-----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, NRf+fkyDyTdZ14y7hlKn4t5g3VT5dQQzUG0ZGmawpaSzLM0/3dZu+AAGJc82nk2d H98YFGpx01k7c/zjtsEiYQ== 0000950172-96-000389.txt : 19960715 0000950172-96-000389.hdr.sgml : 19960715 ACCESSION NUMBER: 0000950172-96-000389 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960712 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960712 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13150 FILM NUMBER: 96594226 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 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K C U R R E N T R E P O R T Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 July 12, 1996 Date of Report (Date Of Earliest Event Reported) CONCURRENT COMPUTER CORPORATION (Exact Name Of Registrant As Specified In Its Charter) Delaware (State Or Other Jurisdiction Of Incorporation) 0-13150 04-2735766 (Commission File Number) (IRS Employer Identification No.) 2101 West Cypress Creek Road, Fort Lauderdale, Florida 33309 (Address Of Principal Executive Offices) (Zip Code) (954) 974-1700 (Registrant's Telephone Number, including Area Code) 2 Crescent Place, Oceanport, New Jersey 07757 (Former Name Or Former Address, If Changed Since Last Report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On June 27, 1996, Concurrent Computer Corporation ("Concurrent"), completed its acquisition of the assets of the real-time computer business (the "Real- Time Business") of CyberGuard Corporation ("CyberGuard") (formerly known as Harris Computer Systems Corporation) together with 683,178 shares of newly issued common stock of CyberGuard (the "Purchased CyberGuard Shares") pursuant to a Purchase and Sale Agreement, dated as of March 26, 1996, as amended and restated on May 23, 1996 (the "Purchase and Sale Agreement"), by and between Concurrent and CyberGuard, in exchange for (i) 10,000,000 newly issued shares of common stock of Concurrent, par value $.01 per share (the "Concurrent Common Stock Consideration"); (ii) convertible exchangeable preferred stock of Concurrent (the "Concurrent Preferred Stock") paying a 9% cumulative annual dividend quarterly in arrears with a liquidation preference of $8,200,000; and (iii) the assumption by Concurrent of certain liabilities (the "Assumed Liabilities"). The sale of the Real-Time Business and the Purchased CyberGuard Shares in exchange for the Concurrent Common Stock Consideration, the Concurrent Preferred Stock and the assumption by Concurrent of the Assumed Liabilities is referred to herein as the "Transaction." As part of the Transaction, certain ancillary agreements were entered into by Concurrent and CyberGuard upon the closing of the Transaction, including a Share Holding Agreement which contains certain standstill, governance, transfer and registration provisions, and provisions relating to the composition of the Board of Directors of CyberGuard and Concurrent. The Transaction did not include certain liabilities of CyberGuard or those assets and liabilities held by CyberGuard in connection with the development, manufacture and marketing of CyberGuard trusted systems and network security products. A copy of the Purchase and Sale Agreement is incorporated by reference herein as an Exhibit to Concurrent's Schedule 13D, dated July 8, 1996. The foregoing description of the Transaction does not purport to be complete and is qualified in its entirety by reference to the Purchase and Sale Agreement. Capitalized terms which are not otherwise defined herein shall have the meaning set forth in the Purchase and Sale Agreement. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Businesses Acquired. The financial statements of the Real-Time Business are incorporated herein by reference to the financial information concerning the Real-Time Business set forth in the Joint Proxy Statement for the Special Meetings of Stockholders of Concurrent and CyberGuard (the "Joint Proxy Statement") held on June 26, 1996 which was filed on May 23, 1996, copies of which financial statements are attached as Exhibit 99.1 to this Form 8-K. (b) Pro Forma Financial Information. The pro forma financial information relating to the Transaction is incorporated herein by reference to the financial information concerning the Real-Time Business set forth in the Joint Proxy Statement copies of which financial information is attached as Exhibit 99.2 to this Form 8-K. (c) The following exhibits are filed as part of this Form 8-K: Exhibit Number Description Method of Filing 2.1 Purchase and Sale Agreement dated Incorporated by reference March 26, 1996 as amended and to the Exhibits to restated on May 23, 1996, between Concurrent's Schedule 13D, Concurrent Computer Corporation dated July 8, 1996. and CyberGuard Corporation (formerly known as Harris Computer Systems Corporation). 4.1 Certificate of Designation, Preferences and Rights of Class B Convertible Preferred Stock. 4.2 Share Holding Agreement dated June Incorporated by reference 27, 1996 between Concurrent and to the Exhibits to Harris. Concurrent's Schedule 13D, dated July 8, 1996. 4.3 Amendment, dated June 27, 1996, to Rights Agreement, dated July 31, 1992. 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Ernst & Young LLP 99.1* Financial Statements of CyberGuard Corporation 99.2 Unaudited Pro Forma Condensed Consolidated Financial Statements * Contains certain information concerning CyberGuard. CyberGuard is subject to the informational requirements in the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"), to which reference is made for detailed financial and other information regarding CyberGuard. Such reports, proxy statements, and other information can be inspected and copied at the Commission's offices at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2551 and can be inspected and copied at the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, on which the CyberGuard Common Stock is listed. The Commission does not approve or disapprove or pass upon the accuracy or the adequacy of reports, proxy statements or other information filed with it. Concurrent does not warrant the accuracy or completeness of such reports, proxy statements, or other information nor that there have not occurred events not yet publicly disclosed by CyberGuard which would affect either the accuracy or the completeness of the information concerning CyberGuard included herein. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONCURRENT COMPUTER CORPORATION Date: July 12, 1996 By: /s/ Daniel S. Dunleavy Daniel S. Dunleavy Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Number Description Method of Filing 2.1 Purchase and Sale Agreement dated Incorporated by reference March 26, 1996 as amended and to the Exhibits to restated on May 23, 1996, between Concurrent's Schedule 13D, Concurrent Computer Corporation dated July 8, 1996. ("Concurrent") and CyberGuard Corporation (formerly known as Harris Computer Systems Corporation). 4.1 Certificate of Designation, Preferences and Rights of Class B Convertible Preferred Stock. 4.2 Share Holding Agreement dated June Incorporated by reference 27, 1996 between Concurrent and to the Exhibits to Harris. Concurrent's Schedule 13D, dated July 8, 1996. 4.3 Amendment, dated June 27, 1996, to Rights Agreement, dated July 31, 1992. 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Ernst & Young LLP 99.1* Financial Statements of CyberGuard Corporation 99.2 Unaudited Pro Forma Condensed Consolidated Financial Statements * Contains certain information concerning CyberGuard. CyberGuard is subject to the informational requirements in the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"), to which reference is made for detailed financial and other information regarding CyberGuard. Such reports, proxy statements, and other information can be inspected and copied at the Commission's offices at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2551 and can be inspected and copied at the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, on which the CyberGuard Common Stock is listed. The Commission does not approve or disapprove or pass upon the accuracy or the adequacy of reports, proxy statements or other information filed with it. Concurrent does not warrant the accuracy or completeness of such reports, proxy statements, or other information nor that there have not occurred events not yet publicly disclosed by CyberGuard which would affect either the accuracy or the completeness of the information concerning CyberGuard included herein. EX-4 2 EXHIBIT 4.1 EXHIBIT 4.1 DESIGNATION, PREFERENCES AND RIGHTS OF CLASS B CONVERTIBLE PREFERRED STOCK 1. DESIGNATION AND NUMBER OF SHARES. The designation of such series shall be 9.00% Class B Convertible Preferred Stock (the "Convertible Preferred Stock"), and the number of shares constituting such series initially shall be 1,000,000. 2. PAR VALUE; PREEMPTIVE RIGHTS. As provided in Article Fourth of the Corporation's Restated Certificate of Incorporation, the Convertible Preferred Stock shall have a par value of $.01 per share. Holders of Convertible Preferred Stock shall not be entitled to any preemptive rights to acquire shares of any class or series of capital stock of the Corporation. 3. RANK. The Convertible Preferred Stock shall rank, with respect to rights to receive dividends and rights to receive distributions upon the liquidation, winding up or dissolution of the Corporation (whether voluntary or involuntary): (a) senior to the Corporation's Common Stock, par value $.01 per share (the "Common Stock"), and senior to any class or series of capital stock, including any preferred stock, issued by the Corporation, other than the Class A Preferred Stock (the "Junior Stock"), and (b) on a parity with the Class A Preferred Stock (the "Parity Stock"). 4. DIVIDENDS AND DISTRIBUTIONS; METHOD OF PAYMENT. (a) The holders of shares of Convertible Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, dividends at the rate per annum of 9.00% of the Liquidation Preference (as defined in Section 8 hereof) of such shares. Such dividends shall be fully cumulative, shall accumulate from the date of original issuance of the Convertible Preferred Stock, and shall be payable quarterly in arrears in cash on each September 30, December 31, March 31 and June 30, commencing September 30, 1996 (provided, that if any such date is not a Business Day, then such dividend shall be payable without interest on the next succeeding Business Day), to holders of record as they appear on the stock books of the Corporation on such record dates as shall be fixed by the Board of Directors. Such record dates shall be not more than 60 nor less than 10 days preceding the respective dividend payment dates. The amount of dividends payable per share of Convertible Preferred Stock for each full quarterly dividend period shall be computed by dividing the annual dividend amount by four. The amount of dividends payable for the initial dividend period and for any other period shorter than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record of Convertible Preferred Stock on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed in advance by the Board of Directors. Dividends shall not be paid or declared and set apart for payment on any Parity Stock for any period unless full cumulative dividends have been, or contemporaneously are, paid or declared and set apart for payment on the Convertible Preferred Stock for all dividend periods terminating on or prior to the date of payment of such full cumulative dividends. Dividends shall not be paid or declared and set apart for payment on the Convertible Preferred Stock for any period unless full cumulative dividends have been, or contemporaneously are, paid or declared and set apart for payment on