SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CYBERGUARD CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
FLORIDA 65-0510339
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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2000 West Commercial Boulevard, Suite 200 Adriana Kovalovska, Esq.
Fort Lauderdale, Florida 33309 CyberGuard Corporation
(954) 958-3900 2000 West Commercial Boulevard, Suite 200
(Address, Including Zip Code, and Telephone Number, Including Fort Lauderdale, Florida 33309
Area Code, of Registrant's Principal Executive Offices) (954) 958-3900
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement. If the only
securities being registered on this form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
-------------------------- ---------------------- ----------------------- ----------------------- ----------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
-------------------------- ---------------------- ----------------------- ----------------------- ----------------------
Common Stock, par value 10,194,318 shares $5.20 $53,010,453.60 $4,288.55
$.01 per share
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(1) For purposes of determining the number of shares of common stock to be
included in this registration statement, we included (i) 7,796,100 shares of
common stock already issued by the Company; plus (ii) 1,921,484 shares of
common stock issuable upon the exercise of the Common Stock Purchase
Warrants at an exercise price of $2.00 per share; plus (iii) 333,877 shares
of common stock issuable upon the exercise of the Common Stock Purchase
Warrants at an exercise price of $2.51 per share; plus (iv) 142,857 shares
of common stock issuable upon the exercise of the Common Stock Purchase
Warrant at the exercise price of $1.75 per share.
(2) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low prices for the common stock reported
on the American Stock Exchange on March 25, 2003.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED APRIL 1, 2003
PROSPECTUS
10,194,318 SHARES
[LOGO]
CYBERGUARD CORPORATION
COMMON STOCK
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This Prospectus relates to the proposed sale from time to time of up to
an aggregate of 10,194,318 shares of common stock of CyberGuard Corporation, a
Florida corporation, by the selling shareholders named under the caption
"Selling Shareholders" in this Prospectus and any amendment to this Prospectus.
The Selling Shareholders may sell the shares held for their own account or the
shares may be sold by donees, transferees, pledgees or other successors in
interest that receive such shares from a Selling Shareholder as a gift or other
non-sale related transfer.
This Prospectus provides you with a general description of the
securities to be issued. You should read this Prospectus and the applicable
prospectus supplement together with the additional information described under
the heading "Where You Can Find More Information" before you invest.
We will not receive any proceeds from the sale of shares of our common
stock by the selling shareholders. We are paying the expenses of this offering.
Our common stock is traded on the American Stock Exchange under the
symbol "CFW." On March 28, 2003, the last reported sales price for our common
stock on the American Stock Exchange was $5.40 per share.
INVESTING IN OUR SECURITIES INVOLVES SIGNIFICANT RISKS. YOU SHOULD
CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK FACTORS" BEGINNING ON
PAGE 5.
Our principal executive offices are located at 2000 West Commercial
Boulevard, Suite 200, Fort Lauderdale, Florida 33309, and our telephone number
is (954) 958-3900.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is April 1, 2003
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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TABLE OF CONTENTS
Page
THE COMPANY..................................................................3
RISK FACTORS.................................................................5
USE OF PROCEEDS.............................................................14
SELLING SHAREHOLDERS........................................................15
PLAN OF DISTRIBUTION........................................................18
LEGAL MATTERS...............................................................18
EXPERTS.....................................................................18
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...........................19
WHERE YOU CAN FIND MORE INFORMATION.........................................19
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You should rely only on information incorporated by reference or
provided in this Prospectus and any prospectus supplement. We have not
authorized anyone else to provide you with different information.
As used in this Prospectus, unless the context requires otherwise, "we"
or "CyberGuard" or the "Company" means CyberGuard Corporation, a Florida
corporation.
THE COMPANY
CyberGuard is a leading network security solutions provider to Fortune
1000 companies, major financial institutions, and government agencies worldwide.
Our CyberGuard(R) appliance, which includes firewall and Virtual Private Network
(VPN), provides a level of security, features and availability that we believe
is not matched in the industry. Through a combination of proprietary and
third-party technology (such as Virtual Private Network, authentication, virus
scanning, encryption, advanced reporting, high availability and centralized
management), we provide a full suite of products and services that are designed
to protect the integrity of electronic data and customer applications from
unauthorized individuals and digital thieves.
We deliver appliance solutions that, we believe, are high performance,
easy to install and cost effective. The appliance is sold to end users directly
and indirectly by direct sales and resellers worldwide in over thirty-nine
countries.
Prior to 1994, our business was run by a division of the Harris
Corporation. In 1994, this division became an independent company known as
Harris Computer Systems Corporation. We produced computers for the real-time
computing market. We also produced the CyberGuard(R) Firewall for the secure
computing market. We sold our real-time computer business in May of 1996 and
changed our name from Harris Computer Systems Corporation to CyberGuard
Corporation in June 1996. We have two subsidiaries, CyberGuard Europe Ltd. and
CYBG Consultant, Inc.
Our products are used to secure access to distributed electronic data
and to safeguard the integrity of electronic commerce applications. Our products
include the CyberGuard(R) Firewall in several forms and related third-party
products offered in conjunction with our strategic partners.
We produce a family of appliances that all utilize a UNIX operating
system obtained from Caldera International, Inc. We have modified the Caldera
SCO(R) UnixWare(R) operating system to remove penetration vulnerabilities that
are common in UNIX platforms.
Our secure operating system and secure networking software technologies
allow us to position our product suite to address the broad range of customer
requirements in the commercial network security market. Basically, a firewall
consists of the hardware, a firewall application, an operating system and
networking software, each playing an important role in the receipt and
processing of data through the firewall. In competitive network security
products, only the firewall application has been designed to resist
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penetration by an attacker, leaving the operating system and network software
unsecured. Therefore, an attacker can penetrate a competitive firewall through
the unsecured operating system or networking software. Our appliance uses a
secure operating system and secure networking software to prevent network
penetration by requiring network communication to pass through the firewall
application.
Our line of premium appliances is built on technology developed when we
were originally a division of Harris Corporation. The technology is based on an
operating system (OS) that was first evaluated to meet OS security features
outlined by the TCSEC/NCSC (Trusted Computer System Evaluation Criteria/National
Computer Security Center). The result was a trusted secure operating system that
uses layers of protection or multilevel security (MLS) to provide the high level
of network protection required by such customers as the U.S. and European
governments, who need to safeguard classified, national security information.
