-----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, OurukSKFd3Wy3KviboD42T8RByslm5H/gSQmHTqnkrMcK8x0n8C9NBUNFVLn+J82 GanK0pExe0Lj0mDyLsW+gA== 0001015402-04-000490.txt : 20040213 0001015402-04-000490.hdr.sgml : 20040213 20040213092944 ACCESSION NUMBER: 0001015402-04-000490 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040213 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13150 FILM NUMBER: 04594970 BUSINESS ADDRESS: STREET 1: 4375 RIVER GREEN PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 BUSINESS PHONE: 6782584000 MAIL ADDRESS: STREET 1: 4375 RIVER GREEN PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 FORMER COMPANY: FORMER CONFORMED NAME: MASSACHUSETTS COMPUTER CORP DATE OF NAME CHANGE: 19881018 10-Q 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the --- Securities Exchange Act of 1934 For the Quarterly Period Ended December 31, 2003 or Transition Report Pursuant to Section 13 or 15(d) of the --- Securities Exchange Act of 1934 For the Transition Period from ____ to ____ Commission File No. 0-13150 _____________ CONCURRENT COMPUTER CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-2735766 (State of Incorporation) (I.R.S. Employer Identification No.) 4375 River Green Parkway, Suite 100, Duluth, GA 30096 (Address of principal executive offices) Telephone: (678) 258-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No --- --- Number of shares of the Registrant's Common Stock, par value $0.01 per share, outstanding as of January 29, 2004 was 62,535,788.
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 -------- -------- -------- -------- Revenues: Product Real-time systems $ 5,597 $ 5,879 $ 9,991 $ 9,971 VOD systems 11,568 8,879 20,715 21,328 -------- -------- -------- -------- Total product revenues 17,165 14,758 30,706 31,299 Service Real-time systems 4,018 4,485 8,164 9,163 VOD systems 1,443 891 2,658 1,813 -------- -------- -------- -------- Total service revenues 5,461 5,376 10,822 10,976 -------- -------- -------- -------- Total revenues 22,626 20,134 41,528 42,275 Cost of sales: Product Real-time systems 2,628 2,288 3,984 4,064 VOD systems 5,484 4,936 9,141 10,177 -------- -------- -------- -------- Total product cost of sales 8,112 7,224 13,125 14,241 Service Real-time systems 2,233 2,503 4,417 5,110 VOD systems 862 802 1,617 1,462 -------- -------- -------- -------- Total service cost of sales 3,095 3,305 6,034 6,572 -------- -------- -------- -------- Total cost of sales 11,207 10,529 19,159 20,813 -------- -------- -------- -------- Gross margin 11,419 9,605 22,369 21,462 Operating expenses: Sales and marketing 4,429 4,758 8,509 9,162 Research and development 4,705 4,577 9,373 9,024 General and administrative 2,175 2,267 4,344 4,595 -------- -------- -------- -------- Total operating expenses 11,309 11,602 22,226 22,781 -------- -------- -------- -------- Operating income (loss) 110 (1,997) 143 (1,319) Recovery (impairment loss) of minority investment 1,698 (2,943) 2,758 (2,943) Interest income - net 78 102 138 298 Other income (expense) - net (20) 47 (154) - -------- -------- -------- -------- Income (loss) before income taxes 1,866 (4,791) 2,885 (3,964) Provision (benefit) for income taxes 653 (126) 1,060 81 -------- -------- -------- -------- Net income (loss) $ 1,213 $(4,665) $ 1,825 $(4,045) ======== ======== ======== ======== Net income (loss) per share Basic $ 0.02 $ (0.08) $ 0.03 $ (0.07) ======== ======== ======== ======== Diluted $ 0.02 $ (0.08) $ 0.03 $ (0.07) ======== ======== ======== ======== Weighted average shares outstanding - basic 62,308 61,863 62,197 61,862 ======== ======== ======== ======== Weighted average shares outstanding - diluted 63,202 61,863 62,991 61,862 ======== ======== ======== ======== The accompanying notes are an integral part of the condensed consolidated financial statements.