any Parity Stock for all dividend periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full upon the Convertible Preferred Stock and any Parity Stock, the Corporation may make dividend payments on account of arrears on the Convertible Preferred Stock or any such Parity Stock, provided that the Corporation shall make such payments ratably upon all outstanding shares of Convertible Preferred Stock and such Parity Stock in proportion to the respective amounts of dividends in arrears upon all such outstanding shares of Convertible Preferred Stock and Parity Stock to the date of such dividend payment. So long as any Convertible Preferred Stock shall be outstanding, the Corporation shall not declare or pay any dividends on the Common Stock or any other Junior Stock, or make any payment on account of, or set apart money for, a sinking fund or other similar fund or agreement for the purchase, redemption or other retirement of any shares of Junior Stock, or make any distribution in respect thereof, whether in cash or property or in obligations or stock of the Corporation, other than (A) the Rights (as defined in Section 13 hereof) and (B) a distribution consisting solely of Junior Stock (such dividends, payments, setting apart and distributions being herein called "Junior Stock Payments"), unless the following conditions shall be satisfied at the date of such declaration in the case of any such dividend, or the date of such setting apart in the case of any such fund, or the date of such payment or distribution in the case of any other Junior Stock Payment: (i) full cumulative dividends shall have been paid or declared and set apart for payment on all outstanding shares of Convertible Preferred Stock through the last quarterly dividend payment date established pursuant to this Section 4(a) that immediately precedes such dividend, setting apart, payment or distribution; and (ii) the Corporation shall not be in default or in arrears with respect to any redemption (whether optional or mandatory) of any shares of Convertible Preferred Stock. Holders of shares of Convertible Preferred Stock shall not be entitled to any dividend in excess of full cumulative dividends on such shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment that is in arrears. (a) The Corporation may pay dividends pursuant to this Section 4 and any redemption payments pursuant to Sections 5 and 6 hereof to holders of record of Convertible Preferred Stock by checks payable to such holders in money of the United States. 5. REDEMPTION AT OPTION OF THE CORPORATION. Whenever the Current Market Price (as defined in Section 13) exceeds $3.75 (the "Triggering Price"), as such price may be adjusted pursuant to Section 9(e) hereof, prior to the date of any notice of redemption, the Corporation may, at its option, redeem all or a portion of the shares of Convertible Preferred Stock, at any time or from time to time, at a price per share equal to the Liquidation Preference. The Corporation's right to redeem pursuant to this provision is subject to the payment of all accrued and accumulated but unpaid dividends, whether or not declared, without interest, to the Redemption Date (as defined below) on the shares to be redeemed; and dividends on the shares to be redeemed will cease to accrue on the Redemption Date. Notice of any redemption pursuant to this Section 5 shall be given by the Corporation by first class mail, postage prepaid, not more than 30 days after the end of the period during which the applicable Current Market Price is determined and not less than 30 or more than 90 days prior to the date fixed for redemption (the "Redemption Date"), to each holder of record of the shares to be redeemed, at such holder's address as shown on the stock register of the Corporation. Each such notice shall state: (a) the Redemption Date; (b) the number of shares of Convertible Preferred Stock to be redeemed and, if less than all such shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (c) the Redemption Price; (d) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (e) the then effective Conversion Price (as defined in Section 9(a) hereof); (f) that the right of holders of Convertible Preferred Stock called for redemption to exercise their conversion rights pursuant to Section 9 hereof shall cease and terminate as to such shares at the close of business on the Redemption Date (provided that there is no default in payment of the Redemption Price); (g) that payment of the Redemption Price will be made upon presentation and surrender of certificates representing the shares of Convertible Preferred Stock called for redemption; (h) that, in accordance with the second sentence of the first paragraph of this Section 5, accumulated but unpaid dividends to the Redemption Date on the shares to be redeemed will be paid on the Redemption Date; and (i) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date. If a notice is mailed to a holder in the manner provided above within the time prescribed, it is duly given with respect to such holder. Notice having been mailed as aforesaid, from and after the Redemption Date (unless default shall be made by the Corporation in providing money for the payment of the Redemption Price) dividends on the shares of Convertible Preferred Stock so called for redemption shall cease to accrue, and such shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as shareholders of the Corporation by virtue of the ownership of such shares (except the right to receive from the Corporation the Redemption Price without interest) shall cease. Upon surrender in accordance with such notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), the Corporation shall redeem such shares at the Redemption Price. If less than all the then outstanding shares of Convertible Preferred Stock are to be redeemed, the Corporation shall effect such redemption pro rata (as nearly as practicable) among all holders of Convertible Preferred Stock. If fewer than all the shares represented by a surrendered certificate or certificates are redeemed, the Corporation shall issue a new certificate representing the unredeemed shares. Notwithstanding the foregoing, the Corporation shall not redeem less than all the outstanding shares of Convertible Preferred Stock pursuant to this Section 5, or purchase or acquire any shares of Convertible Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of shares of Convertible Preferred Stock, unless full cumulative dividends shall have been paid upon all outstanding shares of Convertible Preferred Stock for all past dividend periods. 6. MANDATORY REDEMPTION. On June 1, 2006 (the "Mandatory Redemption Date"), the Corporation shall redeem all of the Convertible Preferred Stock then outstanding at the Liquidation Preference. Accrued and accumulated but unpaid dividends, whether or not declared, without interest, to the Mandatory Redemption Date will be paid on the Mandatory Redemption Date and on and after the Mandatory Redemption Date, dividends will cease to accumulate on the Convertible Preferred Stock. Notice of such redemption shall be given by the Corporation by first class mail, postage prepaid, not less than 30 or more than 90 days prior to the Mandatory Redemption Date, to each holder of record of the shares to be redeemed, at such holder's address as shown on the stock register of the Corporation. Each such notice shall state: (a) the Mandatory Redemption Date; (b) the Redemption Price; (c) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (d) the then effective Conversion Price; (e) that the right of holders of Convertible Preferred Stock to exercise their conversion rights pursuant to Section 9 hereof shall cease and terminate at the close of business on the Mandatory Redemption Date (provided that there is no default in payment of the Redemption Price); (f) that payment of the Redemption Price will be made upon presentation and surrender of certificates representing the shares of Convertible Preferred Stock; (g) that, in accordance with the second sentence of the first paragraph of this Section 6, accumulated but unpaid dividends to the Mandatory Redemption Date will be paid on the Mandatory Redemption Date; and (h) that on and after the Mandatory Redemption Date, dividends will cease to accumulate on the Convertible Preferred Stock. If a notice is mailed to a holder in the manner provided above within the time prescribed, it is duly given with respect to such holder. On or after the Mandatory Redemption Date, each holder of the shares of outstanding Convertible Preferred Stock (other than shares which have been duly surrendered for conversion at or before the close of business on the Mandatory Redemption Date) shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in the redemption notice and shall thereupon be entitled to receive payment of the Redemption Price. If, on the Mandatory Redemption Date, funds necessary for the redemption shall be available therefor and shall have been irrevocably deposited or set aside, then, notwithstanding that the certificates evidencing any shares to be redeemed shall not have been surrendered, the dividends with respect to such shares shall cease to accumulate on and after the Mandatory Redemption Date, such shares shall no longer be deemed to be outstanding, the holders thereof shall cease to be shareholders of the Corporation by virtue of the ownership of such shares, and all rights whatsoever with respect to such shares (except the right of the holders thereof to receive the Redemption Price without interest upon surrender of their certificates) shall terminate. 7. VOTING. (a) No General Voting Rights. Except as otherwise provided from time to time by the laws of Delaware or this Corporation's Restated Certificate of Incorporation, the entire voting power for the election of directors of the Corporation and for all other purposes shall be vested in the holders of Common Stock which shall vote as a single class, with the holder of each share of Common Stock being entitled to one vote in respect of such shares. (b) Other Voting Rights. Without the consent or affirmative vote of the holders of a majority of the outstanding shares of Convertible Preferred Stock, voting separately as a class to the exclusion of holders of any other shares of capital stock of the Corporation (either in writing without a meeting, if permitted by the Certificate of Incorporation and applicable law, or by vote at any meeting called for that purpose), the Corporation may not amend, alter or repeal (by any means whatsoever, including, without limitation, by merger or consolidation any provision of the Certificate of Incorporation, any amendment or supplement thereto or this Certificate of Designations (or any similar document relating to any series or class of preferred stock of the Corporation), if such action would (a) increase or decrease the aggregate number of authorized shares of Convertible Preferred Stock, (b) increase or decrease the par value of such shares or (c) amend, alter, repeal or change the powers, rights, privileges or preferences of the holders of shares of Convertible Preferred Stock so as to affect them adversely, provided, however, that the creation, issuance or increase in the amount of authorized shares of any series of Junior Stock will not be deemed to adversely affect such powers, rights, privileges or preferences of the Convertible Preferred Stock. For purposes of the foregoing provisions of this Section 7, each share of Convertible Preferred Stock shall have one vote per share. The foregoing provisions of this Section 7 shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of Convertible Preferred Stock shall have been redeemed or called for redemption and sufficient funds shall have been irrevocably deposited in trust to effect such redemption and all other steps necessary or desirable to effect such redemption shall have been taken. 