Our products are designed for high-end customers who require high
levels of security and are serious about their security needs. Our customers
include three Fortune 10 companies, multinational corporations and other
commercial enterprises, financial institutions, stock exchanges, educational
institutions, telecommunications companies, large service providers and many
Global 2000 companies.
Our line of premium appliances include the KS, SL and FS appliances,
which integrate high security, high performance and manageability to meet
various customer bandwidth requirements and operating environments. In 2001, we
introduced and began shipping an integrated VPN with our appliances.
While firewalls protect the information within a secured network, VPNs
use mathematical encryption to protect data as it moves across an unprotected
network, such as the Internet. VPNs encrypt data as it leaves one point and then
decrypt it at the receiving end.
In 2001, we made the deliberate decision to transition from a direct
sales model in North America to a channel sales model to replicate the
successful distribution strategy in EMEA (Europe-Middle East-Africa) and Asia.
To support that strategy, we decided to develop and introduce an entry-level
appliance model. The LX model was designed with a partial complement of proxies,
lesser level of performance, and a simplified user interface so as to be
suitable for a less sophisticated end user. While the LX is an economic, compact
version of the other appliances, nonetheless it is suitable for environments
requiring very high security.
We have undertaken joint product offerings, particularly those relating
to encryption, token authentication, intrusion detection and virus alliances for
the purpose of reselling the Company's products with several strategic partners.
We also offer a range of services to customers who have our appliances
and to customers who require consulting or professional services.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS OR INCORPORATED
HEREIN BY REFERENCE, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY
WHEN EVALUATING CYBERGUARD AND OUR BUSINESS BEFORE PURCHASING THE SECURITIES
OFFERED IN THIS PROSPECTUS.
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently consider immaterial may also impair our
operations. If any of the following risks were to materialize, our business,
financial condition or results of operations could be materially adversely
affected. Were that to occur, the trading price of our common stock could
decline, and you could lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT LOSSES IN THE PAST AND MAY NOT SUSTAIN CONSISTENT
PROFITABILITY, WHICH COULD RESULT IN THE DECLINE IN THE VALUE OF OUR COMMON
STOCK.
We have difficulty predicting our future operating results or
profitability due to volatility in the general economic conditions in the
internet security market. The overall weakness in the general economy and
volatility on demand for our security products are two of the many factors
underlying our inability to predict our revenues for a given period. We base our
spending levels for product development, sales and marketing, and other
operating expenses largely on expected future revenues. A large portion of our
expenses are fixed for a particular quarter or a year, and therefore we may be
unable to decrease our spending in time to compensate for any unexpected
quarterly or annual shortfalls in revenues. As a result, any shortfall in
revenue could adversely affect our operating results.
For the year ended June 30, 2002, we reported a net loss of $608,000,
or approximately 3% of our revenues.
Average selling prices of our product may decrease, which may reduce
our gross margins. The average selling price for our products may decline as a
result of competitive pricing pressures, promotional programs and customers who
negotiate price reductions in exchange for long-term purchase commitments. The
pricing of products depends on specific features and functions of the product,
purchase volumes and the level of sales and services support. We expect
competition to increase in the future. As we experience pricing pressure, we
anticipate that the average selling price and gross margin per product will
decrease over product lifecycles. We cannot assure you that we will be
successful in developing and introducing on a timely basis new products with
enhanced features, or that these products, if introduced, will able us to
maintain our average selling price and gross margins at current levels. Our
gross margin has been and will continue to be affected by a variety of factors
including competition, the mix in average selling price of products, new product
introduction, enhancements and the cost of components and manufacturing labor.
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We must manage each of these factors competitively for our gross margins to
remain at their current levels.
We outsource all of our hardware manufacturing and assembly primarily
to one third-party manufacturer and assembly house. We do not have a long term
manufacturing contract with this vendor. The manufacturer has produced our
products with the acceptable quality, quantity and cost in the past, but it may
be unable or unwilling to meet our future demands. Our operations could be
disrupted if we have to switch to a replacement vendor, and interruption of our
hardware supply for an extended period could result in a loss of customer orders
and revenue.
We provide forecasts of our demand to our primary contract manufacturer
up to three (3) months prior to scheduled delivery of product to our customers.
If we overestimate our requirements, our primary contract manufacturer may have
excess inventory which would increase our cost. If we underestimate our
requirements, our primary contract manufacturer may have an inadequate component
inventory, which could interrupt manufacturing of our products and result in
delayed shipments and reduced revenues. In addition, lead times for materials
and components that we order vary significantly and depend on factors such as
the specific supplier, contract terms and demand for each component at a given
time. We may also experience shortages of components from time to time, which
also could delay the manufacturing of our products. If we are unable to meet our
future capital requirements, our business would be harmed.
Although we expect our cash on hand, cash equivalents and networking
capital to meet our working capital requirements for at least the next twelve
(12) months, we may decide at any time to raise additional capital to take
advantage of available strategic opportunities or attractive financing terms. If
we issue equity securities, shareholders may experience dilution or the new
equity securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise funds, if needed, on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could have a material adverse effect on our
business, operating results and financial conditions.
For the past 3 years we incurred net losses. As of June 30, 2002, we
have an accumulated deficit of approximately $82 million. Moreover, we currently
expect to increase our operating expenses in connection with:
- Expanding into new geographical markets
- Expanding into new product markets
- Continuing to develop our technology
- Hiring additional personnel
- Upgrading our information and internal control systems
If we are not able to sustain profitability in future quarters, the
trading price of our common stock could decline.
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OUR OPERATING RESULTS FLUCTUATE AND CAN FALL BELOW EXPECTATIONS OF ANALYSTS AND
INVESTORS, RESULTING IN A DECLINE OF OUR STOCK PRICE.
We base our spending levels for product development, sales & marketing
and other operating expenses largely on our expected future revenues. Because
our expenses are largely fixed for a particular quarter or year we may be unable
to adjust our spending in time to compensate for any unexpected quarterly or
annual shortfall in revenues. A failure to adjust our spending in time also
could cause operating results to fall below the expectations of our investors
and result in declining stock prices.