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CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS) DECEMBER 31, JUNE 30, 2003 2003 -------------- ---------- ASSETS Current assets: Cash and cash equivalents $ 27,496 $ 30,697 Accounts receivable - net 19,991 10,371 Inventories 8,055 7,174 Deferred tax asset 998 998 Prepaid expenses and other current assets 1,487 879 -------------- ---------- Total current assets 58,027 50,119 Property, plant and equipment - net 11,472 11,862 Purchased developed computer software - net 1,108 1,203 Goodwill 10,744 10,744 Investment in minority owned companies 553 553 Deferred tax asset 1,749 1,749 Other long-term assets - net 1,706 1,609 -------------- ---------- Total assets $ 85,359 $ 77,839 ============== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 13,846 $ 14,644 Deferred revenue 9,445 5,433 -------------- ---------- Total current liabilities 23,291 20,077 Long-term liabilities: Deferred revenue 2,642 2,212 Deferred tax liability 1,978 2,107 Pension liability 10,748 9,617 Other 365 368 -------------- ---------- Total liabilities 39,024 34,381 Stockholders' equity: Common stock 627 623 Capital in excess of par value 175,311 174,396 Accumulated deficit (121,104) (122,929) Treasury stock (58) (58) Unearned compensation (457) (576) Accumulated other comprehensive loss (7,984) (7,998) -------------- ---------- Total stockholders' equity 46,335 43,458 -------------- ---------- Total liabilities and stockholders' equity $ 85,359 $ 77,839 ============== ========== The accompanying notes are an integral part of the condensed consolidated financial statements.
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CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) SIX MONTHS ENDED DECEMBER 31, 2003 2002 -------- -------- OPERATING ACTIVITIES Net income (loss) $ 1,825 $(4,045) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Accrual of non-cash warrants (891) 192 Depreciation and amortization 2,618 2,324 Provision for inventory reserves 670 78 Provision for bad debts (600) 6 Non-cash income tax provision 728 - Impairment loss (recovery) of minority investment (2,758) 2,943 Other non cash expenses 34 - Changes in operating assets and liabilities: Accounts receivable (9,020) 5,982 Inventories (1,551) (354) Prepaid expenses and other current assets (608) (790) Other long-term assets (97) (4) Accounts payable and accrued expenses (798) (3,413) Deferred revenue 4,442 1,494 Pension liability 1,131 563 Other long-term liabilities 42 144 -------- -------- Total adjustments to net income (loss) (6,658) 9,165 -------- -------- Net cash provided by (used in) operating activities (4,833) 5,120 INVESTING ACTIVITIES Net additions to property, plant and equipment (2,053) (2,988) Recovery of minority investment 2,758 - Note receivable from minority owned company - (3,000) Other - (29) -------- -------- Net cash used in investing activities 705 (6,017) FINANCING ACTIVITIES Net repayment of capital lease obligation (45) (42) Proceeds from sale and issuance of common stock 1,134 8 -------- -------- Net cash provided by (used in) financing activities 1,089 (34) Effect of exchange rates on cash and cash equivalents (162) (119) -------- -------- Decrease in cash and cash equivalents (3,201) (1,050) Cash and cash equivalents at beginning of period 30,697 30,519 -------- -------- Cash and cash equivalents at end of period $27,496 $29,469 ======== ======== Cash paid during the period for: Interest $ 6 $ 9 ======== ======== Income taxes (net of refunds) $ 191 $ 249 ======== ======== The accompanying notes are an integral part of the condensed consolidated financial statements.
3 CONCURRENT COMPUTER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. OVERVIEW OF BUSINESS AND BASIS OF PRESENTATION Concurrent Computer Corporation ("Concurrent" or the "Company") is a leading supplier of high-performance computer systems, software, and services and operates in two segments, the Video-On-Demand ("VOD") division (formerly "Xstreme"), located in Duluth, Georgia, and the Integrated Solutions ("ISD") division located in Fort Lauderdale, Florida. Concurrent also provides sales and support from offices and subsidiaries throughout North America, Europe, Asia and Australia. Concurrent's VOD division provides VOD systems consisting of hardware and software as well as integration services, primarily to residential cable companies that have upgraded their networks to support interactive, digital services. Concurrent's ISD division provides high-performance, real-time computer systems to commercial and government customers for use in applications such as simulation and data acquisition. The condensed, consolidated interim financial statements of Concurrent are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of Concurrent's financial position, results of operations and cash flows at the dates and for the periods indicated. These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended June 30, 2003. There have been no significant changes to Concurrent's Accounting Policies as disclosed in the Annual Report on Form 10-K for the year ended June 30, 2003. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. The results reported in these condensed, consolidated quarterly financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. 2. BASIC AND DILUTED NET INCOME PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares including dilutive common share equivalents. Under the treasury stock method, incremental shares representing the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued are included in the computation. Common share equivalents of 5,235,000 and 6,200,000 for the three month periods ended December 31, 2003 and 2002, respectively, were excluded from the calculation as their effect was antidilutive. Common share equivalents of 5,406,000 and 6,164,000 for the six month periods ended December 31, 2003 and 2002, respectively, were excluded from the calculation as their effect was antidilutive. The following table presents a reconciliation of the numerators and denominators of basic and diluted net income (loss) per share for the periods indicated: 4