8. LIQUIDATION PREFERENCE. (i) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Convertible Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution of assets shall be made to the holders of the Common Stock or of any other shares of Junior Stock, a liquidating distribution in the total amount of $8,200,000 (the "Total Liquidation Preference") or an amount equal to $8.20 per share (the "Liquidation Preference") plus an amount equal to any accrued and accumulated but unpaid dividends thereon to the date of final distribution to such holders, whether or not declared, without interest; provided, however, if in accordance with the provisions of the Purchase and Sale Agreement, dated as of March 26, 1996, as amended and restated on May 23, 1996, between the Corporation and Harris Computer Systems Corporation (the "Purchase and Sale Agreement") the amount of the net current assets (the "Net Assets")shown on the Final Net Current Asset Reconciliation (as defined in the Purchase and Sale Agreement)(such amount shown, the "Actual Net Asset Amount") is less than $12,600,000 (such lesser amount, the "Applicable Amount"), then the Total Liquidation Preference shall be adjusted by reducing it, dollar for dollar, to the extent of the difference (the "Difference") between the Actual Net Asset Amount and the Applicable Amount. The Liquidation Preference shall then be reduced by the amount (rounded to the nearest $0.01) determined by dividing the Difference by the number of issued and outstanding shares of Convertible Preferred Stock as of the date of the Final Net Current Asset Reconciliation or, if later, the date any Reconciliation Disagreement (as defined in the Purchase and Sale Agreement) is resolved. Alternatively, if the amount of the Net Assets shown on the Final Net Current Asset Reconciliation after resolution of all reconciliation Disagreements (as defined in the Purchase and Sale Agreement) is in excess of the Net Assets shown on the Projected Net Current Asset Reconciliation (as defined in the Purchase and Sale Agreement), then the Total Liquidation Preference shall be increased, dollar for dollar, to the extent of such excess up to $10,000,000 (such excess up to $10,000,000, the "Excess"). The Liquidation Preference shall then be increased by the amount (rounded to the nearest $0.01) determined by dividing the Excess by the number of issued and outstanding shares of Convertible Preferred Stock as of the date of the Final Net Current Asset Reconciliation or, if later, the date any Reconciliation Disagreement is resolved. (ii) The Total Liquidation Preference shall also be further reduced to the extent that the parties to the Purchase and Sale Agreement or a court of competent jurisdiction determines (which determination by such court shall be final and nonappealable) that any Asset (as defined in the Purchase and Sale Agreement) required to be transferred by the Purchase and Sale Agreement was not in fact transferred, such reduction (the "Net Asset Reduction") to be equal to the book value of such Asset on the Final Net Current Asset Reconciliation or with respect to non-current assets the Audited Balance Sheet (as defined in the Purchase and Sale Agreement) less any cash paid to the Corporation in respect thereof. The Liquidation Preference shall then be reduced by the amount (rounded to the $0.01) determined by dividing the Net Asset Reduction by the number of issued and outstanding shares of Convertible Preferred Stock as of the date the amount of the Net Asset Reduction is determined. In addition, in accordance with the terms of the Purchase and Sale Agreement, the Total Liquidation Preference shall be further reduced by the amount of any Damages (as defined in the Purchase and Sale Agreement), less any cash paid to the Corporation in respect thereof (the "Net Damages"), incurred by the Corporation and its Representatives (as defined in the Purchase and Sale Agreement) as a result of a wilful breach by Harris of a representation or warranty contained in the Purchase and Sale Agreement. The Liquidation Preference shall then be reduced by the amount (rounded to the nearest dollar) determined by dividing the Net Damages by the number of issued and outstanding shares of Convertible Preferred Stock as of the date the total amount of the Net Damages is determined. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets available for distribution are insufficient to pay in full the amounts payable with respect to the Convertible Preferred Stock and any other outstanding shares of Parity Stock, the holders of the Convertible Preferred Stock and of such other Parity Stock shall share ratably in any distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment to the holders of the Convertible Preferred Stock of the full preferential amounts provided for in this Section 8, the holders of the Convertible Preferred Stock shall not be entitled to any further participation in any distribution of assets by the Corporation. For purposes of this Section 8, neither a consolidation or merger of the Corporation with or into another person nor a sale or transfer of all or substantially all of the assets of the Corporation will be deemed a liquidation, dissolution or winding up of the Corporation. 9. CONVERSION AND EXCHANGE RIGHTS. (a) General Rights to Convert. Each holder of a share of Convertible Preferred Stock shall have the right, at the option of such holder, at any time to convert, upon the terms and provisions of this Section 9, one or more shares of Convertible Preferred Stock into fully paid and nonassessable shares of Common Stock of the Corporation (and such other securities and property as such holder may be entitled to as hereinafter provided). Such conversion of shares of Convertible Preferred Stock to shares of Common Stock shall be made at a conversion rate of one share of Convertible Preferred Stock for a number of shares of Common Stock equal to (x) the Liquidation Preference divided by (y) the conversion price applicable per share of Common Stock at the time of conversion (the "Conversion Price"). The Conversion Price shall initially be $2.50. The Conversion Price shall be adjusted in certain instances as provided below. An amount in cash equal to the full cumulative dividends accrued and accumulated but unpaid, whether or not declared and without interest, on such shares of Convertible Preferred Stock shall be paid on the effective date of the conversion through the last quarterly payment date that immediately precedes the effective date of the conversion. (b) Mechanics of Conversion. In order to convert shares of Convertible Preferred Stock into Common Stock, the holder or holders thereof shall surrender the certificate or certificates evidencing such shares of Convertible Preferred Stock at the office of the transfer agent for the Convertible Preferred Stock (or if there is no such transfer agent, to the secretary of the Corporation), which certificate or certificates shall be duly endorsed to the Corporation or in blank, or accompanied by proper instruments of transfer, accompanied by (i) a written notice to the Corporation that the holder elects so to convert all or a specified number of such shares of Convertible Preferred Stock and specifying the name or names (with address or addresses) in which a certificate or certificates evidencing shares of Common Stock are to be issued and (ii) if required pursuant to Section 9(j) hereof, an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid). If more than one share of Convertible Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Convertible Preferred Stock so surrendered. Shares of Convertible Preferred Stock shall be deemed to have been converted immediately prior to the close of business on the day of the surrender of such shares for conversion in accordance with the foregoing provisions, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the surrender of a certificate or certificates for conversion and the receipt of the notice relating thereto (and in any event within five Business Days thereafter), the Corporation shall deliver or cause to be delivered to the person or persons entitled to receive the same: (i) a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion; (ii) any cash owed in lieu of any fraction of a share, determined in accordance with Section 9(i) hereof; (iii) if less than the full number of shares of Convertible Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being converted; and (iv) subject to the provisions of the second paragraph of Section 9(a), an amount in cash equal to the full cumulative dividends accrued but unpaid on such shares of Convertible Preferred Stock through the last quarterly dividend payment date established pursuant to Section 4 hereof that immediately precedes the effective date of conversion. If for any reason the Corporation is unable to pay any accrued dividends on the Convertible Preferred Stock being converted, the Corporation will pay such dividends to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment and may be paid under applicable credit agreements with interest thereon, accruing at a rate of 9.00% per annum. At the request of any such converting holder, the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing the Corporation's obligation to such holder. A payment or adjustment shall not be made by the Corporation upon any conversion on account of any dividends on the Common Stock issued upon conversion. (c) Rights to Exchange. (i) Corporation may, at its option, cause shares of Convertible Preferred Stock, as a whole or in part, at any time and from time to time, to be exchanged for debentures of the Corporation having the terms set forth in Exhibit B to the Purchase and Sale Agreement (the "Debentures"). Such exchange of shares of Convertible Preferred Stock for the Debentures pursuant to this Section 9(c)(i) shall be made at an exchange rate of Debentures in the principal amount equal to the Liquidation Preference. On the effective date of the exchange pursuant to this Section 9(c)(i), the Corporation shall pay holders of Convertible Preferred Stock to be exchanged an amount in cash equal to the full cumulative dividends accrued and accumulated but unpaid, whether or not declared and without interest, on such shares of Convertible Preferred Stock through the last quarterly dividend payment date that immediately precedes the effective date of the exchange. (ii) Each holder of shares of Convertible Preferred Stock shall have the right at any time after September 1, 1998 upon the terms and conditions set forth in this Section 9(c)(ii), at the option of such holder, whenever dividends due for four quarterly periods have not been paid, to exchange such shares of Convertible Preferred Stock, as a whole or in part, for Debentures. Such exchange of shares of Convertible Stock for the Debentures shall be of an Exchange Rate of Debentures in the principal amount equal to the Liquidation Preference plus all dividends which are accrued and accumulated but unpaid, whether or not declared and without interest up to the calendar quarter immediately preceding the calendar quarter in which the date of conversion occurs. (d) Mechanics of the Exchange. In connection with the exchange shares of Convertible Preferred Stock for the Debentures, the holder or holders thereof shall surrender the certificate or certificates evidencing such shares of Convertible Preferred Stock at the office of the transfer agent (or the secretary of the Corporation if there is no such transfer agent) for the Convertible Preferred