BECAUSE MANY POTENTIAL CUSTOMERS REMAIN UNAWARE OF THE NEED FOR INTERNET
SECURITY OR MAY PERCEIVE IT AS COSTLY AND DIFFICULT TO IMPLEMENT, OUR PRODUCTS
AND SERVICES MAY NOT ACHIEVE MARKET ACCEPTANCE.
We believe that many potential customers are not fully aware of the
need for Internet security products and services. Historically, only enterprises
having substantial resources have developed or purchased Internet security
solutions. Also, there is a perception that Internet security is costly and
difficult to implement. We will therefore not succeed unless the market
understands the need for Internet security and we can convince our potential
customers of our ability to provide this security in a cost effective manner.
Although we have spent and will continue to spend considerable resources
educating potential customers about the need for Internet security and the
benefits of our products and services, our efforts may be unsuccessful.
SEASONALITY AND CONCENTRATION OF REVENUES AT THE END OF THE QUARTER COULD CAUSE
OUR REVENUES TO FALL BELOW THE EXPECTATION OF ANALYSTS AND INVESTORS, RESULTING
IN A DECLINE OF OUR STOCK PRICE.
The growth rate of our domestic and international sales has been and
may continue to be slower in the summer months, when businesses often defer
purchasing decisions. Also, as a result of customer buying patterns and the
efforts of our sales force to meet or exceed quarterly and year-end quotas,
historically we have earned a substantial portion of a quarter's revenue during
its last month and more recently in the latter half of the last month. If
expected revenues at the end of any quarter are delayed, our revenues for that
quarter could fall below the expectations of the analysts and investors.
IF THIRD PARTY CHANNEL PARTNERS FAIL TO PERFORM, OUR ABILITY TO SELL OUR
PRODUCTS AND SERVICES WILL BE LIMITED.
We expect to sell most of our products and services through our channel
network partners and we expect our success to depend in large part on their
performance. Some of our channel partners have the ability to sell products and
services that are competitive with ours, to devote more resources to those
competitive products than we devote to ours and to cease selling our products
and services all together. If our third party channel partners fail to perform,
our ability to expand our business and increase sales will be limited.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE MARKET FOR
INTERNET SECURITY PRODUCTS AND SERVICES, OUR BUSINESS WILL FAIL.
The market for Internet security products is intensely competitive and
we expect competition to intensify in the future. An increase in competitive
pressures in our market or failure to compete effectively may result in price
reduction, reduced gross margin and
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loss of market share. Currently the primary competitors in our industry include
CISCO Systems, Inc., Checkpoint Software Technologies, Ltd. and Netscreen
Technologies. Other competitors offering security products include hardware and
software vendors, such as Lucent Technologies, Inc. and Network Associates Inc.,
operating systems vendors, such as Microsoft Corporation, Novell and Sun
Microsystems Inc. and a number of smaller companies. Many of our competitors
have longer operating histories, greater name recognition and larger customer
bases and a significantly greater financial, technical, marketing and other
resources than we do.
In addition, our current and potential competitors may establish
cooperative relationships among themselves or with third parties that may
further enhance their resources. As a result they may be able to adapt more
quickly to new technologies and customer needs, devote greater resources to the
promotion or sales of their products and services, initiate or withstand
substantial price competition, take advantage of acquisitions or other
opportunities more readily or develop and expand their product and services
offerings more quickly. In addition, our competitors may bundle products
competitive with ours along with other products that they may sell to our
current or potential customers. These customers may accept these bundled
products rather than separately purchase our products.
FAILURE TO ADDRESS STRAIN ON OUR RESOURCES CAUSED BY GROWTH WILL RESULT IN OUR
INABILITY TO EFFECTIVELY MANAGE OUR BUSINESS.
Our current systems, management and resources will be inadequate if we
begin to grow at a significant rate. A rapid expansion of our business will
place a significant strain on our administrative, operational and financial
resources and will result in ever increasing responsibilities of our management
personnel. We will be unable to effectively manage our business if we are unable
to timely and successfully alleviate the strain on our business caused by rapid
growth.
WE MAY BE UNABLE TO ADEQUATELY EXPAND OUR OPERATIONAL SYSTEMS TO ACCOMMODATE
GROWTH, WHICH CAN HARM OUR ABILITY TO DELIVER OUR PRODUCTS AND SERVICES.
Our operational systems have not been tested at customer volumes that
may be required in the future. We may encounter performance difficulty when
operating with a substantially greater number of customers. An inability to add
additional operating systems and personnel to handle increased demands may cause
unanticipated disruptions in our current process, slower response times and poor
customer service, including problems filling customer orders.
RAPID CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS COULD RENDER OUR PRODUCTS AND
SERVICES UNMARKETABLE OR OBSOLETE AND WE MAY BE UNABLE TO INTRODUCE NEW PRODUCTS
AND SERVICES TIMELY AND SUCCESSFULLY.
To succeed we must continually change and improve our products in
response to rapid technological developments and changes in operating systems,
Internet access and communications, application and network software, computer
and communication hardware, programming tools, computer language technology and
hacker techniques. We may be unable to successfully and timely develop these new
products and services or achieve and maintain market acceptance. The development
of new, technologically advanced products and services is a complex and
uncertain process requiring innovation
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and the ability to anticipate technological and market trends. Because Internet
security technology is complex it can require long development and testing
periods. Releasing new products and services prematurely may result in quality
problems, and releasing them late may result in loss of customer confidence and
market share. In the past we have on occasion experienced delays in the
scheduled introduction of new and enhanced products and services, and we may
experience delays in the future. When we do introduce new or enhanced products
and services, we may be unable to manage the transition from the older products
and services to minimize disruptions to the customers' ordering patterns, avoid
excess inventory of older products and deliver enough products and services to
meet customer demand.
WE MAY BE REQUIRED TO DEFEND LAWSUITS OR PAY DAMAGES IN CONNECTION WITH THE
ALLEGED OR FACTUAL FAILURE OF OUR PRODUCTS AND SERVICES.
Because our products provide Internet security and may protect valuable
information, we may face claims for product liability, tort or breach of
warranty relating to our products and services. Anyone that circumvents our
products' security measures could misappropriate the confidential information or
other property of end-users using our products and services or interrupt their
operations. If that happens, affected end-users or channel partners may sue us.