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 2003 DECEMBER 31, 2003 ----------------- ----------------- BASIC DILUTED BASIC DILUTED ------- -------- ------- -------- Average outstanding shares 62,308 62,308 62,197 62,197 Dilutive effect of options and warrants - 894 - 794 ------- -------- ------- -------- Equivalent shares 62,308 63,202 62,197 62,991 ======= ======== ======= ======== Net income $ 1,213 $ 1,213 $ 1,825 $ 1,825 ======= ======== ======= ======== Net income per share $ 0.02 $ 0.02 $ 0.03 $ 0.03 ======= ======== ======= ======== THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 2002 DECEMBER 31, 2002 ------------------- ------------------- BASIC DILUTED BASIC DILUTED -------- --------- -------- --------- Average outstanding shares 61,863 61,863 61,862 61,862 Dilutive effect of options and warrants - - - - -------- --------- -------- --------- Equivalent shares 61,863 61,863 61,862 61,862 ======== ========= ======== ========= Net loss $(4,665) $ (4,665) $(4,045) $ (4,045) ======== ========= ======== ========= Net loss per share $ (0.08) $ (0.08) $ (0.07) $ (0.07) ======== ========= ======== =========
3. STOCK-BASED COMPENSATION At December 31, 2003, Concurrent had stock-based employee compensation plans which are described in Note 15 in our annual report on Form 10-K for the year ended June 30, 2003. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. For the three and six months ended December 31, 2003, Concurrent recognized $34,000 and $66,000, respectively, of stock compensation expense for the issuance of restricted stock awards. There is no other stock-based employee compensation expense reflected in net income for the three and six months periods ended December 31, 2003. For the three and six months ended December 31, 2002, there was no stock-based employee compensation expense reflected in net income. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123," the following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation: 5
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Net income (loss) as reported $ 1,213 $(4,665) $ 1,825 $(4,045) Deduct: Total stock-based employee compensation expense determined under the fair value method, net of related taxes (1,088) (1,595) (2,126) (3,514) -------- -------- -------- -------- Pro forma net income (loss) $ 125 $(6,260) $ (301) $(7,559) ======== ======== ======== ======== Net income (loss) per share: Basic-as reported $ 0.02 $ (0.08) $ 0.03 $ (0.07) ======== ======== ======== ======== Basic-pro forma $ 0.00 $ (0.10) $ 0.00 $ (0.12) ======== ======== ======== ======== Diluted-as reported $ 0.02 $ (0.08) $ 0.03 $ (0.07) ======== ======== ======== ======== Diluted-pro forma $ 0.00 $ (0.10) $ 0.00 $ (0.12) ======== ======== ======== ========
4. REVENUE RECOGNITION AND RELATED MATTERS VOD and real-time system revenues are recognized based on the guidance in American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2") and related amendments, SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." Concurrent recognizes revenue from VOD and real-time systems when persuasive evidence of an arrangement exists, the system has been shipped, the fee is fixed or determinable and collectibility of the fee is probable. Under multiple element arrangements, Concurrent allocates revenue to the various elements based on vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of fair value is determined based on the price charged when the same element is sold separately. If evidence of fair value does not exist for all elements in a multiple arrangement, Concurrent recognizes revenue using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement is recognized as revenue. 6 5. INVENTORIES Inventories are valued at the lower of cost or market, with cost being determined by using the first-in, first-out method. The components of inventories are as follows:
(DOLLARS IN THOUSANDS) DECEMBER 31, JUNE 30, 2003 2003 --------- --------- Raw materials, net $ 6,488 $ 5,933 Work-in-process 1,211 1,024 Finished goods 356 217 --------- --------- $ 8,055 $ 7,174 ========= =========