Stock, which certificate or certificates shall be duly endorsed to the Corporation or in blank, or accompanied by proper instruments of transfer, accompanied by (i) a written notice to the Corporation that the holder shall thereby exchange all or the number specified by the Corporation and specifying the name or names (with address or addresses) in which a certificate or certificates evidencing the Debentures are to be issued and (ii) if required pursuant to Section 9(i) hereof, an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid). When more than one share of Convertible Preferred Stock is to be surrendered for exchange at one time by the same holder, the principal amount of the Debentures issuable upon exchange thereof shall be computed on the basis of the aggregate number of shares of Convertible Preferred Stock so surrendered. Shares of Convertible Preferred Stock shall be deemed to have been exchanged immediately prior to the close of business on the day of the surrender of such shares for exchange in accordance with the foregoing provisions, and the person or persons entitled to receive the Debentures issuable upon such exchange shall be treated for all purposes as the record holder or holders of such Debentures at such time. As promptly as practicable on or after the surrender of a certificate or certificates for exchange and the receipt of the notice relating thereto (and in any event within five Business Days thereafter), the Corporation shall deliver or cause to be delivered to the person or persons entitled to receive the same: (i) a certificate or certificates for the principal amount of the Debentures issuable upon such conversion; (ii) any cash owed in lieu of any fraction of a Debenture in accordance with Section 9(j) hereof; (iii) if less than the full number of shares of Convertible Preferred Stock evidenced by the surrendered certificate or certificates is being exchanged, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being exchanged; and (iv) if exchanged pursuant to Section 9(c)(i), subject to the provisions of the second paragraph of Section 9(c)(i), an amount in cash equal to the full cumulative dividends accrued but unpaid on such shares of Convertible Preferred Stock through the last quarterly dividend payment date established pursuant to Section 4 hereof that immediately precedes the effective date of exchange. If for any reason the Corporation is unable to pay any accrued dividends on the Convertible Preferred Stock being exchanged pursuant to Section 9(c)(i), the Corporation will pay such dividends to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment and may be paid under applicable credit agreements with interest thereon, accruing at a rate of 9.00% per annum. At the request of any such holder converting pursuant to Section 9(c)(i), the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing the Corporation's obligation to such holder. (e) Adjustments to Conversion Price and the Triggering Price. The Conversion Price and Triggering Price shall be adjusted from time to time as follows: (i) In case the Corporation shall pay or make a dividend or other distribution on any class of capital stock of the Corporation in Common Stock, the Conversion Price and Triggering Price in effect at the close of business on the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced to a price determined by multiplying such Conversion Price and Triggering Price each by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and of which the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective at the opening of business on the day following the date fixed for such determination. In the event that such dividend or distribution is not so paid or made, the Conversion Price and Triggering Price shall be readjusted to be the Conversion Price and Triggering Price which would then be in effect if such date fixed for the determination of shareholders entitled to receive such dividend or other distribution had not been fixed. (ii) In case the Corporation shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into (which for purposes of this paragraph (ii) shall also mean exchangeable for) Common Stock) at a price per share less than the Current Market Price (as defined in Section 13 hereof) of Common Stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price and Triggering Price in effect at the close of business on the date fixed for such determination shall be reduced to a price determined by multiplying such Conversion Price and Triggering Price each by a fraction of which the numerator shall be the total number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) would purchase at such Current Market Price and of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the total number of additional shares of Common Stock so offered for subscription or purchase (or into which the convertible securities so offered are convertible), such reduction to become effective at the opening of business on the day following the date fixed for such determination. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Price and Triggering Price shall be readjusted to the Conversion Price and Triggering Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price and Triggering Price shall be readjusted to be the Conversion Price and Triggering Price which would then be in effect if the date fixed for the determination of shareholders entitled to receive such rights or warrants had not been fixed. (iii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price and Triggering Price in effect at the close of business on the date upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price and Triggering Price in effect at the close of business on the date upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective at the opening of business on the day following the date upon which such subdivision or combination becomes effective. (iv) Notwithstanding any other provision of this Section 9, no adjustment in the Conversion Price or Triggering Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price or Triggering Price, as the case may be ; provided, however, that any adjustments which by reason of this paragraph (iv) are not required to be made shall be carried forward and taken into account in determining whether any subsequent adjustment shall be required. Once the cumulative effect of any such adjustments that are carried forward would result in an increase or decrease of at least 1% in the Conversion Price or Triggering Price, then the Conversion Price or Triggering Price shall be changed to reflect all adjustments called for by this Section 9 and not previously made. (v) Notwithstanding any other provision of this Section 9, no adjustment to the Conversion Price or Triggering Price shall reduce the Conversion Price or Triggering Price below the then par value per share of the Common Stock, and any such purported adjustment shall instead reduce the Conversion Price or Triggering Price to such par value. (vi) Whenever the Conversion Price or Triggering Price is adjusted as provided herein, the Corporation shall compute the adjusted Conversion Price or Triggering Price in accordance with this Section 9 and shall prepare a certificate signed by the Treasurer of the Corporation setting forth the adjusted Conversion Price or Triggering Price and showing in reasonable detail the facts upon which such adjustment is based, and the corporation shall mail a copy of such certificate as soon as practicable to the holders of record of the shares of Convertible Preferred Stock. (vii) In any case in which this Section 9 shall require that an adjustment shall become effective on the day following a record date for an event, the Corporation may defer until the occurrence of such event (i) issuing to the holder of any share of Convertible Preferred Stock, if such share is converted after such record date and before the occurrence of such event, the additional Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holders any amount in cash in lieu of a fractional share of Common Stock pursuant to paragraph (i) of this Section 9; provided, that, upon request of any such holder, the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Common Stock and such cash, upon the occurrence of the event requiring such adjustment; and provided, further, that the failure of such event to occur shall relieve the Corporation of the obligation to make an additional distribution upon conversion by reason of the adjustment required by the occurrence of such event. (viii) The Corporation may make such reductions in the Conversion Price, in addition to those required by this Section 9, as the Board of Directors considers to be advisable in order that any event treated for Federal income tax purposes as a dividend or distribution of stock (or rights to acquire stock) shall not be taxable to the recipients. The Corporation at any time or from time to time, as permitted by applicable law and to the extent the Board of Directors determines that such reduction would be in the best interests of the Corporation, may reduce the Conversion Price by any amount for any period of time, if the period is at least twenty (20) days and if the reduction is irrevocable during the period. (ix) Whenever the Conversion Price is reduced by the Corporation pursuant to paragraph (viii) of this Section 9(e), the Corporation shall mail to holders of the Convertible Preferred Stock a notice of the reduction. The Corporation shall mail such notice by first class mail, postage prepaid, at least fifteen (15) days before the date the reduced Conversion Price takes effect, to each holder of record of shares of Convertible Preferred Stock at such holder's address as shown on the stock register of the Corporation. The notice shall state the reduced Conversion Price and the period it will be in effect. If a notice is mailed to a holder in the manner provided above within the time prescribed, it is duly given with respect to such holder. (f) Reclassification, Consolidation, Merger or Sale of Assets. In the event that the Corporation shall be a party to any transaction (including without limitation any (i) recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (ii) any consolidation or merger of the Corporation with or into any other person or any merger of another person into the Corporation (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Corporation), (iii) any sale or transfer of all or substantially all of the assets of the Corporation, or (iv) any compulsory share exchange) pursuant to which the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive other securities, cash or other property, then appropriate provision shall be made as part of the terms of such transaction whereby the holder of each share of Convertible Preferred Stock then outstanding shall thereafter have the right to convert such share only into the kind and amount of securities, cash and other property receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such share of Convertible Preferred Stock might have been converted immediately prior to such transaction. The Corporation or the person formed by such consolidation or resulting from such merger or which acquired such assets or which acquired the Corporation's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 9. The above provisions shall similarly apply to successive transactions of the type described in this paragraph. (g) Prior Notice of Certain Events. In case at any time: (i) the Corporation shall (1) declare any dividend or any other distribution on its Common Stock, other than (A) a dividend payable solely in shares of Common Stock or (B) the Rights or (2) declare or authorize a redemption or repurchase of any of the