In addition, we may face breaches caused by faulty installations and
implementations of our products by end-users or channel partners. Although we
attempt to reduce the risk of loss from claims through contractual or warranty
disclaimers and liability limitation provisions, these provisions may be
unenforceable. Some courts, for example, have found contractual limitations of
liability in standard software licenses to be unenforceable because the licensee
does not sign them. Defending a suit regardless of its merit could be costly and
could divert management's attention. Although we currently maintain business
liability insurance, this coverage may be inadequate or be unavailable in the
future on acceptable terms, if at all.
A BREACH IN SECURITY COULD HARM PUBLIC PERCEPTION OF OUR PRODUCTS.
We will not succeed unless the market place is confident that we
provide effective Internet security protection. Even networks protected by our
products may be vulnerable to electronic break-ins and computer viruses. If an
actual or perceived breach of Internet security occurs in an end-user system,
regardless of whether the breach is attributable to us, the market perception of
the efficiency of our products and services could be harmed. This could cause us
or our channel partners to lose current and potential customers or cause us to
lose potential channel partners. Because the technology used by computer hackers
to access or sabotage networks changes frequently and generally is not
recognized until launched against the target, we may be unable to anticipate
these techniques.
IF WE ARE UNABLE TO PREVENT ATTACKS ON OUR INTERNAL NETWORK SECURITY SYSTEM BY
COMPUTER HACKERS, PUBLIC PERCEPTION OF OUR PRODUCTS AND SERVICES WILL BE HARMED.
Because we provide Internet security, we are a significant target of
computer hackers. We have experienced attacks by computer hackers in the past
and expect the attacks to continue. If attacks on our internal network systems
are successful, public perceptions of our products and services will be harmed.
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WE MAY BE UNABLE TO DELIVER OUR PRODUCTS AND SERVICES IF WE CANNOT CONTINUE TO
LICENSE THIRD PARTY TECHNOLOGY THAT IS IMPORTANT FOR THE FUNCTIONALITY OF OUR
PRODUCTS.
Our success will depend in part on our continued ability to license
technology that is important for the functionality of our products. A
significant interruption in the supply of third party technology could delay our
development and sales until we can find, license and integrate equivalent
technology. This could damage our brand and result in loss of current and
potential customers. Although we believe we can find other sources for the
technology we license, alternative technology may be unavailable on acceptable
terms, if at all. We depend on our third party licenses to deliver reliable
quality, high quality products, develop new products on a timely and cost
effective basis and respond to evolving technology and changes in the industry
standards. We also depend on the continued compatibility of third party software
with future versions of our product.
WE WILL BE UNABLE TO DELIVER OUR PRODUCTS AND SERVICES IF COMPONENT
MANUFACTURERS FAIL TO SUPPLY COMPONENT PARTS WITH ACCEPTABLE QUALITY, QUANTITY
AND COST.
We obtain the component parts for our hardware from a variety of
manufacturers. While our component vendors have produced parts for us in
acceptable quantities and with acceptable quality and cost in the past, they may
be unable to do so in the future. Companies in the electronic industry regularly
experience lower than required component allocations and this industry is
subject to frequent component shortfalls. Although we believe we can find
additional or replacement sources for our hardware components, our operation
could be disrupted if we have to add or switch to a replacement vendor or if our
components supply is interrupted for an extended period. This could result in a
loss of customer orders and revenue.
DECLINES IN DEMAND FOR OUR PRODUCTS AND SERVICES MAY HAVE AN ADVERSE AFFECT ON
OUR BUSINESS.
If overall market demand for computers, servers and other computing
devices declines significantly, and consumer and corporate spending for such
products declines, our revenue growth will be adversely affected. Additionally,
the Company's revenues would be unfavorably impacted if customers reduce their
purchases of new software products or upgrades to existing products if such new
offerings are not perceived to add significant new functionality or other value
to prospective purchasers.
A reduction in the growth of internet usage and a softening demand for
our products and services caused by the ongoing economic downturn may result in
decreased revenue, earnings or growth rates and problems with our ability to
manage inventory levels and realize customer receivables. The global economy has
weakened and market conditions continue to be challenging. As a result,
individuals and companies are delaying or reducing expenditures, including those
for information technology. In addition, if our customers experience financial
difficulties, we could suffer losses associated with the outstanding portion of
accounts receivable. We have observed the effects of the global economic
downturn in many areas of our business. The downturn has contributed to the
decline of revenue by 8% during fiscal year 2002. Further delays or reductions
in information technology spending could have a material adverse effect on
demand for our products and services and consequently our results of operations,
prospects and stock price.
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OUR FAILURE TO EFFECTIVELY DEVELOP NEW PRODUCTS COULD NEGATIVELY AFFECT OUR
BUSINESS, FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.
The development of software products is a complex and time-consuming
process. New products and enhancements to existing products can require long
development and testing periods. Significant delays in new product releases or
significant problems in creating new products could negatively impact the
Company's revenues.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THERE IS A DECLINE IN CAPITAL SPENDING
BY CERTAIN INDUSTRIES.
We depend on the government, telecommunications, financial services,
computing and manufacturing industries for a significant portion of our
revenues. Significant reduction in technology capital spending in these
industries caused by adverse economic conditions, such as we experienced during
fiscal year 2002, may continue to result in decreased revenues and earnings. Our
revenues are dependent on the level of technology capital spending in the United
States and international economies. A number of companies announced significant
reductions and deferrals in capital spending. If capital spending continues to
decline in these industries over an extended period of time, our business will
continue to be adversely affected.
WE MAY NEED ADDITIONAL CAPITAL AND OUR ABILITY TO SECURE ADDITIONAL FUNDING IS
UNCERTAIN.
Our future revenue may be insufficient to support the expense of our
operations and the expansion of our business. We may therefore need additional
equity or debt capital. We may seek additional funding through:
- Public or private equity financing, which could result in significant
dilution for shareholders.
- Public or private debt financing and capital lease transactions.
- Capital lease transactions.
We believe that existing cash and equivalent balances will be
sufficient to meet our capital requirements for at least the next twelve months.
Our capital requirements will depend on several factors, however, including:
- The rate of market acceptance of products and services.
- Our ability to expand our customer base.
- The growth of our sales & marketing capabilities.
- The cost of any acquisitions we may complete.
