris Real-Time Business, and relied upon the assurances of the managements of Concurrent and Harris that they are unaware of any facts that would make the information, Projections or financial forecasts provided to Berenson Minella incomplete or misleading. Berenson Minella also assumed that the effect on sales and the operating synergies and cost savings projected to be achieved through the combination of the operations of Concurrent and the Harris Real-Time Business will be realized and relied without further analysis or investigation on the judgment of the managements of Concurrent and Harris as to the companies' respective technologies and the profitability of such technologies. Berenson Minella's opinion is necessarily based on economic, market and other conditions, and the information made available to it, as of the date of the opinion. The opinion was provided at the request and for the information of the Concurrent Board in connection with its consideration of the Transaction, and shall not be reproduced, summarized, described or referred to, or furnished to any other person, without Berenson Minella's prior written consent, provided, however, that the opinion may be reproduced in full in this Joint Proxy Statement. The opinion does not constitute a recommendation to any shareholder of Concurrent as to how any such shareholder should vote with respect to the issuance of Concurrent Common Stock and the Additional Common Shares in connection with the Transaction. The following is a brief summary of those financial analyses undertaken by Berenson Minella and discussed with the Concurrent Board in rendering its oral fairness opinion to such Board on March 22, 1996. Review of Historical and Projected Financial Statements. Berenson Minella reviewed comparable historical financial results for each company for the fiscal years ending June 30, 1992 through 1995 for Concurrent and analogous periods for Harris and projected financial results for 1996 (based upon certain of the Projections for Concurrent's June 30 fiscal year and a September 30 fiscal year for Harris), and noted the historical trend downward in sales and profitability for both companies for the latest fiscal year, projected to continue for Concurrent for 1996, with some improvement for Harris (based on consolidated numbers for both the Harris Real-Time Business and its "trusted systems" business) but still significantly below fiscal 1994 numbers. Stock Trading History. Berenson Minella reviewed the historical trading prices and volume of Concurrent Common Stock on a daily basis from March 16, 1995 to March 15, 1996 and on a weekly basis from January 3, 1992 to March 15, 1996, and of Harris Common Stock on a daily basis from March 16, 1995 to March 15, 1996 and on a weekly basis from October 7, 1994 (the week of its spin-off from Harris Corporation) to March 15, 1996, noting the significant decline in the Concurrent stock price over the past three years and the sharp increase in the Harris stock price since the end of December 1995. Contribution Analysis. Berenson Minella analyzed the contribution of each of Concurrent and the Harris Real-Time Business to the pro forma combined company for the twelve months ending June 30, 1995, September 30, 1995 and December 31, 1995 (assuming a quarterly run rate of depreciation and amortization for the Harris Real-Time Business through December 1995) and June 30, 1996, December 31, 1996 and June 30, 1997 (based upon Concurrent's Projections dated March 15, 1996 and Harris management's low case for the Harris Real-Time Business as of March 16, 1996). Such analysis showed that, on both an historical and projected basis, Concurrent and the Harris Real-Time Business were each contributing sales in approximately the agreed 75%/25% ownership ratio, Concurrent's shareholders to Harris, respectively, following the Transaction (assuming no conversion of the Preferred Stock Consideration or exercise of 52 58 Concurrent Options to be vested as a result of the Transaction; with such conversion, the ownership ratio would be 69%/31%, respectively), although Concurrent's percentage was decreasing from 78.7% for the twelve months ending June 30, 1995 to 72.4% for the projected twelve months ending June 30, 1997, while the percentage for the Harris Real-Time Business was increasing from 21.3% to 27.6%, respectively, over such period. While such analysis showed that, on an historical and projected basis, Concurrent would have contributed 110% and 120.7% of EBITDA (as defined below) for the twelve months ended June 30, 1995 and December 31, 1995, respectively, and was projected to contribute 81.3% and 78.8% of EBITDA for the twelve months ending June 30, 1996 and December 31, 1996, respectively, and 115.7% and 95.5% of EBIT (as defined below), for the projected twelve months ending June 30, 1996 and December 31, 1996, respectively (EBIT being negative for the historical 1995 periods), which was more than the agreed ownership ratio (assuming no conversion of the Preferred Stock Consideration or exercise of options, as above), Concurrent was projected to contribute 70.9% of EBITDA and 74.9% of EBIT for the twelve months ending June 30, 1997, which would be approximately in line with such ratio, assuming no conversion of the Concurrent Preferred Stock, or slightly above the ratio following the conversion of the Concurrent Preferred Stock. Berenson Minella also looked at the accretive benefits of the acquisition to Concurrent's shareholders and Harris, comparing projected results for the twelve months ending June 30, 1996 and 1997, derived as described above, to pro forma numbers for the combined business for the twelve months ending June 30, 1996 and June 30, 1997, based upon the Projections for Concurrent and the Harris Real-Time Business, adjusted by the projected synergies of the combined business in fiscal 1997 as provided by Concurrent's management, on both a primary ownership basis and assuming conversion of the Preferred Stock Consideration. Such analysis showed dilution to Concurrent shareholders in respect of sales of ($19.0) million, or 17.9%, and ($17.2) million, or 17.2%, vs. dilution to Harris of ($1.0) million and ($0.9) million, or 2.9%, for the projected twelve months ending June 30, 1996 and June 30, 1997, respectively, assuming conversion of the Preferred Stock Consideration. Such analysis also showed, however, significant accretion to Concurrent shareholders in respect of EBITDA of $4.2 million (25.2%), vs. $5.5 million (144.9%) to Harris, for the projected twelve months ending June 30, 1996, and of $4.2 million (29.8%), vs. $2.4 million (41.8%) to Harris, for the projected twelve months ending June 30, 1997, and significant accretion to Concurrent shareholders in respect of EBIT of $4.8 million (97.7%), vs. $5.0 million (percentage not meaningful due to projected negative EBIT of ($0.7) million for Harris, for the projected twelve months ending June 30, 1996, and of $4.4 million (174.1%), vs. $2.3 million (267.3%) for Harris, for the projected twelve months ending June 30, 1997, assuming in each case conversion of the Preferred Stock Consideration. Although the percentage accretion in respect of net income for such periods was not meaningful for Concurrent, given that it was expecting negative net income, the dollar accretion was expected to be greater for Concurrent ($5.5 million, vs. $1.6 million for Harris, for 1996 and $3.8 million, vs. $0.3 million for Harris, for 1997, assuming in each case conversion of the Preferred Stock Consideration). (Percentage accretion was not meaningful for Harris for 1996, when it was expecting negative net income, and was 31.8% for Harris for 1997, when it was expecting net income of $0.8 million.) Berenson Minella noted that none of the above analyses assumed any benefit from the Purchased Harris Shares received by Concurrent in the Transaction. Pro Forma Acquisition Analysis. Berenson Minella analyzed certain pro forma effects of Concurrent's acquisition of the Harris Real-Time Business on the capitalization and earnings of the combined company, as well as Concurrent's earnings per share, based upon the number of fully diluted shares of Concurrent Common Stock provided by Concurrent's management as of March 15, 1996 after taking into account the issuance of the Concurrent Common Stock Consideration. These analyses were based upon projections of Concurrent's management for both Concurrent and the Harris Real-Time Business as of March 15, 1996 for the twelve months ending June 30, 1997 and 1998, and reflect Concurrent management's view of expected synergies and anticipated write-offs, non-deductible transaction expenses and restructuring expenses. Such analysis showed a significant increase in Concurrent's projected earnings per share from ($.04), on a stand-alone basis, to $.08, on a pro forma combined basis, for the projected twelve months ending June 30, 1997 and from $.03, on a stand-alone basis, to $.18, on a pro forma combined basis, for the projected twelve months ending June 30, 1998, as well as a combined company with a stronger balance sheet and greater debt capacity. In its analysis, Berenson Minella assumed that the synergies projected by Concurrent management to be achieved from the acquisition of the Harris Real-Time Business would be realized and expressed no view and 53 59 undertook no analysis with respect to whether such synergies would be realized or the amount or timing of such synergies. Berenson Minella noted that such analyses did not take into account the value of the Purchased Harris Shares received by Concurrent in the Transaction. Comparison with Selected Comparable Publicly Traded Companies. Berenson Minella reviewed and compared certain financial data, including price/earnings multiples for the latest twelve months, estimated 1996 and estimated 1997 and enterprise value to latest twelve months sales, earnings before interest, taxes, depreciation and amortization ("EBITDA") and earnings before interest and taxes ("EBIT"), based upon financial information publicly available on March 13, 1996, stock prices as of March 15, 1996, and corresponding financial data, ratios and multiples for two sets of publicly traded companies: (i) certain large capitalization, general purpose computer companies (Amdahl, Digital Equipment, Hewlett-Packard, IBM, Silicon Graphics, Sun Microsystems and Unisys, collectively, the "Tier I Comparables") and (ii) certain smaller-capitalization, niche-focused computer companies (Cray Research, Encore Computer, Evans & Sutherland, Sequent Computer, Stratus, Concurrent and Harris, collectively, the "Tier II Comparables"). Berenson Minella noted, however, the lack of comparability of the Tier I Comparables, given their size and breadth of business, and the limited comparability of the Tier II Comparables. Berenson Minella concluded from such analysis that no identifiable trends or trading ranges exist in the Tier II Comparables, but noted that multiples of enterprise value to latest twelve months sales were in a narrow range, for which the mean and median were 1.1x and 1.0x, respectively, as of March 15, 1996 (excluding Encore Computer, which was substantially above the range at 9.9x). Berenson Minella also reviewed equity value, enterprise value and latest twelve month sales of certain trusted system companies (Secure Computing, Raptor, Cylink Corp., Cybercash, Inc. and UUNet Technologies), based upon financial information publicly available on March 13, 1996 and stock prices as of March 15, 1996, to provide a perspective for assessing the value of the Purchased Harris Shares following consummation of the Transaction. Analysis of Comparable Merger and Acquisition Transactions. Berenson Minella reviewed certain recent business combinations involving companies engaged in businesses deemed similar to those of Concurrent and the Harris Real-Time Business in terms of selected financial data and valuation ratios, to the extent publicly available, including target enterprise value as a multiple of sales, EBIT and EBITDA and the ratio of acquisition price to target earnings. Except in the multiples of target enterprise value to sales, which ranged from .3x to 1.8x with a mean and median of 1.1x (as compared to multiples, based upon market values as of March 15, 1996, of 0.5x for Concurrent and 1.8x for Harris), no identifiable trends existed for such transactions (Silicon Graphic's pending acquisition of Cray Research, Hewlett Packard's acquisition of Convex Computer, Siemens Nixdorf 's acquisition of Pyramid Technology, Raytheon's acquisition of Xyplex, Storage Technology's acquisition of Network Systems, Radius's acquisition of SuperMac Tech, NCR (AT&T)'s acquisition of Teradata and AT&T's acquisition of NCR, collectively, the "Transaction Comparables"). Berenson Minella noted that merger and acquisition activity in the hardware segment of the computer industry has been relatively modest, and multiples for large transactions such as NCR/AT&T are not particularly relevant. The lack of consistent and reasonable valuation bases for many transactions indicated that many have been done for synergistic and strategic reasons. Valuation Analysis. Berenson Minella compared the implied purchase price of the Harris Real-Time Business, based upon the March 15, 1996 closing stock prices of Concurrent Common Stock ($1.27) and Harris Common Stock ($42.75 prior to the 3 for 1 stock split on March 29, 1996), of (i) $8 million (assuming conversion of the Preferred Stock Consideration into 4 million shares of Concurrent Common Stock) and (ii) $13 million (assuming no conversion of the Preferred Stock Consideration and a value of the Preferred Stock Consideration equal to its $10 million liquidation preference), to the enterprise value of such business based upon sales of the Harris Real-Time Business for the twelve months ended December 31, 1995 and multiples of enterprise value to latest twelve month sales, derived as described above, of the Tier I Comparables (resulting in a minimum enterprise value of $11.4 million, a maximum of $64.6 million and an average of $45.6 million), the Tier II Comparables (resulting in a minimum enterprise value of $19 million, a maximum of $68.4 million and an average of $41.8 million) and the Transaction Comparables (resulting in a minimum enterprise value of $11.4 million, a maximum of $68.4 million and an average of $41.8 million). Berenson Minella also compared such implied purchase prices to the enterprise value of the Harris Real-Time 54 60 Business, based upon Concurrent's multiple of enterprise value to latest twelve month sales of .5x, given that Concurrent is the only publicly traded company whose sole business is real-time computing, resulting in an enterprise value for the Harris Real-Time Business of $19 million. In connection with such analysis, Berenson Minella noted that such implied purchase prices are sensitive to movements in market prices of both Concurrent Common Stock and Harris Common Stock and presented a range of implied purchase prices for the Harris Real-Time Business assuming a 30% increase and decrease in the prices of Harris Common Stock and Concurrent Common Stock. The above description is a summary of all financial analyses performed by Berenson Minella and discussed with the Concurrent Board in rendering its oral fairness opinion to such Board on March 22, 1996, Berenson Minella did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Berenson Minella believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all such factors and analyses, could create an incomplete or misleading view of the processes underlying its analyses and opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analyses or summary description. Berenson Minella's analyses were prepared solely for purposes of providing its opinion to the Concurrent Board as to the fairness of the purchase of the Assets and the Purchased Harris Shares for the Concurrent Common Stock Consideration and the Preferred Stock Consideration and the assumption of the Assumed Liabilities, taken as a whole, to Concurrent's shareholders from a financial point of view; they do not purport to be appraisals and do not necessarily reflect the prices at which businesses or securities may actually be sold. The analyses performed by Berenson Minella, including those based upon forecasts of future results, are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than as suggested by such analyses. The foregoing summary does not purport to be a complete description of Berenson Minella's analyses. Since June 1995, Berenson Minella has received fees totaling $280,000 for its financial advisory services to Concurrent. Concurrent has also agreed to pay Berenson Minella a transaction fee equal to 1.5% of the average aggregate value of the outstanding Concurrent Common Stock (as of the close of business) for the 5 business days prior to the date of consummation of the Transaction (the "Closing Price"), but in no event less than $700,000, against which fee $100,000 of the fees previously paid (together with any additional retainer payments made pursuant to the terms of the engagement) will be credited. Of such fee, $300,000 is payable in cash at the closing of the Transaction, offset by previously paid retainer fees as described in the preceding sentence, and the remainder (the "Remainder Amount") is payable by delivery to Berenson Minella of the proceeds from the sale by Concurrent at the direction of Berenson Minella of that number of shares of Concurrent Common Stock equal to the quotient of (i) the Remainder Amount divided by (ii) the product of (A) the Closing Price times (B) .875; provided, however, if the aggregate net proceeds from the sale of such shares are less than the Remainder Amount, Concurrent has agreed to pay Berenson Minella the amount of such difference in cash on or before the twenty-fifth business day following the Closing Date of the Transaction (or, if any shares remain unsold and Berenson Minella so elects, to deliver such shares to Berenson Minella), and if Berenson Minella reasonably determines, prior to the Closing, that the shares cannot be sold by Concurrent for any reason within twenty business days of the Closing, Concurrent will promptly pay the Remainder Amount in cash. To the extent that the aggregate net proceeds from the sale of such shares of Concurrent Common Stock exceed the Remainder Amount, Berenson Minella is entitled to receive such excess and Concurrent will not retain such excess. Based on an assumed per share price of $3 1/16 (the closing price of Concurrent Common Stock on May 22, 1996), a transaction fee of approximately $1.4 million would be payable, with a Remainder Amount of approximately $1.1 million. Concurrent has also agreed to reimburse Berenson Minella for its reasonable out of pocket expenses (including the fees and expenses of its counsel) and to indemnify Berenson Minella and certain related persons against certain liabilities and expenses in connection with its services as financial advisor and the sale of any shares of Concurrent Common Stock in connection with its compensation for such services, including liabilities under federal securities laws. 55 61 RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF HARRIS AND HARRIS'S REASONS FOR THE TRANSACTION Special Committee. On March 20, 1996, the Harris Board established the Special Committee consisting solely of independent directors, Messrs. C. Shelton James and Michael F. Maguire. Prior to this time, there was a committee consisting of Messrs. James and Siegel which had been appointed by the Harris Board to negotiate the terms of the Transaction. However, Mr. Siegel recommended to the Harris Board that, in light of his proposed employment by Concurrent as contemplated by the Purchase and Sale Agreement, it would be desirable for the Harris Board to formally appoint a special committee consisting solely of outside directors to consider and make a recommendation to the Harris Board concerning the Transaction. The Special Committee was authorized to evaluate the Purchase and Sale Agreement and the Transaction and to consider any other alternative as may be in the best interests of the Harris shareholders and to make a recommendation to the Board regarding the Transaction or other alternative. Each member of the Special Committee will receive $3,000 as compensation for participation on the Special Committee and the Chairman will receive an additional $7,000. The Harris Board authorized the Special Committee to retain legal counsel and a financial advisor. The Special Committee met on March 20, 1996. It appointed Mr. James as Chairman of the Committee. The Special Committee considered the selection of legal counsel and a financial advisor. The Special Committee noted that Holland & Knight and Bear Stearns were representing Harris with regard to the Transaction. The Special Committee considered the reputation and work of both firms and recognized that time would be lost and extra expense would be incurred if the Special Committee retained legal counsel and financial advisors at this time who were unfamiliar with the Purchase and Sale Agreement and other documents. After due consideration, the Special Committee concluded that Holland & Knight should be retained as special counsel to the Special Committee and that Bear Stearns be retained as financial advisor to the Special Committee. At its meeting on March 20, 1996, the Special Committee considered the Transaction. Among other things, the Special Committee received the oral report of a representative of Bear Stearns concerning the fairness of the Transaction. The Special Committee deliberated at length and tentatively concluded that the Transaction was fair to and in the best interests of the Harris shareholders. This conclusion was based on its review of various factors, including (i) the fairness opinion of Bear Stearns; (ii) the fact that the terms of the Purchase and Sale Agreement were determined through arm's length negotiation; (iii) the judgment that the Transaction was likely to be consummated; (iv) the Special Committee's belief that the consideration to be received by Harris was fair considering the operations and prospects of both companies and the synergies to be gained by the combined company in which Harris would have a substantial continuing interest; and (v) the judgment that the Transaction provided the best value reasonably available to the Harris shareholders. The Special Committee did not attempt to assign relative weights to the specific factors it considered and did not evaluate whether such factors were of equal weight. The Special Committee then decided to defer a vote on the Transaction until it had an opportunity to review the latest drafts of the Purchase and Sale Agreement and related documents and receive reports from legal counsel and others concerning such latest drafts. In the late afternoon of March 21, 1996, the Special Committee held a meeting by telephone conference call, joined by legal counsel. The members and legal counsel had reviewed the latest drafts of the documents and were generally satisfied with them. Accordingly, the Special Committee unanimously concluded that the Purchase and Sale Agreement and the Transaction were fair to and in the best interests of the Harris shareholders, approved the Purchase and Sale Agreement and the Transaction and recommended that the Harris Board also approve the Purchase and Sale Agreement and the Transaction. The Harris Board. On March 21, 1996, the Harris Board unanimously concluded, in the exercise of its independent business judgment, that the Purchase and Sale Agreement and the Transaction were fair to and in the best interests of the Harris shareholders, based upon (i) the conclusion and recommendation of the Special Committee and (ii) the factors referred to above as having been taken into account by the Special 56 62 Committee, with which the Harris Board concurred and adopted as its own. Certain of the factors taken into account by the Special Committee are elaborated upon in the following paragraphs. Accordingly, the Harris Board has approved the Purchase and Sale Agreement and recommends that the shareholders of Harris vote in favor of approval and adoption of the Purchase and Sale Agreement and the Transaction. Harris Shareholders Share Expected Future Benefits of Transaction. The Harris Board reached the conclusion that the Transaction offers significant strategic and financial benefits to Harris and its shareholders, as well as to its customers and employees. The Harris Board believes that by combining the technologies and the engineering capabilities of Concurrent and Harris, the Transaction is expected to enhance the research and development of improvements to existing products and the creation of new generations of products. It is anticipated that the marketing and sales functions should benefit from the combination of the two companies' customer bases, distribution channels and marketing and sales staffs. Moreover, the Harris Board believes that significant cost savings should be achievable from the Transaction. It is expected that the combined current level of the two companies' research and development expense presents significant opportunities for savings. These savings would be created both from the consolidation of the two companies' research and development facilities and the lower level of expense associated with creating, improving and supporting a next generation single series of computer hardware and associated operating system. The elimination of overlapping sales and service offices world-wide would also provide an area for significant cost saving. In addition to these potential savings, the combined enterprise would be able to consolidate manufacturing, corporate and administrative functions and reduce other non-labor corporate and administrative expenses. The Harris Board believes that the Transaction structure provides Harris with the opportunity to benefit from the significant stake in Concurrent received by Harris in the Transaction. Trusted Division Benefits from Separate Corporate Identity. The Harris Board believes that separating the trusted systems operations into a separate operating company simplifies investors' analysis of Harris by dividing Harris's disparate product lines into separate operations. Prior to the Transaction, Harris had been working to expand its trusted systems division sales from principally government customers to commercial computer users. The Harris Board believes that a significant market for trusted systems exists and that, as a separate company, the trusted division can focus on the trusted market, attract investors, and increase shareholder value without the requirement of competing with the Harris Real-Time Business for personnel, capital, and administrative resources. The Harris Board considered that the trusted and real-time businesses were in many ways unrelated and that the operation by Harris of both businesses complicated investors' analysis of Harris and raised uncertainty as to the focus of Harris's business. In making its determination with respect to the Transaction, the Harris Board considered the following factors: (i) information relating to the business, assets, management, competitive position and prospects of Harris as an independent company; (ii) the financial condition, cash flows, results of operations and liquidity position of Harris and Concurrent, both on a historical and a prospective stand-alone and combined basis; (iii) historical market prices and trading information with respect to Harris Common Stock and Concurrent Common Stock; (iv) the percentage of equity in Concurrent to be received by Harris in relation to the relative contributions of Harris and Concurrent based on, among other things, revenues, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, net income, and book value; (v) the potential efficiencies, cost savings and other synergies that should be realized as result of the combination of Concurrent's and Harris's operations; (vi) the relative advantages and disadvantages to separating the trusted division into an independent legal entity; (vii) the terms of the Purchase and Sale Agreement and other Ancillary Agreements; (viii) the existence of various interests that certain executive officers and directors of Harris have with respect to the Transaction, in addition to their interests as shareholders generally (see "-- Interest of Certain Persons in the Transaction"); (ix) the opinions, analyses and presentations of Bear Stearns as described under "-- Opinion of Harris's Financial Advisor"; (x) the tax effects of the Transaction on Harris shareholders; (xi) the tax and accounting effects of the Transaction on Harris; (xii) the possible effects on the customers of each of Concurrent and Harris and the marketing and sales efforts that might be needed to appropriately present the effects of the Transaction to the combined customer base; (xiii) the demands which will be placed upon management to successfully combine the business, operations and 57 63 personnel of the two companies; and (xiv) the potential significant enhancement of the technological, strategic and market position of the combined enterprise beyond that achievable by Harris alone. In considering Bear Stearns' opinion, the Harris Board was aware that Bear Stearns' compensation included an incentive fee payable only if the Transaction is consummated (see "-- Opinion of Harris's Financial Advisor") but was also aware that Bear Stearns was entitled to a fee for delivering an opinion on the Transaction. In connection with their consideration of the Transaction, the members of the Harris Board focused in particular upon projected financial information prepared by the management of Harris and Concurrent for the combined real-time business and the valuation analyses prepared by Harris's financial advisor. The Harris Board in particular considered: (i) projected net sales and net income for 1996 and 1997; (ii) Harris's financial advisor's valuation range of $12.0 million to $16.0 million for Harris's real-time systems division on a stand-alone basis, as described below in "-- Opinion of Harris's Financial Advisor"; (iii) Harris's financial advisor's valuation of $60.0 million to $120.0 million for the combined real-time business (see "-- Opinion of Harris's Financial Advisor"); and (iv) the "Has/Gets Analysis" (as described below in "-- Opinion of Harris's Financial Advisor") that implied a valuation of the pro forma equity interest in the combined real-time business to be received by Harris in the range of $18.5 million to $37.1 million. Given the wide range of values presented by Harris's financial advisor for the combined real-time business, Harris's financial advisor provided information in the "Has/Gets Analysis" over the indicated range of values for Harris's real-time systems division on a stand-alone basis, for the combined real-time business and for the remaining trusted systems business. This "Has/Gets Analysis" indicated that, over the broad range of values, Harris's interest in the remaining trusted systems business together with the pro-forma equity interest in the combined real-time business compared favorably with the values for Harris without the Transaction. The foregoing discussion of the information and factors considered by the Harris Board is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the Transaction, except as noted above, the Harris Board did not, as a group, find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. Individual members of the Harris Board may have quantified and given weights to such factors but such individual members may have quantified and weighted such factors differently. OPINION OF HARRIS'S FINANCIAL ADVISOR Harris retained Bear Stearns on September 25, 1995 as its financial advisor in connection with a possible transaction contemplated between Harris and Concurrent. Bear Stearns was selected by the Harris Board because of its qualifications, expertise, and reputation in providing advice to companies in the technology industry, as well as its reputation as an internationally recognized investment banking firm. On March 20, 1996, Bear Stearns delivered an oral opinion to the Special Committee of the Harris Board ("Special Committee"), which was subsequently confirmed in a written opinion dated as of the date of this Joint Proxy Statement (the "Bear Stearns Opinion") that, as of such date, the Transaction was fair, from a financial point of view, to the shareholders of Harris. THE FULL TEXT OF THE BEAR STEARNS OPINION IS ATTACHED AS ANNEX C TO THIS JOINT PROXY STATEMENT. HARRIS'S SHAREHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION CAREFULLY IN ITS ENTIRETY IN CONJUNCTION WITH THIS JOINT PROXY STATEMENT FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY BEAR STEARNS. The Bear Stearns Opinion addresses only the fairness of the Transaction from a financial point of view to the shareholders of Harris and does not constitute a recommendation to any shareholders of Harris as to how such shareholder should vote with respect to approval of the Purchase and Sale Agreement or the Transaction. The summary of the Bear Stearns Opinion set forth in this Joint Proxy Statement is qualified in its entirety by reference to the full text of such opinion. The consideration to be received by Harris's shareholders as a result of the Purchase and Sale Agreement was determined by negotiation between Harris and Concurrent after consultation by each of such parties with their respective financial advisors. In connection with rendering the Bear Stearns Opinion, Bear Stearns, 58 64 among other things: (i) reviewed the Purchase and Sale Agreement and the Joint Proxy Statement in substantially the final form to be sent to the shareholders of Harris; (ii) reviewed Harris's Information Statement dated September 29, 1994, its Quarterly Reports on Form 10-Q and Form 10-Q/A for the period ended September 30, 1994, Quarterly Reports on Form 10-Q for the periods ended December 29, 1995 and March 31, 1996, respectively, and its Annual Report on Form 10-K for the fiscal year ended September 30, 1995; (iii) reviewed Concurrent's Annual Reports on Form 10-K for the fiscal years ended June 30, 1994 and 1995, and its Quarterly Reports on Form 10-Q for the periods ended December 31, 1995 and March 31, 1996, respectively; (iv) reviewed certain operating and financial information, including projections, provided by the management of Harris and Concurrent in March 1996 relating to their respective businesses and prospects (the "Harris Management RSD Base Case Projections" and "Harris Management TSD Base Case Projections," and the "Concurrent Management Base Case Projections," respectively); (v) met with certain members of Harris's senior management to discuss its operations, historical financial statements and future prospects of both its Real-Time Systems Division ("RSD") and Trusted Systems Division ("TSD"), their views of the operations, historical financial statements, and future prospects of Concurrent, and their views of the business, operational and strategic benefits, potential synergies and other implications of the Transaction; (vi) met with certain members of Concurrent's senior management to discuss its operations, historical financial statements, and future prospects, and their views of the business, operational and strategic benefits, potential synergies and other implications of the Transaction; (vii) reviewed the pro forma financial impact of the Transaction on Harris; (viii) reviewed the pro forma financial impact of the Transaction on the new company formed as the result of the merger of Harris RSD and Concurrent (the "Combined Real-Time Company"); (ix) reviewed the historical stock prices and trading volumes of the Harris Common Stock and the Concurrent Common Stock; (x) reviewed the publicly available financial information and stock market performance data of other publicly held companies that Bear Stearns deemed generally comparable to Harris and Concurrent; (xi) reviewed the terms of selected recent transactions that Bear Stearns deemed generally comparable to the Transaction; and (xii) considered such other studies, analyses, inquiries and investigations as Bear Stearns deemed appropriate. Subject to this and the following paragraph, Bear Stearns relied upon and assumed without independent verification: (i) the accuracy and completeness of all of the financial and other information provided to it for purposes of its opinion, and (ii) the reasonableness of the assumptions made by the managements of Harris and Concurrent with respect to their respective projected financial results and potential synergies (including cost savings from the anticipated reduction of duplicate facilities, corporate overhead and excess research and development and manufacturing capacity, and the enhanced ability to operate as a prime contractor with a broader product line as a result of the Transaction) which could be achieved upon consummation of the Transaction. In addition, Bear Stearns did not make or seek to obtain appraisals of Harris's or Concurrent's assets and liabilities in rendering its opinion. Bear Stearns further relied upon the assurances of the managements of each of Harris and Concurrent that such managements were not aware of any facts that would make the information provided to Bear Stearns incomplete or misleading. The Bear Stearns Opinion is necessarily based upon the economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. Bear Stearns further assumed that the Transaction would be accounted for in accordance with the purchase method of accounting. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analysis as a whole, could create an incomplete view of the processes underlying the Bear Stearns' Opinion. In arriving at its opinion, Bear Stearns considered the results of all such analyses. The analyses were prepared solely for purposes of providing its opinion and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results which may be significantly more or less favorable than suggested by such analyses. As described above, Bear Stearns' Opinion and presentation to the Harris Board was one of many factors taken into consideration by the Harris Board in making its determination to approve the Purchase and Sale Agreement. The foregoing summary does not purport to be a complete description of the analysis performed by Bear Stearns. 59 65 Bear Stearns is an internationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and other purposes. In the ordinary course of its business, Bear Stearns may actively trade the equity securities of Harris and Concurrent for its own account and for the accounts of its customers and accordingly, may, at any time, hold a long or short position in such securities. From time to time since September 25, 1995, Bear Stearns has held Harris Common Stock as a principal in amounts which have never exceeded 10,000 such shares. At least since September 25, 1995, Bear Stearns has not held Concurrent Common Stock as a principal. Bear Stearns holds Concurrent Warrants to purchase 121,877 shares of Concurrent Common Stock. The Concurrent Warrants were issued on July 21, 1993 and expire on July 22, 1996. In February and March 1996, the management teams of Harris and Concurrent, respectively, in conjunction with Bear Stearns, developed a revised case for each of the Harris Management Base Cases and the Concurrent Management Base Case (referred to herein as the "Harris RSD March 1996 Case," "Harris TSD March 1996 Case" and the "Concurrent March 1996 Case," respectively; the Harris RSD March 1996 Case and the Concurrent March 1996 Case are included in the "Projections"; see "PROJECTED FINANCIAL INFORMATION"). In developing these three cases, Bear Stearns in conjunction with Harris management restated each company's fiscal year projections into calendar year format (including extrapolating Concurrent's projections for the last six months of calendar year 1998) (which, along with the Projections, are referred to herein as the "Projected Financial Information"; see "PROJECTED FINANCIAL INFORMATION") and considered a variety of factors that could affect the achievability of the Harris Management RSD Base Case, Harris Management TSD Base Case and the Concurrent Management Base Case. These revised scenarios for Harris RSD, Harris TSD and Concurrent, respectively, were presented to the Harris Board. The projections of future business prospects of Harris used in (i) the Harris Management RSD Base Case and Harris Management TSD Base Case were developed by the management of Harris, and (ii) the Harris RSD March 1996 Case and Harris TSD March 1996 Case were developed by Harris management, in consultation with Bear Stearns. The projections of future business prospects of Concurrent used in (i) the Concurrent Management Base Case were developed by the management of Concurrent, and (ii) the Concurrent March 1996 Case were developed by the management of Concurrent, in consultation with Harris's management team and Bear Stearns. The pro forma financial results for the Combined Real-Time Company were jointly developed by senior management of both companies. The following is a brief summary of certain of the financial analyses used by Bear Stearns in connection with providing its opinion to the Special Committee. Analysis of Stock Price Performance of Harris and Concurrent. Bear Stearns reviewed the historical stock prices and trading volumes of the Harris Common Stock and the Concurrent Common Stock for the period from March 16, 1995 through March 15, 1996 with reference to the (i) 30 trading day average for the period ended February 7, 1996, (ii) 60 trading day average for the period ended February 7, 1996, (iii) 90 trading day average for the period ended February 7, 1996 and the stock price increase from February 7, 1996 to March 15, 1996. These historical stock price trading periods represent the periods before and after the public announcement on February 8, 1996 of the Memorandum of Understanding ("MOU") dated February 7, 1996. These analyses indicate that the average stock price for Harris during the above periods was (i) $4.52, (ii) $4.26 and (iii) $4.40, respectively, and for Concurrent was (i) $0.97, (ii) $1.07 and (iii) $1.24, respectively. Following the public announcement of the MOU the stock price for both companies rose significantly. Between February 7 and March 15, 1996, the Harris stock price increased 119.2% from $6.50 to $14.25 per share and the Concurrent stock price increased 62.1% from $0.78 to $1.27 per share. Relative Contribution Analysis. Bear Stearns analyzed the pro forma contributions of each of Harris RSD and Concurrent to the Combined Real-Time Company, assuming that the Transaction was to be consummated on June 30, 1996, and reviewed certain historical and estimated future operating and financial information including, among other things, Revenues, EBITDA and EBIT of Harris RSD and Concurrent, and the pro forma Revenues, EBITDA and EBIT of the Combined Real-Time Company resulting from the Transaction for calendar years 1996, 1997 and 1998 for the Harris RSD March 1996 Case and Concurrent March 1996 Case. Bear Stearns noted that the Harris RSD contribution to the pro forma EBITDA, and EBIT of the Combined Real-Time Company would be less than the proportion of the pro forma fully-diluted 60 66 number of shares for the combined company to be owned by former Harris shareholders after the Transaction (equal to 30.9%), exclusive of any synergies. In 1996, 1997, and 1998, Harris provides 28.4%, 28.8%, and 31.3% of Combined Real-Time Company Revenues, respectively, and 8.9%, 5.6%, and 21.8% of Combined Company EBITDA, respectively. In each of 1996 and 1997, Harris's contribution to EBIT is negative; in 1998 Harris contributes 30.6% of EBIT. After consideration of the effects of potential synergies, Harris's contribution to the Combined Real-Time Company's pro forma EBITDA in 1996, 1997 and 1998 is 13.5%, 26.3%, and 30.2%, respectively. Harris's contribution to the Combined Company's EBIT after consideration of the effects of potential synergies, in 1996, 1997, and 1998 is 4.5%, 34.4%, and 41.5%, respectively. Harris RSD "Stand-alone" Valuation. Bear Stearns analyzed the value of RSD stand-alone primarily based on a liquidation scenario, reflecting either (i) the sale of assets to a computer company (a "Strategic Buyer"), or (ii) the harvest/orderly liquidation of RSD. Bear Stearns' analysis was developed in conjunction with Harris management to determine appropriate asset value discount factors. Based on this net asset value/ liquidation analysis, Bear Stearns determined a value range for RSD on a stand-alone basis of approximately $12.0 million-$16.0 million. Harris RSD "Going Concern" Valuation. Bear Stearns also analyzed the value of RSD on the basis of the trading multiples of Concurrent and other "comparable" publicly traded high-end/special purpose computer companies (i.e., Amdahl Corporation, Data General Corporation, Digital Equipment Corporation, Hewlett-Packard Company, Sequent Computer Systems, Silicon Graphics, Inc., Stratus Computer, Inc. and Tandem Computers Incorporated). The comparable company analysis involved an analysis of selected actual and estimated financial, operating and stock market information from Harris and Concurrent and the selected computer companies. Although these analyses produced a reference range of $12.5 - $22.5 million, similar to the net asset value/liquidation analysis described above, Bear Stearns does not believe that they provide meaningful indications of RSD's standalone value because: (i) Harris is significantly smaller than all of the companies used as "comparables"; (ii) Harris's financial and operating characteristics are significantly different from all comparables other than Concurrent; and (iii) each company has different product mixes, different proportions of domestic and international sales, different profit margins, and different market capitalizations than Harris. Bear Stearns performed certain other analyses, including an analysis of selected transactions involving acquisitions of companies in the computer industry (i.e., Convex Computer/Hewlett-Packard, Pyramid Technology/Siemens, Custom Manufacturing Services (Micron Computer)/ZEOS International, Bull HN Information Systems (Compagnie des Machines Bull)/Wang Laboratories, TE Electronics-Personal Computer Manufacturing Assets (Tandy)/AST Research, Teradata/NCR (AT&T), Altos Computer Systems/ Acer Group, Apollo Computer/Hewlett-Packard, Convergent/Unisys, Concurrent (Perkin-Elmer)/Massachusetts Computer Corporation). Bear Stearns observed that no company (other than Concurrent) used in the above analysis as a comparison is identical to Harris or Concurrent. In particular, each company has different product offerings and market positions than either of Harris or Concurrent. In reviewing these transactions, Bear Stearns also noted that several such transactions differed from the Transaction in that they involved a purchase of stock and not the purchase of assets of a division. Based on these dissimilarities, substantial weight was not placed on these transactions in arriving at a view of the fairness of the Transaction. Harris TSD "Stand-alone" Valuation. To determine the potential public market valuation of Harris TSD pro forma for the Transaction, Bear Stearns analyzed the public trading values of the most-direct publicly traded competitors to Harris TSD, Secure Computing and Raptor. Bear Stearns noted that Secure Computing and Raptor are not identical to TSD due to differences between the companies and TSD in product architecture, method of product distribution and product market segment served. Bear Stearns also analyzed other Internet-related stocks: America On-line, Inc., NETCOM On-Line Communication Services, Inc., Netscape Communications Corporation, PSINet Inc., Spyglass, Inc. and UUNet Technologies, Inc. These six companies are different from TSD in three key respects, which prevent them from being directly comparable to TSD: (i) none of the above mentioned companies is focused primarily on the Internet firewall market segment; (ii) each company has significantly different operating and financial characteristics than TSD; and (iii) each company operates in a market of a different size than TSD. Based on Bear Stearns' analysis of these comparable publicly traded companies, Bear Stearns believes that TSD could achieve a 61 67 public market valuation in the range of $45.0 million - $85.0 million. Consequently, Bear Stearns estimates the value of the 6.6% fully-diluted interest in TSD that will be held by Concurrent shareholders (pro forma to reflect the 30.9% of Concurrent shares held by Harris shareholders) to be in the range of $3.0 million to $5.6 million. Bear Stearns acknowledge that the realization of a potential public market valuation for a "pure play" TSD that is comparable to Secure Computing, Raptor and other successful recent Internet-related stock offerings is subject to numerous business and market risks, including: (i) Harris TSD's historical dependence on DoD/government contracting; (ii) Harris TSD's product transition from primarily a hardware-focused to a software-focused design; (iii) separation of the RSD and TSD business operations and financial/MIS systems, which are now intertwined, will be complex; (iv) successful recruiting and retention of key senior management; and (v) a favorable new issue market environment, particularly for Internet-related companies. The market for Internet-related stocks has been highly volatile, and any substantial decline in the value of the comparables to TSD would directly impact Harris TSD's valuation. Pro Forma Combined Company Valuation. In addition to the review of the financial analyses described below, Bear Stearns had conversations with Harris's management concerning the strategic implications of the Transaction. Bear Stearns assumed, based on such conversations, that the Combined Real-Time Company might enjoy several strategic advantages over a stand-alone Harris RSD, including (i) significant cost savings from the elimination of duplicative activities, and (ii) the creation of a real-time computing entity with a stronger competitive position in the real-time computer industry. Pro Forma Combination Analysis. Bear Stearns analyzed the earnings estimates for calendar years 1996, 1997 and 1998 for both Harris RSD and, on a pro forma basis, the Combined Real-Time Company after the consummation of the Transaction. This analysis was performed using the Harris RSD March 1996 Case and Concurrent March 1996 Case and took into account potential synergies and cost savings that may be realized after the consummation of the Transaction. After giving effect to such potential synergies, the analysis showed substantial accretion in the fully-diluted earnings per share resulting from the Transaction for the cases examined. Bear Stearns assumed a multiple of equity value range for projected 1996 pro forma net income and projected 1997 pro forma net income, which produced an aggregate equity value of $60.0 - $120.0 million. Has/Gets Analysis. Bear Stearns compared: (i) what Harris shareholders have, in aggregate, with no transaction (i.e., 100% of the value of standalone TSD and RSD, respectively), to (ii) what Harris shareholders will hold by virtue of the Transaction (i.e., 93.4% of the value of TSD, plus 30.9% of the value of the Combined Real-Time Company) (the "Has/Gets Analysis"). Bear Stearns noted that, without a successful separation of RSD and TSD in a manner similar to that contemplated by the Transaction, Harris will face a substantially greater risk of not realizing the full value of TSD and/or RSD, resulting from (i) the drain on management's attention away from TSD and (ii) greater difficulty in obtaining a "full" market valuation for TSD as an embedded component of a larger business, the majority of whose revenues are generated by a mature business that has experienced declining revenues, operating profits and net earnings over the recent past. This Has/Gets Analysis is based on a range of values for RSD on a stand alone basis from $12.0 million to $16.0 million and an implied aggregate equity value range for the Combined Real-Time Company of $60.0 million - $120.0 million. The implied value of the pro forma equity interest in the Combined Real-Time Company to be received by Harris shareholders is therefore $18.5 million - $37.1 million. This compares to an implied pro forma equity market value of $57.3 million in aggregate, or $17.7 million for the 30.9% interest to be held by Harris shareholders on a pro forma fully-diluted basis using the Concurrent closing stock price of $1.266 on March 15, 1996. Using the implied pro forma equity market value, what Harris shareholders get in the Transaction compares favorably to what they have with no Transaction. Bear Stearns concluded that the foregoing analysis supported the conclusion that the Transaction was fair, from a financial point of view, to the shareholders of Harris. Gives/Gets Analysis. Bear Stearns compared: (i) what Harris shareholders sell to Concurrent, (i.e., 6.9% of TSD, plus the value of RSD), to (ii) what Harris shareholders get as consideration from Concurrent (i.e., 30.9% of the Combined Real-Time Company) (the "Gives/Gets Analysis"). Bear Stearns noted that the range of values for RSD used in the Gives/Gets Analysis ($12.5 million - $22.5 million) is higher in the Gives/Gets Analysis than the range of values for RSD in the Has/Gets Analysis described above 62 68 as Bear Stearns believes that in the context of a combination with Concurrent, Harris RSD should be valued as a going concern using comparable trading multiples of Concurrent. Bear Stearns noted that what Harris shareholders get compares favorably to what they give. Furthermore, given the current pro forma implied aggregate equity market value for the Combined Real-Time Company of $57.3 million (using the Concurrent closing stock price of $1.266 on March 15, 1996), Bear Stearns believes that the relevant range of Combined Real-Time Company values for purposes of both Has/Gets and Gives/Gets is $90.0 million to $120.0 million. Terms of Bear Stearns Engagement. Pursuant to a letter agreement dated February 2, 1996, Harris agreed to pay Bear Stearns: (i) a fee of $250,000 for rendering its initial Opinion and an update to such Opinion in connection with the Transaction; (ii) an additional fee of $800,000 upon the consummation of the Transaction against which the $250,000 will be credited; (iii) an incentive fee that is payable (at Harris's election) in cash or Harris Common Stock, equal to 5.0% (to a maximum of $500,000) of the amount received by Harris in the Transaction in excess of $5.00 times the number of shares of Harris Common Stock, determined on a fully-diluted basis; and (iv) if Harris requires equity financing within two years of the date of the letter agreement, Bear Stearns shall have the right to act as Harris's sole or lead managing underwriter in connection with raising such equity financing. Harris has also agreed to reimburse Bear Stearns for its reasonable out-of-pocket expenses, including the reasonable fees and disbursements of counsel, and to indemnify Bear Stearns and certain related persons against certain liabilities in connection with the engagement of Bear Stearns, including certain liabilities under the federal securities laws. INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION In considering the recommendations of Concurrent and Harris with respect to the Transaction, shareholders should be aware that certain executive officers and directors of Concurrent and Harris have certain interests in the Transaction that are in addition to the interests of shareholders of Concurrent and Harris generally. Stock Option Plans. As provided in the Purchase and Sale Agreement, upon consummation of the Transaction, certain Harris Options outstanding on the Closing Date under the Harris Stock Plan, whether or not then exercisable, will be fully vested and exercisable. Similarly, as provided in the Purchase and Sale Agreement, the Concurrent Board will take appropriate action so that all options outstanding on the Closing Date under the Concurrent Stock Plan shall become fully vested and exercisable. The following table sets forth the value accruing to the Concurrent and Harris directors and executive officers under their respective stock option plans as a result of the Transaction, assuming a Closing Date of June 28, 1996.
OPTIONS VESTED AS WEIGHTED ADDITIONAL OPTIONS WEIGHTED TOTAL OPTIONS WEIGHTED OF JUNE 28, AVERAGE VESTING ON THE AVERAGE VESTED AFTER THE AVERAGE 1996 EXERCISE PRICE CLOSING DATE EXERCISE PRICE TRANSACTION EXERCISE PRICE ----------- -------------- ------------------ -------------- ---------------- -------------- Harris............ 182,001 $ 3.13 286,998 $ 3.23 468,999 $ 3.19 Concurrent........ 600,078 $ 1.18 988,495 $ 1.14 1,588,573 $ 1.16 ======= ===== ======= ===== ========= =====
In addition to the options shown above, Harris granted an aggregate of 52,800 restricted shares to Messrs. Siegel (39,000) and Dunleavy (13,800) in October 1994. On the Closing Date, restrictions on these shares lapse and the shares become fully vested. In addition, Messrs. Siegel and Dunleavy have each agreed to enter into a non-competition agreement. Upon the consummation of the Transaction, as a result of entering into the non-competition agreement, Messrs. Siegel and Dunleavy will be issued an additional 78,000 shares and 13,800 shares of Harris Common Stock, respectively. In addition, amendments have been proposed to the Concurrent Stock Plan and the Harris Stock Plan. See "AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN" and "OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS -- Amendment to the Harris Stock Plan." 63 69 Severance Arrangements. The Purchase and Sale Agreement permits Concurrent to enter into retention and/or severance arrangements with its employees for the purpose of encouraging employees to remain with Concurrent until the Closing Date, subject to (i) consultation with Harris prior to implementing any such arrangement and (ii) a ceiling of $2 million on the aggregate dollar amount which may be paid or incurred prior to the Closing Date pursuant to all such retention and/or severance arrangements. In addition, Concurrent has employment agreements with its executive officers. If such an agreement, other than the agreement with Mr. Stihl (the terms of which are described below), is terminated directly by Concurrent without cause or in certain circumstances constructively by Concurrent, the terminated employee will receive severance compensation for a one-year period, in an annualized amount equal to the respective employee's base salary then in effect plus an amount equal to the then most recent annual bonus paid or, if determined, payable, to such employee. Any compensation earned by the former executive officer for subsequent employment during the period for which severance compensation is payable will offset such severance compensation amount by one dollar for every two dollars in subsequent employment compensation. The Purchase and Sale Agreement also provides that Concurrent may pay any severance obligations to employees or under retention arrangements implemented in connection with the Transaction in cash or from the proceeds of the issuance of shares of Concurrent Common Stock. If such severance compensation is paid from the proceeds of the issuance of shares of Concurrent Common Stock, no offset for subsequent employment will be taken. For additional information concerning the Concurrent employment agreements, see "CERTAIN INFORMATION REGARDING CONCURRENT -- Severance Arrangements." Messrs. Siegel and Dunleavy are parties to employment agreements with Harris providing for the payment of certain severance obligations in the event that their employment is terminated following a "change of control" of Harris. Messrs. Siegel and Dunleavy have agreed to accept $200,000 and $80,000, respectively, in lieu of the higher severance obligations payable under employment agreements between themselves and Harris. For additional information concerning the Harris employment agreements, see "CERTAIN INFORMATION REGARDING HARRIS -- Compensation Plans." Employment Arrangements Following the Transaction. Concurrent has entered into employment agreements with John T. Stihl, Chairman, President and Chief Executive Officer of Concurrent, and E. Courtney Siegel, Chairman, President and Chief Executive Officer of Harris. In addition, Harris has entered into an employment agreement with Brian Foremny, General Counsel of Harris. John T. Stihl. Under the Employment Agreement, dated August 25, 1993, as amended on November 5, 1995, between Concurrent and Mr. Stihl (the "Stihl Employment Agreement"), Mr. Stihl will continue as Chairman of the Concurrent Board for six months (the "Continuation Period") after the Closing Date, which period may be extended by mutual agreement of Mr. Stihl and Concurrent. Mr. Stihl will be paid a salary at an annualized rate of no less than $365,000 during the Continuation Period and will be eligible for a salary increase at the discretion of the Concurrent Board. Mr. Stihl will be under no obligation to relocate and will continue to receive full benefits. At any time during the Continuation Period, Mr. Stihl will have the right to resign as Chairman of the Concurrent Board and as an employee in the event in his reasonable judgment he determines that the anticipated benefits to Mr. Stihl and Concurrent are not being fully realized. In such event, Mr. Stihl will continue to receive all benefits (salary and otherwise) under the Stihl Employment Agreement through the end of the Continuation Period. In lieu of any severance compensation which may otherwise be due and payable under the Stihl Employment Agreement, Mr. Stihl will have the option to receive (i) full severance compensation for the 24-month period commencing the day following the Closing Date or (ii) the proceeds from the sale, at Mr. Stihl's direction, of shares of Concurrent Common Stock with a fair market value of $730,000. It is expected that such shares will be sold by the 25th business day following the Closing Date. If the proceeds from the sale of such shares are less than $730,000, Mr. Stihl would have the right to receive either the balance in cash or any unsold shares of Concurrent Common Stock. E. Courtney Siegel. Concurrent and Mr. Siegel entered into an employment agreement dated as of March 26, 1996 (the "Siegel Employment Agreement"), to be effective as of the Closing Date. The Siegel Employment Agreement provides for the employment of Mr. Siegel as President and Chief 64 70 Executive Officer of Concurrent at an initial annual base salary of $300,000 subject to annual review by the Concurrent Board (or any committee delegated by the Concurrent Board to review executive compensation). The Siegel Employment Agreement provides, as of the Closing Date, for Mr. Siegel to be granted options to purchase 1,000,000 shares of Concurrent Common Stock vesting over a three-year period, and long-term incentive compensation options to purchase up to 250,000 shares of Concurrent Common Stock vesting based on Concurrent's achievement of certain performance objectives over a three-year period. The Siegel Employment Agreement provides for Mr. Siegel to have an initial target bonus for the achievement of certain performance objectives to be established by the Concurrent Board, or a committee thereof, of 65% of his annual base salary, and subsequent target bonuses that may be increased by no more than an additional 50% of the initial target bonus. The Concurrent Board may terminate the Siegel Employment Agreement for "cause." The Siegel Employment Agreement defines "cause" as willful acts against Concurrent intended to enrich Mr. Siegel at the expense of Concurrent, the conviction of Mr. Siegel for a felony involving moral turpitude, willful and gross neglect by Mr. Siegel of his duties or the intentional failure of Mr. Siegel to observe policies of the Concurrent Board that have or will have a material adverse effect on Concurrent. If the Siegel Employment Agreement is terminated by Concurrent other than for "cause" or the death, disability or normal retirement of Mr. Siegel or by Mr. Siegel for "good reason," Mr. Siegel 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 at least one-third of Mr. Siegel's stock options and stock appreciation rights will be exercisable at termination. If Mr. Siegel's employment with Concurrent is terminated within three years following a "change in control" by Concurrent other than for "cause" or the death, disability or normal retirement of Mr. Siegel or by Mr. Siegel for "good reason," Mr. Siegel 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. Siegel's stock options and stock appreciation rights will become exercisable at termination. If Mr. Siegel's employment is terminated at any time by Concurrent for "cause" or by Mr. Siegel other than for "good reason," the Siegel Employment Agreement prohibits Mr. Siegel from engaging in any business competitive with the business of Concurrent for a one-year period following the effective date of termination. If Mr. Siegel's employment is terminated by Concurrent other than for "cause" or the death, disability or normal retirement of Mr. Siegel or by Mr. Siegel for "good reason," other than within three years of a "change in control," the Siegel Employment Agreement prohibits Mr. Siegel from engaging in any business competitive with the business of Concurrent for a two-year period following the effective date of termination. Brian Foremny. On February 4, 1996, Mr. Foremny entered into an employment agreement with Harris under which he became general counsel of Harris and under which he will be paid approximately $120,000 per year, with a bonus opportunity equal to 16.7% of base salary, and was awarded options to acquire 72,000 shares of Harris Common Stock at an exercise price of $5.50 per share (the fair market value of Harris Common Stock on such date). During March 1996, the Harris Board requested, and Mr. Foremny agreed, that if the Transaction is not consummated, the Harris Board may terminate the employment agreement with Mr. Foremny. In addition, it is expected that Concurrent will enter into employment agreements with those persons who will become executive officers of Concurrent following the Transaction. Those persons who are expected to become executive officers of Concurrent following the Transaction are identified in "DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION -- Executive Officers." Certain Benefits to Directors. As a result of the Transaction, Messrs. E. Courtney Siegel, C. Shelton James and Michael F. Maguire, currently members of the Harris Board, will become members of the Concurrent Board and will be entitled to benefits as members of the Concurrent Board. See "DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION." For a description of the ongoing benefits to be received by members of the Concurrent Board, see "CERTAIN INFORMATION REGARDING CONCURRENT." As a result of the Transaction, Richard P. Rifenburgh, currently a member of the Concurrent Board, will become a member of the Harris Board 65 71 and will be entitled to benefits as a member of the Harris Board. For a description of the ongoing benefits to be received by members of the Harris Board, see "CERTAIN INFORMATION REGARDING HARRIS." Shareholders should also be aware that payment of certain fees to Bear Stearns, the financial advisor to Harris, is contingent upon consummation of the Transaction and the payment of certain fees of Berenson Minella, the financial advisor to Concurrent, is also contingent upon consummation of the Transaction. In addition, in partial payment of its financial advisory fees, Berenson Minella agreed to accept the proceeds from the sale of shares of Concurrent Common Stock. See "-- Opinion of Harris's Financial Advisor" and" -- Opinion of Concurrent's Financial Advisor." OPERATIONS OF HARRIS FOLLOWING THE TRANSACTION Following the Transaction, Harris will discontinue the manufacturing and selling of computer systems for the real-time market. Harris will continue to develop, manufacture and market computer systems for the trusted market. See "-- Background of the Transaction," "-- Recommendations of the Board of Directors of Harris and Harris's Reasons for the Transaction," and "CERTAIN INFORMATION REGARDING HARRIS." Except as concerns the Transaction, Harris has no present plans or proposals which relate to or would result in any extraordinary corporate transaction such as a merger, reorganization, liquidation or sale or transfer of a material amount of assets. It is expected that Harris will complete a public offering of Harris Common Stock during calendar year 1996. There is no guarantee that such an offering will be undertaken or, if such offering is undertaken, that it will be successful. If the offering is undertaken, Concurrent expects to sell up to one-half of the Purchased Harris Shares in such offering pursuant to the terms of the Share Holding Agreement. See "TERMS OF THE TRANSACTION -- The Share Holding Agreement." Sales of stock pursuant to such an offering will be consummated only pursuant to a prospectus meeting the requirements of the Securities Act and applicable federal and state laws. This Joint Proxy Statement is not such a prospectus. OPERATIONS OF CONCURRENT FOLLOWING THE TRANSACTION Following the Transaction, Concurrent will continue to manufacture and sell computer systems for the real-time market. Except with regard to the Transaction, Concurrent has no present plans or proposals which relate to or would result in any extraordinary corporate transaction such as a merger, reorganization, liquidation or sale or transfer of a material amount of assets. 66 72 TERMS OF THE TRANSACTION THE PURCHASE AND SALE AGREEMENT The following is a summary of the material terms of the Purchase and Sale Agreement. This summary does not purport to be complete and is qualified in its entirety by reference to the Purchase and Sale Agreement, a copy of which is attached hereto as Annex A. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Purchase and Sale Agreement. Shareholders are urged to read the Purchase and Sale Agreement in its entirety. General Description On March 26, 1996, Concurrent and Harris executed the Purchase and Sale Agreement, as amended and restated by Concurrent and Harris on May 23, 1996, for the Transaction in which Harris agreed to sell the Harris Real-Time Business to Concurrent. The agreement is a modification of the proposed merger previously announced November 6, 1995. The Transaction will result in the combination of the real-time businesses of both companies. Under the Transaction, Harris will sell the Harris Real-Time Business (retaining its trusted systems computing business) and 683,178 shares of Harris Common Stock to Concurrent, in exchange for 10 million shares of Concurrent Common Stock, $10 million liquidation preference of Concurrent Preferred Stock, subject to adjustments in certain circumstances, and the assumption of certain liabilities by Concurrent. Upon completion of the Transaction, Concurrent shareholders and Harris will own approximately 77% and 23%, respectively, of Concurrent, and Harris shareholders and Concurrent will own approximately 91% and 9%, respectively, of Harris. Harris's ownership interest in Concurrent would increase to approximately 29% upon full conversion of the Concurrent Preferred Stock. The Transaction is subject to a number of conditions including the approval of the shareholders of both companies. The Transaction is expected to be completed by June 30, 1996, although there can be no assurances. Although the assets to be transferred and liabilities to be assumed with respect to the Transaction have not been finally identified at this time, the Purchase and Sale Agreement provides that the Preferred Stock component of the purchase price paid by Concurrent to Harris is inversely related to changes in the current liabilities of the Harris Real-Time Business. In addition, Concurrent is not assuming any long-term non-contingent liabilities of Harris. Although the amount of the adjustment, if any, to the liquidation preference of the Preferred Stock Consideration cannot be determined with certainty at this time, if the Closing were to have occurred on March 31, 1996, the liquidation preference of the Preferred Stock would have been reduced from $10 million to $8.3 million. Purchase of Assets The Purchase and Sale Agreement provides that Harris shall sell, transfer and assign to Concurrent, and Concurrent shall purchase, acquire and accept from Harris, all of Harris's rights, title and interests in all the Property (as defined below), of Harris which (i) is listed in certain of the schedules (the "Schedules") to the Purchase and Sale Agreement (the "Identified Real-Time Assets") and including the Property identified on the Final Net Current Asset Reconciliation (as defined below) in existence on the Closing Date; (ii) constitutes the Shared Assets (as defined below) to the extent such Property is to be transferred and sold to, or utilized by, Concurrent as provided in certain of the Schedules (the "Shared Real-Time Assets"); (iii) constitutes all other Property of Harris which is not an Excluded Asset (as defined below) (the "Other Real Time Assets"); (iv) is tangible Property which is manufacturing Property, hardware customer support Property and hardware development Property; and (v) constitutes all other Property of the kind described in clauses (i) and (ii) above and acquired by Harris between the date of the Purchase and Sale Agreement and the Closing (the "Subsequently Acquired Real-Time Assets"). The term "Property" means assets, properties and rights, tangible and intangible, wherever located. The term "Shared Assets" means the Property of Harris having a significant use in both the Harris Real-Time Business and the Trusted Systems Business. 67 73 The term "Purchased Assets" means the Identified Real Time Assets, the Shared Real Time Assets, the Other Real Time Assets and the Subsequently Acquired Real Time Assets, including the stock or assets, if any, of each of the Transferred Subsidiaries (as defined below). Pursuant to the Purchase and Sale Agreement, Harris shall sell, transfer and assign, directly or indirectly, to Concurrent and Concurrent shall purchase, acquire and accept from Harris, good and valid legal title to and beneficial ownership of all of the issued and outstanding shares of capital stock (the "Harris Subsidiary Shares") of certain foreign subsidiaries. The subsidiaries to be transferred are collectively referred to as the "Transferred Subsidiaries". The Purchase and Sale Agreement also provides that, to the extent Concurrent purchases the stock of the Transferred Subsidiaries, Concurrent shall not assume, and shall not be deemed to have assumed, Liabilities of the Transferred Subsidiaries arising from activities of the businesses of the Transferred Subsidiaries prior to Closing relating to (i) environmental matters or (ii) claims of employees of the Transferred Subsidiaries at the time of the applicable violation that the Transferred Subsidiary violated employment practices laws, rules or regulations or antidiscrimination laws, rules or regulations insofar as such claims are based on acts or omissions that shall have occurred prior to Closing (the "Transferred Subsidiaries Excluded Liabilities"). At Closing, Harris shall assume, and shall be solely and exclusively liable with respect to the Transferred Subsidiaries Excluded Liabilities. Pursuant to the terms of the Purchase and Sale Agreement, Concurrent is not acquiring from Harris, and Harris shall retain ownership of all right, title and interest in and to, and exclude from sale, transfer or assignment thereunder, (i) all Property of Harris used in the Trusted Systems Business (other than Property which constitutes Shared Assets (the "Trusted Assets")); (ii) other assets of the Trusted Systems Business identified on certain of the Schedules (the "Identified Trusted Assets"); and (iii) the Shared Assets, to the extent they shall be retained or permitted to be utilized by Harris as provided in certain of the Schedules (the "Shared Trusted Assets"). The term "Excluded Assets" shall mean the Trusted Assets, the Identified Trusted Assets and the Shared Trusted Assets. In accordance with the provisions of the Purchase and Sale Agreement, Harris and Concurrent agreed that Schedules of Assets and Excluded Assets attached to the Purchase and Sale Agreement upon its execution did not together contain a complete list of all Property of Harris, but that at the Closing, the updated Schedules together with the lists of Property attached to the bills of sale and other documents of transfer delivered to Concurrent would list all the Assets as of the Closing. Assumption of Liabilities The Purchase and Sale Agreement provides that Concurrent shall assume, and shall be solely and exclusively liable with respect to, (i) Liabilities (as defined below) of Harris specifically reflected or reserved against on the Final Net Current Asset Reconciliation and in existence on the Closing Date; (ii) Liabilities arising from activities of the acquired Harris Real-Time Business after the Closing; (iii) Liabilities set forth in certain of the Schedules; (iv) Liabilities specifically related to products sold in the Harris Real-Time Business, including product warranty liabilities and liabilities for product returns; (v) Liabilities exclusively associated with the Harris Real-Time Business; (vi) 50% of the Transfer Taxes (as defined below) resulting from the transfer of the Purchased Assets (other than the Harris Subsidiary Shares, if any) and 100% of the Transfer Taxes resulting from the transfer of the Harris Subsidiary Shares, if any (the "Assumed Concurrent Transfer Tax Liability"); and (vii) the allocable portion (the "Business Portion") of all Liabilities associated with both the Harris Real-Time Business and the Trusted Systems Business (the "Shared Liabilities"), such portion to be based on the Harris Real-Time Business' contribution to the total net revenues of Harris for the fiscal year ended September 30, 1995 (items (i) through (vii), collectively, the "Applicable Assumed Liabilities"). 68 74 The Purchase and Sale Agreement also provides that Concurrent shall not assume, and shall not be deemed to have assumed, any of the following Liabilities of Harris: (i) Liabilities exclusively associated with the Trusted Systems Business; (ii) Liabilities arising from activities of the Harris Real-Time Business prior to the Closing relating to environmental matters, claims of shareholders of Harris, or claims of employees of Harris that Harris violated employment practices laws, rules or regulations or anti-discrimination laws, rules or regulations insofar as such claims are based on acts or omissions that shall have occurred prior to Closing; (iii) the portion of the Shared Liabilities after the assumption by Concurrent of the Business Portion of such Liabilities; (iv) Liabilities in connection with any Taxes (as defined in the Purchase and Sale Agreement) imposed upon Harris's operations set forth in certain of the Schedules; and (v) all other Liabilities of Harris which are not Applicable Assumed Liabilities. The term "Liabilities" means any liabilities or obligations, fixed or contingent, known or unknown as of the date of the Purchase and Sale Agreement, and including such liabilities or obligations under contracts and leases. The term "Transfer Taxes" means all sales, use, transfer, recording, ad valorem, bulk sales and other similar taxes and fees, arising out of or in connection with the transactions contemplated by the Purchase and Sale Agreement. In accordance with the Purchase and Sale Agreement, Harris delivered to Concurrent an audited balance sheet of the Harris Real-Time Business as of March 29, 1996, prepared in accordance with United States generally accepted accounting principles ("GAAP") and certain additional procedures agreed to by Harris and Concurrent (such financials, the "Audited Balance Sheet"). Additional Transactions In addition to the sale and purchase of the Assets and the assumption of the Applicable Assumed Liabilities as described above, the Purchase and Sale Agreement also provides that, subject to the terms and upon the conditions set forth therein, (i) Harris shall issue, sell and deliver to Concurrent, and Concurrent shall purchase and acquire, good and valid title to 683,178 shares of Harris Common Stock, subject to adjustment for stock dividends, stock splits and similar transactions prior to the Closing and (ii) Concurrent shall issue, sell and deliver to Harris, and Harris shall purchase and acquire, (A) good and valid title to 10,000,000 shares of Concurrent Common Stock, subject to adjustment for stock splits, stock dividends and similar transactions prior to the Closing and (B) $10,000,000 in total liquidation preference of Concurrent Preferred Stock, as adjusted pursuant to the terms thereof and as set forth below. Preferred Stock Adjustment The Purchase and Sale Agreement provides that not later than five business days prior to the Closing, Harris shall deliver to Concurrent a projected reconciliation, prepared in accordance with GAAP consistent with the accounting principles used in preparation of the Audited Balance Sheet and certified by the chief financial officer of Harris, which shall set forth the portion of the current assets of the Harris Real-Time Business to be transferred to Concurrent pursuant to the terms of the Purchase and Sale Agreement as of June 30, 1996 (the "Reference Date") and the current liabilities which are Applicable Assumed Liabilities as of the Reference Date (the "Projected Net Current Asset Reconciliation"). Harris shall cause KPMG to prepare promptly after the Reference Date, but in no event more than 30 days following the Reference Date, a reconciliation of the portion of the current assets of the Harris Real-Time Business transferred to Concurrent as of the Reference Date and the current liabilities which are Assumed Liabilities as of the Reference Date (the "Final Net Current Asset Reconciliation" and with the Projected Net Current Asset Reconciliation, the "Net Current Asset Reconciliations"). After delivery of the Projected Net Current Asset Reconciliation and prior to the Closing, the Preferred Stock Consideration shall be adjusted to the extent that amount of total current assets minus the total current liabilities (such difference, the "Net Assets") shown on such Projected Net Current Asset Reconciliation is less than $14,400,000 by reducing the total $10,000,000 liquidation preference, dollar for dollar. Such reduced amount in the liquidation preference of the Preferred Stock Consideration, if there shall be any reduction, 69 75 shall be the actual liquidation preference of such consideration delivered to Harris at the Closing. After the Closing, additional reductions, if any, in the liquidation preference of the Preferred Stock Consideration shall be in accordance with the terms of the Certificate of Designation. In accordance therewith, if the Net Assets shown on the Final Net Current Asset Reconciliation are in excess of the Net Assets shown on the Projected Net Current Asset Reconciliation, then the liquidation preference and stated value of the Preferred Stock Consideration delivered at Closing shall be increased, dollar for dollar, to the extent of such excess up to $10,000,000 and any remainder of such excess shall be paid, dollar for dollar, in cash as soon as practicable after the determination of such excess. For further description of possible changes in the liquidation preference of the Concurrent Preferred Stock, see "TERMS OF THE TRANSACTION -- Concurrent Preferred Stock." Additional Agreements The Purchase and Sale Agreement also provides that on the Closing Date Harris and Concurrent shall enter into (i) (A) certain leases, (B) a Shared Services Agreement and (C) a Non-Competition/ Distribution Agreement, each containing terms to be mutually agreed to by Harris and Concurrent prior to the Closing and (ii) the Share Holding Agreement. Closing; Closing Date The closing of the Transaction (the "Closing") shall take place (a) at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, on June 30, 1996 or as soon as practicable following the satisfaction (or waiver) of the conditions set forth in the Purchase and Sale Agreement, whether earlier or later than June 30, 1996 or (b) at such other date, time or place as the parties shall mutually agree. Representations and Warranties The Purchase and Sale Agreement contains various customary representations and warranties of Concurrent and Harris, relating to, among other things: corporate organization, capitalization, corporate authority, consents and approvals, the Commission reports, financial statements, information in disclosure documents, legal proceedings, no material adverse change since September 30, 1995 (with respect to Harris) and June 30, 1995 (with respect to Concurrent), opinions of financial advisors, tax matters, shareholder vote required, employee benefit plans, state takeover laws, certain material contracts, interests of officers and directors, intellectual property, questionable payments, insurance, brokers, environmental, investment purpose and product returns and warranties. The Purchase and Sale Agreement contains certain additional representations and warranties of Harris relating to the following: (i) validity of title to and transferability of the Purchased Assets, (ii) preparation of audited financial statements in accordance with GAAP, (iii) leased properties, (iv) Transferred Subsidiaries and (v) liabilities to related parties. Conduct of Business Pending the Consummation of the Transaction Except as contemplated by the Purchase and Sale Agreement and the Ancillary Agreements or with the prior written consent of Harris, during the period from the date of the Purchase and Sale Agreement to the Closing Date, Concurrent will, and will cause each of its subsidiaries to conduct its operations only in the ordinary and usual course of business consistent with past practice and will use all reasonable efforts, and will cause each of its subsidiaries to use all reasonable efforts, to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with licensors, licensees, customers, suppliers, employees and any others having business dealings with it. Without limiting the generality of the foregoing, and except as otherwise provided in or contemplated by the Purchase and Sale Agreement or the Ancillary Agreements, Concurrent will not, and will not permit any of the subsidiaries to, prior to the Closing Date, without the prior written consent of Harris: (i) adopt any amendment to its charter or by-laws or comparable organizational documents or to the Concurrent Rights Agreement; (ii) except for 70 76 (x) issuances of capital stock of Concurrent's subsidiaries to Concurrent or a wholly owned subsidiary of Concurrent, or (y) issuances of capital stock of Concurrent to employees of Concurrent who become, at or after the Closing Date, entitled to severance under Concurrent's existing severance contracts and policies in lieu of an equivalent cash payment under such contracts and policies, issue, reissue, sell, deliver or pledge or authorize or propose the issuance, reissuance, sale, delivery or pledge of additional shares of capital stock of any class or any securities convertible into capital stock of any class, or any rights, warrants or options to acquire any convertible securities or capital stock, other than the issuance of shares of Concurrent Common Stock upon the exercise of stock options or stock grants pursuant to the Concurrent Stock Plan outstanding on or prior to the Closing Date in accordance with the terms of the agreements under which they are issued; (iii) declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock, except that any wholly owned subsidiary of Concurrent may pay dividends to Concurrent or any of Concurrent's wholly owned subsidiaries; (iv) adjust, split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any shares of its capital stock, or any of its other securities; (v)(x) incur, assume or pre-pay any long-term debt or incur or assume any short-term debt, except that Concurrent and its subsidiaries may incur or pre-pay debt in the ordinary course of business consistent with past practice under existing lines of credit, (y) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person except in the ordinary course of business consistent with past practice, or (z) make any loans, advances or capital contributions to, or investments in, any other person, except subsidiaries of Concurrent and except in the ordinary course of business consistent with past practice; (vi) except for increases in salary, wages and benefits of employees of Concurrent or its subsidiaries (other than executive or corporate officers of Concurrent) in accordance with past practice and except for increases in salary, wages and benefits granted to employees of Concurrent or its subsidiaries (other than executive or corporate officers of Concurrent) in conjunction with promotions or other changes in job status consistent with past practice or required under existing agreements, increase the compensation or fringe benefits payable or to become payable to its directors, officers or employees (whether from Concurrent or any of its subsidiaries), or pay any benefit not required by any existing plan or arrangement or grant any severance or termination pay to (except pursuant to existing agreements or policies as set forth on certain of the Schedules), or enter into any employment or severance agreement with, any director, officer or other key employee of Concurrent or any of its subsidiaries or establish, adopt, enter into, terminate or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement for the benefit or welfare of any directors, officers or current or former employees, except to the extent such termination or amendment is required by applicable law; provided, however, that none of the foregoing shall be deemed to prohibit the payment of benefits as they become payable; provided, further, however, that Concurrent shall be permitted to take action so that at the Closing Date, each stock option issued and outstanding under the Concurrent Stock Plan will become fully vested and exercisable (it being understood and agreed that the Transaction will be deemed to be a change in control for purposes of such Plan and the option agreements entered into thereunder); provided, further, that none of the foregoing shall prevent Concurrent or any of its subsidiaries from instituting retention and/or severance arrangements with employees of Concurrent or any of its subsidiaries, for the purpose of encouraging employees to remain with Concurrent until the Closing Date subject to (x) Concurrent consulting with Harris prior to implementing any such retention and/or severance arrangement and (y) a ceiling of $2,000,000 on the aggregate dollar amount which may be paid or pursuant to which the obligation may be incurred between November 5, 1995 and the Closing Date pursuant to all such retention and/or severance arrangements; (vii) other than as may be required by law to consummate the transactions contemplated by the Purchase and Sale Agreement, acquire, sell, lease, transfer or dispose of any assets or securities which are material to Concurrent and its subsidiaries taken as a whole, or enter into any commitment to do any of the foregoing; (viii) settle any material tax liability or make any material tax election; or (ix) agree in writing or otherwise to take any of the foregoing actions or any action which would make any representation or warranty in the Purchase and Sale Agreement untrue or incorrect in any material respect or which would result in any of the foregoing conditions not being satisfied. 71 77 Except as contemplated by the Purchase and Sale Agreement and in the Ancillary Agreements or with the prior written consent of Concurrent, during the period from the date of the Purchase and Sale Agreement to the Closing Date, Harris will, and will cause each of its subsidiaries to, use all reasonable efforts to conduct the Business (as defined in the Purchase and Sale Agreement) only in the ordinary course and consistent with prior practice, use Best Efforts (as defined in the Purchase and Sale Agreement) to maintain, keep and preserve the Assets and the assets of the Transferred Subsidiaries in operating condition and repair and maintain or, if necessary, replace insurance thereon in accordance with present practices, preserve intact the present organization of the Business, keep available the services of its present officers and employees and preserve its relationships with licensors, licensees, customers, suppliers, employees and any others having business dealings with it. Without limiting the generality of the foregoing, and except as otherwise provided in or contemplated by the Purchase and Sale Agreement (including Schedule 6.1 thereto) or the Ancillary Agreements, Harris will not, and will not permit any of its subsidiaries to, prior to the Closing Date, without the prior consent of Concurrent: (i) adopt any amendment to its charter or by-laws or comparable organizational documents or to the Harris Rights Agreement (as defined in the Purchase and Sale Agreement); (ii) except for issuances of capital stock of any of the Transferred Subsidiaries to Harris or to another Transferred Subsidiary of Harris, issue, reissue, sell, deliver or pledge or authorize or propose the issuance, reissuance, sale, delivery or pledge of additional shares of capital stock of any class or any securities convertible into capital stock of any class, or any rights, warrants or options to acquire any convertible securities or capital stock, other than the issuance of shares of Harris Common Stock upon the exercise of stock options or stock grants pursuant to the Harris Stock Plan outstanding on or prior to the Closing Date in accordance with the terms of the agreements under which they are issued; (iii) declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock, except that any Transferred Subsidiary may pay dividends to Harris or any of the other Transferred Subsidiaries; (iv) adjust, split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any shares of its capital stock, or any of its other securities; (v) (x) incur, assume or pre-pay any long-term debt or incur or assume any short-term debt, except that Harris and its subsidiaries may incur or pre-pay debt in the ordinary course of business consistent with past practice under existing lines of credit, (y) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person except in the ordinary course of business consistent with past practice, or (z) make any loans, advances or capital contributions to, or investments in, any other person, except Transferred Subsidiaries of Harris and except in the ordinary course of business consistent with past practice; (vi) except for increases in salary, wages and benefits of employees of Harris or its subsidiaries (other than executive or corporate officers of Harris) in accordance with past practice and except for increases in salary, wages and benefits granted to employees of Harris or its subsidiaries (other than executive or corporate officers of Harris) in conjunction with promotions or other changes in job status consistent with past practice or required under existing agreements increase the compensation or fringe benefits payable or to become payable to its directors, officers or employees (whether from Harris or any of its subsidiaries), or pay any benefit not required by any existing plan or arrangement or grant any severance or termination pay to (except pursuant to existing agreements or policies as set forth on certain of the Schedules), or enter into any employment or severance agreement with, any director, officer or other key employee of Harris or any of the Transferred Subsidiaries or establish, adopt, enter into, terminate or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement for the benefit or welfare of any directors, officers or current or former employees, except to the extent such termination or amendment is required by applicable law; provided, however, that none of the foregoing shall be deemed to prohibit the payment of benefits as they become payable; provided, further, however, that Harris shall be permitted to take action so that at the Closing Date, each stock option issued and outstanding prior to December 31, 1995 under the Harris Stock Plan will be fully vested and exercisable; (vii) other than as may be required by law to consummate the transactions contemplated by the Purchase and Sale Agreement, acquire, sell, lease, transfer or dispose of any assets or securities which are material to Harris and its subsidiaries taken as a whole, or enter into any commitment to do any of the foregoing; (viii) settle any material tax liability or make any material tax election; or (ix) agree in writing or otherwise to take any of the 72 78 foregoing actions or any action which would make any representation or warranty in the Purchase and Sale Agreement untrue or incorrect in any material respect or which would result in any of the conditions set forth in the Purchase and Sale Agreement not being satisfied. Notwithstanding the terms described in the preceding paragraph, pursuant to Schedule 6.1, Harris shall be entitled to do the following: (i) to take actions to arrange for interim financing which would provide Harris with $5,000,000 at or prior to Closing; provided, however, that Harris shall not be entitled to take such actions (i) which would result in (A) a material lien, claim or encumbrance being in place on the Purchased Assets at Closing or (B) the establishment of an additional Applicable Assumed Liability (as defined in the Purchase and Sale Agreement) or an increase in an Applicable Assumed Liability; (ii) to cause the disposition of all or a significant portion of the Trusted Systems Business; provided, however, that in connection with any such transaction which could be consummated prior to Closing, Harris shall cause nine percent of any consideration to be received by Harris shareholders to be reserved for Concurrent and paid to Concurrent promptly after the Closing; provided further, however, that Harris shall not take any action which would result in a change to the Harris Board prior to Closing other than nominating for election to the Harris Board the person selected to replace E. Courtney Siegel as Chief Executive Officer of Harris; (iii) to take actions to cause the Harris Real-Time Business and the Trusted Systems Business to be separated in accordance with the terms of the Purchase and Sale Agreement and to cause the Trusted Systems business to have, at and after Closing, executives and other employees that the Board of Directors of Harris determines, in its sole discretion, to be necessary to operate the Trusted Systems Business as a separate business; and (iv) to change the corporate name of Harris in accordance with Florida law. Intellectual Property Licenses The Purchase and Sale Agreement contains certain covenants providing for the cross-licensing of certain intellectual property of Harris that will either be transferred to Concurrent at Closing or be retained by Harris following the Closing. Such covenants provide for Concurrent or Harris, as the case may be, to grant to the other certain royalty-free and royalty bearing licenses generally designed to allow (i) Concurrent to conduct the Harris Real-Time Business in substantially the same manner as conducted by Harris prior to the Closing and (ii) Harris to conduct its Trusted Systems business in substantially the same manner after the Closing as conducted prior to the Closing, in each case, recognizing that some of the licensed intellectual property may have application in both the Harris Real-Time Business and in Harris's Trusted Systems business. In addition, each of Concurrent and Harris has agreed to certain customary covenants, including, among others, covenants relating to access to information, the taking of actions to comply with legal requirements and to obtaining the requisite approvals and consents, post-closing cooperation, further assurances and supplemental disclosure. Other Acquisition Proposals The Purchase and Sale Agreement provides that, except as set forth in Schedule 6.1 described above or otherwise agreed to by Harris and Concurrent, that neither Harris, Concurrent nor any of their officers, directors, affiliates, representatives or agents will, directly or indirectly, take any action to discuss, negotiate, undertake, authorize, recommend, propose or enter into, facilitate, encourage, solicit or initiate any transaction (other than the Transaction) involving any disposition or other change of ownership of a substantial portion of their respective capital stock or assets (each an "Acquisition Transaction"), nor will they provide any third party with information in connection with an Acquisition Transaction or otherwise cooperate in any of the foregoing actions. Each party will cease any current negotiations of this nature with any third parties and will notify the other parties of any proposal or bid in respect of an Acquisition Transaction. Notwithstanding the above, either Harris or Concurrent may engage in negotiations with a third party who makes a bona fide written proposal for an Acquisition Transaction which either Board of Directors determines in good faith on the basis of the advice of outside counsel that failure to take such action creates a substantial risk that the Board of Directors would fail to comply with its fiduciary duties under applicable law. 73 79 Expenses The Purchase and Sale Agreement provides that, whether or not the Transaction is consummated, all costs and expenses incurred in connection with the Transaction shall be paid by the party incurring such costs and expenses except that (i) the filing fees relating to the HSR Act, (ii) the filing fees and expenses incurred in printing and mailing this Joint Proxy Statement, (iii) the expenses incurred in connection with the preparation of the Audited Balance Sheet and the Net Current Asset Reconciliations and (iv) Transfer Taxes with respect to the Assets, other than the stock of the Transferred Subsidiaries, shall be shared equally by Harris and Concurrent. Transfer Taxes with respect to the transfer of the stock of the Transferred Subsidiaries, if such stock is transferred, shall be borne entirely by Concurrent. Shareholder Meetings The Purchase and Sale Agreement provides that Harris and Concurrent each shall call a meeting of its shareholders for the purpose of voting on the Purchase and Sale Agreement and the Harris Stock Plan Amendment in the case of Harris and for the purpose of voting on the issuance of the Concurrent Common Stock Consideration, the Additional Common Shares and the Concurrent Stock Plan Amendment in the case of Concurrent. The Purchase and Sale Agreement further provides, subject to the fiduciary duties of the Concurrent Board and the Harris Board, that the Concurrent Board and Harris Board recommend that their respective shareholders approve such matters. Registration Rights The Purchase and Sale Agreement provides that each of Harris and Concurrent shall prepare and file as promptly as practicable after the date thereof, and shall cause to become effective on the Closing Date, the Concurrent Form S-3 and the Harris Form S-3. The Purchase and Sale Agreement also provides that each of Harris and Concurrent shall indemnify the other in connection with the Concurrent or Harris Form S-3, as the case may be, in accordance with the provisions set forth in the Share Holding Agreement. The Purchase and Sale Agreement provides further that each of Harris and Concurrent shall also cause the shares of common stock issued by it to the other party to be approved for inclusion on the Nasdaq/NMS on the effective date of the Concurrent or Harris Form S-3, as the case may be, subject to official notice of issuance. Employee Matters The Purchase and Sale Agreement provides that none of Harris's obligations under any of its employee benefit plans, including the Harris Stock Plan, shall be assumed by Concurrent. The Purchase and Sale Agreement also provides for certain contributions and distributions by Harris with respect to the Harris Stock Plan. Additionally, the Purchase and Sale Agreement provides that effective the Employment Effective Time (as defined in the Purchase and Sale Agreement) Concurrent shall offer employment to each Business Employee (as defined in the Purchase and Sale Agreement) at the same annual salary or hourly compensation and on other terms not materially less favorable to the Business Employees than those in effect as of the date of the Purchase and Sale Agreement. The Purchase and Sale Agreement also provides that Concurrent shall to use its Best Efforts to amend the existing Concurrent Stock Plan and to establish certain new employee benefit plans, programs, policies or arrangements effective as of Closing. Best Efforts The Purchase and Sale Agreement provides that each of Concurrent and Harris shall use its Best Efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the Purchase and Sale Agreement. 