then outstanding shares of Common Stock or any other Junior Stock; or (ii) the Corporation shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights or warrants; or (iii) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock), or of any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation shall be required, or of the sale or transfer of all or substantially all of the assets of the Corporation or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or (iv) of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; then, in any such case, the Corporation shall cause to be mailed to the holders of record of the Convertible Preferred Stock, at their last addresses as they shall appear upon the stock transfer books of the Corporation, at least twenty (20) days prior to the applicable record date or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, repurchase or granting of rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, liquidation, dissolution or winding up. No failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice. (h) Reservation of Shares, etc. The Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of shares of Convertible Preferred Stock, the full number of shares of Common Stock then deliverable upon the conversion of all shares of Convertible Preferred Stock then outstanding. If the Corporation shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Convertible Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Convertible Preferred Stock on the new basis. If any Debentures or shares of Common Stock required to be reserved for purposes of exchange or conversion of the Convertible Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal or State law before such debentures or shares may be issued upon exchange or conversion, the Corporation will in good faith and as expeditiously as possible endeavor to cause such debentures or shares to be duly registered or approved, as the case may be. The Corporation will, in good faith and as expeditiously as possible, endeavor, if permitted by the rules of the applicable exchange or quotation system, list and keep listed or quote and keep quoted on the principal exchange or quotation system of its Common Stock, as the case may be, upon official notice of issuance or quotation, all Debentures or shares of Common Stock issuable upon exchange or conversion of the Convertible Preferred Stock. (i) No Fractional Shares or Debentures. No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon conversion of Convertible Preferred Stock. Instead of any fraction of a share which would otherwise be issuable upon conversion of any shares of Convertible Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Closing Price (as defined in Section 13 hereof) of a share of Common Stock (or, if there is no such Closing Price, the fair market value of a share of Common Stock, as determined in good faith by the Board of Directors or in any manner prescribed by the Board of Directors) at the close of business on the Trading Day immediately preceding the date of conversion. The Debentures will be issued in denominations of $1,000 and integral multiples thereof. No fractional interests in the Debentures shall be issued upon exchange of conversion of Convertible Preferred Stock. Instead of any fraction of a Debenture which would otherwise be issuable upon exchange of any shares of Convertible Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Closing Price (as defined in Section 13 hereof) of a Debenture in the principal amount of $1,000 (or, if there is no such Closing Price, the fair market value of a Debenture in such principal amount, as determined in good faith by the Board of Directors or in any manner prescribed by the Board of Directors) at the close of business on the Trading Day immediately preceding the date of exchange. (j) Transfer Taxes, etc. The Corporation will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock or Debentures on conversion or exchange of shares of Convertible Preferred Stock pursuant hereto. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or Debentures in a name other than that in which the shares of Convertible Preferred Stock so exchanged or converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax, or has established to the satisfaction of the Corporation that such tax has been paid. 10. EXCHANGES. Certificates representing shares of Convertible Preferred Stock shall be exchangeable, at the option of the holder, for a new certificate or certificates of the same or different denominations representing in the aggregate the same number of shares of Convertible Preferred Stock. 11. OUTSTANDING SHARES. For purposes of this Certificate of Designations, all shares of Convertible Preferred Stock shall be deemed outstanding except for (a) shares of Convertible Preferred Stock held of record or beneficially by the Corporation or any subsidiary of the Corporation; (b) from the date of surrender of certificates representing Convertible Preferred Stock for conversion pursuant to Section 9 hereof, all shares of Convertible Preferred Stock which have been converted into Common Stock or other securities or property pursuant to Section 9 hereof; and (c) from the date fixed for redemption pursuant to Section 5 or 6 hereof, all shares of Convertible Preferred Stock which have been called for redemption, provided that funds necessary for such redemption are available therefor and have been irrevocably deposited or set aside for such purpose and all other steps necessary to effect such redemption shall have been taken. 12. STATUS OF CONVERTIBLE PREFERRED STOCK UPON RETIREMENT. Shares of Convertible Preferred Stock which are acquired or redeemed by the Corporation or converted pursuant to Section 9 shall return to the status of authorized and unissued shares of Preferred Stock of the Corporation, without designation as to series. Upon the acquisition or redemption by the Corporation or conversion pursuant to Section 9 of all outstanding shares of Convertible Preferred Stock, all provisions of this Certificate of Designations shall cease to be of further effect. 13. DEFINITIONS. For purposes of this Certificate of Designation, the following terms shall have the meanings indicated: (a) "Board of Directors" shall mean the board of directors of the Corporation or any committee authorized by such board of directors to perform any of its responsibilities with respect to the Convertible Preferred Stock. (b) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which commercial banks in the State of New York are authorized or required by law or executive order to close or a day which is or is declared a national or New York state holiday; (c) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Corporation for that purpose or a price determined in good faith by the Board. (d) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the thirty consecutive Trading Days immediately prior to the date in question. (e) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (f) "full cumulative dividends" shall mean, with respect to the Convertible Preferred Stock, or any other capital stock of the Corporation, as of any date the amount of accumulated, accrued and unpaid dividends payable on such shares of Convertible Preferred Stock, or other capital stock, as the case may be, whether or not earned or declared and whether or not there shall be funds legally available for the payment thereof. (g) "record date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise), and with respect to any subdivision or combination of the Common Stock, the effective date of such subdivision or combination. (h) "Rights" shall mean the rights of the Corporation that are issuable under the Corporation's Rights Agreement, dated July 31, 1992 and as amended from time to time, or rights to purchase any capital stock of the Corporation under any successor stockholder rights plan or plans adopted in replacement of the Corporations Rights Agreement. (i) "Trading Day" shall mean (x) if the applicable security is quoted on the Nasdaq National Market of The Nasdaq Stock Market, a day on which trades may be made on such Nasdaq National Market or (y) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or another national securities exchange is open for business or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be duly executed in its corporate name this 27th day of June, 1996. CONCURRENT COMPUTER CORPORATION By: /s/ John T. Stihl _____________________________ Name: John T. Stihl Title: Chairman, President and Chief Executive Officer EX-4 3 EXHIBIT 4.3 EXHIBIT 4.3 AMENDMENT TO RIGHTS AGREEMENT Amendment (the "Amendment"), dated as of June 27, 1996, to the Rights Agreement, dated as of July 31, 1992 (the "Rights Agreement"), between Concurrent Computer Corporation, a Delaware corporation (the "Company"), and The First National Bank of Boston, a national banking association (the "Rights Agent"). WITNESSETH WHEREAS, no Distribution Date (as defined in Section 3(a) of the Rights Agreement) has occurred as of the date of this Amendment; WHEREAS, the Company and Harris Computer Systems Corporation ("Harris") have entered into a Purchase and Sale Agreement dated March 26, 1996, as amended and restated May 23, 1996 (the "Purchase and Sale Agreement"), pursuant to which Harris shall receive shares of capital stock of the Company as consideration for the transactions contemplated therein; WHEREAS, the Company and the Rights Agent desire to amend the Rights Agreement to provide that the consummation of the transactions contemplated by the Purchase and Sale Agreement shall not cause Harris or its subsidiaries or affiliates to be deemed Beneficial Owners of such shares for purposes of being an "Acquiring Person" and the consequent exercisability of the Rights; WHEREAS, Section 26 of the Rights Agreement permits the Company from time to time to supplement and amend the Rights Agreement; and WHEREAS, the Board of Directors of the Company has approved and adopted this Amendment and directed that the proper officers take all appropriate steps to execute and put into effect this Amendment. NOW, THEREFORE, the parties hereby agree as follows: 1. Section 1(a) of the Rights Agreement is hereby amended by deleting the word "and" between clause (A) and clause (B) in the second sentence and is further amended by inserting the following clause (C) after the last word of the second sentence of Section 1(a) and before the period at the end of such sentence: "; and (C) neither Harris Computer Systems Corporation ("Harris") nor any Subsidiary of Harris shall be deemed to be an Acquiring Person by virtue of the fact that Harris is the Beneficial Owner of Voting Capital Stock as a result of the consummation of the transactions contemplated by the Purchase and Sale Agreement, between Harris and the Company, dated March 26, 1996, as amended May 23, 1996." 2. This Amendment shall be effective immediately upon its execution and the Rights Agreement shall continue in full force and effect as amended hereby. 3. This Amendment shall be limited solely to the matters expressly set forth herein and shall not (i) prejudice any right or rights which the Company may now have or may have in the future under or in connection with the Rights Agreement or any instruments or agreements referred to therein or (ii) except to the extent expressed as set forth herein, modify the Rights Agreement or any instruments or agreements referred to therein. 4. Capitalized terms used in this Amendment and not defined herein shall have the meanings assigned thereto in the Rights Agreement. 5. This Amendment may be executed in counterparts. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. CONCURRENT COMPUTER CORPORATION ATTEST: By: /s/ Kevin J. Dell By /s/ David A. Jaffe Name: Kevin J. Dell Title: Vice President, General Counsel and Secretary THE FIRST NATIONAL BANK OF BOSTON ATTEST: By: /s/ Gordon C. Stevenson By Name: Gordon C. Stevenson Title: Administrative Manager EX-23 4 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ___________ We consent to the inclusion of our report dated November 3, 1995, except as to the stock split noted in note 2, which is as of March 18, 1996, and to note 15, which is as of July 3, 1996, with respect to the consolidated balance sheets of Harris Computer Systems Corporation and subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year ended September 30, 1995 and the three months ended September 30, 1994, which appears in the Form 8-K of Concurrent Computer Corporation dated July 12, 1996. /s/ KPMG PEAT MARWICK L.L.P. Miami, Florida July 12, 1996 EX-23 5 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS ___________ We consent to the incorporation by reference in this Form 8-K of our report dated July 13, 1994, with respect to the financial statements of Harris Computer Systems Corporation included in the Joint Proxy Statement for the Special Meetings of Stockholders of Concurrent and CyberGuard filed with the Securities and Exchange Commission on May 23, 1996. /s/ ERNST & YOUNG L.L.P. Orlando, Florida July 12, 1996 EX-99 6 EXHIBIT 99.1 EXHIBIT 99.1* * Financial Statements of CyberGuard Corporation. References in Exhibit 99.1 to "Harris Computer Systems Corporation" or 'the Company" refer to CyberGuard Corporation, a Florida corporation ("CyberGuard"). CyberGuard is subject to the informational requirements in the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"), to which reference is made for detailed financial and other information regarding CyberGuard. Such reports, proxy statements, and other information can be inspected and copied at the Commission's offices at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2551 and can be inspected and copied at the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, on which the CyberGuard Common Stock is listed. The Commission does not approve or disapprove or pass upon the accuracy or the adequacy of reports, proxy statements or other information filed with it. Concurrent does not warrant the accuracy or completeness of such reports, proxy statements, or other information nor that there have not occurred events not yet publicly disclosed by CyberGuard which would affect either the accuracy or the completeness of the information concerning CyberGuard included herein. HARRIS COMPUTER SYSTEMS, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
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
INDEPENDENT AUDITOR'S REPORT The Board of Directors Harris Computer Systems Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Harris Computer Systems Corporation and subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year ended September 30, 1995 and the three months ended September 30, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Harris Computer Systems Corporation and subsidiaries as of September 30, 1995 and 1994, and the results of their operations and their cash flows for the year ended September 30, 1995 and the three months ended September 30, 1994 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The combining information is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. KPMG PEAT MARWICK LLP November 3, 1995, except as to the stock split noted in note 2, which is as of March 18, 1996 and to note 15, which is as of July 3, 1996 Miami, Florida REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Harris Corporation: We have audited the accompanying combined statements of operations and cash flows of the Harris Computer Systems Business for each of the two years in the period June 30, 1994. These financial statements are the responsibility of the Business' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined results of operations and cash flows of Harris Computer Systems Business for the years ended June 30, 1994 and 1993 in conformity with generally accepted accounting principles. As discussed in Note E to the financial statements, effective July 1, 1993 the Business changed its method of accounting for postretirement benefits other than pensions. Ernst & Young LLP Orlando, Florida July 13, 1994 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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 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 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 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 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1. ORGANIZATION OF THE COMPANY Harris Computer Systems Corporation and Subsidiaries (the "Company") became an independent company effective September 29, 1994 (the "Distribution Date") when Harris Corporation ("Harris") spun off its Harris Computer Systems Division. The Company develops real-time and multi-level secure computer systems, solutions and software for commercial and government markets. One share of the Company's common stock, together with the associated preferred stock purchase rights (Note 12), was issued for every twenty shares of Harris common stock, outstanding to shareholders of record on October 7, 1994. The terms of the spin-off resulted in net assets of $43,721 being transferred from Harris to the Company. The Company sells products to Harris and its subsidiaries. Sales to these operations were $439 for the year ended September 30, 1995; $644 for the three months ended September 30, 1994. 2. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION -- The consolidated financial statements include those of Harris Computer Systems Corporation and its wholly-owned subsidiaries. All intercompany transactions between entities have been eliminated. INVENTORIES -- Inventories are carried at the lower of cost, determined by the First-In-First-Out (FIFO) method, or market. MACHINERY AND EQUIPMENT -- Machinery and equipment is carried on the basis of cost. Depreciation is computed by the straight-line method using the estimated useful lives of the assets. SOFTWARE DEVELOPMENT COSTS -- The Company capitalizes costs related to the development of certain software products. Capitalization begins when technological feasibility has been established and ends when the product is available for general release to customers. Software development costs incurred prior to technological feasibility are considered research and development costs and are expensed as incurred. Capitalized costs are amortized as the greater of the amount computed using the ratio that current gross revenues for a product bear to the total current and anticipated future gross revenues for that product or the straight-line method. Capitalized software costs are stated net of accumulated amortization of $6,870 and $5,565 at September 30, 1995 and 1994, respectively. REVENUE RECOGNITION -- Revenue is recognized from sales when a product is shipped, from rentals as they accrue, and from services and maintenance when performed. Unearned income on service contracts is amortized by the straight-line method over the term of the contracts. Revenue from long-term software contracts is accounted for by the percentage of completion method whereby income is recognized based on the estimated stage of completion of individual contracts using costs incurred as a percentage of total estimated costs at completion. Losses on long-term contracts are recognized in the period in which such losses are determined. FOREIGN CURRENCY TRANSLATION -- The assets and liabilities of the foreign operations are translated using the local currency as the functional currency. INCOME TAXES -- Prior to the Distribution Date, the Company followed the liability method of accounting for income taxes and was included with its parent, Harris Corporation, in a consolidated federal income tax return. Harris required each of its companies to provide taxes on financial statement pre-tax income or loss at applicable statutory tax rates. Amounts receivable or payable for current and prior years' income taxes were treated as intercompany transactions in accordance with Harris policy and, accordingly, flowed through the net investment by Harris. Deferred income taxes resulting from temporary differences HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) between the financial statements and the tax basis of assets and liabilities were separately classified on the balance sheets. For the periods after the Distribution Date, the Company files a consolidated Federal income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes and are accounted for under the asset and liability method as required by the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS No. 109"). FAS No. 109 requires the asset and liability method of accounting for income taxes. Under the asset and liability method, a deferred tax asset or liability is recognized for temporary differences between financial reporting and income tax bases of assets and liabilities, tax credit carryforwards and operating loss carryforwards. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that such deferred tax assets will not be realized. Harris and the Company have entered into a tax disaffiliation agreement based on the principle that Harris will be responsible for all current tax liabilities generated through the Distribution Date with the Company being responsible for all tax liabilities generated after the Distribution Date. CASH EQUIVALENTS -- The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. LOSS PER COMMON SHARE -- Loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the year. Common stock equivalents are excluded due to their anti-dilutive effect. STOCK SPLIT -- On March 5, 1996, the Board of Directors declared a three-for-one common stock split distributable on March 29 to shareholders of record at the close of business on March 18, 1996. All applicable share and per share data have been restated for the stock split. UNAUDITED INTERIM FINANCIAL STATEMENTS -- The consolidated financial statements for the six months ended March 30, 1996 and March 30, 1995 and as of March 30, 1996, are unaudited and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the results for the interim periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes therefore for the periods ended September 30, 1994 and 1995. The results of operations for the six months ended March 30, 1996 are not necessarily indicative of the results for the entire fiscal year ending September 30, 1996. HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 3. CHANGE IN FISCAL YEAR The Company changed its fiscal year end from June 30, to September 30, effective in the year beginning October 1, 1994. The three-month transition period ended September 30, 1994, is presented within the body of the Company's basic financial statements. Comparative condensed income statement data is shown as follows:
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). 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%) ===== =====
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 ===== =====