- Financing may be unavailable to us when needed or on acceptable terms.
IF WE DO NOT RETAIN OUR KEY EMPLOYEES, OUR ABILITY TO EXECUTE OUR BUSINESS PLAN
STRATEGY WILL BE IMPAIRED.
Our future success will depend on the efforts and ability of our
senior management and our key development, technical, operation, information
systems, customer support, and sales and marketing personnel, and on our ability
to retain them. These employees are not obligated to continue their employment
with us and may leave us at any time.
IF WE DO NOT EXTEND OUR INTERNATIONAL OPERATIONS, THE GROWTH OF OUR BUSINESS
WILL BE LIMITED.
Our ability
11
to grow depends in part on the expansion of our International sales and
operations, which are expected to continue to account for a significant portion
of our revenues. Sales to customers outside the United States accounted for
approximately 38% of our revenues in fiscal year 2000, 51% in fiscal year 2001
and 58% in fiscal year 2002. The failure of our channel partners to sell our
products internationally will limit our ability to increase our revenues. In
addition, our international sales are subject to the risks inherent in
international business activity, including:
- Cost of customizing products for foreign countries.
- Export and import restrictions such as those affecting encryption
commodities and software.
- Difficulties in acquiring and authenticating customers' information.
- Reduced protection of intellectual property rights and increased
liability exposure.
- Regional economic and political conditions.
A significant portion of our international sales currently are U.S.
dollar denominated. As a result, an increase in the value of the U.S. dollar
relative to foreign currencies may make our products less competitive in the
international markets.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WHICH MAY LIMIT
OUR ABILITY TO COMPETE EFFECTIVELY.
Despite our efforts to protect our proprietary rights, unauthorized
parties may misappropriate or infringe on our trade secrets, copyrights,
trademarks, service marks and similar proprietary rights. We face additional
risk when conducting business in countries which have poorly developed or
inadequately enforced intellectual property laws. While we are unable to
determine the extent to which piracy of our software products exists we expect
piracy to be a continuing concern, particularly in international markets and as
a result of the growing use of the Internet.
INTELLECTUAL PROPERTY CLAIMS AND LITIGATION COULD SUBJECT US TO SIGNIFICANT
LIABILITIES FOR DAMAGES AND INVALIDATION OF OUR PROPRIETARY RIGHTS.
In the future we may have to resort to litigation to protect our
intellectual property rights, to protect our trade secrets or to develop the
validity and scope of our proprietary rights of others. Any litigation,
regardless of its success, would be costly and require significant time and
attention of our key management and technical personnel. The litigation could
also force us to:
- Stop or delay selling, incorporating or using products that incorporate
the challenged intellectual property;
- Pay damages;
- Enter into licensing or royalty agreements, which may be unavailable
under acceptable terms;
- Redesign products and services that incorporate infringing technology.
We may face infringement claims from third parties in the future. The
software industry has seen frequent litigation over intellectual property
rights, and we expect that participants in the Internet security industry will
be increasingly subject to infringement claims as the number of products,
services, and competitors grow and functionality of the products and services
overlap. We cannot assure you that the steps taken by us will be
12
adequate to deter misappropriation of our proprietary rights or that third
parties will not independently develop substantially similar products, services
and technology. Furthermore, there can be no assurance that our products will
not infringe upon the intellectual property rights of third parties. We may not
be able to avoid infringement of third party intellectual property rights and
may have to obtain a license, defend an infringement action, or challenge the
validity of the intellectual property rights in court. Failure to obtain or
maintain intellectual property rights in our products, for any reason, could
have a material adverse effect on us.
UNDETECTED PRODUCT ERRORS OR DEFECTS COULD RESULT IN LOSS OF REVENUES, MARKET
ACCEPTANCE AND CLAIMS AGAINST US.
Our products and services may contain undetected errors or defects,
especially when first released. Despite extensive testing, some errors are
discovered only after a product has been installed and used by customers. Any
errors discovered after commercial release could result in loss of revenue or
claims against us or our channel partners.
WE ARE INVOLVED IN SHAREHOLDER LITIGATION.
The Company is currently defending a class action lawsuit relating to a
restatement of the Company's financial results. There can be no assurance that
the Company will ultimately be successful in defending the lawsuit, or that if
the Company is unsuccessful, that there will be sufficient insurance coverage to
cover any judgment rendered against the Company. If the Company is unsuccessful
and insurance coverage is unavailable or insufficient, the resolution of the
lawsuit could have a material adverse impact on the Company.
GOVERNMENTAL CONTROLS OVER THE EXPORT OR IMPORT OF ENCRYPTION TECHNOLOGY COULD
CAUSE US TO LOSE SALES.
Any additional governmental regulations of imports or exports, or
failure to obtain required approval for our encryption technologies could
adversely affect our international and domestic sales. The United States and
various other countries have imposed controls, export license requirements and
restrictions on the import or export of some technologies, especially encryption
technology. In addition, from time to time governmental agencies have proposed
additional regulation over encryption technology, such as requiring the escrow
and governmental recovery of private encryption keys. Additional regulation of
encryption technology could delay or prevent the acceptance and use of
encryption products in public networks for secure communications. This in turn
could result in decreased demand for our products and services. In addition,
some foreign competitors are subject to less stringent controls on exporting
their encryption technologies. As a result, they may be able to compete more
effectively than we can in the u.s. and international security markets.
RISKS RELATED TO THIS OFFERING
THE STOCK PRICES OF TECHNOLOGY COMPANIES SUCH AS OURS ARE HIGHLY VOLATILE AND
COULD DROP UNEXPECTEDLY.
The public markets have experienced volatility that has particularly
affected the market prices of securities of many technology companies for
reasons that have often been unrelated to operating results. During the course
of the preceding twelve months ended
13
June 30, 2002, the market price of our common stock traded within a range of
$1.30 to $4.00 per share. This volatility may adversely affect the market price
of our common stock and our visibility and credibility in the markets.
FUTURE SALES OF LARGE AMOUNTS OF OUR COMMON STOCK HELD BY EXISTING SHAREHOLDERS
COULD ADVERSELY AFFECT OUR STOCK PRICE.
The market price for our common stock could fall substantially if our
shareholders sell large amounts of our common stock in the public market
following this offering. These sales, or the possibility that these sales may
occur, could also make it more difficult for us to sell equity or equity-related
securities if we need to do so in the future to address then-existing financing
needs.