6. INVESTMENTS IN AND RECEIVABLE FROM MINORITY OWNED COMPANIES In March 2002, Concurrent purchased a 14.4% equity ownership interest in Thirdspace Living Limited ("Thirdspace"). Thirdspace is a closely held United Kingdom global software services corporation that offered interactive and on-demand television solutions for digital subscriber line ("DSL") and other broadband networks. Concurrent invested cash of $4 million and issued 291,461 shares of its common stock (valued at $10.29 per share) in exchange for 1,220,601 series C shares of Thirdspace, giving Concurrent a 14.4% ownership interest in all shares outstanding as of the investment date. As part of this transaction, Concurrent capitalized approximately $300,000 in various transaction costs and as a result, the total equity investment in Thirdspace was $7.3 million. This investment was accounted for under the cost method of accounting. In addition to the equity investment, Concurrent also loaned Thirdspace $6.0 million in exchange for two $3.0 million long-term convertible notes receivable. In the second and third quarters of fiscal 2003, Concurrent recorded, in the aggregate, a $13.0 million net impairment charge due to an other than temporary decline in the market value of the investment in Thirdspace, which included a $6.1 million charge for the write-off of the two $3.0 million notes receivable and related accrued interest. The impairment of the investment and write-off of the related notes receivable and accrued interest was based upon Thirdspace's deteriorating financial condition and actual performance relative to expected performance, the status of Thirdspace's capital raising initiatives, the market conditions of the telecommunications sector, the uncertainty of the collectibility of the notes, the state of the overall economy and the reduced market value of Thirdspace. In May 2003, Thirdspace sold the majority of its assets to Alcatel Telecom Ltd. As a result of the sale of these certain assets, Concurrent received $471,000 in proceeds, net of legal costs of $75,000. In return for these proceeds and a perpetual, royalty-free license to the patents and patent applications previously owned by Thirdspace, Concurrent relinquished its security interest in certain intellectual property of Thirdspace; however, Concurrent retained a security interest in all other assets of Thirdspace. In the first and second quarters of fiscal 2004, Concurrent received, in the aggregate, $2.8 million in proceeds as a result of the sale of the majority of Thirdspace's remaining assets. The proceeds received from the sale of these assets are recorded in the line item "Recovery (impairment loss) of minority investment" in the Condensed Consolidated Statements of Operations. Subsequent to December 31, 2003, Concurrent received approximately $300,000, which is expected to be the final proceeds related to the liquidation of Thirdspace's remaining assets. The income related to these proceeds will be recognized during the third quarter of fiscal 2004 in the line item "Recovery (impairment loss) of minority investment" of the Condensed Consolidated Statements of Operations. 7 In April 2002, Concurrent invested cash of $500,000 in Everstream Holdings, Inc. ("Everstream") in exchange for 480,770 shares of Series C Preferred stock giving Concurrent a 4.9% ownership interest. Everstream is a privately held company specializing in broadband advertising systems, operations and data warehousing software and related integration services. Concurrent is accounting for its investment in the Series C Preferred stock of Everstream using the cost method because Concurrent does not believe it exercises significant influence on Everstream. This investment is reviewed quarterly for impairment, and as of December 31, 2003, there has been no evidence of permanent impairment of the Everstream investment. In the ordinary course of business, Concurrent purchases consulting services from Everstream. During the three and six months ended December 31, 2003, Concurrent purchased $5,000 and $13,000 of contract development services, respectively, from Everstream. During the three and six months ended December 31, 2002, Concurrent purchased $403,000 and $638,000 of contract software development services, respectively, from Everstream. All of Concurrent's equity investments and related notes receivable are reviewed for impairment on a quarterly basis in accordance with Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" and SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," respectively. 7. RESTRUCTURING ACTIVITIES During the fourth quarter of fiscal 2003, Concurrent implemented a restructuring plan to realign resources to focus on more strategic and immediate growth opportunities and to align the Company's cost structure with revenue projections. As part of the restructuring plan, Concurrent terminated approximately 7% of its global workforce and reduced office space in certain international locations. The restructuring plan was accounted for in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The activities related to this restructuring plan as of December 31, 2003 are as follows:
(DOLLARS IN THOUSANDS) LEASE WORKFORCE TERMINATIONS REDUCTION AND OTHER TOTAL ---------- ------------- ------ Restructuring accrual at June 30, 2003 $ 866 $ 223 $1,089 Cash payments 578 160 738 ---------- ------------- ------ Restructuring accrual at December 31, 2003 $ 288 $ 63 $ 351 ========== ============= ======
8 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS) DECEMBER 31, JUNE 30, 2003 2003 ---------- ---------- Accounts payable, trade $ 5,128 $ 4,138 Accrued payroll, vacation and other employee expenses 4,848 4,760 Warranty accrual 932 2,131 Restructuring Reserve 351 1,089 Other accrued expenses 2,587 2,526 ---------- ---------- $ 13,846 $ 14,644 ========== ==========
Our estimate of warranty obligations is based on historical experience and expectation of future conditions. The changes in the warranty accrual during fiscal 2004 consist of the following (in thousands): Balance at June 30, 2003 $ 2,131 Charged to costs and expenses 145 Deductions (1,344) -------- Balance at December 31, 2003 $ 932 ======== 9. COMPREHENSIVE INCOME Concurrent's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 ------- -------- ------ -------- Net income (loss) $1,213 $(4,665) $1,825 $(4,045) Other comprehensive income (loss): Foreign currency translation income (loss) (71) 162 14 (56) ------- -------- ------ -------- Total comprehensive income (loss) $1,142 $(4,503) $1,839 $(4,101) ======= ======== ====== ========