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 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) awards were made during 1995 under this plan. On October 28, 1994, the Company granted restricted stock awards for 52,800 shares of common stock at an option price of $2.58 per share, pursuant to the Stock Incentive Plan to two employees. None of the restricted shares may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of for the "Restricted Period." The Restricted Period is from October 28, 1994 (date of the agreement) until the earlier of 21 months from the date of the agreement or upon the occurrence of a change in control. During 1995, 715,200 stock option shares were granted at option prices ranging from $2.58 to $3.83. At September 30, 1995 options to purchase 207,000 shares were available for grant. 13. EMPLOYEE BENEFIT PLANS Prior to the Distribution Date, Harris provided retirement benefits to substantially all United States-based employees, primarily through a retirement plan having profit-sharing and savings elements. Contributions to the retirement plan were based on Harris profits and employees' savings with no other funding requirements. Related retirement plan expense was $431 for the three months ended September 30, 1994. Subsequent to the Distribution Date, the Company began a 401(k) Savings Plan (the "Plan") which covers the eligible employees of Harris Computer Systems Corporation, and any related company. An employee is eligible to participate in the Plan on the date he completes one year of service. The amount of profit-sharing contributions made by the Company into the Plan is discretionary and shall be determined based on a percentage of the Company's adjusted net income before taxes. Each participant may contribute up to 12% of his compensation into the Plan. The Company makes a matching contribution on behalf of each participant for the first 6% of their individual contribution. Participant's profit-sharing and matching contribution vests over a seven year period. The Company contributions to the Plan were $966 in 1995. 14. POSTRETIREMENT HEALTH CARE BENEFITS Prior to the Distribution Date, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Health care benefits were provided on a limited cost-sharing basis to domestic-based retirees who had 10 or more years of service. This adoption resulted in a one-time charge of $135, net of income tax credits of $83. The on-going expense of this plan was not material and the liability for these benefits had not been funded. Subsequent to the Distribution Date, the Company canceled this post retirement health care plan. 15. SUBSEQUENT EVENTS (a) Sale of real-time Computing business On November 5, 1995, the Company entered into an Agreement and Plan of Merger and Reorganization with Concurrent Computer Corporation ("Concurrent"). The transaction contemplated between the Company and Concurrent was revised. On March 26, 1996, the Company and Concurrent signed a Purchase and Sale Agreement effective as of that date and amended and restated as of May 23, 1996. This agreement was approved by the shareholders of both companies on June 23, 1996. Under the revised transaction structure, the Company sold its real-time computing business and approximately 683,178 shares of its common stock to Concurrent in exchange for (i) 10 million newly issued shares of Concurrent common stock, par value $0.01 per share, (ii) convertible exchangeable preferred stock of Concurrent paying a 9% cumulative annual dividend quarterly in arrears with a liquidation preference of $8,200,000 subject to adjustment to reflect, among other things, the amount of net current assets of the Harris Real-Time Business transferred in the Transaction and (iii) the assumption of certain liabilities (hereafter defined as the "Transaction"). HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Immediately following the transaction, Concurrent's shareholders owned approximately 77% of Concurrent's outstanding common stock, with the balance owned by the Company. The Company's shareholders owned approximately 91% of its common stock, with Concurrent owning approximately 9%. The Company can increase its position in Concurrent from approximately 23% to approximately 28% upon full conversion of the preferred stock. The Company retained its Trusted Systems product line after the transaction and changed its corporate name to CyberGuard Corporation. Summarized financial data relating to the Company's Trusted Systems Division which will be retained is as follows:
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, the Company entered into a Loan and Security Agreement with Foothill Capital Corporation ("Foothill") pursuant to which Foothill agreed to make revolving advances to the Company in an amount of up to $5,000,000 subject to certain borrowing base requirements and at an interest rate equal to the prime or reference rate announced by Norwest Bank Minnesota, National Association, plus two percent. As collateral for the loan, the Company granted Foothill a security interest in all of the assets of the Company (including 7,000,000 shares of the common stock and all of the preferred stock received by the Company in connection with the Transaction). Accrued interest on the loan is due and payable monthly. On June 27, 1996, this agreement was amended to, among other things, substitute CyberGuard Corporation as the borrower and extend the maturity date to the earlier of (a) September 30, 1996 or (b) the date on which the Company consummates a secondary common stock offering, unless sooner terminated pursuant to the terms of the agreement. 16. CONTINGENCIES Certain claims have been filed or are pending against the Company. It is management's opinion that all matters are without merit or are of such kind, or involve such amounts, as would not have a material effect on the consolidated financial position of the Company if disposed of unfavorably. 17. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and trade receivables. The Company holds any excess cash in short-term HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) investments consisting of commercial paper. Concentrations of credit risk with respect to receivables are limited due to the Company's large number of customers. 18. GEOGRAPHIC INFORMATION The Company operates exclusively in the computer systems industry. Substantially all revenues result from the sale of computer systems and related software and services. Major customers during 1995 and 1994 include the United States Government and Boeing Company. In many cases, agencies of the United States Government are the ultimate purchasers of the Company's products. Sales to the United States Government combined with sales for which the Company acted as subcontractor on government projects have represented approximately 51% and 43% of total sales, respectively. Sales made to Boeing Company as a percentage of total sales were 4% and 14%, for the periods ended September 30, 1995 and 1994, respectively. All intercompany revenues and expenses are eliminated in computing revenues and operating income. A summary of the Company's operations by geographic area is summarized below:
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. 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 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 HARRIS COMPUTER SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS) BASIS OF PRESENTATION The combining financial information is presented to reflect the financial position and results of operations of the "Real Time Business" ("Business") and Trusted Systems Product Line ("Product Line") of Harris Computer Systems Corporation and subsidiaries as of and for the year ended September 30, 1995. Such information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. The following is a summary of the methods used to arrive at amounts reflected in the Combining Financial Information. BALANCE SHEET INFORMATION Accounts receivable, inventory, property, plant and equipment and substantially all capitalized software reflect items specifically identified as pertaining to the Business or Product Line. The liability/receivable between the Business and Product Line represents the net amount assumed to have been paid for or accrued for by the Business on behalf of the Product Line since July 1, 1990. This assumption is considered appropriate in light of the fact that the Business and Product Line share the same operating infrastructure, substantially all operating costs are commingled, and the predominance of the Business to the combined entity. STATEMENT OF OPERATIONS INFORMATION Sales and cost of sales amounts are derived principally by specific identification. Research and development and selling, general, and administrative expenses are allocated based on a percentage of sales except for certain direct research and development, marketing and sales expenses amounting to $10,182 and $2,510 for the Business and Product Line, respectively. HARRIS COMPUTER SYSTEMS BUSINESS COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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. 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. HARRIS COMPUTER SYSTEMS BUSINESS NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1994 AND 1993 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) NOTE A -- SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION -- The combined financial statements include the accounts of the Computer Systems Business (the "Business") of Harris Corporation ("Harris"). The Business develops, manufactures and markets high performance real-time computer systems. The accompanying combined financial statements include operations of Computer Systems in Fort Lauderdale, Florida, and Harris Systemes Electroniques S.A., France, as well as the Computer Systems Business portion of Harris Systems, Ltd., United Kingdom and Harris GmbH, Germany. In 1994, Harris contributed the remaining assets and liabilities of Harris GmbH to the Business, making Harris GmbH a wholly owned subsidiary of the Business. Corporate expense allocations charged by Harris are based on a percentage of the Business's net sales. Interest expense is provided on direct borrowings of the Business. Interest expense of Harris has not been allocated to the Business. It is not practicable to estimate what business equity would have been if the Business had operated as an unaffiliated entity. In the opinion of management, the allocation methods used are reasonable. The effects of all significant transactions between components of the Business have been eliminated. The Business sells products to other affiliated operations of Harris. Sales to these operations were $4,013 in 1994 and $5,023 in 1993. INVENTORIES -- Inventories are carried at the lower of cost, determined by the First-In-First-Out (FIFO) method, or market. DEPRECIATION -- Depreciation of rental equipment is computed by the straight-line method using estimated useful lives of up to three years. Service parts are depreciated over five years. Depreciation on machinery and equipment is carried on the basis of cost and is computed by the straight-line method using the estimated useful lives of the assets. SOFTWARE DEVELOPMENT COSTS -- The Business capitalizes costs related to the development of certain software products. Capitalization begins when technological feasibility has been established and ends when the product is available for general release to customers. Software development costs incurred prior to technological feasibility are considered research and development costs and are expensed as incurred. Capitalized costs are amortized as the greater of the amount computed using the ratio that current gross revenues for a product bear to the total current and anticipated future gross revenues for that product or the straight-line method over three years in 1993 and prior years an over five years in 1994. The effect of net income of changing the estimated useful lives in 1994 was approximately $350. REVENUE RECOGNITION -- Revenue is recognized from sales when a product is shipped, from rentals as they accrue, and from services and maintenance when performed. Unearned income on service contracts is amortized by the straight-line method over the term of the