OUR ARTICLES OF INCORPORATION AND FLORIDA LAW CONTAIN PROVISIONS THAT COULD
DISCOURAGE THIRD PARTIES FROM ACQUIRING US OR LIMIT THE PRICE THAT THEY WOULD BE
WILLING TO PAY FOR OUR STOCK.
Certain provisions of our Articles of Incorporation, or Articles, and
Bylaws, as well as the Florida Business Corporation Act, may have an
anti-takeover effect and may discourage, delay, defer or prevent a tender offer
or takeover attempt that a shareholder might consider to be in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by the shareholders. Certain of such provisions
allow our board of directors to authorize the issuance of preferred stock with
rights superior to those of the common stock.
OUR BUSINESS WILL SUFFER IF WE FAIL TO COMPLY WITH RECENT FEDERAL REGULATIONS
AND PROPOSED RULES OF THE SECURITIES AND EXCHANGE COMMISSION RELATING TO
CORPORATE GOVERNANCE REFORM.
As a public company, we are subject to certain federal regulations and
the rules and regulations of the Securities and Exchange Commission or the
"Commission." On July 30, 2002, President George W. Bush signed into law the
Sarbanes-Oxley Act of 2002, effecting tighter accounting, corporate fraud and
securities laws. To implement this legislation, the Commission is expected to
adopt new rules pertaining to, among other things, audit committee requirements
and additional disclosure and reporting requirements. Our business and financial
results could be materially harmed by any failure by us to comply with any
current or future rules or regulations relating to the Sarbanes-Oxley Act or to
any other federal corporate reform measures.
USE OF PROCEEDS
This Prospectus relates to our common stock to be offered for sale for
the account of certain Selling Shareholders who are named under the caption
"Selling Shareholders" in this Prospectus and any amendment to this Prospectus.
We will not receive any of the proceeds from the sale of shares of our common
stock by the Selling Shareholders.
We will receive proceeds from the exercise of the warrants. We intend
to use any proceeds received from the exercise of these warrants for general
working capital purposes.
14
SELLING SHAREHOLDERS
Certain of the shares of common stock being offered by the Selling
Shareholders will be issued (1) upon conversion of convertible promissory notes,
or (2) upon the exercise of certain warrants. We are registering the shares in
order to permit the Selling Shareholders to offer these shares for resale from
time to time.
The following table lists certain information with respect to these
Selling Shareholders as follows: (i) each Selling Shareholder's name and
position, office or material other relationships (if any) that the Selling
Shareholder has had with the Company or any of our predecessors or affiliates
within the past three years; (ii) the number of outstanding shares of common
stock beneficially owned by the Selling Shareholders prior to this offering
(excluding shares issuable upon exercise of certain options by the Selling
Shareholders); (iii) the number of shares of common stock to be beneficially
owned by each Selling Shareholder after the completion of this offering assuming
the sale of all of the shares of the common stock offered by each Selling
Shareholder (excluding shares issuable upon exercise of certain options by the
Selling Shareholders); and (iv) if one percent or more, the percentage of
outstanding shares of common stock to be beneficially owned by each Selling
Shareholder after the completion of this offering assuming the sale of all of
the shares of the common stock offered by each Selling Shareholder.
The Selling Shareholders may sell all, some or none of their shares in
this offering. See "Plan of Distribution."
15
---------------------------------------------------------- ----------------- ----------------- --------------------------
NAME AND POSITION SHARES OWNED SHARES TO BE SHARES OWNED AFTER THE
BEFORE THE OFFERED THE OFFERING
OFFERING NUMBER ------------------------
NUMBER (3) NUMBER PERCENT(1)
---------------------------------------------------------- ----------------- ----------------- ------------- ----------
Richard L. Scott Revocable Trust................................1,941,998 1,941,998 0 *
Frances Annette Scott Revocable Trust...........................4,286,627 3,869,727 416,900 2.04%
Richard L. & F. Annette Scott Family Partnership Ltd............1,941,998 1,941,998 0 *
F. Stephen Allen................................................1,152,530 1,152,530 0 *
Allan L. Bazaar....................................................14,273 14,273 0 *
Scott J. Hammack(5)(7) ...........................................349,249 348,214 1,035 *
David L. Manning(6)................................................21,107 21,107 0 *
William G. Scott(6)...............................................211,075 211,075 0 *
Michael G. Wittig(5)..............................................133,160 78,569 54,591 *
David R. Proctor(4) ..............................................150,000 150,000 0 *
Terrence A. Zielinski(5)...........................................25,000 25,000 0 *
Dawn Garnish(5) ................................................... 4,554 2,123 2,431 *
William Confare(5) ................................................16,015 10,000 6,015 *
Stephen Rotolo(5) .................................................12,183 8,494 3,658 *
Chela Graziella Diaz-DeVillegas(5) ................................14,959 6,370 8,589 *
Nancy Parrish(5) .................................................. 4,855 2,123 2,732 *
Roger Barranco(5) .................................................16,235 6,370 9,865 *
Wade Scholine(5) ..................................................10,257 2,123 8,134 *
Phyllis Weber(5) .................................................. 3,436 2,123 1,313 *
Hadi Mettawa(5) ...................................................10,213 6,370 3,843 *
Mark Smith(5) .....................................................19,928 6,370 13,558 *
James Divietri(5) .................................................17,157 10,617 6,540 *
Reed Tarpley(5) ................................................... 4,506 1,000 3,506 *
Ray Artz(5) .......................................................20,124 6,370 13,754 *
Beth Reid(5) ......................................................22,822 4,247 18,575 *
Gregory Hesselberg(5) .............................................18,233 4,247 13,986 *
Fred Lee Brown, Jr.(5) ........................... ................20,607 6,370 14,237 *
Righter Kunkel(5) .................................................21,798 10,000 11,798 *
Anderson Jackson(5) ...............................................42,213 38,223 3,990 *
Michael Keene(5) ..................................................21,519 4,247 17,272 *
Mark Heuser(5) ....................................................16,495 6,370 10,125 *
Diana Norwood(5) ..................................................39,253 16,988 22,265 *
Soheila Amiri(5) ..................................................21,836 14,864 6,972 *
Benjamin Treiber(5) ............................................... 1,000 1,000 0 *
David Edrich(5) ................................................... 5,932 4,225 1,707 *
Richard Rifenburgh(2)..............................................15,000 15,000 0 *
C. Shelton James Defined Benefit Keogh Plan........................10,000 10,000 0 *
Diana Shahinian(5) ................................................10,000 10,000 0 *
Patrick O. Wheeler(5) ............................................109,259 74,322 34,937 *
Frederick O. Hawkes(5) ............................................31,852 31,852 0 *
Leland R. Reiswig..................................................10,000 10,000 0 *
NetOctave, Inc....................................................107,419 107,419 0 *
16
------------------------
(1) The percentage of common stock to be owned by the Selling Shareholder
is denoted with an asterisk if less than 1 percent.