74 80 Occurrence of Closing Prior to or Following the Reference Date The Purchase and Sale Agreement also provides that in the event the Closing occurs prior to the Reference Date, Concurrent shall operate the Harris Real-Time Business only in the ordinary course consistent with past practice between the Closing and the Reference Date. In the event the Closing occurs after the Reference Date, Harris shall provide to Concurrent on a weekly basis information with respect to the status of the net current assets of the Harris Real-Time Business, except inventory and current liabilities which will be provided on a monthly basis. Management and Corporate Governance Matters The Purchase and Sale Agreement provides that the Concurrent Board shall take action to cause the number of directors comprising the full board of directors of Concurrent to be nine persons, three of whom shall be designated by Harris prior to the Closing Date ("Original Harris Designees") and six of whom shall be designees of Concurrent. If any Original Harris Designee shall decline or be unable to serve, Harris shall designate a person to serve in such person's stead (the Original Harris Designees together with any such alternate or alternates are herein referred to as the "Harris Designees"). From and after the Closing Date until at least September 30, 1997, unless a majority of Harris Designees then serving as Concurrent directors shall consent to a waiver, Concurrent shall maintain a board of directors consisting of no more than nine directors, three of whom shall be Harris Designees. The Purchase and Sale Agreement provides that the Harris Board shall take action to cause the number of directors comprising the full board of directors of Harris to be not more than seven persons, one of whom shall be designated by Concurrent prior to the Closing Date ("Original Concurrent Designee") and six of whom shall be designees of Harris. If the Original Concurrent Designee shall decline or be unable to serve, Concurrent shall designate a person to serve in such person's stead (the Original Concurrent Designee together with any such alternate are herein referred to as the "Concurrent Designees"). From and after the Closing Date until at least September 30, 1997, Harris shall maintain a board of directors consisting of no more than seven directors, one of whom shall be a Concurrent Designee. The Purchase and Sale Agreement provides that Harris shall use its Best Efforts to cause E. Courtney Siegel to resign as a director, President and Chief Executive Officer of Harris effective as of the Closing. Harris will keep Concurrent reasonably informed of the status of the search for a new chief executive officer of Harris. The Purchase and Sale Agreement provides that Concurrent shall cause the election or appointment, effective as of the Closing Date, of E. Courtney Siegel as the President and Chief Executive Officer of Concurrent and John T. Stihl as the Chairman of the Concurrent Board. Mr. Siegel shall be an Original Harris Designee. The Purchase and Sale Agreement provides that Concurrent shall use its Best Efforts to cause the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to be increased to 9,000,000 such shares (of which approximately 5,000,000 will be available for grant thereunder). Such increase is included in the matters submitted for a vote of shareholders in this Joint Proxy Statement. The Purchase and Sale Agreement provides that Harris shall use its Best Efforts to cause the number of shares of Harris Common Stock authorized for issuance under the Harris Stock Plan to be 2,025,000 such shares (of which approximately 1,050,000 will be available for grant thereunder). Such increase is included in the matters submitted for a vote of shareholders in this Joint Proxy Statement. The Purchase and Sale Agreement provides that at or prior to the Closing Date Concurrent shall amend its By-laws to provide that the President of Concurrent shall be the exclusive chief executive officer of Concurrent, reporting directly to Concurrent's Board of Directors. 75 81 Employment Agreements The Purchase and Sale Agreement provides that Concurrent shall cause the amendment to the employment agreement with John T. Stihl to become effective upon the Closing. Concurrent has entered into an employment agreement with E. Courtney Siegel which becomes effective upon the Closing. See "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction." Conditions to the Transaction The Purchase and Sale Agreement provides that the respective obligations of the parties to perform the Transaction shall be subject to the satisfaction or waiver, on or prior to the Closing Date, of the following conditions: (i) the Transaction shall have been approved and adopted by the affirmative vote of the holders of a majority of all the votes entitled to be cast with respect to the holders of Harris Common Stock; the issuance of the Concurrent Common Stock Consideration shall have been approved by the affirmative vote of a majority of the total votes cast with respect to the shareholders of Concurrent; that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares shall have been approved by the affirmative vote of a majority of the total votes cast by the holders of Concurrent Common Stock in a separate vote; and the Harris Stock Plan Amendment shall have been approved by the affirmative vote of a majority of the total votes cast by the holders of Harris Common Stock in a separate vote; (ii) all authorizations, notices, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity (as defined in the Purchase and Sale Agreement), the failure to obtain or make which would have a Material Adverse Effect (as defined in the Purchase and Sale Agreement) on Concurrent and its subsidiaries or Harris and its subsidiaries, in each case taken as a whole, shall have been filed, occurred or been obtained; (iii) Concurrent and Harris each shall have received all state securities or blue sky permits and other authorizations necessary to issue Concurrent Common Stock pursuant to the Purchase and Sale Agreement; (iv) no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Transaction shall be in effect (each party agreeing to use all reasonable efforts to have any such order reversed or injunction lifted); (v) no action, suit or proceeding by any Governmental Entity before any court or governmental or regulatory authority will be pending against Harris, Concurrent or any of their subsidiaries challenging the validity or legality of the Transaction, other than actions, suits or proceedings which, in the reasonable opinion of counsel to Concurrent and Harris, are unlikely to result in an adverse judgment having a Material Adverse Effect on Concurrent, Harris or any of their subsidiaries taken as a whole or the Harris Real-Time Business; (vi) Harris and Concurrent shall have received an opinion of Holland & Knight, counsel to Harris, in form and substance reasonably satisfactory to Harris and Concurrent, dated a date within two days prior to the expected date of this Joint Proxy Statement, substantially to the effect that none of the actions contemplated by the Purchase and Sale Agreement shall result in or otherwise give rise to a breach of any representation or covenant contained in the Tax Disaffiliation Agreement or made in connection with the opinion rendered by Sullivan & Cromwell (as described in the Tax Disaffiliation Agreement), in each case relating to the qualification of the Distribution (as defined in the Purchase and Sale Agreement) as a distribution pursuant to Section 355 of the Code; in rendering such opinion, Holland & Knight may rely exclusively without an independent investigation upon representations contained in certificates of officers of Harris and others unless Holland & Knight has actual knowledge or reason to believe that such representations are false or inaccurate; (vi) any applicable waiting period under the HSR Act shall have expired or been terminated; (vii) certain consents shall have been obtained; (viii) the Ancillary Agreements shall have been executed and delivered by the parties thereto; and (ix) Concurrent and Harris shall have reached mutual agreement with respect to the transfer of stock and assets of the Transferred Subsidiaries. Concurrent has received the consent of its primary lender with respect to the Transaction. The condition under the Purchase and Sale Agreement to Concurrent's and Harris's obligation to consummate the Transaction that Concurrent obtain additional specified consents has been waived by Concurrent and Harris. The Purchase and Sale Agreement provides, as a condition to consummation of the Transaction, that Harris receive consent under certain agreements, leases and licenses with third parties. Harris has received 76 82 oral consents as to all but one of such third-party arrangements. As to the remaining arrangement, the Purchase and Sale Agreement provides a mechanism to consummate the Transaction in the event a consent is not received. See "-- Intellectual Property License." The cost of using this mechanism is not expected to be material to the results of operations of Harris or Concurrent. The obligation of Harris to perform the Transaction is subject to the satisfaction of the following additional conditions, on or prior to the Closing Date, unless waived by Harris: (i) the representations and warranties of Concurrent set forth in the Purchase and Sale Agreement shall be true and correct in all material respects as of the date of the Purchase and Sale Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date and Harris shall have received a certificate signed on behalf of Concurrent by the Chief Executive Officer and the Chief Financial Officer of Concurrent to the foregoing effect; (ii) Concurrent shall have performed in all material respects all obligations required to be performed by it under the Purchase and Sale Agreement at or prior to the Closing Date, and Harris will have received a certificate signed on behalf of Concurrent by the Chief Executive Officer and the Chief Financial Officer of Concurrent to such effect; (iii) Concurrent shall have made all filings or registrations and obtained all permits, authorizations, notices, consents and approvals from, Governmental Entities as may be required in connection with the transactions contemplated by the Purchase and Sale Agreement under the Exchange Act, the Securities Act, the HSR Act, the FBCA, any state securities or blue sky laws or other applicable laws, except for filings, registrations, permits, authorizations, notices, consents and approvals, the failure to obtain of which would not have a Material Adverse Effect (as defined in the Purchase and Sale Agreement) on Harris, Concurrent and their respective subsidiaries taken as a whole (after giving effect to the Transaction); (iv) from the date of the Purchase and Sale Agreement through the Closing Date, there will not have occurred any change in the financial condition, business, operations or prospects of Concurrent and its subsidiaries, taken as a whole, that would have or would be reasonably likely to have a Material Adverse Effect on Concurrent and its subsidiaries, taken as a whole, other than any such change that affects both Concurrent and Harris in a substantially similar manner; (v) a registration statement of Concurrent shall be effective under the Securities Act covering the Concurrent Common Stock to be received by Harris at the Closing and the Concurrent Common Stock issuable upon conversion of the Concurrent Preferred Stock to be received by Harris at the Closing or the Debentures, and such Concurrent Common Stock shall have been approved for inclusion on the Nasdaq/NMS, subject to official notice of issuance; (vi) the fairness opinion from Bear Stearns to Harris shall not, in good faith, have been withdrawn by Bear Stearns; and (vii) Harris shall have received from Concurrent a written determination by the New Jersey Department of Environmental Protection of the nonapplicability of the New Jersey Industrial Site Recovery Act ("ISRA") to the Transaction, or a written Negative Declaration (as defined in ISRA) from such Department to the effect that no soil or groundwater assessment or remediation is required, or written assurances to Harris that Concurrent has otherwise complied with ISRA in a manner which does not require a material financial commitment by Concurrent. The obligations of Concurrent to effect the Transaction are subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived by Concurrent: (i) the representations and warranties of Harris in the Purchase and Sale Agreement shall be true and correct in all material respects as of the date of the Purchase and Sale Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date and Concurrent shall have received a certificate signed on behalf of Harris by the Chief Executive Officer and the Chief Financial Officer of Harris to the foregoing effect; (ii) Harris shall have performed in all material respects all obligations required to be performed by it under the Purchase and Sale Agreement at or prior to the Closing Date, and Concurrent shall have received a certificate signed on behalf of Harris by the Chief Executive Officer and the Chief Financial Officer of Harris to that effect; (iii) Harris shall have made all filings or registrations with, and obtained all permits, authorizations, notices, consents and approvals from, Governmental Entities as may be required in connection with the transactions contemplated by the Purchase and Sale Agreement under the Exchange Act, the Securities Act, the HSR Act, the FBCA, any state securities or blue sky laws or other applicable laws, except for filings, registrations, permits, authorizations, notices, consents and approvals, the failure to obtain of which would not have a Material Adverse Effect on Harris, Concurrent and their subsidiaries taken as a whole or the Harris Real-Time Business (after giving effect to the transactions 77 83 contemplated by the Purchase and Sale Agreement); (iv) the parties to certain contracts and agreements with Harris shall have consented to the assignment of such contracts and agreements to Concurrent; (v) from the date of the Purchase and Sale Agreement through the Closing Date, there shall not have occurred any change in the financial condition, business, operations or prospects of Harris and the Transferred Subsidiaries, taken as a whole, that would have or would be reasonably likely to have a Material Adverse Effect on either Harris and its subsidiaries, taken as a whole, or the Harris Real-Time Business other than any such change that affects both Concurrent and Harris in a substantially similar manner; (vi) the fairness opinion from Berenson Minella to Concurrent shall not, in good faith, have been withdrawn by Berenson Minella; (vii) Concurrent shall have approved all Schedules with respect to Assets and Liabilities delivered by Harris, the non-approval of which shall not be based on certain matters described in the Purchase and Sale Agreement and which approval may not be unreasonably withheld; and (viii) a registration statement of Harris shall be effective under the Securities Act covering the Purchased Harris Shares to be received by Concurrent at the Closing and such Purchased Harris Shares shall have been approved for inclusion on the Nasdaq/NMS, subject to official notice of issuance. Termination The Purchase and Sale Agreement provides that it may be terminated and the Transaction abandoned at any time prior to the Closing Date (i) by the mutual consent of Concurrent and Harris whether before or after shareholder approval; (ii) by action of the Board of Directors of either Concurrent or Harris if (a) the Closing contemplated by the Transaction shall not have been consummated by August 30, 1996 provided, in the case of a termination pursuant to such clause, that the terminating party shall not have breached in any material respect its obligations under the Purchase and Sale Agreement in any manner that will have proximately contributed to such failure to close, or (b) the approval of Harris's shareholders of the transactions in accordance with the terms of the Purchase and Sale Agreement shall not have been obtained at the Harris Special Meeting duly convened therefor or at any adjournment thereof, or (c) the approval of Concurrent's shareholders of certain of the transactions in accordance with the terms of the Purchase and Sale Agreement shall not have been obtained at the Concurrent Special Meeting duly convened therefor or at any adjournment thereof, or (d) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Purchase and Sale Agreement and such order, decree, ruling or other action shall have become final and non-appealable; provided, that the party seeking to terminate the Purchase and Sale Agreement pursuant to such clause has used all reasonable efforts to remove such injunction, order or decree; (iii) by action of the Harris Board, whether before or after shareholder approval, if (a) in the exercise of its good faith judgment as to its fiduciary duties to its shareholders imposed by law the Harris Board determines that such termination is required by reason of an Acquisition Transaction proposal being made, (b) there has been a breach by Concurrent of any representation or warranty contained in the Purchase and Sale Agreement which would have or would be reasonably likely to have a Material Adverse Effect on Concurrent and its subsidiaries taken as a whole, (c) there has been a material breach of any of the covenants or agreements set forth in the Purchase and Sale Agreement on the part of Concurrent, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Harris to Concurrent or (d) Concurrent withdraws, amends, or modifies its favorable recommendation of the Purchase and Sale Agreement or promulgates any recommendation with respect to an Acquisition Transaction other than a recommendation to reject such Acquisition Transaction; or (iv) by action of the Concurrent Board, whether before or after shareholder approval, if (a) in the exercise of its good faith judgment as to its fiduciary duties to its shareholders imposed by law the Concurrent Board determines that such termination is required by reason of an Acquisition Transaction proposal being made, (b) there has been a breach by Harris of any representation or warranty contained in the Purchase and Sale Agreement which would have or would be reasonably likely to have a Material Adverse Effect on either Harris and its Transferred Subsidiaries taken as a whole or the Harris Real-Time Business, (c) there has been a material breach of any of the covenants or agreements set forth in the Purchase and Sale Agreement on the part of Harris, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Concurrent to Harris 78 84 or (d) Harris withdraws, amends, or modifies its favorable recommendation of the Transaction or promulgates any recommendation with respect to an Acquisition Transaction other than a recommendation to reject such Acquisition Transaction. The Purchase and Sale Agreement provides that in the event of termination of the Purchase and Sale Agreement by either Harris or Concurrent as described above, the Transaction shall be abandoned and there shall generally be no liability or obligation on the part of Harris, Concurrent or their respective subsidiaries, officers or directors except for (i) certain specified obligations including certain fees, commissions, expenses and access to information, and (ii) certain damages occasioned by a party which is in material breach of its representations, warranties, covenants or agreements, but as modified if the party seeking damages receives a termination fee. A termination fee of $1.75 million is payable by one party (the "First Party") to the other if (i) the shareholders of the First Party fail to approve the Purchase and Sale Agreement (or the issuance of the Concurrent Common Stock Consideration or the Additional Common Shares, the Concurrent Stock Plan Amendment or the Harris Stock Plan Amendment, as the case may be) and a proposal is presented to the First Party involving an Acquisition Transaction and the First Party consummates any Acquisition Transaction within one year of the date on which the Purchase and Sale Agreement is terminated, or (ii) the First Party's Board of Directors terminates the Purchase and Sale Agreement in the exercise of its fiduciary duties as provided in the Purchase and Sale Agreement. If the non-terminating party receives a termination fee, it may not assert any claim based upon alleged tortious or other interference with rights under the Purchase and Sale Agreement against any person submitting a proposal for an Acquisition Transaction, assert any claim against the terminating party or any of its directors or officers based upon its or their approval of an Acquisition Transaction or assert any claim for expenses for which it was otherwise responsible under the Purchase and Sale Agreement. Indemnification Pursuant to the terms of the Purchase and Sale Agreement, Concurrent and Harris have each agreed to indemnify and hold harmless each other and each party's respective affiliates, and their respective affiliates' directors, officers, employees, representatives and agents, and each of the heirs, executors, successors and assigns of any of the foregoing from and against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages and amount paid in settlement to the extent they are the result of (i) any breach of any representation or warranty made by such party under the Purchase and Sale Agreement that is a result of fraud or intentional or willful misrepresentation by such party, and (ii) liabilities the other party is not assuming. The indemnification obligations under the Purchase and Sale Agreement shall survive for a period of two years following the Closing, except for such obligations with respect to Taxes which shall survive until the expiration of the applicable statute of limitations. Amendment and Waiver The Purchase and Sale Agreement provides that it may only be amended by an instrument in writing signed on behalf of each of Harris and Concurrent. The Purchase and Sale Agreement further provides that at any time prior to the Closing Date Harris and Concurrent may in a signed instrument (i) extend the time for the performance of any of the obligations or other acts to be performed by the other parties, (ii) waive any inaccuracies in the representations and warranties by the other parties contained in the Purchase and Sale Agreement or in any document delivered pursuant to the Purchase and Sale Agreement, and (iii) waive compliance with any of the agreements or conditions contained in the Purchase and Sale Agreement. Neither Concurrent nor Harris intends to resolicit its shareholders for approval in the event that conditions to performance are waived. THE SHARE HOLDING AGREEMENT The following summary of the Share Holding Agreement is qualified in its entirety by reference to the copy of the form of Share Holding Agreement included in this Joint Proxy Statement as Annex F. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Share Holding Agreement. Shareholders are urged to read the Share Holding Agreement in its entirety. 79 85 Corporate Governance The Share Holding Agreement provides that at the Closing the Concurrent Board shall consist of no more than nine directors, including the initial Harris Designees who shall be E. Courtney Siegel (who shall also be the initial Concurrent President and Chief Executive Officer in accordance with the terms of the Purchase and Sale Agreement), C. Shelton James and Michael F. Maguire. The Share Holding Agreement also provides that John T. Stihl shall continue to be the Chairman of the Concurrent Board. From and after the Closing Date until September 30, 1997, the Concurrent Board shall include three directors designated by Harris; provided, however, that if Harris beneficially owns less than 2,400,000 shares of Concurrent Common Stock (subject to adjustment for stock splits, stock dividends and similar transactions) on the date of the mailing of the proxy statement for the next annual meeting of Concurrent shareholders following the Closing Date, Harris shall not be entitled to any representation on the Concurrent Board. After September 30, 1997, 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 shareholders for election to the Concurrent Board to include such nominees that, if elected, would result in the Concurrent Board including that number of Harris Designees determined as follows: (i) three directors designated by Harris if Harris beneficially owns at least 10,700,000 (subject to adjustment for stock splits, stock dividends and similar transactions) shares of Concurrent Common Stock; (ii) two directors designated by Harris if Harris beneficially owns less than 10,700,000 such shares but at least 4,700,000 shares of Concurrent Common Stock; (iii) one director designated by Harris if Harris beneficially owns less than 4,700,000 such shares but at least 2,400,000 shares of Concurrent Common Stock; and (iv) no director designated by Harris if Harris beneficially owns less than 2,400,000 shares of Concurrent Common Stock. The Share Holding Agreement provides that at the Closing, the Harris Board shall consist of no more than seven directors, including the initial Concurrent Designee who shall be Richard P. Rifenburgh. The Share Holding Agreement also provides that 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, Harris 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 shareholders 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 on the date of the mailing of the proxy statement for the next annual meeting of Harris shareholders following the date of the Share Holding Agreement, Concurrent shall not be entitled to any representation on the Harris Board. Voting of Shares The Share Holding Agreement provides that until Concurrent beneficially owns less than 341,589 shares of Harris Common Stock (subject to adjustment for stock splits, stock dividends and similar transactions), Concurrent shall be present for all shareholder meetings for purposes of establishing a quorum and shall vote all securities of Harris owned by it and entitled to vote, in favor of matters recommended by the Harris Board for approval by shareholders. The Share Holding Agreement provides that so long as either (i) Harris beneficially owns 4,700,000 or more shares of Concurrent Common Stock (subject to adjustment for stock splits, stock dividends and similar transactions) or (ii) Harris beneficially owns at best 2,400,000 or more shares of Concurrent Common Stock (subject to adjustment for stock splits or stock dividends) and at least one member of the existing Concurrent Board (other than the Chief Executive Officer) is a Harris Designee, Harris shall be present for all shareholder meetings for purposes of establishing a quorum and shall 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. 80 86 Standstill Under the terms of the Share Holding Agreement, during the Standstill Period (defined as the three and one-half year period commencing on the Closing Date), except as otherwise expressly provided in the Share Holding Agreement or without the express written consent of the other party, neither Harris, Concurrent nor any of their controlled affiliates, as the case may be, shall (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 (defined generally as a person or group becoming the beneficial owner of more than 50% of the stock of Concurrent or Harris, as the case may be, or otherwise obtaining 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 the Share Holding 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 Commission 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 promulgated under the Exchange Act), (v) deposit any securities in a voting trust or enter into any voting agreement or arrangement with respect thereto (other than the Share Holding Agreement), (vi) disclose any intent, purpose, plan, arrangement or proposal inconsistent with 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 portion of the standstill provisions 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 or (ix) assist, advise, encourage or negotiate with any person with respect to, or seek to do, any of the foregoing. The standstill provisions contained in the Share Holding Agreement, however, will not (i) prohibit or restrict Concurrent or Harris, as the case may be, from responding to any inquiries from any shareholders 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 the Share Holding Agreement; (ii) restrict the right of each Harris Designee, and each Concurrent Designee, to vote on any matter as such individual believes appropriate in light of his or her duties to the shareholders 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 the Share Holding Agreement. Third Party Offers The Share Holding Agreement provides that if Concurrent becomes the subject of a Third Party Offer (as defined below) that is approved by a majority of the Concurrent Board at a time when Harris and its controlled affiliates own more than 10% of the outstanding Voting Securities (as defined below) 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 defined below), as the case may be, on terms at least as favorable to the Other Concurrent Holders (as defined below) 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 81 87 each of its controlled affiliates to tender or sell all the securities of Concurrent owned by it to the person making such Third Party Offer. The term "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. The term "Other Concurrent Holders" means the holders of the Other Concurrent Shares. The term "Other Concurrent Shares" means Voting Securities of Concurrent not beneficially owned by Harris or any of its affiliates. The term "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. Transfer Restrictions The Share Holding Agreement provides that except in connection with a Third Party Offer that has been approved by a majority of the Concurrent Directors in accordance with the Share Holding Agreement, neither Harris, Concurrent, nor any of their respective subsidiaries shall sell, transfer or otherwise dispose of any securities of the other party except in accordance with one of the following: (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 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 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 defined in the Share Holding Agreement), 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 the Share Holding 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 the Share Holding Agreement, (iv) pursuant to the pledge provisions described below and (v) in order to, and only to the extent necessary to, comply with applicable 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. In addition, the Share Holding Agreement provides that 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 bank or other lending institution (each, a "Pledgee") to secure borrowings or other indebtedness as extended from time to time, provided, however, that as a condition to such pledge (i) the Pledgee 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 with respect to the disposition of such securities or an applicable exemption from registration under the Securities Act, (ii) the Pledgee shall agree in writing that such Pledgee will be bound by the terms of the Share Holding Agreement relating to any restrictions on such securities, and (iii) all certificates representing securities pledged to such Pledgee shall bear an appropriate restrictive legend substantially as set forth in the Share Holding Agreement. The Share Holding Agreement also provides that if requested by Harris, Concurrent shall, to the extent it has not done so prior to the Closing Date pursuant to the terms of the Purchase and Sale Agreement, use its 82 88 best efforts to facilitate the receipt by Harris, at or shortly following the Closing Date, of financing in an amount of $5,000,000 from the pledge of Concurrent Common Stock held by Harris; provided, however, neither Concurrent nor its counsel shall be required to issue an opinion to any Pledgee regarding the legal status of such securities. Registration The Share Holding Agreement provides that to the extent that the Concurrent Form S-3 and the Harris Form S-3 have not been filed with the Commission or declared effective by the Commission on or prior to the Closing Date, Harris and Concurrent shall use their best efforts to prepare and file such Form S-3s as promptly as practicable after the Closing Date and to cause such Form S-3s to become effective as soon as possible after the Closing Date. To the extent the Concurrent Form S-3 or the Harris Form S-3 has been so declared effective on the Closing Date, each of Concurrent and Harris, as the case may be, shall also use its best efforts to cause the shares of Common Stock issued by it to the other party to be approved for inclusion on the Nasdaq/NMS on the effective date of the Concurrent Form S-3 or the Harris Form S-3, as the case may be, subject to official notice of issuance. The Share Holding Agreement provides that subject to the transfer restrictions previously described and the lock-up provisions discussed immediately below, upon the effectiveness of the applicable Form S-3 for the sale of securities, each of Harris and Concurrent shall be permitted to sell any shares of 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 such selling party's Form S-3 has been declared effective. The Share Holding Agreement provides that so long as Harris is "in registration" with respect to a public offering of its shares and Concurrent beneficially owns at least 341,589 shares of Harris Common Stock (subject to adjustments for stock splits, stock dividends and similar transactions), Concurrent will not (i) sell more than 45,000 shares of Harris Common Stock (subject to adjustments for stock splits or stock dividends) in any consecutive 30-day period (which 45,000 share limit shall be reduced by sales of Harris Common Stock by lenders to Concurrent during such 30-day period, if any) or (ii) permit more than (x) 35% of the Current Market Value (as defined in the Share Holding Agreement) (up to $13.35 per share subject to adjustment) of Harris Common Stock plus (y) 25% of the Current Market Value (in excess of $13.35 per share subject to adjustment) of Harris Common Stock to serve as collateral for a margin loan from any lender. The restrictions described in clauses (i) and (ii) of this paragraph are referred to as the "Concurrent Liquidity Restrictions." The Share Holding Agreement provides that so long as Concurrent is "in registration" with respect to a public offering of its shares and Harris beneficially owns at least 2,000,000 shares of Concurrent Common Stock (subject to adjustments for stock splits or stock dividends), Harris will not (i) sell more than 260,000 shares of Concurrent Common Stock (subject to adjustments for stock splits or stock dividends) in any consecutive 30-day period or (ii) permit more than (x) 35% of the Current Market Value (up to $1.25 per share subject to adjustment) of Concurrent Common Stock plus (y) 25% of the Current Market Value of Concurrent Common Stock (in excess of $1.25 per share, subject to adjustment) 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) and still beneficially owned by Harris at the time of the execution of the applicable loan agreement. The restrictions described in clauses (i) and (ii) of this paragraph are referred to as the "Harris Liquidity Restrictions." The term "in registration" as used above means any period during which either Harris or Concurrent (i) has a good faith intention to complete an underwritten public offering within three calendar months of the date such intention is communicated in writing to Concurrent or Harris, as the case may be, and (ii) is actively taking steps to complete such an offering (including steps which may pre-date the filing of a registration statement for such offering). The term "Current Market Value" means the average of the daily closing prices for the ten consecutive trading days immediately prior to the relevant measuring date. 83 89 The Share Holding Agreement provides that Concurrent shall have the right to sell in any public offering up to 341,589 shares of Harris Common Stock (subject to adjustment for stock splits, stock dividends and similar transactions) less the total of all shares sold by Concurrent or a lender of Concurrent pursuant to a margin call prior to the consummation of such public offering (the "Minimum Number of Owned Harris Shares"). Harris shall have the right to sell in any public offering up to 2,000,000 shares of Concurrent Common Stock (subject to adjustment for stock splits, stock dividends and similar transactions) less the total of all shares sold by Harris or a lender of Harris pursuant to a margin call prior to the consummation of such public offering (the "Minimum Number of Owned Concurrent Shares"). The Share Holding Agreement provides that subject to the immediately following paragraph, (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. The Share Holding Agreement provides that 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 offered 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. The Share Holding Agreement provides that 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 offering), Concurrent shall be subject to a "lock-up" (so long as it beneficially owns at least 341,589 shares of Harris Common Stock (subject to adjustment for stock splits, stock dividends and similar transactions) at the time of such lock-up) for a period of up to six 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 offering), Harris shall be subject to a lock-up (so long as it beneficially owns at least 2,000,000 shares of Concurrent Common Stock (subject to adjustment for stock splits, stock dividends and similar transactions) at the time of such lock-up) for a period of up to six 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). The Share Holding Agreement provides that 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), so long as Concurrent beneficially owns at least 341,589 shares (subject to adjustment for stock splits, stock dividends and similar transactions) of Harris Common Stock, the Concurrent Liquidity Restrictions shall remain in effect for a period of up to six 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 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), so long as Harris beneficially owns at least 84 90 2,000,000 shares (subject to adjustment for stock splits, stock dividends and similar transactions) of Concurrent Common Stock, the Harris Liquidity Restrictions shall remain in effect for a period of up to six 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. The Share Holding Agreement provides that after either or both of the Harris Form S-3 or the Concurrent Form S-3 are declared effective by the Commission, Harris or Concurrent, as the case may be, shall each use best efforts to maintain the effectiveness of their respective Registration Statements 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 the other party pursuant to the Share Holding Agreement. So long as each such registration statement remains effective, the registrant shall file any material press releases and report any material event as soon as practicable in a Current Report on Form 8-K. Indemnification The Share Holding Agreement provides that in the case of each registration effected by Concurrent or Harris, as the case may be (each, a "Registrant"), pursuant to the Share Holding 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 prospectus after the Registrant has furnished such Holder with a sufficient number of copies of the same. The Share Holding Agreement provides that, 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, and 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 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 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, and 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. If for any reason the preceding indemnification provisions are unavailable to an indemnified party or are insufficient to hold it harmless as contemplated by such provisions, then the indemnifying party, in lieu of 85 91 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 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 certain limitations, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. 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. Termination The Share Holding Agreement and the rights and obligations thereunder 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. The Share Holding Agreement provides that if either party breaches or violates any material obligation under the Share Holding 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 the Share Holding Agreement. NON-COMPETITION AGREEMENT The parties are in the process of negotiating the Non-Competition Agreement and expect to finalize such agreement prior to the Closing. CONCURRENT PREFERRED STOCK The following summary of the Concurrent Preferred Stock is qualified in its entirety by reference to the copy of the form of Certificate of Designation (the "Certificate of Designation") included in this Joint Proxy Statement as Annex G. Capitalized terms used herein and not otherwise defined herein should have the meanings ascribed to them in the form of Certificate of Designation. Shareholders are urged to read the form of Certificate of Designation in its entirety. Designation and Number of Shares The Certificate of Designation provides that the Concurrent Preferred Stock shall be 9.00% Class B Convertible Preferred Stock, and the number of shares constituting such series shall be 1,000,000. Par Value; Preemptive Rights The Certificate of Designation provides that the Concurrent Preferred Stock shall have a par value of $.01 per share. Holders of Concurrent Preferred Stock shall not be entitled to any preemptive rights to acquire shares of any class or series of capital stock of Concurrent. Rank The Certificate of Designation provides that the Concurrent Preferred Stock shall rank, 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, 86 92 including any preferred stock, issued by Concurrent, other than the Class A Preferred Stock (the "Junior Stock"), and (b) on a parity with the Class A Preferred Stock (the "Parity Stock"). Dividends and Distributions The Certificate of Designation provides that the holders of shares of Concurrent Preferred Stock shall be entitled to receive, when, as and if declared by 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 shall be fully cumulative, shall accumulate from the date of original issuance of the Concurrent Preferred Stock, and shall be 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. The Certificate of Designation provides that dividends shall not be paid or declared and set apart for payment on any Parity Stock for any period unless full cumulative dividends have been, or contemporaneously are, paid or declared and set apart for payment on the Concurrent Preferred Stock for all dividend periods terminating on or prior to the date of payment of such full cumulative dividends. Dividends shall not be paid or declared and set apart for payment on the Concurrent Preferred Stock for any period unless full cumulative dividends have been, or contemporaneously are, paid or declared and set apart for payment on any Parity Stock for all dividend periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full upon the 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 Parity Stock to the date of such dividend payment. The Certificate of Designation provides that so long as any Concurrent Preferred Stock shall be outstanding, Concurrent shall not declare or pay any dividends on the Concurrent Common Stock or any other Junior Stock, or make any payment on account of, or set apart money for, a sinking fund or other similar fund or agreement for the purchase, redemption or other retirement of any shares of Junior Stock, or make any distribution in respect thereof, whether in cash or property or in obligations or stock of Concurrent (other than rights pursuant to the Rights Agreement, dated as of July 31, 1992, between Concurrent and The First National Bank of Boston, as Rights Agent (the "Concurrent Rights Agreement"), or distributions consisting solely of Junior Stock (such dividends, payments, setting apart and distributions being herein called "Junior Stock Payments")), unless the following conditions shall be satisfied at the date of such declaration in the case of any such dividend, or the date of such setting apart in the case of any such fund, or the date of such payment or distribution in the case of any other Junior Stock Payment: (i) full cumulative dividends shall have been paid or declared and set apart for payment on all outstanding shares of Concurrent Preferred Stock through the last quarterly dividend payment date that immediately precedes such dividend, setting apart, payment or distribution; and (ii) Concurrent shall not be in default or in arrears with respect to any redemption (whether optional or mandatory) of any shares of Concurrent Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment that is in arrears. Redemption at the Option of Concurrent The Certificate of Designation provides that whenever the Current Market Price (defined generally as 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) exceeds $3.75, as such price may be adjusted pursuant to stock splits, stock dividends or other 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. Concurrent's right to redeem is subject to the payment of all accrued and accumulated but unpaid dividends, whether or not declared, without interest, to the date fixed for redemption on the shares to be 87 93 redeemed; and dividends on the shares to be redeemed will cease to accrue on such date. A holder's right to convert the Concurrent Preferred Stock shall terminate on the date such stock is redeemed by Concurrent. The Certificate of Designation provides that notwithstanding the foregoing, Concurrent shall not redeem less than all the outstanding shares of Concurrent Preferred Stock, or purchase or acquire any shares of Concurrent Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of shares of Concurrent Preferred Stock, unless full cumulative dividends shall have been paid upon all outstanding shares of Concurrent Preferred Stock for all past dividend periods. If less than all the then outstanding shares of Concurrent Preferred Stock are to be redeemed, Concurrent shall effect such redemption pro rata (as nearly as practicable) among all holders of Concurrent Preferred Stock. Mandatory Redemption The Certificate of Designation provides that on the tenth anniversary of the date of issuance of the Concurrent Preferred Stock (i.e., expected to be June 28, 2006) (the "Mandatory Redemption Date"), Concurrent shall redeem all of the Concurrent Preferred Stock then outstanding at the Liquidation Preference. Accrued and accumulated but unpaid dividends, whether or not declared, without interest, to the Mandatory Redemption Date will be paid on the Mandatory Redemption Date and on and after the Mandatory Redemption Date, dividends will cease to accumulate on the Concurrent Preferred Stock. Voting The Certificate of Designation provides that except as otherwise provided from time to time by the laws of Delaware or Concurrent's Certificate of Incorporation, 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. The Certificate of Designation provides that notwithstanding the foregoing, without the consent or affirmative vote of the holders of a majority of the outstanding shares of Concurrent Preferred Stock, voting separately as a class, Concurrent may not amend, alter or repeal (by any means whatsoever, including, without limitation, by merger or consolidation) any provision of the Certificate of Incorporation, any amendment or supplement thereto or the Certificate of Designation (or any similar document relating to any series or class of preferred stock of Concurrent), 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, however, that the creation, issuance or increase in the amount of authorized shares of any series of Junior Stock will not be deemed to adversely affect such powers, rights, privileges or preferences of the Concurrent Preferred Stock. The Certificate of Designation provides that for purposes of the immediately preceding paragraph, each share of Concurrent Preferred Stock shall have one vote per share. The foregoing provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of Concurrent Preferred Stock shall have been redeemed or called for redemption and sufficient funds shall have been irrevocably deposited in trust to effect such redemption and all other steps necessary or desirable to effect such redemption shall have been taken. Liquidation Preference The Certificate of Designation provides that in the event of any liquidation, dissolution or winding up of Concurrent, whether voluntary or involuntary, the holders of Concurrent Preferred Stock shall be 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 total dollar amount of the liquidation preference of the Concurrent Preferred Stock delivered to Harris at the Closing in accordance with the terms of the Purchase and Sale Agreement (the "Total Liquidation Preference") or an amount equal to the per share dollar amount of the Total Liquidation Preference (the "Liquidation Preference") plus an amount equal to any accrued and accumulated but unpaid dividends thereon to the date of final distribution to such holders, whether or not declared, without 88 94 interest; provided, however, that if in accordance with the provisions of the Purchase and Sale Agreement, the amount of the Net Current Assets shown on the Final Net Current Asset Reconciliation (such amount shown, the "Actual Net Current Asset Amount") is less than the lesser of (i) the amount of the net assets shown on the Projected Net Current Asset Reconciliation and (ii) $14,400,000 (such amount, the "Applicable Net Current Asset Amount"), then the Total Liquidation Preference shall be reduced, dollar for dollar, to the extent of the difference (the "Difference") between the Actual Net Current Asset Amount and the Applicable Net Current Asset Amount. The Liquidation Preference shall then be reduced by the amount determined by dividing the Difference by the number of issued and outstanding shares of Concurrent Preferred Stock as of the date of the Final Net Current Asset Reconciliation or, if later, the date any Reconciliation Disagreement (as defined in the Purchase and Sale Agreement) is resolved. Alternatively, if the amount of the Net Assets shown on the Final Net Current Asset Reconciliation after resolution of all Reconciliation Disagreements is in excess of the Net Assets shown on the Projected Net Current Asset Reconciliation, then the Total Liquidation Preference shall be increased, dollar for dollar, to the extent of such excess up to $10,000,000 (such excess up to $10,000,000, the "Excess"). The Liquidation Preference shall then be increased by the amount determined by dividing the Excess by the number of issued and outstanding shares of Concurrent Preferred Stock as of the date of the Final Net Current Asset Reconciliation or, if later, the date any Reconciliation Disagreement is resolved. The Certificate of Designation provides that the Total Liquidation Preference shall also be further reduced to the extent that the parties to the Purchase and Sale Agreement or a court of competent jurisdiction determines that any Asset required to be transferred by the Purchase and Sale Agreement was not in fact transferred, such reduction (the "Net Current Asset Reduction") to be equal to the book value of such Asset on the Final Net Current Asset Reconciliation or, with respect to non-current assets, the Audited Balance Sheet, less any cash paid to Concurrent in respect thereof. The Liquidation Preference shall then be reduced by the amount determined by dividing the Net Current Asset Reduction by the number of issued and outstanding shares of Concurrent Preferred Stock as of the date the amount of the Net Current Asset Reduction is determined. In addition, in accordance with the terms of the Purchase and Sale Agreement, the Total Liquidation Preference shall be further reduced by the amount of any Damages (as defined in the Purchase and Sale Agreement), less any cash paid to Concurrent in respect thereof (the "Net Damages"), incurred by Concurrent and its Representatives (as defined in the Purchase and Sale Agreement) as a result of a willful breach by Harris of a representation or warranty contained in the Purchase and Sale Agreement. The Liquidation Preference shall then be reduced by the amount determined by dividing the Net Damages by the number of issued and outstanding shares of Concurrent Preferred Stock as of the date the total amount of the Net Damages is determined. If, upon any voluntary or involuntary liquidation, dissolution or winding up of 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 shall share ratably in any distribution of assets of Concurrent in proportion to the full respective preferential amounts to which they are entitled. The Certificate of Designation provides that neither a consolidation or merger of Concurrent with or into another person nor a sale or transfer of all or substantially all of its assets will be deemed a liquidation, dissolution or winding up. Conversion and Exchange Rights The Certificate of Designation provides that each holder of a share of Concurrent Preferred Stock shall have the right, at the option of such holder, at any time to convert one or more shares of Concurrent Preferred Stock into fully paid and nonassessable shares of Concurrent Common Stock. Such conversion of shares of Concurrent Preferred Stock into shares of Concurrent Common Stock shall 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 applicable per share of Concurrent Common Stock at the time of conversion which shall initially be $2.50. The conversion price shall be adjusted for stock splits, stock dividends, or subdivisions or reclassifications of the Concurrent Common Stock. 89 95 Assuming the initial conversion price of $2.50 and a Liquidation Preference of $10,000,000, four million shares of Concurrent Common Stock would be issuable upon conversion of the Concurrent Preferred Stock. The Certificate of Designation provides that 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 shall be paid on the effective date of the conversion through the last quarterly payment date that immediately precedes the effective date of the conversion. 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 provisions 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. The Certificate of Designation provides that 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 having the terms on the form of Debenture Term Sheet set forth as Annex H to this Joint Proxy Statement (the "Debentures"). Such exchange of shares of Concurrent Preferred Stock for the Debentures shall be made at an exchange rate of Debentures in the principal amount equal to the Liquidation Preference. The Certificate of Designation provides that on the effective date of the exchange, Concurrent shall pay holders of 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 shares of Concurrent Preferred Stock shall 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 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. DEBENTURES The following summary of the Debentures is qualified in its entirety by reference to the Debenture Term Sheet set forth as Annex H to this Joint Proxy Statement. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Debenture Term Sheet. SHAREHOLDERS ARE URGED TO READ THE DEBENTURE TERM SHEET IN ITS ENTIRETY. Principal Amount The Debenture Term Sheet provides that the Debentures are issuable upon exchange of the Concurrent Preferred Stock by Concurrent. If exchanged pursuant to Concurrent's exchange privilege in accordance with the Certificate of Designation, the initial principal amount (the "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. The Debenture Term Sheet provides that if the Concurrent Preferred Stock is exchanged by the holder thereof, pursuant to the Certificate of Designation, 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 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. 90 96 Changes in Principal Amount The Debenture Term Sheet provides that if in accordance with the provisions of the Purchase and Sale Agreement, the Actual Net Current Asset Amount shown on the Final Net Current Asset Reconciliation is less than the lesser of (i) the amount of the net assets shown on the Projected Net Current Asset Reconciliation and (ii) the Applicable Net Current Asset Amount, then the principal amount of Debentures shall be adjusted by reducing it, dollar for dollar, to the extent of the Difference between the Actual Net Current Asset Amount and the Applicable Net Current Asset Amount. Alternatively, if the Actual Net Current Asset Amount, after resolution of all Reconciliation Disagreements is in excess of the Applicable Net Current Asset Amount, the Principal Amount shall be increased, dollar for dollar, to the extent of such excess up to $10,000,000. The Principal Amount shall also be further reduced to the extent that the parties to the Purchase and Sale Agreement or a court of competent jurisdiction determines that any Asset required to be transferred by the Purchase and Sale Agreement was not in fact transferred, such reduction (the "Net Current Asset Reduction") to be equal to the carrying value on the Final Net Current Asset Reconciliation or, with respect to non-current assets, the Audited Balance Sheet less any cash paid to Concurrent in respect thereof. In addition, in accordance with the terms of the Purchase and Sale Agreement, the Principal Amount shall be further reduced by the amount of Net Damages incurred by Concurrent and its Representatives as a result of a wilful breach by Harris of a representation or warranty contained in the Purchase and Sale Agreement. Payment-in-Kind The Debenture Term Sheet provides that interest payments on the Debentures may be paid in cash or in kind. Interest Rate The Debenture Term Sheet provides that 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 Debenture Term Sheet provides that the Debentures will mature on the tenth anniversary of the date of issuance of the Concurrent Preferred Stock. Optional Redemption The Debenture Term Sheet provides that 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. Mandatory Redemption The Debenture Term Sheet provides that on the tenth anniversary of the date of issuance of the Concurrent Preferred Stock or at any time the outstanding principal amount of the Debentures is less than an amount to be determined, Concurrent shall redeem all of the Debentures then outstanding at par plus any accrued interest thereon. Conversion of Debentures The Debenture Term Sheet provides that 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 91 97 share of Concurrent Common Stock at the time of conversion. The conversion price shall initially be $2.50, subject to certain adjustments. Notwithstanding any other provision to the contrary, the maximum number of shares into 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). Ranking The Debenture Term Sheet provides that the Debentures will be general unsecured indebtedness of Concurrent and will rank pari passu in right of payment to existing indebtedness; provided, however, that the Debentures will rank junior to claims of certain lenders of Concurrent set forth in the Debenture Term Sheet with respect to the assets secured under credit facilities between Concurrent and such lenders. Modification of Debenture Indenture The Debenture Term Sheet provides that modifications to provisions of the indenture or similar agreement (the "Debenture Indenture") for the Debentures may be effected by majority of outstanding principal amount, with certain exceptions involving certain fundamental changes which shall require unanimous approval. Restricted Payments The Debenture Term Sheet provides that the Debenture Indenture will provide that Concurrent will not, and will not permit any of its subsidiaries to directly or indirectly: (i) declare or pay any dividend or make any distribution on account of any capital stock of Concurrent or any of its subsidiaries (other than dividends or distributions payable in such stock or dividends or distributions payable to Concurrent or any subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value any of the capital stock of Concurrent, any subsidiary or other affiliate of Concurrent (other than any such stock owned by Concurrent or its subsidiaries or in connection with capitalizing a subsidiary); or (iii) purchase, redeem or otherwise acquire or retire for value, or make any cash interest payment on, any indebtedness of Concurrent that is subordinated to the Debentures (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payments no Default or Event of Default (as defined below) will have occurred and be continuing or would occur as a consequence thereof and interest due on the Debentures for the four calendar quarters immediately preceding the quarter in which such Restricted Payments occur has been paid in cash. Limitation on Merger, Consolidation or Sale of Assets The Debenture Term Sheet provides that the Debenture Indenture will provide that Concurrent will not consolidate or merge, or sell, assign, transfer or lease all or substantially all of its properties and assets as an entirety to any person, unless: (i) the entity or person formed by or surviving any such consolidation or merger (if other than Concurrent) or to which such sale, assignment, transfer or lease shall have been made shall be an entity organized under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, all the obligations of Concurrent under the Debenture Indenture; and (ii) no Event of Default will have occurred and be continuing. Events of Default The Debenture Term Sheet provides that the Debenture Indenture 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 Harris; (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 the Debenture Indenture or the Debentures for a number of days to be determined by Concurrent and Harris after notice; and (iv) certain events of bankruptcy or insolvency with respect to Concurrent or any of its Subsidiaries. 92 98 ACCOUNTING TREATMENT The Transaction will be accounted for under the purchase method of accounting in accordance with generally accepted accounting principles, whereby the purchase price will be allocated based on the fair value of the assets acquired and liabilities assumed. Such allocations were based upon estimated valuations that have not been finalized. The excess of the estimated fair value of net assets acquired in excess of the purchase price (negative goodwill) will be allocated by reducing proportionately the values assigned to non-current assets (except long-term investments in marketable securities). See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT" and "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARRIS." REGULATORY FILINGS AND APPROVALS The consummation of the Transaction may be subject to certain regulatory approvals. With respect to governmental review under the HSR Act, Concurrent and Harris were informed on May 23, 1996 that the waiting period under the HSR Act has been terminated. STATE ANTI-TAKEOVER STATUTES Section 607.0902 of the FBCA prohibits business combination transactions involving a Florida corporation (such as Harris) and an "Interested Shareholder" (defined generally as any person that directly or indirectly beneficially owns 10% or more of the outstanding voting stock of the subject corporation), unless special requirements are met or certain exceptions apply, including that the board of directors of the subject corporation approved the acquisition of shares by such Interested Shareholder. Harris has represented to Concurrent that because the Harris Board has approved the Purchase and Sale Agreement and the transactions contemplated thereby, the provisions of Section 607.0902 are not applicable to the Transaction. Section 203 of the DGCL prohibits business combination transactions involving a Delaware corporation (such as Concurrent) and an "Interested Stockholder" (defined generally as any person that directly or indirectly beneficially owns 15% or more of the outstanding voting stock of the subject corporation), unless special requirements are met or certain exceptions apply, including that board of directors of the subject corporation approved the acquisition of such shares by such Interested Stockholder. Concurrent has represented to Harris that because the Concurrent Board has approved the Purchase and Sale Agreement and the transactions contemplated thereby, the provisions of Section 203 are not applicable to the Transaction. Harris and Concurrent, directly or through subsidiaries, conduct business in a number of states throughout the United States, some of which have also enacted anti-takeover laws. Other than Florida and Delaware, Harris and Concurrent do not know whether any of these laws, by their terms, apply to the Transaction and have not attempted to comply with any such laws. Should any person seek to apply any such state anti-takeover laws, Harris and Concurrent will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state anti-takeover statutes is applicable to the Transaction, and an appropriate court does not determine that it is inapplicable or invalid as applied to the Transaction, Harris and Concurrent might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, Harris and Concurrent might be delayed in, or prevented from, consummating the Transaction. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION Concurrent will not recognize gain or loss for federal income tax purposes in connection with the issuance of the Concurrent Common Stock Consideration or the issuance of the Preferred Stock Consideration. The sale of the Harris Real-Time Business will be a taxable transaction to Harris under applicable federal, state, and local tax laws. Harris will recognize a gain or loss from the sale of the Harris Real-Time Business to the extent of the difference between Harris's tax basis in the Harris Real-Time Business transferred to Concurrent and the value of the consideration received by Harris from Concurrent that is 93 99 allocable to such business. Harris estimates that it will incur a loss of approximately $8.5 million in connection with the Transaction (based on $2.14 per share, the average of the closing prices for Concurrent Common Stock from May 1 through May 7, 1996). Both Harris's and Concurrent's obligation to consummate the Transaction is conditioned upon Harris and Concurrent receiving an opinion from Holland & Knight substantially to the effect that none of the actions expressly contemplated by the Purchase and Sale Agreement shall result in or otherwise give rise to a breach of any covenant contained in the Tax Disaffiliation Agreement by and between Harris and Harris Corporation dated September 13, 1994 (the "Tax Disaffiliation Agreement") or made in connection with the opinion rendered by counsel to Harris Corporation (as described in the Tax Disaffiliation Agreement), in each case relating to the qualification of the Distribution (as defined in the Tax Disaffiliation Agreement) in 1994 as a tax-free distribution in accordance with Section 355 of the Code. APPRAISAL RIGHTS Under the FBCA, holders of Harris Common Stock do not have dissenters' rights in connection with the Transaction. In addition, under the DGCL, Concurrent shareholders do not have appraisal rights. 94 100 DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION EXECUTIVE OFFICERS Executive officers of Concurrent are elected by the Concurrent Board to hold office until their successors have been chosen and qualified or until earlier resignation or removal. With the exception of John T. Stihl, who will serve as Chairman of the Concurrent Board, and George E. Chapman, who will serve as Vice President, International Sales, it is expected, upon Closing of the Transaction, that the employment arrangements of all of the current executive officers of Concurrent will terminate. The executive officers of Concurrent following the Transaction are expected to be as follows: George E. Chapman, Vice President, International Sales, Robert F. Chism, Vice President, Development, Daniel S. Dunleavy, Vice President and Chief Financial Officer, Robert T. Menzel, Vice President, North American Sales, Michael N. Smith, Vice President, Marketing, Fred R. Lee, Vice President, Manufacturing and Logistics, and Karen G. Fink, Vice President, General Counsel and Secretary. FRED R. LEE. Mr. Lee previously was president of TOM TRACKS, INC., a privately held management services company since its inception in 1990. Prior thereto, Mr. Lee held positions with Rockwell International and General Dynamics Electronics. Mr. Lee will become Vice President, Marketing and Logistics upon consummation of the Transaction. KAREN G. FINK. Ms. Fink previously was Counsel and Assistant Secretary of Harris Corporation. Prior to joining Harris Corporation, Ms. Fink was associated with the law firm of Seward & Kissel. Ms. Fink will become Vice President, General Counsel and Secretary upon consummation of the Transaction. For a biography of George E. Chapman, see "CERTAIN INFORMATION REGARDING CONCURRENT -- Management." For biographical information relating to the other executive officers of Concurrent following the Transaction, see "CERTAIN INFORMATION REGARDING HARRIS -- Management." DIRECTORS Information on each person expected to be a director of Concurrent after the Transaction and their principal occupation and business experience for at least the last five years and the name of other publicly held companies in which he serves as a director is set forth below. MICHAEL A. BRUNNER. Age 62 and a director since November 1994. Mr. Brunner is the former President, AT&T Federal Systems from 1986-1992, a division of AT&T focused on federal communications and computer systems programs. He served in additional management, operating, sales, accounting and personnel positions with AT&T over a career spanning 37 years. Mr. Brunner serves as a director of Westell Technologies, Inc., a manufacturer of communications equipment, and as a director and past Chairman of the Leonard Center for Excellence in Engineering at Penn State University. He also serves as a director of three privately owned companies. C. FORBES DEWEY, JR. Age 61. Mr. Dewey is one of the founders of Concurrent and has been a director since its organization in 1981. He has been a Professor of Mechanical Engineering at the Massachusetts Institute of Technology since 1969. Since 1984, he has been an Associate in Pathology at Brigham and Women's Hospital in Boston, Massachusetts. He is Co-director of the International Consortium for Medical Imaging Technology, a non-profit network consortium of 13 laboratories worldwide. MORTON E. HANDEL. Age 61 and a director since June 1991. Mr. Handel is President of S&H Consulting, Ltd., a privately held investment and consulting company. From 1988 to 1990, he served as Chairman of the Board and Chief Executive Officer of Coleco Industries, Inc., a publicly held company and formerly a manufacturer of toys and games. Prior to that time, and from 1983, he served as Executive Vice President and, from 1974 to 1983, as Chief Financial Officer of Coleco. He is a director of Remington 95 101 Products, a privately owned consumer products company. He is also a Vice Chairman, Board of Regents, University of Hartford and serves as a director of several not-for-profit entities. C. SHELTON JAMES. Age 56 and a director of Harris since the Distribution. Since May 1991, Mr. James has served as Chief Executive Officer of Elcotel, Inc., a public company that manufactures telecommunications equipment. Mr. James is also 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. Age 69 and a director of Harris since the Distribution. 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. Age 64 and a director since June 1991. 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: Tristar Corporation (formerly known as Ross Cosmetics Distribution Centers, Inc.) since June 1992 and Chairman since August 1992; Miniscribe Corporation Inc. (manufacturer of disc drives for personal computers), Chairman and CEO from 1989 to 1991; and Library Bureau Inc. (manufacturer of library furniture) from 1976 to 1995. His experience also includes three years as a General Partner of Hambrecht & Quist Venture Partners; one year as Chairman of the Board and Chief Executive Officer of GCA Corporation, a publicly held manufacturer of semiconductor manufacturing equipment; founding Mohawk Data Sciences Corporation, a publicly held manufacturer of computer equipment, in 1964 and later serving as Chairman of the Board through 1974; and two years (1975 and 1976) as Chairman of the Board of the Communications and Computer Industry Association. E. COURTNEY SIEGEL. Age 45 and a director of Harris since the Distribution. Mr. Siegel has served as Chairman, President and Chief Executive Officer of Harris since the Distribution. Prior to that time, and since 1990, Mr. Siegel served as a Vice President of Harris Corporation and as General Manager of the Harris Computer Systems Division. Mr. Siegel's 20 year career in the computer technology field includes serving as vice president of standoff weapons at Rockwell International Corp., a producer of electronics, aerospace, automotive and graphics equipment, and as vice president of Harris Government Support Systems Division's Orlando Operation. ROBERT R. SPARACINO. Age 68 and a director since November 1994. Mr. Sparacino is President of Sparacino Associates, Inc. ("SAI") since 1982. SAI offers management consulting services primarily for high-technology businesses and companies in financial distress. He is a member of the Board of Directors of Tristar Corporation since June 1992 and Vice Chairman since August 1992. Mr. Sparacino's experience includes four years as General Partner of a $125 million venture capital fund, focused primarily on investments in technology companies; 12 years in executive management positions with Xerox Corporation, including Corporate Senior Vice President and Senior Vice President -- Information Products Group; and nine years in engineering and research and development positions with General Motors Corporation, including Director of Engineering and Director of Research and Development of its major aerospace division. He has earned an Sc.D. in Instrumentation from Massachusetts Institute of Technology. JOHN T. STIHL, CHAIRMAN. Age 63 and a director since June 1991. He was elected to the positions of Chairman of the Board, President and Chief Executive Officer in August 1993. He joined Concurrent in May 1991 as Executive Vice President and in April 1992 he was elected President and Chief Operating Officer. In 1988, after retiring as a Major General from the United States Air Force, he was elected President and Chief Executive Officer of G&H Technology, Inc., a subsidiary of Penn Central Corporation which designs, develops, manufactures and markets electromechanical components for the defense and aerospace industries. 96 102 His experience includes over 20 years in high level executive positions with the United States Air Force managing large scale telecommunications, computer and air traffic control operations, including from 1986 to 1988, commander (CEO), Air Force Communications Command, Scott Air Force Base. Prior to his retirement, he had been an officer in the United States Air Force since 1955. As noted above, Mr. Rifenburgh served as a director of Library Bureau, Inc. from 1976 to 1995. Library Bureau filed for reorganization in 1993. 97 103 DIRECTORS AND EXECUTIVE OFFICERS OF HARRIS AFTER CONSUMMATION OF THE TRANSACTION EXECUTIVE OFFICERS With the exception of Bradley C. Lesher, Vice President, International Operations of Harris, it is expected, upon consummation of the Transaction, that all of the executive officers of Harris will resign. These executive officers include E. Courtney Siegel, Chairman, President and Chief Executive Officer; Daniel S. Dunleavy, Vice President, Chief Financial Officer and Chief Administrative Officer; Michael N. Smith, Vice President, and General Manager of Harris's Real-Time Division; Robert T. Menzel, Vice President, General Manager of Harris's Trusted Systems Division; and Robert E. Chism, Vice President, Technical and Production Operations. See "CERTAIN INFORMATION REGARDING HARRIS." The executive officers of Harris following the Transaction are expected to be as follows: ROBERT L. CARBERRY. Mr. Carberry was appointed President of Harris's Trusted Systems Division in April 1996 in anticipation of the Transaction. Upon consummation of the Transaction, Mr. Carberry will become President and Chief Executive Officer of Harris. Previously, Mr. Carberry held positions as 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. Prior to his assumption in April 1996 of the responsibilities of Chief Financial Officer and Vice President Finance of Harris's Trusted Systems Division in anticipation of the Transaction, Mr. Wheeler held various positions with Harris including Midwest Regional Sales Manager, Senior Account Manager, and Director of Accounting. Mr. Wheeler joined Harris following its spin-off from Harris Corporation, which Mr. Wheeler joined in 1984 from Price Waterhouse LLP. KATHERINE K. HUTCHINSON. Ms. Hutchinson was appointed Vice President Marketing of Harris's Trusted Systems Division in April 1996 in anticipation of the Transaction. Previously, Ms. Hutchinson served in positions of increasing responsibility, most recently as Director of Marketing for Harris's Trusted Systems Division. Ms. Hutchinson joined Harris Corporation in 1993 from a position as Program Manager and Technical Marketing Manager in the Information Technology Group of Texas Instruments which she joined in 1982. RICK A. SIEBENALER. Mr. Siebenaler was appointed Vice President, Software Development of Harris's Trusted Systems Division in April 1996 in anticipation of the Transaction. Previously, Mr. Siebenaler served as Director of Software Development of Harris's Trusted Systems Division since 1994 and, as Chief Engineer from 1991 to 1994. BRADLEY C. LESHER. Mr. Lesher joined Harris Corporation in July 1994 from IBM where he had been General Manager of Latin American/Caribbean Operations since November 1991 and had previously served as Director of General Business Systems for that region. He joined IBM in 1957 and held various management positions with IBM's international operations. ROBERT PERKS. Mr. Perks was appointed Vice President Sales of Harris's Trusted Systems Division in April 1996 in anticipation of the Transaction. Mr. Perks joined the Computer Systems Division of Harris Corporation in 1977. He was employed by Real Time Products Corporation from 1992 to 1995 as Director, Customer Support and rejoined Harris in May 1995 as Director of Trusted Sales for Harris. 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 Harris's General Counsel. Prior thereto, he was a partner of the law firm of Kirkpatrick & Lockhart LLP beginning in 1983. Executive officers of Harris will be elected by the Harris Board to hold office until their successors have been chosen and qualified or until earlier resignation or removal. CHANGES IN THE COMPOSITION OF THE HARRIS BOARD Upon consummation of the Transaction, as provided in the Purchase and Sale Agreement, E. Courtney Siegel, who is currently Chairman of the Harris Board, will resign from the Harris Board. Harris's By-laws 98 104 provide for vacancies on the Harris Board to be filled by the appointment of replacements by the members of the class of directors in which vacancies occur. The Share Holding Agreement provides, during the period during which the Share Holding Agreement is in effect, for the Harris Board to consist of no more than seven members, one of whom is to be designated by Concurrent. Accordingly, Mr. Rifenburgh is expected to be appointed as the Concurrent designee to the Harris Board. For biographical information relating to Mr. Rifenburgh, see "DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION." INCUMBENT DIRECTORS REMAINING ON THE HARRIS BOARD C. Shelton James and Michael F. Maguire are expected to remain as members of the Harris Board. For biographical information relating to Messrs. James and Maguire, see "DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION." DIRECTORS WHOSE TERMS EXPIRE AT THE HARRIS SPECIAL MEETING The class of directors whose term expired at the 1995 annual meeting of Harris shareholders will expire at the Harris Special Meeting. Brian Foremny and Robert L. Carberry are members of such class of directors. The Harris Board has nominated Mr. Foremny and Mr. Carberry for reelection. See "OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS -- Election of Directors." 99 105 AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN Pursuant to the Purchase and Sale Agreement, among other things, the Concurrent Board adopted, subject to shareholder approval, an amendment to the Concurrent Stock Plan to increase the amount of shares of Concurrent Common Stock authorized for issuance thereunder from 4,014,725 to 9,000,000 such shares. This represents an increase of 4,985,175 shares authorized for issuance under the Concurrent Stock Plan. The increase will be reserved for future issuance under the Concurrent Stock Plan. As more fully described below, the amendment also amends the number of options to be granted under the Concurrent Stock Plan to non-employee directors of Concurrent, and extends the period during which, in certain circumstances, an option granted to a non-employee director could be exercised after the director is no longer a member of the board. At the Concurrent Special Meeting, the shareholders are being asked to approve to the Concurrent Stock Plan Amendment. The Concurrent Stock Plan Amendment is Item 2 in the Concurrent Notice of Special Meeting. DESCRIPTION OF THE CONCURRENT STOCK PLAN Purpose. The purpose of the Concurrent Stock Plan is to advance the interests of Concurrent by enabling officers, employees, non-employee directors, and consultants to participate in Concurrent's future and to enable Concurrent to attract and retain persons by offering them proprietary interests in the company. The Concurrent Stock Plan Amendment will result in an increase of 4,985,175 shares available for issuance under the Concurrent Stock Plan. The Concurrent Board believes that the amount available for future issuance will advance the interests of Concurrent by enabling it to attract and retain officers, employees, and non-employee directors who are responsible for or contribute to the management, growth and profitability of the enterprise. As of May 17, 1996, options to purchase 2,636,787 shares of Concurrent Common Stock are outstanding and issued pursuant to the Concurrent Stock Plan. A total of 1,061,529 shares of Concurrent Common Stock remain available for future grants. Eligibility. Officers, employees, non-employee directors, and consultants of Concurrent and its affiliates are eligible to be granted awards under the Concurrent Stock Plan. Administration. The Concurrent Stock Plan is administered by the Stock Award Committee (the "Concurrent Compensation Committee") of the Concurrent Board, the directors of which may not during such service, be granted or awarded securities pursuant to the Concurrent Stock Plan. The Concurrent Compensation Committee consists of directors Michael A. Brunner, Morton E. Handel and Robert R. Sparacino. Each of the members of the Concurrent Compensation Committee is a "disinterested" person for purposes of Rule 16b-3. Subject to the terms of the Concurrent Stock Plan, the Concurrent Compensation Committee has plenary authority to, among other things, (i) select the employees, directors and consultants to whom awards are granted, (ii) determine the types of awards and the number of shares subject thereto, and (iii) determine the terms and conditions of any award, including vesting and exercise price. The Concurrent Compensation Committee has the authority to adopt, alter and repeal any rules, guidelines and practices governing the Concurrent Stock Plan and to interpret the terms and provisions of the Concurrent Stock Plan and any award issued under the Concurrent Stock Plan. Awards under the Concurrent Stock Plan. The Concurrent Stock Plan permits the granting of the following types of awards: (i) stock options, including incentive stock options (each an "ISO") and non-qualified stock options (each an "NQSO"), (ii) stock appreciation rights (each an "SAR") and (iii) restricted stock. In addition, the Concurrent Stock Plan provides for the automatic grant of stock options to non-employee directors of Concurrent. Option grants in excess of 3,000 shares are required to be approved by the Concurrent Board. Stock Options. Stock options may be granted to participants who are selected by the Concurrent Compensation Committee. The exercise price of an ISO must be at least equal to 100% of the fair market value of the Concurrent Common Stock on the date of grant. The exercise price of an NQSO must not be less than 50% of the fair market value of a share of Concurrent Common Stock on the date of grant. The term of an ISO or NQSO may not exceed ten years. Each option is evidenced by a written agreement in a form approved by the Concurrent Compensation Committee. 100 106 Stock Appreciation Rights. SARs may be granted in conjunction with any stock option granted under the Concurrent Stock Plan. In the case of an NQSO, a SAR may be granted at or after the time of grant of the NQSO. In the case of an ISO, a SAR may granted only at the time of grant of the ISO. Upon the termination or exercise of the related stock option, the SAR shall terminate and no longer be exercisable. Upon exercise, payment, at Concurrent's option, may be in cash or stock or a combination thereof. The recipient will receive value equal to the excess of the fair market value of one share of Concurrent Common Stock over the option price per share of the related stock option multiplied by the number of shares in respect of which the SAR shall have been exercised. Restricted Stock. Awards of shares of Concurrent Common Stock subject to certain restrictions (the "Restricted Stock") may be made under the Concurrent Stock Plan. Subject to the provisions of the Concurrent Stock Plan, the Concurrent Compensation Committee shall determine, among other things, (i) the terms and conditions of such award, (ii) the restrictions and restriction period applicable to such award and (iii) whether the recipient will be entitled to receive the dividends and other distributions prior to the expiration of the restrictions. Directors' Options. The Concurrent Stock Plan currently provides that options may not be granted to non-employee directors except that each non-employee director elected to the Concurrent Board automatically receives on the date of his initial appointment to the Concurrent Board, an option to purchase 3,000 shares of Concurrent Common Stock at a per share exercise price equal to the fair market value of Concurrent Common Stock on the initial grant date. Prior to adoption of the Concurrent Stock Plan Amendment each option terminates, to the extent not exercised prior thereto, upon the earlier to occur of (i) the tenth anniversary of grant and (ii) the cessation of the optionee's service as a member of the Concurrent Board. Pursuant to the amendment, each non-employee director as of the Closing and each individual who thereafter becomes a non-employee director of Concurrent for the first time will receive an option to purchase 20,000 shares of Concurrent Common Stock and on the date of each annual meeting of Concurrent shareholders each non-employee director will receive an option to purchase 3,000 shares of Concurrent Common Stock, in each case at a per share exercise price equal to the fair market value of Concurrent Common Stock on the date of grant. In addition, pursuant to the Concurrent Stock Plan Amendment, each option would terminate, to the extent not exercised prior thereto, upon the earlier to occur of (i) the tenth anniversary of grant and (ii) the optionee's removal or resignation (other than by reason of death or disability) as a member of the Concurrent Board. Nontransferability of Stock Options. The Concurrent Stock Plan provides that no stock option may be transferred by the optionee other than by will or by the laws of descent and distribution. All stock options are exercisable, during the optionee's lifetime, only by the optionee or by the optionee's guardian or legal representative. Adjustments. The Concurrent Stock Plan provides that, in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split or reverse stock split, extraordinary distribution with respect to the Concurrent Common Stock or other similar change in corporate structure, substitutions or adjustments will be made in the aggregate number of shares reserved for issuance under the Concurrent Stock Plan, in the number and price of shares subject to outstanding stock options and SARs, and in the number of shares subject to other outstanding awards granted under the Concurrent Stock Plan as may be determined to be appropriate by the Concurrent Compensation Committee, in its sole discretion. Change of Control. Upon the occurrence of an event of "Change of Control" and subject to such additional conditions and restrictions as the Concurrent Compensation Committee may determine, the Concurrent Compensation Committee may accelerate the time at which all or a portion of the outstanding stock options shall become exercisable. A "Change of Control" is deemed to occur (i) if any person or entity acquires 20% or more of outstanding shares of Concurrent, (ii) the Concurrent shareholders approve a definitive agreement to merge or consolidate Concurrent with or into another corporation, or to sell all or substantially all of Concurrent's property and assets or to liquidate the company or (iii) there is a change of a majority of the directors who were members of the Concurrent Board on February 1, 1992 or who were subsequently elected or appointed directors if their nomination for election or appointment to the Concurrent 101 107 Board was recommended or approved by a majority of those directors who were members of the Concurrent Board on February 1, 1992. Amendment. The Concurrent Board may alter, amend, suspend or terminate the Concurrent Stock Plan, provided that no such action shall deprive an optionee, without his consent, of any option granted to the optionee pursuant to the Concurrent Stock Plan or of any of his rights under such option. Provisions related to automatic grants of options to non-employee directors may not (with limited exceptions) be amended more frequently than once every six months and no amendment to such provisions, unless approved by the shareholders of Concurrent, shall become effective earlier than six months after Concurrent Board approval. Except as provided in the Concurrent Stock Plan, no amendment by the Concurrent Board, unless taken with the approval of the shareholders, may (i) materially increase the benefits accruing to participants under the Concurrent Stock Plan or (iii) materially modify the requirements as to eligibility for participation in the Concurrent Stock Plan. As all of the directors and executive officers of Concurrent are eligible for grants of options under the Concurrent Stock Plan, each such person has a personal interest in the approval of the proposed amendment. As awards under the Concurrent Stock Plan are made in the discretion of the Concurrent Compensation Committee, except with respect to the awards to non-employee directors described above and a grant of 20,000 options that is anticipated to be made to Mr. Clowe subject to shareholder approval of the Concurrent Stock Plan Amendment, it is not possible to determine either the awards that will be made thereunder during 1996 or the awards that would have been made thereunder during 1995 had the Concurrent Stock Plan Amendment been in effect. REASONING BEHIND THE PROPOSAL The Concurrent Stock Plan Amendment will result in an increase of 4,985,175 shares available for issuance under the Concurrent Stock Plan, increase the number of options to be granted to non-employee directors of Concurrent, and extend the period during which, in certain circumstances, an option granted to a non-employee director could be exercised after the director is no longer a member of the board. The Concurrent Board believes that the Concurrent Stock Plan Amendment will advance the interests of Concurrent by enabling it to attract and retain officers, employees and non-employee directors who are responsible for or contribute to the management, growth and profitability of the enterprise. Issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and implementation of that portion of the Concurrent Stock Plan Amendment that provides for an increase in the number of shares of Concurrent Common Stock authorized for issuance to 9,000,000 shares are each conditioned upon the approval of the other proposal. Implementation of the remaining portions of the Concurrent Stock Plan Amendment is conditioned upon the approval of both (i) the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares and (ii) the increase in the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 such shares. FEDERAL INCOME TAX ASPECTS OF THE CONCURRENT STOCK PLAN The following is a summary of the federal tax consequences generally arising with respect to awards to be granted under the Concurrent Stock Plan. The grant of an ISO has no tax consequences to Concurrent or to the participant. In addition, the participant recognizes no taxable income at the time of exercise of an ISO. However, upon exercise, the difference between the fair market value of the underlying share of Concurrent Common Stock and the exercise price of the ISO is includable in the participant's income for alternative minimum tax purposes. If the participant holds the shares acquired upon exercise of an ISO for at least two years from the date of the grant of the ISO and at least one year from the date of exercise, he will recognize taxable long-term capital gain or long-term capital loss upon a subsequent sale of the shares at a price different from the option exercise price. In either of these events, no deduction would be allowed to Concurrent for federal income tax purposes. If the participant disposes of the shares acquired upon exercise of an ISO within either of the holding periods described above (i) the participant will recognize taxable ordinary income in the year of such disposition in an amount equal to the fair market value of the shares on the exercise date minus the exercise 102 108 price of the ISO; provided that if the disposition is a sale or exchange with an unrelated party, then the ordinary income will be limited to the excess of the amount realized upon the sale or exchange of the shares over the exercise price; (ii) Concurrent will be entitled to a deduction for such year equal to the amount of taxable ordinary income recognized by the participant; and (iii) the participant will recognize capital gain or loss, short-term or long-term, as the case may be, in an amount equal to the difference between (a) the amount realized by him upon such sale or exchange of the shares and (b) the option exercise price paid by him increased by the amount of ordinary income, if any, recognized by him upon such disposition. The grant of an NQSO has no tax consequences to Concurrent or to the participant. Upon exercise of an NQSO, however, the participant will recognize taxable ordinary income in the amount of the excess of the fair market value on the date of exercise of the shares of Concurrent Common Stock acquired over the exercise price of the NQSO, and such amount will be deductible for federal income tax purposes by Concurrent. The holder of such shares will, upon a subsequent disposition of the shares, recognize short-term or long-term capital gain or loss, depending on the holding period of the shares. In general, a grant of restricted stock has no tax consequence to Concurrent or the participant. Except as discussed below, the then fair market value of the shares of Concurrent Common Stock issued as restricted stock will be taxed as ordinary income to the grantee as the restrictions on the stock lapse. Concurrent will receive a corresponding tax deduction at the same times. Dividends received by the participant during the restriction period are treated as compensation income and therefore are taxed as ordinary income to the participant and are deductible by Concurrent. If the participant holds the stock for more than one year after the restrictions lapse, any gain realized upon a taxable sale or exchange of the stock will be long-term capital gain. Concurrent receives no additional deduction at the time of disposition of the stock by the participant. The participant may, under Section 83(b) of the Code, elect to report the current fair market value of restricted stock as ordinary income in the year the award is made, even though the stock is subject to restrictions. In such a case, Concurrent will receive an immediate tax deduction for such fair market value of the shares in the year of grant, but will receive no deduction for any subsequent appreciation during or after the restriction period. In addition, dividends paid during or after the restriction period would be treated as dividends to the participant and therefore would not be deductible by Concurrent. If a Section 83(b) election is made, any appreciation in the value of the stock after the date of grant will not be recognized as capital gain by the participant until such time as the participant disposes of the stock in a taxable transaction. Any capital gain then realized will be long-term capital gain if the participant has held the stock for at least one year from the date of grant. If the participant forfeits the stock (i.e., because he has not met the requirements for lapse of restrictions), the participant will receive no refund or deduction on account of taxes paid in the year of grant as a result of the Section 83(b) election. The grant of an SAR has no tax consequences to Concurrent or the participant. To the extent that an SAR is exercised, the amount paid to the participant will be taxed to him as ordinary income, and Concurrent will receive a corresponding deduction at the same time. With respect to other awards granted under the Concurrent Stock Plan that are settled either in cash or in stock or other property that is either transferable or not subject to substantial risk of forfeiture, the participant must recognize ordinary income equal to the cash or the fair market value of shares or other property received; Concurrent will be entitled to a deduction for the same amount. With respect to awards that are settled in stock or other property that is restricted as to transferability and subject to substantial risk of forfeiture, the participant must recognize ordinary income equal to the fair market value of the shares or other property received at the first time the shares or other property become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier. Concurrent will be entitled to a deduction for the same amount. A participant who makes an election under Section 83(b) of the Code will be taxed on the excess of the fair market value at exercise over the purchase price. Special tax rules may apply to officers and directors who are not employees of Concurrent who are subject to Section 16 of the Exchange Act. THE CONCURRENT BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE CONCURRENT STOCK PLAN AMENDMENT. 