10. SEGMENT INFORMATION Concurrent operates its business in two segments: ISD and VOD. Concurrent's ISD division is a leading provider of high-performance, real-time computer systems, solutions and software for commercial and government markets focusing on strategic market areas that include hardware-in-the-loop and man-in-the-loop simulation, data acquisition, industrial systems, and software and embedded applications. Concurrent's VOD division is a leading supplier of interactive digital video streaming systems primarily to the broadband cable television market. Shared expenses are primarily allocated based on either revenues or headcount. Corporate costs include costs related to the offices of the Chief Executive Officer, Chief Financial Officer, General Counsel, Investor Relations, Human Resources and other administrative costs including annual audit and tax fees, legal fees, Board of Directors fees and similar costs. 9 The following summarizes the operating income (loss) by segment for the three month periods ended December 31, 2003 and December 31, 2002, respectively:
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 2003 (UNAUDITED) -------------------------------------------------- ISD VOD CORPORATE TOTAL ---------- --------- -------------- ----------- Revenues: Product $ 5,597 $ 11,568 $ - $ 17,165 Service 4,018 1,443 - 5,461 ---------- --------- -------------- ----------- Total 9,615 13,011 - 22,626 Cost of sales: Product 2,628 5,484 - 8,112 Service 2,233 862 - 3,095 ---------- --------- -------------- ----------- Total 4,861 6,346 - 11,207 ---------- --------- -------------- ----------- Gross margin 4,754 6,665 - 11,419 Operating expenses: Sales and marketing 2,000 2,320 109 4,429 Research and development 1,391 3,314 - 4,705 General and administrative 365 208 1,602 2,175 ---------- --------- -------------- ----------- Total operating expenses 3,756 5,842 1,711 11,309 ---------- --------- -------------- ----------- Operating income (loss) $ 998 $ 823 $ (1,711) $ 110 ========== ========= ============== =========== THREE MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED) -------------------------------------------------- ISD VOD CORPORATE TOTAL ---------- --------- -------------- ----------- Revenues: Product $ 5,879 $ 8,879 $ - $ 14,758 Service 4,485 891 - 5,376 ---------- ---------- -------------- ------------ Total 10,364 9,770 - 20,134 Cost of sales: Product 2,288 4,936 - 7,224 Service 2,503 802 - 3,305 ---------- ---------- -------------- ------------ Total 4,791 5,738 - 10,529 ---------- ---------- -------------- ------------ Gross margin 5,573 4,032 - 9,605 Operating expenses: Sales and marketing 1,924 2,682 152 4,758 Research and development 1,278 3,299 - 4,577 General and administrative 406 502 1,359 2,267 ---------- ---------- -------------- ------------ Total operating expenses 3,608 6,483 1,511 11,602 ---------- ---------- -------------- ------------ Operating income (loss) $ 1,965 $ (2,451) $ (1,511) $ (1,997) ========== ========== ============== ============
10 The following summarizes the operating income (loss) by segment for the six month periods ended December 31, 2003 and December 31, 2002, respectively:
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED DECEMBER 31, 2003 (UNAUDITED) -------------------------------------------------- ISD VOD CORPORATE TOTAL ---------- --------- -------------- ----------- Revenues: Product $ 9,991 $ 20,715 $ - $ 30,706 Service 8,164 2,658 - 10,822 ---------- --------- -------------- ----------- Total 18,155 23,373 - 41,528 Cost of sales: Product 3,984 9,141 - 13,125 Service 4,417 1,617 - 6,034 ---------- --------- -------------- ----------- Total 8,401 10,758 - 19,159 ---------- --------- -------------- ----------- Gross margin 9,754 12,615 - 22,369 Operating expenses: Sales and marketing 3,807 4,476 226 8,509 Research and development 2,873 6,500 - 9,373 General and administrative 784 381 3,179 4,344 ---------- --------- -------------- ----------- Total operating expenses 7,464 11,357 3,405 22,226 ---------- --------- -------------- ----------- Operating income (loss) $ 2,290 $ 1,258 $ (3,405) $ 143 ========== ========= ============== =========== SIX MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED) -------------------------------------------------- ISD VOD CORPORATE TOTAL ---------- ---------- -------------- ------------ Revenues: Product $ 9,971 $ 21,328 $ - $ 31,299 Service 9,163 1,813 - 10,976 ---------- ---------- -------------- ------------ Total 19,134 23,141 - 42,275 Cost of sales: Product 4,064 10,177 - 14,241 Service 5,110 1,462 - 6,572 ---------- ---------- -------------- ------------ Total 9,174 11,639 - 20,813 ---------- ---------- -------------- ------------ Gross margin 9,960 11,502 - 21,462 Operating expenses: Sales and marketing 3,768 5,086 308 9,162 Research and development 2,677 6,347 - 9,024 General and administrative 835 1,065 2,695 4,595 ---------- ---------- -------------- ------------ Total operating expenses 7,280 12,498 3,003 22,781 ---------- ---------- -------------- ------------ Operating income (loss) $ 2,680 $ (996) $ (3,003) $ (1,319) ========== ========== ============== ============