(2) Richard Rifenburgh resigned as a director in May 2000.
(3) Includes shares of common stock for convertible notes and/or for
warrants issued by us in connection with the Fernwood Financing in
August 1999, with the exception of the 107,419 shares of common stock
issued to NetOctave, Inc. and the shares and warrants issued to Scott
J. Hammack.
(4) David R. Proctor resigned as a director of the Company effective in
November, 2001, and was President and Chief Executive Officer of the
Company until January, 2001.
(5) Current or former employee of the Company. The numbers in the "Shares
Owned Before the Offering" include the shares held by the current or
former employee under the Company's 401(k) plan and/or Employee Stock
Purchase Plan.
(6) David L. Manning and William G. Scott are directors of the Company
(7) Scott J. Hammack has been the Chief Executive Officer since January,
2001 and Chairman of the Board since September, 2001.
The preceding table represents the holdings by the Selling Shareholders
based upon the Company's best knowledge. The Selling Shareholders identified
above may have sold, transferred or otherwise disposed of in transactions exempt
from the requirements of the Securities Act of 1933 as amended (the "Securities
Act"), all or a portion of their common stock since the date as of which the
information in the preceding table is presented. Information concerning the
Selling Shareholders may change from time to time, which changed information
will be set forth in supplements to this Prospectus if and when necessary.
Because the Selling Shareholders may offer all or some of the common stock that
they hold, we cannot give an estimate as to the amount of common stock that will
be held by the Selling Shareholders upon the termination of this offering. See
"Plan of Distribution."
17
PLAN OF DISTRIBUTION
The distribution of shares of common stock by the Selling Shareholders
is not subject to any underwriting agreement. The Selling Shareholders may, from
time to time, sell all or a portion of the shares of common stock on any market
upon which the common stock may be quoted, in privately negotiated transactions
or otherwise, at fixed prices that may be changed, at market prices prevailing
at the time of sale, at prices related to such market prices or at negotiated
prices. The shares may be sold by one or more of the following methods, without
limitation:
- a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this Prospectus;
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
- privately negotiated transactions; and
- a combination of any of the above-listed methods of sale.
In effecting sales, brokers and dealers engaged by a Selling
Shareholder may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from the Selling Shareholder, or,
if any such broker-dealer acts as agent for the purchaser of such shares, from
such purchaser, in amounts to be negotiated. These commissions or discounts are
not expected to exceed those customary in the types of transactions involved.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the sales of the shares of common
stock may be deemed to be "underwriters" within the meaning of the Securities
Act in connection with those sales. In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the shares of
common stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
We will pay all fees and expenses of registering the shares of common
stock being offered in this Prospectus.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed on for
us by Holland & Knight LLP, 701 Brickell Avenue, Suite 3000, Miami, Florida
33131.
EXPERTS
The consolidated financial statements of CyberGuard Corporation
included or incorporated by reference in our annual report on Form 10-K for the
year ended June 30, 2002, which are incorporated by reference in this
Prospectus, have been audited by Grant Thornton LLP, independent auditors. Our
consolidated financial statements are incorporated by reference in this
Prospectus in reliance on Grant
18
Thornton LLP's reports, given on their authority as experts in accounting and
auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this Prospectus, and later information filed with
the Commission will update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the
Commission prior to the termination of this offering under Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934.
(1) The description appearing under the caption "Description of
Capital Stock," included as a part of our Registration
Statement on Form S-3, File No. 333-04407, filed under our
former name, Harris Computer Systems Corporation, with the
Commission on May 23, 1996, as amended by Amendment No. 1 to
Registration Statement on Form S-3/A filed with the Commission
on June 24, 1996, and as further amended by Amendment No. 2 to
Registration Statement on Form S-3/A filed with the Commission
on July 15, 1996.
(2) Annual Report on Form 10-K for the year ended June 30, 2002,
filed with the Commission on September 27, 2002.
(3) Quarterly Report on Form 10-Q for the quarter ended September
30, 2002 filed with the Commission on November 8, 2002.
(4) Quarterly Report on Form 10-Q for the quarter ended December
31, 2002 filed with the Commission on February 14, 2003.
(5) Current Report on Form 8-K filed with the Commission on
January 27, 2003.
(6) Current Report on Form 8-K filed with the Commission on March
13, 2003.
Upon your request, we will provide to you, at no cost, a copy of any or
all of the information that has been incorporated by reference in this
Prospectus. You may request a copy of these filings by writing to us or
telephoning us at the following address:
CyberGuard Corporation
2000 West Commercial Boulevard
Suite 200
Fort Lauderdale, Florida 33309
(954) 958-3900
Attention: Secretary
WHERE YOU CAN FIND MORE INFORMATION
We intend to file annual, quarterly, and special reports, proxy
statements, and other information with the Commission. Copies of such material
can be inspected and may be copied at prescribed rates at the public reference
room maintained by the Commission at the Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549. You may contact the public reference room
via e-mail at publicinfo@sec.gov or via telephone at
19
202-942-8090. You may contact the Commission at 1-800-SEC-0330 for further
information on the public reference room. The Commission also maintains a
website that contains information filed electronically by us. The address of the
Commission's website is http://www.sec.gov. Our common stock is listed on the
American Stock Exchange and certain of our filings with the Commission are also
available through the American Stock Exchange's website at http://www.amex.com.