103 109 OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS AMENDMENT TO THE HARRIS STOCK PLAN Harris has adopted, and the shareholders have approved, the Harris Stock Plan. The Harris Stock Plan provides for the issuance of an aggregate of 975,000 shares of Harris Common Stock, including restricted stock and stock issued upon the exercise of stock options. On February 4, 1996, the Harris Board approved the Harris Stock Plan Amendment to increase to 2,025,000 the maximum number of shares of Harris Common Stock that may be issued in the form of restricted stock or pursuant to the exercise of options granted pursuant to the Harris Stock Plan, and amended the director's options provision of the Harris Stock Plan, as described below. The Harris shareholders are being requested to consider and approve the Harris Stock Plan Amendment. Approval of the Harris Stock Plan Amendment requires the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the Harris Special Meeting. It is intended that shares represented by proxies solicited by the Harris Board will, unless authority to so vote is withheld, be voted in favor of the Harris Stock Plan Amendment. THE HARRIS BOARD UNANIMOUSLY RECOMMENDS THAT THE HARRIS SHAREHOLDERS VOTE FOR THE APPROVAL OF THE HARRIS STOCK PLAN AMENDMENT. Purpose. The Harris Board believes that awards under the Harris Stock Plan serve to attract, retain and motivate key employees and enhance the incentive of employees to perform at the highest level. Awards under the Harris Stock Plan contribute significantly to Harris's success by tying employees' compensation to performance and by aligning employees' interests closely to the long-term interests of Harris and its shareholders. The availability of awards under the Harris Stock Plan also serves to encourage qualified persons to seek and accept employment with Harris. The Harris Board believes that the proposed Harris Stock Plan Amendment, by ensuring that a sufficient number of shares are available to be granted or issued upon the exercise of options to eligible present and future participants, furthers these objectives. Prior to the approval of the Harris Stock Plan by the Harris Board as of May 16, 1996, options to purchase 777,630 shares of Harris Common Stock, and 52,800 shares of Harris Common Stock subject to restrictions, were outstanding pursuant to the Harris Stock Plan. In addition, the Compensation Committee of the Harris Board (the "Harris Compensation Committee") has approved the issuance of 535,000 additional options to purchase shares of Harris Common Stock subject to the approval by Harris's shareholders of the Harris Stock Plan. Assuming approval of the Harris Stock Plan Amendment by the Harris shareholders, a total of 504,206 shares of Harris Common Stock will remain available for future grants. Eligibility. All salaried employees and non-employee directors of Harris and its affiliates are eligible to participate in the Harris Stock Plan. An eligible employee may receive an award under the Plan, however, only if selected by the Harris Compensation Committee. Administration. The Harris Stock Plan is administered by the Harris Compensation Committee, none of the members of which may be an employee of Harris. The Harris Compensation Committee may in turn delegate some or all of its authority and responsibility under the Harris Stock Plan with respect to awards to participants who are not subject to Section 16(b) of the Exchange Act to the Chief Executive Officer of Harris. The Harris Compensation Committee has the authority to select employees to whom awards are granted, to determine the types of awards and the number of shares subject thereto, and to set the terms, conditions and provisions of such awards. Certain specified awards that apply to non-employee directors of Harris are not subject to the discretion of the Harris Compensation Committee. The Harris Compensation Committee is authorized to interpret the Harris Stock Plan, to establish, amend and rescind any rules and regulations relating to the Harris Stock Plan, to determine the terms and provisions of any agreements entered into under the Harris Stock Plan, and to make all other determinations which may be necessary or advisable for the administration of the Harris Stock Plan. 104 110 Awards under the Harris Stock Plan. The Harris Stock Plan permits the granting of any or all of the following types of awards: (1) performance shares conditioned upon meeting performance criteria, (2) restricted stock, (3) stock options, including incentive stock options ("ISOs"), (4) stock appreciation rights ("SARs"), in tandem with stock options or freestanding, and (5) other awards valued in whole or in part by reference to, or otherwise based on, Harris Common Stock. In connection with any award, payment representing dividends or interest or their equivalent may be made to Harris Stock Plan participants. In addition, the Harris Stock Plan provides for the automatic grant of stock options to directors of Harris who are not employees of Harris or its affiliates ("Outside Directors"). Stock Options. Stock options may be granted, from time to time, to such salaried employees of Harris and its affiliates as may be selected by the Harris Compensation Committee. The purchase price per share of Harris Common Stock purchasable under any stock option granted to an employee is determined by the Board of Directors, but may not be less than 100% of the fair market value of a share of Harris Common Stock on the date of grant and, in the case of ISOs, 110% of the fair market value of a share of Harris Common Stock on the date of the grant. The term of each such option, and the time or times when it may be exercised, is fixed by the Harris Compensation Committee (up to 10 years from the date of the grant). All terms and conditions relating to the options are the subject of separate stock option agreements between Harris and the grantees. The grant and the terms of ISOs is restricted to the extent required by the Code. Options may be exercised by payment of the purchase price, either in cash or, at the discretion of the Harris Board, in Harris Common Stock having a fair market value on the date the option is exercised equal to the option price. The Harris Stock Plan provides for SARs relating to any option to be automatically canceled to the extent of the number of shares of the exercise. Participants have no shareholder rights with respect to any options granted until shares have been issued upon the proper exercise of the option. Stock Appreciation Rights. The Harris Compensation Committee may grant SARs, from time to time, to salaried employees. An SAR may be granted in connection with an option or independent of an option. Upon exercise of an SAR, the holder thereof is entitled to receive the excess of the fair market value of the shares for which the right may be exercised over the grant price of the SAR. The grant price (which may not be less than 100% of the fair market value of the shares on the date of grant) and other terms of the SAR may be determined by the Board of Directors. In the event the SAR is granted in connection with an option, the fixed price from which appreciation shall be computed shall be the option price. SARs granted in connection with options may be exercised only to the extent the related options are exercisable; the related options will be canceled. Payment by Harris upon such exercise will be in cash in the amount of the fair market value of the SAR over the fixed price, or the option price, as the case may be. SARs granted under the Harris Stock Plan may not be transferred except by will or by the laws of descent and distribution and must be exercised during the lifetime of the grantee. To date, no SARs have been granted pursuant to the Harris Stock Plan; any future grant of a SAR will be the subject of a separate Stock Appreciation Rights Agreement between Harris and the grantee containing the terms of the SAR and such other conditions as the Harris Compensation Committee may determine. Performance Awards. From time to time, the Harris Board may select a period during which performance criteria determined by the Harris Board are measured for the purpose of determining the extent to which a performance award has been earned. Any performance awards granted pursuant to the Harris Stock Plan will be in the form of Harris Common Stock. Recipients of performance awards, who must be salaried employees of Harris, need not be required to provide consideration other than the rendering of services. Shares awarded may be subject to a restriction period during which time the shares may not be transferred; shares granted are held by Harris during the restricted period. Recipients of performance awards will have, with respect to the performance shares (and even during a restricted period), all of the rights of a shareholder of Harris, including the right to vote the shares and to receive any cash dividends to the extent permitted by applicable law, unless the Harris Board determines otherwise. Restricted Stock. Awards of shares of Harris Common Stock subject to certain restrictions may be made from time to time to salaried employees of Harris. The Harris Board may select the recipients of restricted stock. Restricted stock may not be disposed of by the recipient until the lapse of certain restrictions established by the Harris Board. Recipients of restricted stock will not be required to provide consideration 105 111 other than the rendering of services. Recipients will have, with respect to restricted stock, all of the rights of a shareholder of Harris including the right to vote the shares and to receive any cash dividends to the extent permitted by applicable law, unless the Harris Board determines otherwise. Upon termination of employment during the restriction period, all restricted stock not then vested will be forfeited, subject to such exceptions, if any, authorized by the Harris Board. Other Stock-Based Awards. In order to enable Harris to respond quickly to significant legislative and regulatory developments and to trends in executive compensation practices, the Harris Board will also be authorized to grant to salaried employees, either alone or in addition to other awards granted under the Harris Stock Plan, awards of stock and other awards that are valued in whole or in part by reference to, or are otherwise based on, Harris Common Stock ("other stock-based awards"). Other stock-based awards may be paid in Harris Common Stock or other securities, cash or any other form of property as determined by the Harris Board. The Harris Board may determine the employees to whom other stock-based awards are to be made, the times at which such awards are to be made, the number of shares to be granted pursuant to such awards and all other conditions of such awards. The provisions of such awards need not be the same with respect to each recipient. Securities granted pursuant to other stock-based awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law. If purchase rights are granted pursuant to other stock-based awards the Harris Board will determine the purchase price of stock, which price will not be less than the fair market value of such stock on the date of grant. All awards shall be fully vested and payable immediately upon a change of control of Harris. Directors' Options. Under the Harris Stock Plan, as currently in effect, Outside Directors receive options to purchase shares of Harris Common Stock upon joining the Harris Board. In addition, on the date of each annual meeting thereafter, each director who was not an employee of Harris was automatically granted an option to purchase 1,500 shares of Harris Common Stock. All such options are non-statutory stock options and priced at 100% of the fair market value on the date of grant. On February 4, 1996, the Harris Board approved an amendment to the provisions of the Harris Stock Plan by which Outside Directors serving on the Harris Board as of such date were each granted an option, subject to approval by Harris's shareholders of the Harris Stock Plan Amendment, to purchase 15,000 shares of Harris Common Stock at $5.50 per share, the closing price of Harris Common Stock on the date of the grant. In the event of a director's retirement, the options that 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 that are exercisable at the date of death will be exercisable for the next succeeding 12 months. Neither the Harris Board nor any committee of the Harris Board has any discretion with respect to options granted to Outside Directors pursuant to the Harris Stock Plan. Nonassignability of Awards. The Harris Stock Plan provides that no award granted under the Harris Stock Plan may be sold, assigned, transferred, pledged or otherwise encumbered by a participant, otherwise than by will or by the laws of descent and distribution. Each award is exercisable, during the participant's lifetime, only by the participant, or if permissible under applicable law, by the participant's agent, guardian or attorney-in-fact. Adjustments. The Harris Stock Plan provides that, in the event of any change affecting the shares of Harris Common Stock by reason of any stock dividend or split, recapitalization, reorganization, merger, consolidation, spin-off, combination or exchange of shares, spin-out or any distribution to shareholders other than cash dividends, the Harris Board will make such substitution or adjustment in the aggregate number or class of shares which may be distributed under the Harris Stock Plan and in the number, class and option price or other price of shares subject to the outstanding awards granted under the Harris Stock Plan as it deems to be appropriate in order to maintain the purpose of the original grant. The Harris Board is authorized to make adjustments in performance award criteria or in the terms and conditions of other awards in recognition of unusual or non-recurring events affecting Harris or its financial statements or changes in applicable laws, regulations or accounting principles, provided no such adjustment shall impair the rights of any participant without his consent. The Harris Board may correct any defect, supply 106 112 any omission or reconcile any inconsistency in the Harris Stock Plan or any award in the manner and to the extent it shall deem desirable to carry it into effect. Change of Control. In order to maintain all of the participants' rights in the event of a change of control of Harris, all outstanding awards will become exercisable immediately prior to the occurrence of the change of control, in such manner and in such amounts as determined by the Harris Board, as constituted before such change of control, in its sole discretion. A change in control is deemed to occur if any person or entity acquires 20% or more of the outstanding shares of Harris 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. Federal Income Tax Aspects of the Harris Stock Plan. The following is a summary of the federal tax consequences generally arising with respect to awards to be granted under the Harris Stock Plan. The grant of an ISO has no tax consequences to Harris or to the participant. In addition, the participant recognizes no taxable income at the time of exercise of an ISO. However, upon exercise, the difference between the fair market value of the underlying share of Harris Common Stock and the exercise price of the ISO is includable in the participant's income for alternative minimum tax purposes. If the participant holds the shares acquired upon exercise of an ISO for at least two years from the date of the grant of the ISO and at least one year from the date of exercise, he will recognize taxable long-term capital gain or long-term capital loss upon a subsequent sale of the shares at a price different from the option exercise price. In either of these events, no deduction would be allowed to Harris for federal income tax purposes. If the participant disposes of the shares acquired upon exercise of an ISO within either of the holding periods described above (i) the participant will recognize taxable ordinary income in the year of such disposition in an amount equal to the fair market value of the shares on the exercise date minus the exercise price of the ISO; provided that if the disposition is a sale or exchange with an unrelated party, then the ordinary income will be limited to the excess of the amount realized upon the sale or exchange of the shares over the exercise price; (ii) Harris will be entitled to a deduction for such year equal to the amount of taxable ordinary income recognized by the participant; and (iii) the participant will recognize capital gain or loss, short-term or long-term, as the case may be, in an amount equal to the difference between (a) the amount realized by him upon such sale or exchange of the shares and (b) the option exercise price paid by him increased by the amount of ordinary income, if any, recognized by him upon such disposition. The grant of a non-statutory stock option has no tax consequences to Harris or to the participant. Upon exercise of a non-statutory stock option, however, the participant will recognize taxable ordinary income in the amount of the excess of the fair market value on the date of exercise of the shares of Harris Common Stock acquired over the exercise price of the non-statutory stock option, and such amount will be deductible for federal income tax purposes by Harris. The holder of such shares will, upon a subsequent disposition of the shares, recognize short-term or long-term capital gain or loss, depending on the holding period of the shares. In general, a grant of restricted stock has no tax consequence to Harris or the participant. Except as discussed below, the then fair market value of the shares of Harris Common Stock issued as restricted stock will be taxed as ordinary income to the grantee as the restrictions on the stock lapse. Harris will receive a corresponding tax deduction at the same times. Dividends received by the participant during the restriction period are treated as compensation income and therefore are taxed as ordinary income to the participant and are deductible by Harris. If the participant holds the stock for more than one year after the restrictions lapse, any gain realized upon a taxable sale or exchange of the stock will be long-term capital gain. Harris receives no additional deduction at the time of disposition of the stock by the participant. The participant may, under Section 83(b) of the Code, elect to report the current fair market value of restricted stock as ordinary income in the year the award is made, even though the stock is subject to restrictions. In such a case, Harris will receive an immediate tax deduction for such fair market value of the shares in the year of grant, but will receive no deduction for any subsequent appreciation during or after the restriction period. In addition, dividends paid during or after the restriction period would be treated as dividends to the participant and therefore would not be deductible by Harris. If a Section 83(b) election is made, any appreciation in the value of the stock after the date of grant will not be recognized as capital gain by the participant until such time as the participant disposes of the stock in a taxable transaction. Any capital 107 113 gain then realized will be long-term capital gain if the participant has held the stock for at least one year from the date of grant. If the participant forfeits the stock (i.e., because he has not met the requirements for lapse of restrictions), the participant will receive no refund or deduction on account of taxes paid in the year of grant as a result of the Section 83(b) election. The grant of an SAR has no tax consequences to Harris or the participant. To the extent that an SAR is exercised, the amount paid to the participant will be taxed to him as ordinary income, and Harris will receive a corresponding deduction at the same time. With respect to other awards granted under the Harris Stock Plan that are settled either in cash or in stock or other property that is either transferable or not subject to substantial risk of forfeiture, the participant must recognize ordinary income equal to the cash or the fair market value of shares or other property received; Harris will be entitled to a deduction for the same amount. With respect to awards that are settled in stock or other property that is restricted as to transferability and subject to substantial risk of forfeiture, the participant must recognize ordinary income equal to the fair market value of the shares or other property received at the first time the shares or other property become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier. Harris will be entitled to a deduction for the same amount. A participant who makes an election under Section 83(b) of the Code will be taxed on the excess of the fair market value at exercise over the purchase price. Special tax rules may apply to officers and directors who are not employees of Harris who are subject to Section 16 of the Exchange Act. CHANGE OF HARRIS'S CORPORATE NAME At the Harris Special Meeting, Harris shareholders will be asked to vote on and approve an amendment to Harris's Articles of Incorporation that would change Harris's corporate name to CyberGuard Corporation. Purpose for the Name Change. In connection with the spin-off of Harris from Harris Corporation, Harris's former corporate parent, Harris and Harris Corporation entered into a Trademark and Trade Name License Agreement, dated September 13, 1994, that provided for Harris to use the trade name "Harris Computer Systems Corporation" only until September 12, 1996. Moreover, as the result of the Transaction, Harris's operations will no longer include the Harris Real-Time Business, a business unit with which Harris was primarily identified; instead, Harris will focus its business on the market for trusted computer systems. Accordingly, the Harris Board has determined that it is in the best interest of Harris to amend its Articles of Incorporation to change Harris's corporate name to CyberGuard Corporation. The affirmative vote of the holders of a majority of the shares entitled to be cast at the Harris Special Meeting is required for approval of the Name Change. THE HARRIS BOARD RECOMMENDS THAT HARRIS SHAREHOLDERS VOTE FOR THE AMENDMENT OF HARRIS'S ARTICLES OF INCORPORATION TO CHANGE HARRIS'S CORPORATE NAME TO CYBERGUARD CORPORATION. ELECTION OF DIRECTORS Harris's Articles of Incorporation provide for directors to be divided into three classes, each as nearly equal in number as reasonably possible as determined by the Harris Board. The term of one class of Harris Directors, consisting of two directors, expires at the 1995 annual meeting of Harris shareholders and, accordingly, will expire at the Harris Special Meeting. Two directors will be elected at the Harris Special Meeting to fill the expiring directorships. The term of the directors elected to fill the expiring directorships will expire at the 1998 annual meeting of Harris shareholders. Brian Foremny and Robert L. Carberry, who currently hold the expiring directorships, each have agreed to stand for reelection and have been nominated by the Harris Board for reelection. Each of Mr. Carberry and Mr. Foremny will be elected as a director of Harris if he receives a majority of the votes cast by the holders of Harris Common Stock represented, in person or in proxy, at the Harris Special Meeting. In the event that 108 114 either of Mr. Carberry or Mr. Foremny becomes unavailable for election as a director at the time the Harris Special Meeting is held, unless contrary instructions are given, shares represented by proxies in the accompanying form may be voted for another person nominated by the present Harris Board. For biographical information relating to Messrs. Carberry and Foremny, see "DIRECTORS AND EXECUTIVE OFFICERS OF HARRIS AFTER CONSUMMATION OF THE TRANSACTION -- Executive Officers." ADJOURNMENT OF THE HARRIS SPECIAL MEETING The Chairman of the Harris Special Meeting (the "Harris Chairman") may propose that the Harris Special Meeting be adjourned or postponed for any reason. For example, if a quorum is not obtained, or if fewer shares are likely to be voted in favor of approval and adoption of the Transaction than the number required for approval and adoption, the Harris Chairman may propose that the Harris Special Meeting be adjourned for the purpose of obtaining additional proxies or votes. The Harris Chairman also may propose that the Harris Special Meeting be adjourned or postponed in order to obtain necessary regulatory approvals. At any subsequent reconvening of the Harris Special Meeting, all proxies will be voted in the same manner as such proxies would have been voted at the original meeting (except for any proxies which theretofore have been effectively revoked or withdrawn), notwithstanding that they may have been effectively voted on the same or any other matter at a prior meeting. THE HARRIS BOARD RECOMMENDS THAT THE HARRIS SHAREHOLDERS VOTE FOR APPROVAL OF ANY PROPOSAL TO ADJOURN THE HARRIS SPECIAL MEETING. Those shareholders who plan to vote against the Transaction are advised that they also should vote against adjournment. The affirmative vote of a majority of the shares represented, in person or by proxy, at the Harris Special Meeting is required for approval of any adjournment thereof. APPROVAL OF INDEPENDENT ACCOUNTANTS The Harris Board, upon the recommendation of the Audit Committee of the Harris Board, has appointed KPMG as Harris's independent accountants to audit the consolidated financial statements of Harris for the 1996 fiscal year. KPMG has served as Harris's independent accountants for the fiscal year ended September 29, 1995. THE HARRIS BOARD RECOMMENDS THAT THE HARRIS SHAREHOLDERS VOTE FOR APPROVAL OF KPMG AS HARRIS'S INDEPENDENT ACCOUNTANTS FOR THE SUCCEEDING YEAR. The affirmative vote of a majority of the shares represented, in person or by proxy, at the Harris Special Meeting is required for the approval of the independent accountants. Representatives of KPMG will be present at the Harris Special Meeting to respond to appropriate questions from the Harris shareholders and will be given the opportunity to make a statement should they desire to do so. It is intended that shares represented by proxies solicited by the Harris Board will, unless authority to so vote is withheld, be voted in favor of the appointment of KPMG as Harris's independent accountants for fiscal year 1996. 109 115 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT The following unaudited pro forma financial statements have been prepared to give effect to the Transaction which will be accounted for as a purchase. See "TERMS OF THE TRANSACTION -- Accounting Treatment." These financial statements do not purport to represent what the Combined Real-Time Company's results of operations or financial position actually would have been had the Transaction occurred on the dates when they are reflected to have occurred in the pro forma financial statements, or to project the Combined Real-Time Company's results of operations or financial condition for any future period or date. In particular, the financial condition of Concurrent at the date of the Transaction will be directly affected by the financial performance of both Concurrent and Harris up to the date of the Transaction and could be substantially different from that shown in these pro forma financial statements. The pro forma condensed consolidated statements of operations for the year ended June 30, 1995 and for the nine months ended March 31, 1996 have been prepared assuming the Transaction had occurred as of the beginning of each of the respective periods. The pro forma condensed consolidated statement of operations for the year ended June 30, 1995 includes the results of operations for Concurrent for the year ended June 30, 1995 and for Harris's Real-Time Business for the year ended September 30, 1995. The pro forma condensed consolidated statement of operations for the nine months ended March 31, 1996 includes the results of operations for Concurrent and Harris's Real-Time Business for the nine months ended March 31, 1996. The pro forma consolidated balance sheet at March 31, 1996 has been prepared assuming the Transaction had occurred as of that date. "Harris as Reported" and "Harris Trusted" data were obtained from the Combining Financial Information included in Harris's financial information -- see "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "HARRIS CONSOLIDATED FINANCIAL STATEMENTS." In accordance with generally accepted accounting principles, the purchase price for the acquisition of the Harris's Real-Time Business will be allocated to the assets and liabilities received based upon their estimated fair values. Such fair values are based upon valuations of assets and liabilities and estimations which are still in process. Accordingly, for purposes of the following pro forma financial information the pro forma adjustments are stated on an estimated basis using the most recent information available. No assurance can be given that the pro forma adjustments will not differ materially from the amounts ultimately determined. The pro forma financial statements do not reflect any synergies, operating efficiencies or cost savings anticipated by management as a result of the Transaction, such as savings expected from consolidation of manufacturing, research and development, selling, marketing, administrative and other functions. Such savings will require significant headcount reductions and present significant management challenges. The resulting pro forma financial statements are not necessarily indicative of Concurrent's future results of operations or financial position. For a discussion of anticipated synergies, see "THE PROPOSED TRANSACTION -- Recommendations of the Board of Directors of Concurrent and Concurrent's Reasons for the Transaction" and "-- Recommendations of the Special Committee and the Board of Directors of Harris and Harris's Reasons for the Transaction." The pro forma financial statements should be read in conjunction with the audited consolidated financial statements for the years ended June 30, 1995 and September 30, 1995 for Concurrent and Harris, respectively, and for Concurrent the unaudited financial statements for the nine months ended March 31, 1996, and for Harris the unaudited financial statements for the six months ended March 30, 1996. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "TERMS OF THE TRANSACTION -- Accounting Treatment" and "PROJECTED FINANCIAL INFORMATION." 110 116 PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30, 1995 NINE MONTHS ENDED MARCH 31, 1996 -------------------------------------------------------- -------------------------------------------------------- CONCURRENT HARRIS (LESS) OTHER CONCURRENT HARRIS (LESS) OTHER AS AS HARRIS PRO FORMA PRO AS AS HARRIS PRO FORMA PRO REPORTED REPORTED TRUSTED ADJS. FORMA REPORTED REPORTED TRUSTED ADJ. FORMA ---------- -------- ------- --------- -------- ---------- -------- ------- --------- -------- Net sales.... $140,144 $45,111 $(4,817) -- $180,438 $ 77,108 $34,271 $(5,292) $ -- $106,087 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 1,065(a) 1,142(a) Gross margin... 60,667 19,347 (1,677 ) 814(b) 80,216 32,682 15,786 (1,710) 610(b) 48,510 (358)(c) (270)(c) Operating expenses... 58,585 30,887 (4,834 ) (406)(b) 83,874 33,100 24,844 (6,122) (305)(b) 51,247 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations... 2,082 (11,540) 3,157 2,643 (3,658) (418) (9,058) 4,412 2,327 (2,737) Interest income (expense) net...... (2,125) 456 (49) (60)(d) (1,778) (1,658) 250 (49) (45)(d) (1,502) Other income (expense) net...... (263) (4) -- -- (267) (2,180) 230 22 -- (1,928) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Loss before provision for income taxes.... (306) (11,088 ) 3,108 2,583 (5,703) (4,256) (8,578) 4,385 2,282 (6,167) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Provision for income taxes.... 1,700 -- -- -- 1,700 1,400 -- -- -- 1,400 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net loss... $ (2,006) $(11,088) $3,108 $ 2,583 $ (7,403) $ (5,656) $(8,578) $4,385 $ 2,282 $ (7,567) ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Net (loss) for common shareholders: Net (loss)... $ (2,006) $(11,088) $ (7,403) $ (5,656) $(8,578) $ (7,567) Adjustment for preferred dividend requirement... -- -- 747(f) -- -- 560(f) Accretion on redeemable preferred stock.... -- -- 105(f) -- -- 79(f) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net (loss) applicable to common shares... (2,006) (11,088) (8,255) (5,656) (8,578) (8,206) Per common share: Net loss per share.... $ (0.07) $ (1.88) $ (0.20) $ (0.19) $ (1.45) $ (0.20) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Weighted average number of shares outstanding 30,095 5,910 (5,910) 10,321(e) 40,416 30,482 5,946 (5,946) 10,321(e) 40,803 ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
See accompanying notes to unaudited pro forma condensed consolidated statements of operations. 111 117 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 1. Basis of Presentation The unaudited pro forma condensed consolidated statements of operations are presented for illustrative purposes only, giving effect to the Transaction and, therefore, are not necessarily indicative of the financial results that might have been achieved had the Transaction occurred as of an earlier date, nor are they necessarily indicative of the financial results which may occur in the future. The unaudited pro forma condensed consolidated statement of operations for the year ended June 30, 1995 include the results of operations for Concurrent for the year ended June 30, 1995 and for Harris's Real-Time Business for the year ended September 30, 1995. The pro forma condensed consolidated statement of operations for the nine months ended March 31, 1996 include the results of operations for Concurrent and Harris's Real-Time Business for the nine months ended March 31, 1996. 2. Pro Forma Adjustments The following unaudited pro forma purchase accounting adjustments were made to the statements of operations for the year ended June 30, 1995 and the nine months ended March 31, 1996 to give effect to the Transaction as if such Transaction had occurred as of the beginning of the respective periods: (a) To eliminate the amortization expense previously recorded on the capitalized software during the respective periods. The real-time technology of both companies is similar and as such, the combination of duplicate technologies does not provide additional benefit to Concurrent. As a result, Harris's capitalized software of $5.4 million was eliminated as part of the Transaction. (See Unaudited Pro Forma Consolidated Balance Sheet Note 1(f)) (b) To reflect the adjustment to depreciation expense resulting from the decrease in the book value of Harris's property, plant and equipment acquired, depreciated on a straight-line basis over an average remaining useful life of four years. The excess of the estimated fair value of net assets acquired over the purchase price was allocated to reduce proportionately the values assigned to non-current assets. Such amount is subject to change pending completion of the valuation of assets acquired. (c) To reflect the amortization of negative goodwill, which represents the remainder of the excess of the estimated fair value of net assets acquired after reducing the values assigned to non-current assets to zero over the aggregate purchase price. Negative goodwill is amortized on a straight-line basis over a ten-year period. Such amount is subject to change pending the completion of the valuation of Assets acquired. (d) To reflect the decrease in interest income resulting from the use of approximately $1.2 million in cash to finance the closing costs related to the Transaction at an average interest rate of 5%. 112 118 (e) The number of shares used in computing pro forma net loss per share for the year ended June 30, 1995 and the nine months ended March 31, 1996 were 40,415,583 and 40,803,089, respectively. Pro forma net loss per share has been determined based on the historical weighted average of shares outstanding of Concurrent Common Stock adjusted to give effect to: 1) the issuance of 10,000,000 shares of Concurrent Common Stock; and 2) the issuance of an estimated 320,802 shares, on a pro forma basis as of March 31, 1996 (based on an estimated average price at such time of $1.43 per share) to be sold to fund the payment to Berenson Minella of a portion of its financial advisory fees, assuming such shares had been outstanding for the entire period. The number of shares is determined as follows:
NINE MONTHS YEAR ENDED ENDED JUNE 30, MARCH 31, 1995 1996 ---------- ----------- Historical weighted average number of shares of Concurrent Common Stock.............................................. 30,094,781 30,482,287 Issuance of shares of Concurrent Common Stock to Harris..... 10,000,000 10,000,000 Issuance of shares of Concurrent Common Stock to investment banker.................................................... 320,802 320,802 ---------- ---------- Total............................................. 40,415,583 40,803,089 ========== ==========
This calculation of total shares excludes all outstanding Concurrent Options and Concurrent Warrants, as they would have an anti-dilutive effect on earnings per share. (f) To reflect earnings per share adjustments for preferred stock dividends and to accrete Concurrent Preferred Stock to its mandatory redemption value over the term of the security. 113 119 PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) (DOLLARS IN THOUSANDS)
AT MARCH 31, 1996 ----------------------------------------------------------------------- CONCURRENT HARRIS (LESS) HARRIS OTHER PRO AS REPORTED AS REPORTED TRUSTED FORMA ADJS. PRO FORMA ------------- ----------- ------------- ----------- --------- ASSETS Current assets: Cash and cash equivalents........................... $ 3,078 $ 1,307 $ (1,230)(a) $ 3,155 Securities available for sale....................... 11,149(b) 11,149 Accounts receivable................................. 24,887 15,335 (2,626) 37,596 Inventories......................................... 12,662 6,381 (87) (700)(c) 18,256 (795)(a) Prepaid expenses and other current assets........... 4,477 660 (253) (196)(d) 3,893 -------- -------- -------- -------- -------- Total current assets.............................. 45,104 23,683 (2,966) 8,228 74,049 (6,678)(h) Property, plant and equipment -- net................ 32,048 5,912 (1,034) 1,800(e) 32,048 Capitalized software................................ 291 8,135 (2,726) (5,409)(f) 291 (2,000)(h) Acquired technology................................. 2,000(f) -- Excess of purchase price over estimated value of net assets acquired.......................................... 13,050(h) (13,050)(g) -- Other long-term assets.............................. 3,063 822 (30) (792)(h) 3,063 -------- -------- -------- -------- -------- Total assets............................... $ 80,506 $ 38,552 $ (6,756) $ (2,851) $109,451 ======== ======== ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable....................................... $ 5,655 $ 5,655 Current portion of long-term debt................... 824 824 Revolving credit facility........................... 3,843 3,843 Accounts payable and accrued expenses............... 22,933 8,784 (1,358) 30,359 Deferred revenue.................................... 4,610 628 (37) 5,201 -------- -------- -------- -------- -------- Total current liabilities......................... 37,865 9,412 (1,395) 45,882 Long-term debt...................................... 7,129 7,129 Excess of acquired net assets over cost............. 3,580(g) 3,580 Other long-term liabilities......................... 5,229 5,229 Class B 9% cumulative convertible redeemable exchangeable preferred stock subject to a $8,300 mandatory redemption, $0.01 par value per share 1,000,000 shares authorized -- Issued and outstanding 830,000 at March 31, 1996 -- pro forma............................................. 7,248(i) 7,248 Shareholders' equity: Shares of preferred stock, par value $0.01; authorized 25,000,000............................. Shares of common stock, par value $0.01; authorized 100,000,000; Concurrent issued 30,569,049, Harris issued 5,931,912; and pro-forma 40,889,851........ 306 60 (60) 103(j) 409 Capital in excess of par value...................... 73,737 44,144 (44,144) 9,997(j) 83,734 Accumulated deficit after eliminating Concurrent's accumulated deficit of $81,826 at December 31, 1991, date of quasi-reorganization................ (42,684) (14,363) 38,720 (24,357)(k) (42,684 ) Shares of treasury stock............................ (58) (58 ) Cumulative translation adjustment................... (1,018) (701) 123 578(k) (1,018 ) -------- -------- -------- -------- -------- Total shareholders' equity........................ 30,283 29,140 (5,361) (13,679) 40,383 -------- -------- -------- -------- -------- Total liabilities and shareholders' equity................................... $ 80,506 $ 38,552 $ (6,756) $ (2,851) $109,451 ======== ======== ======== ======== ========
See accompanying notes to unaudited pro forma consolidated balance sheet. 114 120 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET 1. PRO FORMA ADJUSTMENTS The following unaudited pro forma purchase accounting adjustments were made to the balance sheet at March 31, 1996 to give effect to the Transaction as if such transaction had occurred as of that date: (a) To reflect estimated cash expenditures for investment banker, legal, accounting, printing, proxy solicitation, filing, valuation and other related fees assumed to be paid by Concurrent in connection with the Transaction. (b) To reflect the acquisition of 683,178 shares of Harris Common Stock, at an assumed market price per share of $16.32 (based on the closing price on March 29, 1996). Such valuation amount is subject to changes in the market price of Harris Common Stock from March 29, 1996 to the date of the Closing of the Transaction. Such shares may be sold in accordance with the Share Holding Agreement which contains restrictions on the volume of sales of Harris Common Stock by Concurrent in certain circumstances. (c) The valuation adjustment to Harris's inventory is based upon the estimated fair value to be realized from the sale of such inventory through Harris's existing channels of distribution, taking into consideration estimated disposal costs and other factors. Such amount is subject to change pending the integration of the two real-time businesses and development of the combined company's product plan. (d) To reflect the elimination of certain deferred items of Harris's Real-Time Business in conformity with Concurrent's accounting policies. (e) To reflect the adjustment to Harris's Real-Time Business fixed assets at their estimated fair value, based upon the preliminary findings of a valuation which is being prepared in conjunction with the Transaction. Such amount is subject to change pending completion of the valuation of assets acquired. (f) To eliminate capitalized software related to Harris's Real-Time Business and to reflect the estimated fair value of acquired technology, based upon the preliminary findings of a valuation which is being prepared in conjunction with the Transaction. The technology of both companies' real-time business is similar and as such, the combination of duplicate technologies does not provide additional benefit to Concurrent. As a result, capitalized software acquired from Harris was adjusted as part of the Transaction and included in the valuation of acquired technology. (g) To reflect the estimated negative goodwill relating to the Transaction, based upon the estimated aggregate purchase price of approximately $19,373,000 which includes an estimated $2,425,000 of Transaction expenses ($1,230,000 in cash plus $795,000 which has been previously expended and included in prepaid expenses and $400,000 in Concurrent Common Stock payable to Berenson Minella on a pro forma basis as of March 31, 1996) assumed to be paid by Concurrent in connection with the Transaction, and the adjusted value of the net assets acquired from Harris:
AS OF MARCH 31, 1996 (UNAUDITED) ------------------------------ (IN THOUSANDS EXCEPT PER SHARE DATA) Concurrent common shares provided to Harris........ 10,000
Assumed market price per share..................... $ 0.97 ------ Estimated fair value of common shares provided..... $ 9,700 Estimated value of Concurrent preferred shares provided to Harris............................... 7,248 Estimated Transaction expenses..................... 2,425 ------- Estimated aggregate purchase price................. $19,373 Historical cost basis of net assets acquired from Harris........................................... $23,779 Adjustments to reflect net assets acquired at estimated fair value -- (see notes (c), (d), (e) and (f))......................................... (2,505) Common shares received from Harris................. 683.2 Assumed market price per share..................... $16.32 ------ Estimated fair value of common shares received..... $11,149 ------- Estimated fair value of net assets acquired........ $32,423 ------- Estimated fair value of net assets acquired in excess of purchase price ("negative goodwill")... $13,050
115 121
AS OF MARCH 31, 1996 (UNAUDITED) ------ (IN THOUSANDS EXCEPT PER SHARE DATA) Reduction of negative goodwill via allocation to reduce proportionately the values assigned to non-current assets to zero -- (see note(h))...... (9,470) ------- Unallocated net assets acquired in excess of purchase price................................... $ 3,580 =======
The negative goodwill calculation is subject to change pending finalization of the valuation of assets and liabilities acquired. The calculation is also subject to any change in the net assets of Harris's Real-Time Business from March 31, 1996 to the Closing of the Transaction. In addition, costs (such as employee severance, relocation costs and adjustments for the disposal of duplicative assets) which result from Concurrent's consolidation plan (such as, integrating the business of Concurrent and the Harris Real-Time Business, elimination of duplicate facilities and excess capacity and other non-recurring items) which are directly related to the Harris Real-Time Business will result in an increase in goodwill (or a reduction in negative goodwill). Actions which result from Concurrent's consolidation plan which are directly related to Concurrent will result in a pre-tax charge to the results of operations. At the date of this Joint Proxy Statement, the estimated aggregate charge of total costs resulting from both of these types of actions is estimated to be in the range of $27 million to $30 million, in addition to the estimated Transaction expenses of approximately $2.4 million noted above. While the split between the cost of those actions related to Harris and those related to Concurrent is not currently determinable, it is anticipated that the majority of such costs will be related to Concurrent. (h) To reflect the application of the estimated fair value of net assets acquired in excess of the estimated aggregate purchase price by allocating such excess amount to reduce proportionately the values assigned to non-current assets to zero. (i) To record the issuance of $8.3 million liquidation preference of Concurrent Preferred Stock to Harris as part of the Transaction, recorded at its estimated fair value of $7.2 million (based on a 14% discount rate and other valuation factors). As of March 31, 1996 the Net Current Assets of the Harris Real-Time Business were estimated to be approximately $12,700,000. Pursuant to the Purchase and Sale Agreement, if the Transaction were consummated at March 31, 1996, Concurrent would have been entitled to $14,400,000 in Net Current Assets of the Harris Real-Time Business and therefore the Preferred Stock Consideration provided to Harris would have been reduced by $1,700,000. (j) To reflect (i) the issuance of 10,000,000 shares of Concurrent Common Stock, with a par value $0.01, at an assumed market price per share of $0.97 (based on the average of the closing prices on the day before and the day of the announcement of the Memorandum of Understanding ); and (ii) the issuance of an estimated pro forma 320,802 shares of Concurrent Common Stock at March 31, 1996 (based on an average price at such time of $1.43 per share) to fund the payment to Berenson Minella of a portion of its financial advisory fees. (k) To reflect the elimination of the shareholders' equity of Harris. 116 122 MANAGEMENT'S DISCUSSION OF THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT The pro forma net sales of $180.4 million indicated on the condensed consolidated statement of operations for the year ended June 30, 1995, compare with a net sales projection of $120 million for the fiscal year ending June 30, 1997. The net sales projection reflects (i) a Combined Real-Time Company sales trend which declined to a pro forma annualized rate of $141.4 million for the nine months ended March 31, 1996, and (ii) an adjustment for the revenue risks described in "PROJECTED FINANCIAL INFORMATION." The pro forma condensed consolidated financial statements of Concurrent do not reflect any synergies, operating efficiencies or cost savings anticipated by management as a result of the Transaction, such as savings expected from consolidation of manufacturing, research and development, selling, marketing, administrative and other functions. The projected gross margin and net income for the years ending June 30, 1997 and 1998, described in "PROJECTED FINANCIAL INFORMATION," anticipate such savings, assuming that the Transaction closes on June 30, 1996, and after allowing for up to six months thereafter to consolidate the operations of the Concurrent and Harris real-time businesses. The gross margin indicated on the pro forma condensed consolidated statement of operations for the nine months ended March 31, 1996, represented 45.7% of pro forma sales for that period, and compares with a projected gross margin of 47.2% and 50.1% of projected sales for the years ending June 30, 1997 and 1998, respectively. Pro forma operating expenses were 48.3% of pro forma sales for the nine months ended March 31, 1996 and compare with projected operating expenses of 38.9% and 37.6% of projected sales for the years ending June 30, 1997 and 1998, respectively. The pro forma net loss per share of $0.20 for the nine months ended March 31, 1996, is computed after charging $0.6 million for the dividend and accretion on the Concurrent Preferred Stock and compares with a projected net income per share of $0.08 for the year ending June 30, 1997, which also includes the impact of the dividend and the accretion. Concurrent's pro forma current ratio and working capital at March 31, 1996, show significant improvement over the as reported numbers (the pro forma current ratio is 1.61 to 1 versus a reported current ratio of 1.19 to 1; and, pro forma working capital is $28.2 million versus reported working capital of $7.2 million). This reflects, in part, the acquisition of 683,178 shares of Harris Common Stock, shown on the pro forma balance sheet as "securities available for sale" with a market value of approximately $11.1 million, and the acquisition of Harris Net Current Assets of $12.7 million at March 31, 1996. Concurrent is not acquiring any short-term or long-term debt from Harris, although Concurrent is in discussions with a lender to increase the amount available under its revolving line of credit after the Closing of the Transaction. The Harris as reported balance sheet does not include any long-term liabilities. The increase in total assets from $80.5 million to a pro forma $109.5 million reflects the increase in pro forma current assets. All of the Harris long-term assets have been adjusted to zero as described in the footnotes to the pro forma consolidated balance sheet. The pro forma consolidated balance sheet at March 31, 1996 does not reflect certain restructuring adjustments which may result from the integration of the Concurrent and Harris real-time businesses. Although the purchase of the Harris Real-Time Business and integration and consolidation of the two businesses is expected to improve Concurrent's liquidity by permitting additional borrowing availability, there can be no assurance that cash flow from the combined real-time operations will be sufficient to fund the costs of the Transaction including the business integration costs. Concurrent anticipates substantial costs to close the acquisition of Harris's real-time computing business and to combine the two companies. Concurrent believes that it will be able to fund the cost of the Transaction, subsequent integration and ongoing operations through operating results, ongoing cost control actions, the sale of certain facilities, if required, and the existing revolving credit facility. The Transaction is expected to provide Concurrent with potential additional borrowing capacity under its revolving credit facility based on a higher borrowing base resulting from the combination of the real-time businesses of the two companies. Concurrent will also hold 683,178 shares of Harris after the closing of the Transaction. Concurrent may sell or pledge all or part of this interest, subject to certain restrictions. As of March 31, 1996, this stock interest had a fair market value of approximately $11.1 million. In addition, upon the closing of the Transaction all of Concurrent's issued and outstanding stock options to purchase approximately 2.8 million shares of Concurrent Common Stock will become fully vested 117 123 and exercisable. The exercise of all the "in-the-money" options at the time of this filing would result in approximately $2.9 million in proceeds to Concurrent. In addition, if all of the Warrant Shares were issued as a result of the exercise of the Concurrent Warrants, approximately $1.1 million in additional cash proceeds would be generated for the Company. The Concurrent Warrants underlying the Warrant Shares expire on July 22, 1996. Concurrent has announced that the corporate headquarters for the combined company will be in the southern Florida area. There will be significant costs in integrating the corporate management and administration functions of the companies and relocating key personnel. In addition, Concurrent is reviewing its options regarding the consolidation of the production and research and development facilities. If the decision is made to consolidate some or all of these functions in Florida there will be significant costs associated with personnel reductions, rehirings, and retraining of employees. Concurrent will also incur costs to eliminate duplicative sales/service offices throughout the world. Concurrent expects to take a material pre-tax charge and to adjust negative goodwill, as appropriate, in the quarter in which the Transaction is consummated to cover the Transaction and business integration costs. At the time of this filing, the estimated aggregate charge for these items is in the range of $29 to $32 million. Approximately $18 million of these costs are expected to be paid out in cash over the next two years (primarily fiscal year 1997), $9 to $11 million of the total charge is expected to be non-cash fixed asset carrying cost adjustments and approximately $2 to $3 million will be obligations settled using the proceeds from the issuance of Concurrent Common Stock. Such preliminary estimates indicate that approximately $8 million of the future cash payments are expected to be incremental to the current cash flow run-rate of the two real-time businesses on a stand alone basis combined. Such costs include Transaction expenses (such as investment banker, legal and accounting fees), employee, facility and equipment relocation costs and employee outplacement costs. The $10 million of remaining cash payments are expected to be a continuation of current funding requirements and, after their full satisfaction, will positively impact Concurrent's liquidity. For example, cash expenditures for employee severance costs are expected to be paid out over time without increasing payroll costs; payroll costs are expected to decline as severance payments cease. There can be no assurances as to the actual amount of these charges or adjustments, and such charges or adjustments could be higher than current estimates. In addition, there may be adjustments in future periods relating to the cost of integrating the real-time businesses of Concurrent and Harris. However, the amount of such future adjustments cannot currently be determined. Concurrent anticipates that the capital resources available upon completion of the Transaction will be adequate to satisfy its capital requirements through June 1997, assuming quarterly net sales of the combined real-time businesses amount to approximately $30 million. Concurrent's future capital requirements, however, will depend on many factors, including its ability to successfully market and sell its commercial products, the cost and timing of the integration of the real-time businesses of the two companies to realize potential synergies and cost savings, and the cost of developing, marketing and selling competitive products. To the extent that the funds generated by operations are insufficient to satisfy Concurrent's capital requirements, Concurrent may seek additional equity or debt financing or obtain additional credit facilities. Any equity or debt financing, if available at all, may be on terms which are not favorable to Concurrent and, in the case of equity or convertible debt offerings, could result in dilution to Concurrent's then existing shareholders. Concurrent is also considering various additional financing alternatives, including a possible sale, or sale and partial leaseback, of its Oceanport, New Jersey facility to improve its financial flexibility. If adequate funds are not available, Concurrent may be required to curtail certain activities, including product development, marketing and sales activities. 118 124 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARRIS The following unaudited pro forma financial statements have been prepared to give effect to the Transaction. See "TERMS OF THE TRANSACTION -- Accounting Treatment." These financial statements do not purport to represent what the results of operations or financial position actually would have been had the Transaction occurred on the dates when they are reflected to have occurred in the pro forma financial statements, or to project the 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 Transaction had occurred as of the beginning of each of the respective periods. The pro forma condensed consolidated statement of operations for the year ended September 30, 1995 includes Harris'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 Harris'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 Transaction had occurred as of that date. The pro forma condensed financial statements should be read in conjunction with the condensed consolidated financial statements for the year ended September 30, 1995, and the condensed consolidated financial statements as of March 30, 1996 and for the six months then ended. See "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION" and "HARRIS CONSOLIDATED FINANCIAL STATEMENTS." 119 125 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS SIX MONTHS ENDED MARCH 30, 1996
HARRIS LESS HISTORICAL REAL-TIME PRO FORMA CONSOLIDATED BUSINESS(A) ADJUSTMENTS PRO FORMA ------------ --------- ----------- --------- (DOLLARS IN THOUSANDS) Sales Equipment.................................. $ 18,942 $ (14,765) $ 4,177 Maintenance................................ 6,622 (6,404) 218 ------- -------- ------ ------- 25,564 (21,169) 4,395 Cost of sales Equipment.................................. 10,051 (7,228) 2,823 Maintenance................................ 3,279 (3,187) 92 ------- -------- ------ ------- 13,330 (10,415) 2,915 Gross profit................................. 12,234 (10,754) 1,480 Research and development..................... 3,580 (3,003) 577 Selling, general and administration.......... 11,266 (8,054) 154(b) 3,366 Transaction expense.......................... 820 0 820 ------- -------- ------ ------- 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) 0 ------- -------- ------ ------- Net loss..................................... $ (3,275) $ 172 $ (244) $(3,347) ======= ======== ====== =======
See Accompanying Notes to Pro Forma Condensed Consolidated Statements of Operations. 120 126 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1995
HARRIS LESS HISTORICAL REAL-TIME PRO FORMA CONSOLIDATED BUSINESS(A) ADJUSTMENTS PRO FORMA ------------ ----------- ----------- --------- (DOLLARS IN THOUSANDS) Sales Equipment................................. $ 31,184 $ (26,650) $ 4,534 Maintenance............................... 13,927 (13,644) 283 -------- -------- ------- ------- 45,111 (40,294) 4,817 Cost of sales Equipment................................. 18,550 (15,549) 3,001 Maintenance............................... 7,214 (7,075) 139 -------- -------- ------- ------- 25,764 (22,624) 3,140 Gross profit................................ 19,347 (17,670) 1,677 Research and development.................... 7,903 (7,068) 835 Selling, general and administration......... 22,984 (18,985) 308(b) 4,307 -------- -------- ------- ------- 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) ======== ======== ======= =======
See Accompanying Notes to Pro Forma Condensed Consolidated Statements of Operations. 121 127 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 1. BASIS OF PRESENTATION The unaudited pro forma condensed consolidated statements of operations are presented for illustrative purposes only, giving effect to the Transaction and, therefore, are not necessarily indicative of the financial results that might have been achieved had the Transaction occurred as of an earlier date, nor are they necessarily indicative of the financial results which may occur in the future. The unaudited pro forma condensed consolidated statement of operations for the year ended September 30, 1995 include Harris's equity interest in the net losses of Concurrent for the year ended June 30, 1995. The unaudited pro forma condensed consolidated statement of operations for the six months ended March 30, 1996 include Harris's equity interest in the net losses of Concurrent for the six months ended March 31, 1996. 2. PRO FORMA ADJUSTMENTS The following unaudited pro forma adjustments were made to Harris's historical condensed consolidated statements of operations for the year ended September 30, 1995 and the six months ended March 30, 1996 to give effect to the Transaction as if such Transaction had occurred as of the beginning of the respective periods: (a) to subtract the operating results of Harris's Real-Time Business. (b) To record the amortization of compensation for the stock granted to Mr. Siegel and Mr. Dunleavy in exchange for a non-compete agreement. Amount represents the prorated amortization expense over a 5 year life. (c) to record Harris's equity interest in the net losses of Concurrent based on its percentage ownership of Concurrent Common Stock. (d) to record preferred stock dividends and accretion on Concurrent Preferred Stock received as part of the Transaction. 122 128 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 30, 1996
HARRIS HISTORICAL PRO FORMA CONSOLIDATED ADJUSTMENTS PRO FORMA ------------ ----------- --------- (DOLLARS IN THOUSANDS) Cash and cash equivalents.............................. $ 1,307 $(1,307)(e) $ -- Concurrent Common Stock available for sale -- current...................................... -- 21,400(c) 21,400(c) Accounts receivable.................................... 15,335 (12,709)(a) 2,626 Inventories............................................ 6,381 (6,294)(a) 87 1,540(f) Prepaid expenses....................................... 660 (407)(a) 1,793 ------- ------- ------- Total current assets......................... 23,683 2,233 25,906 Property, plant and equipment.......................... 5,912 (4,878)(a) 1,034 Capitalized software................................... 8,135 (5,409)(a) 2,726 Concurrent Preferred Stock -- available for sale....... 5,384(c) 5,384 Other assets........................................... 822 (792)(a) 30 ------- ------- ------- Total assets................................. $ 38,552 $(3,472) $35,080 ======= ======= ======= Accounts payable....................................... 4,565 (4,100)(a) 465 Deferred revenue....................................... 628 (591)(a) 37 (3,326)(a) Accrued expenses....................................... 4,219 2,200(b) 3,093 ------- ------- ------- Total current liabilities.................... 9,412 (5,817) 3,595 (8,459)(a) (2,200)(b) 1,540(f) Equity (deficit)....................................... 29,140 11,464(d) 31,485 ------- ------- ------- Total liabilities and equity................. $ 38,552 $(3,472) $35,080 ======= ======= =======
See Accompanying Notes to Pro Forma Condensed Consolidated Balance Sheet. 123 129 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET 1. PRO FORMA ADJUSTMENTS 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 Transaction as if such Transaction occurred as of that date: (a) to reflect the sale of the assets and liabilities of Harris's Real-Time Business (as defined in the Purchase and Sale Agreement). (b) to reflect the accrual of estimated expenses relating to the Transaction of $2,200. (c) to reflect the receipt of Concurrent Common and Concurrent Preferred Stock valued at $21,400 and $5,384, respectively, as part of the Transaction; the value of Concurrent Preferred Stock is based on the assumption that no dividends will be paid until the Concurrent Preferred Stock is to be redeemed in 2006; value at redemption was discounted at a rate of 14%. The value of the Concurrent Common Stock is the average of the closing prices for Concurrent Common Stock from May 1 through May 7, 1996. The Share Holding Agreement contains restrictions on the volume of sales of Concurrent Common Stock by Harris in certain circumstances. (d) to reflect the issuance of 683,178 shares of Harris Common Stock valued at $11,464 to Concurrent as part of the Transaction. The value of the Harris Common Stock is the average of the closing prices for Harris Common Stock from May 1 through May 7, 1996. (e) cash adjustments to Harris from net asset reconciliation adjustment per the Purchase and Sale Agreement. (f) To record the charge for the issuance of stock to Mr. Siegel (78,000 shares) and Mr. Dunleavy (13,800 shares) at $16.78 (the average of the closing prices from May 1 through May 7, 1996) in exchange for a 5 year non-compete agreement. 124 130 PROJECTED FINANCIAL INFORMATION Neither Concurrent nor Harris, as a matter of course, publicly discloses forecasts or projections as to their future results of operations or financial condition. However, management of Concurrent and Harris prepared projections which consisted of forecasted combined income statements for Concurrent and the Harris Real-Time Business for the twelve month periods ending June 30, 1997 and 1998, and forecasted combined balance sheets as of the end of each fiscal quarter from June 30, 1996 through June 30, 1998, prepared by Concurrent's management as of March 15, 1996, financial projections for Concurrent and financial projections for the Harris Real-Time Business for the twelve month periods ending June 30, 1997 and 1998, prepared by Concurrent's management as of March 15, 1996, and financial projections for the Harris Real-Time Business for the twelve months ending December 31, 1996 and 1997, prepared by the management of Harris as of March 15, 1996 (collectively, the "Projections"). The Projections were provided to and considered by Berenson Minella and Bear Stearns in connection with the delivery of fairness opinions to the Board of Directors of Concurrent and Harris, respectively. Also, as described in "THE PROPOSED TRANSACTION -- Opinion of Harris's Financial Advisor", Bear Stearns in conjunction with Harris management restated each company's fiscal year projections into calendar year format (including extrapolating Concurrent's projections for the last six months of calendar year 1998) (such restated projections, with the Projections, the "Projected Financial Information"). In addition, summaries of the Projections were included in presentations delivered by Berenson Minella to the Board of Directors of Concurrent and summaries of the Projected Financial Information were included in presentations delivered by Bear Stearns to the Board of Directors of Harris. THE PROJECTED FINANCIAL INFORMATION WAS NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE AND IS INCLUDED HEREIN ONLY BECAUSE SUCH INFORMATION WAS PROVIDED TO THE BOARD OF DIRECTORS OF CONCURRENT AND HARRIS AND THEIR FINANCIAL ADVISORS. IN ADDITION, THE PROJECTED FINANCIAL INFORMATION WAS NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS AND FORECASTS. THE PROJECTED FINANCIAL INFORMATION, ALTHOUGH PRESENTED WITH NUMERICAL SPECIFICITY, IS BASED ON A NUMBER OF ESTIMATES AND ASSUMPTIONS (INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH BELOW) AND IS SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MOST OF WHICH ARE BEYOND THE CONTROL OF CONCURRENT AND HARRIS. ACCORDINGLY, ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE PROJECTED, AND THE INCLUSION HEREIN OF INFORMATION RELATING TO THE PROJECTED FINANCIAL INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY CONCURRENT, HARRIS OR THEIR REPRESENTATIVES THAT THE PROJECTED FINANCIAL INFORMATION OR THE ESTIMATES AND ASSUMPTIONS UPON WHICH IT IS BASED WILL PROVE TO BE CORRECT. NONE OF THE FOREGOING PERSONS ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF THE PROJECTED FINANCIAL INFORMATION OR SUCH ESTIMATES AND ASSUMPTIONS. CONCURRENT AND HARRIS MANAGEMENT DO NOT INTEND TO PUBLICLY ANNOUNCE ANY UPDATE TO THE PROJECTED FINANCIAL INFORMATION TO REFLECT ANY CHANGES OF CIRCUMSTANCE OR OTHER CHANGES OCCURRING AFTER THEIR RESPECTIVE DATES OF PREPARATION. IN ADDITION, CONCURRENT AND HARRIS DO NOT INTEND TO PUBLICLY ANNOUNCE AT ANY TIME IN THE FUTURE ANY CONFIRMATION OR COMPARISON OF THE PERFORMANCE OF THE COMBINED REAL-TIME BUSINESS WITH THE PROJECTED FINANCIAL INFORMATION SET FORTH IN THE PROJECTED FINANCIAL INFORMATION. NO INFERENCE CAN OR SHOULD BE DRAWN FROM THE PROJECTED FINANCIAL INFORMATION AS TO THE LIKELIHOOD THAT THE ASSUMPTIONS UNDERLYING THE PROJECTED FINANCIAL INFORMATION WILL BE REALIZED OR THAT ACTUAL PERFORMANCE WILL EQUAL OR EXCEED THE PROJECTED FINANCIAL INFORMATION. NEITHER COOPERS & LYBRAND L.L.P. NOR KPMG PEAT MARWICK LLP ASSUMES ANY RESPONSIBILITY FOR THE PROJECTED FINANCIAL INFORMATION AND RELATED ASSUMPTIONS, NOR HAVE THEY EXAMINED, REVIEWED, COMPILED OR PERFORMED ANY AGREED UPON PROCEDURES WITH RESPECT TO SUCH PROJECTED FINANCIAL INFORMATION AND ASSUMPTIONS AND NEITHER COOPERS & LYBRAND L.L.P. NOR KPMG PEAT MARWICK LLP HAS ISSUED AN OPINION OR OTHER FORM OF ASSURANCE THEREON. OTHER THAN AS SET FORTH BELOW, CONCURRENT AND HARRIS HAVE ELECTED TO OMIT THE SUMMARIES OF CERTAIN ASSUMPTIONS AND ACCOUNTING POLICIES REQUIRED UNDER ESTABLISHED GUIDELINES FOR PRESENTATION OF PROSPECTIVE FINANCIAL STATEMENTS. IF THE OMITTED SUMMARIES WERE INCLUDED IN THE PROJECTED FINANCIAL INFORMATION, THEY MIGHT INFLUENCE THE USER'S CONCLUSIONS ABOUT THE PROJECTED FINANCIAL INFORMATION. ACCORDINGLY, THE PROJECTED FINANCIAL INFORMATION IS NOT DESIGNED FOR THOSE WHO ARE NOT INFORMED ABOUT SUCH MATTERS. Although the Projected Financial Information was prepared in good faith and with a reasonable basis at the time of its preparation and although certain of the assumptions underlying the Projected Financial 125 131 Information have been disclosed below, the preparation and disclosure of the Projected Financial Information may not comply with the Commission's policy on projections (set forth in Item 10(b) of Regulation S-K) since, among other things: (i) an outside review of the Projected Financial Information has not been obtained as suggested in the guidelines; (ii) several sets of projections based on varying assumptions have not been prepared to the extent contemplated by the guidelines; and (iii) Concurrent and Harris have not analyzed and, accordingly, have not disclosed, the accuracy or inaccuracy of the Projected Financial Information as suggested in the guidelines. The summary of the Projected Financial Information below, which is based in fiscal year information, should be read in conjunction with the descriptions of certain assumptions set forth below and with the information contained in the selected historical financial statements of Concurrent and Harris, the pro forma financial statements of Concurrent and Harris and the historical financial statements of Concurrent incorporated by reference herein and of Harris included herein. See "SELECTED HISTORICAL FINANCIAL DATA OF CONCURRENT," "SELECTED HISTORICAL FINANCIAL DATA OF HARRIS," "SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF CONCURRENT," "SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF HARRIS," "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT," "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARRIS," INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," and "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." PROJECTED FINANCIAL INFORMATION -- SUMMARY FISCAL YEAR PROJECTIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, ----------------------- 1997 1998 -------- -------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net sales.................................................... $120,000 $132,000 Gross margin................................................. $ 56,632 $ 66,164 Net income................................................... $ 4,492 $ 8,574 Net income per share......................................... $ 0.08 $ 0.18
As described above, the Projections and the Projected Financial Information were prepared by combining separate projections (which are included in the Projections) of Concurrent and Harris (excluding the Trusted Systems division) and making adjustments thereto based on certain assumptions. The separate projections for Concurrent and Harris were prepared based on the assumption that the real-time business of each company has no revenue growth initially and only modest revenue growth for the period of the Projections. The adjustments to the separate projections were of three types: (i) negative adjustments to revenues based on the risk that the business combination will result in reduced revenues which risks include the elimination of certain duplicate revenue opportunities reflected in each of the separate projections for Concurrent and Harris as well as other risks, including those described in "SPECIAL FACTORS -- Uncertainties in Successfully Integrating the Harris Real-Time Business and Achieving Cost Savings, -- Impact of Transaction-Related Charges and Costs on Financial Performance; Uncertainty of Transaction-Related Charges and Costs, -- Declining Trend in Net Sales, -- Potentially Adverse Customer Reaction, -- Potential Shortfall in Liquidity and -- Product Obsolescence; Significant Research and Development Expenditures," (ii) positive adjustments based on assumptions relating to cost savings resulting from the Transaction as a result of reductions in, among other things, manufacturing costs, service costs, research and development costs, selling and marketing costs, facility costs and employee costs, and (iii) negative adjustments based on assumptions relating to additional costs resulting from, among other things, sales training expenses, and recruiting and relocation expenses. For a description of certain of those adjustments, see "THE PROPOSED TRANSACTION -- Recommendations of the Board of Directors of Concurrent and Concurrent's Reasons for the Transaction." Detailed plans for implementing the actions on which the foregoing assumptions are based were not prepared prior to preparing the Projected Financial Information. There can be no assurance that such plans, when developed, will be based on assumptions which are consistent with the projection assumptions described herein. 126 132 CERTAIN INFORMATION REGARDING CONCURRENT GENERAL Concurrent is engaged in the business of providing and servicing high-performance real-time computer systems. MANAGEMENT Executive officers of Concurrent are elected by the Board of Directors to hold office until their successors have been chosen and qualified or until earlier resignation or removal. Set forth below are the names, positions and ages of Concurrent's executive officers as of the date hereof:
DIRECTOR OR EXECUTIVE NAME POSITION AGE OFFICER - ------------------------ ----------------------------------------------------- --- ----------- John T. Stihl........... Chairman of the Board, President, Chief Executive 63 1991 Officer George E. Chapman....... Vice President, Field Operations 62 1994 David S. Cowie.......... Vice President, Development and Engineering 49 1993 Kevin J. Dell........... Vice President, North American Service, General 40 1993 Counsel and Secretary Robert S. Kovarcik...... Vice President, Manufacturing and Logistics 48 1994 Roger J. Mason.......... Vice President, Finance and Treasurer, Chief 47 1994 Financial Officer C. Dennis McWatters..... Vice President, Marketing 49 1994 David L. Vienneau....... Vice President, Human Resources 42 1994
JOHN T. STIHL, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER. For a career summary of Mr. Stihl see "DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER THE TRANSACTION -- Directors." GEORGE E. CHAPMAN, VICE PRESIDENT, FIELD OPERATIONS. Mr. Chapman was elected to this position in January 1996. He previously served as Vice President, International Field Operations from November 1994 and as Vice President, Marketing since January 1994. He joined Concurrent in 1992 as Director, Business Development for Weather and Airspace Management. In 1988, after retiring as a Brigadier General from the United States Air Force, he joined Lockheed Corporation's Austin Division as Senior Staff Engineer working toward the worldwide commercial application of high technology systems developed for the U.S. Government. In December 1989, he received an appointment as Executive Director to the newly legislated Texas Workers Compensation Commission. His career with the U.S. Air Force spanned 36 years, with the last six years devoted to leadership of a 5,000 person organization responsible for the long-range technology, investment and training requirements for the nation's weather prediction and warning capability supporting U.S. forces throughout the world. DAVID S. COWIE, VICE PRESIDENT, DEVELOPMENT AND ENGINEERING. Mr. Cowie was elected to this position in August 1993. He joined Concurrent in 1982 as Senior Manager, Commercial Systems Software Development and advanced to Director, European Software Development in 1983. In 1991, Mr. Cowie was promoted to the position of Senior Director, Systems Engineering. Prior to joining Concurrent, he held systems development, project management, and systems consultancy positions with ICL Systems, Gemini Computer Systems, and ICL Dataskil. KEVIN J. DELL, VICE PRESIDENT, NORTH AMERICAN SERVICE, GENERAL COUNSEL AND SECRETARY. Mr. Dell was elected to the position of Vice President, General Counsel and Assistant Secretary in August 1993 and advanced to the position of Secretary in November 1994. He was elected to the position of Vice President, North American Service in January 1996. As Concurrent's chief legal officer, he is responsible for Concurrent's legal and contractual requirements worldwide. Mr. Dell joined Concurrent in 1987 as Senior 127 133 Corporate Attorney and advanced to Assistant General Counsel in 1988. Prior to joining Concurrent, he was an associate at the law firm of Finley, Kumble, Wagner, Underberg, Manley, Myerson & Casey in New York. ROBERT S. KOVARCIK, VICE PRESIDENT, MANUFACTURING AND LOGISTICS. Mr. Kovarcik was elected to this position in June 1994. He joined Concurrent in 1991 as Director, Program Management. Prior to joining Concurrent, he served for 12 years in management positions with several high technology companies including Vice President/General Manager of the Cubic Division of Cubic Corporation, a public manufacturer of electro-optical equipment; Vice President/General Manager of New Brunswick Scientific, Inc., a public manufacturer of bio-technology processing equipment; and Program Director of ITT, a public diversified electronics company. ROGER J. MASON, VICE PRESIDENT, FINANCE AND TREASURER, CHIEF FINANCIAL OFFICER. Mr. Mason joined Concurrent in this position in October 1994. Prior to joining Concurrent, he served as Chief Financial Officer and Treasurer at Integral Peripherals, Inc., a disk drive manufacturer. From 1981 to 1991, he held senior executive positions at Maxtor Corporation, a publicly held disk drive manufacturer, MiniScribe Corporation, a publicly held disk drive manufacturer whose assets were acquired by Maxtor Corporation, and Ironstone Group, Inc., a publicly held holding company. His experience also includes public accounting with Coopers & Lybrand and Honey, Perriam & Company. C. DENNIS MCWATTERS, VICE PRESIDENT, MARKETING. Mr. McWatters was elected to this position in January 1996. Prior to that time and since November 1994 he served as Vice President, North American Field Operations. He joined Concurrent in November 1993 as Director of OEM and Major Account Sales. Prior to joining Concurrent he served as Vice President, Data Acquisition of the Harris Corporation, Computer Systems Division. Mr. McWatters has also held senior positions at Encore and Gould Computer Systems, Jim Lemick & Associates and Digital Equipment Corporation. He also served as a pilot in the United States Marine Corps. DAVID L. VIENNEAU, VICE PRESIDENT, HUMAN RESOURCES. Mr. Vienneau was elected to this position in May 1994. He is also President and founder of Performance Based Solutions, a human resources consulting services company. Prior to forming Performance Based Solutions, Mr. Vienneau was Director, Human Resources at Akzo America, Inc., a diversified manufacturer of chemical products, and Director, Compensation and Benefits at Penn Central Corporation, which designs, develops, manufactures and markets electromechanical components for the defense and aerospace industries. IDENTITY OF DIRECTORS AND OFFICERS For information on each continuing director's principal occupation and business experience for at least the last five years and the name of other publicly held companies in which he serves as a director see "DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION -- Directors." Director Compensation Non-employee Directors receive a $15,000 annual retainer payable upon election as Director of Concurrent at the Annual Meeting of Shareholders (and a pro rata amount to any non-employee who becomes a Director of Concurrent thereafter, payable at the time of becoming a Director), and $2,000 per meeting (including supplemental meetings in person with management where the business to be conducted cannot be reasonably accomplished during any scheduled meeting times and is necessary in furtherance of the required duties of a Director -- representing $2,000 in fees for one supplemental meeting involving three Directors in fiscal year 1995) not to exceed $2,000 per day for attendance at the Concurrent Board meeting, Committee and supplemental meetings regardless of the number of meetings attended on a given day, payable following such meetings. Non-employee Directors who serve as chairman of Committees of the Board of Directors receive $4,000 per annum, payable quarterly at the end of a quarter. No compensation is paid to Mr. Stihl for services as a Director. 128 134 The Concurrent Stock Plan provides for the automatic grant, upon the election of a non-employee to the Concurrent Board, of an option to purchase 3,000 shares of Concurrent Common Stock at an exercise price equal to the fair market value of a share of Concurrent Common Stock on the date of grant. On their date of election, Messrs. Brunner, Clowe, Handel, Rifenburgh and Sparacino were each granted options to purchase 3,000 shares of Concurrent Common Stock at an exercise price equal to 100% of the fair market value of Concurrent Common Stock on the date of grant (i.e., $1.79 for Messrs. Brunner and Sparacino, $5.00 for Messrs. Handel, and Rifenburgh and $5.90 for Mr. Kevin N. Clowe, a current director of Concurrent). Prior to the adoption of the Concurrent Stock Plan, Mr. Dewey was granted an option to purchase 10,000 shares of Concurrent Common Stock at an exercise price equal to par value, $0.01, upon the founding of Concurrent and his election in 1981. As a result of Concurrent's one-for-ten reverse stock split in February 1992, this option represents an option to purchase 1,000 shares at an exercise price of $0.10 per share. All options held by directors with an exercise price greater than $1.35 were repriced to $1.35 pursuant to the March 1995 stock option repricing program (the "Stock Option Repricing Program"). See "AMENDMENT TO THE CONCURRENT STOCK OPTION PLAN." CORPORATE GOVERNANCE Concurrent is a corporation created and chartered under the laws of Delaware. It is governed by a Board of Directors and its Committees. As permitted under Delaware law and the Certificate of Incorporation and By-laws of Concurrent, the Concurrent Board has established and delegated certain authority and responsibility to four committees: the Executive Committee; the Audit Committee; the Finance Committee; and the Compensation Committee. The Concurrent Board annually reviews the membership of and the authority and responsibility delegated to each Committee at the organizational meeting of Directors immediately following the Annual Meeting of Shareholders. From time to time as required, the Chairman of the Concurrent Board has the authority from the Concurrent Board to establish a nominating committee to recommend nominees to fill vacancies on the Concurrent Board, newly created directorships, and expired terms of directors. The current members of the Executive Committee are Messrs. Stihl (Chairman), Handel and Rifenburgh. The Committee has, to the extent legally permitted, the power and authority of the Concurrent Board in periods between meetings of the full Concurrent Board. No meetings of the Executive Committee were held during Concurrent's fiscal year ended June 30, 1995. All matters that could have been addressed by the Committee during the fiscal year were addressed by the full Concurrent Board. The current members of the Audit Committee are Messrs. Rifenburgh (Chairman), Brunner, Clowe and Dewey. The current principal responsibilities of the Committee are to review Concurrent's financial statements contained in filings with the Commission, matters relating to the examination of Concurrent by its independent auditors, accounting procedures and controls, and the use and security of Concurrent's liquid assets through the review of the Treasurer's function, and to recommend the appointment of independent accountants to the Concurrent Board for its consideration and approval subject to ratification by the shareholders. The Audit Committee held four meetings during Concurrent's fiscal year ended June 30, 1995. The current members of the Finance Committee are Messrs. Handel (Chairman), Clowe, Rifenburgh and Sparacino. The current principal responsibilities of the Committee are to review, appraise and recommend actions relating to Concurrent's capital structure, to review Concurrent's compliance with financial covenants in its financing documents, and to review capital needs and expenditures, risk-management programs and financial performance of the retirement savings plan. The Finance Committee held three meetings during Concurrent's fiscal year ended June 30, 1995. The current members of the Compensation Committee are Messrs. Brunner (Chairman), Handel and Sparacino. The current principal responsibilities of the Committee are to make recommendations with respect to executive offer and senior management compensation and incentive compensation programs and, subject to limitations, to administer Concurrent's stock option plans, stock purchase plan and stock bonus plans, and to review management development and succession programs. The Compensation Committee held two meetings during the fiscal year ended June 30, 1995. 129 135 During the fiscal year ended June 30, 1995, the Concurrent Board held six meetings. All nominees attended at least 75% of the aggregate number of meetings of the Board of Directors and the Committees of which they were members held during their tenure. EXECUTIVE COMPENSATION The following table sets forth information with respect to the compensation of the chief executive officer and each of the other four most highly compensated executive officers of Concurrent for fiscal year 1995 for services in all capacities to Concurrent for fiscal years 1993, 1994 and 1995 beginning with the year in which they became an executive officer. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS ------------------------- --------------------- ALL OTHER NAME AND FISCAL SALARY BONUS OTHER SECURITIES UNDERLYING COMPENSATION PRINCIPAL POSITION YEAR ($)(A) ($)(B) ($)(C) OPTIONS(#)(D) ($)(E) - ---------------------------------- ------ ------- ------ ------ --------------------- ------------ J.T. Stihl(f)..................... 1995 365,000 -- -- 651,212 25,633 Chairman, President and 1994 324,960 -- 56,875 328,750 17,384 Chief Executive Officer 1993 219,177 93,985 -- 45,200 5,927 C.D. McWatters(g)................. 1995 154,266 -- 14,267 137,300 2,565 Vice President, 1994 -- -- -- -- -- North American Field Operations 1993 -- -- -- -- -- D.S. Cowie(h)..................... 1995 150,000 -- -- 151,869 -- Vice President, 1994 133,670 -- 14,000 62,024 -- Development and Engineering 1993 -- -- -- -- -- G.E. Chapman(i)................... 1995 145,600 -- -- 141,900 3,836 Vice President, 1994 128,100 -- 14,000 67,000 2,893 International Field Operations 1993 -- -- -- -- -- R.S. Kovarcik(j).................. 1995 143,500 -- -- 139,774 4,083 Vice President, 1994 131,333 -- 14,000 57,510 3,859 Manufacturing and Logistics 1993 -- -- -- -- --
- --------------- (a) Based on salary accrual during 1995. Also includes commissions earnings: for Mr. McWatters, $14,266 in 1995 and for Mr. Chapman $10,666 in 1994. (b) Shows awards of incentive compensation under Concurrent's Executive Bonus Plan (EBP). No incentive compensation under the EBP for fiscal years 1994 and 1995 was earned or paid. (c) Shows the dollar value of shares of Concurrent Common Stock granted in respect of achievement of corporate performance commitments for the quarters ended March 31 and June 30, 1994 based on the $2.125 closing sale price of a share on August 19, 1994, the effective date of the grant. (d) For 1995, includes new stock option grants resulting from the Stock Option Repricing Program. The repricing resulted in the following number of options repriced in fiscal year 1995 for each of the named persons: Stihl (451,212), McWatters (67,300), Cowie (88,353), Chapman (71,900) and Kovarcik (69,774). The number of options repriced also includes the repricing of the following number of options previously granted in fiscal year 1995 which number is excluded from the total number reflected in the table to avoid double-counting: Stihl (31,100), McWatters (43,300), Cowie (13,000), Chapman (3,200) and Kovarcik (3,000). For fiscal year 1994, includes stock options in the following amounts in consideration of an eight-month deferral in annual merit salary increases: Stihl (8,625), Cowie (3,450), Chapman (1,800) and Kovarcik (1,610). For 1994, also includes performance based restricted stock options granted under the Long-Term Incentive Compensation Plan for executive officers. The named persons received stock options to purchase the following number of shares: Stihl (100,000), McWatters (35,000), Cowie (35,000), Chapman (35,000) and Kovarcik (35,000). 130 136 (e) Includes Concurrent's matching contribution to the "401(k)" savings feature during the year and annual contribution during the year for the prior fiscal year in shares of Concurrent Common Stock, based on the value of such shares at the time of contribution, to such person under Concurrent's Retirement Savings Plan, a defined contribution plan. For Mr. Stihl, includes $15,550 paid by Concurrent as the premium for $1 million in term life insurance and $2,086 paid by Concurrent for a long-term disability policy. (f) On August 25, 1993, Mr. Stihl was elected to the positions of Chairman of the Board, President and Chief Executive Officer. Prior to his election, Mr. Stihl served as President and Chief Operating Officer of Concurrent since April 1992. (g) Elected an executive officer in November 1994. (h) Elected an executive officer in August 1993. (i) Elected an executive officer in January 1994. (j) Elected an executive officer in June 1994. OPTION GRANTS The following table shows all grants in fiscal year 1995 of stock options under the Concurrent Stock Plan to the executive officers named in the Summary Compensation Table. There were no stock options granted to executive officers in fiscal year 1996 at December 31, 1995. All options shown below with an exercise price of $1.35 represent a repricing of previously granted stock options, including the first shown option(s) granted for each person with an exercise price of $2.125 and $1.7188. No stock appreciation rights were granted during fiscal year 1995 or fiscal year 1996 through the date hereof. OPTION GRANTS IN LAST FISCAL YEAR (No options have been granted to executive officers in fiscal year 1996)
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PERCENT OF TOTAL PRICE APPRECIATION OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERM OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------- NAME GRANTED FISCAL YEAR ($/SHARE)(B) DATE 5%($) 10%($) - ------------------------- ------- ------------------ ------------ ---------- -------- -------- J.T. Stihl............... 31,100(a) 2.125 N/A N/A N/A 15,000 1.35 05/03/01 1,366 8,656 26,187 1.35 06/20/01 2,491 5,389 15,000 1.35 04/30/02 2,356 11,298 35,200 1.35 07/31/02 6,186 28,313 10,100 1.35 08/25/03 2,600 10,457 64,969 1.35 08/25/03 16,722 67,262 135,031 1.35 08/25/03 34,754 39,798 10,000 1.35 08/25/03 2,574 10,353 8,625 1.35 01/28/04 2,512 9,785 66,055 1.35 06/23/04 21,375 81,315 33,945 1.35 06/23/04 10,984 41,787 31,100 1.35 08/19/04 10,462 39,488 200,000 0.875 05/03/05 110,057 278,905 ------- ------- ------- 682,312 21.9%(FY95) 224,439 632,806 0.0%(FY96)
131 137
POTENTIAL REALIZABLE VALUE AT ASSUMED PERCENT OF TOTAL ANNUAL RATES OF STOCK OPTIONS GRANTED TO EXERCISE OR PRICE APPRECIATION OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION FOR OPTION TERM NAME GRANTED FISCAL YEAR ($/SHARE)(b) DATE 5%($) 10%($) - ------------------------- ------- ------------------ ------------ ----------- ------- ------- C.D. McWatters........... 2,300(a) 2.125 N/A N/A N/A 6,000(a) 1.7188 N/A N/A N/A 35,000(a) 1.7188 N/A N/A 647 3,000 1.35 11/03/03 817 3,237 21,000 1.35 01/28/04 6,116 23,824 2,300 1.35 08/19/04 774 2,920 6,000 1.35 11/03/04 2,122 7,933 35,000 1.35 11/03/04 12,377 46,278 70,000 0.875 05/03/05 38,520 97,617 ------- ------- ------- 180,600 5.8%(FY95) 60,726 182,456 0.0%(FY96) D.S. Cowie............... 3,000(a) 2.125 N/A N/A N/A 10,000(a) 2.125 N/A N/A N/A 1,345 1.35 11/15/00 72 647 2,700 1.35 12/09/01 348 1,827 2,800 1.35 07/31/02 492 2,252 1,125 1.35 08/25/03 290 1,165 20,000 1.35 08/25/03 5,148 20,706 100 1.35 08/25/03 26 104 2,349 1.35 08/25/03 605 2,432 3,450 1.35 01/28/04 1,005 3,914 35,000 1.35 06/23/04 11,326 43,086 3,000 1.35 08/19/04 1,009 3,809 10,000 1.35 08/19/04 3,364 12,697 70,000 0.875 05/03/05 38,520 97,617 ------- ------- ------- 164,869 5.3%(FY95) 62,205 190,256 0.0%(FY96) G.E. Chapman............. 3,200(a) 2.125 N/A N/A N/A 1,700 1.35 07/31/02 299 1,367 200 1.35 08/25/03 51 207 30,000 1.35 01/28/04 8,738 34,034 1,800 1.35 01/28/04 524 2,042 35,000 1.35 06/23/04 11,326 43,086 3,200 1.35 08/19/04 1,076 4,063 70,000 0.875 05/03/05 38,520 97,617 ------- ------- ------- 145,100 4.7%(FY95) 60,534 182,416 0.0%(FY96) R.S. Kovarcik............ 3,000(a) 2.125 N/A N/A N/A 2,500 1.35 09/16/01 281 1,582 100 1.35 09/16/01 11 63 4,364 1.35 09/16/01 490 2,761 2,300 1.35 07/31/02 404 1,850 900 1.35 08/25/03 232 932 1,610 1.35 01/28/04 469 1,827 35,000 1.35 06/23/04 11,326 43,086 20,000 1.35 06/23/04 6,472 24,620 3,000 1.35 08/19/04 1,009 3,809 70,000 0.875 05/03/05 35,520 97,617 ------- ------- ------- 142,774 4.6%(FY95) 56,214 178,147 0.0%(FY96)
- --------------- (a) Cancelled as a result of the March 1995 Stock Option Repricing Program. (b) Represents an exercise price not less than the fair market value of a share of Concurrent Common Stock on the effective date of grant. 132 138 OPTION EXERCISES AND VALUES AS OF MARCH 31, 1996 The following table provides information as to the number and value of unexercised options to purchase Concurrent Common Stock held by the named executive officers at March 31, 1996. None of the named executive officers exercised any options during the fiscal year 1995 or during fiscal year 1996 through March 31, 1996.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT MARCH 31, 1996 MARCH 31, 1996(A) -------------------------------- ----------------------------- NAME EXERCISABLE(B) UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---------------------------------------- -------------- ------------- ----------- ------------- J.T. Stihl.............................. 297,545 353,667 $71,313 $ 239,796 C.D. McWatters.......................... 37,276 100,023 4,355 78,233 D.S. Cowie.............................. 51,104 100,765 8,915 75,590 G.E. Chapman............................ 41,694 100,205 4,394 75,311 R.S. Kovarcik........................... 42,742 97,032 6,257 74,166
- --------------- (a) Based on the fair market value of Concurrent Common Stock on that date ($1.6875). (b) Includes options exercisable within 60 days of March 31, 1996 (May 30, 1996). SEVERANCE ARRANGEMENTS Concurrent has entered into employment agreements with its executive officers. With the exception of the employment agreement with Mr. Stihl and except as described below, these agreements contain generally the same terms and provide for a base salary to be reviewed for increase annually with such increases as shall be awarded in the discretion of the Concurrent Board. The agreements also provide for an annual bonus opportunity in a target amount to be established by the Concurrent Board at the recommendation of the Compensation Committee, the actual amounts to be paid depending upon the degree of achievement of various objectives reasonably consistent with Concurrent's business plan to be established annually by the Concurrent Board. Employment under the employment agreements with executive officers of Concurrent may be terminated by either Concurrent or the respective executive officer at any time. In the event the executive officer voluntarily resigns (except as described below) or is terminated for cause, compensation under the employment agreements will end. In the event an agreement, other than the agreement with Mr. Stihl the terms of which differ, is terminated directly by Concurrent without cause or in certain circumstances constructively by Concurrent, the terminated employee will receive severance compensation for a one-year period, in an annualized amount equal to the respective employee's base salary then in effect plus an amount equal to the then most recent annual bonus paid or, if determined, payable, to such employee. Any compensation earned by the former executive officer for subsequent employment during the period for which severance compensation is payable will offset such severance compensation amount by one dollar for every two dollars in subsequent employment compensation. Pursuant to the Purchase and Sale Agreement, Concurrent has offered its executive officers the option to accept payment of any severance obligations incurred under existing employment agreements either in cash, as provided under such agreements, or alternatively from the proceeds of the sale of shares of Concurrent Common Stock with a fair market value equal to their annual base salary in effect as of the Closing Date without any offset. Concurrent is obligated to use its best efforts to cause the registration statement pursuant to which the shares will be registered to be effective until the earlier of the date such shares will be disposed of and 180 days following the Closing Date. Concurrent has reserved the right to determine the timing and amount of sales of such shares elected to be sold by an officer during the initial 60 days following the Closing Date, subject to a minimum of 40% of the shares issued to an officer in the first 30 days, in consideration of which it will bear the investment risk (gain or loss) and transaction costs. The officer shall bear the investment risk and transaction costs for shares such officer elects to sell after such 60-day period. The Purchase and Sale Agreement also provides that Concurrent may pay any severance obligations to other employees or under retention arrangements implemented in connection with the Transaction in cash or through the issuance of shares of Concurrent Common Stock. 133 139 Upon his election to the additional positions of Chairman of the Board and Chief Executive Officer on August 25, 1993, Concurrent entered into an agreement with Mr. Stihl which provides that he serve as Chairman of the Board, President and Chief Executive Officer. It also provides for a base annual salary of not less than $350,000, as may be adjusted based on annual merit increases, plus an annual bonus opportunity in a target amount not less than 65% of annual base salary. The actual amount of the bonus opportunity to be paid depends on the degree of achievement of various objectives established annually by the Board of Directors reasonably consistent with Concurrent's annual business plan. The agreement also provides that Concurrent pay the premiums associated with portable, renewable term life insurance providing a death benefit of $1 million on the life of Mr. Stihl. The agreement further provides that either Mr. Stihl or Concurrent may terminate the employment relationship at any time. In the event that Mr. Stihl voluntarily resigns (except following certain events constituting constructive termination), retires or is terminated for cause, compensation under the agreement would end and no further compensation would be owed or payable. In the event the agreement is terminated directly by Concurrent without cause, or in the event Mr. Stihl terminates his employment following certain specified events constituting constructive termination by Concurrent (including a demotion or election to positions other than his current positions), he would be entitled to receive severance compensation for a two-year period commencing upon such termination in an annualized amount equal to his annual base salary then in effect without offset. Mr. Stihl will have the option to receive (i) full severance compensation for the 24-month period commencing the day following the Closing Date or (ii) the proceeds from the sale, at Mr. Stihl's direction, of shares of Concurrent Common Stock with a market value of $730,000. It is expected that such shares will be sold by the 25th business day following the Closing Date. If the proceeds from the sale of such shares are less than $730,000, Mr. Stihl would have the right to receive either the balance in cash or any unsold shares of Concurrent Common Stock. The selection of either option does not affect Mr. Stihl's rights to various other benefits for the two-year period following the Closing Date. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, to the knowledge of Concurrent, the beneficial owners of more than 5% of Concurrent Common Stock as of March 31, 1996:
PERCENTAGE OF CONCURRENT NUMBER OF COMMON STOCK NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED OUTSTANDING --------------------------------------------------------- ------------ ------------ Cowen & Company.......................................... 2,357,050 7.7% Financial Square New York, NY 10005 Teachers Insurance and Annuity Association of America(a)............................................. 1,596,938 5.2% 730 Third Avenue New York, NY 10017-3206
- --------------- (a) Assumes for such beneficial owner the exercise of Concurrent Warrants to purchase 80,000 shares of Concurrent Common Stock at $3.00 per share granted in connection with the "lock-up" through January 21, 1994 of the shares of Concurrent Common Stock held by such beneficial owner. The Concurrent Warrants expire on July 22, 1996. Does not assume the exercise of warrants by any other warrant holder. In August 1992, in an arms-length transaction, Concurrent transferred all its interests in its Westford, Massachusetts facility to an affiliate of Teachers Insurance and Annuity Association of America in exchange for consideration including cancellation of $11,000,000 in mortgage indebtedness plus accrued interest. As part of that transaction, Concurrent leased back a portion of the facility and continued its existing operations from the facility. 134 140 The following table sets forth for each Concurrent Director, and each of the persons named in the executive compensation table, his name, and the number of shares and percentage of Concurrent Common Stock which he reported were beneficially owned by him as of March 31, 1996, including the number of shares of Concurrent Common Stock he has the right to purchase during the 60 days thereafter (through May 30, 1996) upon the exercise of existing stock options. The beneficial owners have sole voting and investment power with respect to such shares.