11 11. ISSUANCE AND ACCRUAL OF NON-CASH WARRANTS Comcast Cable Communications, Inc. Warrants On March 29, 2001, Concurrent entered into a three-year definitive purchase agreement with Comcast Cable Communications, Inc. ("Comcast"), providing for the purchase of VOD equipment. As part of that agreement, Concurrent agreed to issue three different types of warrants. Concurrent issued a warrant to purchase 50,000 shares of its Common Stock on March 29, 2001, exercisable at $5.196 per share over a four-year term. This warrant is referred to as the "Initial Warrant." Concurrent is also generally obligated to issue new warrants to purchase shares of its Common Stock to Comcast at the end of each quarter through March 31, 2004, based upon specified performance goals which are measured by the number of Comcast basic cable subscribers that have the ability to utilize the VOD service. The incremental number of subscribers that have access to VOD at each quarter end as compared to the prior quarter end multiplied by a specified percentage is the number of additional warrants that were earned during the quarter. These warrants are referred to as the "Performance Warrants". Concurrent issued to Comcast a performance warrant for 4,431 shares on October 9, 2001, exercisable at $6.251 per share over a four-year term, a performance warrant for 52,511 shares on January 15, 2002, exercisable at $15.019 per share over a four year term, and a performance warrant for 1,502 shares on August 10, 2002, exercisable at $5.707 per share over a four year term. No warrants were issued during the three and six month periods ended December 31, 2003. Concurrent will also issue additional warrants to purchase shares of its Common Stock, if at the end of any quarter the then total number of Comcast basic cable subscribers with the ability to utilize the VOD services exceeds specified threshold levels. These warrants are referred to as the "Cliff Warrants". Concurrent is recognizing the value of the Performance Warrants and the Cliff Warrants over the term of the agreement as Comcast purchases additional VOD equipment from Concurrent and makes the service available to its customers. The value of the warrants is determined using the Black-Scholes valuation model. The weighted-average assumptions used for the quarters ended December 31, 2003 and 2002, respectively, were: expected dividend yield of 0% for both periods; risk-free interest rate of 2.83% and 2.39%; expected life of 4 years for both periods; and an expected volatility of 111% and 120%. Concurrent will adjust the value of the earned but unissued warrants on a quarterly basis using the Black-Scholes valuation model until the warrants are actually issued. The value of the new warrants earned and any adjustments in value for warrants previously earned will be determined using the Black-Scholes valuation model and recognized as part of revenue on a quarterly basis. The exercise price of the warrants is subject to adjustments for stock splits, combinations, stock dividends, mergers, and other similar recapitalization events. The exercise price is also subject to adjustment for issuance of additional equity securities at a purchase price less than the then current fair market value of Concurrent's Common Stock. Based on the information that is currently available, Concurrent does not expect the warrants to be issued to Comcast to exceed 1% of its outstanding shares of Common Stock over the term of the agreement. The exercise price of the warrants to be issued to Comcast will equal the average closing price of Concurrent's Common Stock for the 30 trading days prior to the applicable warrant issuance date and will be exercisable over a four year term. For the three and six months ended December 31, 2003, Concurrent recognized $80,000 and $431,000, respectively, as a reduction in revenue for the Performance Warrants and Cliff Warrants that have been earned but unissued as of December 31, 2003. The decrease in revenue during the three and six months ended December 31, 2003 is due to the increase in the number of Comcast basic cable subscribers that have the ability to utilize VOD services and the increase in the Black-Scholes value of the warrants earned but unissued. For the three months ended December 31, 2002, Concurrent recognized $56,000 as a decrease in revenue for the Performance Warrants and Cliff Warrants that have been earned but unissued. For the six months ended December 31, 2002, Concurrent recognized $2,000 as an increase in revenue for 12 the Performance Warrants and Cliff Warrants that have been earned but unissued due primarily to a decrease in the Black-Scholes value of the warrants earned but unissued as of December 31, 2002. Scientific Atlanta, Inc. Warrants In accordance with a five year definitive agreement with Scientific Atlanta, Inc. ("SAI") executed in August of 1998, Concurrent agreed to issue warrants to SAI upon achievement of pre-determined revenue targets. The value of these warrants could not exceed 5% of applicable revenue and the number of shares of Concurrent common stock related to the warrants was determined using the Black-Scholes valuation model and could not exceed 888,888 shares for every $30 million of revenue from the sale of VOD servers using the SAI platform. The Black-Scholes value of these warrants could not impact gross margin by more than $1.5 million per $30 million of applicable revenue. Concurrent accrued for this cost as a part of cost of sales at the time of recognition of applicable revenue. Concurrent issued warrants to purchase 261,164 of its common stock to SAI upon reaching the first $30 million threshold