This Prospectus constitutes a part of a registration statement on Form
S-3 filed by us with the Commission under the Securities Act, with respect to
the securities offered in this Prospectus. This Prospectus does not contain all
the information that is in the registration statement. We refer to the
registration statement and to the exhibits to such registration statement for
further information with respect to CyberGuard and the securities offered in
this Prospectus. Statements contained in this Prospectus concerning the
provisions of documents are necessarily summaries of the material provisions of
such documents, and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission. Copies of the
registration statement and the exhibits to such registration statement are on
file at the offices of the Commission and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the Commission described above.
20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with
the issuance and distribution of the securities being registered hereunder.
Commission Registration Fee.............................................. $ 4,289
Accounting Fees and Expenses............................................. $ 2,800
Legal Fees and Expenses.................................................. $ 7,000
Miscellaneous............................................................ $ 1,000
-------
Total........................................................... $15,089
All amounts are estimated except for the Commission registration fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with Section 607.0831 of the Florida Business Corporation
Act or Florida BCA, which mandates the elimination of a director's personal
liability except under certain circumstances, Article XII of our Articles of
Incorporation ("Article Twelve") provides that directors of CyberGuard will not
be personally liable to CyberGuard or its shareholders for monetary damages for
breach of fiduciary duty as director, except to the extent that such exemption
from liability or limitation thereof is not permitted under the Florida BCA as
currently in effect or as it may hereafter be amended. Under Section 607.0831 of
the Florida BCA, as in effect on the date hereof, a director remains personally
liable for monetary damages to the corporation or any other person for any
statement, vote, decision, or failure to act, regarding corporate management's
policy, if the director breached or failed to perform his duties as a director
and the director's breach of, or failure to perform, those duties constitutes:
(i) a violation of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his conduct
was unlawful; (ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly; (iii) a violation of Section
607.0834 of the Florida BCA, which proscribes directors from voting for or
assenting to the payment of dividends and stock repurchases or redemptions under
certain circumstances; (iv) in a proceeding by or in the right of the
corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interests of the corporation or
willful misconduct; or (v) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission that
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property.
Article Twelve provides that any future repeal or amendment of its
terms (including any amendment or repeal of this Article Twelve made by virtue
of any change in the Florida BCA) will not adversely affect any rights of
directors existing thereunder with respect to acts or omissions occurring prior
to such repeal or amendment.
II-1
Pursuant to authority conferred by Section 607.0850 of the Florida BCA,
Section 6.4 of our Bylaws mandates that CyberGuard's directors, officers, and
employees be indemnified to the fullest extent permitted by law for all expenses
relating to any action, suit or proceeding, whether civil, criminal, or
administrative (i) by reason of the fact that such person is or was a director,
officer, or employee of CyberGuard or (ii) by reason of the fact that, while
such person is or was a director, officer, or employee of CyberGuard, such
person is or was serving at our request as a director, officer, or employee of
another enterprise. Indemnification is available only where the person seeking
indemnification has (i) acted in good faith and (ii) in a manner he reasonably
believed to be in, or not opposed to, the best interests of CyberGuard with
respect to the claim against him. With respect to a criminal action or
proceeding, such person must also have had no reasonable cause to believe his
conduct was unlawful. Section 607.0850(3) of the Florida BCA requires that, to
the extent such director, officer, or employee has been successful on the merits
or otherwise in defense of such proceeding, the Company indemnify such person
against expenses actually or reasonably incurred by him or her in connection
with the proceeding.
Section 607.0850(6) of the Florida BCA permits CyberGuard to pay those
expenses incurred by an officer or director in defending a civil or criminal
proceeding in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if he is ultimately found not to be entitled to indemnification by the
corporation. Expenses incurred by other employees and agents may be paid in
advance upon such terms or conditions that the Board of Directors deems
appropriate. Section 6.4 of the Bylaws requires CyberGuard to pay or reimburse
all expenses, including attorney's fees, incurred by any such person in
defending any such action, suit or proceeding upon receipt by CyberGuard of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by CyberGuard.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors and officers and controlling persons pursuant
to the foregoing provisions, we have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS
The following exhibits are included in this registration statement:
EXHIBIT
NO. EXHIBIT DESCRIPTION
--- -------------------
4.1 -- Form of Shareholder Rights Plan(1)
4.2 -- Form of Share Holding Agreement between Concurrent Computer
Corporation and the Company(2)
5.1 -- Legal Opinion of Holland & Knight LLP(3)
23.1 -- Consent of Holland & Knight LLP, contained in the Legal
Opinion attached as Exhibit No. 5.1.(3)
23.2 -- Consent of Grant Thornton LLP, Independent Certified Public
Accountants
24.1 -- Power of Attorney appointing Scott J. Hammack and Michael D.
Matte as attorney-in-fact and agent.
II-2
-----------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 1 to
the Company's Registration Statement on Form 10 dated September 29,
1994, File No. 0-24544.
(2) Incorporated herein by reference to the Company's Registration
Statement on Form S-3 dated May 23, 1996 (File No. 333-04407).
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) that, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To be filed by amendment.
II-3
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Lauderdale, State of Florida, on the 1st day of
April, 2003.
CYBERGUARD CORPORATION
By: /s/ Scott J. Hammack
---------------------------------
Scott J. Hammack
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Scott J. Hammack and Michael D. Matte and
each of them, his or her true and lawful attorney-in-fact and agent, with full
power of substitution and revocation, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement on Form
S-3, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE
/s/ Scott J. Hammack Chief Executive Officer and Chairman of the Board of Directors
------------------------------------------------------- (Principal Executive Officer)
Scott J. Hammack
/s/ Michael D. Matte Chief Financial Officer and Vice President of Finance
------------------------------------------------------- (Principal Financial Officer)
Michael Matte
/s/ David L. Manning Director
-------------------------------------------------------
David L. Manning
/s/ William G. Scott Director
-------------------------------------------------------
William G. Scott
/s/ William D. Rubin Director
-------------------------------------------------------
William D. Rubin
/s/ John V. Tiberi, Jr. Director
-------------------------------------------------------
John V. Tiberi, Jr.
/s/ Daniel Moen
------------------------------------------------------- Director
Daniel Moen
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EXHIBIT INDEX
Exhibit
Number Description
23.2 -- Consent of Grant Thornton LLP
24.1 -- Power of Attorney appointing Scott J. Hammack and
Michael D. Matte as attorney-in-fact and agent (set
forth on signature page of the registration
statement).
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