CONCURRENT PERCENTAGE COMMON STOCK OF BENEFICIALLY OWNED COMMON STOCK NAME DIRECTLY OR INDIRECTLY OUTSTANDING ----------------------------------------------------- ---------------------- ------------ Michael A. Brunner(a)................................ 3,000 * George E. Chapman(b)................................. 57,256 * Kevin N. Clowe(a).................................... 3,000 * David S. Cowie(c).................................... 57,692 * C. Forbes Dewey, Jr.(d).............................. 14,901 * Morton E. Handel(a).................................. 3,000 * Robert S. Kovarcik(e)................................ 46,894 * C. Dennis McWatters(f)............................... 39,496 * Richard P. Rifenburgh(g)............................. 13,000 * Robert R. Sparacino(a)............................... 3,000 * John T. Stihl(h)..................................... 339,903 * Directors and executive officers as a group (14 persons)........................................... 697,510 *
- --------------- (a) Represents options to purchase 3,000 shares of Concurrent Common Stock currently exercisable. (b) Includes options to purchase 41,694 shares of Concurrent Common Stock currently exercisable or which become exercisable within 60 days of March 31, 1996. (c) Includes options to purchase 51,103 shares of Concurrent Common Stock currently exercisable or which become exercisable within 60 days of March 31, 1996. (d) Excludes 10 shares held by Mr. Dewey's wife and 26 shares held in trust for Mr. Dewey's son, as to both of which holdings he disclaims beneficial ownership. Includes options to purchase 5,491 shares of Concurrent Common Stock which are currently exercisable. (e) Includes options to purchase 42,741 shares of Concurrent Common Stock currently exercisable or which become exercisable within 60 days of March 31, 1996. (f) Includes options to purchase 37,276 shares of Concurrent Common Stock currently exercisable or which become exercisable within 60 days of March 31, 1996. (g) Includes options to purchase 3,000 shares of Concurrent Common Stock currently exercisable. (h) Includes options to purchase 297,545 shares of Concurrent Common Stock currently exercisable or which become exercisable within 60 days of March 31, 1996. * Less than 1% of outstanding Concurrent Common Stock. Section 16(a) of the Exchange Act requires Concurrent's officers and directors, and persons who beneficially own more than ten percent of a registered class of Concurrent's equity securities ("ten percent shareholders"), to file reports of ownership of Concurrent's securities and changes in such ownership with the Commission and NASDAQ. Officers, directors and ten percent shareholders are required by the Commission's regulations to furnish Concurrent with copies of all Section 16(a) forms they file. Based solely upon its review of copies of such filings received by it and written representations from certain reporting persons that no Form 5 was required for those persons, Concurrent believes that during its fiscal year ended June 30, 1995 and fiscal year 1996 at March 31, 1996 all filing requirements applicable to its officers, directors and ten percent shareholders were satisfied. 135 141 CERTAIN INFORMATION REGARDING HARRIS GENERAL Harris, which was incorporated in August 1994, was formed for the purpose of consolidating in a corporate subsidiary the activities of the former Harris Computer Systems Division carried on by Harris Corporation and its subsidiary, Lanier Worldwide, Inc. ("Lanier"). The Harris Computer Systems Division had been established in 1974. On September 29, 1994, the Board of Directors of Harris Corporation declared the Distribution. Pursuant to the Distribution, the holders of record of Harris Corporation common stock received one share of Harris Common Stock for every 20 shares of Harris Corporation common stock outstanding on October 7, 1994. As a result of the Distribution, 100% of the outstanding shares of Harris Common Stock were distributed to Harris Corporation shareholders on a pro rata basis. The business of Harris did not constitute a material part of the business of Harris Corporation. Harris, through its Real-Time division, is a supplier of high performance real-time computer hardware, software and related peripherals. A "real-time" system is one specially designed to acquire, process, store and display large amounts of rapidly changing information in real time -- that is, with microsecond response as changes occur. Harris's Night Hawk products incorporate either Harris's CX/UX(TM) or Power UX(TM) real-time operating systems modified with real-time enhancements developed by Harris. Real-time computers are essential for certain specialized computing tasks such as radar control, simulation and training, mechanical testing and system controls, process control and data acquisition. Harris, through its Trusted Systems division, also is a supplier of trusted products including operating systems and firewall application products. Trusted systems store information of different degrees of sensitivity and make them available to users with correct authorization. The Night Hawk, with its secure operating system, has security as well as real-time characteristics, and is sold principally to governments and government agencies. Harris's CyberGuard firewall is an application that resides on an operating system and restricts the flow of information from either outside a network or between networks. Although most of the CyberGuard firewall sales have been to government customers, Harris is experiencing increased demand for both Night Hawks and CyberGuards in security applications in the commercial marketplace. For each of the quarters ended March 30, 1996 and December 29, 1995, 68% and 83%, respectively, of the revenues attributable to sales of Harris's CyberGuard firewall product have been to commercial customers. Harris, through its sales offices, distributors and strategic alliances, sells its computers directly to end users as well as to original equipment manufacturers, systems integrators, independent software producers and value-added resellers who combine Harris's product with other equipment or additional application software for resale to end users. Harris's Real-Time Business intends to seek to expand its customer base into other government and commercial markets that require computers with real-time capabilities. Harris hopes to target as customers of its CyberGuard and other trusted products anyone who uses the Internet for commerce or communication. THE TRANSACTION If consummated, the Transaction will result in the transfer to Concurrent of the Harris Real-Time Business, which includes all assets of Harris dedicated to the business of developing, manufacturing and marketing Harris real-time computers. Harris will retain those assets used for developing, manufacturing and marketing Harris trusted products. MARKETS Generally. Harris offers products to two distinct markets: the real-time computing market and the trusted computing market. End users rely on Harris's real-time computer systems for weapons targeting, rocket launch controls, military and commercial aircraft simulation, power station simulation, weather forecasting, air traffic control, high technology engine and avionics design and manufacturing processes that require extremely rapid response to data input. Harris's Night Hawk product is a leader in the flight simulation and training market. End users rely on Harris's secure operating system and firewall product to protect against 136 142 unauthorized access to sensitive data stored on computer networks having hundreds of users. The Night Hawk, enhanced with Harris's secure operating system, protects classified data without the decrease in operating response time often associated with traditional add-on security packages. The CyberGuard firewall allows the customer to restrict the flow of data to and from its computer network and between networks. Real-time Markets. Harris's real-time products are currently used in the following niche markets: Simulation and Training. Although other manufacturers have larger bases of customers with installed proprietary systems, Harris has a significant share of the market for new procurement of open architecture computer systems capable of handling high-end simulation and training applications. Harris's products are used in military and commercial flight simulators, vehicle trainers, research laboratories and utility power plant simulators. Demand for Harris's products in this market is subject to fluctuations in Department of Defense spending and the business cycle of commercial airlines. Revenues from open systems used for simulation and training were $16.8 million, $23.6 million and $15.5 million for fiscal years ended September 30, 1995, and June 30, 1994 and 1993, respectively. Customers in this market include The Boeing Company ("Boeing"), Lockheed Martin Corporation, Thomson S.A. and Flight Safety Corporation. Data Acquisition. The ability of the Night Hawk to process rapidly changing data makes the Night Hawk particularly well suited for applications designed for weather forecasting, launch control and checkout, equipment design and testing and manufacturing process control. Jet engine, avionics and automobile manufacturers utilize Night Hawk computers to design and test new products. Night Hawks are used for the real-time analysis of data collected in exploration for undersea oil and gas fields and pharmaceutical research. Demand for Harris's products in this market is subject to fluctuations in government funding and has been affected by reductions in government aerospace spending. Harris's revenues from open systems in the data acquisition market were $7.9 million, $13.8 million and $13.8 million during fiscal years 1995, 1994 and 1993, respectively. Customers in this market include Raytheon Co., Ford Motor Company, Boeing, United Technologies Corporation, Lockheed Martin Corporation, the National Aeronautics and Space Administration and the French Ministry of Defense. Trusted Markets. Any of the Night Hawk computers can be enhanced with either Harris's CX/SX(TM) or Secure/Power UX(TM)real-time operating systems designed to allow controlled multi-level sharing of data while enforcing a security policy designed to limit access to data based on its classification and the user's level of access clearance. Harris also has developed CyberGuard(TM), a firewall application package that is designed to restrict the flow of information from either outside the customer's network or between networks. Harris's products are used by United States and foreign military agencies and commercial customers as secure gateways, communication bridges and firewalls on local and wide area networks and mainframe computer systems. Principal customers include the governments of the United States and the United Kingdom. Customers include McDonnell Douglas, Computer Sciences Corporation, GTE, Harris Corporation, Hughes, Lockheed Martin Corporation, Loral, TRW, SAIC, Groupe Bull S.A. ("Bull"), IBM Federal, Motorola, Nissan Electric Co., Ltd. and Unipalm PIPEX. Harris intends to utilize its expertise in the government sector in order to take advantage of opportunities it expects to arise from an increase in commercial demand for trusted computer systems and firewalls, particularly in the health care, manufacturing, financial services and professional services industries. A key competitive factor in the trusted market is a computer system's security rating by intelligence and other government agencies such as the National Computer Security Center ("NCSC") in the United States and Centre d'Electronique de l'Armement ("CELAR") in France. The Night Hawk, equipped with Harris's trusted operating system, is rated by both NCSC and CELAR and is currently being evaluated for ITSEC certification in the United Kingdom. Harris's secure operating system and secure LAN has the advantage of being rated B1 by the NCSC. Harris plans to continue to seek security ratings by foreign military and intelligence services and to emphasize such ratings in its marketing efforts. Revenues from trusted systems and firewalls were $4.5 million, $8.5 million and $6.0 million, during fiscal years 1995, 1994 and 1993, respectively. 137 143 CUSTOMERS In the case of both real-time and trusted products, sales to Harris's customers tend to be based on the existence of a particular project for which the customer is a prime contractor or a subcontractor or on a relationship with a corporation for which Harris is the vendor of choice for real-time computers. In either case, Harris typically negotiates a price for its systems based on the customer's indication as to an anticipated quantity and configuration to be purchased. These pricing arrangements do not obligate the customer to purchase any certain quantity. Rather, Harris delivers its products upon receipt of purchase orders from its customers. On occasion, Harris participates in a program providing for the delivery of specified quantities over time. The most recent such program, which ended in fiscal year 1994, lasted two years and accounted for less than 10% of Harris's gross revenues for the fiscal years affected. Although the identity of Harris' ten largest customers differs somewhat from year to year, for the fiscal years 1995, 1994 and 1993, the ten largest customers accounted for 60%, 60% and 43% of revenues, respectively. In many cases, agencies of the United States Government are the ultimate purchasers of Harris's products. Sales to the United States Government combined with sales for which Harris acted as subcontractor on government projects have represented approximately 51%, 43% and 51% of total sales for fiscal years 1995, 1994 and 1993, respectively. Sales made to Boeing as a percentage of total sales were 4%, 14% and 4%, for fiscal years 1995, 1994 and 1993, respectively. United States government contracts generally contain provisions for cancellation at the convenience of the government. Government cancellations generally have not had a material impact on Harris's business or results of operations. For additional information regarding Harris's products and the markets in which they participate, see "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." PRODUCTS AND SERVICES -- REAL-TIME DIVISION Harris is the only major supplier of real-time systems that has completed the transition from proprietary to open systems. A proprietary system requires that the end user utilize software and peripherals specially designed to operate with the proprietary system. A computer utilizing an open operating system allows its user to operate compatible software and peripherals obtained from a variety of sources. In 1987, the market for real-time computers was dominated by companies selling proprietary systems. At that time, Harris became the first manufacturer of real-time computer systems to adopt a strategy of producing only open systems, and Harris undertook the costs necessary to develop an open system and to discontinue production and sale of proprietary systems. Demand for open computer systems has strongly increased over the past nine years. Harris believes it has developed competitive products to meet customer demand for real-time open operating systems and is well positioned to take advantage of the continuing market shift toward open systems. Night Hawk Computer. The Night Hawk computer uses Harris's UNIX-based open operating system. Harris currently produces four series of its Night Hawk computer, each series using either Motorola 88K microprocessor chips or the IBM/Motorola Power PC(TM). Harris also custom engineers its computer products to meet identified customer requirements. Because Harris's systems employ an open architecture, end users have the flexibility to install UNIX-based real-time software from a variety of sources. Compatible software can function on any Night Hawk series, and each series is differentiated based on the processing speed and the maximum number of attachable workstations CPU's. The Night Hawk also is designed to accommodate hardware and software system upgrades without incurring the inconvenience and additional cost of a complete system replacement. Certain information about the Night Hawk is shown in the following table:
MAX. NO. SERIES OF CPUS SPECINT* PRICE RANGE TYPICAL TECHNOLOGY --------------------- -------- -------- ----------------- ------------------ IBM PowerPC(TM) 6800................. 8 130-1040 $40,000-$500,000 604 5800................. 8 50-400 $35,000-$350,000 Motorola 88110 4800................. 8 20-160 $20,000-$250,000 Motorola 88100 4400................. 4 20-80 $15,000-$100,000 Motorola 88100
- --------------- * SPECInt-Independently Developed Industry Standard Benchmark. 138 144 The Night Hawk 4XXX and 58XX computers use Harris's CX/UX real-time operating system, which is based on SCO's (Novell, Inc.) UNIX Operating System V.4 as modified by Harris to operate with real-time capabilities. The Night Hawk 6800 uses Harris's new Power UNIX based on SCO's (Novell, Inc.) UNIX Operating System V.4.2. The Night Hawk combines RISC-based symmetric multiprocessing technology with a UNIX-based operating system. The current Night Hawk is designed to utilize up to eight microprocessors to effectively eliminate typical input/output bottlenecks. The Night Hawk utilizes a unique memory architecture for multiprocessor systems that allows linear performance increases as microprocessors are added. The operating system kernels use critical region design to protect structures that otherwise would be unable to support simultaneous access. A key to the efficiency and speed of the Night Hawk is the use of local memory to provide direct memory to memory connections. PRODUCTS AND SERVICES -- TRUSTED DIVISION Trusted systems products consist of CX/SX and Secure/Power UX secure operating systems, which were developed principally for government applications but that Harris believes have commercial uses; and the CyberGuard firewall, that was created to target commercial Internet users. Trusted Operating System. Traditionally, Harris has marketed its Night Hawk computers enhanced at the option of the customer with either Harris's CX/SX or Secure/Power UX, real-time operating systems designed to allow controlled multi-level sharing of data while enforcing a security policy designed to limit access to data based on its classification and the user's level of access clearance. Both operating systems allow access to data by hundreds of users without the delay typically associated with the addition of security features to general-purpose computer hardware and software while, at the same time, restricting access to data to those with the requisite authorization. Such a feature is critical in a computer system called upon to store and update data received from several sources, such as multiple allied military forces, each source having one of several security clearances. Security is critical for many of the real-time functions for which the Night Hawk is presently utilized, including those involved in missile testing, hardware analysis and testing, space tracking and range and telemetry data gathering. The NCSC has established a rating system to classify trusted capabilities of computer hardware and software. The NCSC ratings are D (systems with minimal security), C1 (systems with group-based discretionary access controls), C2 (systems with user-based discretionary access controls), B1 (systems with mandatory access controls), B2 (systems with certain additional implementation structures), B3 (systems meeting certain additional security criteria) and A1 (systems with assured security). Agencies of the United States government have incorporated the NCSC ratings into their procurement requirements, although these agencies may, from time to time, waive such requirements when awarding particular projects. Harris's trusted computers, utilizing the CX/SX secure operating systems, are rated by the NCSC at a B1 level, and Harris is the only supplier of real-time support in a B1-evaluated open system with an integrated operating system and network. Also, Harris's CyberGuard is the only commercially available firewall built on an integrated operating system and network with a rating as high as B1. No supplier of either real-time performance features in an open system or a secure computer with an integrated operating system and network has received a higher rating from the NCSC. Harris's Secure/Power UX operating system is currently under evaluation by the NCSC at the B2 level. The Secure/Power UX operating system will be released shortly on the Bull Escala workstation. Although B2 is a United States government defined security level, Secure/Power UX contains security features that Harris intends to market to all commercial and foreign customers with needs for securing different levels of sensitive data. Harris believes that its Secure/Power UX operating system as utilized on both the Night Hawk 6000 Series and the Bull Escala is particularly suited to the growing security needs of the healthcare, manufacturing, financial services and professional services industries. Harris believes that these needs will increase as users in these industries shift from centralized (i.e., mainframe) computing to decentralized (i.e., local area network, wide area network) computing. CyberGuard Firewall. Harris also has developed CyberGuard, a firewall application package, that can reside on either of Harris's two secure operating systems. The CyberGuard is a firewall product designed to 139 145 restrict the flow of information from either outside the network or between the networks. Harris is unable to predict whether it will derive, or at what point it will derive, material revenues from commercial Trusted Systems markets. For each of fiscal years 1995, 1994 and 1993, sales of the Night Hawk for the real-time market represented approximately 55%, 58% and 53%, respectively, of Harris's consolidated sales. In each such year, sales of trusted systems equipped with either the CX/SX or Secure/Power UX trusted operating systems accounted for approximately 10%, 13% and 11%, respectively, of Harris's consolidated sales. MAINTENANCE Harris derives a portion of its revenues from the maintenance and support of its installed computer systems. For each of fiscal years 1995, 1994 and 1993, maintenance activities represented approximately 30%, 22% and 29%, respectively, of Harris's consolidated sales. It is expected that, after the Transaction is consummated, Harris will continue to derive revenues from maintenance related to trusted systems installed prior to the Transaction or from systems sold in the future. In the case of trusted systems, maintenance revenue is expected to be substantially lower in proportion to total sales revenue than in the case of real-time systems. This reduced proportion is attributable to the lack of a substantial installed base of systems -- including proprietary systems -- analogous to the installed base that generates revenue for the real-time division. PRODUCTS IN DEVELOPMENT Real-time. The technologies employed by Harris and incorporated into its products are in a state of continuous development and tend to be surpassed by new developments in less than two years after beginning their commercial utilization. Harris is currently developing an enhanced 6000 and its 7000 Series of Night Hawk computers integrating expected future versions of the IBM PowerPC microprocessor chip. Harris believes that the PowerPC microprocessor chip represents the most advanced commercially available microprocessor with the lowest risk of short-term obsolescence. The products in development will provide for processing speeds greatly exceeding currently marketed products and in some models will use up to 16 microprocessors. Harris is continuing to develop its previously released NightStar(TM), NightTrace(TM), NightView(TM), NightSim(TM) and NightProbe(TM) products, all of which are real-time software development tools designed for use on open systems. It is uncertain whether Concurrent will continue development of any of these products following the Transaction. Trusted. Bull and Harris are currently developing a joint marketing plan for delivery in 1996 of Harris's Secure/Power UX operating system and applications on Bull Escala workstations. There can be no assurance that Bull will sell any systems using Harris's products. Harris also plans to market Secure/Power UX to other computer manufacturers. Harris has been selling its Power SX and Secure/Power UX operating systems on the Motorola 604-based IBM/Motorola PowerPC single board computer since August 1995. Harris is actively pursuing additional opportunities to port Harris's operating system on other platforms. DISTRIBUTION Harris sells its products in the continental United States market through 25 offices located in four sales regions. Products are distributed to United States customers directly from Harris's manufacturing facility in Fort Lauderdale, Florida. Harris sells directly to foreign customers through sales offices in Canada, France, Germany and the United Kingdom. Orders from foreign sales offices are filled directly from Harris's Fort Lauderdale manufacturing facility. Harris markets its products in Eastern Europe, including Russia, through its German subsidiary and through a joint venture with a Russian partner. Harris expects to open offices in Madrid, Spain and Beijing, China in 1996. Harris's foreign sales offices are staffed with local nationals. Harris's products are also marketed through independent distributors in Italy, Sweden, Japan, South Korea and Singapore. Harris 140 146 does not believe that the loss of any one distributor would have a substantial impact on Harris's revenues. International net sales for fiscal years 1995, 1994 and 1993 were $11.9 million, $16.8 million and $14.7 million, respectively. RESEARCH AND DEVELOPMENT Harris's continued success depends heavily on researching and utilizing the latest available hardware and software computer technology. Harris spent $10.2 million, $9.5 million and $9.1 million on research and development (including capitalized software) during fiscal years 1995, 1994 and 1993, respectively. In addition to Harris-funded research and development, certain of Harris's customers have funded Harris's research and development to ensure compatibility between the customer's and Harris's products and to target specific markets identified as presenting opportunities for integration of the customer's and Harris's products. During fiscal years 1995, 1994 and 1993, $.7 million, $1.3 million and $1.5 million, respectively, was spent on customer-funded research and development. MANUFACTURING OPERATIONS Harris's manufacturing operation occupies approximately 60,000 square feet of the Fort Lauderdale, Florida facility leased to Harris by Harris Corporation. For its open system products, Harris anticipates orders and generally begins manufacturing of open system products for which no orders have yet been placed. Anticipation of customer demand, based on information obtained from Harris's sales representatives, allows Harris to substantially reduce shipping time for computers ordered, sometimes to only hours after receipt of an actual order. SOURCES OF SUPPLY Harris depends on the availability of the Motorola 88110 and 88100 microprocessor chips in the manufacture of its Night Hawk 5800, 4800 and 4400 Series computers. Motorola is the only source of supply for these chips. For its current generation of Night Hawk computers (NH 6800), Harris will depend on the availability of PowerPC microprocessor chips. IBM and Motorola are the sources of supply for this microprocessor chip. Harris has multiple commercial sources of supply for all other materials and components used to manufacture its products. In some cases, components, including customized components such as certain computer peripheral equipment incorporated into Night Hawk computers, have been purchased by Harris principally from a single supplier to obtain the most favorable price and delivery terms. Harris expects that adequate sources of supply for microprocessor chips, components and peripheral equipment will continue to be available. COMPETITION Harris operates in a highly competitive market driven by rapid technological innovation. Many of Harris's competitors have greater financial and operating resources than Harris. In addition, large companies that currently do not compete with Harris may enter Harris's product markets. Competition in high performance real-time computing systems comes from (1) independent software developers and systems integrators that modify or enhance general purpose platforms to have real-time characteristics; (2) single board computer companies, such as Force Computers, Inc. and Motorola, that provide board-level processors that are integrated into a customer's computer system; and (3) companies, such as Concurrent, that compete directly with Harris in the design and assembly of high-end real-time computers. Harris also competes with manufacturers of proprietary real-time systems, particularly when dealing with customers who already have an installed base of such systems. Real-time Products. The real-time industry competes based on system performance and price. Harris produces a high-end product comparable to only a few of its competitors' products. With respect to the real-time market, Harris believes, based on a survey of installed flight simulators, that in 1995, 1994 and 1993 Harris supplied a substantial percentage of new procurement of military flight simulators and a significant 141 147 percentage of new procurement for commercial flight simulators. The cost of developing and producing a high-end real-time system poses a substantial barrier to entry of prospective competitors. Trusted Products. In the trusted market, the principal competitive factors are security features, system performance and price. In this market, Harris competes with general purpose computer manufacturers such as Digital Equipment Corp., whose computers can be equipped with special equipment or software to provide for security features similar to those of Harris, and with software developers and system integrators that develop specialized software designed with security-enhancement features. Harris's major competitor in the market for open system secure operating systems is Hewlett-Packard Co., which, to Harris's knowledge, has developed a secure operating system but has not developed products designed to provide security for local area networks. Harris expects many competitors to offer products designed to provide security but few with the high-performance real-time characteristics of the Night Hawk. In the firewall market place, there are over 40 companies developing various types of firewall products. Harris believes it has approximately 5% of the current firewall market. Harris also competes with companies that are able to provide maintenance and repair services for Harris's products. INTELLECTUAL PROPERTY For both real-time and trusted products, Harris relies on a combination of contracts and copyright, trademark and trade secret laws to establish and protect its proprietary rights in its technology. Harris distributes its products under software license agreements which grant customers perpetual licenses to Harris's products and which contain various provisions protecting Harris's ownership in and confidentiality of the licensed technology. Despite precautions taken by Harris, however, there can be no assurance that Harris's products or technology will not be copied or otherwise obtained and used without authorization. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. Harris believes that, due to the rapid pace of innovation within its industry, factors such as the technological and creative skills of its personnel are more important to establishing and maintaining a technology leadership position within the industry than are the various legal protections of its technology. Harris has purchased from SCO (Novell, Inc.) the perpetual right to use and license the UNIX Operating System V.4 in Harris's computer systems. Harris pays a royalty to SCO (Novell, Inc.) for each computer system shipped using the UNIX operating system. EMPLOYEES As of March 30, 1996, Harris had approximately 419 employees worldwide, of whom 35 were employed outside the United States. Harris's employees are not members of a collective bargaining unit. BACKLOG Because Harris anticipates customer orders, it is able to ship its product promptly upon request. Backlog was $6.9 million as of March 30, 1996 and $7.4 million as of March 30, 1995, approximately 83% and 76% of which, respectively, relate to annual maintenance contracts. Harris does not generally experience substantial amounts of non-maintenance backlog; however, Harris may experience backlog in the event of a large purchase order occurring near the end of its fiscal year. It should be noted that Concurrent calculates its backlog on a different basis than Harris. Concurrent calculates its backlog solely on systems orders and not on maintenance contracts. PROPERTIES Harris's manufacturing operations and its corporate headquarters are located in Fort Lauderdale, Florida. Although Harris previously occupied 230,000 square feet of the facility, which is owned by Harris Corporation, a substantially smaller portion is sufficient to accommodate its offices and production operations. Accordingly, Harris leases 100,000 square feet of the facility, including the former manufacturing portion, 142 148 from Harris Corporation pursuant to a three-year lease which can be cancelled by either party at any time upon six months' prior notice. Harris believes there is sufficient, suitable commercial space available on acceptable terms to meet its potential needs for alternative space; however, there is no guarantee that Harris will be successful in locating such facilities on terms favorable to Harris. In addition, any sustained interruption in manufacturing connected with the transfer of Harris's facilities to a new location would likely result in loss of revenue for Harris. Of Harris's 32 sales offices in the United States and abroad, five are located in Harris Corporation facilities. Harris negotiated terms of the lease arrangements with Harris Corporation for each of these offices. ENVIRONMENTAL MATTERS Harris purchases, uses and arranges for disposal of chemicals used in the manufacturing process. As a result, Harris is subject to federal and state environmental protection and community right-to-know laws applicable to such purchase, use and disposal. Violations of such laws can result in certain circumstances in the imposition of substantial remediation costs and penalties. Harris believes it currently is in compliance with all material environmental laws and regulations. LEGAL PROCEEDINGS Harris is not a party to any material legal proceedings. REGULATORY COMPLIANCE Exports of Harris's high technology products are governed by federal laws administered by the United States Department of Commerce. At present, Department of Commerce regulations do not restrict export of Harris's products, and Harris believes that it is in compliance with all other material laws and regulations applicable to export sales. Compliance with export regulations does not impose significant costs on Harris's operations. MANAGEMENT Certain of Harris's executive officers and certain directors of Harris are expected to serve as officers or directors of Concurrent after the Transaction. Following is certain information about current directors and executive officers of Harris.
NAME POSITION AGE - ---------------------------- ------------------------------------------------------- --- E. Courtney Siegel(5) Chairman, President and Chief Executive Officer 45 C. Shelton James(1)(2)(5) Director 56 Michael F. Maguire(1)(2)(4) Director 69 Brian Foremny(1)(3) Director 47 Robert L. Carberry(3) Director, President, Trusted Systems Division 53 Daniel S. Dunleavy Vice President, Chief Financial Officer and Chief Administrative Officer 42 Michael N. Smith Vice President, General Manager, Real-Time Division 42 Bradley C. Lesher Vice President, International Sales 60 Robert T. Menzel Vice President, General Manager, Trusted Systems Division 43 Robert E. Chism Vice President, Technical and Production Operations of Harris 43
- --------------- (1) Member of the Audit Committee. (2) Member of the Compensation and Stock Option Committee. (3) Member of the Class of Directors whose term expires at the Harris Special Meeting. (4) Member of the Class of Directors whose term expires at the 1996 annual meeting. (5) Member of the Class of Directors whose term expires at the 1997 annual meeting. 143 149 Information on the business experience of each executive officer (other than those expected to serve following the Transaction) for at least the last five years is set forth below. For biographical information relative to each executive officer expected to serve following the Transaction, see "DIRECTORS AND EXECUTIVE OFFICERS OF HARRIS AFTER THE TRANSACTION -- Executive Officers." For biographical information relative to the Harris Directors whose terms are not expiring at the Harris Special Meeting, see "DIRECTORS AND EXECUTIVE OFFICERS OF CONCURRENT AFTER CONSUMMATION OF THE TRANSACTION -- Directors." For biographical information related to Robert Carberry and Brian Foremny, who have been nominated for election at the Harris Special Meeting, see "OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS." DANIEL S. DUNLEAVY, VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND CHIEF ADMINISTRATIVE OFFICER OF HARRIS SINCE THE DISTRIBUTION. Mr. Dunleavy served as Vice President, Strategic Alliances and International Operations of the Harris Computer Systems Division from February 1991 through the Distribution. After joining Harris Corporation in 1978, Mr. Dunleavy served in various positions of increasing responsibility, including as Controller of the Harris Computer Systems Division from 1988 until 1991. MICHAEL N. SMITH, VICE PRESIDENT, AND GENERAL MANAGER OF THE REAL-TIME DIVISION SINCE APRIL 1995. Mr. Smith was appointed Vice President, Marketing of the Harris Computer Systems Division in January 1993 where he remained until April 1995. Mr. Smith joined Harris Corporation, Computer System Division in March 1992 as Director, Secure Systems Business. Prior to joining Harris, he served in positions of increasing responsibility for 15 years with General Electric Company's Aerospace division, serving as Program Manager Armor Training when he left there to join the Harris Computer Systems Division. ROBERT T. MENZEL, VICE PRESIDENT, GENERAL MANAGER OF THE TRUSTED SYSTEMS DIVISION OF HARRIS SINCE APRIL 1995. Mr. Menzel served as Vice President, National Sales of the Harris Computer Systems Division from April 1993 until April 1995. He joined Harris Corporation, Computer Systems Division in 1992 as Manager, Secure Systems Marketing and later assumed responsibility for the entire Secure Business Area. Before joining Harris Corporation, he was employed at the GE Aerospace division of General Electric Company for 12 years where he held positions of increasing responsibility within the Business Development and Marketing group, serving as Manager, Army Business Development, when he left there to join Harris Computer Systems Division. ROBERT E. CHISM, VICE PRESIDENT, TECHNICAL AND PRODUCTION OPERATIONS OF HARRIS. Mr. Chism served as Director of the Simulation Business Area for the Computer Systems Division of Harris Computer Systems Division beginning in June of 1993 and assumed his present responsibilities in the fall of 1994. Before joining the division, he held diverse engineering, program management and marketing assignments in computer and related industries with General Electric Company from May 1978 through June 1993, where he was Subsection Manager of Satellite Command and Data Handling at the time he left to join the Harris Computer Systems Division. There is no family relationship between any Harris executive officer or director. GENERAL INFORMATION RELATING TO THE BOARD OF DIRECTORS The business and affairs of Harris are managed under the direction of the Harris Board. To assist it in carrying out its duties, the Harris Board has delegated certain authority to two committees. The Harris Board held five meetings during the fiscal year ended September 30, 1995. During fiscal year 1995, each member of the Harris Board attended all the meetings of the Harris Board and all committees of the Harris Board of which he was a member. Committees of the Board The Harris Compensation Committee consists of two members of the Harris Board who are not executive officers of Harris. The Harris Compensation Committee is responsible for setting and approving the salaries, bonuses and other compensation for Harris's executive officers, establishing compensation programs, and determining the amounts and conditions of all grants of awards under the Harris Stock Plan. The members of 144 150 the Harris Compensation Committee are C. Shelton James and Michael F. Maguire, neither of whom are executive officers of Harris. The Harris Compensation Committee held two meetings during fiscal year 1995. The Audit Committee of the Harris Board ("Harris Audit Committee") recommends to the Harris Board the independent accountant to be nominated, reviews the scope of their engagement, including the remuneration to be paid, and reviews the independence of the accountants on a continuing basis. The Harris Audit Committee, with the assistance of Harris's Chief Financial Officer and other appropriate Harris personnel, reviews Harris's annual financial statements and the independent auditor's report, including significant reporting or operational issues; Harris corporate policies and procedures as they relate to accounting and financial reporting and financial controls; litigation in which Harris is a party; and use by Harris executive officers of expense accounts and other non-monetary perquisites, if any. The Harris Audit Committee may direct Harris's legal counsel, independent auditors and internal audit staff to inquire into and report to it on any matter having to do with Harris's accounting or financial procedures or reporting. The members of the Harris Audit Committee are C. Shelton James and Michael F. Maguire, neither of whom are executive officers of Harris. The Harris Audit Committee held no meetings during fiscal year 1995, and one meeting shortly after the completion of the 1995 fiscal year-end audit to receive the audit report and review with Harris's independent accountants the results of the audit and certain other related matters. As of the end of fiscal year 1995, Harris did not have a standing nominating committee of the Harris Board nor a committee performing similar functions. SUMMARY COMPENSATION TABLE The following table sets forth certain information with respect to the annual and long-term compensation of Harris's Chief Executive Officer and Harris's other four most highly compensated executive officers for fiscal years ended September 30, 1995 and June 30, 1994 and 1993. During the periods presented, the individuals were compensated in accordance with Harris Corporation's plans and policies prior to the Distribution. All references in the following tables to stock and stock options relate to awards of stock and stock options of Harris. Pursuant to the Stock Option Agreements in place with each of the executive officers listed below, certain outstanding Harris options will become immediately exercisable at the Closing Date. See "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction."