on April 1, 2002, exercisable at $7.106 per share over a four-year term, all of which are still outstanding as of December 31, 2003. The five year definitive agreement with SAI expired on August 17, 2003, and at that time Concurrent had not reached the second $30 million threshold of revenue using the SAI platform. As a result, Concurrent was not obligated to issue a warrant under the agreement regarding the second $30 million threshold, and accordingly, reversed $1.3 million of expense in the first quarter of fiscal 2004, which had been previously accrued in anticipation of reaching the next $30 million threshold. This reversal was recorded in VOD product cost of sales. For the three and six month periods ended December 31, 2002, Concurrent recognized $190,000 and $193,000, respectively, as part of VOD product cost of sales for the SAI warrants that had been earned but unissued. 12. RECENT ACCOUNTING PRONOUNCEMENTS In December 2002, the FASB issued Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," which provides for additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations and requires, under certain circumstances, a guarantor to recognize at the inception of a guarantee a liability for the fair value of the obligation undertaken in issuing the guarantee. Concurrent adopted the disclosure requirements for fiscal year ended June 30, 2003. The adoption of FIN 45 has not had a material impact on Concurrent's consolidated financial statements. In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 clarifies the definition of a liability as currently defined in FASB Concepts Statement No. 6, "Elements of Financial Statements," as well as other planned revisions. This statement requires a financial instrument that embodies an obligation of an issuer to be classified as a liability. In addition, the statement establishes standards for the initial and subsequent measurement of these financial instruments and disclosure requirements. SFAS No. 150 became effective for Concurrent on July 1, 2003. The adoption of this standard did not have a material impact on Concurrent's consolidated financial statements. In December 2003, the FASB issued FIN 46(R), "Consolidation of Variable Interest Entities" FIN 46(R) replaced FIN 46, "Consolidation of Variable Interest Entities" (issued in January 2003), and expands and clarifies FIN 46, as well as updates the effective date and transition guidance. This interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," in determining whether a reporting entity should consolidate certain legal entities, including partnerships, limited liability companies, or trusts, among others, collectively defined as variable interest entities. This interpretation applies to variable interest entities created or obtained after January 31, 2003, and as of July 1, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The FASB subsequently issued FASB Staff Position FIN 46-6, which defers the effective date for applying the provisions of FIN 46 to financial statements for (1) interests held by 13 public entities in variable interest entities or potential variable interest entities created before February 1, 2003 and (2) non-registered investment companies. Concurrent does not have any variable interest entities; therefore, management believes this statement will not have a material impact on Concurrent's consolidated financial statements. In December 2003, the FASB issued SFAS 132(R) "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension plans and other postretirement benefit plans. The provisions of this Statement do not change the measurement and recognition provisions of FASB Statements No. 87, Employers' Accounting for Pensions, No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. Statement 132(R) replaces FASB Statement No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, and adds additional disclosures. It requires additional disclosures to those in the original Statement 132 about assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. Concurrent will provide interim-period disclosures as required by this Statement beginning in the three and nine month periods ending March 31, 2004. 13. CONTINGENCIES Concurrent, from time to time, is involved in litigation incidental to the conduct of its business. Concurrent believes that such pending litigation will not have a material adverse effect on Concurrent's results of operations or financial condition. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUE The following table sets forth selected operating data as a percentage of total revenue, unless otherwise indicated, for certain items in our consolidated statements of operations for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 -------------- -------------- Revenues: Product Real-time systems 24.8% 29.2% 24.0% 23.6% VOD systems 51.1 44.1 49.9 50.5 ------ ------ ------ ------ Total product revenues 75.9 73.3 73.9 74.0 Service Real-time systems 17.7 22.3 19.7 21.7 VOD systems 6.4 4.4 6.4 4.3 ------ ------ ------ ------ Total service revenues 24.1 26.7 26.1 26.0 ------ ------ ------ ------ Total revenues 100.0 100.0 100.0 100.0 Cost of sales (% of respective sales category): Product Real-time systems 47.0 38.9 39.9 40.8 VOD systems 47.4 55.6 44.1 47.7 ------ ------ ------ ------ Total product cost of sales 47.3 48.9 42.7 45.5 Service Real-time systems 55.6 55.8 54.1 55.8 VOD systems 59.7 90.0 60.8 80.6 ------ ------ ------ ------ Total service cost of sales 56.7 61.5 55.8 59.9 ------ ------ ------ ------ Total cost of sales 49.5 52.3 46.1 49.2 ------ ------ ------ ------ Gross margin 50.5 47.7 53.9 50.8 Operating expenses: Sales and marketing 19.6 23.6 20.5 21.7 Research and development 20.8 22.7 22.6 21.3 General and administrative 9.6 11.3 10.5 10.9 ------ ------ ------ ------ Total operating expenses 50.0 57.6 53.6 53.9 ------ ------ ------ ------ Operating income (loss) 0.5 (9.9) 0.3 (3.1) Recovery (impairment loss) of minority investment 7.5 (14.6) 6.7 (7.0) Interest income - net 0.3 0.5 0.3 0.7 Other income (expense) - net (0.1) 0.2 (0.4) - ------ ------ ------ ------ Income (loss) before income taxes 8.2 (23.8) 6.9 (9.4) Provision (benefit) for income taxes 2.8 (0.6) 2.5 0.2 ------ ------ ------ ------ Net income (loss) 5.4% (23.2)% 4.4% (9.6)% ====== ====== ====== ======