contracts. Revenue from long-term software contracts is accounted for by the percentage of completion method whereby income is recognized based on the estimated stage of completion of individual contracts using costs incurred as a percentage of total estimated costs at completion. Losses on long-term contracts are recognized in the period in which such losses are determined. INCOME TAXES -- The Business follows the liability method of accounting for income taxes and was included with its parent, Harris, in a consolidated federal income tax return. Harris requires each of its businesses to provide taxes on financial statement pre-tax income or loss at applicable statutory tax rates. Amounts receivable or payable for current and prior year' income taxes are treated as intercompany transactions in accordance with Harris policy and, accordingly, flowed through the Business Equity account. HARRIS COMPUTER SYSTEMS BUSINESS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) FOREIGN CURRENCY TRANSLATION -- Foreign operations are translated using the local currency at the functional currency. NOTE B -- SOFTWARE DEVELOPMENT COSTS Software amortization expenses were $1,396 in 1994 and $1,258 in 1993. Amortization expenses are included in Cost of Sales and Rentals in the Combined Statements of Income. NOTE C -- INVENTORY PURCHASE COMMITMENT At June 30, 1994, the Business was committed to purchase $1,600 of inventory from a supplier. Management believes the cost of this inventory approximates current market value. NOTE D -- LEASE COMMITMENTS Rent expense was $1,897 in 1994 and $1,806 in 1993 including $1,085 and $1,096 respectively, paid to Harris. Total future minimum rental commitments under operating leases, primarily for land and buildings, for the years following June 30, 1994 are: 1995 - $763, 1996 - $267; 1997 - $157; 1998 - $8. NOTE E -- POSTRETIREMENT HEALTH CARE BENEFITS In fiscal 1994, the Business adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Health care benefits are provided on a limited cost-sharing basis to domestic-based retirees who had 10 or more years of service. This adoption resulted in a one-time charge of $135, net of income tax credits of $83. The on-going expense of this plan is not expected to be material and the liability for these benefits has not been funded. NOTE F -- RETIREMENT BENEFIT PLANS Harris provides retirement benefits to substantially all United States-based employees, primarily through a retirement plan having profit-sharing and savings elements. Contributions to the retirement plan are based on Harris profits and employees' savings with no other funding requirements. Related retirement plan expense was $2,201 in 1994 and $1,487 in 1993. In addition, a noncontributory defined benefit pension plan is maintained in the United Kingdom for substantially all employees of Harris Systems, Ltd. This plan is fully funded and there have been no charges to income for the two year period ended June 30, 1994. Separate actuarial information applicable to the Business' portion of this plan is not available. HARRIS COMPUTER SYSTEMS BUSINESS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- INCOME TAXES The provision (benefit) for income taxes is as follows:
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. 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. EX-99 7 EXHIBIT 99.2 EXHIBIT 99.2* * Unaudited Pro Forma Condensed Consolidated Financial Statements of Concurrent Computer Corporation. References in Exhibit 99.2 to "the Company" are to Concurrent; references to the "Transaction" are to the Transaction described in Item 2 hereof; and references to "Harris" are to CyberGuard. Cross references contained herein are to sections of the Joint Proxy Statement. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONCURRENT The following unaudited pro forma financial statements have been prepared to give effect to the Transaction which will be accounted for as a purchase. See "TERMS OF THE TRANSACTION -- Accounting Treatment." These financial statements do not purport to represent what the Combined Real-Time Company's results of operations or financial position actually would have been had the Transaction occurred on the dates when they are reflected to have occurred in the pro forma financial statements, or to project the Combined Real-Time Company's results of operations or financial condition for any future period or date. In particular, the financial condition of Concurrent at the date of the Transaction will be directly affected by the financial performance of both Concurrent and Harris up to the date of the Transaction and could be substantially different from that shown in these pro forma financial statements. The pro forma condensed consolidated statements of operations for the year ended June 30, 1995 and for the nine months ended March 31, 1996 have been prepared assuming the Transaction had occurred as of the beginning of each of the respective periods. The pro forma condensed consolidated statement of operations for the year ended June 30, 1995 includes the results of operations for Concurrent for the year ended June 30, 1995 and for Harris's Real-Time Business for the year ended September 30, 1995. The pro forma condensed consolidated statement of operations for the nine months ended March 31, 1996 includes the results of operations for Concurrent and Harris's Real-Time Business for the nine months ended March 31, 1996. The pro forma consolidated balance sheet at March 31, 1996 has been prepared assuming the Transaction had occurred as of that date. "Harris as Reported" and "Harris Trusted" data were obtained from the Combining Financial Information included in Harris's financial information -- see "HARRIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "HARRIS CONSOLIDATED FINANCIAL STATEMENTS." In accordance with generally accepted accounting principles, the purchase price for the acquisition of the Harris's Real-Time Business will be allocated to the assets and liabilities received based upon their estimated fair values. Such fair values are based upon valuations of assets and liabilities and estimations which are still in process. Accordingly, for purposes of the following pro forma financial information the pro forma adjustments are stated on an estimated basis using the most recent information available. No assurance can be given that the pro forma adjustments will not differ materially from the amounts ultimately determined. The pro forma financial statements do not reflect any synergies, operating efficiencies or cost savings anticipated by management as a result of the Transaction, such as savings expected from consolidation of manufacturing, research and development, selling, marketing, administrative and other functions. Such savings will require significant headcount reductions and present significant management challenges. The resulting pro forma financial statements are not necessarily indicative of Concurrent's future results of operations or financial position. For a discussion of anticipated synergies, see "THE PROPOSED TRANSACTION -- Recommendations of the Board of Directors of Concurrent and Concurrent's Reasons for the Transaction" and "-- Recommendations of the Special Committee and the Board of Directors of Harris and Harris's Reasons for the Transaction." The pro forma financial statements should be read in conjunction with the audited consolidated financial statements for the years ended June 30, 1995 and September 30, 1995 for Concurrent and Harris, respectively, and for Concurrent the unaudited financial statements for the nine months ended March 31, 1996, and for Harris the unaudited financial statements for the six months ended March 30, 1996. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "TERMS OF THE TRANSACTION -- Accounting Treatment" and "PROJECTED FINANCIAL INFORMATION." PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 1. Basis of Presentation The unaudited pro forma condensed consolidated statements of operations are presented for illustrative purposes only, giving effect to the Transaction and, therefore, are not necessarily indicative of the financial results that might have been achieved had the Transaction occurred as of an earlier date, nor are they necessarily indicative of the financial results which may occur in the future. The unaudited pro forma condensed consolidated statement of operations for the year ended June 30, 1995 include the results of operations for Concurrent for the year ended June 30, 1995 and for Harris's Real-Time Business for the year ended September 30, 1995. The pro forma condensed consolidated statement of operations for the nine months ended March 31, 1996 include the results of operations for Concurrent and Harris's Real-Time Business for the nine months ended March 31, 1996. 2. Pro Forma Adjustments The following unaudited pro forma purchase accounting adjustments were made to the statements of operations for the year ended June 30, 1995 and the nine months ended March 31, 1996 to give effect to the Transaction as if such Transaction had occurred as of the beginning of the respective periods: (a) To eliminate the amortization expense previously recorded on the capitalized software during the respective periods. The real-time technology of both companies is similar and as such, the combination of duplicate technologies does not provide additional benefit to Concurrent. As a result, Harris's capitalized software of $5.4 million was eliminated as part of the Transaction. (See Unaudited Pro Forma Consolidated Balance Sheet Note 1(f)) (b) To reflect the adjustment to depreciation expense resulting from the decrease in the book value of Harris's property, plant and equipment acquired, depreciated on a straight-line basis over an average remaining useful life of four years. The excess of the estimated fair value of net assets acquired over the purchase price was allocated to reduce proportionately the values assigned to non-current assets. Such amount is subject to change pending completion of the valuation of assets acquired. (c) To reflect the amortization of negative goodwill, which represents the remainder of the excess of the estimated fair value of net assets acquired after reducing the values assigned to non-current assets to zero over the aggregate purchase price. Negative goodwill is amortized on a straight-line basis over a ten-year period. Such amount is subject to change pending the completion of the valuation of Assets acquired. (d) To reflect the decrease in interest income resulting from the use of approximately $1.2 million in cash to finance the closing costs related to the Transaction at an average interest rate of 5%. (e) The number of shares used in computing pro forma net loss per share for the year ended June 30, 1995 and the nine months ended March 31, 1996 were 40,415,583 and 40,803,089, respectively. Pro forma net loss per share has been determined based on the historical weighted average of shares outstanding of Concurrent Common Stock adjusted to give effect to: 1) the issuance of 10,000,000 shares of Concurrent Common Stock; and 2) the issuance of an estimated 320,802 shares, on a pro forma basis as of March 31, 1996 (based on an estimated average price at such time of $1.43 per share) to be sold to fund the payment to Berenson Minella of a portion of its financial advisory fees, assuming such shares had been outstanding for the entire period. The number of shares is determined as follows:
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. 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. 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
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. -----END PRIVACY-ENHANCED MESSAGE-----