LONG-TERM COMPENSATION ------------------------------------------ ANNUAL COMPENSATION AWARDS --------------------------------- -------------------- PAYOUTS OTHER RESTRICTED ------- ALL OTHER ANNUAL STOCK LTIP COMPEN- NAME AND PRINCIPAL FISCAL COMPEN- AWARD(S) OPTIONS PAYOUTS SATION(4) POSITION(1) YEAR(2) SALARY($) BONUS($)(3) SATION($) ($) (#) ($) ($) - ---------------------------- ------- --------- ----------- ------- ---------- ------- ------- --------- E. Courtney Siegel.......... 1995 200,013 20,000 0 100,750 120,000 0 11,389 Chairman, President and 1994 140,206 37,200 6,720 0 0 0 9,104 Chief Executive Officer 1993 135,013 74,997 6,240 0 0 0 12,289 0 0 Daniel S. Dunleavy.......... 1995 120,016 10,000 0 35,650 75,000 0 7,132 Vice President, 1994 93,463 34,275 1,344 0 0 0 7,242 Chief Financial Officer and 1993 90,012 33,706 1,352 0 0 0 7,215 Chief Administrative Officer 0 0 0 Michael N. Smith............ 1995 110,011 10,000 0 0 60,000 0 6,554 Vice President, 1994 93,463 26,618 896 0 0 0 7,078 General Manager, 1993 84,122 10,771 416 0 0 0 19,568 Real-Time Division 0 0 0 Robert T. Menzel............ 1995 110,001 6,520 0 0 60,000 0 6,542 Vice President 1994 87,511 16,791 448 0 0 0 6,341 and General Manager, 1993 70,785 0 0 0 0 0 23,621 Trusted Systems Division 0 0 0 Bradley C. Lesher........... 1995 110,001 12,500 0 0 60,000 0 1,015 Vice President, 1994 0 0 0 0 0 0 0 International Sales 1993 0 0 0 0 0 0 0
145 151 - --------------- (1) See "-- Management" for information concerning positions held by such individuals with Harris. (2) For fiscal years ending September 30, 1995, and June 30, 1994 and 1993. (3) 1994 amounts represent bonuses achieved and accrued under Harris Corporation but paid after September 28, 1994. (4) Amounts reported for fiscal 1995 represent contributions to the Harris Retirement Plan. Option Grants in Fiscal Year 1995 and After The following table shows all grants in fiscal year 1995 and thereafter of stock options under the Harris Stock Plan to the executive officers named in the Summary Compensation Table.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ---------------------------- VALUE AT ASSUMED PERCENT OF ANNUAL RATES OF NUMBER OF TOTAL OPTIONS STOCK PRICE SECURITIES GRANTED EXERCISE APPRECIATION FOR UNDERLYING TO EMPLOYEES OR BASE OPTION TERM(a) OPTION IN FISCAL PRICE EXPIRATION -------------------- NAME GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($) - ------------------------- ---------- ------------- -------- ---------- ------ ------- E. Courtney Siegel....... 120,000(b) 28.6% 2.583 10/07/99 85,600 195,200 57,000 38.4% 4.708 10/31/01 74,195 163,970 Daniel S. Dunleavy....... 75,000(b) 17.9% 2.583 10/07/99 53,500 122,000 18,000 12.1% 4.708 10/31/01 23,430 51,780 Michael N. Smith......... 60,000(b) 14.3% 2.583 10/07/99 42,800 97,600 15,000 10.1% 4.708 10/31/01 19,525 43,150 Robert T. Menzel......... 60,000(b) 14.3% 2.583 10/07/99 42,800 97,600 15,000 10.1% 4.708 10/31/01 19,525 43,150 Bradley C. Lesher........ 60,000(b) 14.3% 2.583 10/07/99 42,800 97,600 9,000(c) 6.1% 4.708 10/31/01 11,715 25,890
- --------------- (a) 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 Harris Common Stock based upon growth at these prescribed rates. An alternative formula for a grant date valuation, an approach which would state gains at present, and therefore lower, value was not utilized. Harris is not aware of any formula which 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 performances of Harris Common Stock. There can be no assurance that the amounts reflected in this table will be achieved. (b) Granted on October 8, 1994, one-third of these options became exercisable on October 8, 1995, another one-third will become exercisable on October 8, 1996, and the remaining one-third will become exercisable on October 8, 1997. However, all of these options will become fully exercisable upon consummation of the Transaction. See "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction". (c) Granted on October 31, 1995, one-third of these options will become exercisable on each of November 1, 1996, 1997 and 1998. However, all of these options will become fully exercisable upon consummation of the Transaction. See "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction". 146 152 Option Exercises and Fiscal Year-End Values The following table provides information as to the number and value of unexercised options to purchase Harris Common Stock held by the named executive officers at September 30, 1995, based on a closing sale price on September 29, 1995. None of the named executive officers exercised any options during fiscal year 1995.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED SHARES VALUE OPTIONS AT FISCAL IN-THE-MONEY OPTIONS ACQUIRED ON REALIZED YEAR-END(#) AT FISCAL YEAR-END($) NAME EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - --------------------------- ----------- -------- ------------------------- ------------------------- E. Courtney Siegel......... -- -- 39,999/80,001 121,664/243,336 Daniel S. Dunleavy......... -- -- 24,999/50,001 76,039/152,086 Michael N. Smith........... -- -- 20,001/39,999 60,836/121,664 Robert T. Menzel........... -- -- 20,001/39,999 60,836/121,664 Bradley C. Lesher.......... -- -- 20,001/39,999 60,836/121,664
COMPENSATION PLANS Employment Agreements. Harris has entered into employment agreements with its executive officers which terminate on September 30, 1996, unless extended as provided therein. With the exception of the employment agreements with Mr. Siegel and Mr. Dunleavy, as described below, these agreements contain generally the same terms and provide for a base salary to be reviewed for increase annually with such increases as shall be awarded by the Board of Directors of Harris or any committee delegated by the Board of Directors to review such salary. Employment under the employment agreements with executive officers of Harris may be terminated by either Harris 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 (other than the agreements with Messrs. Siegel and Dunleavy) is terminated by Harris without "cause" or the executive officer resigns for "good reason," the terminated executive officer will receive, among other things, severance compensation equal to one-half of such employee's annual base salary and one-half of the target bonus under Harris's bonus program. In such event, Messrs. Dunleavy and Siegel are entitled to receive one times and two times their base salary and bonus, respectively. In the case of Messrs. Siegel and Dunleavy, "good reason" includes any change in their respective executive officer title or responsibilities. In addition, all non-statutory options and stock appreciation rights of all such executive officers shall be immediately exercisable upon termination of employment and certain other awards previously made under any of Harris's compensation plans or programs and previously not paid shall immediately vest on the date of such termination. Severance provisions shall also apply if the employee's employment is terminated prior to or more than three years after the occurrence of a change of control. The Transaction will constitute a change in control under the terms of the employment agreements. In the event that any such employee is terminated within three years following the occurrence of a change in control, such employee shall be entitled to receive on the date of such termination an amount equal to, among other things, such employee's base salary, target bonus under the Harris's bonus program, any performance award payable under the Harris Stock Plan, or similar plan, as well as any other benefits to which any such employee would be entitled provided termination was by Harris without "cause" or with "good reason" by the employee. In the case of Messrs. Siegel and Dunleavy, such employees will be entitled to receive three times and two times their base salary, target bonus and performance awards, respectively. Following the Transaction, with the exception of Bradley C. Lesher, Vice President, International Operations of Harris, it is expected, upon consummation of the Transaction, that all of the executive officers of Harris will resign and assume new positions with Concurrent. These executive officers include Harris's President and Chief Executive Officer, its Chief Financial and Chief Administrative Officer, the Vice President and General Manager of its Real-Time division, and the Vice President, Technical and Production 147 153 Operations. The President and Chief Executive Officer and the Vice President, Chief Financial Officer and Chief Administrative Officer have agreed to accept $200,000 and $80,000 respectively in lieu of higher severance obligations due under employment contracts between them and Harris. See "THE TRANSACTION -- Interests of Certain Persons in the Transaction." Directors' Fees. Non-employee directors of Harris receive a $15,000 annual retainer payable upon election as a director of Harris at an annual meeting of shareholders (and a pro rata amount to any non-employee who becomes a director of Harris thereafter, payable at the time of becoming a director) and $1,000 per Harris Board meeting attended. In addition, directors receive $750 ($1,000 for the Chairman) for attendance at any meeting of a committee of the Harris Board, payable at any such meeting, except for committee meetings held on the same day as Harris Board meetings, in which case no such fee will be payable. Directors are also reimbursed for travel and lodging expenses in connection with Harris Board and committee meetings. No compensation shall be payable by Harris for attendance at telephone board or committee meetings unless the Chairman of the Board or the committee determines that unusual circumstances exist warranting compensation for such telephone meeting. The Harris Stock Plan, effective October 8, 1994, provides that non-employee directors of Harris will receive options to purchase shares of Harris Common Stock. Upon joining the Harris Board, all non-employee directors receive 6,000 such options. In addition, on the date of the Harris Special Meeting and each Annual Meeting thereafter, each director who is not an employee of Harris will automatically be granted an option to purchase 1,500 shares of Harris Common Stock. 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 12 months. Neither the Harris Board nor any committee of the Harris Board will have any discretion with respect to options granted to non-employee directors pursuant to the Harris Stock Plan. The director's option provisions of the plan are proposed to be amended by the Harris Stock Plan Amendment. See "OTHER MATTERS FOR CONSIDERATION BY HARRIS SHAREHOLDERS." COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION During fiscal year 1995, the Harris Compensation Committee consisted of three members of the Harris Board who were not executive officers of Harris. The Harris Compensation Committee is responsible for setting and approving the salaries, bonuses and other compensation for Harris's executive officers, establishing compensation programs, and determining the amounts and conditions of all grants of awards under the Harris Stock Plan. Harris Compensation Committee Objectives The Harris Compensation Committee believes that the objectives of executive compensation are to attract, motivate and retain the highest quality executives and to align the interests of these executives with those of the Harris shareholders to motivate Harris executives to increase shareholder value by improving corporate performance and profitability. To meet these objectives, the Harris Compensation Committee seeks to provide competitive salary levels and compensation incentives that attract and retain qualified executives, to recognize individual performances and achievements as well as performance of Harris relative to its peers, and to encourage ownership of Harris 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 Harris. Salary adjustments are determined and normally made at 12-month intervals. 148 154 Annual Bonuses Harris offers a bonus program for executives designed to provide year-end incentive bonuses to executives who contributed materially to Harris's success during the most recently completed fiscal year. The bonus program is intended to enable Harris executives to participate in Harris's success as well as to provide incentives for future performance. In determining amounts to be awarded as bonuses, the Harris Compensation Committee takes into account a number of factors, including Harris's gross revenue, net income, cash flow, and individual performance and achievement. For the fiscal year ended September 29, 1995, with one exception, no bonuses were granted to executive officers of Harris because Harris' financial results did not meet those set forth in Harris's business plan. A $10,000 bonus was awarded to Robert E. Chism, Vice President, Technical and Production Operations of Harris, based upon Mr. Chism's accomplishing certain goals that were established for him during October 1994, and upon the Compensation Committee's review of information relating to executives having similar management responsibilities at comparably sized competitors and other public companies. Long Term Incentives Under the Harris Stock Plan, the Harris Compensation Committee may grant to certain employees of Harris 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. During the fiscal year ended September 30, 1995, the Harris 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 stock options, which would otherwise become exercisable with respect to one-third of such options on each of October 8, 1995, 1996, and 1997, will all become exercisable upon consummation of the Transaction, and all options expire on October 8, 2004. SUBMITTED BY THE HARRIS COMPENSATION AND STOCK OPTION COMMITTEE: C. SHELTON JAMES, CHAIRMAN MICHAEL F. MAGUIRE BRIAN FOREMNY Compensation Committee Interlocks and Insider Participation During fiscal year 1995, E. Courtney Siegel, Harris's Chairman, President and Chief Executive Officer and Chairman of the Board, participated in deliberations of the Harris Compensation Committee, as requested by such Committee, concerning executive officer compensation. Brian Foremny, who is a director and who serves as Harris's General Counsel, is a partner at the law firm of Holland & Knight, which serves as Harris's outside general counsel. Security Ownership of Certain Beneficial Owners and Management The following table sets forth as of May 15, 1996 information related to the beneficial ownership of (i) each person or entity known to Harris to own 5% or more of Harris Common Stock; (ii) each Harris director and each Harris executive officer named in the executive compensation table above and (iii) all directors and executive officers as a group, including the name, and the number of shares and percentage of Harris Common Stock which such person or entity reported were beneficially owned by it including the number of shares of Harris Common Stock that may be purchased, unless otherwise noted, during the 60 days thereafter upon the exercise of existing stock options. Unless otherwise indicated, the beneficial owners have sole voting and investment power with respect to such shares and have the same address as Harris. For a discussion of the effect of the Transaction on the beneficial ownership of Harris Common Stock by directors and executive officers, see "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction." 149 155
HARRIS COMMON STOCK BENEFICIALLY OWNED PERCENTAGE OF DIRECTLY OR HARRIS COMMON STOCK NAME INDIRECTLY OUTSTANDING ---------------------------------------------- ------------------- ------------------- Okabena Partnership K......................... 522,300 8.71% 5140 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402 Austin W. Marxe............................... 366,915 6.12% 153 East 53rd Street New York New York 10022(a) David L. Babson & Co.......................... 491,700 8.20% One Memorial Drive Cambridge, Massachusetts 02142 Paul Tudor Jones, II.......................... 451,500 7.53% c/o Tudor Investment Corporation One Liberty Plaza, 51st Floor New York, New York, 10006(b) E. Courtney Siegel(c)(m)...................... 164,673 2.69% C. Shelton James(e)(f)........................ 261,000 4.33% Brian Foremny(d).............................. 30,000 * Michael F. Maguire(e)......................... 6,000 * Daniel S. Dunleavy(g)(m)...................... 122,559 2.00% Michael N. Smith(h)........................... 75,802 1.25% Bradley C. Lesher(i)(k)....................... 70,596 1.16% Robert T. Menzel(k)........................... 90,815 1.49% Directors and executive officers as group (9 persons).................................... 1,034,091 15.72%
- --------------- (a) Includes 97,705 shares of Harris Common Stock owned by Special Situations Fund III, L.P. (the "Fund") and 24,600 shares of Harris 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 Harris 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 Harris Common Stock beneficially owned by MGP, the Fund, and the Cayman Fund. (b) 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"), and 197,400 shares of Harris Common Stock owned by Tudor BVI Futures, Ltd. ("Tudor BVI"). Tudor Global Trading LLC ("TGT") is the sole general partner of TAP and shares voting and investment power as to the shares of Harris Common Stock owned by TAP. Tudor Investment Corporation ("TIC") provides investment advice to Raptor Ltd., Raptor L.P., TAP, TGT, and Tudor BVI and shares voting and investment power as to the shares of Harris Common Stock beneficially owned by such entities. Paul Tudor Jones, II is the Chairman and Chief Executive Officer of TIC, of which he owns a majority of the capital stock and voting securities. As such, he shares voting and investment power as to the shares of Harris Common Stock beneficially owned by TIC. (c) Includes options to purchase 39,999 shares of Harris Common Stock that are currently exercisable and 4,074 shares held pursuant to the Harris's Employee Savings Plan. Does not include options on an additional 137,001 shares of Harris Common Stock that would have become exercisable upon completion of the Transaction, but as to which Mr. Siegel and Harris agreed to a later vesting in connection with a non-competition agreement between Mr. Siegel and Harris. See "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction." (d) Consists of options to purchase shares of Harris Common Stock that are currently exercisable. 150 156 (e) Includes options to purchase 6,000 shares of Harris Common Stock that are currently exercisable and an additional 15,000 shares that will become exercisable upon approval of the Harris Stock Plan Amendment. (f) Includes 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. (g) Includes options to purchase 24,999 shares of Harris Common Stock that are currently exercisable; options with respect to an additional 68,001 shares of Harris Common Stock that will become exercisable upon completion of the Transaction; and 1,863 shares held pursuant to Harris's Employee Savings Plan. (h) Includes options to purchase 20,001 shares of Harris Common Stock that are currently exercisable; options with respect to an additional 54,999 shares of Harris Common Stock that will become exercisable upon completion of the Transaction; and 802 shares held pursuant to Harris's Employee Savings Plan. (i) Includes options to purchase 20,001 shares of Harris Common Stock that are currently exercisable and options with respect to an additional 48,999 shares of Harris Common Stock that will become exercisable upon completion of the Transaction. (j) Includes 1,200 shares owned by Mr. Lesher's wife and as to which Mr. Lesher shares investment power and 396 shares held pursuant to Harris's Employee Savings Plan. (k) Includes options to purchase 20,001 shares of Harris Common Stock that are currently exercisable; options with respect to 69,999 shares of Harris Common Stock that will become exercisable upon completion of the Transaction; and 815 shares held pursuant to Harris's Employee Savings Plan. (l) Includes options to purchase 158,001 shares of Harris Common Stock that are currently exercisable and options with respect to an additional 423,999 shares of Harris Common Stock that will become exercisable upon completion of the Transaction. (m) Includes 39,000 shares (in the case of Mr. Siegel) or 13,800 shares (in the case of Mr. Dunleavey) of Harris Common Stock that will be received by them as a performance award subject to restrictions, which restrictions will lapse upon consummation of the Transaction. Includes 78,000 shares (in the case of Mr. Siegel) and 13,800 shares (in the case of Mr. Dunleavy) of Harris Common Stock that will be received by them in connection with their non-competition agreements upon consummation of the Transaction. See "THE PROPOSED TRANSACTION -- Interests of Certain Persons in the Transaction" and "CERTAIN INFORMATION REGARDING HARRIS -- Compensation Plans." * Less than 1% of the outstanding Harris Common Stock. Section 16(a) of the Exchange Act requires Harris's officers and directors and persons who beneficially own more than ten percent of a registered class of Harris's equity securities ("ten percent shareholders"), to file reports of ownership of Harris's securities and changes in such ownership with the Commission and the National Association of Securities Dealers, Inc. Officers, directors and ten percent shareholders are required by the Commission's regulations to furnish Harris with copies of all Section 16(a) forms they file. Based solely upon its review of copies of such filings received by it and written representations from certain reporting persons that no Form 5 was required for those persons, Harris believes that during its fiscal year ended September 30, 1995 all filing requirements applicable to its officers, directors and ten percent shareholders were satisfied. 151 157 PERFORMANCE GRAPH The following graph shows Harris's cumulative total return to shareholders compared to Standard & Poor's 500 Index, and the Self-determined Peer Group (defined below) over the period from October 10, 1994, the first day that Harris was traded publicly, and the end of fiscal year 1995, based upon an initial investment of $100. Total shareholder return assumes dividend reinvestment. The stock performance shown on the following graph is not indicative of future price performance. The Self-determined Peer Group includes Concurrent Computer Corporation, Data General Corp., Digital Equipment Corp., Encore Computer Corp., Sequent Computer Systems Inc., Silicon Graphics Inc., and Tandem Computers Incorporated. COMPARISON OF ONE-YEAR CUMULATIVE TOTAL RETURN AMONG HARRIS, S&P 500, AND PEER GROUP
Oct-94(1) June-95(2) Sept-95 --------- ---------- ------- Harris $100 $157.14 $192.86 S&P 500 $100 $141.83 $150.29 Peer Group $100 $141.14 $139.81
(1) Assumes an initial investment of $100 on October 10, 1995. Total return assumes reinvestment of dividends. (2) During fiscal year 1995, Harris changed its year-end to September 30. 152 158 HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Six Month Period Ended March 30, 1996 Compared to the Six Month Period Ended March 31, 1995 Net Sales. Net sales were lower in the six month period ended March 30, 1996 compared to the same period ended March 31, 1995. Overall, net sales were $25.6 million for the six months ended March 30, 1996 compared to $27.8 million for the period ended March 31, 1995. The net sales for the 1995 quarter were favorably impacted by a $2.5 million sale to Lukon, a Russian company ("Lukon"), and Harris's joint venture partner. Harris is currently working on a payment plan with Lukon. Product sales were $1.9 million lower in the six months ended March 30, 1996 as compared to the same period in 1995. Comparatively lower product sales resulted from the Russian shipment described above, impacting the 1995 sales offset by an increase in Trusted shipments of $1.0 million. Night Hawk sales decreased to $18.2 million from $19.4 million for the quarter ended March 31, 1995. Proprietary sales decreased to $.7 million from $1.4 million for the six months ended March 31, 1995. Maintenance sales decreased by $0.3 million in the six months ended March 30, 1996 as compared to the same period in 1995. These decreases in maintenance revenue and proprietary sales reflect the continuing downward trend experienced by Harris over the last few years in these revenue categories. International sales were $6.8 million for the six month period ending March 30, 1996, a decrease of $1.6 million from the same period in 1995. This decrease is the result of a $2.5 million sale to Lukon in 1995 and a slow down of sales by the French subsidiary as the French government's slow down of spending impacted the operation, offset by increased international Trusted sales. Domestic sales decreased $.5 million to $18.8 million as a result of decreasing maintenance sales. Real-time product sales were $14.7 million for the six months ended March 30, 1996 compared to $17.5 million for the same period in 1995. The $2.5 million decrease was due to the non-repeatability of the Lukon order discussed above. Trusted product sales were $4.2 million for the six month period ended March 30, 1995 compared to $3.4 million for the same period in 1996. The 1996 sales were to 63 customers whereas the 1995 sales included an order of $1.9 million to one customer. The 1996 sales were 74% commercial (non-US government) compared to 35% for the same period in 1995. Gross Income. Gross income as a percent of sales decreased to 47.9% from 52.1% for the same period in 1995. Gross income decreased by $2.2 million for the current period. This was the result of decreased sales and an increase in CyberGuard shipments as described above because CyberGuard products have lower gross margins. Net Income. Expenses increased by $1.1 million to $15.6 million for the current period compared to the six month period ended March 31, 1995. The increase is the result of the $.8 million charge for costs associated with the Transaction and an increase in sales and marketing expense to market the CyberGuard product. The decrease in Harris's sales as described above and the increase in expenses resulted in a decrease in income to a loss of $3.3 million compared to a profit of $0.2 million for the six month 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 $45.1 million for fiscal year 1995 from $64.6 million for fiscal year 1994. During fiscal year 1995, net product sales were $31.2 million as compared to $50.1 million for fiscal year 1994. Fiscal year 1995 net sales attributable to real-time open systems were $26.4 million as compared to $37.0 million for fiscal year 1994. Management believes that approximately $5.7 million of the decrease in revenue from real-time open systems was the result of the completion and delivery of 5800 Series computers ordered by customers in fiscal year 1993 but shipped in fiscal year 1994. During this time period, Harris 153 159 experienced delays in receiving acceptable Motorola 88110 microprocessor chips, which are essential to the 5800 Series computers. As a result of these delays, during fiscal year 1993 Harris shipped 4800 Series computers to customers that desired ultimately to acquire 5800 Series computers. Pending the delivery of the 5800 Series, these customers accepted delivery of, paid for and used the 4800 Series computers. Harris did not recognize income from the sale of these computers, however, until the shipment of the 5800 Series microprocessor boards during fiscal year 1994. During fiscal year 1995, Harris also experienced a slow down in real-time product sales due to the inability of IBM to complete a secondary cache chip. As discussed above, Harris has developed its own secondary cache using chips available from multiple sources. Other than as discussed herein, Harris has not experienced delays in commercializing announced products. In addition, Harris was not successful in moving its real-time products to a more commercial focus and as such experienced the delays inherent in the government markets. Fiscal year 1995 net sales attributable to real-time proprietary systems, reflecting sales for replacement or add-on parts for Harris's installed base of proprietary systems, were $3.3 million as compared to $4.3 million for fiscal year 1994. This continues the trend of more customers moving from "proprietary systems" to "open systems." Harris does expect the introduction of the PowerPC technology to result in increased net sales for fiscal year 1996. Customers demand the latest technology and the ability to easily upgrade existing systems as more advanced components are developed; therefore, the PowerPC technology is expected to replace, to a large extent, Harris's existing systems. Part of the shortfall in revenue for fiscal year 1995 was due to the inability to complete the Night Hawk 6800 product. Harris's ability to maintain or to increase present levels of sales will depend in part on market acceptance of the PowerPC technology. See "CERTAIN INFORMATION REGARDING HARRIS". Accordingly, to the extent that such technology is not accepted by the marketplace, Harris's net sales would be materially adversely affected. See "SPECIAL FACTORS -- Competition" and "-- Limited Sources of Supply." Net sales of trusted systems decreased to $4.8 million for fiscal year 1995 from $8.9 million for fiscal year 1994. This decrease relates in part to a significant order of $4.9 million by one customer. Shipments under this contract were completed during fiscal year 1994. Harris did not sell its trusted systems to non-government customers during fiscal year 1994 or prior, but intends to utilize its expertise in the government sector in order to take advantage of opportunities it expects to arise from the projected increase in commercial demand for trusted computer systems, particularly in the health care, manufacturing, financial services and professional services industries. See "CERTAIN INFORMATION REGARDING HARRIS -- Markets." Harris believes that demand for its trusted systems should increase in the future, especially as commercial users shift from centralized (i.e., mainframe) computing to decentralized (i.e., local area network, wide area network) computing. This shift in trusted systems to a more commercial focus was begun in fiscal year 1995 and sales in the firewall area grew from almost none in fiscal year 1994 to $2.0 million in fiscal year 1995. Although Harris believes that its trusted systems division is reasonably well positioned to take advantage of this growing market, given the emerging nature of the this market, no assurances can be given that Harris will be able to market and service its trusted systems products effectively or that the products will be competitive as to price and security features. See "SPECIAL FACTORS -- Harris's Limited Operating History in Trusted Market; Unpredictability of Operating Results." Maintenance revenue decreased to $13.6 million for fiscal year 1995 from $14.5 million for fiscal year 1994. This decrease was principally a result of the shift in market demand to open systems. Harris's open systems require less maintenance as compared to proprietary systems, and open systems can, in many cases, be serviced by the customers themselves. Maintenance revenues are also declining as Harris's installed base of proprietary systems reaches the end of its useful life. Management expects maintenance revenue to stabilize in fiscal year 1996. During fiscal year 1995, Harris's net product sales to agencies of the United States government and their prime contractors were $14.6 million and maintenance revenue was $8.4 million. During fiscal year 1994, the comparable net product sales were $25.7 million and the comparable maintenance revenue was $7.4 million. During fiscal year 1995, Harris's net product sales to the United States Department of Defense or to other contractors for integration into systems for the Department of Defense were $13.2 million and maintenance revenue was $1.0 million. During fiscal year 1994, the comparable Department of Defense net product sales 154 160 were $13.9 million and maintenance revenue was $2.5 million. During fiscal year 1995, net product sales to the United States government agencies and their contractors that were not defense related were $1.4 million and maintenance revenue was $7.4 million. During fiscal year 1994, the comparable non-defense related net product sales were $11.9 million and maintenance revenue was $4.9 million. Management believes these decreases in United States government-related net product sales are in part attributable to the revenue from the 5800 product Series computers ordered in fiscal year 1993 but shipped in fiscal year 1994, as presented above. These decreases also reflect the completion of one government contract during fiscal year 1994 and the reduction of sales under two other contracts during fiscal year 1995 as they move toward completion. International net sales decreased to $11.9 million for fiscal year 1995 from $16.8 million for fiscal year 1994. This decrease is attributable principally to the completion during fiscal year 1994 of a trusted systems contract with a government contractor in the U.K., which had resulted in $4.9 million of revenue during fiscal year 1994. Domestic net product sales decreased to $21.3 million for fiscal year 1995 from $35.1 million for fiscal year 1994 and domestic maintenance revenue decreased to $11.9 million for fiscal year 1995 from $12.8 million for fiscal year 1994. Management believes this decrease in net product sales in part reflects the delay, until 1994, in shipments of 5800 Series computers due to the delay in receiving acceptable Motorola 88110 microprocessor chips, as described above. In addition, revenue was lower in fiscal year 1995 due to the production delays with respect to the Night Hawk 6800 product as described above and the slow rate of expansion of revenues in the commercial market. Maintenance revenues declined principally due to the shift in Harris's product mix to open systems as discussed above. Gross Margin. Gross margin for sales and rentals decreased to 40.5% in fiscal year 1995 from 54.4% in fiscal year 1994 as a result of decreased sales of Night Hawk Series computers and $2.4 million of inventory reserve taken. Gross margins for sales of trusted systems was 34.8% in fiscal year 1995. Gross margins for Night Hawks with trusted systems are the same as Night Hawks without the trusted features. However, gross margins for trusted systems declined with the introduction during fiscal year 1995 of Harris's CyberGuard product. The gross margin for CyberGuard products is smaller than for Night Hawks, primarily because CyberGuard customers do not require CyberGuard's real-time capabilities. Accordingly, although Harris's CyberGuard products have real-time capabilities, Harris prices the CyberGuard to be more in line with its competitors' prices for firewalls without real-time capabilities. Service and maintenance gross margins increased to 48.2% from 42.1% as a result of decrease in expenses as the product mix of service moves more to the open system Night Hawk computer. Open systems are generally more reliable and therefore require less service. International maintenance revenue increased, which also resulted in improved gross margins. Indirect Expenses. Research, development, marketing, administrative and general expenses for fiscal year 1995 increased by $4.4 million as Harris invested to introduce its trusted product in the commercial market. Harris also booked a reserve of $1.3 million for a shipment made to Lukon, a Russian corporation, and Harris's joint venture partner. Harris is currently working on a payment plan with Lukon. Net Income (Loss). Net loss for fiscal year 1995 was $11.1 million compared to a profit of $4.4 million for fiscal year 1994. The decrease was principally the result of the decrease in revenue experienced during fiscal year 1995. Additions to the reserves for inventory and doubtful accounts accounted for $4.0 million of the loss. See "-- Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994 -- Net Sales." Harris received interest income of $0.5 million on its cash and marketable securities compared to a slight charge for fiscal year 1994. Harris paid no income taxes during fiscal year 1995 and is currently operating with a tax loss carryforward in all of its operations. Change in Fiscal Year. Harris changed its fiscal year end from June 30 to September 30 effective the year beginning October 1, 1994. Revenue for the three months ending September 30, 1994 was $7.7 million. Sales were lower than expected due in part to the protracted nature of the spin-off from Harris Corporation and its effects on product sales focus by management. 155 161 The loss after tax for the period was $7.6 million compared to a profit of $375,000 for the quarter ended September 30, 1993. The loss for the period was impacted by a $1.3 million charge for restructuring, $2.5 million pre-tax and $2.4 million of after-tax charges for expenses relating to the spin-off from Harris Corporation and a $1.7 million charge in connection with the repatriation of cash from Harris's German subsidiary. Fiscal Year Ended June 30, 1994 Compared to Fiscal Year Ended June 30, 1993 Net Sales. Net sales increased to $64.6 million for fiscal year 1994 from $55.5 million for fiscal year 1993. During fiscal year 1994, net product sales were $50.1 million as compared to $39.4 million for fiscal year 1993. Fiscal year 1994 net sales attributable to real-time open systems were $37.0 million as compared to $29.0 million for fiscal year 1993. The increase in revenue from real-time open systems was the result of the delayed completion and delivery of 5800 Series computers ordered by customers in fiscal year 1993 but shipped in fiscal year 1994 as described above. Fiscal year 1994 net sales attributable to real-time proprietary systems, reflecting sales for replacement or add-on parts for Harris's installed base of proprietary systems, were $4.3 million as compared to $4.2 million for fiscal year 1993. Net sales of trusted systems increased to $8.9 million for fiscal year 1994 from $6.2 million for fiscal year 1993. This increase relates in part to a significant order of $4.9 million by one customer. Shipments under this contract were completed during fiscal year 1994. Harris did not sell its trusted systems to non-government customers during 1994 or prior. See "CERTAIN INFORMATION REGARDING HARRIS -- Markets." Maintenance revenue decreased to $14.5 million for fiscal year 1994 from $16.1 million for fiscal year 1993. This decrease was principally a result of the continuing shift in market demand to open systems, which require less maintenance and support as compared to proprietary systems. Maintenance revenues are also declining as Harris's installed base of proprietary systems reaches the end of its useful life. See "CERTAIN INFORMATION REGARDING HARRIS -- Maintenance." During fiscal year 1994, Harris's net product sales to agencies of the United States government and their prime contractors were $25.7 million and maintenance revenue was $7.4 million. During fiscal year 1993, the comparable net product sales were $15.4 million and the comparable maintenance revenue was $8.6 million. During fiscal year 1994, Harris's net product sales to the United States Department of Defense or to other contractors for integration into systems for the Department of Defense were $13.9 million and maintenance revenue was $2.5 million. During fiscal year 1993, the comparable Department of Defense net product sales were $1.0 million and maintenance revenue was $3.2 million. The increase in net product sales to the Department of Defense and related contractors is attributed to two factors. First, Harris increased its sales of trusted products as a result of the NCSC B1-level certification of these products. Second, the increase stems from the completion and delivery of the 5800 Series computers ordered in fiscal year 1993 but shipped in fiscal year 1994. During fiscal year 1994, net product sales to the United States government agencies and their contractors that were not defense related were $11.9 million and maintenance revenue was $4.9 million. During fiscal year 1993, the comparable non-defense related net product sales were $14.4 million and maintenance revenue was $5.4 million. This decrease reflects the completion of one government contract and the cancellation of another. International net sales increased to $16.8 million for fiscal year 1994 from $14.7 million for fiscal year 1993. This increase was attributable principally to increased sales in France and Asia. Domestic net product sales increased to $35.1 million for fiscal year 1994 from $26.2 million for fiscal year 1993 and domestic maintenance revenue decreased to $12.8 million for fiscal year 1994 from $14.6 million for fiscal year 1993. The increase in net product sales was due to the completion and delivery of the 5800 Series computers ordered in fiscal year 1993 but shipped in fiscal year 1994. The decrease in maintenance revenue was attributable to the factors described above. Gross Margin. Gross margin for sales and rentals increased to 54.4% in fiscal year 1994 from 48.7% in fiscal year 1993 as a result of increased sales of Night Hawk 5800 Series computers having higher gross margins. Harris believes this increase in gross margin is an aberration that arose from the delays until 1994 of 156 162 recognizing revenues from sales of 5800 Series computers ordered in fiscal year 1993 but shipped in fiscal year 1994. Historically, Harris's gross margins have been relatively stable, primarily because Harris and its competitors price their products based on product characteristics and service and not through discounting or other pricing policies. Service and maintenance gross margins increased to 42.1% from 40.1% as a result of decreased start up expenses for the Night Hawk 5800 Series computers. Indirect Expenses. Research, development, marketing, administrative and general expenses for fiscal year 1994 remained relatively constant, both in absolute dollars and as a percentage of net sales as compared to fiscal year 1993. Other indirect expense (referred to in Harris's Consolidated Financial Statements as "Harris Corporate Expense Allocation") represented the historic charges by Harris Corporation to Harris for Harris's proportionate share of legal, financial and other administrative expenses. Net Income (Loss). Net income for fiscal year 1994 increased to $4.4 million from a loss of $0.5 million for fiscal year 1993. Fiscal year 1994 operating profit attributable to domestic operations increased to $3.8 million from a loss of $2.3 million in fiscal year 1993. As described above, the increase was principally the result of recognizing revenue during fiscal year 1994 from upgrades of the 4800 Series computers to 5800 Series computers that were ordered in fiscal year 1993. Management believes that operating profit attributable to domestic operations would have increased to break even in fiscal year 1993 but for such recognition of revenue. The increase in net income is also due to an increase in operating profit attributable to European operations of $1.0 million for fiscal year 1994 from $0.3 million for fiscal year 1993. That increase is the result of increasing product revenues and decreasing costs relating to European operations. The increase in profitability also offset a decrease in tax benefit of $2.6 million from fiscal year 1993 to fiscal year 1994. The fiscal year 1994 results include an after-tax adjustment of approximately, $.1 million reflecting Harris Corporation's adoption of Statement of Financial Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Harris has not incurred any substantial expense for interest during any of the periods under consideration. Interest expense results from direct borrowings of the business. See "-- Liquidity and Capital Resources". Impact of Foreign Exchange. Harris's international sales are accomplished in the currency of the customer, typically French francs, British pounds and German marks, which exposes Harris to fluctuations in foreign currency exchange rates and to other material risks associated with international operations. Harris has not in the past suffered a material adverse impact from currency fluctuations for any of the periods under consideration. Harris's risk from such activities has been reduced because Harris has been able to pay the expenses of its international operations in local currency, which has lessened the need for conversion into United States dollars. In addition, Harris utilizes exchange rate agreements with customers and foreign currency hedging instruments to minimize the currency risks of international transactions. Gains and losses resulting from currency rate fluctuations did not have a material effect on Harris's results of operations in fiscal years 1995, 1994 or 1993, but Harris's risk in this regard may increase as Harris's international sales increase in volume and geographical distribution. The impact of translating the assets and liabilities of these operations to United States dollars is included as a component of business equity. At September 30, 1995, the cumulative translation adjustment reduced business equity by approximately $0.5 million, compared to a decrease of approximately $1.9 million at June 30, 1994 and an increase of $266,000 at June 30, 1993. LIQUIDITY AND CAPITAL RESOURCES Harris had cash and cash equivalents on hand of $1.3 million as of March 30, 1996, representing a decrease of $7.0 million from $8.3 million as of September 30, 1995. Accounts receivable increased by $5.3 million as a result of increased sales and slow collections internationally, especially in France. Inventory decreased by $2.7 million as inventory reduction programs take effect. Machinery and equipment remained flat as cash conservation programs offset the purchases required for demo equipment required for the new products. Capitalized software increased by $1.4 million as Harris increased development spending in conjunction with the February release of its enhanced trusted product offering for the CyberGuard. 157 163 To date, Harris's cash requirements have been funded from its working capital and operating cash flow. Harris has no outstanding bank borrowings or long-term debt. Its principal sources of liquidity at March 30, 1996 consisted of cash, accounts and notes receivable and vendor trade credit. As a result of the Transaction, it is expected that cash flows from operations will be insufficient to satisfy Harris's ongoing cash requirements. The future liquidity of Harris will be affected by numerous factors, including sales volumes, gross margins, the levels of selling, general and administrative expenses required to fully implement Trusted systems product sales to commercial customers, levels of required capital expenditures, and access to external sources of financing. On April 1, 1996, Harris entered into a line of credit of up to $5.0 million with Foothill Capital Corporation. The line of credit allows for the borrowing of up to 80% of eligible domestic accounts receivables. The line is backed by all the domestic assets of Harris. The line of credit will terminate upon the consummation of the Transaction. Management expects to undertake an underwritten public offering of Harris Common Stock that may be effected shortly after the consummation of the Transaction. There can be no assurance that any public offering will be undertaken or that, if undertaken, that such offering will be successful. If such an offering is undertaken, such offering will be registered pursuant to the Securities Act, may include shares of Harris Common Stock to be issued to Concurrent pursuant to the Transaction and certain other selling shareholders, and will be made only by means of a prospectus meeting the requirements of state and federal securities laws. This is not such a prospectus. Harris expects to realize certain charges in the quarter ending June 30, 1996. Expenses associated with the Transaction for the six months ended March 30, 1996 were $.8 million. In the quarter ending June 30, 1996, Harris estimates that it will incur approximately an additional $1.4 million in expenses related to the Transaction; approximately $0.4 million in charges related to stock grants; approximately $2.8 million in charges to write-off capitalized software; and a loss of approximately $8.5 million on the Transaction (based on an assumed market price of Concurrent Common Stock of $2.50 per share). In addition, Harris will report approximately 23% of any losses reported by Concurrent in the same period. After consummation of the Transaction, a principal source of liquidity will be the Concurrent Common Stock Consideration and the Concurrent Preferred Stock. Harris may obtain a line of credit that is likely to be secured by all of its assets (including such Concurrent securities). Additionally, immediately following the Transaction, Harris intends to sell a portion of the Concurrent Common Stock. Harris does not intend to be a long-term holder of the remaining Concurrent securities. Harris'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 "TERMS OF THE TRANSACTION -- The Share Holding Agreement." These limitations and conditions may affect Harris's flexibility in generating cash through sales of the Concurrent Common Stock Consideration and the Concurrent Preferred Stock and may require Harris 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 Harris's control, such as general market conditions and changes in the business, operations or prospects of Concurrent. If adequate funds are not available, Harris 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 Harris on acceptable terms, Harris believes that the proceeds from sales or pledges of the Concurrent securities and any additional financing will be sufficient to satisfy Harris's operations and capital requirements for the foreseeable future. INFLATION Inflation has not significantly impacted Harris's operations. 158 164 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Harris has engaged KPMG Peat Marwick LLP as its independent accountants. Ernst & Young LLP ("Ernst & Young") had been engaged by Harris Corporation, Harris's former corporate parent, to audit the financial statements of Harris in connection with the Distribution. The report of Ernst & Young, which contains no adverse opinion or a disclaimer of opinion, or qualification as to uncertainty, audit scope, or accounting principles, appears in Harris's Registration Statement on Form 10 effective September 19, 1994. As an independent corporation, Harris declined to engage Ernst & Young as its independent auditors. The Harris Board approved the engagement of KPMG on November 11, 1994. In connection with the audits of the financial statements of Harris for each of the two years ended June 30, 1994, and in the subsequent interim period, no disagreements existed between Harris and Ernst & Young on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if not resolved to the satisfaction of Ernst & Young, would have caused it to make reference to the subject matter of the disagreement in connection with its report. Harris has requested Ernst & Young to furnish it a letter addressed to the Commission stating whether it agrees with the above statements. A copy of Ernst & Young's letter dated November 14, 1994 was filed as an exhibit to Harris's Current Report on Form 8-K dated November 13, 1994. OTHER MATTERS As of the date of this Joint Proxy Statement, the Harris and Concurrent Boards do not know of any other matters to be presented for action by the shareholders at the Special Meetings. If, however, any other matters not now known are properly brought before the Harris and Concurrent Special Meetings, the proxy holders will vote upon the same according to their discretion and best judgment. DATE FOR SUBMISSION OF PROPOSALS OF HARRIS SHAREHOLDERS Proposals of Harris shareholders must be received on or before January 21, 1997 to be considered for inclusion in the proxy statement and for presentation at the annual meeting of Harris shareholders to be held in 1997. 159 165 HARRIS COMPUTER SYSTEMS, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors Report........................................................... F-2 Report of Independent Certified Public Accountants.................................... F-3 Consolidated Balance Sheets -- as of September 30, 1995, 1994 and March 30, 1996 (unaudited)......................................................................... F-4 Consolidated Statements of Operations -- Year Ended September 30, 1995; and the three months ended September 30, 1994, and the six months ending March 30, 1996 and March 31, 1995 (unaudited)................................................................ F-5 Consolidated Statements of Cash Flow -- Year Ended September 30, 1995; and the three months ended September 30, 1994, and the six months ending March 30, 1996 and March 31, 1995 (unaudited)................................................................ F-6 Consolidated Statements of Shareholders' Equity....................................... F-7 Notes to Consolidated Financial Statements............................................ F-8 Consolidated Balance Sheet Information -- as of September 30, 1995.................... F-17 Consolidated Statement of Operations Information -- Year Ended September 30, 1995..... F-18 Notes to Consolidated Financial Information........................................... F-19 Combined Statements of Operations -- Year Ended June 30, 1994 and June 30, 1993....... F-20 Consolidated Statements of Cash Flows -- Year Ended June 30, 1994 and June 30, 1993... F-21 Notes to Financial Statements of Harris Computer Systems Business..................... F-22
F-1 166 INDEPENDENT AUDITOR'S REPORT The Board of Directors Harris Computer Systems Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Harris Computer Systems Corporation and subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year ended September 30, 1995 and the three months ended September 30, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Harris Computer Systems Corporation and subsidiaries as of September 30, 1995 and 1994, and the results of their operations and their cash flows for the year ended September 30, 1995 and the three months ended September 30, 1994 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The combining information is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. KPMG PEAT MARWICK LLP November 3, 1995, except as to the stock split noted in note 2, which is as of March 18, 1996 and to note 15, which is as of March 26, 1996 Miami, Florida F-2 167 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Harris Corporation: We have audited the accompanying combined statements of operations and cash flows of the Harris Computer Systems Business for each of the two years in the period June 30, 1994. These financial statements are the responsibility of the Business' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined results of operations and cash flows of Harris Computer Systems Business for the years ended June 30, 1994 and 1993 in conformity with generally accepted accounting principles. As discussed in Note E to the financial statements, effective July 1, 1993 the Business changed its method of accounting for postretirement benefits other than pensions. Ernst & Young LLP Orlando, Florida July 13, 1994 F-3 168 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, -------------------- MARCH 30, 1995 1994 1996 -------- ------- ----------- (UNAUDITED) Cash and cash equivalents.................................. $8,265 $7,649 $1,307 Accounts and notes receivable, less allowance for uncollectible accounts of $1,513 and $213 at September 30, 1995 and 1994, respectively (Note 11)................ 9,994 11,387 15,335 Due from Harris Corporation (Note 6)....................... -0- 6,369 -- Inventories (Note 8)....................................... 9,080 14,078 6,381 Prepaid expenses........................................... 530 1,529 660 -------- ------- -------- Total current assets.................................. 27,869 41,012 23,683 Machinery and equipment, net (Note 10)..................... 5,947 7,493 5,912 Capitalized computer software development costs, less accumulated amortization of $6,870 and $5,565 at September 30, 1995 and 1994, respectively (Note 4)....... 6,734 5,715 8,135 Other assets............................................... 881 709 822 -------- ------- -------- Total assets............................................... $41,431 $54,929 $38,552 ======== ======= ======== Accounts payable........................................... 3,493 4,694 4,565 Deferred revenue........................................... 401 784 628 Accrued expenses (Note 9).................................. 5,441 6,492 4,219 -------- ------- -------- Total current liabilities............................. 9,335 11,970 9,412 Deferred income taxes (Note 7)............................. -- 166 -- -------- ------- -------- Total liabilities..................................... 9,335 12,136 9,412 Shareholders' equity (Note 12) Common stock par value $0.01 authorized 20,000,000 shares; issued and outstanding 5,911,437 shares at September 30, 1995 and 1994, and 5,996,143 shares at March 30, 1996.... 59 59 60 Additional paid in capital............................... 43,662 43,662 44,144 Accumulated deficit...................................... (11,088) -- (14,363) Cumulative translation adjustment.......................... (537) (928) (701) -------- ------- -------- Total shareholders' equity................................. 32,096 42,793 29,140 -------- ------- -------- Total liabilities and shareholders' equity................. $ 41,431 $54,929 $ 38,552 ======== ======= ========
See notes to the accompanying consolidated financial statements F-4 169 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS SIX MONTHS ENDED YEAR ENDED ENDED --------------------------- SEPTEMBER 30, SEPTEMBER 30, MARCH 30, MARCH 30, 1995 1994 1996 1995 ------------- ------------- ----------- ----------- (UNAUDITED) (UNAUDITED) Sales Equipment.............................. $31,184 $4,242 $18,942 $20,848 Maintenance............................ 13,927 3,506 6,622 6,938 --------- --------- --------- --------- 45,111 7,748 25,564 27,786 Cost of sales Equipment.............................. 18,550 3,443 10,051 9,711 Maintenance............................ 7,214 2,023 3,279 3,612 --------- --------- --------- --------- 25,764 5,466 13,330 13,323 Gross profit............................. 19,347 2,282 12,234 14,463 Operating expenses Research and development............... 7,903 1,517 3,580 3,890 Selling, general and administrative.... 22,984 4,836 11,266 10,582 Restructuring (Note 6)................. -- 1,256 -- -- Transaction costs relating to spin off (Note 6)............................ -- 2,500 820 -- --------- --------- --------- --------- Total other operating expenses...... 30,887 10,109 15,666 14,472 --------- --------- --------- --------- Operating loss........................... (11,540) (7,827) (3,432) (9) Interest income (expense), net........... 456 (69) 155 207 Other income (expense), net.............. (4) (72) 2 25 --------- --------- --------- --------- 452 (141) 157 232 Net income (loss) before income tax provision (benefit).................... (11,088) (7,968) (3,275) 223 Income tax provision (benefit)........... -- (378) -- 8 --------- --------- --------- --------- Net income (loss)........................ (11,088) (7,590) (3,275) 215 Earnings (loss) per common share......... $(1.88) $(1.28) $(0.55) $0.04 ========= ========= ========= ========= Weighted average number of shares outstanding............................ 5,911,437 5,911,437 5,924,287 5,911,437 ========= ========= ========= =========
See notes to the accompanying consolidated financial statements F-5 170 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (DOLLARS IN THOUSANDS)
THREE MONTHS SIX MONTHS ENDED YEAR ENDED ENDED --------------------------- SEPTEMBER 30, SEPTEMBER 30, MARCH 30, MARCH 30, 1995 1994 1996 1995 ------------- ------------- ----------- ----------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities Net income (loss)...................... $ (11,088) $(7,590) $(3,275) $215 Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................... 3,446 1,134 1,389 2,005 Amortization........................... 1,305 326 1,066 653 Compensation expense................... -- -- 321 -- Deferred income taxes.................. (166) (1,075) -- 1,414 Changes in assets and liabilities Receivables......................... 1,393 12,333 (5,341) (6,351) Due from Harris Corporation......... 6,369 (6,369) -- 6,386 Inventories......................... 4,998 (863) 2,699 1,893 Accounts payable.................... (1,201) 2,142 1,073 (822) Accrued expenses.................... (1,051) 1,502 (1,222) (2,422) Deferred revenue.................... (383) (344) 227 336 Prepaid expenses and other assets... 827 (510) -- -- Other............................... 391 257 (235) 596 -------- ------- ------- ------- Net cash provided (used) by operating activities............................. 4,840 943 (3,298) 3,903 -------- ------- ------- ------- Cash flows from investing activities Additions to machinery and equipment... (1,900) (1,151) (1,354) (1,281) Software development costs.......... (2,324) (569) (2,467) (854) -------- ------- ------- ------- Net cash used by investing activities.... (4,224) (1,720) (3,821) (2,135) -------- ------- ------- ------- Cash flows from financing activities Issuance of common stock............... -- -- 161 0 -------- ------- ------- ------- Net cash provided by financing activities............................. -- -- 161 0 ======== ======= ======= ======= Net increase (decrease) in cash and cash equivalents............................ 616 (777) (6,958) 1,768 Cash and cash equivalents at beginning of the period............................. 7,649 8,426 8,265 7,649 -------- ------- ------- ------- Cash and cash equivalents at end of the period................................. $8,265 $7,649 $1,307 $9,417 ======== ======= ======= =======
See notes to the accompanying consolidated financial statements F-6 171 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK $.01 PAR VALUE ADDITIONAL CUMULATIVE NET ------------------ PAID IN ACCUMULATED TRANSLATION INVESTMENT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT BY HARRIS TOTAL --------- ------ ---------- ----------- ----------- ---------- ------- Balance June 30, 1994............ -- -- -- -- (1,185) 51,311 50,126 Net loss to distribution date (Note 1).................. -- -- -- -- -- (7,590) (7,590) Issuance of common stock to Harris Corporation's shareholders................... 5,911,437 $ 59 43,662 -- -- (43,721) -- Translation adjustments.......... -- -- -- -- 257 -- 257 --------- --- ------- -------- ------- ------- -------- Balance September 30, 1994....... 5,911,437 $ 59 43,662 -- (928) -- 42,793 Net loss......................... -- -- -- (11,088) -- -- (11,088) Translation adjustments.......... -- -- -- -- 391 -- 391 --------- --- ------- -------- ------- ------- -------- Balance September 30, 1995....... 5,911,437 $ 59 43,662 (11,088) (537) -- 32,096 Issuance of common stock (unaudited).................... 84,706 1 482 -- -- -- 483 Net loss (unaudited)............. -- -- -- (3,275) -- -- (3,275) Translation adjustments (unaudited).................... -- -- -- -- (164) -- (164) --------- --- ------- -------- ------- ------- -------- Balance March 30, 1996 (unaudited).................... 5,996,143 $ 60 44,144 (14,363) (701) -- 29,140 ========= === ======= ======== ======= ======= ========
See notes to the accompanying consolidated financial statements F-7 172 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1. ORGANIZATION OF THE COMPANY Harris Computer Systems Corporation and Subsidiaries (the "Company") became an independent company effective September 29, 1994 (the "Distribution Date") when Harris Corporation ("Harris") spun off its Harris Computer Systems Division. The Company develops real-time and multi-level secure computer systems, solutions and software for commercial and government markets. One share of the Company's common stock, together with the associated preferred stock purchase rights (Note 12), was issued for every twenty shares of Harris common stock, outstanding to shareholders of record on October 7, 1994. The terms of the spin-off resulted in net assets of $43,721 being transferred from Harris to the Company. The Company sells products to Harris and its subsidiaries. Sales to these operations were $439 for the year ended September 30, 1995; $644 for the three months ended September 30, 1994. 2. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION -- The consolidated financial statements include those of Harris Computer Systems Corporation and its wholly-owned subsidiaries. All intercompany transactions between entities have been eliminated. INVENTORIES -- Inventories are carried at the lower of cost, determined by the First-In-First-Out (FIFO) method, or market. MACHINERY AND EQUIPMENT -- Machinery and equipment is carried on the basis of cost. Depreciation is computed by the straight-line method using the estimated useful lives of the assets. SOFTWARE DEVELOPMENT COSTS -- The Company capitalizes costs related to the development of certain software products. Capitalization begins when technological feasibility has been established and ends when the product is available for general release to customers. Software development costs incurred prior to technological feasibility are considered research and development costs and are expensed as incurred. Capitalized costs are amortized as the greater of the amount computed using the ratio that current gross revenues for a product bear to the total current and anticipated future gross revenues for that product or the straight-line method. Capitalized software costs are stated net of accumulated amortization of $6,870 and $5,565 at September 30, 1995 and 1994, respectively. REVENUE RECOGNITION -- Revenue is recognized from sales when a product is shipped, from rentals as they accrue, and from services and maintenance when performed. Unearned income on service contracts is amortized by the straight-line method over the term of the contracts. Revenue from long-term software contracts is accounted for by the percentage of completion method whereby income is recognized based on the estimated stage of completion of individual contracts using costs incurred as a percentage of total estimated costs at completion. Losses on long-term contracts are recognized in the period in which such losses are determined. FOREIGN CURRENCY TRANSLATION -- The assets and liabilities of the foreign operations are translated using the local currency as the functional currency. INCOME TAXES -- Prior to the Distribution Date, the Company followed the liability method of accounting for income taxes and was included with its parent, Harris Corporation, in a consolidated federal income tax return. Harris required each of its companies to provide taxes on financial statement pre-tax income or loss at applicable statutory tax rates. Amounts receivable or payable for current and prior years' income taxes were treated as intercompany transactions in accordance with Harris policy and, accordingly, flowed through the net investment by Harris. Deferred income taxes resulting from temporary differences F-8 173 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) between the financial statements and the tax basis of assets and liabilities were separately classified on the balance sheets. For the periods after the Distribution Date, the Company files a consolidated Federal income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes and are accounted for under the asset and liability method as required by the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS No. 109"). FAS No. 109 requires the asset and liability method of accounting for income taxes. Under the asset and liability method, a deferred tax asset or liability is recognized for temporary differences between financial reporting and income tax bases of assets and liabilities, tax credit carryforwards and operating loss carryforwards. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that such deferred tax assets will not be realized. Harris and the Company have entered into a tax disaffiliation agreement based on the principle that Harris will be responsible for all current tax liabilities generated through the Distribution Date with the Company being responsible for all tax liabilities generated after the Distribution Date. CASH EQUIVALENTS -- The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. LOSS PER COMMON SHARE -- Loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the year. Common stock equivalents are excluded due to their anti-dilutive effect. STOCK SPLIT -- On March 5, 1996, the Board of Directors declared a three-for-one common stock split distributable on March 29 to shareholders of record at the close of business on March 18, 1996. All applicable share and per share data have been restated for the stock split. UNAUDITED INTERIM FINANCIAL STATEMENTS -- The consolidated financial statements for the six months ended March 30, 1996 and March 30, 1995 and as of March 30, 1996, are unaudited and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the results for the interim periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes therefore for the periods ended September 30, 1994 and 1995. The results of operations for the six months ended March 30, 1996 are not necessarily indicative of the results for the entire fiscal year ending September 30, 1996. F-9 174 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 3. CHANGE IN FISCAL YEAR The Company changed its fiscal year end from June 30, to September 30, effective in the year beginning October 1, 1994. The three-month transition period ended September 30, 1994, is presented within the body of the Company's basic financial statements. Comparative condensed income statement data is shown as follows:
THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1994 1993 ------------------ ------------------ (UNAUDITED) Sales............................................. $7,748 $14,160 -------- ------- Gross margin...................................... 2,282 7,131 -------- ------- Income (loss) before income taxes................. (7,968) 378 Income tax provision (benefit).................... (378) 3 -------- ------- Net earnings (loss)............................... $(7,590) $375 ======== =======
4. SOFTWARE DEVELOPMENT COSTS Software development costs capitalized were $2,324 in 1995 and $569 for the three months ended September 30, 1994. Software amortization expenses were $1,305 in 1995 and $326 for the three months ended September 30, 1994. 5. LEASE COMMITMENTS Rent expense was $1,814 for the year ended September 30, 1995 and $478 for the three months ended September 30, 1994, including $828 and $238, respectively, to Harris. Total future minimum rental commitments under non-cancelable operating leases, primarily for land, buildings and equipment, for the years following September 30, 1995 are: 1996 - $756; 1997 - $351; 1998 - $103; 1999 - $64; 2000 - $64; and 2001 and thereafter - $64. 6. RESTRUCTURING CHARGES AND SPIN-OFF COSTS Restructuring charges of $1,256 were accrued for during the period ended September 30, 1994, due to significant workforce reduction actions which were taken to streamline and centralize the Company's operations. The number of employees terminated under this plan was 44. All amounts accrued have been paid as of September 30, 1995. Costs associated with the spin-off totaled $2.5 million. These costs relate to investment banking, legal and public accounting fees, and employee retention and incentive costs incurred directly related to the spin-off. The net settlement amount for the spin-off of $6,369, which is due from Harris Corporation at September 30, 1994 has been included on the Company's balance sheet. Costs associated with the sale of the real-time business to Concurrent Computer Corporation were $820 for the six months ended March 30, 1996. Total costs for the transaction are estimated to be $2.2 million (unaudited). F-10 175 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 7. INCOME TAXES The provision (benefit) for income taxes is as follows:
YEAR ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 ------------- ------------------ Current: United States...................................... -- (1,833) International...................................... -- -- State and local.................................... -- (157) Tax on dividend from German subsidiary............. -- 1,739 --- ------- Current Total........................................ -- (251) Deferred: United States...................................... -- (127) International...................................... -- -- State and local.................................... -- --- ------- Total................................................ -- (378) === =======
The components of deferred income tax assets (liabilities) are as follows:
SEPTEMBER 30, ------------------ 1995 1994 ------ ------- Inventory valuations.............................................. 1,705 1,209 Depreciation...................................................... (247) (501) Capitalized software.............................................. (2,357) (2,000) Restructuring costs............................................... 24 391 Accrued vacation.................................................. 259 302 Net operating losses.............................................. 4,288 1,477 All other -- net.................................................. 198 433 Valuation allowance............................................... (3,870) (1,477) ------ ------ Net deferred income tax liability................................. -- (166) ====== ======
A reconciliation of the effective income tax rate and the statutory United States income tax rate follows:
YEAR ENDED THREE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30, 1995 1994 ------------- ------------------ Statutory U.S. income tax rate....................... (34.0%) (34.0%) State taxes.......................................... -- (1.9%) Capitalized restructuring costs...................... -- 9.3% Operating loss carryforwards......................... 32.2% -- Payment of tax to Parent on German dividend.......... -- 21.8% Other items.......................................... 1.8% .1% ----- ----- Effective income tax rate............................ -0- (4.7%) ===== =====
F-11 176 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Prior to the Distribution Date, United States income taxes had not been provided on the undistributed earnings of international subsidiaries because Harris had intended to reinvest these earnings. If the Company distributes international earnings, a U.S. tax would be provided in future periods. As of September 30, 1995, the Company does not intend to distribute international earnings; therefore, no U.S. tax has been projected. The determination of the amount of these undistributed earnings and any related unrecognized deferred U.S. tax liability is not practicable. As of September 30, 1995, the Company has U.S. net operating loss carryforwards of approximately $8 million. The Company's net operating loss carryforwards begin to expire in 2010. At September 30, 1995, the Company had net European income tax loss carryforwards of approximately $4 million. Loss carryforwards are available for specified periods of time and have been offset by valuation allowances. Pretax income (loss) from European operations was $(3,136) for the year ended September 30, 1995 and ($664) for the three months ended September 30, 1994. 8. INVENTORIES Inventories consists of the following:
SEPTEMBER 30, ------------------- 1995 1994 ------- ------- Finished goods................................................... 356 333 Work in process.................................................. 7,416 11,409 Raw materials.................................................... 5,702 5,483 ------ ------ 13,474 17,225 Reserves for obsolete and slow-moving inventory.................. (4,394) (3,147) ------ ------ Net inventory.................................................... 9,080 14,078 ====== ======
9. ACCRUED EXPENSES Accrued expenses consists of the following:
SEPTEMBER 30, ----------------- 1995 1994 ------ ------ Retirement plan accruals........................................... 1,396 1,313 Salaries, wages and other compensation............................. 2,613 3,479 Accrued interest and sundry taxes.................................. 706 1,093 Other.............................................................. 726 607 ----- ----- 5,441 6,492 ===== =====
F-12 177 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 10. MACHINERY AND EQUIPMENT, NET Machinery and equipment, net is summarized as follows:
SEPTEMBER 30, --------------------- ESTIMATED USEFUL 1995 1994 LIFE (IN YEARS) -------- -------- ---------------- Buildings and leasehold improvements........... 96 86 3 - 5 Machinery and equipment........................ 25,504 28,292 5 - 10 Loan equipment and service parts............... 4,976 5,905 1 - 5 ------- ------- Gross machinery and equipment.................. 30,576 34,283 Less: Accumulated depreciation................. (24,629) (26,790) ------- ------- Net machinery and equipment.................... 5,947 7,493 ======= =======
11. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS Changes in the allowance for uncollectible accounts follows:
YEAR ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 ------------- ------------------ Balance at beginning of year......................... 213 213 Additions charged to expense......................... 1,660 -- Less net write offs of uncollectible accounts........ (360) -- ----- --- Balance at end of year............................... 1,513 213 ===== ===
Bad debt expense is included in "Selling, general, and administrative expenses" on the Income Statement. 12. SHAREHOLDERS' EQUITY Each share of the Company's common stock has attached to it one right. Each right entitles its registered holder to purchase from the Company after the "Separation Time," as hereinafter defined, one-hundredth of a share of Participating Preferred Stock, par value $.01 per share, for an amount calculated in accordance with the Agreement. The rights will not trade separately from the common stock unless and until the Separation Time. The Separation Time is defined as the earlier of the tenth business day after the date on which any person commences a tender or exchange offer which, if consummated, would result in an acquisition, and the first date of public announcement by the Company of such offering. In the event of any voluntary, or involuntary liquidation of the Company, the holders of the Preferred Stock shall be paid an amount as calculated in accordance with the Preferred Stock Agreement. Effective October 8, 1994, the Company adopted a Stock Incentive Plan which permits the issuance of stock options, stock appreciation rights, performance awards, restricted stock and/or other stock based awards to directors and salaried employees. The plan reserves 975,000 shares of common stock for grant. The option price shall be determined by the Board Committee effective on the Grant Date. The option price shall not be less than one hundred percent of the Fair Market Value of a share of common stock on the Grant Date. If the Incentive Stock Options are granted to a participant who on the Grant Date is a ten percent holder, such price shall be not less than one hundred and ten percent of the Fair Market Value of a share of common stock on the Grant Date. All options become immediately exercisable upon the occurrence of a Change in Control of the Company. See SUBSEQUENT EVENTS in Note 15. No stock appreciation rights or performance F-13 178 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) awards were made during 1995 under this plan. On October 28, 1994, the Company granted restricted stock awards for 52,800 shares of common stock at an option price of $2.58 per share, pursuant to the Stock Incentive Plan to two employees. None of the restricted shares may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of for the "Restricted Period." The Restricted Period is from October 28, 1994 (date of the agreement) until the earlier of 21 months from the date of the agreement or upon the occurrence of a change in control. During 1995, 715,200 stock option shares were granted at option prices ranging from $2.58 to $3.83. At September 30, 1995 options to purchase 207,000 shares were available for grant. 13. EMPLOYEE BENEFIT PLANS Prior to the Distribution Date, Harris provided retirement benefits to substantially all United States-based employees, primarily through a retirement plan having profit-sharing and savings elements. Contributions to the retirement plan were based on Harris profits and employees' savings with no other funding requirements. Related retirement plan expense was $431 for the three months ended September 30, 1994. Subsequent to the Distribution Date, the Company began a 401(k) Savings Plan (the "Plan") which covers the eligible employees of Harris Computer Systems Corporation, and any related company. An employee is eligible to participate in the Plan on the date he completes one year of service. The amount of profit-sharing contributions made by the Company into the Plan is discretionary and shall be determined based on a percentage of the Company's adjusted net income before taxes. Each participant may contribute up to 12% of his compensation into the Plan. The Company makes a matching contribution on behalf of each participant for the first 6% of their individual contribution. Participant's profit-sharing and matching contribution vests over a seven year period. The Company contributions to the Plan were $966 in 1995. 14. POSTRETIREMENT HEALTH CARE BENEFITS Prior to the Distribution Date, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Health care benefits were provided on a limited cost-sharing basis to domestic-based retirees who had 10 or more years of service. This adoption resulted in a one-time charge of $135, net of income tax credits of $83. The on-going expense of this plan was not material and the liability for these benefits had not been funded. Subsequent to the Distribution Date, the Company canceled this post retirement health care plan. 15. SUBSEQUENT EVENTS (a) Sale of real-time Computing business On November 5, 1995, the Company entered into an Agreement and Plan of Merger and Reorganization with Concurrent Computer Corporation ("Concurrent"). The transaction contemplated between the Company and Concurrent was revised. On March 26, 1996, the Company and Concurrent signed a Purchase and Sale Agreement. Under the revised transaction structure, the Company will sell its real-time computing business and approximately 683,178 shares of its common stock to Concurrent in exchange for (i) 10 million newly issued shares of Concurrent common stock, par value $0.01 per share, (ii) convertible exchangeable preferred stock of Concurrent paying a 9% cumulative annual dividend quarterly in arrears with a liquidation preference of $10,000,000 subject to adjustment to reflect, among other things, the amount of net current assets of the Harris Real-Time Business transferred in the Transaction and (iii) the assumption of certain liabilities (hereafter defined as the "Transaction"). The Transaction is subject to a number of conditions including approval of the shareholders of each company. F-14 179 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Immediately following the transaction, Concurrent's shareholders are expected to own approximately 77% of Concurrent's outstanding common stock, with the balance to be owned by the Company. The Company's shareholders will own approximately 91% of its common stock, with Concurrent owning approximately 9%. The Company 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 transaction. Such product line includes computer and network security products. Summarized financial data relating to the Company's Trusted Systems Division which will be retained is as follows:
SEPTEMBER 30, ---------------- MARCH 30, 1995 1994 1996 ------ ----- ----------- Current assets......................................... 996 6,170 2,762 ------ ----- ------ Noncurrent assets...................................... 2,261 1,622 3,760 ------ ----- ------ Current liabilities.................................... -- -- -- ------ ----- ------ Noncurrent liabilities................................. 6,365 7,792 12,053 ------ ----- ------ Cumulative division losses............................. (3,108) 0 (5,531) ------ ----- ------
THREE MONTHS SIX MONTHS SIX MONTHS YEARS ENDED ENDED ENDED ENDED JUNE 30, SEPTEMBER 30, SEPTEMBER 30, MARCH 30, MARCH 31, ------------- 1995 1994 1996 1995 1994 1993 ------------- ------------- ---------- ----------- ----- ----- (UNAUDITED) Net sales........... 4,817 983 4,395 3,489 8,464 5,974 ----- --- ----- ----- ----- ----- Gross income........ 1,677 491 1,480 1,386 4,622 2,982 ----- --- ----- ----- ----- ----- Net income (loss)... (3,108) (962) (2,423) (727) 91 (40) ----- --- ----- ----- ----- -----
(b) Unaudited Loan and Security Agreement On April 1, 1996, Harris entered into a Loan and Security Agreement with Foothill Capital Corporation ("Foothill") pursuant to which Foothill agreed to make revolving advances to Harris in an amount of up to $5,000,000 subject to certain borrowing base requirements and at an interest rate equal to the prime or reference rate announced by Norwest Bank Minnesota, National Association, plus two percent. As collateral for the loan, Harris granted Foothill a security interest in all of its domestic assets. Accrued interest on the loan is due and payable monthly. The loan matures on the earlier of three years from April 1, 1996 or the Closing Date. 16. CONTINGENCIES Certain claims have been filed or are pending against the Company. It is management's opinion that all matters are without merit or are of such kind, or involve such amounts, as would not have a material effect on the consolidated financial position of the Company if disposed of unfavorably. 17. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and trade receivables. The Company holds any excess cash in short-term F-15 180 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) investments consisting of commercial paper. Concentrations of credit risk with respect to receivables are limited due to the Company's large number of customers. 18. GEOGRAPHIC INFORMATION The Company operates exclusively in the computer systems industry. Substantially all revenues result from the sale of computer systems and related software and services. Major customers during 1995 and 1994 include the United States Government and Boeing Company. In many cases, agencies of the United States Government are the ultimate purchasers of the Company's products. Sales to the United States Government combined with sales for which the Company acted as subcontractor on government projects have represented approximately 51% and 43% of total sales, respectively. Sales made to Boeing Company as a percentage of total sales were 4% and 14%, for the periods ended September 30, 1995 and 1994, respectively. All intercompany revenues and expenses are eliminated in computing revenues and operating income. A summary of the Company's operations by geographic area is summarized below:
YEAR ENDED SEPTEMBER 30, 1995 --------------------------------------------------- U.S. U.K. FRANCE GERMANY TOTAL ------ ----- ------ ------- ------- Net Sales............................. 36,138 1,770 3,310 3,893 45,111 Operating Profit (loss)............... (9,989) (346) (471 ) (734) (11,540) Identifiable assets................... 33,245 1,957 2,026 4,204 41,432
THREE MONTHS ENDED SEPTEMBER 30, 1994 --------------------------------------------------- U.S. U.K. FRANCE GERMANY TOTAL ------ ----- ------ ------- ------- Net Sales............................. 6,647 179 718 204 7,748 Operating Profit (loss)............... (7,437) (181) 71 (280) (7,827) Identifiable assets................... 44,596 4,526 3,674 2,133 54,929
U.S. export sales were $2,945 for the year ended September 30, 1995; and $605 for the three months ended September 30, 1994. F-16 181 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET INFORMATION SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
REAL-TIME TRUSTED SYSTEMS BUSINESS PRODUCT LINE COMBINED --------- --------------- -------- Cash and cash equivalents............................... $8,265 $0 $8,265 Accounts receivable..................................... 9,180 814 9,994 Inventories............................................. 8,959 121 9,080 Prepaid expenses........................................ 469 61 530 ------- ------- ------- Total current assets............................... 26,873 996 27,869 Property, plant and equipment........................... 5,231 716 5,947 Capitalized software.................................... 5,189 1,545 6,734 Other assets............................................ 881 0 881 ------- ------- ------- Total assets.................................. $38,174 $3,257 $41,431 ======= ======= ======= Accounts payable........................................ 3,493 0 3,493 Deferred revenue........................................ 401 0 401 Accrued expenses........................................ 5,441 0 5,441 ------- ------- ------- Total current liabilities.......................... 9,335 0 9,335 Liability to "Real-time" receivable from "Trusted Systems" Product Line)................................ (6,365) 6,365 0 Equity (deficit)........................................ 35,204 (3,108) 32,096 ------- ------- ------- Total liabilities and equity.................. $38,174 $3,257 $41,431 ======= ======= =======
See Notes to Combining Financial Information F-17 182 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION YEAR ENDED SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
REAL-TIME TRUSTED SYSTEMS BUSINESS PRODUCT LINE COMBINED --------- --------------- -------- Sales Equipment............................................. $26,650 $4,534 $31,184 Maintenance........................................... 13,644 283 13,927 ------- ------- ------- 40,294 4,817 45,111 Cost of sales Equipment............................................. 15,549 3,001 18,550 Maintenance........................................... 7,075 139 7,214 ------- ------- ------- 22,624 3,140 25,764 Gross profit............................................ 17,670 1,677 19,347 Research and development................................ 7,068 835 7,903 Selling, general and admin.............................. 18,985 3,999 22,984 ------- ------- ------- 26,053 4,834 30,887 Operating loss.......................................... (8,383) (3,157) (11,540) Interest income......................................... 407 49 456 Other expense........................................... (4) 0 (4) Net Loss................................................ ($7,980) ($3,108) ($11,088) ======= ======= =======
See Notes to Combining Financial Information F-18 183 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS) BASIS OF PRESENTATION The combining financial information is presented to reflect the financial position and results of operations of the "Real Time Business" ("Business") and Trusted Systems Product Line ("Product Line") of Harris Computer Systems Corporation and subsidiaries as of and for the year ended September 30, 1995. Such information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. The following is a summary of the methods used to arrive at amounts reflected in the Combining Financial Information. BALANCE SHEET INFORMATION Accounts receivable, inventory, property, plant and equipment and substantially all capitalized software reflect items specifically identified as pertaining to the Business or Product Line. The liability/receivable between the Business and Product Line represents the net amount assumed to have been paid for or accrued for by the Business on behalf of the Product Line since July 1, 1990. This assumption is considered appropriate in light of the fact that the Business and Product Line share the same operating infrastructure, substantially all operating costs are commingled, and the predominance of the Business to the combined entity. STATEMENT OF OPERATIONS INFORMATION Sales and cost of sales amounts are derived principally by specific identification. Research and development and selling, general, and administrative expenses are allocated based on a percentage of sales except for certain direct research and development, marketing and sales expenses amounting to $10,182 and $2,510 for the Business and Product Line, respectively. F-19 184 HARRIS COMPUTER SYSTEMS BUSINESS COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED JUNE 30, ------------------- 1994 1993 ------- ------- Sales Equipment.............................................................. $50,146 $39,398 Maintenance............................................................ 14,494 16,142 ------- ------- 64,640 55,540 Cost of Sales Equipment.............................................................. 22,842 20,194 Maintenance............................................................ 8,394 9,669 ------- ------- 31,236 29,863 Gross Income............................................................. 33,404 25,677 Operating expenses Research and development............................................... 6,725 6,850 Selling, general and administrative.................................... 19,791 19,770 Harris Corporation expense allocation.................................. 1,324 1,119 ------- ------- Total other operating expenses................................. 27,840 27,739 ------- ------- Operating income (loss).................................................. 5,564 (2,062) Interest income (expense), net........................................... (4) 0 Other income (expense) -- net............................................ 53 45 ------- ------- 49 45 Net income (loss) before income tax provision (benefit) and cumulative effect of change in accounting principle............................... 5,613 (2,017) Income tax provision (benefit)........................................... 1,086 (1,560) ------- ------- Net income (loss) before cumulative effect of change in accounting principle.............................................................. 4,527 (457) Cumulative effect of change in accounting principle (Note 14)............ (135) 0 ------- ------- Net Income (loss)........................................................ $4,392 ($457) ======= =======
See notes to the accompanying consolidated financial statements. F-20 185 HARRIS COMPUTER SYSTEMS BUSINESS CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30, ------------------- 1994 1993 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss)...................................................... $4,392 $(457) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................................ 3,223 3,860 Amortization........................................................ 1,396 1,258 Changes in Assets and Liabilities Receivables....................................................... (4,122) 941 Inventories....................................................... (1,370) (3,895) Accounts Payable.................................................. (1,654) 236 Accrued Expenses.................................................. 334 69 Deferred Revenue.................................................. (4,044) 4,680 Deferred Income Taxes............................................. 28 657 Other............................................................. (1,819) (119) Compensation and Benefits......................................... (309) (546) ------- ------- Net Cash Provided (Used) by Operating Activities......................... (3,945) 6,684 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to Machinery and Equipment................................... (3,336) (2,568) Software Development Costs............................................. (2,780) (2,217) ------- ------- Net Cash Used by Investing Activities.................................... (6,116) (4,785) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of Short-Term Borrowings....................................... -- (3,465) Equity Contributions................................................... 18,484 1,566 ------- ------- Net Cash Provided by (Used by) Financing Activities...................... 18,484 (1,899) ------- ------- Net Increase in Cash and Cash Equivalents................................ 8,423 -- Cash and Cash Equivalents at beginning of the Period..................... 3 3 ------- ------- Cash and Cash Equivalents at end of the Period........................... $8,426 $3 ======= =======
See notes to the accompanying consolidated financial statements. F-21 186 HARRIS COMPUTER SYSTEMS BUSINESS NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1994 AND 1993 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) NOTE A -- SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION -- The combined financial statements include the accounts of the Computer Systems Business (the "Business") of Harris Corporation ("Harris"). The Business develops, manufactures and markets high performance real-time computer systems. The accompanying combined financial statements include operations of Computer Systems in Fort Lauderdale, Florida, and Harris Systemes Electroniques S.A., France, as well as the Computer Systems Business portion of Harris Systems, Ltd., United Kingdom and Harris GmbH, Germany. In 1994, Harris contributed the remaining assets and liabilities of Harris GmbH to the Business, making Harris GmbH a wholly owned subsidiary of the Business. Corporate expense allocations charged by Harris are based on a percentage of the Business's net sales. Interest expense is provided on direct borrowings of the Business. Interest expense of Harris has not been allocated to the Business. It is not practicable to estimate what business equity would have been if the Business had operated as an unaffiliated entity. In the opinion of management, the allocation methods used are reasonable. The effects of all significant transactions between components of the Business have been eliminated. The Business sells products to other affiliated operations of Harris. Sales to these operations were $4,013 in 1994 and $5,023 in 1993. INVENTORIES -- Inventories are carried at the lower of cost, determined by the First-In-First-Out (FIFO) method, or market. DEPRECIATION -- Depreciation of rental equipment is computed by the straight-line method using estimated useful lives of up to three years. Service parts are depreciated over five years. Depreciation on machinery and equipment is carried on the basis of cost and is computed by the straight-line method using the estimated useful lives of the assets. SOFTWARE DEVELOPMENT COSTS -- The Business capitalizes costs related to the development of certain software products. Capitalization begins when technological feasibility has been established and ends when the product is available for general release to customers. Software development costs incurred prior to technological feasibility are considered research and development costs and are expensed as incurred. Capitalized costs are amortized as the greater of the amount computed using the ratio that current gross revenues for a product bear to the total current and anticipated future gross revenues for that product or the straight-line method over three years in 1993 and prior years an over five years in 1994. The effect of net income of changing the estimated useful lives in 1994 was approximately $350. REVENUE RECOGNITION -- Revenue is recognized from sales when a product is shipped, from rentals as they accrue, and from services and maintenance when performed. Unearned income on service contracts is amortized by the straight-line method over the term of the contracts. Revenue from long-term software contracts is accounted for by the percentage of completion method whereby income is recognized based on the estimated stage of completion of individual contracts using costs incurred as a percentage of total estimated costs at completion. Losses on long-term contracts are recognized in the period in which such losses are determined. INCOME TAXES -- The Business follows the liability method of accounting for income taxes and was included with its parent, Harris, in a consolidated federal income tax return. Harris requires each of its businesses to provide taxes on financial statement pre-tax income or loss at applicable statutory tax rates. Amounts receivable or payable for current and prior year' income taxes are treated as intercompany transactions in accordance with Harris policy and, accordingly, flowed through the Business Equity account. F-22 187 HARRIS COMPUTER SYSTEMS BUSINESS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) FOREIGN CURRENCY TRANSLATION -- Foreign operations are translated using the local currency at the functional currency. NOTE B -- SOFTWARE DEVELOPMENT COSTS Software amortization expenses were $1,396 in 1994 and $1,258 in 1993. Amortization expenses are included in Cost of Sales and Rentals in the Combined Statements of Income. NOTE C -- INVENTORY PURCHASE COMMITMENT At June 30, 1994, the Business was committed to purchase $1,600 of inventory from a supplier. Management believes the cost of this inventory approximates current market value. NOTE D -- LEASE COMMITMENTS Rent expense was $1,897 in 1994 and $1,806 in 1993 including $1,085 and $1,096 respectively, paid to Harris. Total future minimum rental commitments under operating leases, primarily for land and buildings, for the years following June 30, 1994 are: 1995 - $763, 1996 - $267; 1997 - $157; 1998 - $8. NOTE E -- POSTRETIREMENT HEALTH CARE BENEFITS In fiscal 1994, the Business adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Health care benefits are provided on a limited cost-sharing basis to domestic-based retirees who had 10 or more years of service. This adoption resulted in a one-time charge of $135, net of income tax credits of $83. The on-going expense of this plan is not expected to be material and the liability for these benefits has not been funded. NOTE F -- RETIREMENT BENEFIT PLANS Harris provides retirement benefits to substantially all United States-based employees, primarily through a retirement plan having profit-sharing and savings elements. Contributions to the retirement plan are based on Harris profits and employees' savings with no other funding requirements. Related retirement plan expense was $2,201 in 1994 and $1,487 in 1993. In addition, a noncontributory defined benefit pension plan is maintained in the United Kingdom for substantially all employees of Harris Systems, Ltd. This plan is fully funded and there have been no charges to income for the two year period ended June 30, 1994. Separate actuarial information applicable to the Business' portion of this plan is not available. F-23 188 HARRIS COMPUTER SYSTEMS BUSINESS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- INCOME TAXES The provision (benefit) for income taxes is as follows:
1994 1993 ------ ------- Current: United States................................................... $ 367 $(1,594) International................................................... 721 -- State and local................................................. 74 (322) ------ ------- 1,162 1,916 Deferred: United States................................................... (78) 298 International................................................... -- -- State and local................................................. 2 58 ------ ------- (76) 356 ------ ------- $1,086 $(1,560) ====== =======
A reconciliation of the effective income tax rate and the statutory United States income tax rate follows:
1994 1993 ---- ----- Statutory U.S. income tax rate...................................... 35.0% (34.0)% State taxes......................................................... 0.9 (8.6) Operating loss carryforwards........................................ (8.8) (27.4) Contributions....................................................... (7.5) (2.2) Other items......................................................... (0.3) (5.1) ---- ----- Effective income tax rate........................................... 19.3% (77.3)% ==== =====
United States income taxes had not been provided on the undistributed earnings of international subsidiaries because Harris had intended to reinvest these earnings. If Harris Computer Systems Corporation distributes international earnings, a U.S. tax would be provided in future periods. The determination of the amount of these undistributed earnings and any related unrecognized deferred U.S. tax liability is not practicable. At June 30, 1994, the Business had net international income tax loss carryforwards of approximately $1,564. Loss carryforwards are available for indefinite periods of time and have been offset by valuation allowances in both 1993 and 1994. Pretax income from international operations was $1,860 in 1994 and $299 in 1993. NOTE H -- GEOGRAPHIC INFORMATION The Business operates exclusively in the computer systems industry. Substantially all revenues result from the sale of computer systems and related software and services. Major customers include the United States Government and Boeing Company. Sales made to the United States Government as a percentage of total sales were 43 percent and 51 percent for the year 1994 and 1993, respectively. Sales made to Boeing Company as a percentage of total sales were 14 percent and 4 percent for the years 1994 and 1993, respectively. All intercompany revenues and expenses are eliminated in computing revenues and operating income. F-24 189 HARRIS COMPUTER SYSTEMS BUSINESS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A summary of the Business operations by geographic area is summarized below:
YEAR ENDED JUNE 30, 1994 -------------------------------------------------- U.S. U.K. FRANCE GERMANY TOTAL ------- ------ ------ ------- ------ Net Sales.............................. 51,008 7,539 4,691 1,402 64,640 Operating Profit (loss)................ 2,294 2,577 963 (221) 5,613
YEAR ENDED JUNE 30, 1993 -------------------------------------------------- U.S. U.K. FRANCE GERMANY TOTAL ------- ------ ------ ------- ------ Net Sales.............................. 42,902 6,773 4,914 951 55,540 Operating Profit (loss)................ (3,640) 1,292 653 (322) (2,017)
Export Sales were $3,316 in 1994 and $2,145 in 1993. Export sales and net sales of international operations were principally to Europe, Canada and Asia. NOTE I -- SHAREHOLDERS EQUITY Changes in Business equity are summarized as follows:
1994 1993 ------- ------- Balance at July 1................................................ $28,701 $27,501 Net income (loss)................................................ 4,392 (457) Foreign currency translation adjustments......................... (1,451) 91 ------- ------- Net cash transfers and billings from Harris Corporation.......... 18,484 1,566 ------- ------- $50,126 $28,701 ======= =======
NOTE J -- ALLOWANCE FOR COLLECTION LOSSES Changes in the allowance for collection losses during the two years ended June 30, 1994 and 1993 were as follows:
1994 1993 ---- ---- Balance at beginning of year.......................................... $631 $693 Additions charged to expense.......................................... 100 5 Effects of foreign currency translation............................... 17 (27) ---- ---- 748 671 Less net write-offs of uncollectible accounts......................... 535 40 ---- ---- Balance at end of year................................................ $213 $631 ==== ====
NOTE K -- CONTINGENCIES Certain claims have been filed or are pending against the Business. It is management's opinion, that all matters are without merit or are of a kind, or involve such amounts, as would not have a material effect on the consolidated financial position of the Business if disposed of unfavorably. F-25 190 ANNEX A - -------------------------------------------------------------------------------- PURCHASE AND SALE AGREEMENT BETWEEN CONCURRENT COMPUTER CORPORATION, AND HARRIS COMPUTER SYSTEMS CORPORATION, DATED AS OF MARCH 26, 1996 AND AMENDED AND RESTATED AS OF MAY 23, 1996 - -------------------------------------------------------------------------------- 191 TABLE OF CONTENTS
PAGE ------ ARTICLE I SALE AND PURCHASE OF ASSETS............................................................ A-1 Section 1.1 Transfer of Assets.................................................... A-1 Section 1.2 Excluded Assets; Omitted Property..................................... A-2 Section 1.3 Assumed Liabilities; Excluded Liabilities............................. A-3 Section 1.4 Exact Effective Time.................................................. A-3 ARTICLE II TRANSFER OF STOCK; ADDITIONAL AGREEMENTS............................................... A-3 Section 2.1 Sale of Harris Common Stock........................................... A-3 Section 2.2 Sale of Concurrent Stock.............................................. A-3 Section 2.3 Preparation of Audited Financial Statements; Net Current Assets Adjustment............................................................ A-4 Section 2.4 Ancillary Agreements; Certificate of Designation...................... A-5 Section 2.5 Allocation of Purchase Price.......................................... A-6 ARTICLE III CLOSING................................................................................ A-6 Section 3.1 Closing............................................................... A-6 Section 3.2 Deliveries by Harris.................................................. A-6 Section 3.3 Deliveries by Concurrent.............................................. A-7 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HARRIS............................................... A-7 Section 4.1 Organization Etc...................................................... A-7 Section 4.2 Capitalization........................................................ A-8 Section 4.3 Authority............................................................. A-8 Section 4.4 Consents and Approvals; No Violations................................. A-9 Section 4.5 SEC Reports and Financial Statements.................................. A-9 Section 4.6 Information in Disclosure Documents................................... A-10 Section 4.7 Litigation............................................................ A-10 Section 4.8 Absence of Certain Changes............................................ A-10 Section 4.9 Opinion of Financial Advisor.......................................... A-10 Section 4.10 Tax Matters........................................................... A-11 Section 4.11 Vote Required......................................................... A-12 Section 4.12 Employee Benefit Plans; ERISA......................................... A-12 Section 4.13 Applicability of Certain Laws......................................... A-13 Section 4.14 Major Contracts....................................................... A-13 Section 4.15 Interests of Officers and Directors................................... A-14 Section 4.16 Intellectual Property................................................. A-14 Section 4.17 Questionable Payments................................................. A-16 Section 4.18 Insurance............................................................. A-16 Section 4.19 No Brokers............................................................ A-16 Section 4.20 Environmental......................................................... A-16 Section 4.21 Assets................................................................ A-17
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PAGE ------ Sheet...A-18Section Leased Properties..................................................... A-18 4.23 Section 4.24 Subsidiaries.......................................................... A-18 Section 4.25 Outstanding Liabilities to Related Parties............................ A-19 Section 4.26 Product Returns; Warranties........................................... A-19 Section 4.27 Transferred Subsidiaries.............................................. A-19 Section 4.28 Transferred Subsidiaries Financial Statement.......................... A-19 Section 4.29 Investment Purpose.................................................... A-19 Section 4.30 Rights Agreement...................................................... A-19 ARTICLE V REPRESENTATIONS AND WARRANTIES OF CONCURRENT........................................... A-20 Section 5.1 Organization.......................................................... A-20 Section 5.2 Capitalization........................................................ A-20 Section 5.3 Authority............................................................. A-21 Section 5.4 Consents and Approvals; No Violations................................. A-21 Section 5.5 SEC Reports and Financial Statements.................................. A-22 Section 5.6 Information in Disclosure Documents................................... A-22 Section 5.7 Litigation............................................................ A-22 Section 5.8 Absence of Certain Changes............................................ A-23 Section 5.9 Opinion of Financial Advisor.......................................... A-23 Section 5.10 Rights Agreement...................................................... A-23 Section 5.11 Tax Matters........................................................... A-23 Section 5.12 Vote Required......................................................... A-24 Section 5.13 Employee Benefit Plans; ERISA......................................... A-24 Section 5.14 Major Contracts....................................................... A-25 Section 5.15 Interests of Officers and Directors................................... A-25 Section 5.16 Intellectual Property................................................. A-25 Section 5.17 Questionable Payments................................................. A-27 Section 5.18 Insurance............................................................. A-27 Section 5.19 No Brokers............................................................ A-27 Section 5.20 Environmental......................................................... A-28 Section 5.21 Investment Purpose.................................................... A-28 Section 5.22 Applicability of Certain Laws......................................... A-28 Section 5.23 Product Returns; Warranties........................................... A-28 ARTICLE VI COVENANTS.............................................................................. A-29 Section 6.1 Conduct of Business of Harris......................................... A-29 Section 6.2 Conduct of Business of Concurrent..................................... A-30 Section 6.3 Best Efforts.......................................................... A-31 Section 6.4 Registration Rights................................................... A-32 Section 6.5 Occurrence of Closing Prior to or Following the Reference Date........ A-32 Section 6.6 Access to Information................................................. A-32 Section 6.7 Stockholders Meetings................................................. A-32
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PAGE ------ Section 6.8 No Solicitation....................................................... A-33 Section 6.9 Brokers or Finders.................................................... A-34 Section 6.10 Rights Plan........................................................... A-34 Section 6.11 Publicity............................................................. A-34 Section 6.12 Notification of Certain Matters....................................... A-34 Section 6.13 Management and Corporate Governance Matters........................... A-34 Section 6.14 Employment Agreements................................................. A-35 Section 6.15 Expenses.............................................................. A-35 Section 6.16 IRS Determination Letter.............................................. A-35 Section 6.17 Insurance............................................................. A-35 Section 6.18 Supplemental Disclosure............................................... A-35 Section 6.19 Further Assurances; Subsequent Transfers.............................. A-36 Section 6.20 Risk of Loss.......................................................... A-37 Section 6.21 Compliance with Applicable Bulk Sales Laws............................ A-38 Section 6.22 Audited Financial Statements; Statutory Financial Statements.......... A-38 Section 6.23 Tax Matters........................................................... A-38 Section 6.24 HSR Approval.......................................................... A-38 ARTICLE VII EMPLOYMENT AND EMPLOYEE BENEFIT PLANS.................................................. A-38 Section 7.1 Existing Employee Benefit Plans of Harris............................. A-38 Section 7.2 Employment of Employees Employed in Business.......................... A-40 Section 7.3 Employee Benefit Plans of Concurrent.................................. A-40 ARTICLE VIII CONDITIONS............................................................................. A-41 Section 8.1 Conditions to Each Party's Obligation To Perform this Agreement....... A-41 Section 8.2 Conditions of Obligation of Concurrent................................ A-42 Section 8.3 Conditions of Obligation of Harris.................................... A-43 ARTICLE IX TERMINATION AND AMENDMENT.............................................................. A-43 Section 9.1 Termination by Mutual Consent......................................... A-43 Section 9.2 Termination by Either Concurrent or Harris............................ A-43 Section 9.3 Termination by Harris................................................. A-44 Section 9.4 Termination by Concurrent............................................. A-44 Section 9.5 Effect of Termination................................................. A-44 Section 9.6 Termination Fee....................................................... A-45 ARTICLE X OBLIGATIONS OF PARTIES AFTER CLOSING DATE.............................................. A-45 Section 10.1 Survival Periods...................................................... A-45 Section 10.2 Indemnification....................................................... A-45 Section 10.3 Claims................................................................ A-46
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PAGE ------ ARTICLE XI MISCELLANEOUS.......................................................................... A-47 Section 11.1 Amendment............................................................. A-47 Section 11.2 Extension; Waiver..................................................... A-47 Section 11.3 Notices............................................................... A-47 Section 11.4 Interpretation........................................................ A-48 Section 11.5 Counterparts.......................................................... A-48 Section 11.6 Entire Agreement; No Third Party Beneficiaries........................ A-48 Section 11.7 Governing Law......................................................... A-48 Section 11.8 Specific Performance.................................................. A-48 Section 11.9 Assignment............................................................ A-49 Section 11.10 Incorporation of Exhibits............................................. A-49 Section 11.11 Severability.......................................................... A-49
A-iv 195 INDEX OF DEFINED TERMS
TERM SECTION - ----------------------------------------------------------------------- ---------------------- Acquiring Person....................................................... 4.3 and 5.10 Acquisition Transaction................................................ 6.8(a)(i) affiliate.............................................................. 4.15 and 5.15 Allocation............................................................. 2.5 Ancillary Agreements................................................... 2.4(a) Appraisal Rights....................................................... 5.22 Article................................................................ 11.4 Assets................................................................. 1.1(d) associate.............................................................. 4.15 and 5.15 Assumed Concurrent Transfer Tax Liability.............................. 1.3(a) Assumed Liabilities.................................................... 1.3(a) at the closing; exact effective time................................... 1.4 Audited Balance Sheet.................................................. 2.3(a)(i) Audited Balance Sheet Disagreement..................................... 2.3(a)(iii) Audited Base Financial Statements...................................... 4.22 Best Efforts........................................................... 6.3 Business............................................................... Introduction Business Combinations with Interested Stockholders..................... 5.22 Business Employees..................................................... 7.1(a)(i) Business Intellectual Property Rights.................................. 4.16(a) Business Portion....................................................... 1.3(a) Closing................................................................ 3.1 Closing Date........................................................... 3.1 Code................................................................... 2.5 Common Stock Consideration............................................. 2.2 Concurrent............................................................. Introduction Concurrent 401(k) Plan................................................. 7.3(a) Concurrent Additional Cost............................................. 6.20(a)(ii) Concurrent Casualty Deficiency......................................... 6.20(a)(ii) Concurrent Common Stock................................................ Introduction Concurrent Designees................................................... 6.13(b) Concurrent ERISA Affiliate............................................. 5.13(a) Concurrent ERISA Plans................................................. 5.13(a) Concurrent Intellectual Property Rights................................ 5.16(a) Concurrent Matching Contribution....................................... 7.3(a)(iii) Concurrent Options..................................................... 5.2 Concurrent Plans....................................................... 5.13(a) Concurrent Preferred Stock............................................. Introduction Concurrent Rights Agreement............................................ 5.2 Concurrent SEC Documents............................................... 5.5 Concurrent Stock Plan.................................................. 5.2 Concurrent Stock Plan Amendment........................................ 5.12 Concurrent Stockholder Meeting......................................... 4.6 Confidentiality Agreement.............................................. 6.6 Control-Share Acquisitions............................................. 4.13 Corporate Target Goals................................................. 7.3(d)
[/R] A-v 196
TERM SECTION - ----------------------------------------------------------------------- ---------------------- Damages................................................................ 10.2(a) the date hereof........................................................ 11.4 the date of this Agreement............................................. 11.4 Debentures............................................................. 2.2 DGCL................................................................... 5.22 Disclosure Schedule.................................................... 4.16(d) Distribution........................................................... 4.10(e) Distribution Date...................................................... 5.10 employee benefit plan.................................................. 4.12(a) and 5.13(a) employee pension plan.................................................. 4.12(g) and 5.13(h) Employment Effective Time.............................................. 7.1(a)(i) Encumbrances........................................................... 4.21(d) Environmental Claim.................................................... 4.20(d) Environmental Laws..................................................... 4.20(d) ERISA.................................................................. 4.12(a) Exchange Act........................................................... 4.4(a) Excluded Assets........................................................ 1.2(b) Fair Market Value...................................................... 6.20(b) Final Net Current Asset Reconciliation................................. 2.3(b)(i) First Appraiser........................................................ 6.20(b) Flip-in Date........................................................... 4.30 Flip-over Transaction.................................................. 4.30 GAAP................................................................... 2.3(a)(i) Governmental Entity.................................................... 4.4(a) Harris................................................................. Introduction Harris 401(k) Plan..................................................... 7.1(a) Harris Common Stock.................................................... Introduction Harris Designees....................................................... 6.13(a) Harris ERISA Affiliate................................................. 4.12(a) Harris ERISA Plans..................................................... 4.12(a) Harris Plans........................................................... 4.12(a) Harris Rights.......................................................... 4.2 Harris Rights Agreement................................................ 4.2 Harris SEC Documents................................................... 4.5 Harris Stock Plan...................................................... 4.2 Harris Stock Plan Amendment............................................ 4.11 Harris Stockholder Meeting............................................. 4.6 Harris Subsidiary Shares............................................... 1.1(c) herein................................................................. 11.4 hereof................................................................. 11.4 hereunder.............................................................. 11.4 Hired Business Employee................................................ 7.1(a)(iv)(B) HSR Act................................................................ 4.4(a) Identified Real Time Assets............................................ 1.1(a) Identified Trusted Assets.............................................. 1.2(a) include(s)............................................................. 11.4 including.............................................................. 11.4 Indemnified Parties.................................................... 10.2(b)
A-vi 197
TERM SECTION - ----------------------------------------------------------------------- ---------------------- Indemnifying Party..................................................... 10.3(a) Individual Target Goals................................................ 7.3(d) Intellectual Property Rights........................................... 4.16(a) IRS.................................................................... 4.10(b)(ii) ISRA................................................................... 8.3(g) KPMG................................................................... 2.3(a)(i) Leases................................................................. 4.23(a) Liabilities............................................................ 1.3(c) Material Adverse Effect................................................ 4.1(a) Materials of Environmental Concern..................................... 4.20(d) multiemployer pension plan............................................. 4.12(d) and 5.13(d) Net Assets............................................................. 2.3(c)(i) Net Current Asset Reconciliations...................................... 2.3(b)(i) Omitted Property....................................................... 1.2(c) Original Concurrent Designee........................................... 6.13(b) Original Harris Designees.............................................. 6.13(a) Other Real Time Assets................................................. 1.1(a) Person................................................................. 6.8(a)(iii) Preferred Stock Consideration.......................................... 2.2 Projected Net Current Asset Reconciliation............................. 2.3(b)(i) Property............................................................... 1.1(a) and 6.20(a)(i) Proxy Statement........................................................ 4.6 Purchased Harris Shares................................................ 2.1 qualified.............................................................. 4.12(f) and 5.13(f) qualified beneficiaries................................................ 7.1(b)(iii) qualifying event....................................................... 7.1(b)(iii) Reconciliation Disagreement............................................ 2.3(b)(iii) Reference Date......................................................... 2.3(b)(i) Representatives........................................................ 10.2(a) Right of Stockholders to Dissent....................................... 4.13 S-3 Registration Statement(s).......................................... 6.4 Schedule............................................................... 11.4 SEC.................................................................... 4.5 Second Appraiser....................................................... 6.20(b) Section................................................................ 11.4 Securities Act......................................................... 4.4(a) Separation Time........................................................ 4.30 SERP................................................................... 7.3(e) Shared Assets.......................................................... 1.1(b) Shared IP Right........................................................ 1.1(b) Shared Liabilities..................................................... 1.3(a) Shared Real Time Assets................................................ 1.1(a) Shared Trusted Assets.................................................. 1.2(a) single employer........................................................ 4.12(a) and 5.13(a) Stock Acquisition Date................................................. 4.30 and 5.10 Stockholder Meetings................................................... 4.6 Subsequently Acquired Real Time Assets................................. 1.1(a) Subsidiary............................................................. 4.1(a)
A-vii 198
TERM SECTION - ----------------------------------------------------------------------- ---------------------- Disclosure....................6.18(a)Target Bonuses.................... 7.3(d) Tax Return............................................................. 4.10(d) Tax Sharing Agreement.................................................. 4.10(e) Taxes.................................................................. 4.10(d) Termination Fee........................................................ 9.6(c) Third Appraiser........................................................ 6.20(b) Transfer Taxes......................................................... 6.23(b) Transferred Subsidiaries............................................... 1.1(c) Transferred Subsidiaries Benefit Plans................................. 4.12(j) Transferred Subsidiaries Financial Statements.......................... 4.28(a) Triggering Event....................................................... 5.10 Trusted Assets......................................................... 1.2 Trusted Systems Business............................................... Introduction Welfare and Fringe Benefit Plans....................................... 7.1(b) without limitation..................................................... 11.4
A-viii 199 EXHIBITS Exhibit A Form of Certificate of Designation Exhibit B Debenture Term Sheet Exhibit C Form of Share Holding Agreement Exhibit D Employment Agreement SCHEDULES Schedule 1.1(a)(i) Identified Real Time Assets Schedule 1.1(b) Shared Assets Schedule 1.2(a)(ii) Identified Trusted Assets Schedule 1.3(a) Assumed Liabilities Schedule 1.3(b)(iv) Excluded Tax Liabilities Schedule 2.3(a) Audited Balance Sheet Procedures Schedule 2.3(b) Net Current Asset Reconciliation Procedures Schedule 2.5 Allocation of Purchase Price Schedule 4.2 Capitalization Schedule 4.4(a) Consents and Approvals Schedule 4.4(b) No Violation Schedule 4.5 Material Undisclosed Liabilities Schedule 4.7 Litigation Schedule 4.8 Absence of Certain Changes Schedule 4.10(b)(i) List of Localities in which Registered to do Business and Tax Liens Schedule 4.10(b)(ii) Tax Years Examined; Tax Deficiencies and Assessments Schedule 4.10(c) Agreements or Waivers Schedule 4.12(a) Employee Benefit Plans Schedule 4.12(i) Unvested Harris Options Schedule 4.12(k) Transferred Subsidiaries Benefit Plans Schedule 4.14 Major Contracts Schedule 4.15 Interests of Officers and Directors Schedule 4.16(b) Business Intellectual Property Rights Schedule 4.16(c) Products Sold by Harris Schedule 4.16(e) Payments to Third Parties for Intellectual Property Rights Schedule 4.16(m) Agreements Granting Rights to any Third Party in any of the Business Intellectual Property Rights Schedule 4.18 Insurance Schedule 4.20(a) Compliance with Environmental Laws Schedule 4.20(b) Pending Environmental Claims Schedule 4.20(c) Harris Actions Leading to Possible Environmental Claims Schedule 4.23(b) Leased Properties Schedule 4.24(a) Subsidiaries of Harris Schedule 4.24(b) Ownership of the Stock of the Transferred Subsidiaries Schedule 4.24(c) Officers and Directors of the Transferred Subsidiaries Schedule 5.2 Capitalization Schedule 5.4(a) Consents and Approvals Schedule 5.4(b) No Violation Schedule 5.5 Material Undisclosed Liabilities Schedule 5.7 Litigation Schedule 5.8 Absence of Certain Changes
A-ix 200 Schedule 5.11(b)(i) List of Localities in which Registered to do Business and Tax Liens Schedule 5.11(b)(ii) Tax Years Examined; Tax Deficiencies and Assessments Schedule 5.11(c) Agreements or Waivers Schedule 5.13(a) Employee Benefit Plans Schedule 5.14 Major Contracts Schedule 5.15 Interests of Officers and Directors Schedule 5.16(b) Business Intellectual Property Rights Schedule 5.16(e) Payments to Third Parties for Intellectual Property Rights Schedule 5.16(m) Agreements Granting Rights to any Third Party in any of the Concurrent Intellectual Property Rights Schedule 5.18 Insurance Schedule 5.20(a) Compliance with Environmental Laws Schedule 5.20(b) Pending Environmental Claims Schedule 5.20(c) Concurrent Actions Leading to Possible Environmental Claims Schedule 6.1 Conduct of Business of Harris Schedule 6.14 Terms of the Stihl Employment Agreement Amendment Schedule 7.1 Business Employees Schedule 8.1(g) Consents Schedule 8.2(d) Contracts and Agreements
A-x 201 THIS AGREEMENT is made as of the 26th day of March 1996, and amended and restated as of the 23th day of May 1996, between HARRIS COMPUTER SYSTEMS CORPORATION, a Florida corporation ("Harris") and CONCURRENT COMPUTER CORPORATION, a Delaware corporation ("Concurrent"). W I T N E S S E T H: WHEREAS, Harris and its subsidiaries are engaged in the businesses of providing and servicing high-performance real-time computer systems on a worldwide basis (the "Business") and supplying "trusted products," including operating systems and firewall application products (the "Trusted Systems Business"); WHEREAS, Concurrent has agreed to purchase from Harris, and Harris has agreed to sell to Concurrent, the Business and shares of common stock, par value $0.01 per share, of Harris (the "Harris Common Stock") on the terms and subject to the conditions set forth herein; and WHEREAS, in exchange for the Business and such shares of Harris Common Stock, Concurrent has agreed to sell to Harris, and Harris has agreed to purchase from Concurrent, shares of common stock, par value $0.01 per share, of Concurrent (the "Concurrent Common Stock") and shares of a new class of convertible exchangeable preferred stock of Concurrent (the "Concurrent Preferred Stock") on the terms and subject to the conditions set forth herein. NOW, THEREFORE, the parties agree as follows: ARTICLE I SALE AND PURCHASE OF ASSETS Section 1.1 Transfer of Assets. (a) Except as provided in Section 1.2, at the Closing, Harris shall sell, transfer and assign to Concurrent, and Concurrent shall purchase, acquire and/or accept from Harris, all of Harris' rights, title and interests in all the Property (as defined below), of Harris which (i) is listed in Schedule 1.1(a)(i) (the "Identified Real Time Assets") and including the Property identified on the Final Net Current Asset Reconciliation in existence on the Closing Date; (ii) constitutes the Shared Assets (as defined in Section 1.1(b)) to the extent such Property is to be transferred and sold to, or utilized by, Concurrent as provided in Schedule 1.1(b) (the "Shared Real Time Assets"); (iii) constitutes all other Property of Harris which is not an Excluded Asset (as defined in Section 1.2) (the "Other Real Time Assets"); (iv) is tangible Property which is manufacturing Property, hardware customer support Property and hardware development Property; and (v) constitutes all other Property of the kind described in clauses (i) and (ii) above and acquired by Harris between the date hereof and the Closing (the "Subsequently Acquired Real Time Assets"). The term "Property" shall mean assets, properties and rights, tangible and intangible, wherever located. (b) The term "Shared Assets" shall mean the Property of Harris having a significant use in both the Business and the Trusted Systems Business. To the extent they have been identified as of the date hereof, the Shared Assets are set forth in Schedule 1.1(b), which Schedule indicates which of the therein identified Shared Assets shall be transferred to Concurrent or retained by Harris. To the extent that any Shared Assets are not identified in Schedule 1.1(b), they shall be transferred to Concurrent at Closing or retained by Harris as follows: (i) if the Shared Asset not identified in Schedule 1.1(b) is a "Business Intellectual Property Right" (as defined in Section 4.16(a)) (each Shared Asset that is also a Business Intellectual Property Right, a "Shared IP Right"), then each such asset shall be transferred as described in the second sentence of this paragraph; and (ii) if the Shared Asset not identified in Schedule 1.1(b) is not a Shared IP Right, then, unless Concurrent acknowledges that such asset is not needed for the conduct of the Business after the Closing, it shall be transferred to Concurrent. Shared IP Rights that have not been identified in Schedule 1.1(b) shall be made available by license or otherwise to Concurrent and Harris as follows: (i) if the use of the Shared IP Rights does not require royalties or other payments to be A-1 202 made to third parties, then the Shared IP Right shall be made available, without cost, by license or otherwise so that each of Concurrent and Harris may freely utilize such Shared IP Rights after Closing, subject to the terms of the Non-Competition Agreement required to be delivered in accordance with Section 2.4, and (ii) to the extent the use of the Shared IP Rights requires royalties or payments to be made to third parties, Schedule 1.1(b) sets forth the method by which such royalties or other payments will be borne by Concurrent and Harris after the Closing. (c) At the Closing, Harris shall sell, transfer and assign, directly or indirectly, to Concurrent and Concurrent shall purchase, acquire and accept from Harris, good and valid legal title to and beneficial ownership of all of the issued and outstanding shares of capital stock (the "Harris Subsidiary Shares"), free and clear of all Encumbrances (as defined in Section 4.21) or assets, as the case may be, of certain subsidiaries to be mutually agreed upon by the parties prior to Closing. The subsidiaries, if any, to be transferred as agreed to by the parties hereto shall be collectively referred to as the "Transferred Subsidiaries". The shares shall constitute all of the issued and outstanding shares of each such Transferred Subsidiary. To the extent Concurrent purchases the stock of the Transferred Subsidiaries, Concurrent shall not assume, and shall not be deemed to have assumed, Liabilities of the Transferred Subsidiaries arising from activities of the businesses of the Transferred Subsidiaries prior to Closing relating to (i) environmental matters or (ii) claims of employees of the Transferred Subsidiaries at the time of the applicable violation that the Transferred Subsidiary violated employment practices laws, rules or regulations or antidiscrimination laws, rules or regulations insofar as such claims are based on acts or omissions that shall have occurred prior to Closing (the "Transferred Subsidiaries Excluded Liabilities"). At Closing, Harris shall assume, and shall be solely and exclusively liable with respect to the Transferred Subsidiaries Excluded Liabilities. (d) The term "Assets" shall mean the Identified Real Time Assets, the Shared Real Time Assets, the Other Real Time Assets and the Subsequently Acquired Real Time Assets, including the stock or assets, if any, of each of the Transferred Subsidiaries, which will be being transferred by Harris to Concurrent in accordance with Sections 1.1(a) and (b). Section 1.2 Excluded Assets; Omitted Property. (a) Concurrent is not acquiring from Harris, and Harris shall retain ownership of all right, title and interest in and to, and exclude from sale, transfer or assignment hereunder (i) all Property of Harris used in the Trusted Systems Business (other than Property which constitutes Shared Assets in accordance with Section 1.1(b)) as conducted on the date hereof (the "Trusted Assets"); (ii) the Trusted Assets listed in Schedule 1.2(a)(i) (the "Identified Trusted Assets"), (iii) the Shared Assets, to the extent they shall be retained or permitted to be utilized by Harris as provided in Schedule 1.1(b) (the "Shared Trusted Assets"). (b) The term "Excluded Assets" shall mean the Trusted Assets, the Identified Trusted Assets and the Shared Trusted Assets. (c) The Parties hereto acknowledge that the Schedules of Assets and Excluded Assets will not together contain a complete list of all Property of Harris, but that at the Closing, the updated Schedules together with the lists of Property attached to the bills of sale and other documents of transfer delivered to Concurrent will list all the Assets as of the Closing. To the extent that there is any Property of Harris as of the Closing which failed to be identified on a Schedule of any Assets or Excluded Assets or on a list of Property attached to the bill of sale or other document of transfer delivered at Closing (the "Omitted Property"), it will be transferred, assigned, or sold to Concurrent or retained or utilized by Harris in accordance with the Assets or Excluded Assets to which such Omitted Property is most similar. Any adjustments to the Final Net Asset Reconciliation which may be appropriate in connection with such Omitted Property shall be made so long as, pursuant to the terms hereof, the time period during which the parties hereto may dispute the Final Net Asset Reconciliation (as defined in Section 2.3(b)) has not elapsed. A-2 203 Section 1.3 Assumed Liabilities; Excluded Liabilities. (a) At the Closing, subject to Section 1.3(b) below, Concurrent shall assume, and shall be solely and exclusively liable with respect to, (i) Liabilities of Harris specifically reflected or reserved against on the Final Net Current Asset Reconciliation (as defined below) and in existence on the Closing Date; (ii) Liabilities arising from activities of the Business after the Closing; (iii) Liabilities set forth on Schedule 1.3(a); (iv) Liabilities specifically related to products sold in the Business, including product warranty liabilities and liabilities for product returns; (v) Liabilities exclusively associated with the Business; (vi) 50% of the Transfer Taxes (as defined in Section 6.24) hereof resulting from the transfer of the Assets (other than the Harris Subsidiary Shares, if any) and 100% of the Transfer Taxes resulting from the transfer of the Harris Subsidiary Shares, if any (the "Assumed Concurrent Transfer Tax Liability") and (vii) the allocable portion (the "Business Portion") of all Liabilities associated with both the Business and the Trusted Systems Business (the "Shared Liabilities"), such portion to be based on the Business' contribution to the total net revenues of Harris for the fiscal year ended September 30, 1995 (items (i) through (vii), collectively, the "Assumed Liabilities"); (b) Concurrent is not assuming, and shall not be deemed to have assumed, any of the following Liabilities of Harris: (i) Liabilities exclusively associated with the Trusted Systems Business; (ii) Liabilities arising from activities of the Business prior to the Closing relating to environmental matters, claims of shareholders of Harris, claims of employees of Harris at the time of the applicable violation that Harris violated employment practices laws, rules or regulations or antidiscrimination laws, rules or regulations insofar as such claims are based on acts or omissions that shall have occurred prior to Closing; (iii) the portion of the Shared Liabilities after the assumption by Concurrent of the Business Portion of such Liabilities; (iv) Liabilities in connection with any Taxes imposed upon Harris's operations set forth in Schedule 1.3(b)(iv); and (v) all other Liabilities of Harris which are not Assumed Liabilities. (c) The term "Liabilities" shall mean any liabilities or obligations, fixed or contingent, known or unknown as of the date hereof, and including such liabilities or obligations under contracts and leases. Section 1.4 Exact Effective Time. Unless otherwise expressly provided, the exact effective time of the sale, transfer and assignment of the Assets and the Harris Subsidiary Shares, and of the assumption of Assumed Liabilities, which is stated herein to be "at the Closing," shall be 12:01 a.m. of the morning of the Closing Date. ARTICLE II TRANSFER OF STOCK; ADDITIONAL AGREEMENTS Section 2.1 Sale of Harris Common Stock. In addition to the sale of the Assets described in Article I hereof, subject to the terms and upon the conditions set forth in this Agreement and in reliance upon the representations, warranties and agreements of Concurrent contained herein, Harris shall issue, sell and deliver to Concurrent, and Concurrent shall purchase and acquire, good and valid title to 227,726 shares of Harris Common Stock, subject to adjustment for stock dividends, stock splits and similar transactions prior to the Closing (such shares, the "Purchased Harris Shares"). Section 2.2 Sale of Concurrent Stock. As consideration for the sale of the Assets and the Purchased Harris Shares to Concurrent described in Article I and Section 2.1 hereof, subject to the terms and upon the conditions set forth in this Agreement and in reliance upon the representations, warranties and agreements of Harris contained herein, Concurrent shall issue, sell and deliver to Harris, and Harris shall purchase and acquire, (i) good and valid title to ten million (10,000,000) shares of Concurrent Common Stock, subject to adjustment for stock splits, stock dividends and similar transactions prior to the Closing (the "Common Stock Consideration") and (ii) ten million dollars ($10,000,000) in total liquidation preference of Concurrent Preferred Stock, as adjusted pursuant to the terms thereof and Section 2.3(c) hereof (the "Preferred Stock Consideration"). The terms of the Preferred Stock Consideration are set forth in the Certificate of Designation (as defined below) attached hereto as Exhibit A. In accordance with the terms of the Certificate of Designation such Preferred Stock Consideration may be converted into debentures of Concurrent having the terms substantially set forth in the term sheet attached hereto as Exhibit B (the "Debentures"). A-3 204 Section 2.3 Preparation of Audited Financial Statements; Net Current Assets Adjustment. In connection with the transactions contemplated hereby, Harris and Concurrent also agree to the following: (a) Audited Financial Statements. (i) Within 45 days after March 29, 1996, Harris shall deliver to Concurrent an audited balance sheet of the Business as of March 29, 1996, prepared in accordance with United States generally accepted accounting principles ("GAAP") and such additional procedures set forth in Schedule 2.3(a) hereto (such financials, the "Audited Balance Sheet"). The audit for the Audited Balance Sheet shall be performed by KPMG Peat Marwick LLP ("KPMG"). (ii) Following completion and delivery of the Audited Balance Sheet, Harris shall promptly make available to Concurrent all available work papers of KPMG created in connection with the preparation of the Audited Balance Sheet. Harris shall cause the representatives of KPMG to be available promptly to assist Concurrent and its auditors in its review of such work papers. In addition, in accordance with Section 6.6, Concurrent and its auditors shall be entitled to review the books and records of Harris relating to the Business. (iii) Concurrent may dispute the Audited Balance Sheet by giving written notice to Harris within 20 days after delivery of the Audited Balance Sheet to Concurrent, setting forth in reasonable detail the basis for such dispute (hereinafter called an "Audited Balance Sheet Disagreement"). The parties shall promptly commence good faith negotiations with a view to resolving such Audited Balance Sheet Disagreement, which resolution shall be not later than 30 days after the date the Audited Balance Sheet is received by Concurrent. (iv) If Concurrent or Harris delivers a written notice to the other party that an Audited Balance Sheet Disagreement is unable to be resolved, such Audited Balance Sheet Disagreement shall be referred to a nationally recognized accounting firm other than KPMG, Coopers & Lybrand or Ernst & Young for determination of the disputed amounts in accordance with this Agreement. If Concurrent and Harris do not promptly agree on the selection of a nationally recognized accounting firm, their respective independent public accountants shall select such accounting firm which shall be a firm other than KPMG, Coopers & Lybrand or Ernst & Young. The determination of such firm shall be final and binding upon the parties. Such firm shall render its determination as soon as practicable after referral of the Audited Balance Sheet Disagreement. The fees and expenses of such firm with respect to the Audited Balance Sheet Disagreement shall be paid by Concurrent and Harris as follows: 30% of such fees shall be paid by the party whose position in the Audited Balance Sheet Disagreement submitted to the arbiter is closest to the final determination of the accounting firm selected, and the remaining 70% of such fees shall be paid by the other party. (b) Net Current Asset Reconciliations. (i) Not later than 5 business days prior to the Closing, Harris shall deliver to Concurrent a projected reconciliation, certified by the chief financial officer of Harris, which shall set forth the portion of the current assets of the Business to be assigned, transferred and sold to Concurrent pursuant to the terms hereof as of June 30, 1996 (the "Reference Date") and the current liabilities of the Business which are not to be retained by Harris as of the Reference Date (the "Projected Net Current Asset Reconciliation"). The Projected Net Current Asset Reconciliation shall, except as set forth in this subsection (i), be prepared in accordance with GAAP consistent with the accounting principles used in preparation of the Audited Balance Sheet and prepared in accordance with the additional procedures set forth in Schedule 2.3(b) hereto. Harris shall cause KPMG to prepare promptly after the Reference Date, but in no event more than 30 days following the Reference Date, consistent with (i) the provisions of Schedule 2.3(b) and (ii) the Projected Net Current Asset Reconciliation (to the extent it does not conflict with Schedule 2.3(b)), a reconciliation of the portion of the current assets of the Business assigned, transferred and sold to Concurrent as of the Reference Date and the current liabilities of the Business which were not retained by Harris as of the Reference Date (the "Final Net Current Asset A-4 205 Reconciliation" and with the Projected Net Current Asset Reconciliation, the "Net Current Asset Reconciliations"). (ii) Following delivery of the Final Net Current Asset Reconciliation, Harris shall promptly make available to Concurrent all available work papers (including those relating to inventories and accounts receivable) of KPMG created in connection with the preparation of the Final Net Current Asset Reconciliation. Harris shall cause the representatives of KPMG to be available to promptly assist Concurrent and its auditors in its review of such work papers. In addition, in accordance with Section 6.6, Concurrent and its auditors shall be entitled to review the books and records of Harris relating to the Business. (iii) Concurrent may dispute the Final Net Current Asset Reconciliation by giving written notice to Harris within 30 days after delivery of the Final Net Current Asset Reconciliation to Concurrent, setting forth in reasonable detail the basis for such dispute (hereinafter called a "Reconciliation Disagreement"). The parties shall promptly commence good faith negotiations with a view to resolving such Reconciliation Disagreement, which resolution shall be not later than 70 days after the Closing Date. (iv) If Concurrent or Harris delivers a written notice to the other party that a Reconciliation Disagreement is unable to be resolved, such Reconciliation Disagreement shall be referred to a nationally recognized accounting firm other than KPMG, Coopers & Lybrand or Ernst & Young for determination of the disputed amounts in accordance with this Agreement. If Concurrent and Harris do not promptly agree on the selection of a nationally recognized accounting firm, their respective independent public accountants shall select such accounting firm which shall be a firm other than KPMG, Coopers & Lybrand or Ernst & Young. The determination of such firm shall be final and binding upon the parties. Such firm shall render its determination as soon as practicable after referral of the Reconciliation Disagreement. The fees and expenses of such firm with respect to a Reconciliation Disagreement shall be paid by Concurrent and by Harris as follows: 30% of such fees shall be paid by the party whose position in the Reconciliation Disagreement submitted to the arbiter is closest to the final determination of the accounting firm selected, and the remaining 70% of such fees shall be paid by the other party. (c) Adjustment to Preferred Stock Consideration. (i) After delivery of the Projected Net Current Asset Reconciliation and prior to the Closing, the Preferred Stock Consideration shall be adjusted by reducing the total $10,000,000 liquidation preference and stated value thereof, dollar for dollar, to the extent that total current assets minus the total current liabilities (such difference, the "Net Assets") shown on such Projected Net Current Asset Reconciliation is less than $14,400,000. Such reduced amount of Preferred Stock Consideration, if there shall be any reduction, shall be the actual amount of such consideration delivered to Harris at the Closing. (ii) After the Closing, additional reductions, if any, in the liquidation preference of the Preferred Stock Consideration shall be in accordance with the terms of the Certificate of Designation. In accordance with the terms of the Certificate of Designation, if the Net Assets shown on the Final Net Asset Reconciliation (after resolution of all Reconciliation Disagreements) is in excess of the Net Assets shown on the Projected Net Asset Reconciliation, then the liquidation preference and stated value of the Preferred Stock Consideration delivered at Closing shall be increased, dollar for dollar, to the extent of such excess up to $10,000,000 and any remainder of such excess shall be paid, dollar for dollar, in cash as soon as practicable after the determination of such excess. Section 2.4 Ancillary Agreements; Certificate of Designation. (a) On the Closing Date, the parties hereto shall enter into (1) leases to be mutually agreed to by the parties hereto prior to Closing, (2) a Shared Services Agreement to be mutually agreed to by the parties hereto prior to Closing, (3) a Non-Competition/ Distribution Agreement, to be mutually agreed to by the parties hereto prior to Closing, and (4) a Share Holding Agreement, substantially in the form of Exhibit C hereto. The foregoing agreements and any other agreements the parties hereto determine to be necessary to effectuate this Agreement and the transactions contemplated hereby and mutually agree shall be considered "Ancillary Agreements" referred to herein as the "Ancillary Agreements". A-5 206 (b) Prior to the Closing, the Board of Directors of Concurrent shall have also adopted the Certificate of Designation. Section 2.5 Allocation of Purchase Price. Concurrent shall prepare and deliver, and Concurrent and Harris shall mutually agree to, the allocation of the Purchase Price and the Assumed Liabilities among the Assets to be purchased hereunder which allocation shall be reflected on Schedule 2.5 and which shall be finalized as of the Closing Date but shall be adjusted to take account of any post-closing purchase price adjustments (the "Allocation"). The Allocation shall be made in accordance with Section 1060 of the Internal Revenue Code (the "Code") and applicable Treasury regulations. Each of Harris and Concurrent shall (i) be bound by the Allocation for purposes of determining any Taxes (as defined in Section 4.10), (ii) prepare and file, and cause its affiliates to prepare and file, its Tax Returns (as defined in Section 4.10) on a basis consistent with the Allocation and (iii) take no position, and cause its affiliates to take no position, inconsistent with the Allocation of any applicable Tax Return, in any proceeding before any taxing authority or otherwise. In the event that the Allocation is disputed by any taxing authority, the party receiving notice of the dispute shall promptly notify the other party hereto of the receipt of such notice. ARTICLE III CLOSING Section 3.1 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place (a) at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, on June 30, 1996 or as soon as practicable following the satisfaction (or waiver) of the conditions set forth in Article VIII, whether earlier or later than June 30, 1996 or (b) at such other date, time or place as the parties shall mutually agree (the "Closing Date"). Section 3.2 Deliveries by Harris. At or prior to the Closing, Harris shall deliver or shall cause to be delivered the following documents to Concurrent: (a) Cash by wire transfer in immediately available funds to an account designated by Concurrent in the amount of the cash set forth on the Projected Net Current Asset Reconciliation. (b) Certificates representing the Purchased Harris Shares. (c) A duly executed bill of sale and assignment with respect to the Assets in the form mutually agreed to by the parties hereto. (d) (i) A duly executed instrument of assignment, in recordable form, sufficient to transfer title in the Business Intellectual Property Rights to Concurrent in the form mutually agreed to by the parties hereto and (ii) such other duly executed individual instruments of assignments in recordable form appropriate to transfer title in the Business Intellectual Property Rights to Concurrent in the jurisdiction in which the Business Intellectual Property Rights are registered or in which an application for registration is pending in the form mutually agreed to by the parties hereto. (e) Such other duly executed instruments of conveyance and transfer as may be reasonably requested by Concurrent prior to the Closing Date. (f) Opinions of counsel to Harris mutually agreed to by the parties hereto. (g) The certificates required by Sections 8.2(a) and 8.2(b) hereof relating to truthfulness of representations and warranties and the performance of all covenants of Harris hereunder. (h) The records and files of the Business in the manner requested by Concurrent, including the corporate documents of the Transferred Subsidiaries, which records, files and documents shall remain at the premises of such Transferred Subsidiaries and be deemed to be delivered to Concurrent. (i) Certificates representing the Harris Subsidiary Shares, if any, accompanied by stock powers duly executed in blank or duly executed stock transfer forms or instruments of transfer, with any requisite documentary or stock transfer taxes affixed thereto. A-6 207 (j) The consents set forth on Schedule 8.2(d). (k) Duly executed counterparts of the Ancillary Agreements. (l) The resignation of E. Courtney Siegel as a director and an executive officer of Harris. (m) The Audited Balance Sheet. (n) Separate statutory financial statements for each of the Transferred Subsidiaries as of and for the periods ended September 30, 1994 and September 30, 1995, respectively. (o) Such other documents reasonably requested by Concurrent prior to the Closing Date. Section 3.3 Deliveries by Concurrent. At or prior to the Closing, Concurrent shall deliver or shall cause to be delivered the following to Harris: (a) Certificates representing the Common Stock Consideration. (b) Certificates representing the Preferred Stock Consideration, as adjusted, if at all, prior to the Closing pursuant to the terms hereof. (c) Duly executed instruments of assumption, in the form mutually agreed to by the parties hereto. (d) Such other duly executed instruments of assumption as may be reasonably requested by Harris prior to the Closing Date. (e) Duly executed counterparts of the Ancillary Agreements. (f) Opinions of counsel to Concurrent mutually agreed to by the parties hereto. (g) The certificates required by Sections 8.3(a) and 8.3(b) hereof relating to the truthfulness of representations and warranties, and the performance of all covenants of Concurrent. (h) The determinations and declarations required by Section 8.3(f) hereof. (i) A certified copy of the Certificate of Designation. (j) Such other documents reasonably requested by Harris prior to the Closing Date. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HARRIS Harris represents and warrants to Concurrent as follows: Section 4.1 Organization Etc. (a) Harris and each of its Subsidiaries (as defined below) is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite corporate power and authority to own, lease and operate the assets owned and leased by it and to carry on its business as now being conducted, except where the failure to be so organized, existing or in good standing or to have such power and authority would not, individually or in the aggregate, have a Material Adverse Effect (as defined herein) on either Harris and its Subsidiaries taken as a whole or the Business. As used in this Agreement, the term "Material Adverse Effect" with respect to an entity (or group of entities taken as a whole) means such event, change or effect which is materially adverse to the business, properties, assets, liabilities, results of operations or financial condition of such entity (or group of entities taken as a whole). Harris and each of its Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not, individually or in the aggregate, have a Material Adverse Effect on either Harris and its Subsidiaries taken as a whole or the Business. For purposes of this Agreement, the term "Subsidiary" when used with respect to any party, means any entity of which such party (either alone A-7 208 or through or together with any other Subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such entity. (b) Harris has heretofore made available to Concurrent a complete and correct copy of the charter and by-laws or comparable organizational documents, each as amended to date, of Harris and each of its Subsidiaries. Such charters, by-laws and comparable organizational documents are in full force and effect. Neither Harris nor any of its Subsidiaries is in violation of any provision of its charter, by-laws or comparable organizational documents, except for such violations that would not, individually or in the aggregate, have a Material Adverse Effect on Harris or its Subsidiaries taken as a whole. Section 4.2 Capitalization. As of the date of this Agreement, the authorized capital stock of Harris consists of: (a) 20,000,000 shares of Harris Common Stock of which, as of March 17, 1996, 1,995,389 shares were issued and outstanding, no shares were held in treasury and (b) 5,000,000 shares of Preferred Stock, par value $0.01 per share, of which, as of the date hereof, no shares were issued and outstanding and 20,000 shares were reserved for issuance in accordance with the Stockholder Protection Rights Agreement dated as of September 15, 1994, by and between Harris and Society National Bank, as Rights Agent (the "Harris Rights Agreement"), pursuant to which Harris has issued rights (the "Harris Rights") to purchase shares of Harris Preferred Stock. As of December 31, 1995, not more than 325,000 shares of Harris Common Stock and as of March 17, 1996 not more than 675,000 shares of Harris Common Stock were reserved for issuance (i) upon exercise of outstanding options or for grants of restricted stock pursuant to the Harris Stock Incentive Plan (the "Harris Stock Plan") and (ii) upon exercise of outstanding options awarded to directors and employees outside the Harris Stock Plan. Except as permitted by Section 6.1 and Schedule 6.1, since the date hereof, Harris has not issued any shares of Harris Common Stock, except upon the exercise of options granted under the Harris Stock Plan which were outstanding on the date hereof. All the outstanding shares of Harris's capital stock are, and all shares which may be issued pursuant to the Harris Stock Plan will be, when issued and paid for in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and nonassessable and not subject to any preemptive rights of third parties in respect thereto. The Purchased Harris Shares when issued and paid for in accordance with the terms hereof will be duly authorized, validly issued, fully paid and nonassessable and not subject to any preemptive rights of third parties in respect thereto. Except as set forth above or on Schedule 4.2 hereto, as of the date of this Agreement, there are no existing options, warrants, calls, subscriptions or other rights or other agreements or commitments of any character relating to the issued or unissued capital stock of Harris or any of its Subsidiaries obligating Harris or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any shares of capital stock of, or other equity interests in, Harris or any of its Subsidiaries or securities convertible into or exchangeable for such shares or equity interests or obligating Harris or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement or commitment. As of the date of this Agreement, except as set forth on Schedule 4.2 hereto, there are no outstanding contractual obligations of Harris or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of Harris or any of its Subsidiaries. Each of the outstanding shares of capital stock of each of Harris's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and such shares are owned by Harris free and clear of any lien, claim, option, charge, security interest, limitation on voting rights and encumbrance of any kind, except as would not have a Material Adverse Effect on either Harris and its Subsidiaries taken as a whole or the Business. Section 4.3 Authority. Harris has the requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby (other than the approval and adoption of this Agreement and the transactions contemplated hereby by the affirmative vote of the holders of a majority of the outstanding shares of Harris Common Stock). The execution, delivery and performance of this Agreement and the Ancillary Agreements by Harris and the consummation by Harris of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Harris and no other corporate proceedings on the part of Harris are necessary to authorize this Agreement or the Ancillary Agreements or to consummate the transactions contemplated hereby or thereby (other than the approval and adoption of this A-8 209 Agreement and the transactions contemplated hereby by the affirmative vote of a majority of the outstanding shares of Harris Common Stock). This Agreement has been, and when executed the Ancillary Agreements will be, duly executed and delivered by Harris and, assuming this Agreement, and the Ancillary Agreements when executed, constitute valid and binding obligations of Concurrent, constitute, or will constitute, valid and binding obligations of Harris, enforceable against Harris in accordance with their terms. Section 4.4 Consents and Approvals; No Violations. (a) Except as set forth on Schedule 4.4(a) hereto and except for filings, permits, authorizations, notices, consents and approvals as may be required under, and other applicable requirements of, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of 1933, as amended (the "Securities Act"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the FBCA, certain state takeover statutes or state securities or blue sky laws, neither the execution, delivery or performance of this Agreement and the Ancillary Agreements by Harris nor the consummation by Harris of the transactions contemplated hereby and thereby and compliance by Harris with any of the provisions hereof and thereof will (i) conflict with or result in any breach of any provisions of the certificate of incorporation or by-laws or comparable organizational documents of Harris or any of its Subsidiaries, (ii) require any filing with, or permit, authorization, consent or approval of, any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency (a "Governmental Entity") (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not prevent or delay consummation of the transactions contemplated by this Agreement and the Ancillary Agreements in any material respect and would not, individually or in the aggregate, have a Material Adverse Effect on either Harris and its Subsidiaries taken as a whole or the Business), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, or result in the creation of any lien or other encumbrance on any property or asset of Harris or any of its Subsidiaries pursuant to, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Harris or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Harris or any of its Subsidiaries or by which any property or asset of Harris or any of its Subsidiaries is bound or affected, except, in the case of clauses (iii) and (iv), for violations, breaches, defaults or other occurrences which would not prevent or delay consummation of this Agreement or the Ancillary Agreements or the transactions contemplated hereby or thereby in any material respect and would not, individually or in the aggregate, have a Material Adverse Effect on either Harris and its Subsidiaries taken as a whole or the Business. (b) Except as disclosed in the Harris SEC Documents (as defined in Section 4.5) or on Schedule 4.4(b) hereto, neither Harris nor any of its Subsidiaries is in conflict with, or in default or violation of, (i) any order, writ, injunction, decree, statute, rule or regulation of any Governmental Entity applicable to Harris or any of its Subsidiaries or by which any of them or any of their properties or assets may be bound or (ii) any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Harris or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or affected, except for any such conflicts, defaults or violations which have not had and are not likely to have a Material Adverse Effect on either Harris and its Subsidiaries taken as a whole or the Business. Section 4.5 SEC Reports and Financial Statements. Harris has filed with the Securities and Exchange Commission (the "SEC"), and has heretofore made available to Concurrent true and complete copies of all forms, reports and documents required to be filed by it since June 30, 1994, under the Exchange Act or the Securities Act (as such documents have been amended since the time of their filing, collectively, the "Harris SEC Documents"). The Harris SEC Documents, including without limitation any financial statements or schedules included therein, at the time filed, (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied in all material respects with the applicable requirements of the Exchange Act or the Securities Act, as the case may be. The financial statements of Harris included in the Harris SEC Documents complied as to form in all material A-9 210 respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted on Harris's Form 10-Q as filed with the SEC under the Exchange Act) and fairly present (subject, in the case of the unaudited statements, to normal, recurring audit adjustments which will not be material in amount or effect) the consolidated financial position of Harris and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. Except as reflected, reserved against or otherwise disclosed in the financial statements of Harris included in the Harris SEC Documents or as disclosed on Schedule 4.5 hereto, neither Harris nor any of its Subsidiaries has any liabilities or obligations (absolute, accrued, fixed, contingent or otherwise) material to Harris and its Subsidiaries taken as a whole that would be required to be reflected on, or reserved against in, a balance sheet of Harris or the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied. Section 4.6 Information in Disclosure Documents. None of the information supplied or to be supplied by Harris in writing specifically for inclusion or incorporation by reference in the joint proxy statement relating to the meeting of the stockholders of Harris and Concurrent (respectively, the "Harris Stockholder Meeting" and the "Concurrent Stockholder Meeting" and collectively, the "Stockholder Meetings") to be held in connection with the transactions contemplated by this Agreement (the "Proxy Statement") will, at the time the Proxy Statement is filed with the SEC, at the time such Proxy Statement is mailed to stockholders of Harris and Concurrent, at the times of the Stockholder Meetings to be held in connection with the transactions contemplated by this Agreement and at the Closing Date, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will, when filed with the SEC, comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder, except that no representation is made by Harris with respect to statements made therein based on information supplied by Concurrent in writing specifically for inclusion in the Proxy Statement. Section 4.7 Litigation. Except as disclosed in the Harris SEC Documents or on Schedule 4.7 hereto, there is no suit, claim, action, proceeding or investigation pending or, to the best knowledge of Harris, threatened, against Harris or any of its Subsidiaries before any Governmental Entity which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on either Harris or any of its Subsidiaries taken as a whole or the Business or a Material Adverse Effect on the ability of Harris to consummate the transactions contemplated by this Agreement. Except as disclosed in the Harris SEC Documents or on Schedule 4.7 hereto, neither Harris nor any of its Subsidiaries is subject to any outstanding order, writ, injunction or decree which, insofar as can be reasonably foreseen, individually or in the aggregate, would in the future have a Material Adverse Effect on either Harris or any of its Subsidiaries taken as a whole or the Business or a Material Adverse Effect on the ability of Harris to consummate the transactions contemplated by this Agreement. Harris has, in accordance with GAAP, made adequate provision in its financial statements for the payment of losses arising out of suits, claims, actions, proceedings or investigations disclosed in the Harris SEC Document or on Schedule 4.7 and such provision has continued to be adequate. Section 4.8 Absence of Certain Changes. Except as disclosed in the Harris SEC Documents or on Schedule 4.8 hereto, since September 30, 1995, Harris has conducted its business only in the ordinary course of such business and there has not been (a) any material adverse change in either Harris and its Subsidiaries taken as a whole or the Business, (b) any declaration, setting aside or payment of any dividend or other distribution with respect to its capital stock or (c) any material change in its accounting principles, practices or methods. Section 4.9 Opinion of Financial Advisor. Harris has received the opinion of Bear, Stearns & Co. Inc., its financial advisor, to the effect that, as of the date of this Agreement, the transactions contemplated hereby are fair, from a financial point of view, to the stockholders of Harris. A-10 211 Section 4.10 Tax Matters. (a) Harris and each of its Subsidiaries has duly filed all, or as of the Closing Date will have filed, all Tax Returns (as defined in Section 4.10(e)) required to be filed by it or its Subsidiaries on or before the Closing Date, and such Tax Returns are or will be true, correct and complete in all material respects. Harris and its Subsidiaries have duly paid, caused to be paid, or made adequate provision in the Harris SEC Documents in accordance with GAAP for the payment of all Taxes (as defined in Section 4.10(d)) required to be paid in respect of all periods covered by such Tax Returns. Harris has made adequate provision in accordance with GAAP for the payment of all Taxes anticipated to be payable in respect of all taxable periods or portions thereof ending on or before the Closing Date since the periods covered by such Tax Returns. (b) (i) The reserves for Taxes (except for deferred Taxes) reflected in the Harris SEC Documents are sufficient for the payment of all unpaid Taxes (whether or not currently disputed) accrued through the date thereof. Since September 30, 1995, neither Harris nor its Subsidiaries have incurred any material liability for Taxes other than in the ordinary course of business consistent with past practice. Harris and its Subsidiaries are qualified or registered to do business in the states and localities set forth on Schedule 4.10(b)(i) hereto. Except as set forth on Schedule 4.10(b)(i) hereto, there are no liens for Taxes upon the assets of Harris or its Subsidiaries except for statutory liens for current Taxes not yet due. (ii) The Tax Returns filed by Harris have been examined by the Internal Revenue Service (the "IRS") or other appropriate taxing authority, for all taxable years as set forth on Schedule 4.10(b)(ii) hereto. Except as set forth on Schedule 4.10(b)(ii) hereto, all deficiencies and assessments asserted as a result of such examinations or other audits by federal, state, local or foreign taxing authorities have been paid, fully settled or adequately provided for in the Harris SEC Documents in accordance with GAAP, and no issue or claim has been asserted for Taxes by any taxing authority for any prior period, the adverse determination of which would result in a deficiency which would have a Material Adverse Effect on either Harris and its Subsidiaries taken as a whole or the Business, other than those heretofore paid or provided for. Except as disclosed on Schedule 4.10(b)(ii) hereto, no issue has been raised during the past five years by any federal, state, local or foreign taxing authority which, if raised with regard to any other period not so examined, could reasonably be expected to result in a proposed deficiency for any other period not so examined. (c) (i) Except as set forth on Schedule 4.10(c) hereto, there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Tax Return of Harris or its Subsidiaries. Except as set forth on Schedule 4.10(c) hereto, neither Harris nor any of its Subsidiaries (x) has been a member of a group filing consolidated returns for federal income tax purposes, or (y) is a party to a tax sharing or tax indemnity agreement or any other agreement of a similar nature that remains in effect. Except as set forth on Schedule 4.10(c) hereto, no power of attorney has been executed by, or on behalf of Harris or its Subsidiaries with respect to any matter relating to Taxes which is currently in force. (ii) Neither Harris nor any of its Subsidiaries has filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(2) of the Code) owned by Harris or any of its Subsidiaries. (iii) The respective net operating losses, net operating loss carryforwards and tax credit carryforwards, if any, of each of the Transferred Subsidiaries for all federal, state, local and foreign tax purposes as of December 29, 1995, are as set forth on Schedule 4.10(c)(iii) hereto. (d) As used in this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments, including, without limitation, income, gross receipts, excise, property, sales, transfer, use (or any similar taxes), license, payroll, withholding, social security, capital stock and franchise taxes, imposed by any federal, state, local or foreign taxing authority, including any interest, penalties or additions thereto. As used in this Agreement, the term "Tax Return" shall mean any report, return or other information or document required to be supplied to a taxing authority in connection with Taxes. A-11 212 (e) Neither Harris nor any of its Subsidiaries has committed any breach of any representation or covenant contained in the Tax Sharing Agreement (as defined herein) or made in connection with the opinion rendered by Sullivan & Cromwell (as described in Section 1.12(a) of the Tax Sharing Agreement), in each case relating to the qualification of the Distribution (as defined herein) as a distribution pursuant to Section 355 of the Code, and none of the actions contemplated by this Agreement shall result in or otherwise give rise to a breach of any such representation or covenant. As used in this Agreement, the term "Distribution" shall refer to the distribution of Harris Common Stock pursuant to the Distribution Agreement by and between Harris and Harris Corporation dated September 16, 1994 and "Tax Sharing Agreement" shall refer to the Tax Disaffiliation Agreement by and between Harris and Harris Corporation dated September 13, 1994. Section 4.11 Vote Required. The only votes of the holders of any class or series of Harris's capital stock necessary to approve the transactions contemplated hereby are the affirmative vote of a majority of (a) all votes entitled to be cast by the holders of Harris Common Stock with respect to this Agreement and the transactions contemplated hereby and (b) the total votes cast by the holders of Harris Common Stock, in a separate vote, with respect to an amendment to the Harris Stock Plan (the "Harris Stock Plan Amendment") to increase the number of shares of Harris Common Stock reserved and available for issuance under the Harris Stock Plan to 2,025,000 shares of Harris Common Stock. Section 4.12 Employee Benefit Plans; ERISA. (a) Schedule 4.12(a) contains a true and complete list of each bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance or termination pay, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit-sharing, pension, or retirement plan, program, agreement or arrangement, and each other employee benefit plan, program, agreement or arrangement, sponsored, maintained or contributed to or required to be contributed to by Harris or by any trade or business, whether or not incorporated (a "Harris ERISA Affiliate"), that together with Harris would be deemed a "single employer" within the meaning of section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the benefit of any employee or terminated employee of Harris or any Harris ERISA Affiliate (the "Harris Plans"). Schedule 4.12(a) identifies each of the Harris Plans that is an "employee benefit plan," as that term is defined in section 3(3) of ERISA (the "Harris ERISA Plans"). (b) With respect to each Harris Plan, Harris has heretofore delivered to Concurrent true and complete copies of each of the following documents: (i) a copy thereof; (ii) a copy of the most recent annual report and actuarial report, if required under ERISA and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87, Employer's Accounting for Pensions; (iii) a copy of the most recent Summary Plan Description required under ERISA with respect thereto; (iv) if the Harris Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement and the latest financial statements thereof; and (v) the most recent determination letter received from the IRS with respect to each Harris Plan intended to qualify under section 401 of the Code. (c) Neither Harris nor any Harris ERISA Affiliate maintains or has ever maintained an ERISA Plan subject to Title IV of ERISA. (d) No Harris ERISA Plan is a "multiemployer pension plan," as defined in section 3(37) of ERISA, nor is any Harris ERISA Plan a plan described in section 4063(a) of ERISA. (e) Each Harris Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code. A-12 213 (f) To the best knowledge of Harris, each Harris ERISA Plan intended to be "qualified" within the meaning of section 401(a) of the Code is so qualified and the trusts maintained thereunder are exempt from taxation under section 501(a) of the Code. (g) No Harris Plan provides benefits, including death or medical benefits (whether or not insured), with respect to current or former employees of Harris or any Harris ERISA Affiliate beyond their retirement or other termination of service (other than (i) coverage mandated by applicable law or (ii) death benefits or retirement benefits under any "employee pension plan," as that term is defined in section 3(2) of ERISA). (h) There are no pending, threatened or anticipated claims by or on behalf of any Harris Plan, by any employee or beneficiary covered under any such Harris Plan, or otherwise involving any such Harris Plan (other than routine claims for benefits). (i) Except with respect to the Harris Options which are set forth on Schedule 4.12(i) hereto and shall continue to have the vesting schedule in effect on the date hereof, at the Closing Date, all Harris Options then outstanding under the Harris Stock Plan shall become exercisable and vested to the extent provided for pursuant to the stock option agreements under which such Harris Options were granted. (j) As of the Closing Date, full payment will have been made or accrued in accordance with GAAP, and to the extent applicable, section 412 of the Code of all amounts required to be paid under the terms of each of the Harris Plans and any other similar fringe or employee benefit plans, programs or arrangements applicable to employees of the Transferred Subsidiaries (the "Transferred Subsidiaries Benefit Plans") as contributions to such plans. (k) Listed on Schedule 4.12(k) is a description of each of the Transferred Subsidiaries Benefit Plans that provides post-retirement medical, health or other post-retirement benefits to employees. (l) Where applicable, the Transferred Subsidiaries Benefit Plans required to be registered with applicable regulatory authorities have been registered and have been maintained in good standing with such applicable regulatory authorities. Section 4.13 Applicability of Certain Laws. The provisions of Section 607.0901-.0903 ("Control-Share Acquisitions") and Section 607.1302(1)-(3) ("Right of Stockholders to Dissent"), respectively, of the FBCA will not apply to this Agreement or any of the transactions contemplated hereby. Section 4.14 Major Contracts. Except as disclosed in the Harris SEC Documents or as set forth on Schedule 4.14 hereto, neither Harris nor any of its Subsidiaries is a party to or subject to: (a) Any joint venture contract or arrangement or any other agreement which has involved or is expected to involve a sharing of profits with other persons; (b) Any existing OEM agreement, distribution agreement, volume purchase agreement, or other similar agreement in which the annual amount involved in 1995 exceeded or is expected to exceed in fiscal 1996 $500,000 in aggregate amount or pursuant to which Harris has granted or received exclusive marketing rights related to any product, group of products or territory; (c) Any material license agreement, either as licensor or licensee (excluding nonexclusive software licenses granted to customers or end-users in the ordinary course of business) involving the payment of at least $250,000; (d) Any contract containing covenants purporting to limit Harris's freedom or that of any of its Subsidiaries to compete in any line of business in any geographic area; (e) Any mortgage, loan agreement, note, or guarantee of obligations of others for borrowing of money in excess of $50,000; (f) Any agreement or arrangement for the purchase or sale of any Assets, or for the grant of any preferential right to purchase any of the Assets, other than in the ordinary course of business or would exceed $50,000; A-13 214 (g) Any lease for Equipment or other personal property involving an aggregate commitment of $50,000 ; (h) Any agreement, contract or commitment for maintenance, consulting, engineering or other services involving an aggregate commitment of $50,000 or more on an annual basis; (i) Any agreement, contract or commitment for purchase of materials or supplies (other than capital equipment), or any group of such agreements, contracts or commitments with a single vendor, involving an aggregate commitment of $100,000 or more on an annual basis; (j) Any agreement, contract or commitment for purchase of capital equipment under which the remaining commitment is $50,000 or more; (k) Any distribution, dealer, manufacturer's representative, sales agency or franchise contract not terminable without penalty within 90 days and in excess of $50,000; and (l) Any shareholders' agreements relating to any of Harris's Subsidiaries. Each of the contracts set forth in Schedule 4.14 is in full force and effect. Harris is not in default, and there are no existing acts, events or conditions (other than the transactions contemplated hereby) which, with notice or lapse of time, or both, will result in a material default by Harris under any of the contracts. Section 4.15 Interests of Officers and Directors. Except as disclosed on Schedule 4.15 hereto or in the Harris SEC Documents, no officer or director of Harris or any of its Subsidiaries or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the Securities Act) of any such person has had, either directly or indirectly, a material interest in: (a) any person or entity which purchases from or sells, licenses or furnishes to Harris or any Subsidiary any goods, property, technology or intellectual or other property rights or services; (b) any contract or agreement to which Harris or any of its Subsidiaries is a party or by which it may be bound or affected; or (c) any property, real or personal, tangible or intangible, used in or pertaining to the Business, including any interest in the Harris Intellectual Property Rights (as defined herein), except for rights as a stockholder, and except for rights under any Harris Plan. Section 4.16 Intellectual Property. (a) Harris and any of the Transferred Subsidiaries own, or are licensed or otherwise entitled to exercise all rights in and to, all domestic and foreign patents, trademarks, trade names, service marks, copyrights, mask works, trade secrets and other intellectual property rights, and any applications, registrations, certificates and/or Letters Patent therefor, and all net lists, schematics, sketches, drawings, notebooks, reports, memoranda, prints, drafts, worksheets, and any other writings, methods and practices, business information, procedures, technology, source code, know-how, computer software programs and all other tangible and intangible information or material, and all goodwill associated with any of the foregoing, including goodwill in respect of trademarks, that are used in the operation of the Assets as currently operated (collectively, the "Business Intellectual Property Rights"). Harris or any of its Subsidiaries own or are licensed or otherwise are entitled to exercise all rights in and to all of the foregoing types of intellectual property used in the operation of the Trusted Systems Business (such other intellectual property, together with the Business Intellectual Property Rights, the "Intellectual Property Rights"). There are no restrictions applicable to the Business Intellectual Property Rights that interfere in any material respect with the current use of such Business Intellectual Property Rights. (b) Schedule 4.16(b) hereto is a complete and accurate list of the Business Intellectual Property Rights. For each item listed thereon, Schedule 4.16(b) hereto identifies the owner thereof and, if the owner is not Harris or any of the Transferred Subsidiaries, the means by which Harris or any of the Transferred Subsidiaries obtains rights thereto, and which party obtains such rights. Schedule 4.16(b) hereto identifies all oral or written licenses, agreements and other arrangements for any Business Intellectual Property Rights between any two or more of Harris and its Subsidiaries, the parties thereto and the subject matter thereof. (c) Schedule 4.16(c) hereto lists all of the currently marketed products of the Business and an indication as to which, if any, of such products are the subject of certificates of copyright issued by the United States Copyright Office, and any similar office or agency of any foreign country or jurisdiction, and/or are the A-14 215 subject of applications for patent or original Letters Patent in the United States or any foreign country or jurisdiction. (d) Neither Harris nor any of its Subsidiaries is, or as a result of the execution and delivery of this Agreement or the other transactions contemplated hereby or the performance of Harris's obligations hereunder will be, in violation of, or lose any rights pursuant to any license, sublicense or agreement that is materially related to a Business Intellectual Property Right and is described in the disclosure schedule attached to this Agreement (the "Disclosure Schedule") with respect to Harris. (e) Harris and one of the Transferred Subsidiaries is the owner or licensee of the Business Intellectual Property Rights, and Harris and one of the Subsidiaries is the owner of all other Intellectual Property Rights, with all necessary right, title and interest in and to the same free and clear of any liens, encumbrances or security interests. Except as set forth on Schedule 4.16(e) hereto, neither Harris nor any of its Subsidiaries is contractually obligated to pay any compensation to any third party in an amount in excess of $250,000 in respect to the use of any of the Intellectual Property Rights or the material covered thereby in connection with the services or products being manufactured and/or used and/or sold by Harris or any of its Subsidiaries. (f) No claims with respect to the Intellectual Property Rights have been asserted or, to the best knowledge of Harris, after reasonable investigation, are threatened by any person. Harris knows of no claims: (i) to the effect that the manufacture, offer for sale, sale or use of any product as now used or offered by Harris or any of its Subsidiaries, or the use thereof by any customer or licensee of Harris or any of its Subsidiaries infringes any copyright, patent, trademark or service mark, or violates any trade secret rights, or other intellectual property rights of any third party, (ii) challenging the ownership or validity of any of the Intellectual Property Rights. (g) To the best knowledge of Harris, all patents and registered trademarks, service marks, copyrights and patents held by Harris or any of its Subsidiaries are valid and subsisting. (h) To the best knowledge of Harris, there has not been and there is not now any material unauthorized use, infringement or misappropriation of any of the Intellectual Property Rights by any third party, including, without limitation, any employee or former employee of Harris or any of its Subsidiaries; neither Harris nor any of its Subsidiaries has been sued or charged in writing as a defendant in any claim, suit, action or proceeding which involves a claim of infringement of any patents, trademarks, service marks, copyrights or other intellectual property rights and which has not been finally terminated prior to the date hereof; there are no such charges or claims outstanding; and to the best knowledge of Harris neither Harris nor any of its Subsidiaries has any infringement liability with respect to any patent, trademark, service mark, copyright or other intellectual property right of another. (i) No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting in any manner the licensing or other disposition thereof by Harris or any of its Subsidiaries. Except with respect to products and software described in the Night Hawk Product Catalog a true and complete copy of which has been delivered to Concurrent, neither Harris nor any of its Subsidiaries has entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property Right. Neither Harris nor any of its Subsidiaries has entered into any agreement granting any third party the right to bring infringement actions with respect to, or otherwise to enforce rights with respect to, any Intellectual Property Right. (j) Harris and its Subsidiaries have the exclusive right to file, prosecute and maintain all applications, certificates, registrations and Letters Patent with respect to the Intellectual Property Rights owned by Harris or its Subsidiaries. Harris or any of its Subsidiaries is listed in the records of the appropriate agency as the sole owner of record for each registration, grant, Letters Patent and application listed on Schedule 4.16(b) hereto as owned by Harris or any of the Subsidiaries. All registration and maintenance fees that have become due and payable with respect of such Intellectual Property Rights have been paid. (k) To the best knowledge of Harris, no act has been done, or omitted to be done, by Harris or any of its Subsidiaries to impair or dedicate to the public or to entitle any governmental authority to cancel, forfeit, modify or hold abandoned any of the Intellectual Property Rights. A-15 216 (l) Harris and its Subsidiaries, with respect to all Intellectual Property Rights owned and/or developed thereby, have taken or caused to be taken all reasonable steps to obtain and retain valid and enforceable intellectual property rights therein, including, without limitation, the use of non-disclosure agreements adequate to protect the proprietary nature of any confidential information disclosed by Harris or any of its Subsidiaries to third parties. (m) Schedule 4.16(m) hereto sets forth a complete and accurate list of all licenses, assignments and other agreements pursuant to which Harris, or any of its Subsidiaries, grants rights to any third party in and to any of the Business Intellectual Property Rights. (n) To the best knowledge of Harris, the components of all software, hardware and firmware that are material to the Assets and are used or currently proposed to be used in the operation of the Assets and the Excluded Assets as currently operated are (i) owned by Harris and any of the Subsidiaries, or (ii) currently in the public domain or otherwise available to Harris and any of its Subsidiaries without the approval or consent of any third party, or (iii) used by Harris or any of its Subsidiaries, or included in any of their products, pursuant to rights granted to Harris or any of its Subsidiaries pursuant to a written license or lease from a third party. Section 4.17 Questionable Payments. Neither Harris nor any of its Subsidiaries nor to its best knowledge any director, officer or other employee of Harris or any of its Subsidiaries has: (a) corruptly made any payments or provided services in the United States or in any foreign country in order to obtain preferential treatment or consideration by any Governmental Entity in order to obtain or retain business for Harris or any of its Subsidiaries in violation of Section 30A of the Exchange Act; or (b) made any political contributions unlawful under the laws of the United States and the foreign country in which such payments were made. Neither Harris nor any of its Subsidiaries nor to its best knowledge any director, officer or other employee of Harris or any of its Subsidiaries has been the subject of any inquiry or investigation by any Governmental Entity relating to the conduct described above in this Section 4.17. Section 4.18 Insurance. Except as set forth on Schedule 4.18 hereto, Harris and each of its Subsidiaries is, and has been continuously since at least October 7, 1994, insured with financially responsible insurers in such amounts and against such risks and losses as are customary in all material respects for companies conducting the Business as conducted by Harris and its Subsidiaries during such time period. Except as set forth on Schedule 4.18 hereto, neither Harris nor any of its Subsidiaries has received any notice of cancellation or termination with respect to any material insurance policy of Harris or any of its Subsidiaries. The insurance policies of Harris and its Subsidiaries are valid and enforceable policies in all material respects. Section 4.19 No Brokers. Harris has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Harris or Concurrent to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that Harris has retained Bear, Stearns & Co. Inc. as its financial advisor, the arrangements with which have been disclosed in writing to Concurrent prior to the date hereof. Other than the foregoing arrangement or as disclosed in Section 5.19, Harris is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. Section 4.20 Environmental. (a) Except as set forth on Schedule 4.20(a) hereto, Harris and its Subsidiaries are in compliance in all material respects with all applicable Environmental Laws (as defined herein). Except as set forth on Schedule 4.20(a) hereto, Harris has not received any communication (written or oral), whether from a governmental authority, citizen group, employee or otherwise, that alleges that Harris is not in such compliance, and, to Harris's best knowledge after due inquiry, there are no circumstances that may prevent or interfere with such compliance in the future. Except as set forth on Schedule 4.20(a) hereto, Harris has not received in the past five years any written request for information from a governmental authority concerning or relating to the treatment, transportation or disposal of any Materials of Environmental Concern (as defined herein). Except A-16 217 as set forth on Schedule 4.20(a) hereto: Harris has acquired all necessary permits, licenses, approvals and other governmental authorizations necessary to operate in compliance with all applicable Environmental Laws; such permits, licenses, approvals and authorizations are currently valid; and Harris is in compliance in all material respects with such permits, licenses, approvals and authorizations. To Harris's best knowledge, after due inquiry, there are no circumstances that may prevent or interfere with the renewal of the permits, licenses, approvals and other governmental authorizations held by Harris pursuant to Environmental Laws. (b) Except as set forth on Schedule 4.20(b) hereto, there has been in the last five years and there is no Environmental Claim (as defined herein) pending or threatened against Harris or, to Harris's best knowledge after due inquiry, against any person or entity whose liability for any Environmental Claim Harris has or may have retained or assumed either contractually or by operation of law. (c) Except as set forth on Schedule 4.20(c) hereto, there are no past or present actions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge or disposal of any Material of Environmental Concern (as defined herein), that could form the basis of any Environmental Claim against Harris or, to Harris' best knowledge after due inquiry, against any person or entity whose liability for any Environmental Claim Harris has or may have retained or assumed either contractually or by operation of law. (d) As used in this Agreement, the term "Environmental Laws" means all federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. As used in this Agreement, the term "Environmental Claim" means any notice (written or oral) by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, clean-up costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (i) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned by Harris, Concurrent or any of their Subsidiaries or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. As used in this Agreement, the term "Materials of Environmental Concern" means chemicals, pollutants, hazardous substances, contaminants, toxic substances, hazardous waste, petroleum and petroleum products as those terms are defined by Environmental Laws. Section 4.21 Assets. (a) The lists of assets to be attached to the Bill of Sale to be delivered by Harris to Concurrent at the Closing will be a true and complete listing of Assets as of the Closing. (b) Schedule 1.1(b) is a true and complete listing of the Property used in both the Business and the Trusted Systems Business as of the date of this Agreement. (c) Schedule 1.2(a)(i) is a true and complete listing of all of the Property used in the Trusted Systems Business. (d) The Assets and the assets of the Transferred Subsidiaries, together with the other arrangements contemplated by this Agreement (including the Ancillary Agreements), constitute all the Property used in the operation of the Business as they are presently being operated by Harris and the Transferred Subsidiaries, and, except as otherwise contemplated by the terms hereof and the terms of the Ancillary Agreements, will enable Concurrent and the Transferred Subsidiaries to operate the Business immediately after the Closing as Harris and the Transferred Subsidiaries operated the Business immediately prior to the Closing. As of the Closing Date, all of the machines, equipment and other assets that constitute tangible personal property that are being operated in connection with the Business are in usable condition for the purpose for which they are intended subject to ordinary wear and tear and routine maintenance. Harris has, and, except as otherwise contemplated by the terms hereof (including Schedule 1.1(b) which describes the extent to which Shared Assets are transferred to Concurrent) or the terms of the Ancillary Agreements, at Closing Harris will deliver to A-17 218 Concurrent good and valid title to all of the tangible personal property included in the Assets subject to (i) any security interests, mortgages, liens, pledges, conditional sale or other title retention agreements, rights of first refusal, options, leases, adverse claims, or any other encumbrances (the "Encumbrances") relating to purchase money security interests entered into in the ordinary course of business consistent with past practice and reflected in the Audited Balance Sheet or the Final Net Current Asset Reconciliation; and (ii) Encumbrances relating to lessors' interests in leased tangible personal property. Harris has valid and subsisting leasehold interests in the Leased Properties. To the best knowledge of Harris after reasonable inquiry, the Transferred Subsidiaries have valid and subsisting leasehold interests in the leased property of the Transferred Subsidiaries. Upon the Closing, Concurrent shall acquire, directly or indirectly, the same right, title and interest in and to all of the assets, real or personal, of the Transferred Subsidiaries as held by Harris immediately prior to Closing. Section 4.22 Audited Balance Sheet. The Audited Balance Sheet and all financial statements or financial data with respect to the Business included in the Proxy Statement (the "Audited Base Financial Statements") will be prepared in accordance with GAAP and will present fairly, in all material respects, the financial position of the Business or portion thereof, as the case may be, as of the date or for the periods indicated therein. Section 4.23 Leased Properties. (a) Schedules 1.1(a)(i) and 1.1(b) contain an accurate and complete list of all Leases, including the name and address of the lessor of each such Leased Property, and the date of each of the Leases. Harris has delivered to Concurrent true and complete copies of all Leases. For purposes of Section 4.23, the term "Leases" shall include all leases, amendments thereto, assignments thereof, subleases, subordination and/or nondisturbance agreements and all other agreements creating, amending or modifying the leasehold estates in the Leased Properties. (b) With respect to the Leased Properties: (i) to the best knowledge of Harris, there are no material defects in the buildings, improvements and structures located thereon which would be reasonably expected to substantially impair the operation of the Business immediately preceding the Closing as compared with the operation of the Business by Harris on the date hereof; (ii) to the best knowledge of Harris, all Leases are in full force and effect, and constitute legal, valid and binding obligations of Harris, in accordance with their respective terms; (iii) no written waiver, indulgence or postponement of landlord's obligations thereunder has been granted by Harris and Harris has not received any such written waiver, indulgence or postponement of its obligations thereunder except as set forth on Schedule 4.23(b); and (iv) to the best knowledge of Harris, there exists no event of default, event, occurrence, condition or act (other than the transaction contemplated hereunder) which, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a material default thereunder. Section 4.24 Subsidiaries. (a) Schedule 4.24(a) contains a true and complete list of all Subsidiaries beneficially owned, directly or indirectly, by Harris and a description of those Subsidiaries that are involved in the conduct of the Business. (b) Schedule 4.24(b) contains a true and complete list of the authorized and issued capital stock of each of the Transferred Subsidiaries, and the record owners thereof. (c) Schedule 4.24(c) contains a complete list of the officers and directors of each of the Transferred Subsidiaries. (d) Upon delivery of certificates representing the Harris Subsidiary Shares to Concurrent or appropriate entries in the stock register, as the case may be, Concurrent shall acquire legal and beneficial ownership of, and shall have good and valid title to, the Harris Subsidiary Shares, free and clear of any Encumbrance, as analogous concepts are understood under applicable local laws. Upon delivery, all of the issued and outstanding shares of each Transferred Subsidiary will be duly authorized, validly issued, fully paid and non- assessable and not subject to any preemptive rights of third parties in respect thereto. A-18 219 Section 4.25 Outstanding Liabilities to Related Parties. There are no outstanding liabilities, contingent or otherwise, relating to the Business or that will arise out of the transactions contemplated by this Agreement (except as set forth in this Agreement) for amounts due to shareholders, directors, officers, employees or other parties affiliated with or related to Harris or, to the best knowledge of Harris after reasonable inquiry, the Transferred Subsidiaries other than amounts due to directors, officers and employees in the ordinary course of business consistent with past practice. Section 4.26 Product Returns; Warranties. (a) There are no liabilities for product returns, warranty obligations and product services other than those arising in the ordinary course of business, consistent with Harris's historical practice relating to the Business and in accordance with normal industry standards. Harris has no knowledge of any threatened claims for any extraordinary (i) product returns, (ii) warranty obligations or (iii) product services, relating to the Business, reserved or otherwise. Harris has made adequate provision for product returns and warranty obligations in the Audited Balance Sheet in accordance with GAAP. (b) Any liabilities for product returns and warranty obligations are fully accrued and fully reserved against on each of the Audited Base Financial Statements provided by Harris to Concurrent. Such reserves are adequate to pay any amounts which may be owed by Harris of any of its Subsidiaries to any party as a result of the incurrence of such liabilities. (c) True and correct copies of the standard warranty provided by Harris on sales orders and other related documents which are delivered in connection with the Business have been made available to Concurrent. Such warranty delivered is the only warranty applicable to the products of the Business except for warranties provided by applicable law. Section 4.27 Transferred Subsidiaries. There exists no debt, liability or other obligation of the Transferred Subsidiaries, contingent or otherwise, except those that will be reflected on the Final Net Current Asset Reconciliation. Section 4.28 Transferred Subsidiaries Financial Statement. (a) Harris has previously delivered to Concurrent true and complete copies of the statutory balance sheets as of September 30, 1995 and 1994 and the statements of operations for the fiscal periods ended September 30, 1995 and 1994 of each Transferred Subsidiary, together with the notes to such financial statements (where available) (the "Transferred Subsidiaries Financial Statements"). (b) Each Transferred Subsidiary Financial Statement presents fairly in all material respects, the financial condition of such Transferred Subsidiary as at its respective date or during the respective period; and each of such Transferred Subsidiary Financial Statements has been prepared in accordance with GAAP consistently applied during the periods involved, except as otherwise stated therein. Section 4.29 Investment Purpose. Harris will acquire the shares of Concurrent Common Stock to be issued pursuant to this Agreement and the transactions contemplated hereby for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, except pursuant to an effective registration statement under the Securities Act and all applicable state securities laws or pursuant to an exemption from the Securities Act and all applicable state securities laws confirmed by an opinion of counsel satisfactory to Concurrent, the expense for which shall be borne by Harris. Section 4.30 Rights Agreement. Harris shall take all necessary and appropriate actions such that (i) Concurrent will not become an "Acquiring Person", (ii) no "Stock Acquisition Date", "Separation Time", "Flip-over Transaction" or "Flip-in Date" (as such terms are defined in the Harris Rights Agreement) will occur and (iii) the stockholders of Harris will not be entitled to receive any right or benefit under the Harris Rights Agreement as a result of the approval, execution or delivery of this Agreement by Harris or the consummation of the transactions contemplated hereby. A-19 220 ARTICLE V REPRESENTATIONS AND WARRANTIES OF CONCURRENT Concurrent represents and warrants to Harris as follows: Section 5.1 Organization. (a) Concurrent and each of its Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing or in good standing or to have such power and authority would not, individually or in the aggregate, have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole. Concurrent and each of its Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not, individually or in the aggregate, have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole. (b) Concurrent has heretofore made available to Harris a complete and correct copy of the charter and by-laws or comparable organizational documents, each as amended to date, of Concurrent and each of its Subsidiaries. Such charters, by-laws and comparable organizational documents are in full force and effect. Neither Concurrent nor any of its Subsidiaries is in violation of any provision of its charter, by-laws or comparable organizational documents, except for such violations that would not, individually or in the aggregate, have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole. Section 5.2 Capitalization. As of the date of this Agreement, the authorized capital stock of Concurrent consists of: (a) 100,000,000 shares of Concurrent Common Stock of which, as of March 20, 1996 30,569,159 shares were issued and outstanding and 840 shares were held in treasury; and (b) 25,000,000 shares of Series Preferred Stock, par value $.01 per share, of which, as of the date of this Agreement, no shares are issued and outstanding and 300,000 shares are designated as Series A Participating Cumulative Preferred Stock, and are reserved for issuance in accordance with the Rights Agreement as of July 31, 1992, between Concurrent and First National Bank of Boston, as Rights Agent (the "Concurrent Rights Agreement"). As of December 31, 1995, 3,042,495 shares of Concurrent Common Stock and as of the date hereof not more than 3,042,495 shares of Concurrent Common Stock were reserved for issuance upon exercise of outstanding options (the "Concurrent Options") pursuant to Concurrent's Stock Option Plan (the "Concurrent Stock Plan"). Since the date hereof, Concurrent has not issued any shares of Concurrent Common Stock, except upon the exercise of options granted under Concurrent Stock Plan which were outstanding on the date hereof. All the outstanding shares of Concurrent's capital stock are, and all shares of Concurrent Common Stock and Concurrent Preferred Stock which are to be issued to Harris pursuant to the transactions contemplated by this Agreement will be, when issued and paid for in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and nonassessable and not subject to any preemptive rights of third parties in respect thereto. The Debentures issuable in exchange for the Preferred Stock Consideration have been duly authorized. Except as set forth above or on Schedule 5.2 hereto, as of the date of this Agreement, there are no existing options, warrants, calls, subscriptions or other rights or other agreements or commitments of any character relating to the issued or unissued capital stock of Concurrent or any of its Subsidiaries obligating Concurrent or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any shares of capital stock of, or other equity interests in, Concurrent or of any of its Subsidiaries or securities convertible into or exchangeable for such shares or equity interests or obligating Concurrent or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement or commitment. As of the date of this Agreement, except as set forth on Schedule 5.2 hereto, there are no outstanding contractual obligations of Concurrent or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of Concurrent or any of its Subsidiaries. Each of the outstanding shares of capital stock of each of Concurrent's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and such shares are owned by Concurrent or by a Subsidiary of Concurrent free and clear of A-20 221 any lien, claim, option, charge, security interest, limitation on voting rights and encumbrance of any kind, except as would not have a Material Adverse Effect on Concurrent and its Subsidiaries taken as whole. Section 5.3 Authority. Concurrent has the requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby (other than (a) with respect to the issuance of shares of Concurrent Common Stock pursuant to the transactions contemplated by this Agreement and the Ancillary Agreements, the approval of the holders of Concurrent Common Stock required for such issuance by the affirmative vote of a majority of the total votes cast and (b) with respect to the Concurrent Stock Plan Amendment (as defined in Section 5.12) the affirmative vote of a majority of the voting shares of Concurrent Common Stock in a separate vote). The execution, delivery and performance of this Agreement and the Ancillary Agreements by Concurrent and the consummation by Concurrent of the other transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Concurrent and no other corporate proceedings on the part of Concurrent are necessary to authorize this Agreement and the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby (other than, with respect to the issuance of shares of Concurrent Common Stock and Preferred Consideration pursuant to the transactions contemplated by this Agreement (including Common Stock issuable upon the conversion of the Preferred Stock Consideration or any debentures for which such consideration is exchangeable pursuant to its terms) and the Ancillary Agreements, the approval of the holders of Concurrent Common Stock required for such issuance by the affirmative vote of a majority of the total votes cast). This Agreement and the Ancillary Agreements have been duly executed and delivered by Concurrent and, assuming this Agreement and the Ancillary Agreements constitute valid and binding obligations of Harris, constitute valid and binding obligations of Concurrent, enforceable against Concurrent in accordance with their respective terms. Section 5.4 Consents and Approvals; No Violations. (a) Except as set forth on Schedule 5.4(a) hereto, and except for filings, permits, authorizations, notices, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the Securities Act, the HSR Act, the FBCA, certain state takeover statutes or state securities or blue sky laws, neither the execution, delivery or performance of this Agreement and the Ancillary Agreements by Concurrent nor the consummation by Concurrent of the transactions contemplated hereby and thereby and compliance by Concurrent with any of the provisions hereof and thereof will (i) conflict with or result in any breach of any provision of the respective certificates of incorporation or by-laws or comparable organizational documents of Concurrent or any Subsidiary of Concurrent, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not prevent or delay consummation of the transactions contemplated by this Agreement and the Ancillary Agreements in any material respect and would not, individually or in the aggregate, have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, or result in the creation of any lien or other encumbrance on any property or asset of Concurrent or any of its Subsidiaries pursuant to any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which Concurrent or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Concurrent or any of its Subsidiaries or by which any property or asset of Concurrent or any of its Subsidiaries is bound or affected, except, in the case of clauses (iii) and (iv), for violations, breaches, defaults or other occurrences which would not prevent or delay consummation of this Agreement and the Ancillary Agreements or the transactions contemplated hereby or thereby in any material respect and would not, individually or in the aggregate, have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole. (b) Except as disclosed in the Concurrent SEC Documents (as defined in Section 5.5) or on Schedule 5.4(b) hereto, neither Concurrent nor any of its Subsidiaries is in conflict with, or in default or violation of, (i) any order, writ, injunction, decree, statute, rule or regulation of any Governmental Entity applicable to Concurrent or any of its Subsidiaries or by which any of them or any of their properties or assets may be bound A-21 222 or (ii) any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Concurrent or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or affected, except for any such conflicts, defaults or violations which have not had and are not likely to have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole. Section 5.5 SEC Reports and Financial Statements. Concurrent has filed with the SEC, and has heretofore made available to Harris true and complete copies of all forms, reports and other documents required to be filed by it since June 30, 1995 under the Exchange Act or the Securities Act (as such documents have been amended since the time of their filing, collectively, the "Concurrent SEC Documents"). The Concurrent SEC Documents, including without limitation any financial statements or schedules included therein, at the time filed, (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied in all material respects with the applicable requirements of the Exchange Act or the Securities Act, as the case may be. The financial statements of Concurrent included in the Concurrent SEC Documents complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted on Concurrent's Form 10-Q as filed with the SEC under the Exchange Act) and fairly present (subject, in the case of the unaudited statements, to normal, recurring audit adjustments which will not be material in amount or effect) the consolidated financial position of Concurrent and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. Except as reflected, reserved against or otherwise disclosed in the financial statements of Concurrent included in the Concurrent SEC Documents or as disclosed on Schedule 5.5 hereto, neither Concurrent nor any of its Subsidiaries has any liabilities or obligations (absolute, accrued, fixed, contingent or otherwise) material to Concurrent and its Subsidiaries taken as a whole that would be required to be reflected on, or reserved against in, a balance sheet of Concurrent or the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied. Section 5.6 Information in Disclosure Documents. None of the information supplied or to be supplied by Concurrent in writing specifically for inclusion or incorporation by reference in the Proxy Statement will, at the time the Proxy Statement is filed with the SEC, at the time such Proxy Statement is mailed to stockholders of Concurrent and Harris, at the times of the meetings of stockholders of Concurrent and Harris to be held in connection with the transactions contemplated by this Agreement and at the Closing Date, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will, when filed with the SEC, comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder, except that no representation is made by Concurrent with respect to statements made therein based on information supplied by Harris in writing specifically for inclusion in the Proxy Statement. Section 5.7 Litigation. Except as disclosed in the Concurrent SEC Documents or on Schedule 5.7 hereto, there is no suit, claim, action, proceeding or investigation pending or, to the best knowledge of Concurrent, threatened, against Concurrent or any of its Subsidiaries before any Governmental Entity which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole or a Material Adverse Effect on the ability of Concurrent to consummate the transactions contemplated by this Agreement. Except as disclosed in the Concurrent SEC Documents or on Schedule 5.7 hereto, neither Concurrent nor any of its Subsidiaries is subject to any outstanding order, writ, injunction or decree which, insofar as can be reasonably foreseen, individually or in the aggregate, would in the future have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole or a Material Adverse Effect on the ability of Concurrent to consummate the transactions contemplated by this Agreement. Concurrent has, in accordance with GAAP, made adequate provision in its financial statements for the A-22 223 payment of losses arising out of suits, claims, actions, proceedings or investigations disclosed in the Concurrent SEC Documents or on Schedule 5.7 and such provision has continued to be adequate. Section 5.8 Absence of Certain Changes. Except as disclosed in the Concurrent SEC Documents or on Schedule 5.8 hereto, since June 30, 1995, Concurrent has conducted its business in the ordinary course of such business and there has not been any (a) material adverse change in Concurrent and its Subsidiaries taken as a whole, (b) any declaration, setting aside or payment of any dividend or other distribution with respect to its capital stock or (c) any material change in its accounting principles, practices or methods. Section 5.9 Opinion of Financial Advisor. Concurrent has received the opinion of Berenson Minella & Company, its financial advisor, to the effect that, as of the date of this Agreement, the purchase of the Assets and the Purchased Harris Shares for the Common Stock Consideration and the Preferred Stock Consideration and the Assumed Liabilities, taken as a whole, are fair to the stockholders of Concurrent from a financial point of view. Section 5.10 Rights Agreement. Concurrent shall take all necessary and appropriate actions such that (a) Harris will not become an "Acquiring Person", (b) no "Stock Acquisition Date", "Distribution Date" or "Triggering Event" (as such terms are defined in Concurrent Rights Agreement) will occur and (c) Concurrent Stockholders will not become entitled to receive any right or benefit under the Concurrent Rights Agreement as a result of the approval, execution or delivery of this Agreement by Concurrent, or the consummation of the transactions contemplated hereby. Section 5.11 Tax Matters. (a) Concurrent and each of its Subsidiaries has duly filed, or as of the Closing Date will have filed, all Tax Returns required to be filed by it or its Subsidiaries on or before the Closing Date, and such Tax Returns are or will be true, correct and complete in all material respects. Concurrent and its Subsidiaries have duly paid, caused to be paid or made adequate provision in the Concurrent SEC Documents in accordance with GAAP for the payment of all Taxes required to be paid in respect of all periods covered by such Tax Returns. Concurrent has made adequate provision in accordance with GAAP for payment of all Taxes anticipated to be payable in respect of all taxable periods or portions thereof ending on or before the Closing Date since the periods covered by such Tax Returns. (b) (i) The reserves for Taxes (except for deferred Taxes) reflected in the Concurrent SEC Documents are sufficient for the payment of all unpaid Taxes (whether or not currently disputed) accrued through the date thereof. Since June 30, 1995, neither Concurrent nor its Subsidiaries incurred any material liability for Taxes other than in the ordinary course of business consistent with past practice. Concurrent and its Subsidiaries are registered to do business in the states and localities set forth on Schedule 5.11(b)(i) hereto, and Concurrent or its Subsidiaries file all required Tax Returns in such states and localities. Except as set forth on Schedule 5.11(b)(i) hereto, there are no liens for Taxes upon the assets of Concurrent or its Subsidiaries except for statutory liens for current Taxes not yet due. (ii) The Tax Returns required to be filed by Concurrent have been examined by the IRS or other appropriate taxing authority for all taxable years as set forth on Schedule 5.11(b)(ii) hereto. Except as set forth on Schedule 5.11(b)(ii) hereto, all deficiencies and assessments asserted as a result of such examinations or other audits by federal, state, local or foreign taxing authorities have been paid, fully settled or adequately provided for in the Concurrent SEC Documents in accordance with GAAP, and no issue or claim has been asserted for Taxes by any taxing authority for any prior period, the adverse determination of which would result in a deficiency which would have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole, other than those heretofore paid or provided for. Except as disclosed on Schedule 5.11(b)(ii) hereto, no issue has been raised during the past five years by any federal, state, local or foreign taxing authority which, if raised with regard to any other period not so examined, could reasonably be expected to result in a proposed deficiency for any other period not so examined. (c) (i) Except as set forth on Schedule 5.11(c) hereto, there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Tax Return of Concurrent or its A-23 224 Subsidiaries. Except as set forth on Schedule 5.11(c) hereto, neither Concurrent nor any of its Subsidiaries (x) has been a member of a group filing consolidated returns for federal income tax purposes, or (y) is a party to a tax sharing or tax indemnity agreement or any other agreement of a similar nature that remains in effect. Except as set forth on Schedule 5.11(c) hereto, no power of attorney has been executed by, or on behalf of Concurrent or its Subsidiaries with respect to any matter relating to Taxes which is currently in force. (ii) Neither Concurrent nor any of its Subsidiaries have filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(2) of the Code) owned by Concurrent or any of its Subsidiaries. Section 5.12 Vote Required. The only votes of the holders of any class or series of Concurrent's capital stock necessary to approve the transactions contemplated hereby are the affirmative vote of a majority of (i) the total votes cast by the holders of Concurrent Common Stock with respect to the issuance of Concurrent Common Stock pursuant to the transactions contemplated by this Agreement and (ii) the total votes cast by the holders of Concurrent Common Stock, in a separate vote, with respect to an amendment to the Concurrent Stock Plan (the "Concurrent Stock Plan Amendment") in the form set forth on Exhibit E hereto. Section 5.13 Employee Benefit Plans; ERISA. (a) Schedule 5.13(a) contains a true and complete list of each bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance or termination pay, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit-sharing, pension, or retirement plan, program, agreement or arrangement, and each other employee benefit plan, program, agreement or arrangement, sponsored, maintained or contributed to or required to be contributed to by Concurrent or by any trade or business, whether or not incorporated (a "Concurrent ERISA Affiliate"), that together with Concurrent would be deemed a "single employer" within the meaning of section 4001 of ERISA, for the benefit of any employee or terminated employee of Concurrent or any Concurrent ERISA Affiliate (the "Concurrent Plans"). Schedule 5.13(a) identifies each of the Concurrent Plans that is an "employee benefit plan," as that term is defined in section 3(3) of ERISA (the "Concurrent ERISA Plans"). (b) With respect to each Concurrent Plan, Concurrent has heretofore delivered to Harris true and complete copies of each of the following documents: (i) a copy thereof; (ii) a copy of the most recent annual report and actuarial report, if required under ERISA and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87, Employer's Accounting for Pensions; (iii) a copy of the most recent Summary Concurrent Plan Description required under ERISA with respect thereto; and (iv) if Concurrent Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement and the latest financial statements thereof. (c) Neither Concurrent nor any Concurrent ERISA Affiliate maintains or has ever maintained an ERISA Plan subject to Title IV of ERISA. (d) No Concurrent ERISA Plan is a "multiemployer pension plan," as defined in section 3(37) of ERISA, nor is any Concurrent ERISA Plan a plan described in section 4063(a) of ERISA. (e) Each Concurrent Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code. A-24 225 (f) To the best knowledge of Concurrent, each Concurrent ERISA Plan intended to be "qualified" within the meaning of section 401(a) of the Code is so qualified and the trusts maintained thereunder are exempt from taxation under section 501(a) of the Code. (g) No amounts payable under the Concurrent Plans will fail to be deductible for federal income tax purposes by virtue of section 280G of the Code. (h) No Concurrent Plan provides benefits, including death or medical benefits (whether or not insured), with respect to current or former employees of Concurrent or any Concurrent ERISA Affiliate beyond their retirement or other termination of service (other than (i) coverage mandated by applicable law or (ii) death benefits or retirement benefits under any "employee pension plan," as that term is defined in section 3(2) of ERISA). (i) There are no pending, threatened or anticipated claims by or on behalf of any Concurrent Plan, by any employee or beneficiary covered under any such Concurrent Plan, or otherwise involving any such Concurrent Plan (other than routine claims for benefits). (j) At the Closing Date, Concurrent shall take all actions to cause all Concurrent Options then outstanding under the Concurrent Stock Plan to become fully vested and exercisable. (k) As of the Closing Date, full payment will have been made or accrued in accordance with GAAP, and to the extent applicable, section 412 of the Code of all amounts required to be paid under the terms of each of the Concurrent Plans. Section 5.14 Major Contracts. Except as disclosed in Concurrent SEC Documents or as set forth on Schedule 5.14 hereto, neither Concurrent nor any of its Subsidiaries is a party to or subject to: (a) Any joint venture contract or arrangement or any other agreement which has involved or is expected to involve a sharing of profits with other persons; (b) Any existing OEM agreement, distribution agreement, volume purchase agreement, or other similar agreement in which the annual amount involved in 1995 exceeded or is expected to exceed in fiscal 1996 $500,000 in aggregate amount or pursuant to which Concurrent has granted or received exclusive marketing rights related to any product, group of products or territory; (c) Any material license agreement, either as licensor or licensee (excluding nonexclusive software licenses granted to customers or end-users in the ordinary course of business) involving the payment of at least $250,000; or (d) Any contract containing covenants purporting to limit Concurrent's freedom or that of any of its Subsidiaries in any line of business in any geographic area. Section 5.15 Interests of Officers and Directors. Except as disclosed on Schedule 5.15 hereto, no officer or director of Concurrent or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the Securities Act) of any such person has had, either directly or indirectly, a material interest in: (a) any person or entity which purchases from or sells, licenses or furnishes to Concurrent or any of its Subsidiaries any goods, property, technology or intellectual or other property rights or services; (b) any contract or agreement to which Concurrent or any of its Subsidiaries is a party or by which it may be bound or affected; or (c) any property, real or personal, tangible or intangible, used in its business or that of its Subsidiaries, including any interest in the Concurrent Intellectual Property Rights (as defined in Section 5.16(a)) except for rights as a stockholder, and except for rights under any Concurrent Plan. Section 5.16 Intellectual Property. (a) Concurrent owns, or is licensed or otherwise entitled to exercise, without restriction, all rights in and to all domestic and foreign patents, trademarks, trade names, service marks, copyrights, mask works, trade secrets and other intellectual property rights, and any applications, registrations, certificates and/or Letters Patent therefor, and all net lists, schematics, sketches, drawings, notebooks, reports, memoranda, prints, drafts, worksheets, and any other writings, methods and practices, business information, procedures, technol- A-25 226 ogy, source code, know-how, computer software programs and all other tangible and intangible information or material and all goodwill associated with any of the foregoing including goodwill in respect of trademarks, that are used in or necessary for the conduct of the business of Concurrent and its Subsidiaries as currently conducted or as currently proposed to be conducted (collectively, the "Concurrent Intellectual Property Rights"). (b) Schedule 5.16(b) hereto is a complete and accurate list of all domestic and foreign patents, registered copyrights, unregistered copyrightable subject matter; trade names, registered and unregistered trademarks and service marks, and other company, product or service identifiers; mask work rights; and any applications, registrations or grants thereof or therefor, included in the Concurrent Intellectual Property Rights. For each item listed thereon, Schedule 5.16(b) hereto identifies the owner thereof and, if the owner is not Concurrent or any of its Subsidiaries, the means by which Concurrent or any of its Subsidiaries obtains rights thereto. (c) Concurrent has provided to Harris a copy of Concurrent's proprietary Product Information Book, dated November 1994, which identifies all of Concurrent's currently marketed products. No such products are the subject of certificates of copyright issued by the United States Copyright Office, and any similar office or agency of any foreign country or jurisdiction, and/or are the subject of applications for patent or original Letters Patent in the United States or any foreign country or jurisdiction. (d) Neither Concurrent nor any of its Subsidiaries is, or as a result of the execution and delivery of this Agreement or the performance of Concurrent's obligations hereunder will be, in violation of, or lose any rights pursuant to any license, sublicense or agreement described in the Concurrent Disclosure Schedule. (e) Concurrent or one of its Subsidiaries is the owner or licensee of the Concurrent Intellectual Property Rights, with all necessary right, title and interest in and to the same free and clear of any liens, encumbrances or security interests. Except as set forth on Schedule 5.16(e) hereto, Concurrent is not contractually obligated to pay any compensation to any third party, in an amount in excess of $250,000 in respect to the use of any of the Concurrent Intellectual Property Rights or the material covered thereby in connection with the services or products being manufactured and/or used and/or sold by Concurrent. (f) No claims with respect to Concurrent Intellectual Property Rights have been asserted or, to the best knowledge of Concurrent, after reasonable investigation, are threatened by any person. Concurrent knows of no claims (i) to the effect that the manufacture, offer for sale, sale or use of any product as now used or offered by Concurrent or any Subsidiary of Concurrent, or the use thereof by any customer or licensee of Concurrent infringes any copyright, patent, trademark or service mark, or violates any trade secret rights, or other intellectual property rights of any third party, or (ii) challenging the ownership or validity of any of the Concurrent Intellectual Property Rights. (g) To the best knowledge of Concurrent, all patents and registered trademarks, service marks, copyrights and patents held by Concurrent are valid and subsisting. (h) To the best knowledge of Concurrent, there has not been and there is not now any material unauthorized use, infringement or misappropriation of any of the Concurrent Intellectual Property Rights by any third party, including, without limitation, any employee or former employee of Concurrent or any of its Subsidiaries; neither Concurrent nor any of its Subsidiaries has been sued or charged in writing as a defendant in any claim, suit, action or proceeding which involves a claim of infringement of any patents, trademarks, service marks, copyrights or other intellectual property rights and which has not been finally terminated prior to the date hereof; there are no such charges or claims outstanding; and to the best knowledge of Concurrent neither Concurrent nor any of its Subsidiaries has any infringement liability with respect to any patent, trademark, service mark, copyright or other intellectual property right of another. (i) No Concurrent Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting in any manner the licensing or other disposition thereof by Concurrent or any of its Subsidiaries. Neither Concurrent nor any of its Subsidiaries has entered into any agreement to indemnify any other person against any charge of infringement of any Concurrent Intellectual Property Right. Neither Concurrent nor any of its Subsidiaries has entered into any agreement granting any third party the A-26 227 right to bring infringement actions with respect to, or otherwise to enforce rights with respect to, any Concurrent Intellectual Property Right. (j) Concurrent and its Subsidiaries have the exclusive right to file, prosecute and maintain all applications, certificates, registrations and Letters Patent with respect to the Concurrent Intellectual Property Rights owned by Concurrent or its Subsidiaries. Concurrent or any of its Subsidiaries is listed in the records of the appropriate agency as the sole owner of record for each registration, grant Letters Patent and application listed on Schedule 5.16(b) hereto as owned by Concurrent or any of its Subsidiaries. All registration and maintenance fees that have become due and payable with respect of such Concurrent Intellectual Property Rights have been paid. (k) To the best knowledge of Concurrent, no act has been done, or omitted to be done, by Concurrent or any of its Subsidiaries to impair or dedicate to the public or to entitle any governmental authority to cancel, forfeit, modify or hold abandoned any of the Concurrent Intellectual Property Rights. (l) Concurrent and its Subsidiaries, with respect to all Concurrent Intellectual Property Rights owned and/or developed thereby, have taken or caused to be taken all reasonable steps to obtain and retain valid and enforceable intellectual property rights therein, including, without limitation, the use of non-disclosure agreements adequate to protect the proprietary nature of any confidential information disclosed by Concurrent or any of its Subsidiaries to third parties. (m) Schedule 5.16(m) hereto sets forth a complete and accurate list of all licenses, assignments and other agreements pursuant to which Concurrent, or any of its Subsidiaries, grants rights to any third party in and to any of the Concurrent Intellectual Property Rights. (n) To the best knowledge of Concurrent, the components of all software, hardware and firmware that are material to the business of Concurrent and are used or currently proposed to be used in or necessary for the conduct of the business of Concurrent and its Subsidiaries as currently conducted or as currently proposed to be conducted are (i) owned by Concurrent or any of its Subsidiaries, or (ii) currently in the public domain or otherwise available to Concurrent or any of its Subsidiaries without the approval or consent of any third party, or (iii) used by Concurrent or any of its Subsidiaries, or included in any of their products, pursuant to rights granted to Concurrent or any of its Subsidiaries pursuant to a written license or lease from a third party. Section 5.17 Questionable Payments. Neither Concurrent nor any of its Subsidiaries nor to its best knowledge any director, officer or other employee of Concurrent or any of its Subsidiaries has: (a) corruptly made any payments or provided services in the United States or in any foreign country in order to obtain preferential treatment or consideration by any Governmental Entity in order to obtain or retain business for Concurrent or any of its Subsidiaries in violation of Section 30A of the Exchange Act; or (b) made any political contributions unlawful under the laws of the United States and the foreign country in which such payments were made. Neither Concurrent nor any of its Subsidiaries nor to its best knowledge any director, officer or other employee of Concurrent or any of its Subsidiaries has been the subject of any inquiry or investigation by any Governmental Entity relating to the conduct described above in this Section 5.17. Section 5.18 Insurance. Except as set forth on Schedule 5.18 hereto, Concurrent and each of its Subsidiaries is, and has been continuously since at least July 1, 1995, insured with financially responsible insurers in such amounts and against such risks and losses as are customary in all material respects for companies conducting the business as conducted by Concurrent and its Subsidiaries during such time period. Except as set forth on Schedule 5.18 hereto, neither Concurrent nor any of its Subsidiaries has received any notice of cancellation or termination with respect to any material insurance policy of Concurrent or any of its Subsidiaries. The insurance policies of Concurrent and each of its Subsidiaries are valid and enforceable policies in all material respects. Section 5.19 No Brokers. Concurrent has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Concurrent or Harris to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that Concurrent has retained Berenson Minella & Company as its financial advisor, the arrangements with which have been A-27 228 disclosed in writing to Harris prior to the date hereof. Other than the foregoing arrangements or as disclosed in Section 4.19, Concurrent is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. Section 5.20 Environmental. (a) Except as set forth on Schedule 5.20(a) hereto, Concurrent and its Subsidiaries are in compliance in all material respects with all applicable Environmental Laws. Except as set forth on Schedule 5.20(a) hereto, Concurrent has not received any communication (written or oral), whether from a governmental authority, citizen group, employee or otherwise, that alleges that Concurrent is not in such compliance, and, to Concurrent's best knowledge after due inquiry, there are no circumstances that may prevent or interfere with such compliance in the future. Except as set forth on Schedule 5.20(a) hereto, Concurrent has not received in the past five years any written request for information from a governmental authority concerning or relating to the treatment, transportation or disposal of any Materials of Environmental Concern. Except as set forth on Schedule 5.20(a) hereto: Concurrent has acquired all necessary permits, licenses, approvals and other governmental authorizations necessary to operate in compliance with all applicable Environmental Laws; such permits, licenses, approvals and authorizations are currently valid; and Concurrent is in compliance in all material respects with such permits, licenses, approvals and authorizations. To Concurrent's best knowledge, after due inquiry, there are no circumstances that may prevent or interfere with the renewal of the permits, licenses, approvals and other governmental authorizations held by Concurrent pursuant to Environmental Laws. (b) Except as set forth on Schedule 5.20(b) hereto, there has been in the last five years and there is no Environmental Claim pending or threatened against Concurrent or, to Concurrent's best knowledge after due inquiry, against any person or entity whose liability for any Environmental Claim Concurrent has or may have retained or assumed either contractually or by operation of law. (c) Except as set forth on Schedule 5.20(c) hereto, there are no past or present actions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge or disposal of any Material of Environmental Concern, that could form the basis of any Environmental Claim against Concurrent or, to Concurrent's best knowledge after due inquiry, against any person or entity whose liability for any Environmental Claim Concurrent has or may have retained or assumed either contractually or by operation of law. Section 5.21 Investment Purpose. Concurrent will acquire the shares of Harris Common Stock to be issued pursuant to this Agreement and the transactions contemplated hereby for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, except pursuant to an effective registration statement under the Securities Act and all applicable state securities laws or pursuant to an exemption from the Securities Act and all applicable state securities laws confirmed by an opinion of counsel satisfactory to Harris the expense for which shall be borne by Concurrent. Section 5.22 Applicability of Certain Laws. The provisions of Section 203 ("Business Combinations with Interested Stockholders") and Section 262 ("Appraisal Rights"), respectively, of the Delaware General Corporation Law (the "DGCL") will not apply to this Agreement or any of the transactions contemplated hereby. Section 5.23 Product Returns; Warranties. There are no liabilities for product returns, warranty obligations and product services other than those arising in the ordinary course of business, consistent with Concurrent's historical practice and in accordance with normal industry standards. Concurrent has no knowledge of any threatened claims for any extraordinary (i) product returns, (ii) warranty obligations or (iii) product services, reserved or otherwise. Concurrent has made adequate provision in the latest Concurrent SEC Document for product returns and warranty obligations in accordance with GAAP. A-28 229 ARTICLE VI COVENANTS Section 6.1 Conduct of Business of Harris. Except as contemplated by this Agreement (including Schedule 6.1 hereto) and the Ancillary Agreements or with the prior written consent of Concurrent, during the period from the date of this Agreement to the Closing Date, Harris will, and will cause each of its Subsidiaries to, use all reasonable efforts to conduct the Business only in the ordinary course and consistent with prior practice, to use Best Efforts to maintain, keep and preserve the Assets and the assets of the Transferred Subsidiaries in operating condition and repair and maintain or, if necessary, replace insurance thereon in accordance with present practices, to preserve intact the present organization of the Business, keep available the services of its present officers and employees and preserve its relationships with licensors, licensees, customers, suppliers, employees and any others having business dealings with it. Without limiting the generality of the foregoing, and except as otherwise provided in or contemplated by this Agreement (including Schedule 6.1 hereto) or the Ancillary Agreements, Harris will not, and will not permit any of its Subsidiaries to, prior to the Closing Date, without the prior written consent of Concurrent: (a) adopt any amendment to its charter or by-laws or comparable organizational documents or to the Harris Rights Agreement; (b) except for issuances of capital stock of any of the Transferred Subsidiaries to Harris or to another Transferred Subsidiary of Harris, issue, reissue, sell, deliver or pledge or authorize or propose the issuance, reissuance, sale, delivery or pledge of additional shares of capital stock of any class or any securities convertible into capital stock of any class, or any rights, warrants or options to acquire any convertible securities or capital stock, other than the issuance of shares of Harris Common Stock upon the exercise of stock options or stock grants pursuant to the Harris Stock Plan outstanding on or prior to the Closing Date in accordance with the terms of the agreements under which they are issued; (c) declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock, except that any Transferred Subsidiary may pay dividends to Harris or any of the other Transferred Subsidiaries; (d) adjust, split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any shares of its capital stock, or any of its other securities; (e) (i) incur, assume or pre-pay any long-term debt or incur or assume any short-term debt, except that Harris and its Subsidiaries may incur or pre-pay debt in the ordinary course of business consistent with past practice under existing lines of credit, (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person except in the ordinary course of business consistent with past practice, or (iii) make any loans, advances or capital contributions to, or investments in, any other person, except Transferred Subsidiaries of Harris and except in the ordinary course of business consistent with past practice; (f) except for increases in salary, wages and benefits of employees of Harris or its Subsidiaries (other than executive or corporate officers of Harris) in accordance with past practice and except for increases in salary, wages and benefits granted to employees of Harris or its Subsidiaries (other than executive or corporate officers of Harris) in conjunction with promotions or other changes in job status consistent with past practice or required under existing agreements increase the compensation or fringe benefits payable or to become payable to its directors, officers or employees (whether from Harris or any of its Subsidiaries), or pay any benefit not required by any existing plan or arrangement or grant any severance or termination pay to (except pursuant to existing agreements or policies as set forth on Schedule 4.12(a) hereto), or enter into any employment or severance agreement with, any director, officer or other key employee of Harris or any of the Transferred Subsidiaries or establish, adopt, enter into, terminate or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement for the benefit or welfare of any directors, officers or current or former employees, except to the extent such termination or amendment is required by applicable law; provided, however, that A-29 230 nothing herein shall be deemed to prohibit the payment of benefits as they become payable; provided, further, however that Harris shall be permitted to take action so that at the Closing Date, each stock option issued and outstanding prior to December 31, 1995 under the Harris Stock Plan will be fully vested and exercisable; (g) other than as may be required by law to consummate the transactions contemplated hereby, acquire, sell, lease, transfer or dispose of any assets or securities which are material to Harris and its Subsidiaries taken as a whole, or enter into any commitment to do any of the foregoing; (h) settle any material tax liability or make any material tax election; or (i) agree in writing or otherwise to take any of the foregoing actions or any action which would make any representation or warranty in this Agreement untrue or incorrect in any material respect or which would result in any of the conditions set forth in Article VIII not being satisfied. Section 6.2 Conduct of Business of Concurrent. Except as contemplated by this Agreement and the Ancillary Agreements or with the prior written consent of Harris, during the period from the date of this Agreement to the Closing Date, Concurrent will, and will cause each of its Subsidiaries to, conduct its operations only in the ordinary and usual course of business consistent with past practice and will use all reasonable efforts, and will cause each of its Subsidiaries to use all reasonable efforts, to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with licensors, licensees, customers, suppliers, employees and any others having business dealings with it. Without limiting the generality of the foregoing, and except as otherwise provided in or contemplated by this Agreement or the Ancillary Agreements, Concurrent will not, and will not permit any of the Subsidiaries to, prior to the Closing Date, without the prior written consent of Harris: (a) adopt any amendment to its charter or by-laws or comparable organizational documents or to the Concurrent Rights Agreement; (b) except for (i) issuances of capital stock of Concurrent's Subsidiaries to Concurrent or a wholly owned Subsidiary of Concurrent, or (ii) issuances of capital stock of Concurrent to employees of Concurrent who become, at or after the Closing Date, entitled to severance under Concurrent's existing severance contracts and policies in lieu of an equivalent cash payment under such contracts and policies, issue, reissue, sell, deliver or pledge or authorize or propose the issuance, reissuance, sale, delivery or pledge of additional shares of capital stock of any class or any securities convertible into capital stock of any class, or any rights, warrants or options to acquire any convertible securities or capital stock, other than the issuance of shares of Concurrent Common Stock upon the exercise of stock options or stock grants pursuant to the Concurrent Stock Plan outstanding on or prior to the Closing Date in accordance with the terms of the Agreements under which they are issued; (c) declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock, except that any wholly owned Subsidiary of Concurrent may pay dividends to Concurrent or any of Concurrent's wholly owned Subsidiaries; (d) adjust, split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any shares of its capital stock, or any of its other securities; (e) (i) incur, assume or pre-pay any long-term debt or incur or assume any short-term debt, except that Concurrent and its Subsidiaries may incur or pre-pay debt in the ordinary course of business consistent with past practice under existing lines of credit, (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person except in the ordinary course of business consistent with past practice, or (iii) make any loans, advances or capital contributions to, or investments in, any other person, except Subsidiaries of Concurrent and except in the ordinary course of business consistent with past practice; (f) except for increases in salary, wages and benefits of employees of Concurrent or its Subsidiaries (other than executive or corporate officers of Concurrent) in accordance with past practice and except for increases in salary, wages and benefits granted to employees of Concurrent or its Subsidiaries (other than executive or corporate officers of Concurrent) in conjunction with promotions or other changes in job status A-30 231 consistent with past practice or required under existing agreements, increase the compensation or fringe benefits payable or to become payable to its directors, officers or employees (whether from Concurrent or any of its Subsidiaries), or pay any benefit not required by any existing plan or arrangement or grant any severance or termination pay to (except pursuant to existing agreements or policies as set forth on Schedule 5.13(a) hereto), or enter into any employment or severance agreement with, any director, officer or other key employee of Concurrent or any of its Subsidiaries or establish, adopt, enter into, terminate or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement for the benefit or welfare of any directors, officers or current or former employees, except to the extent such termination or amendment is required by applicable law; provided, however, that nothing herein shall be deemed to prohibit the payment of benefits as they become payable; provided, further, however, that Concurrent shall be permitted to take action so that at the Closing Date, each stock option issued and outstanding at such time under the Concurrent Stock Plan will become fully vested and exercisable (it being understood and agreed that the transactions contemplated hereby will be deemed to be a change in control for purposes of such plan and the option agreements entered into thereunder); provided, further, that nothing herein shall prevent Concurrent or any of its Subsidiaries from instituting retention and/or severance arrangements with employees of Concurrent or any of its Subsidiaries, for the purpose of encouraging employees to remain with Concurrent until the Closing Date subject to (i) Concurrent consulting with Harris prior to implementing any such retention and/or severance arrangement and (ii) a ceiling of $2,000,000 on the aggregate dollar amount which may be paid or pursuant to which the obligation may be incurred between November 5, 1995 and the Closing Date pursuant to all such retention and/or severance arrangements. (g) other than as may be required by law to consummate the transactions contemplated hereby, acquire, sell, lease, transfer or dispose of any assets or securities which are material to Concurrent and its Subsidiaries taken as a whole, or enter into any commitment to do any of the foregoing; (h) settle any material tax liability or make any material tax election; or (i) agree in writing or otherwise to take any of the foregoing actions or any action which would make any representation or warranty in this Agreement untrue or incorrect in any material respect or which would result in any of the conditions set forth in Article VIII not being satisfied. Section 6.3 Best Efforts. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its Best Efforts (as defined herein) to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement including (a) the prompt preparation and filing with the SEC of the Proxy Statement, (b) such actions as may be required to have the Proxy Statement cleared by the SEC, in each case as promptly as practicable, including by consulting with each other as to, and responding promptly to, any SEC comments with respect thereto, and (c) such actions as may be required to be taken under applicable state securities or blue sky laws in connection with the issuance of the Purchased Harris Shares and shares of Concurrent Common Stock and Concurrent Preferred Stock contemplated hereby or the Ancillary Agreements. As used in this Agreement, the term "Best Efforts" means all such efforts as may be taken in a commercially reasonable manner. It shall be a condition to the mailing of the Proxy Statement to the stockholders of Concurrent and Harris that (a) Concurrent shall have received an opinion from Berenson Minella & Company, dated the date of the Proxy Statement, to the effect that, as of the date thereof, the purchase of the Assets and the Purchased Harris Shares for the Common Stock Consideration and the Preferred Stock Consideration and the Assumed Liabilities, taken as a whole, are fair to the stockholders of Concurrent from a financial point of view and (b) Harris shall have received an opinion from Bear, Stearns & Co. Inc., dated the date of the Proxy Statement, to the effect that, as of the date thereof, the transactions contemplated hereby are fair, from a financial point of view, to the stockholders of Harris. Each party shall promptly consult with the other with respect to, provide any necessary information with respect to and provide the other (or its counsel) copies of, all filings made by such party with any Governmental Entity in connection with this Agreement and the transactions contemplated hereby. In addition, if at any time prior to the Closing Date any event or circumstance relating to either Harris or any of A-31 232 the Transferred Subsidiaries of Concurrent or any of its Subsidiaries, or any of their respective officers or directors, should be discovered by Harris or Concurrent, as the case may be, and which should be set forth in an amendment or supplement to the Proxy Statement, the discovering party shall promptly inform the other party of such event or circumstance. Section 6.4 Registration Rights. Each of Harris and Concurrent shall prepare and file as promptly as practicable after the date hereof, and shall cause to become effective on the Closing Date, a registration statement on Form S-3 (or if either Concurrent or Harris is not eligible to use Form S-3 on such other form as Concurrent or Harris may use) (each, an "S-3 Registration Statement" and collectively, the "S-3 Registration Statements"), in compliance with the Securities Act relating to the sale by the other party hereto and its permitted pledgees of the registrant's shares of common stock (and, in the case of Concurrent, the common stock issuable upon conversion of the Preferred Stock Consideration or the Debentures) issued in accordance with the terms of this Agreement and the Share Holding Agreement. Each of Harris and Concurrent shall indemnify the other in connection with the S-3 Registration Statements in accordance with the provisions set forth in the Share Holding Agreement. Each of Harris and Concurrent shall also cause the shares of common stock issued by it to the other party to be approved for inclusion on the NASDAQ/NMS on the effective date of the applicable Registration Statement, subject to official notice of issuance. Section 6.5 Occurrence of Closing Prior to or Following the Reference Date. In the event the Closing occurs prior to the Reference Date, Concurrent shall operate the Business only in the ordinary course consistent with past practice between the Closing and the Reference Date. In the event the Closing occurs after the Reference Date, without limiting the provisions of Section 6.6 below, Harris shall provide to Concurrent on a weekly basis information with respect to the status of the net current assets, except inventory and current liabilities which will be provided on a monthly basis. Section 6.6 Access to Information. Upon reasonable notice, Harris and Concurrent shall each (and shall cause each of their respective Subsidiaries to) afford to the officers, employees, accountants, counsel and other representatives of the other, access, during normal business hours during the period prior to the Closing Date, to all its properties, facilities, books, contracts, commitments and records and other information and, during such period, each of Harris and Concurrent shall (and shall cause each of their respective Subsidiaries to) (a) furnish promptly to the other a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws, (b) furnish promptly to the other all other information concerning the Business, properties and personnel as such other party may reasonably request, (c) make available to the other all its environmental sampling, assessment, remediation reports, studies and any other document and all its permits, licenses, approvals and other governmental authorizations referenced in Schedules to Section 4.20 or Section 5.20 of this Agreement, and (d) afford access to the other to all its employees and outside environmental consultants who have conducted or assisted in preparing environmental sampling, assessment or remediation studies. Neither party nor any of their respective Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of customers, jeopardize the attorney-client privilege of the institution in possession or control of such information or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. Unless otherwise required by law, the parties will hold any such information which is nonpublic in confidence in accordance with the terms of Section 1 of that certain letter agreement, dated September 28, 1995, between Concurrent and Harris (the "Confidentiality Agreement"), and in the event of termination of this Agreement for any reason each party shall promptly return all nonpublic documents obtained from any other party, and any copies made of such documents, to such other party in the manner contemplated by the Confidentiality Agreement. Section 6.7 Stockholders Meetings. Harris and Concurrent each shall call a meeting of its stockholders for the purpose of voting, in the case of Harris, upon (a) the sale of the Business (including the Assets and the Transferred Subsidiaries) and (b) an amendment to the Harris Stock Plan to increase the number of shares of Harris Common Stock reserved and available for distribution under the Harris Stock Plan in accordance with Section 4.11, and, in the case of Concurrent, upon (x) the issuance of shares of Concurrent Common Stock pursuant to this Agreement and (y) an amendment to the Concurrent Stock Plan to increase the number of A-32 233 shares of Concurrent Common Stock reserved and available for distribution under the Concurrent Stock Plan in accordance with Section 5.12. Harris and Concurrent will, through their respective Boards of Directors, recommend to their respective stockholders approval of such matters and will coordinate and cooperate with respect to the timing of such Stockholders Meetings and shall use their Best Efforts to hold such Stockholders Meetings on the same day and as soon as practicable after the date hereof; provided, however, that nothing contained in this Section 6.7 shall require the Board of Directors of Harris or Concurrent to take any action or refrain from taking any action in violation of its fiduciary duties. In addition, Concurrent may seek approval from its shareholders at the Concurrent Stockholders Meeting, if required by applicable law or the rules and regulations of NASDAQ; for a reverse stock split at or following the Closing Date; provided, however, that the transactions contemplated by this Agreement shall not be conditioned on approval of any such reverse stock split proposal. Section 6.8 No Solicitation. (a) Except as provided in Section 6.8(b), Schedule 6.1 or otherwise agreed to by the parties hereto, until the termination of this Agreement pursuant to Article IX, Harris and Concurrent will not, nor will either of them permit its officers, directors, affiliates, representatives or agents, directly or indirectly, to do any of the following: (i) discuss, negotiate, undertake, authorize, recommend, propose or enter into, either as the proposed surviving, merged, acquiring or acquired corporation, any transaction (other than the transactions contemplated by this Agreement and the Ancillary Agreements) involving any disposition or other change of ownership of a substantial portion of (x) Harris's or Concurrent's or their respective Subsidiaries' capital stock or assets or (y) the Business (an "Acquisition Transaction"); (ii) facilitate, encourage, solicit or initiate or in any way engage in any discussion, negotiation or submission of a proposal or offer in respect of an Acquisition Transaction; (iii) furnish or cause to be furnished to any corporation, partnership, individual or other entity or group (other than the other party and its representatives) (a "Person") any information concerning the business, operations, properties or assets of Harris or Concurrent in connection with an Acquisition Transaction; or (iv) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing. Harris and Concurrent will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any Person conducted heretofore with regard to an Acquisition Transaction and will take the necessary steps to inform such Persons of the obligations undertaken in this Section 6.8. Each party will inform the other party by telephone within 24 hours of its receipt of any proposal or bid (including the terms thereof and the Person making such proposal or bid) in respect of any Acquisition Transaction. (b) Notwithstanding anything else contained in this Section 6.8, either party may engage in discussions or negotiations with, and may furnish information to, a third party who, or representatives of a third party who, makes a written, bona fide proposal with respect to an Acquisition Transaction that is reasonably capable of being consummated and, as determined in good faith by its Board of Directors after consultation with its financial advisors, is more favorable to such party's stockholders than the transactions contemplated hereby, provided that the Board of Directors of such party shall have determined in good faith on the basis of the advice of outside counsel that failure to take such action creates a substantial risk that the Board of Directors would fail to comply with its fiduciary duties under applicable law. Nothing in this Section 6.8 shall (i) permit any party to terminate this Agreement (except as specifically provided in Article IX hereof), (ii) permit any party to enter into any agreement with respect to an Acquisition Transaction during the term of this Agreement (it being agreed that during the term of this Agreement, no party shall enter into any agreement with any person that provides for, or in any way facilitates, an Acquisition Transaction (other than a confidentiality agreement in customary form)), or (iii) affect any other obligation of any party under this Agreement. A-33 234 Section 6.9 Brokers or Finders. Each of Concurrent and Harris agree to indemnify and hold the other harmless from and against any claims with respect to any fees, commissions or expenses asserted by any person on the basis of any act or statement alleged to have been made by such party or its Subsidiary or affiliate. Section 6.10 Rights Plan. Harris shall not redeem the Harris Rights, or amend or terminate the Harris Rights Agreement prior to the Closing Date unless required to do so by order of a court of competent jurisdiction. Concurrent shall not redeem Concurrent Rights or amend (other than in accordance with Section 5.10) or terminate Concurrent Rights Agreements unless required to do so by order of a court of competent jurisdiction. Section 6.11 Publicity. The initial press release relating to this Agreement shall be a joint press release and thereafter Harris and Concurrent shall, subject to their respective legal obligations (including requirements of stock exchanges and other similar regulatory bodies), consult with each other, and use reasonable efforts to agree upon the text of any press release, before issuing any such press release or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any federal or state governmental or regulatory agency or with any national securities exchange with respect thereto. With respect to all other press releases during the term of this Agreement, the parties hereto shall use reasonable efforts to consult with each other prior to issuing such press releases. Section 6.12 Notification of Certain Matters. Harris shall give prompt notice to Concurrent, and Concurrent shall give prompt notice to Harris, of (a) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be likely to cause (i) any representation or warranty contained in this Agreement to be untrue or inaccurate or (ii) any covenant, condition or agreement contained in this Agreement not to be complied with or satisfied and (b) any failure of Harris or Concurrent, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.12 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 6.13 Management and Corporate Governance Matters. (a) Composition of Concurrent's Board of Directors. The Board of Directors of Concurrent shall take action to cause the number of directors comprising the full board of directors of Concurrent to be nine persons, three of whom shall be designated by Harris prior to the Closing Date ("Original Harris Designees") and six of whom shall be designees of Concurrent. If any Original Harris Designee shall decline or be unable to serve, Harris shall designate a person to serve in such person's stead (the Original Harris Designees together with any alternate or alternates selected in accordance with this sentence are herein referred to as the "Harris Designees"). From and after the Closing Date until at least September 30, 1997, unless a majority of Harris Designees then serving as Concurrent directors shall consent to a waiver of this Section 6.13(a), Concurrent shall maintain a Board of Directors consisting of no more than nine directors, three of whom shall be Harris Designees. (b) Composition of Harris' Board of Directors. The Board of Directors of Harris shall take action to cause the number of directors comprising the full board of directors of Harris to be not more than seven persons, one of whom shall be designated by Concurrent prior to the Closing Date ("Original Concurrent Designee") and six of whom shall be designees of Harris. If the Original Concurrent Designee shall decline or be unable to serve, Concurrent shall designate a person to serve in such person's stead (the Original Concurrent Designee together with any alternate selected in accordance with this sentence are herein referred to as the "Concurrent Designees"). From and after the Closing Date until at least September 30, 1997, Harris shall maintain a Board of Directors consisting of no more than seven directors, one of whom shall be a Concurrent Designee. (c) Chief Executive Officers of Harris. Harris shall use its Best Efforts to cause E. Courtney Siegel to resign as a director, President and Chief Executive Officer of Harris effective as of the Closing. Harris will keep Concurrent reasonably informed of the status of the search for a new chief executive officer of Harris and A-34 235 will use Best Efforts to find and disclose, if found prior to the mailing of the Proxy Statement or if required by applicable law, the identity of such chief executive officer in the Proxy Statement. (d) Designation of Concurrent Officers. Concurrent shall cause the election or appointment, effective as of the Closing Date, of E. Courtney Siegel as the President and Chief Executive Officer of Concurrent and John T. Stihl as the Chairman of the Board of Directors of Concurrent. Mr. Siegel shall be an Original Harris Designee. (e) Increase in Shares Available under Concurrent Stock Plan. Concurrent shall use its Best Efforts to cause the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to be increased to 9,000,000 such shares (of which approximately 5,000,000 will be available for grant thereunder), including the inclusion of such increase in the matters submitted for a vote of shareholders in the Proxy Statement. (f) Increase in Shares Available under Harris Stock Plan. Harris shall use its Best Efforts to cause the number of shares of Harris Common Stock authorized for issuance under the Harris Stock Plan to be 2,025,000 such shares, including the inclusion of such increase in the matters submitted for a vote of shareholders in the Proxy Statement. (g) Amendment of Concurrent By-laws. At or prior to the Closing Date Concurrent shall amend its Bylaws to provide that the President of Concurrent shall be the exclusive chief executive officer of Concurrent, reporting directly to Concurrent's Board of Directors. Section 6.14 Employment Agreements. Concurrent shall cause the amendment to the employment agreement with John T. Stihl, the material terms of which are set forth on Schedule 6.14 hereto, to become effective upon Closing. Prior to or simultaneously with the execution hereof, Concurrent entered into an employment agreement with E. Courtney Siegel, a copy of which is attached hereto as Exhibit D. Section 6.15 Expenses. Whether or not the transactions contemplated by this Agreement are consummated but subject to the provisions of Article IX hereto, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, shall be paid by the party incurring such costs and expenses except as expressly provided herein. Notwithstanding the above, (i) the filing fee in connection with the HSR Act filing, the filing fee in connection with the filing of the Proxy Statement with the SEC, the fees and expenses incurred in connection with the preparation of the Audited Balance Sheet and the Net Current Asset Reconciliation, Transfer Taxes (as defined in Section 6.24(b)) with respect to Assets other than the stock of Transferred Subsidiaries, and the expenses incurred in connection with printing and mailing the Proxy Statement, shall be shared equally by Harris and Concurrent and (ii) Transfer Taxes with respect to the transfer of the stock of Transferred Subsidiaries shall be borne entirely by Concurrent. Section 6.16 IRS Determination Letter. Prior to the Closing Date, Concurrent shall deliver to Harris a copy of the most recent determination letter received from the Internal Revenue Service with respect to each Concurrent Plan intended to qualify under Section 401 of the Code. Section 6.17 Insurance. Harris shall and shall cause its Subsidiaries to use their Best Efforts to maintain the insurance policies referred to in Section 4.18 in full force and effect through the Closing Date. Concurrent shall use its Best Efforts to maintain the insurance policies referred to in Section 5.18 in full force and effect through the Closing Date. Section 6.18 Supplemental Disclosure. (a) Prior to the Closing, Harris shall have a continuing obligation to notify Concurrent, and Concurrent shall have a continuing obligation to notify Harris, of events, circumstances or discoveries which would be likely to result in any of the representations and warranties in Article IV or Article V hereof, respectively, being inaccurate or incomplete in any respect and supplement or amend the Schedules with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Disclosure Schedules. Any amendments or supplements to the Disclosure Schedules after the date hereof and prior to the Closing Date shall be referred to herein as "Supplemental Disclosure." A-35 236 (b) In the event of a Supplemental Disclosure occurring within five (5) business days prior to a date on which a scheduled Closing would otherwise occur, the party to which such Supplemental Disclosure is delivered shall have the right to delay the Closing for up to five (5) business days from the date such party receives such Supplemental Disclosure. (c) The Supplemental Disclosure will not be deemed to have cured any breach of any representation or warranty made in this Agreement as of the date hereof for purposes of determining whether or not the conditions set forth in Article VIII have been satisfied or for purposes of the indemnification obligations set forth in Article X hereof. Section 6.19 Further Assurances; Subsequent Transfers. (a) The parties hereto shall execute and deliver such further instruments of conveyance, transfer, assignment and other similar documents and shall take such other actions as each of them may reasonably request of the other in order to effectuate the purposes of this Agreement and to carry out the terms hereof. Without limiting the generality of the foregoing, at any time and from time to time after the Closing Date, (i) at the request of Concurrent, Harris shall execute and deliver to Concurrent such other instruments of transfer, conveyance, assignment and confirmation and take such action as Concurrent may reasonably deem necessary or desirable in order to more effectively transfer, convey and assign to Concurrent and to confirm Concurrent's title to all of the Assets, to put Concurrent in actual possession and operating control thereof and to permit Concurrent to exercise all rights with respect thereto (including, without limitation, rights under contracts and other arrangements as to which the consent of any third party to the transfer thereof shall not have previously been obtained), (ii) at the request of Harris, Concurrent shall execute and deliver to Harris all instruments, undertakings or other documents and take such other action as Harris may reasonably deem necessary or desirable in order to have Concurrent fully assume and be liable for the Assumed Liabilities and shall deliver to Harris any of the Excluded Assets inadvertently left in the control or possession of Concurrent, and (iii) at the request of Concurrent, Harris shall execute and deliver to the appropriate Transferred Subsidiaries all instruments, undertakings or other documents and take such other action as Concurrent may reasonably deem necessary or desirable in order to have Harris fully assume the Excluded Liabilities as they relate to the Transferred Subsidiaries. Notwithstanding the foregoing, the parties shall not be obligated, in connection with the foregoing, to expend monies other than reasonable out-of-pocket expenses and attorneys' fees. (b) Harris shall use its Best Efforts to obtain any consent, approval or amendment required to novate and/or assign all agreements, Leases, licenses and other rights of any nature whatsoever relating to the transfer of the Assets to Concurrent. In the event and to the extent that Harris is unable to obtain any such required consent, approval, amendment or modification (except with respect to any Lease, agreement or license set forth in Schedule 8.2(d) hereof) (i) Harris shall continue to be bound by such agreements, leases, licenses or other matters, (ii) unless not permitted by law, Concurrent shall pay, perform and discharge fully all the obligations of Harris thereunder and indemnify Harris for all liabilities arising out of such performance by Concurrent (but only to the extent that (x) such liabilities are Assumed Liabilities and (y) in the case of a Lease, upon such payment or performance, Concurrent shall be entitled to use and occupancy of the premises covered by such lease) and (z) so long as Concurrent has paid, performed and discharged the obligations of Harris, Harris shall, without further consideration therefor, pay and remit to Concurrent promptly all monies, rights and other considerations received in respect of such performance. Harris shall exercise or exploit its rights and options under all such agreements, leases, licenses and other rights and commitments (other than in connection with the Leases referred to in Schedule 8.2(d) hereof) referred to in this Section 6.19(b) only as reasonably directed by Concurrent. If and when any such consent shall be obtained or such agreement, lease, license or other right (other than in connection with the Leases referred to in Schedule 8.2(d) hereof) shall otherwise become assignable or able to be novated, Harris shall promptly assign and novate all its rights and obligations thereunder to Concurrent without payment of further consideration and Concurrent shall, without the payment of any further consideration therefor, assume such rights and obligations. A-36 237 Section 6.20 Risk of Loss. (a) Leasehold Properties: (i) In the event that during the period between the date hereof and the Closing, all or any portion of the Leased Property included in the Assets (a "Property") is damaged by fire or other casualty, Harris shall promptly give notice thereof to Concurrent. If such damage materially affects the ability of Concurrent at Closing to conduct the Business as contemplated herein, Concurrent shall have the right to terminate this Agreement. In the event of such termination, all parties shall be released from all liability hereunder. (ii) If as a result of such casualty, the Property is partially damaged or rendered partially unusable for the purposes for which such Property is used by Harris on the date hereof, but such damage does not materially affect Concurrent's ability to conduct the Business at Closing as conducted on the date hereof, then Harris shall convey such Property to Concurrent at Closing in its damaged condition upon and subject to all of the other terms and conditions of this Agreement, and Harris shall assign to Concurrent all of Harris's right, title and interest in and to any claims Harris may have under its insurance policies, and/or any causes of action with respect to such damage or destruction, and shall assign to Concurrent all insurance proceeds awarded to Harris under such policies with respect to the damage to the Property. Notwithstanding the foregoing, in the event that the damaged Property was not covered by insurance or the insurance proceeds received by Concurrent pursuant to the preceding sentence are insufficient to restore the Property to its condition prior to such casualty ("Concurrent Casualty Deficiency"), then (x) if a Concurrent Casualty Deficiency is discovered prior to the determination of the Preferred Stock Consideration pursuant to Section 2.3, the liquidation value and stated value of the Preferred Stock Consideration shall be reduced by an amount equal to the additional cost (the "Concurrent Additional Cost"), as estimated by an engineer or architect, selected by Harris and reasonably acceptable to Concurrent, required to repair such damage and restore the Property to its condition immediately prior to the casualty or (y) if a Concurrent Casualty Deficiency is discovered subsequent to the determination of the Preferred Stock Consideration pursuant to Section 2.3, Harris shall, within five days of the determination of the Concurrent Additional Cost, pay such cost to Concurrent in cash or other immediately available funds. (iii) In the event such Property is totally destroyed or rendered wholly unusable for the purposes for which it was used by Harris prior to the casualty but such damage does not materially affect Concurrent's ability to conduct the Business at Closing as conducted on the date hereof, then such Property shall be excluded from Assets, and the parties shall proceed to the Closing with respect to the remaining Assets upon and subject to all of the other terms and conditions of this Agreement, except that the liquidation preference Preferred Stock Consideration hereunder shall be reduced in an amount equal to the Fair Market Value (as defined in Section 6.20(b)) of such Property prior to such casualty. (b) Fair Market Value: Fair Market Value of the Leased Properties shall mean the fair market value of the interest on such Property contemplated to be transferred by this Agreement, as if such Property were available in the then leasing market, for comparable property, as determined by an independent real estate appraiser selected by Harris (in the case of the Leased Properties) (the "First Appraiser"), which appraisal shall be made within thirty (30) days after the occurrence of the casualty. If Concurrent (in the event of a total destruction of the Leased Properties), disputes the determination of the First Appraiser, which dispute must be raised within twenty (20) days after receipt by Concurrent of the First Appraiser's determination, Concurrent shall appoint its own independent real estate appraiser (the "Second Appraiser"). If within thirty (30) days after Concurrent disputes the determination of the First Appraiser, the First Appraiser and Second Appraiser shall mutually agree upon the determination of the Fair Market Value of the property in question, their determination shall be final and binding upon the parties. If the First Appraiser and Second Appraiser are unable to reach a mutual determination within said thirty (30) day period, both such Appraisers shall jointly A-37 238 select a third real estate appraiser (the "Third Appraiser"), whose fee shall be borne equally by Harris and Concurrent, and who shall, within thirty (30) days of his selection, choose either the First or Second Appraiser's determination; such choice by the Third Appraiser shall be conclusive and binding upon the parties hereto. Section 6.21 Compliance with Applicable Bulk Sales Laws. Without admitting the applicability of the bulk transfer laws of any jurisdiction, Harris and Concurrent have agreed to waive the compliance with the requirements of any applicable laws relating to bulk sales. Harris shall defend, indemnify and hold Concurrent harmless from and against any Losses incurred as a result of Harris's noncompliance with any applicable bulk transfer laws. Section 6.22 Audited Financial Statements; Statutory Financial Statements. Prior to the Closing, Harris shall have delivered to Concurrent the Audited Balance Sheet and the statutory financial statements of the Transferred Subsidiaries for the periods ended September 30, 1995 and September 30, 1994. Section 6.23 Tax Matters. For purposes of Section 1.3, Taxes of Harris accruing prior to Closing shall mean any Taxes of the Business attributable to any Tax period (or portion thereof) of Harris, or any of its Subsidiaries ending on or before the close of business on the Closing Date, and, in the case of any Taxes that are imposed on a periodic basis or are payable for a taxable period that includes (but does not end on) the Closing Date, the portion of such Taxes related to the portion of such taxable period ending on the Closing Date shall (i) in the case of any Taxes other than Taxes based upon or related to income, be deemed to be determined on a per diem basis, and (ii) in the case of any Taxes based upon or related to income, be deemed equal to the amount which would be payable if the relevant taxable period ended on the Closing Date. Any credits relating to a taxable period that begins before and ends after the Closing Date shall be taken into account as though the relevant taxable period ended on the Closing Date. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with the prior practice of Harris, the Transferred Subsidiaries and their subsidiaries. (a) Without the prior written consent of Concurrent, if a Material Adverse Effect on the liability for Taxes of the Transferred Subsidiaries will result therefrom, none of the Transferred Subsidiaries nor their subsidiaries shall make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax return or report, enter into any closing agreement, settle any Tax claim or assessment relating to any of the Transferred Subsidiaries or their subsidiaries, surrender any right to claim a refund of Taxes, or consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment relating to any of the Transferred Subsidiaries or their subsidiaries. (b) "Transfer Taxes" shall be borne by Harris and Concurrent as provided in Section 6.15. Transfer Taxes include all sales, use, transfer, recording, ad valorem, bulk sales and other similar taxes and fees, arising out of or in connection with the transactions contemplated by this Agreement. The party which has primary responsibility for the payment of any particular Transfer Tax shall prepare and file the relevant Tax Return, pay the Transfer Taxes shown on such Return, and notify the other party in writing of the Transfer Taxes shown on such Tax Return and how such Transfer Taxes were calculated; the other party shall, within 5 days of the receipt of such notice, pay to the first party its share of such Transfer Taxes. Section 6.24 HSR Approval. If the lowest closing bid price of Concurrent Common Stock is greater than $1.50 per share on the date that the Proxy Statement is mailed to shareholders of Concurrent and Harris, each of the parties hereto agrees to use its Best Efforts to take, or cause to be taken, and to do, or cause to be done, all things necessary to promptly prepare and file the pre-merger notification report form and to seek early termination or expiration of the waiting period under the HSR Act. ARTICLE VII EMPLOYMENT AND EMPLOYEE BENEFIT PLANS Section 7.1 Existing Employee Benefit Plans of Harris. Notwithstanding any other provisions contained herein, none of Harris's obligations under any of its employee benefit plans, including the Harris Stock Plan, A-38 239 shall be assumed by Concurrent. Contributions shall be made to and benefits shall be provided under the Harris Plans as follows: (a) With respect to the Harris Computer Systems Corporation Savings Plan (the "Harris 401(k) Plan"), (i) Harris shall, in accordance with Section 3.9(a) of the Harris 401(k) Plan, remit to the Trustee of the Harris 401(k) Plan all pretax contributions and after-tax contributions authorized by the employees listed in Schedule 7.1 (Harris employees who will be employed by Concurrent following Closing) ("Business Employees") and collected by Harris prior to 12:01 a.m. of the morning of the Closing Date (hereinafter in this Article VII, the "Employment Effective Time"); (ii) Harris shall, in accordance with Section 3.9(a) of the Harris 401(k) Plan, remit to the Trustee of the Harris 401(k) Plan the Matching Employer Contribution to which the Business Employees are entitled for the 1995 Plan Year; (iii) In applying Section 12.4 of the Harris 401(k) Plan, Harris shall deem a partial termination to have occurred with respect to the Business Employees as of the Employment Effective Time. As a result of said partial termination, each Business Employee shall be fully vested and have a nonforfeitable interest in that portion of such Business Employee's account attributable to Matching Employer Contributions as of the Employment Effective Time without regard to the number of years of service such Business Employee has completed for Harris. (iv) Harris shall distribute the Harris 401(k) Plan account balances of the Business Employees according to either (A) or (B) below, whichever is applicable: (A) If the sale of the Assets described in Article I constitutes a sale of substantially all the assets of a trade or business, within the meaning of Section 401(k)(10)(A)(ii) of the Code, Harris shall notify each Business Employee of his rights with respect to the distribution of his Harris 401(k) Plan account balance and shall make distribution of such account balances in accordance with the terms of the Harris 401(k) Plan, ERISA and the Code. (B) If the sale of the Assets described in Article I does not constitute a sale of substantially all the assets of a trade or business, within the meaning of Section 401(k)(10)(A)(ii) of the Code, Harris shall not distribute the Harris 401(k) Plan account balance of any Business Employee who becomes an employee of Concurrent ("Hired Business Employee") to such Hired Business Employee until the termination of his employment with Concurrent. Concurrent shall notify Harris of the termination of the employment of any Hired Business Employee no later than five days following the date on which such Hired Business Employee's employment with Concurrent terminates. (b) With respect to the Harris Computer Systems Corporation Medical/Dental Plan, the Harris Computer Systems Corporation Long Term Disability Plan, the Harris Computer Systems Corporation Life, AD&D, and Business Travel Accident Plan, the Harris Computer Systems Corporation Short Term Disability Plan, the Harris Computer Systems Corporation Cafeteria Plan, the Harris Computer Systems Corporation Medical Reimbursement Plan, and the Harris Computer Systems Corporation Dependent Care Plan (collectively, the "Welfare and Fringe Benefit Plans"), (i) Harris shall make, as soon as administratively practicable following the Closing, all contributions and shall pay all insurance premiums necessary to provide the benefits to which the Business Employees are entitled, under the terms of the Welfare and Fringe Benefit Plans; (ii) Harris shall be responsible for the payment of all expenses and claims incurred prior to 12:01 a.m. of the morning of the Closing Date under the Welfare and Fringe Benefits Plans, and shall use Best Efforts to make arrangements with Welfare and Fringe Benefits providers for a runoff period in which claims incurred prior to but submitted after 12:01 a.m. of the morning of the Closing Date will be honored for payment by Harris; and A-39 240 (iii) Harris shall be responsible for compliance with the requirements of Section 4980B of the Code and Part 6 of Title I of ERISA for its employees employed in the Business and their "qualified beneficiaries" whose "qualifying event" (as such terms are defined in Section 4980B of the Code) occurs prior to the Employment Effective Time. Section 7.2 Employment of Employees Employed in Business. (a) Effective the Employment Effective Time, Concurrent shall offer employment to each Business Employee at the same annual salary or hourly compensation and on other terms not materially less favorable to the Business Employees than those in effect as of the date of this Agreement. (b) Harris shall transfer to Concurrent any records (including, but not limited to, Forms W-4 and Employee Withholding Allowance Certificates) relating to withholding and payment of income and employment taxes (federal, state and local) and FICA taxes with respect to wages paid by Harris during the 1996 calendar year to any employees retained by Concurrent. Concurrent shall, to the extent permitted by applicable law, provide such employees with Forms W-2, Wage and Tax Statements for the 1996 calendar year setting forth the wages and taxes withheld with respect to such employees for the 1996 calendar year by Harris and Concurrent as predecessor and successor employers, respectively. Harris and Concurrent shall also comply with the filing requirements set forth in Revenue Procedure 84-77, 1984-2 C.B. 753, to implement this Section 7.2(b). Section 7.3 Employee Benefit Plans of Concurrent. Concurrent agrees to use Best Efforts to amend the existing Concurrent Plans and to establish new employee benefit plans, programs, policies or arrangements to accomplish the following effective at Closing: (a) Amend its Code section 401(k) retirement plan ("Concurrent 401(k) Plan") to provide (i) coverage for each Hired Business Employee on the same basis as provided for each current participant in the Concurrent 401(k) Plan as of the date of this Agreement; (ii) credit for each Hired Business Employee's prior years of service with Harris for purposes of eligibility and vesting; (iii) a contribution by Concurrent for each plan year equal to 100% of each Hired Business Employee's elective deferral contributions up to 6% of such Hired Business Employee's compensation for the plan year ("Concurrent Matching Contribution"), with 2% of the Concurrent Matching Contribution made in the form of cash and 4% of the Concurrent Matching Contribution made in the form of Concurrent stock; (iv) acceptance of direct rollovers and elective transfers of the cash and non-cash assets of the Harris 401(k) Plan accounts of Hired Business Employees, including promissory notes related to outstanding participant loans received by Hired Business Employees from the Harris 401(k) Plan; and (v) the repayment of outstanding participant loans received from the Harris 401(k) Plan by the Hired Business Employees who elect a direct rollover to the Concurrent 401(k) Plan promissory notes related to such outstanding participant loans. (b) in accordance with Section 6.13(e) hereof, Concurrent shall use its Best Efforts to cause the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to be increased to 9,000,000 (of which approximately 5,000,000 shall be available for grant). (c) implement a long term incentive program for executive officers comprised of the vesting of stock option grants contingent upon identified Company performance objectives for the three (3) fiscal years following the purchase of the Assets and the Purchased Harris Shares pursuant to the terms hereof. (d) implement a management bonus program for executive officers of the Company pursuant to which they will have the opportunity to receive cash bonuses ("Target Bonuses") upon achievement of both individual goals established for such persons ("Individual Target Goals") and corporate financial goals established based upon the business plan ("Corporate Target Goals"), and up to 150% of such Target bonuses upon achievement of goals in excess of such persons Target Individuals Goals and Target Corporate Goals. A-40 241 The Individual Target Goals, Corporate Target Goals, the levels of performance required to result in payments thereunder and all other matters relating to the bonus program shall be determined by the Board of Directors of Concurrent (or a committee thereof). (e) review the appropriateness of providing a nonqualified deferred compensation arrangement or Supplemental Employer Retirement Plan ("SERP") for the benefit of allowing the employee directed deferral and Company match on contributions under the Concurrent 401(k) Plan otherwise limited by the Code, including sections 401(a)(4), 401(a)(17), 401(k) and 402(g). ARTICLE VIII CONDITIONS Section 8.1 Conditions to Each Party's Obligation To Perform this Agreement. The respective obligations of the parties to perform this Agreement and the transactions contemplated hereby shall be subject to the satisfaction or waiver, on or prior to the Closing Date, of the following conditions: (a) Stockholder Approval. This Agreement and the transactions contemplated hereby shall have been approved and adopted by the affirmative vote of a majority of all the votes entitled to be cast with respect to the holders of Harris Common Stock and the issuance of shares of Concurrent Common Stock pursuant to this Agreement shall have been approved by the affirmative vote of a majority of the total votes cast with respect to the stockholders of Concurrent. An increase in the number of shares of Concurrent Common Stock authorized for issuance under the Concurrent Stock Plan to 9,000,000 such shares shall have been approved by the affirmative vote of a majority of the total votes cast by the holders of Concurrent Common Stock in a separate vote. The Harris Stock Plan Amendment shall have been approved by the affirmative vote of a majority of the total votes cast by the holders of the Harris Common Stock in a separate vote. (b) Other Approvals. All authorizations, notices, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity, the failure to obtain or make which would have a Material Adverse Effect on (i) Concurrent and its Subsidiaries, (ii) Harris and its Subsidiaries, in each case taken as a whole, or (iii) the Business shall have been filed, occurred or been obtained. Concurrent and Harris each shall have received all state securities or blue sky permits and other authorizations necessary to issue Concurrent Common Stock pursuant to this Agreement. (c) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of this Agreement and the transactions contemplated hereby shall be in effect (each party agreeing to use all reasonable efforts to have any such order reversed or injunction lifted). (d) No Action. No action, suit or proceeding by any Governmental Entity before any court or governmental or regulatory authority shall be pending against Harris, Concurrent or any of their Subsidiaries challenging the validity or legality of the transactions contemplated by this Agreement, other than actions, suits or proceedings which, in the reasonable opinion of counsel to the parties hereto, are unlikely to result in an adverse judgment having a Material Adverse Effect on either Concurrent, Harris or any of their respective Subsidiaries taken as a whole or the Business. (e) Tax Opinion. Harris and Concurrent shall have received an opinion of Holland & Knight, counsel to Harris, in form and substance reasonably satisfactory to Harris and Concurrent, dated a date within two days prior to the expected date of the Proxy Statement, substantially to the effect that none of the actions expressly contemplated by this Agreement shall result in or otherwise give rise to a breach of any covenant contained in the Tax Sharing Agreement or made in connection with the opinion rendered by Sullivan & Cromwell (as described in Section 1.12(a) of the Tax Sharing Agreement), in each case relating to the qualification of the Distribution as a distribution pursuant to Section 355 of the Code. In rendering such opinion, Holland & Knight may rely exclusively without an independent investigation upon representations contained in certificates of officers of Harris and others unless Holland & Knight has actual knowledge or reason to believe that such representations are false or inaccurate. A-41 242 (f) HSR Approval. Any applicable waiting period under the HSR Act shall have expired or been terminated. (g) Consents. The consents set forth in Schedule 8.1(g) shall have been obtained. (h) The Ancillary Agreements (each of which shall provide that it shall become effective simultaneously with the effectiveness of this Agreement) shall have been executed and delivered by the parties thereto. (i) Concurrent and Harris shall have reached mutual agreement with respect to the transfer of stock and assets of the Transferred Subsidiaries. Section 8.2 Conditions of Obligation of Concurrent. The obligation of Concurrent to perform this Agreement and the transactions contemplated hereby are subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived by Concurrent: (a) Representations and Warranties. The representations and warranties of Harris set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. Concurrent shall have received a certificate signed on behalf of Harris by the Chief Executive Officer and the Chief Financial Officer of Harris to the foregoing effect. (b) Performance of Obligations of Harris. Harris shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Concurrent shall have received a certificate signed on behalf of Harris by the Chief Executive Officer and the Chief Financial Officer of Harris to such effect. (c) Filings and Consents with Governmental Entities. Harris shall have made all filings or registrations with, and obtained all permits, authorizations, notices, consents and approvals from, Governmental Entities as may be required in connection with the transactions contemplated by this Agreement under the Exchange Act, the Securities Act, the HSR Act, the FBCA, any state securities or blue sky laws or other applicable laws, except for filings, registrations, permits, authorizations, notices, consents and approvals, the failure to obtain of which would not have a Material Adverse Effect on Harris, Concurrent and their Subsidiaries taken as a whole or the Business (after giving effect to the transactions contemplated hereby). (d) Consents Under Agreements. The parties to the contracts and agreements identified on Schedule 8.2(d) hereto shall consent to the assignment of such contracts and agreements to Concurrent. (e) Material Adverse Effect. From the date of this Agreement through the Closing Date, there shall not have occurred any change in the financial condition, business, operations or prospects of Harris and the Transferred Subsidiaries, taken as a whole, that would have or would be reasonably likely to have a Material Adverse Effect on either Harris and its Subsidiaries, taken as a whole, or the Business other than any such change that affects both Concurrent and Harris in a substantially similar manner. (f) Fairness Opinion. The fairness opinion letter from Berenson Minella & Company referred to in Section 5.9 shall not, in good faith, have been withdrawn by Berenson Minella & Company. (g) Approval of Schedules. Concurrent shall have approved all Schedules delivered by Harris pursuant to Article I hereof, the non-approval of which shall not be based on matters regarding amortization or reclassification for purposes of changes in depreciation or for other financial statement purposes and which approval may not be unreasonably withheld. (h) Effectiveness of Registration Statement/Inclusion of NASDAQ/NMS. A Registration Statement of Harris shall be effective under the Securities Act covering the Purchased Harris Shares to be received by Concurrent at the Closing and such Purchased Harris Shares shall have been approved for inclusion on the NASDAQ/NMS, subject to official notice of issuance. A-42 243 Section 8.3 Conditions of Obligation of Harris. The obligation of Harris to perform this Agreement and the transactions contemplated hereby is subject to the satisfaction of the following conditions, on or prior to the Closing Date, unless waived by Harris: (a) Representations and Warranties. The representations and warranties of Concurrent set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. Harris shall have received a certificate signed on behalf of Concurrent by the Chief Executive Officer and the Chief Financial Officer of Concurrent to the foregoing effect. (b) Performance of Obligations of Concurrent. Concurrent shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Harris shall have received a certificate signed on behalf of Concurrent by the Chief Executive Officer and the Chief Financial Officer of Concurrent to such effect. (c) Filings and Consents with Governmental Entities. Concurrent shall have made all filings or registrations and obtained all permits, authorizations, notices, consents and approvals from, Governmental Entities as may be required in connection with the transactions contemplated by this Agreement under the Exchange Act, the Securities Act, the HSR Act, the FBCA, any state securities or blue sky laws or other applicable laws, except for filings, registrations, permits, authorizations, notices, consents and approvals, the failure to obtain of which would not have a Material Adverse Effect on Harris, Concurrent and their Subsidiaries taken as a whole (after giving effect to the transactions contemplated hereby). (d) Material Adverse Effect. From the date of this Agreement through the Closing Date, there shall not have occurred any change in the financial condition, business, operations or prospects of Concurrent and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have a Material Adverse Effect on Concurrent and its Subsidiaries, taken as a whole, other than any such change that affects both Concurrent and Harris in a substantially similar manner. (e) Effectiveness of Registration Statement/Inclusion on NASDAQ/NMS. A Registration Statement of Concurrent shall be effective under the Securities Act covering the Concurrent Common Stock to be received by Harris at the Closing and the Concurrent Common Stock issuable upon conversion of the Concurrent Preferred Stock to be received by Harris at the Closing or the Debentures, and such Concurrent Common Stock shall have been approved for inclusion on the NASDAQ/NMS, subject to official notice of issuance. (f) Fairness Opinion. The fairness opinion letter from Bear, Stearns & Co. Inc. to Harris referred to in Section 4.9 shall not, in good faith, have been withdrawn by Bear, Stearns & Co. Inc. (g) New Jersey Advice. Harris shall have received from Concurrent (i) a written determination by the New Jersey Department of Environmental Protection of the nonapplicability of the New Jersey Industrial Site Recovery Act, as amended ("ISRA") to the transactions contemplated by this Agreement, or (ii) a written Negative Declaration (as defined in ISRA) from the New Jersey Department of Environmental Protection to the effect that no soil or groundwater assessment or remediation is required or (iii) written assurances to Harris that Concurrent has otherwise complied with ISRA in a manner which does not require a material financial commitment on behalf of Concurrent. ARTICLE IX TERMINATION AND AMENDMENT Section 9.1 Termination by Mutual Consent. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date, before or after the approval of this Agreement by the stockholders of Harris or Concurrent, by the mutual consent of Concurrent and Harris. Section 9.2 Termination by Either Concurrent or Harris. This Agreement may be terminated and the transactions contemplated hereby may be abandoned by action of the Board of Directors of either Harris or A-43 244 Concurrent if (a) the Closing contemplated by this Agreement shall not have been consummated by August 30, 1996 provided, in the case of a termination pursuant to this clause (a), that the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure referred to in said clause, or (b) the approval of Harris's stockholders referred to in Section 4.11 shall not have been obtained at a Harris Stockholder Meeting duly convened therefor or at any adjournment thereof, or (c) the approval of Concurrent's stockholders referred to in Section 5.12 shall not have been obtained at a Concurrent Stockholder Meeting duly convened therefor or at any adjournment thereof, or (d) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable; provided, that the party seeking to terminate this Agreement pursuant to this clause (d) shall have used all reasonable efforts to remove such injunction, order or decree. Section 9.3 Termination by Harris. This Agreement may be terminated at any time prior to the Closing Date, before or after the adoption and approval by the stockholders of Harris referred to in Section 4.11, by action of the Board of Directors of Harris, if (a) in the exercise of its good faith judgment as to its fiduciary duties to its stockholders imposed by law the Board of Directors of Harris determines that such termination is required by reason of an Acquisition Transaction proposal being made, (b) there has been a breach by Concurrent of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a Material Adverse Effect on Concurrent and its Subsidiaries taken as a whole, (c) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of Concurrent, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Harris to Concurrent or (d) Concurrent withdraws, amends, or modifies its favorable recommendation of this Agreement and the transactions contemplated hereby or promulgates any recommendation with respect to an Acquisition Transaction other than a recommendation to reject such Acquisition Transaction. Section 9.4 Termination by Concurrent. This Agreement may be terminated at any time prior to the Closing Date, before or after the approval by the stockholders of Concurrent referred to in Section 5.12, by action of the Board of Directors of Concurrent, if (a) in the exercise of its good faith judgment as to its fiduciary duties to its stockholders imposed by law the Board of Directors of Concurrent determines that such termination is required by reason of an Acquisition Transaction proposal being made, (b) there has been a breach by Harris of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a Material Adverse Effect on either Harris and the Transferred Subsidiaries, taken as a whole or the Business, (c) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of Harris, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Concurrent to Harris or (d) Harris withdraws, amends, or modifies its favorable recommendation of the transactions contemplated by this Agreement and the transactions contemplated hereby or promulgates any recommendation with respect to an Acquisition Transaction other than a recommendation to reject such Acquisition Transaction. Section 9.5 Effect of Termination. In the event of termination of this Agreement pursuant to this Article IX, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to this Section 9.5 and Sections 6.6 and 6.9. Moreover, in the event of termination of this Agreement pursuant to Section 9.3 or 9.4, nothing herein shall prejudice the ability of the non-terminating party from seeking damages from any other party for any breach of this Agreement, attorneys' fees and the right to pursue any remedy at law or in equity; provided, however, that in the event nonterminating party has received the Termination Fee (as defined in Section 9.6(c)) from the terminating party, the non-terminating party shall not (a) assert or pursue in any manner, directly or indirectly, any claim or cause of action based in whole or in part upon alleged tortious or other interference with rights under this Agreement against any entity or person submitting a proposal for an Acquisition Transaction (b) assert or pursue in any manner, directly or indirectly, any claim or cause of action against the terminating party or any of its officers or directors based in whole or in part upon its or their receipt, consideration, recommendation, or approval of an Acquisition Transaction or the A-44 245 terminating party's exercise of its right of termination under Section 9.3(a) or 9.4(a), as appropriate, or assert any claim for any of the expenses referred to in Section 6.15 herein. Notwithstanding the foregoing, in the event the non-terminating party is required to file suit to seek such Termination Fee, and it ultimately succeeds on the merits, it shall be entitled to all expenses, including reasonable attorneys' fees, which it has incurred in enforcing its rights hereunder. Section 9.6 Termination Fee. (a) If (i) (x) this Agreement is terminated by either Concurrent or Harris in accordance with Section 9.2(b), (y) prior to the Harris Stockholder Meeting a proposal for a competing Acquisition Transaction involving Harris is publicly announced, and (z) any Acquisition Transaction involving Harris is consummated within 1 year of the date of termination of this Agreement or (ii) this Agreement is terminated by Harris in accordance with Section 9.3(a), Harris shall pay to Concurrent the Termination Fee. (b) If (i) (x) this Agreement is terminated by either Concurrent or Harris in accordance with Section 9.2(c), (y) prior to the Concurrent Stockholder Meeting a proposal for a competing Acquisition Transaction involving Concurrent is publicly announced, and (z) any Acquisition Transaction involving Concurrent is consummated within 1 year of the date of termination of this Agreement or (ii) this Agreement is terminated by Concurrent in accordance with Section 9.4(a), Concurrent shall pay to Harris the Termination Fee. (c) The Termination Fee shall be $1.75 million payable by wire transfer of immediately available funds within five business days of the date of the first to occur of clauses (i) or (ii) of either Section 9.6 (a) or (b), as appropriate, to such account as the receiving party shall specify to the paying party. ARTICLE X OBLIGATIONS OF PARTIES AFTER CLOSING DATE Section 10.1 Survival Periods. Except as otherwise provided herein, the representations and warranties of the parties contained in this Agreement or any certificate delivered in connection herewith shall not survive the Closing. The covenants and agreements of the parties hereto shall survive the Closing if and to the extent so provided in such covenant or agreement. Section 10.2 Indemnification. Subject to the other provisions of this Article X, from and after the Closing: (a) Harris shall indemnify and hold harmless Concurrent and its affiliates, and each of their affiliates' and their respective affiliates' directors, officers, employees, representatives and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Representatives") from and against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages and amounts paid in settlement (collectively, "Damages") to the extent they are the result of (i) any breach of any representation or warranty made by or on behalf of Harris under this Agreement that is a result of fraud or intentional or wilful misrepresentation by Harris or (ii) the Excluded Liabilities. As to claims for Damages by Concurrent and its Representatives in respect of misrepresentations pursuant to clause (i) of this Section 10.2(a), such claims, to the extent practicable, shall be satisfied by reductions in the Liquidation Preference for the Outstanding Preferred Stock Consideration pursuant to the terms of the Certificate of Designation. (b) Concurrent shall indemnify and hold harmless Harris and its Representatives from and against any Damages to the extent they arise out of and are the result of (i) any breach of any representation or warranty made by or on behalf of Concurrent under this Agreement that is a result of fraud or intentional or wilful misconduct by Concurrent or (ii) the Assumed Liabilities. Concurrent and its Representatives, on the one hand, and Harris and its Representatives, on the other hand, as the case may be, are referred to herein as the "Indemnified Parties." (c) Neither Harris nor Concurrent, as the case may be, shall be obligated to indemnify a party pursuant to this Article X for any Damages pursuant to Sections 10.2(a)(i) and 10.2(b)(i) unless Harris or Concurrent, as the case may be, shall have received written notice of such Damages (i) in the case of a breach A-45 246 of a representation and warranty (other than the representations and warranties set forth in Sections 4.10 and 5.11, as the case may be), within 2 years from the Closing Date and (ii) in the case of the representations and warranties set forth in Sections 4.10 and 5.11, as the case may be, prior to the expiration of the applicable statute of limitations; provided, however, in the event that an Indemnified Party (x) receives notice of any matter which provides a reasonable basis for a claim to indemnification hereunder and within the applicable period provided in this Section 10.2(c) and (y) provides notice to the Indemnifying Party (as defined hereinafter) of the receipt of such notice, then such Indemnified Party shall be entitled to indemnification with respect to such claim until its final resolution, and provided, further, that there shall be no period of time within which notice of or a claim for indemnity must be provided by an Indemnified Party to an Indemnifying Party (as defined in Section 10.3(a)) with respect to those items set forth in Section 10.2(a)(ii) and 10.2(b)(ii) hereof. Section 10.3 Claims. (a) If an Indemnified Party intends to seek indemnification pursuant to this Article X, such Indemnified Party shall promptly notify Harris or Concurrent, as the case may be (the "Indemnifying Party"), in writing of such claim describing such claim in reasonable detail; provided, however, that the failure to provide such notice shall not affect the obligations of the Indemnifying Party unless it is actually prejudiced thereby, subject, however, to the time periods specified in Section 10.1 hereof. In the event that such claim involves a claim by a third party against the Indemnified Party, the Indemnifying Party shall have 30 days after receipt of such notice to decide whether it will undertake, conduct and control, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and if it so decides, the Indemnified Party shall cooperate with it in connection therewith; provided, however, that the Indemnified Party may participate in such settlement or defense through counsel chosen by it; and provided, further, however, that the fees and expenses of such counsel shall be borne by the Indemnified Party. The decision by an Indemnifying Party to undertake the defense or settlement of such claim shall be conclusive evidence of its concurrence that any Indemnified Party involved in such claim is entitled to indemnification hereunder with respect to such claim. Notwithstanding anything in this Section 10.3(a) to the contrary, the Indemnifying Party may, without the consent of the Indemnified Party, settle or compromise any action or consent to the entry of any judgment which includes as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnified Party of a duly executed written release of the Indemnified Party from all liability in respect of such action, which release shall be reasonably satisfactory in form and substance to counsel for the Indemnified Party; provided, however, that the Indemnifying Party shall not, without the written consent of the Indemnified Party, settle or compromise any action in any manner that, in the reasonable judgment of the Indemnified Party or its counsel, would materially and adversely affect the Indemnified Party, other than as a result of money damages or other money payments. If the Indemnifying Party does not notify the Indemnified Party within 30 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement. So long as the Indemnifying Party is contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such claim; provided, however, that so long as the Indemnifying Party is contesting such claim in good faith, any such settlement shall include as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnifying Party of a duly executed written release of the Indemnifying Party from all liability in respect of such action; and provided, further, however, that in such event it shall waive any right to indemnity therefor by the Indemnifying Party; and provided, further, however, that the Indemnified Party shall provide the Indemnifying Party reasonable advance notice of any proposed settlement or payment and shall not pay or settle any claim if the Indemnifying Party shall reasonably object. (b) The Indemnified Party shall cooperate fully in all aspects of any investigation, defense, pretrial activities, trial, compromise, settlement or discharge of any claim in respect of which indemnity is sought pursuant to Article X, including, but not limited to, by providing the other party with reasonable access to employees and officers (including as witnesses) and other information. A-46 247 ARTICLE XI MISCELLANEOUS Section 11.1 Amendment. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of this Agreement and the transactions contemplated hereby by the stockholders of Harris or of Concurrent, but, after any such approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 11.2 Extension; Waiver. At any time during the term of this Agreement or during the time any provision survives termination hereof or Closing as provided herein, the parties hereto, by action taken or authorized by the respective Boards of Directors, may to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained here. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Section 11.3 Notices. All consents, notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses or telephone numbers (or at such other address for a party as shall be specified by like notice): (a) if to Concurrent, to Concurrent Computer Corporation 2 Crescent Place Oceanport, NJ 07757 Attention: Kevin Dell Telecopy: (908) 870-4779 with a copy, which copy shall not constitute notice, to Skadden, Arps, Slate, Meagher& Flom 919 Third Avenue New York, N.Y. 10022 Telecopy: (212) 735-3764 Attention: Eric L. Cochran and A-47 248 (b) if to Harris, to Harris Computer Systems Corporation 2101 W. Cypress Creek Road Ft. Lauderdale, FL 33309 Attention: Daniel Dunleavy Telecopy: (305) 973-5253 with a copy, which copy shall not constitute notice, to Holland & Knight One East Broward Blvd. P.O. Box 14070 Fort Lauderdale, FL 33302 Telecopy: (305) 463-2030 Attention: Brian Foremny Section 11.4 Interpretation. Any reference in this Agreement to an "Article", a "Section" or a "Schedule" without reference to a document is a reference to an Article or a Section hereof or a Schedule hereto. Notwithstanding any specific reference to a Schedule in this Agreement, all of the representations, warranties and covenants of the parties contained in this Agreement are qualified by the entire Disclosure Schedule. With respect to any discrepancy between this Agreement and the Ancillary Agreements, and other agreements and instruments delivered herewith, the provisions set forth in this Agreement shall control. 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 "hereof", "herein", and "hereunder" are used in this Agreement they shall refer to this Agreement as a whole unless the context otherwise requires. Whenever the words "include", "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The phrases "the date of this Agreement," "the date hereof" and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date first written above. The use of any gender herein shall be deemed to include the other gender. Section 11.5 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Section 11.6 Entire Agreement; No Third Party Beneficiaries. (a) This Agreement, including all Schedules hereto, together with the Ancillary Agreements referred to in Section 2.4 and the Confidentiality Agreement (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof, and (b) except as expressly provided herein are not intended to confer upon any person other than the parties hereto and thereto any rights or remedies hereunder or thereunder. (b) Effective as of the date hereof, the Agreement and Plan of Merger and Reorganization, dated November 5, 1995, among Harris, Concurrent and Concurrent Acquisition Corporation, is hereby terminated by the mutual consent of Harris and Concurrent. Section 11.7 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware applicable to contracts made, executed, delivered and performed wholly within the State of Delaware, without regard to any applicable conflicts of law. Section 11.8 Specific Performance. The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. A-48 249 Section 11.9 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Section 11.10 Incorporation of Exhibits. The Disclosure Schedule, Concurrent Disclosure Schedule and all Exhibits attached hereto and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. Section 11.11 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. A-49 250 IN WITNESS WHEREOF, Concurrent and Harris have caused this Agreement to be signed by their respective officers thereunto duly authorized as originally executed as of the 26th day of March, 1996 and as amended and restated as of the 13th day of May, 1996. CONCURRENT COMPUTER CORPORATION By: /s/ John T. Stihl ------------------------------------ John T. Stihl Chairman, President and Chief Executive Officer HARRIS COMPUTER SYSTEMS CORPORATION By: /s/ E. Courtney Siegel ------------------------------------ E. Courtney Siegel Chairman, President and Chief Executive Officer A-50 251 ANNEX B BerensonMinella Logo May 23, 1996 Board of Directors Concurrent Computer Corporation 2 Crescent Place Oceanport, New Jersey 07757 Gentlemen: We understand that Concurrent Computer Corporation ("Concurrent") has entered into a Purchase and Sale Agreement, dated as of March 26, 1996 and amended and restated as of May 23, 1996 (the "Purchase and Sale Agreement"), with Harris Computer Systems Corporation ("Harris"), providing for the sale by Harris to Concurrent of assets used in the business (the "Harris Real-Time Business") of providing and servicing high-performance real-time computer systems on a worldwide basis (as defined in the Purchase and Sale Agreement, the "Assets"), the assumption by Concurrent of certain related liabilities of the Harris Real-Time Business (as defined in the Purchase and Sale Agreement, the "Assumed Liabilities") and the sale by Harris to Concurrent of 683,178 shares of Common Stock, par value $0.01 per share, of Harris (such shares, the "Purchased Harris Shares"), for consideration consisting of 10,000,000 shares of Common Stock, par value $.01 per share (the "Concurrent Common Stock") of Concurrent, subject to adjustment for stock splits, stock dividends and similar transactions prior to the closing (the "Concurrent Common Stock Consideration"), and $10,000,000 in total liquidation preference of 9% Class B Convertible Preferred Stock of Concurrent (the "Concurrent Preferred Stock") having the rights, designations and preferences set forth in the Certificate of Designation (as defined in the Purchase and Sale Agreement, a form of which is attached as Exhibit A thereto), as adjusted pursuant to the terms thereof and the Purchase and Sale Agreement (such shares, the "Preferred Stock Consideration"). Pursuant to the terms of the Concurrent Preferred Stock and the terms of the debentures (the "Debentures") into which the Concurrent Preferred Stock is exchangeable, a maximum of 4,000,000 shares, subject to anti-dilution adjustment, of Concurrent Common Stock (the "Additional Common Shares") may be issuable upon the conversion of the Concurrent Preferred Stock and the Debentures. The purchase by Concurrent of the Assets and the Purchased Harris Shares for the Concurrent Common Stock Consideration and the Preferred Stock Consideration and the assumption of the Assumed Liabilities and all other transactions contemplated thereby are sometimes referred to herein as the "Transaction". You have asked us to render our opinion as to whether the purchase by Concurrent of the Assets and the Purchased Harris Shares for the Concurrent Common Stock Consideration and the Preferred Stock Consideration and the assumption of the Assumed Liabilities, taken as a whole, are fair to the shareholders of Concurrent from a financial point of view. In arriving at our opinion, we have, among other things: (i) reviewed the Purchase and Sale Agreement, the Form of Certificate of Designation, Debenture Term Sheet and Form of Share Holding Agreement attached as exhibits thereto, and the joint proxy statement of Concurrent and Harris (the "Proxy Statement") relating to the respective meetings of shareholders of Concurrent and Harris to be held in connection with the Transaction; (ii) reviewed certain publicly-available business and financial information relating to Concurrent, including Concurrent's Annual Reports on Form 10-K for the fiscal years ended June 30, 1994 and 1995, and its Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 1995, December 31, 1995 and March 31, 1996; BerensonMinella Address Line B-1 252 (iii) reviewed certain publicly-available business and financial information relating to Harris, including Harris' Information Statement dated September 29, 1994, its Quarterly Reports on Form 10-Q and Form 10-Q/A for the period ended September 30, 1994, its Annual Report on Form 10-K for the fiscal year ended September 30, 1995, and its Quarterly Reports on Form 10-Q for the fiscal quarters ended December 29, 1995 and March 30, 1996; (iv) reviewed forecasted combined income statements for Concurrent and the Harris Real-Time Business for the twelve month periods ending June 30, 1997 and 1998, and forecasted combined balance sheets as of the end of each fiscal quarter from June 30, 1996 through June 30, 1998, prepared by Concurrent's management as of March 15, 1996, financial projections for Concurrent and financial projections for the Harris Real-Time Business for the twelve month periods ending June 30, 1997 and 1998, prepared by Concurrent's management as of March 15, 1996, and financial projections for the Harris Real-Time Business for the twelve months ending December 31, 1996 and 1997, prepared by the management of Harris as of March 15, 1996 (collectively, the "Projections"), and had discussions with the management of each company regarding the Projections; (v) reviewed financial forecasts for Concurrent for the quarters ending March 31, 1996 and June 30, 1996, prepared by Concurrent's management as of January 24, 1996; (vi) discussed with the managements of Concurrent and Harris their respective businesses and the views of each management regarding the companies' respective technologies and the profitability of such technologies, as well as the operating and strategic benefits and implications of Concurrent's acquisition of the Harris Real-Time Business, including the effect on sales and the operating synergies and cost savings projected to be achieved through the combination of the operations of Concurrent and the Harris Real-Time Business; (vii) considered both the historical and recent sales and earnings trends of each of Concurrent and the Harris Real-Time Business, taking into account the financial condition, including the projected costs associated with Concurrent's acquisition of the Harris Real-Time Business and debt capacity and liquidity, of each, as well as that of the pro forma combined company; (viii) reviewed historical stock prices and trading volumes of Concurrent and Harris; (ix) compared the recent financial performance of each of Concurrent and the Harris Real-Time Business with that of other public companies engaged in businesses deemed similar to those of Concurrent and the Harris Real-Time Business, and compared the recent financial performance of Harris's "trusted systems" business with that of other public companies engaged in businesses deemed similar to those of such "trusted systems" business; (x) reviewed the financial terms of certain other recent business combinations involving companies engaged in businesses deemed similar to those of Concurrent and the Harris Real-Time Business, to the extent publicly available; (xi) compared the relative contribution in terms of sales, operating income, operating cash flow and net income of each of Concurrent and the Harris Real-Time Business to a pro forma combined company and compared such contribution to the pro forma ownership of each of Concurrent's shareholders and Harris in the combined company; and (xii) reviewed such other information and taken into account such other factors as we deemed relevant. For purposes of rendering our opinion, we have assumed and relied upon the accuracy and completeness of the foregoing information and have not assumed any responsibility for independent verification of such information or for any independent valuation or appraisal of any of the assets or liabilities of Concurrent or Harris, including without limitation the Assets or the Assumed Liabilities, nor were we furnished with any such valuations or appraisals. With respect to the Projections and financial forecasts, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Concurrent as to the future performance of Concurrent and the Harris Real- B-2 253 Time Business, of the management of Harris as to the future performance of the Harris Real-Time Business, and of the managements of Concurrent and Harris with respect to the future performance of the combined operation of Concurrent and the Harris Real-Time Business, and have relied upon the assurances of the managements of Concurrent and Harris that they are unaware of any facts that would make the information, Projections or financial forecasts provided to us incomplete or misleading. We have also assumed that the effect on sales and the operating synergies and cost savings projected to be achieved through the combination of the operations of Concurrent and the Harris Real-Time Business will be realized and have relied without further analysis or investigation on the judgment of the managements of Concurrent and Harris as to the companies' respective technologies and the profitability of such technologies. Our opinion is necessarily based on economic, market and other conditions, and the information made available to us, as of the date hereof. Our opinion is being provided at the request and for the information of the Board of Directors of Concurrent in connection with its consideration of the Transaction, and shall not be reproduced, summarized, described or referred to, or furnished to any other person, without our prior written consent, provided, however, that this letter may be reproduced in full in the Proxy Statement. Our opinion does not constitute a recommendation to any shareholder of Concurrent as to how any such shareholder should vote with respect to the issuance of the Concurrent Common Stock Consideration and the Additional Common Shares in connection with the Transaction. We have in the past provided financial advisory services to Concurrent and have received fees for rendering such services. We have acted as financial advisor to Concurrent in connection with the Transaction and will receive a fee for such services, including the rendering of this opinion, contingent upon the consummation of the Transaction. Based upon and subject to the foregoing, and subject to the various assumptions and limitations set forth herein, it is our opinion that, as of the date hereof, the purchase by Concurrent of the Assets and the Purchased Harris Shares for the Concurrent Common Stock Consideration and the Preferred Stock Consideration and the assumption of the Assumed Liabilities, taken as a whole, are fair to the shareholders of Concurrent from a financial point of view. Very truly yours, BERENSON MINELLA & COMPANY B-3 254 ANNEX C [BEAR STEARNS LETTERHEAD] May 23, 1996 The Special Committee of the Board of Directors Harris Computer Systems Corporation 2101 West Cypress Creek Road Fort Lauderdale, FL 33309 Dear Sirs: We understand that Harris Computer Systems Corporation ("Harris") and Concurrent Computer Corporation ("Concurrent") have entered into a Purchase and Sale Agreement dated March 26, 1996, as amended and restated on May 23, 1996 (the "Transaction Agreement"), pursuant to which (i) Harris will sell to Concurrent (a) the assets and liabilities of its real-time computer systems business, (known as the Real-Time Systems Division), plus (b) 683,178 newly issued shares of Harris common stock, representing approximately 9.4% of Harris' fully-diluted shares outstanding on a pro forma basis, and (ii) Concurrent shall issue to Harris (a) 10,000,000 shares of Concurrent common stock, representing approximately 21.7% of Concurrent's fully-diluted shares outstanding on a pro forma basis, plus (b) $10.0 million liquidation preference (subject to certain adjustments) of Concurrent convertible exchangeable preferred stock representing another 4,000,000 shares of Concurrent common stock (8.6% of Concurrent's fully-diluted shares outstanding on a pro forma basis) (the "Transaction"). You have provided us with the joint preliminary proxy statement/prospectus, which includes the Transaction Agreement, in substantially final form to be sent to the shareholders of Harris (the "Joint Proxy Statement"). You have asked us to render our opinion as to whether the Transaction is fair, from a financial point of view, to the shareholders of Harris. In the course of our analyses for rendering this opinion, we have: 1. reviewed the Joint Proxy Statement; 2. reviewed Harris' Information Statement dated September 29, 1994, and its Annual Report on Form 10-K for the year ended September 30, 1995, its Quarterly Report on Form 10-QA for the period ended September 30, 1994, and its Quarterly Reports on Form 10-Q for the periods ended December 29, 1995, and March 30, 1996; 255 3. reviewed Concurrent's Annual Reports on Form 10-K for the fiscal years ended June 30, 1994 and 1995, and Quarterly Reports on Form 10-Q for the periods ended September 30 and December 31, 1995, and March 31, 1996; 4. reviewed certain operating and financial information, including projections, provided to us by Harris' and Concurrent's managements relating to their respective businesses and prospects; 5. met with certain members of Harris' senior management to discuss its operations, historical financial statements and future prospects, as well as their views with respect to the operations, historical financial statements and future prospects of Concurrent, and their views of the business, operational and strategic benefits, potential synergies and other implications of the Transaction; 6. met with certain members of Concurrent's senior management to discuss its operations, historical financial statements and future prospects, as well as their views of the business, operational and strategic benefits, potential synergies and other implications of the Transaction; 7. reviewed the pro forma financial impact of the Transaction on Concurrent; 8. reviewed the historical prices and trading volumes of the common shares of Harris and Concurrent; 9. reviewed publicly available financial data and stock market performance data of companies which we deemed generally comparable to Harris and Concurrent; 10. reviewed the terms of recent acquisitions of companies which we deemed generally comparable to the Transaction; and 11. conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In the course of our review, we have relied upon and assumed the accuracy and completeness of the financial and other information provided to us by Harris and Concurrent. With respect to Harris' and Concurrent's projected financial results we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of Harris and Concurrent as to the expected future performance of Harris and Concurrent, respectively. We have not assumed any responsibility for the information or projections 256 provided to us and we have further relied upon the assurances of the managements of Harris and Concurrent, respectively, that they are unaware of any facts that would make the information or projections provided to us incomplete or misleading. In arriving at our opinion, we have not performed or obtained any independent appraisal of the assets of Harris and Concurrent. Our opinion is necessarily based on economic, market and other conditions, and the information made available to us, as of the date hereof. Based on the foregoing, it is our opinion that the Transaction is fair, from a financial point of view, to the shareholders of Harris. We have acted as financial advisor to Harris in connection with the Transaction and will receive a fee for such services, payment of a substantial portion of which is contingent upon the consummation of the Transaction. Very truly yours, BEAR, STEARNS & CO. INC. By: /s/ Davies B. Beller ------------------- Managing Director 257 ANNEX D AMENDMENT TO THE CONCURRENT 1991 RESTATED STOCK OPTION PLAN Amendment (the "Concurrent Stock Plan Amendment"), dated as of May 13, 1996, to the Concurrent Computer Corporation 1991 Restated Stock Option Plan (the "Concurrent Stock Plan"). WITNESSETH WHEREAS, Concurrent Computer Corporation ("Concurrent") and Harris Computer Systems Corporation ("Harris") have entered into a Purchase and Sale Agreement (the "Purchase and Sale Agreement") pursuant to which Concurrent will acquire the assets of the real-time business of Harris; and WHEREAS, subject to its approval by the shareholders of Concurrent, the Board of Directors of Concurrent has approved and adopted this Concurrent Stock Plan Amendment and directed that the proper officers take all appropriate steps to execute and put into effect the Concurrent Stock Plan Amendment. NOW, THEREFORE: 1. The first sentence of Section 5 of the Concurrent Stock Plan is hereby amended, effective upon its approval by the stockholders of Concurrent, to read in its entirety as follows: The total number of shares of Stock reserved and available for distribution pursuant to Awards under the Plan shall be 9,000,000 shares of Stock. 2. Section 8 of the Concurrent Stock Plan is hereby amended, effective upon its approval by the stockholders of Concurrent, to read in its entirety as follows: "SECTION 8. Options Granted to Non-Employee Directors. The provisions of this Section 8 govern the granting and terms of Options for any director of the Company who is not an employee of the Company or any of its Affiliates ("Eligible Director"). No options may be granted to Eligible Directors other than pursuant to this Section 8. Upon an individual becoming an Eligible Director for the first time, without further action by the Board or the stockholders of the Company, such Eligible Director shall be automatically granted Options to purchase 20,000 shares of stock (subject to adjustment in accordance with the provisions of Section 5 of the Plan). On the date of each annual meeting of stockholders of the Company, each Eligible Director who has previously been awarded an Option under the preceding sentence shall be granted automatically, without further action by the Board or the stockholders of the Company, Options to purchase 3,000 shares of stock (subject to adjustment in accordance with the provisions of Section 5 of the Plan). The purchase price per share deliverable upon the exercise of Options granted under this Section 8 shall be 100% of the Fair Market Value of such shares as of the date of grant of such Option. Each Option granted under this Section 8 shall become immediately exercisable and no Option shall be exercisable after the expiration of ten (10) years from the date of grant. If not previously exercised, each Option granted pursuant to this Section 8 shall expire upon the tenth (10th) anniversary of the date of grant or upon the earlier removal or resignation as a director of the Company (other than any such removal or resignation as a result of the death or disability of the optionee). 3. This Concurrent Stock Plan Amendment shall be effective immediately following the closing of the transactions contemplated by the Purchase and Sale Agreement and the Concurrent Stock Plan shall continue in full force and effect as amended hereby. 4. Capitalized terms used in this Concurrent Stock Plan Amendment and not defined herein shall have the meanings assigned thereto in the Concurrent Stock Plan. D-1 258 IN WITNESS WHEREOF, Concurrent has caused this Amendment to be duly executed and its corporate seal to be hereunto affixed and attested, all as of the day and year first above written. CONCURRENT COMPUTER CORPORATION By: -------------------------------------- Name: Title: D-2 259 ANNEX E AMENDMENT 1996-1 TO HARRIS COMPUTER SYSTEMS CORPORATION STOCK INCENTIVE PLAN Pursuant to Section 11 of the Harris Computer Systems Corporation Stock Incentive Plan (the "Plan"), and subject to the approval of the shareholders of Harris Computer Systems Corporation (the "Corporation"), the Compensation and Stock Option Committee of the Board of Directors of the Corporation (the "Committee") has approved the following amendment (the "Amendment") to the terms of the Plan pursuant to a meeting of the Committee on February, 4, 1996: 1. The following definition of "Amendment Effective Date" shall be added to Section 2: " Amendment Effective Date" means February 4, 1996 2. The definition of "Grant Date" in Section 2 shall be deleted in its entirety and the following definition of "Grant Date" in Section 2 shall be simultaneously substituted in lieu thereof. "Grant Date" means the date of the grant by the Board Committee of an Option under Section 5.1 hereof or a SAR under Section 6.1 hereof. 3. The first sentence of Section 3.1 shall be deleted in its entirety and the following first sentence of Section 3.1 shall be simultaneously substituted in lieu thereof: 3.1 Shares Reserved Under the Plan. Subject to adjustment as provided in Section 3.2, no more than 675,000 share of Common Stock shall be cumulatively available for the grant of Incentive Stock Options under the Plan. 4. The following Section 10.5 shall be added to the Plan: 10.5 Effective February 4, 1996, each person who is an Outside Director of the Corporation shall be granted an Option to purchase five thousand (5,000) shares of Common Stock at an Option Price of $16.50 per share, which was the Fair Market Value of the Common Stock on such date. 5. The Amendment shall be effective as of February 4, 1996, provided that the Amendment shall be duly approved by the shareholders of the Corporation. Any grants made under the Plan as amended prior to such approval shall be effective when made (unless otherwise specified by the Board Committee at the time of the grant), but shall be conditioned on, and subject to, the approval of the Amendment by the shareholders. (The Amendment set forth above does not take into account the Corporation's three-for-one stock split which was effected during March 1996) E-1 260 ANNEX F - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARE HOLDING AGREEMENT DATED AS OF [ ], 1996 BETWEEN CONCURRENT COMPUTER CORPORATION AND HARRIS COMPUTER SYSTEMS CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 261 TABLE OF CONTENTS
PAGE ---- ARTICLE I Definitions........................................................................... F-1 SECTION 1.1. Definitions........................................................... F-1 ARTICLE II Corporate Governance.................................................................. F-3 SECTION 2.1. The Concurrent Board of Directors..................................... F-3 SECTION 2.2. The Harris Board of Directors......................................... F-4 SECTION 2.3. Initial Designees..................................................... F-4 SECTION 2.4. Resignations and Replacements......................................... F-4 SECTION 2.5. Solicitation and Voting of Shares..................................... F-5 ARTICLE III Standstill............................................................................ F-5 SECTION 3.1. Standstill............................................................ F-5 SECTION 3.2. Third Party Offers.................................................... F-6 ARTICLE IV Transfer Restrictions................................................................. F-6 SECTION 4.1. Restrictions.......................................................... F-6 SECTION 4.2. Pledge of Stock....................................................... F-7 SECTION 4.3. Effect................................................................ F-8 ARTICLE V Termination........................................................................... F-8 SECTION 5.1. Termination........................................................... F-8 ARTICLE VI Registration.......................................................................... F-8 SECTION 6.1. Registration.......................................................... F-8 SECTION 6.2. Indemnification; Contribution......................................... F-10 ARTICLE VII Miscellaneous......................................................................... F-11 SECTION 7.1. Effectiveness......................................................... F-11 SECTION 7.2. Notices............................................................... F-12 SECTION 7.3. Interpretation........................................................ F-12 SECTION 7.4. Severability.......................................................... F-13 SECTION 7.5. Counterparts.......................................................... F-13 SECTION 7.6. Entire Agreement; No Third Party Beneficiaries........................ F-13 SECTION 7.7. Further Assurances.................................................... F-13 SECTION 7.8. Governing Law; Equitable Remedies..................................... F-13 SECTION 7.9. Consent to Jurisdiction............................................... F-13 SECTION 7.10. Amendments; Waivers................................................... F-13 SECTION 7.11. Assignment............................................................ F-14
F-i 262 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 and amended and restated as of May 23, 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. F-1 263 "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. F-2 264 "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. F-3 265 (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:
MINIMUM NUMBER OF SHARES OF CONCURRENT COMMON STOCK BENEFICIALLY OWNED NUMBER OF HARRIS DESIGNEES BY HARRIS ON CONCURRENT SLATE ---------------------------------------------------- -------------------------- 10,700,000.......................................... 3 4,700,000........................................... 2 2,400,000........................................... 1 less than 2,400,000................................. 0
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 F-4 266 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 F-5 267 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 F-6 268 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 REGISTRATION STATEMENT (IF THEN F-7 269 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 the Purchase and Sale Agreement and shares issuable upon conversion of the preferred stock or debentures F-8 270 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 period of up to 6 months (or up to such lesser lock-up period which is applicable to any selling shareholder in F-9 271 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 untrue or alleged untrue statement or omission or alleged omission is contained in or should have been F-10 272 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. 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. F-11 273 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. 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." F-12 274 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. (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 F-13 275 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: F-14 276 ANNEX G DESIGNATION, PREFERENCES AND RIGHTS OF CLASS B CONVERTIBLE PREFERRED STOCK 1. DESIGNATION AND NUMBER OF SHARES. The designation of such series shall be 9.00% Class B Convertible Preferred Stock (the "Convertible Preferred Stock"), and the number of shares constituting such series initially shall be [1,000,000]. 2. PAR VALUE; PREEMPTIVE RIGHTS. As provided in Article Fourth of the Corporation's Restated Certificate of Incorporation, the Convertible Preferred Stock shall have a par value of $.01 per share. Holders of Convertible Preferred Stock shall not be entitled to any preemptive rights to acquire shares of any class or series of capital stock of the Corporation. 3. RANK. The Convertible Preferred Stock shall rank, with respect to rights to receive dividends and rights to receive distributions upon the liquidation, winding up or dissolution of the Corporation (whether voluntary or involuntary): (a) senior to the Corporation's Common Stock, par value $.01 per share (the "Common Stock"), and senior to any class or series of capital stock, including any preferred stock, issued by the Corporation, other than the Class A Preferred Stock (the "Junior Stock"), and (b) on a parity with the Class A Preferred Stock (the "Parity Stock"). 4. DIVIDENDS AND DISTRIBUTIONS; METHOD OF PAYMENT. (a) The holders of shares of Convertible Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, dividends at the rate per annum of 9.00% of the Liquidation Preference (as defined in Section 8 hereof) of such shares. Such dividends shall be fully cumulative, shall accumulate from the date of original issuance of the Convertible Preferred Stock, and shall be payable quarterly in arrears in cash on each [ ], [ ], [ ] and [ ] , commencing , 1996(1) (provided, that if any such date is not a Business Day, then such dividend shall be payable without interest on the next succeeding Business Day), to holders of record as they appear on the stock books of the Corporation on such record dates as shall be fixed by the Board of Directors. Such record dates shall be not more than 60 nor less than 10 days preceding the respective dividend payment dates. The amount of dividends payable per share of Convertible Preferred Stock for each full quarterly dividend period shall be computed by dividing the annual dividend amount by four. The amount of dividends payable for the initial dividend period and for any other period shorter than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record of Convertible Preferred Stock on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed in advance by the Board of Directors. Dividends shall not be paid or declared and set apart for payment on any Parity Stock for any period unless full cumulative dividends have been, or contemporaneously are, paid or declared and set apart for payment on the Convertible Preferred Stock for all dividend periods terminating on or prior to the date of payment of such full cumulative dividends. Dividends shall not be paid or declared and set apart for payment on the Convertible Preferred Stock for any period unless full cumulative dividends have been, or contemporaneously are, paid or declared and set apart for payment on any Parity Stock for all dividend periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full upon the Convertible Preferred Stock and any Parity Stock, the Corporation may make dividend payments on account of arrears on the Convertible Preferred Stock or any such Parity Stock, provided that the Corporation shall make such payments ratably upon all outstanding shares of Convertible Preferred Stock and - --------------- (1) Insert as the first payment date the first day of the first fiscal quarter following the Closing. G-1 277 such Parity Stock in proportion to the respective amounts of dividends in arrears upon all such outstanding shares of Convertible Preferred Stock and Parity Stock to the date of such dividend payment. So long as any Convertible Preferred Stock shall be outstanding, the Corporation shall not declare or pay any dividends on the Common Stock or any other Junior Stock, or make any payment on account of, or set apart money for, a sinking fund or other similar fund or agreement for the purchase, redemption or other retirement of any shares of Junior Stock, or make any distribution in respect thereof, whether in cash or property or in obligations or stock of the Corporation, other than (A) the Rights (as defined in Section 13 hereof) and (B) a distribution consisting solely of Junior Stock (such dividends, payments, setting apart and distributions being herein called "Junior Stock Payments"), unless the following conditions shall be satisfied at the date of such declaration in the case of any such dividend, or the date of such setting apart in the case of any such fund, or the date of such payment or distribution in the case of any other Junior Stock Payment: (i) full cumulative dividends shall have been paid or declared and set apart for payment on all outstanding shares of Convertible Preferred Stock through the last quarterly dividend payment date established pursuant to this Section 4(a) that immediately precedes such dividend, setting apart, payment or distribution; and (ii) the Corporation shall not be in default or in arrears with respect to any redemption (whether optional or mandatory) of any shares of Convertible Preferred Stock. Holders of shares of Convertible Preferred Stock shall not be entitled to any dividend in excess of full cumulative dividends on such shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment that is in arrears. (b) The Corporation may pay dividends pursuant to this Section 4 and any redemption payments pursuant to Sections 5 and 6 hereof to holders of record of Convertible Preferred Stock by checks payable to such holders in money of the United States. 5. REDEMPTION AT OPTION OF THE CORPORATION. Whenever the Current Market Price (as defined in Section 13) exceeds $3.75 (the "Triggering Price"), as such price may be adjusted pursuant to Section 9(e) hereof, prior to the date of any notice of redemption, the Corporation may, at its option, redeem all or a portion of the shares of Convertible Preferred Stock, at any time or from time to time, at a price per share equal to the Liquidation Preference. The Corporation's right to redeem pursuant to this provision is subject to the payment of all accrued and accumulated but unpaid dividends, whether or not declared, without interest, to the Redemption Date (as defined below) on the shares to be redeemed; and dividends on the shares to be redeemed will cease to accrue on the Redemption Date. Notice of any redemption pursuant to this Section 5 shall be given by the Corporation by first class mail, postage prepaid, not more than 30 days after the end of the period during which the applicable Current Market Price is determined and not less than 30 or more than 90 days prior to the date fixed for redemption (the "Redemption Date"), to each holder of record of the shares to be redeemed, at such holder's address as shown on the stock register of the Corporation. Each such notice shall state: (a) the Redemption Date; (b) the number of shares of Convertible Preferred Stock to be redeemed and, if less than all such shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (c) the Redemption Price; (d) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (e) the then effective Conversion Price (as defined in Section 9(a) hereof); (f) that the right of holders of Convertible Preferred Stock called for redemption to exercise their conversion rights pursuant to Section 9 hereof shall cease and terminate as to such shares at the close of business on the Redemption Date (provided that there is no default in payment of the Redemption Price); (g) that payment of the Redemption Price will be made upon presentation and surrender of certificates representing the shares of Convertible Preferred Stock called for redemption; (h) that, in accordance with the second sentence of the first paragraph of this Section 5, accumulated but unpaid dividends to the Redemption Date on the shares to be redeemed will be paid on the Redemption Date; and (i) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date. If a notice is mailed to a holder in the manner provided above within the time prescribed, it is duly given with respect to such holder. Notice having been mailed as aforesaid, from G-2 278 and after the Redemption Date (unless default shall be made by the Corporation in providing money for the payment of the Redemption Price) dividends on the shares of Convertible Preferred Stock so called for redemption shall cease to accrue, and such shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as shareholders of the Corporation by virtue of the ownership of such shares (except the right to receive from the Corporation the Redemption Price without interest) shall cease. Upon surrender in accordance with such notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), the Corporation shall redeem such shares at the Redemption Price. If less than all the then outstanding shares of Convertible Preferred Stock are to be redeemed, the Corporation shall effect such redemption pro rata (as nearly as practicable) among all holders of Convertible Preferred Stock. If fewer than all the shares represented by a surrendered certificate or certificates are redeemed, the Corporation shall issue a new certificate representing the unredeemed shares. Notwithstanding the foregoing, the Corporation shall not redeem less than all the outstanding shares of Convertible Preferred Stock pursuant to this Section 5, or purchase or acquire any shares of Convertible Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of shares of Convertible Preferred Stock, unless full cumulative dividends shall have been paid upon all outstanding shares of Convertible Preferred Stock for all past dividend periods. 6. MANDATORY REDEMPTION. On (2), 2006 (the "Mandatory Redemption Date"), the Corporation shall redeem all of the Convertible Preferred Stock then outstanding at the Liquidation Preference. Accrued and accumulated but unpaid dividends, whether or not declared, without interest, to the Mandatory Redemption Date will be paid on the Mandatory Redemption Date and on and after the Mandatory Redemption Date, dividends will cease to accumulate on the Convertible Preferred Stock. Notice of such redemption shall be given by the Corporation by first class mail, postage prepaid, not less than 30 or more than 90 days prior to the Mandatory Redemption Date, to each holder of record of the shares to be redeemed, at such holder's address as shown on the stock register of the Corporation. Each such notice shall state: (a) the Mandatory Redemption Date; (b) the Redemption Price; (c) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (d) the then effective Conversion Price; (e) that the right of holders of Convertible Preferred Stock to exercise their conversion rights pursuant to Section 9 hereof shall cease and terminate at the close of business on the Mandatory Redemption Date (provided that there is no default in payment of the Redemption Price); (f) that payment of the Redemption Price will be made upon presentation and surrender of certificates representing the shares of Convertible Preferred Stock; (g) that, in accordance with the second sentence of the first paragraph of this Section 6, accumulated but unpaid dividends to the Mandatory Redemption Date will be paid on the Mandatory Redemption Date; and (h) that on and after the Mandatory Redemption Date, dividends will cease to accumulate on the Convertible Preferred Stock. If a notice is mailed to a holder in the manner provided above within the time prescribed, it is duly given with respect to such holder. On or after the Mandatory Redemption Date, each holder of the shares of outstanding Convertible Preferred Stock (other than shares which have been duly surrendered for conversion at or before the close of business on the Mandatory Redemption Date) shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in the redemption notice and shall thereupon be entitled to receive payment of the Redemption Price. If, on the Mandatory Redemption Date, funds necessary for the redemption shall be available therefor and shall have been irrevocably deposited or set aside, then, notwithstanding that the certificates evidencing any shares to be redeemed shall not have been surrendered, the dividends with respect to such shares shall cease to accumulate on and after the Mandatory Redemption Date, such shares shall no longer be deemed to be outstanding, the holders thereof shall cease to be shareholders of the Corporation by virtue of the ownership of such shares, and all rights whatsoever with respect to such shares (except the right of the holders thereof to receive the Redemption Price without interest upon surrender of their certificates) shall terminate. - --------------- (2) Insert the first day of the month of the date of original issuance of the Convertible Preferred Stock. G-3 279 7. VOTING. (a) No General Voting Rights. Except as otherwise provided from time to time by the laws of Delaware or this Corporation's Restated Certificate of Incorporation, the entire voting power for the election of directors of the Corporation and for all other purposes shall be vested in the holders of Common Stock which shall vote as a single class, with the holder of each share of Common Stock being entitled to one vote in respect of such shares. (b) Other Voting Rights. Without the consent or affirmative vote of the holders of a majority of the outstanding shares of Convertible Preferred Stock, voting separately as a class to the exclusion of holders of any other shares of capital stock of the Corporation (either in writing without a meeting, if permitted by the Certificate of Incorporation and applicable law, or by vote at any meeting called for that purpose), the Corporation may not amend, alter or repeal (by any means whatsoever, including, without limitation, by merger or consolidation any provision of the Certificate of Incorporation, any amendment or supplement thereto or this Certificate of Designations (or any similar document relating to any series or class of preferred stock of the Corporation)), if such action would (a) increase or decrease the aggregate number of authorized shares of Convertible Preferred Stock, (b) increase or decrease the par value of such shares or (c) amend, alter, repeal or change the powers, rights, privileges or preferences of the holders of shares of Convertible Preferred Stock so as to affect them adversely, provided, however, that the creation, issuance or increase in the amount of authorized shares of any series of Junior Stock will not be deemed to adversely affect such powers, rights, privileges or preferences of the Convertible Preferred Stock. For purposes of the foregoing provisions of this Section 7, each share of Convertible Preferred Stock shall have one vote per share. The foregoing provisions of this Section 7 shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of Convertible Preferred Stock shall have been redeemed or called for redemption and sufficient funds shall have been irrevocably deposited in trust to effect such redemption and all other steps necessary or desirable to effect such redemption shall have been taken. 8. LIQUIDATION PREFERENCE. (i) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Convertible Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution of assets shall be made to the holders of the Common Stock or of any other shares of Junior Stock, a liquidating distribution in the total amount of [$10,000,000](3) (the "Total Liquidation Preference") or an amount equal to $[10] per share (the "Liquidation Preference") plus an amount equal to any accrued and accumulated but unpaid dividends thereon to the date of final distribution to such holders, whether or not declared, without interest; provided, however, if in accordance with the provisions of the Purchase and Sale Agreement, dated as of March 26, 1996 and amended and restated as of May 23, 1996, between the Corporation and Harris Computer Systems Corporation (the "Purchase and Sale Agreement") the amount of the net current assets (the "Net Assets")shown on the Final Net Current Asset Reconciliation (as defined in the Purchase and Sale Agreement)(such amount shown, the "Actual Net Asset Amount") is less than the lesser of (i) the amount of the Net Assets shown on the Projected Net Current Asset Reconciliation (as defined in the Purchase and Sale Agreement) and (ii) $14,400,000 (such lesser amount, the "Applicable Amount"), then the Total Liquidation Preference shall be adjusted by reducing it, dollar for dollar, to the extent of the difference (the "Difference") between the Actual Net Asset Amount and the Applicable Amount. The Liquidation Preference shall then be reduced by the amount [(rounded to the nearest $[ ])] determined by dividing the Difference by the number of issued and outstanding shares of Convertible Preferred Stock as of the date of the Final Net Current Asset Reconciliation or, if later, the date any Reconciliation Disagreement (as defined in the Purchase and Sale Agreement) is resolved. Alternatively, if the amount of the Net Assets shown on the Final Net Current Asset Reconciliation after resolution of all reconciliation Disagreements (as defined in the Purchase and Sale Agreement) is in excess of the Net Assets shown on the Projected Net Current Asset Reconciliation (as defined in the Purchase and Sale Agreement), then the Total Liquidation Preference shall - --------------- (3) May be adjusted pursuant to the terms of the Purchase and Sale Agreement. G-4 280 be increased, dollar for dollar, to the extent of such excess up to $10,000,000 (such excess up to $10,000,000, the "Excess"). The Liquidation Preference shall then be increased by the amount [(rounded to the nearest $[ ])] determined by dividing the Excess by the number of issued and outstanding shares of Convertible Preferred Stock as of the date of the Final Net Current Asset Reconciliation or, if later, the date any Reconciliation Disagreement is resolved. (ii) The Total Liquidation Preference shall also be further reduced to the extent that the parties to the Purchase and Sale Agreement or a court of competent jurisdiction determines (which determination by such court shall be final and nonappealable) that any Asset (as defined in the Purchase and Sale Agreement) required to be transferred by the Purchase and Sale Agreement was not in fact transferred, such reduction (the "Net Asset Reduction") to be equal to the book value of such Asset on the Final Net Current Asset Reconciliation or with respect to non-current assets the Audited Balance Sheet (as defined in the Purchase and Sale Agreement) less any cash paid to the Corporation in respect thereof. The Liquidation Preference shall then be reduced by the amount [(rounded to the nearest $[ ])] determined by dividing the Net Asset Reduction by the number of issued and outstanding shares of Convertible Preferred Stock as of the date the amount of the Net Asset Reduction is determined. In addition, in accordance with the terms of the Purchase and Sale Agreement, the Total Liquidation Preference shall be further reduced by the amount of any Damages (as defined in the Purchase and Sale Agreement), less any cash paid to the Corporation in respect thereof (the "Net Damages"), incurred by the Corporation and its Representatives (as defined in the Purchase and Sale Agreement) as a result of a wilful breach by Harris of a representation or warranty contained in the Purchase and Sale Agreement. The Liquidation Preference shall then be reduced by the amount [(rounded to the nearest $[ ])] determined by dividing the Net Damages by the number of issued and outstanding shares of Convertible Preferred Stock as of the date the total amount of the Net Damages is determined. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets available for distribution are insufficient to pay in full the amounts payable with respect to the Convertible Preferred Stock and any other outstanding shares of Parity Stock, the holders of the Convertible Preferred Stock and of such other Parity Stock shall share ratably in any distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment to the holders of the Convertible Preferred Stock of the full preferential amounts provided for in this Section 8, the holders of the Convertible Preferred Stock shall not be entitled to any further participation in any distribution of assets by the Corporation. For purposes of this Section 8, neither a consolidation or merger of the Corporation with or into another person nor a sale or transfer of all or substantially all of the assets of the Corporation will be deemed a liquidation, dissolution or winding up of the Corporation. 9. CONVERSION AND EXCHANGE RIGHTS. (a) General Rights to Convert. Each holder of a share of Convertible Preferred Stock shall have the right, at the option of such holder, at any time to convert, upon the terms and provisions of this Section 9, one or more shares of Convertible Preferred Stock into fully paid and nonassessable shares of Common Stock of the Corporation (and such other securities and property as such holder may be entitled to as hereinafter provided). Such conversion of shares of Convertible Preferred Stock to shares of Common Stock shall be made at a conversion rate of one share of Convertible Preferred Stock for a number of shares of Common Stock equal to (x) the Liquidation Preference divided by (y) the conversion price applicable per share of Common Stock at the time of conversion (the "Conversion Price"). The Conversion Price shall initially be $2.50. The Conversion Price shall be adjusted in certain instances as provided below. An amount in cash equal to the full cumulative dividends accrued and accumulated but unpaid, whether or not declared and without interest, on such shares of Convertible Preferred Stock shall be paid on the effective date of the conversion through the last quarterly payment date that immediately precedes the effective date of the conversion. G-5 281 (b) Mechanics of Conversion. In order to convert shares of Convertible Preferred Stock into Common Stock, the holder or holders thereof shall surrender the certificate or certificates evidencing such shares of Convertible Preferred Stock at the office of the transfer agent for the Convertible Preferred Stock (or if there is no such transfer agent, to the secretary of the Corporation), which certificate or certificates shall be duly endorsed to the Corporation or in blank, or accompanied by proper instruments of transfer, accompanied by (i) a written notice to the Corporation that the holder elects so to convert all or a specified number of such shares of Convertible Preferred Stock and specifying the name or names (with address or addresses) in which a certificate or certificates evidencing shares of Common Stock are to be issued and (ii) if required pursuant to Section 9(j) hereof, an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid). If more than one share of Convertible Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Convertible Preferred Stock so surrendered. Shares of Convertible Preferred Stock shall be deemed to have been converted immediately prior to the close of business on the day of the surrender of such shares for conversion in accordance with the foregoing provisions, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the surrender of a certificate or certificates for conversion and the receipt of the notice relating thereto (and in any event within five Business Days thereafter), the Corporation shall deliver or cause to be delivered to the person or persons entitled to receive the same: (i) a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion; (ii) any cash owed in lieu of any fraction of a share, determined in accordance with Section 9(i) hereof; (iii) if less than the full number of shares of Convertible Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being converted; and (iv) subject to the provisions of the second paragraph of Section 9(a), an amount in cash equal to the full cumulative dividends accrued but unpaid on such shares of Convertible Preferred Stock through the last quarterly dividend payment date established pursuant to Section 4 hereof that immediately precedes the effective date of conversion. If for any reason the Corporation is unable to pay any accrued dividends on the Convertible Preferred Stock being converted, the Corporation will pay such dividends to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment and may be paid under applicable credit agreements with interest thereon, accruing at a rate of 9.00% per annum. At the request of any such converting holder, the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing the Corporation's obligation to such holder. A payment or adjustment shall not be made by the Corporation upon any conversion on account of any dividends on the Common Stock issued upon conversion. (c) Rights to Exchange. (i) Corporation may, at its option, cause shares of Convertible Preferred Stock, as a whole or in part, at any time and from time to time, to be exchanged for debentures of the Corporation having the terms set forth in Exhibit A to the Purchase and Sale Agreement (the "Debentures"). Such exchange of shares of Convertible Preferred Stock for the Debentures pursuant to this Section 9(c)(i) shall be made at an exchange rate of Debentures in the principal amount equal to the Liquidation Preference. On the effective date of the exchange pursuant to this Section 9(c)(i), the Corporation shall pay holders of Convertible Preferred Stock to be exchanged an amount in cash equal to the full cumulative dividends accrued and accumulated but unpaid, whether or not declared and without interest, on such shares of Convertible Preferred Stock through the last quarterly dividend payment date that immediately precedes the effective date of the exchange. (ii) Each holder of shares of Convertible Preferred Stock shall have the right at any time after September 1, 1998 upon the terms and conditions set forth in this Section 9(c)(ii), at the option of such holder, whenever dividends due for four quarterly periods have not been paid, to exchange such shares of Convertible Preferred Stock, as a whole or in part, for Debentures. Such exchange of shares of Convertible Stock for the Debentures shall be of an Exchange Rate of Debentures in the principal amount equal to the G-6 282 Liquidation Preference plus all dividends which are accrued and accumulated but unpaid, whether or not declared and without interest up to the calendar quarter immediately preceding the calendar quarter in which the date of conversion occurs. (d) Mechanics of the Exchange. In connection with the exchange shares of Convertible Preferred Stock for the Debentures, the holder or holders thereof shall surrender the certificate or certificates evidencing such shares of Convertible Preferred Stock at the office of the transfer agent (or the secretary of the Corporation if there is no such transfer agent) for the Convertible Preferred Stock, which certificate or certificates shall be duly endorsed to the Corporation or in blank, or accompanied by proper instruments of transfer, accompanied by (i) a written notice to the Corporation that the holder shall thereby exchange all or the number specified by the Corporation and specifying the name or names (with address or addresses) in which a certificate or certificates evidencing the Debentures are to be issued and (ii) if required pursuant to Section 9(i) hereof, an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid). When more than one share of Convertible Preferred Stock is to be surrendered for exchange at one time by the same holder, the principal amount of the Debentures issuable upon exchange thereof shall be computed on the basis of the aggregate number of shares of Convertible Preferred Stock so surrendered. Shares of Convertible Preferred Stock shall be deemed to have been exchanged immediately prior to the close of business on the day of the surrender of such shares for exchange in accordance with the foregoing provisions, and the person or persons entitled to receive the Debentures issuable upon such exchange shall be treated for all purposes as the record holder or holders of such Debentures at such time. As promptly as practicable on or after the surrender of a certificate or certificates for exchange and the receipt of the notice relating thereto (and in any event within five Business Days thereafter), the Corporation shall deliver or cause to be delivered to the person or persons entitled to receive the same: (i) a certificate or certificates for the principal amount of the Debentures issuable upon such conversion; (ii) any cash owed in lieu of any fraction of a Debenture in accordance with Section 9(j) hereof; (iii) if less than the full number of shares of Convertible Preferred Stock evidenced by the surrendered certificate or certificates is being exchanged, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being exchanged; and (iv) if exchanged pursuant to Section 9(c)(i), subject to the provisions of the second paragraph of Section 9(c)(i), an amount in cash equal to the full cumulative dividends accrued but unpaid on such shares of Convertible Preferred Stock through the last quarterly dividend payment date established pursuant to Section 4 hereof that immediately precedes the effective date of exchange. If for any reason the Corporation is unable to pay any accrued dividends on the Convertible Preferred Stock being exchanged pursuant to Section 9(c)(i), the Corporation will pay such dividends to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment and may be paid under applicable credit agreements with interest thereon, accruing at a rate of 9.00% per annum. At the request of any such holder converting pursuant to Section 9(c)(i), the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing the Corporation's obligation to such holder. (e) Adjustments to Conversion Price and the Triggering Price. The Conversion Price and Triggering Price shall be adjusted from time to time as follows: (i) In case the Corporation shall pay or make a dividend or other distribution on any class of capital stock of the Corporation in Common Stock, the Conversion Price and Triggering Price in effect at the close of business on the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced to a price determined by multiplying such Conversion Price and Triggering Price each by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and of which the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective at the opening of business on the day following the date fixed for such determination. In the event that such dividend or distribution is not so paid or made, the Conversion Price and Triggering Price shall be readjusted to be the Conversion Price G-7 283 and Triggering Price which would then be in effect if such date fixed for the determination of shareholders entitled to receive such dividend or other distribution had not been fixed. (ii) In case the Corporation shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into (which for purposes of this paragraph (ii) shall also mean exchangeable for) Common Stock) at a price per share less than the Current Market Price (as defined in Section 13 hereof) of Common Stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price and Triggering Price in effect at the close of business on the date fixed for such determination shall be reduced to a price determined by multiplying such Conversion Price and Triggering Price each by a fraction of which the numerator shall be the total number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) would purchase at such Current Market Price and of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the total number of additional shares of Common Stock so offered for subscription or purchase (or into which the convertible securities so offered are convertible), such reduction to become effective at the opening of business on the day following the date fixed for such determination. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Price and Triggering Price shall be readjusted to the Conversion Price and Triggering Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price and Triggering Price shall be readjusted to be the Conversion Price and Triggering Price which would then be in effect if the date fixed for the determination of shareholders entitled to receive such rights or warrants had not been fixed. (iii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price and Triggering Price in effect at the close of business on the date upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price and Triggering Price in effect at the close of business on the date upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective at the opening of business on the day following the date upon which such subdivision or combination becomes effective. (iv) Notwithstanding any other provision of this Section 9, no adjustment in the Conversion Price or Triggering Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price or Triggering Price, as the case may be; provided, however, that any adjustments which by reason of this paragraph (iv) are not required to be made shall be carried forward and taken into account in determining whether any subsequent adjustment shall be required. Once the cumulative effect of any such adjustments that are carried forward would result in an increase or decrease of at least 1% in the Conversion Price or Triggering Price, then the Conversion Price or Triggering Price shall be changed to reflect all adjustments called for by this Section 9 and not previously made. (v) Notwithstanding any other provision of this Section 9, no adjustment to the Conversion Price or Triggering Price shall reduce the Conversion Price or Triggering Price below the then par value per share of the Common Stock, and any such purported adjustment shall instead reduce the Conversion Price or Triggering Price to such par value. (vi) Whenever the Conversion Price or Triggering Price is adjusted as provided herein, the Corporation shall compute the adjusted Conversion Price or Triggering Price in accordance with this Section 9 and shall prepare a certificate signed by the Treasurer of the Corporation setting forth the adjusted Conversion Price or Triggering Price and showing in reasonable detail the facts upon which such G-8 284 adjustment is based, and the corporation shall mail a copy of such certificate as soon as practicable to the holders of record of the shares of Convertible Preferred Stock. (vii) In any case in which this Section 9 shall require that an adjustment shall become effective on the day following a record date for an event, the Corporation may defer until the occurrence of such event (i) issuing to the holder of any share of Convertible Preferred Stock, if such share is converted after such record date and before the occurrence of such event, the additional Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holders any amount in cash in lieu of a fractional share of Common Stock pursuant to paragraph (i) of this Section 9; provided, that, upon request of any such holder, the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Common Stock and such cash, upon the occurrence of the event requiring such adjustment; and provided, further, that the failure of such event to occur shall relieve the Corporation of the obligation to make an additional distribution upon conversion by reason of the adjustment required by the occurrence of such event. (viii) The Corporation may make such reductions in the Conversion Price, in addition to those required by this Section 9, as the Board of Directors considers to be advisable in order that any event treated for Federal income tax purposes as a dividend or distribution of stock (or rights to acquire stock) shall not be taxable to the recipients. The Corporation at any time or from time to time, as permitted by applicable law and to the extent the Board of Directors determines that such reduction would be in the best interests of the Corporation, may reduce the Conversion Price by any amount for any period of time, if the period is at least twenty (20) days and if the reduction is irrevocable during the period. (ix) Whenever the Conversion Price is reduced by the Corporation pursuant to paragraph (viii) of this Section 9(e), the Corporation shall mail to holders of the Convertible Preferred Stock a notice of the reduction. The Corporation shall mail such notice by first class mail, postage prepaid, at least fifteen (15) days before the date the reduced Conversion Price takes effect, to each holder of record of shares of Convertible Preferred Stock at such holder's address as shown on the stock register of the Corporation. The notice shall state the reduced Conversion Price and the period it will be in effect. If a notice is mailed to a holder in the manner provided above within the time prescribed, it is duly given with respect to such holder. (f) Reclassification, Consolidation, Merger or Sale of Assets. In the event that the Corporation shall be a party to any transaction (including without limitation any (i) recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (ii) any consolidation or merger of the Corporation with or into any other person or any merger of another person into the Corporation (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Corporation), (iii) any sale or transfer of all or substantially all of the assets of the Corporation, or (iv) any compulsory share exchange) pursuant to which the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive other securities, cash or other property, then appropriate provision shall be made as part of the terms of such transaction whereby the holder of each share of Convertible Preferred Stock then outstanding shall thereafter have the right to convert such share only into the kind and amount of securities, cash and other property receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such share of Convertible Preferred Stock might have been converted immediately prior to such transaction. The Corporation or the person formed by such consolidation or resulting from such merger or which acquired such assets or which acquired the Corporation's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 9. The above provisions shall similarly apply to successive transactions of the type described in this paragraph. G-9 285 (g) Prior Notice of Certain Events. In case at any time: (i) the Corporation shall (1) declare any dividend or any other distribution on its Common Stock, other than (A) a dividend payable solely in shares of Common Stock or (B) the Rights or (2) declare or authorize a redemption or repurchase of any of the then outstanding shares of Common Stock or any other Junior Stock; or (ii) the Corporation shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights or warrants; or (iii) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock), or of any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation shall be required, or of the sale or transfer of all or substantially all of the assets of the Corporation or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or (iv) of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; then, in any such case, the Corporation shall cause to be mailed to the holders of record of the Convertible Preferred Stock, at their last addresses as they shall appear upon the stock transfer books of the Corporation, at least twenty (20) days prior to the applicable record date or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, repurchase or granting of rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, liquidation, dissolution or winding up. No failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice. (h) Reservation of Shares, etc. The Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of shares of Convertible Preferred Stock, the full number of shares of Common Stock then deliverable upon the conversion of all shares of Convertible Preferred Stock then outstanding. If the Corporation shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Convertible Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Convertible Preferred Stock on the new basis. If any Debentures or shares of Common Stock required to be reserved for purposes of exchange or conversion of the Convertible Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal or State law before such debentures or shares may be issued upon exchange or conversion, the Corporation will in good faith and as expeditiously as possible endeavor to cause such debentures or shares to be duly registered or approved, as the case may be. The Corporation will, in good faith and as expeditiously as possible, endeavor, if permitted by the rules of the applicable exchange or quotation system, list and keep listed or quote and keep quoted on the principal exchange or quotation system of its Common Stock, as the case may be, upon official notice of issuance or quotation, all Debentures or shares of Common Stock issuable upon exchange or conversion of the Convertible Preferred Stock. (i) No Fractional Shares or Debentures. No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon conversion of Convertible Preferred Stock. Instead of any fraction of a share which would otherwise be issuable upon conversion of any shares of Convertible Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Closing Price (as defined in Section 13 hereof) of a share of Common Stock (or, if there is no such G-10 286 Closing Price, the fair market value of a share of Common Stock, as determined in good faith by the Board of Directors or in any manner prescribed by the Board of Directors) at the close of business on the Trading Day immediately preceding the date of conversion. The Debentures will be issued in denominations of $[ ] and integral multiples thereof. No fractional interests in the Debentures shall be issued upon exchange of conversion of Convertible Preferred Stock. Instead of any fraction of a Debenture which would otherwise be issuable upon exchange of any shares of Convertible Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Closing Price (as defined in Section 13 hereof) of a Debenture in the principal amount of $[ ] (or, if there is no such Closing Price, the fair market value of a Debenture in such principal amount, as determined in good faith by the Board of Directors or in any manner prescribed by the Board of Directors) at the close of business on the Trading Day immediately preceding the date of exchange. (j) Transfer Taxes, etc. The Corporation will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock or Debentures on conversion or exchange of shares of Convertible Preferred Stock pursuant hereto. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or Debentures in a name other than that in which the shares of Convertible Preferred Stock so exchanged or converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax, or has established to the satisfaction of the Corporation that such tax has been paid. 10. EXCHANGES. Certificates representing shares of Convertible Preferred Stock shall be exchangeable, at the option of the holder, for a new certificate or certificates of the same or different denominations representing in the aggregate the same number of shares of Convertible Preferred Stock. 11. OUTSTANDING SHARES. For purposes of this Certificate of Designations, all shares of Convertible Preferred Stock shall be deemed outstanding except for (a) shares of Convertible Preferred Stock held of record or beneficially by the Corporation or any subsidiary of the Corporation; (b) from the date of surrender of certificates representing Convertible Preferred Stock for conversion pursuant to Section 9 hereof, all shares of Convertible Preferred Stock which have been converted into Common Stock or other securities or property pursuant to Section 9 hereof; and (c) from the date fixed for redemption pursuant to Section 5 or 6 hereof, all shares of Convertible Preferred Stock which have been called for redemption, provided that funds necessary for such redemption are available therefor and have been irrevocably deposited or set aside for such purpose and all other steps necessary to effect such redemption shall have been taken. 12. STATUS OF CONVERTIBLE PREFERRED STOCK UPON RETIREMENT. Shares of Convertible Preferred Stock which are acquired or redeemed by the Corporation or converted pursuant to Section 9 shall return to the status of authorized and unissued shares of Preferred Stock of the Corporation, without designation as to series. Upon the acquisition or redemption by the Corporation or conversion pursuant to Section 9 of all outstanding shares of Convertible Preferred Stock, all provisions of this Certificate of Designations shall cease to be of further effect. 13. DEFINITIONS. For purposes of this Certificate of Designation, the following terms shall have the meanings indicated: (a) "Board of Directors" shall mean the board of directors of the Corporation or any committee authorized by such board of directors to perform any of its responsibilities with respect to the Convertible Preferred Stock. (b) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which commercial banks in the State of New York are authorized or required by law or executive order to close or a day which is or is declared a national or New York state holiday; (c) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the principal national securities exchange or quotation system on G-11 287 which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Corporation for that purpose or a price determined in good faith by the Board. (d) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the thirty consecutive Trading Days immediately prior to the date in question. (e) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (f) "full cumulative dividends" shall mean, with respect to the Convertible Preferred Stock, or any other capital stock of the Corporation, as of any date the amount of accumulated, accrued and unpaid dividends payable on such shares of Convertible Preferred Stock, or other capital stock, as the case may be, whether or not earned or declared and whether or not there shall be funds legally available for the payment thereof. (g) "record date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise), and with respect to any subdivision or combination of the Common Stock, the effective date of such subdivision or combination. (h) "Rights" shall mean the rights of the Corporation that are issuable under the Corporation's Rights Agreement, dated July 31, 1992 and as amended from time to time, or rights to purchase any capital stock of the Corporation under any successor stockholder rights plan or plans adopted in replacement of the Corporations Rights Agreement. (i) "Trading Day" shall mean (x) if the applicable security is quoted on the Nasdaq National Market of The Nasdaq Stock Market, a day on which trades may be made on such Nasdaq National Market or (y) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or another national securities exchange is open for business or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. G-12 288 ANNEX H CONCURRENT COMPUTER CORPORATION DESCRIPTION OF NEW DEBENTURES The principal terms of the New Debentures are set forth below. ISSUER Concurrent Computer Corporation. ISSUE Series A Debentures (the "New Debentures"). PRINCIPAL AMOUNT If converted pursuant to Concurrent's right to convert, the initial principal amount shall equal the Total Liquidation Preference of the 9.00% Class B Convertible Preferred Stock (the "Class B Preferred Stock") outstanding on the date that the Class B Preferred Stock is converted (the "Conversion Date") into the New Debentures in accordance with Section 9(c)(i) of the Certificate of Designation (the "Certificate of Designation") of the Class B Preferred Stock. If converted pursuant to a holder's right to convert pursuant to Section 9(c)(ii) of the Certificate of Designation, the initial principal amount shall equal the Total Liquidation Preference of the Class B Preferred Stock outstanding on the Conversion Date 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 quarter in which the Conversion Date occurs. CHANGES IN PRINCIPAL AMOUNT If in accordance with the provisions of the Purchase and Sale Agreement, dated as of March 26, 1996, amended and restated as of May 23, 1996 between the Concurrent and Harris Computer Systems Corporation (the "Purchase and Sale Agreement") the amount of the net current assets (the "Net Assets") shown on the Final Net Current Asset Reconciliation (as defined in the Purchase and Sale Agreement)(such amount shown, the "Actual Net Asset Amount") is less than $14,400,000, then the Principal Amount shall be adjusted by reducing it, dollar for dollar, to the extent of the difference (the "Difference") between the Actual Net Asset Amount and $14,400,000. Alternatively, if the amount of the Net Assets shown on the Final Net Current Asset Reconciliation, after resolution of all Reconciliation Disagreements (as defined in the Purchase and Sale Agreement) is in excess of the Net Current Assets shown on the Projected Net Current Asset Reconciliation (as defined in the Purchase and Sale Agreement), the Principal Amount shall be increased, dollar for dollar, to the extent of such excess up to $10,000,000. The Principal Amount shall also be further reduced to the extent that the parties to the Purchase and Sale Agreement or a court of competent jurisdiction determines (which determination by such court shall be final and nonappealable) that any Asset (as defined in the Purchase and Sale Agreement) required to be transferred by the Purchase and Sale Agreement was not in fact transferred, such reduction (the "Net Asset Reduction") to be equal to the book value on the Final Net Current Asset Reconciliation or with respect to non-current assets, the "Audited Balance Sheet" (as defined in the Purchase and Sale Agreement) less any cash paid to Concurrent in respect thereof. In addition, in accordance with the terms of the Purchase and Sale Agreement, the Principal Amount shall be further reduced by the amount of any Damages (as defined in the Purchase and Sale Agreement), less any cash paid to Concurrent in respect thereof (the "Net Damages"), incurred by Concurrent and its Representatives (as defined in the Purchase and Sale Agreement) as a result of a wilful breach by Harris of a representation or warranty contained in the Purchase and Sale Agreement. H-1 289 These provisions will be drafted so that there will be no double counting of reductions or increases in the Liquidation Preference of the Preferred Stock which occurred prior to the exchange of such stock for the New Debentures. PAYMENT-IN-KIND Interest payments on the New Debentures may be paid in cash or in kind. INTEREST RATE The New 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 on , , and commencing on the Accrual Date.(1) MATURITY DATE June , 2006. OPTIONAL 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 the 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. MANDATORY REDEMPTION On June , 2006, Concurrent shall 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 $[ ]. CONVERSION OF DEBENTURES Each holder of a New Debenture shall have the right, at the option of such holder, at any time or from time to time to convert such New Debenture into fully paid and nonassessable shares of Common Stock of Concurrent. Such conversion of New Debentures to shares of Common Stock shall be made at a conversion rate equal to (x) the principal amount of such New Debenture (plus any accrued and unpaid interest thereon) divided by (y) the applicable conversion price per share of Common Stock at the time of conversion (the "Conversion Price"). The Conversion Price shall initially be $2.50, subject to certain adjustments as provided in the Certificate of Designation. Notwithstanding any other provision to the contrary, the maximum number of shares in which the New Debentures shall be convertible shall be 4,000,000 (subject to adjustment for stock splits, stock dividends and similar transactions). RANKING The New Debentures will be general unsecured indebtedness of Concurrent and will rank pari passu in right of payment to existing indebtedness; provided however, that the New Debentures shall rank junior to the claims of Foothill Capital Corporation, Fleet Bank of Massachusetts, N.A. and CIBC Inc. with respect to the assets secured under the credit facilities between Concurrent and such entities. MODIFICATION OF DEBENTURE INDENTURE By majority of outstanding principal amount, with certain exceptions involving certain fundamental changes which shall require unanimous approval. - --------------- (1) Calendar quarters will be used. H-2 290 RESTRICTED PAYMENTS The New Debenture Indenture will provide that Concurrent will not, and will not permit any of its Subsidiaries to directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Equity Interests of Concurrent or any of its Subsidiaries (other than dividends or distributions payable in Equity Interests of Concurrent or dividends or distributions payable to Concurrent or any Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of Concurrent, any Subsidiary or other Affiliate of Concurrent (other than any such Equity Interests owned by Concurrent or its Subsidiaries or in connection with capitalizing a Subsidiary); (iii) purchase, redeem or otherwise acquire or retire for value, or make any cash interest payment on, any Indebtedness of Concurrent that is subordinated to the New Debentures (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment no Default or Event of Default will have occurred and be continuing or would occur as a consequence thereof and interest due on the New Debentures for the four calendar quarters immediately preceding the quarter in which such Restricted Payment occurs has been paid in cash. LIMITATION ON MERGER, CONSOLIDATION OR SALE OF ASSETS Concurrent will not consolidate or merge (whether or not Concurrent shall be the surviving corporation), or sell, assign, transfer or lease all or substantially all of its properties and assets as an entirety to any person, unless: (i) the entity or person formed by or surviving any such consolidation or merger (if other than Concurrent) or to which such sale, assignment, transfer or lease shall have been made shall be an entity organized under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, all the obligations of Concurrent under the New Debenture Indenture; (ii) immediately before and immediately after giving effect to such transaction, no Event of Default and no Default will have occurred and be continuing. EVENTS OF DEFAULT The New Debenture Indenture will provide that each of the following constitutes an Event of Default: (i) default for days in the payment when due of Interest on the New Debentures; (ii) default in payment when due of the principal of, or premium, if any, on the New Debentures; (iii) failure by Concurrent for days after notice to comply with any of its other agreements in the New Debenture Indenture or the New Debentures; (iv) certain events of bankruptcy or insolvency with respect to Concurrent or any of its Subsidiaries. OTHER Such additional provisions as appropriate, which provisions, however, shall be no less favorable to the Holder of the Debentures than the provisions set forth herein. H-3 291 CONCURRENT COMPUTER CORPORATION PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS The undersigned hereby appoints John T. Stihl, Chairman, President and Chief Executive Officer of Concurrent, and Kevin J. Dell, Vice President, General Counsel and Secretary of Concurrent, or either of them with full power of substitution, proxies to vote at the Special Meeting of Stockholders of Concurrent Computer Corporation (the "Company") to be held on June 26, 1996 at 3:30 p.m., local time, at the Doubletree Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida 33309 (the "Special Meeting"), hereby revoking any proxies heretofore given, to vote all shares of common stock, par value $.01 per share, of the Company held or owned by the undersigned as directed on the reverse side of this proxy card, and in their discretion upon such other matters incidental to the conduct of the meeting that may properly arise. (TO BE SIGNED ON REVERSE SIDE) 292 /X/ Please mark This proxy when properly executed will votes as in this be voted in the manner directed herein. example If no direction is made, this proxy will be voted "For" proposals 1, 2 and 3. The Board of Directors recommends a vote FOR Proposals 1, 2 and 3. 1. Approval of the issuance of (a) 10,000,000 shares FOR AGAINST ABSTAIN of Concurrent Common Stock and (b) the issuance of / / / / / / 4,000,000 shares, subject to adjustment, of Concurrent Common Stock which may be issuable upon the conversion of the Concurrent Preferred Stock, each in accordance with the terms of the Purchase and Sale Agreement. 2. Approval of the amendment to the Concurrent 1991 FOR AGAINST ABSTAIN Restated Stock Option Plan to increase the / / / / / / number of shares of Concurrent Common Stock reserved and available for issuance to nine million shares. 3. Approval of the amendment to the Concurrent 1991 FOR AGAINST ABSTAIN Restated Stock Option Plan to (a) increase the / / / / / / number of shares of Concurrent Common Stock underlying the options initially granted to each non-employee director to 20,000 shares following the adoption of such amendment, (b) provide for the automatic grant to continuing non-employee directors of options to purchase 3,000 shares of Concurrent Common Stock on the close of each annual meeting of shareholders, and (c) provide that each option granted to non-employee directors shall expire on the earlier of the tenth anniversary of the date of grant or the resignation or removal of such non-employee director. Adoption of proposals 1 and 2 are each conditioned upon the approval of the other. Adoption of proposal 3 is conditioned upon the approval of both proposals 1 and 2. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. SIGNATURE _______________________________________________ DATE_________________ SIGNATURE _______________________________________________ DATE_________________ Signature if held jointly NOTE: When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. -----END PRIVACY-ENHANCED MESSAGE-----