15 RESULTS OF OPERATIONS THE THREE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2002 Product Sales. Total product sales were $17.2 million for the three months ended December 31, 2003, an increase of $2.4 million, or 16.3%, from $14.8 million for the same period of the prior year. The increase in product sales resulted primarily from the increase in VOD product sales of $2.7 million, or 30.3%, to $11.6 million in the three month period ended December 31, 2003 from $8.9 million for the same period of the prior year. The increase in VOD product sales for the three months ended December 31, 2003 was due primarily to increased volume of VOD server sales and a different mix of customers and products in the three months as compared to the prior year period. This increase in volume of video streams shipped was partially offset by a reduction in the amount of content storage sold and reduced price per stream sold. Sales of real-time products decreased $0.3 million, or 4.8%, to $5.6 million for the three month period ended December 31, 2003 from $5.9 million for the same period of the prior year. The decrease in real-time product revenue was due to $1.2 million of revenue in the second quarter of the prior year related to product shipped for the C-130 program which did not recur in the second quarter of the current year. This decrease in domestic revenue was offset by a $0.9 million increase in international revenue in Europe and Asia. Service Revenue. Service revenue increased $0.1 million, or 1.6%, to $5.5 million for the three month period ended December 31, 2003, from $5.4 million for the same period of the prior year. VOD service revenue increased $0.6 million, or 62.0%, to $1.5 million in the three month period ended December 31, 2003 from $0.9 million for the same period of the prior year, as the VOD division continued to recognize deferred maintenance revenue and expand its VOD customer base requiring additional installation, training, technical support, and software and hardware maintenance services. The increase in VOD service revenue was offset by a $0.5 million, or 10.4%, decrease in real-time service revenue to $4.0 million for the three month period ended December 31, 2003 from $4.5 million for the same period of the prior year. Real-time service revenue continued to decline primarily due to the cancellation of maintenance contracts as machines were removed from service and from customers purchasing our new products that are less expensive to maintain. Product Gross Margin. Product gross margin increased $1.5 million, or 20.2%, to $9.0 million for the three months ended December 31, 2003 from $7.5 million for the same period of the prior year. The product gross margin as a percentage of sales increased to 52.7% in the three month period ended December 31, 2003 from 51.1% in the three month period ended December 31, 2002. VOD product gross margin increased to 52.6% in the three month period ended December 31, 2003 from 44.4% in the same period of the prior year due to the lower cost of the MediaHawk 4000 video server solution sold during the current quarter versus the previous generation MediaHawk 3000 video server solution sold during the same period of the prior year, and also the mix of product sold. In addition, during the prior year period, the VOD division accrued approximately $0.2 million of warrant expense from sales to customers using the SAI platform. The agreement with SAI requiring accrual of this cost expired during the first quarter of fiscal 2004. Real-time product gross margin decreased to 53.0% in the three month period ended December 31, 2003 from 61.1% for the same period of the prior year due to a less favorable product mix, particularly related to higher margin software sales to one specific customer in the prior year quarter, as compared to the current year quarter. Service Gross Margin. The gross margin on service sales increased to 43.3% for the three month period ended December 31, 2003 from 38.5% for the same period of the prior year. VOD service margins increased to 40.3% compared to 10.0% in the prior year period as the VOD division continues to build its VOD customer base and revenue at a faster rate than the costs required to provide these services. Real-time service gross margin increased slightly to 44.4% for the three month period ended from 44.2% for the same period of the prior year. 16 Sales and Marketing. Sales and marketing expenses decreased as a percentage of sales to 19.6% for the three months ended December 31, 2003 from 23.6% for the same period of the prior year. These expenses decreased $0.3 million, or 6.9%, to $4.5 million during the three month period ended December 31, 2003 from $4.8 million in the same period of the prior year. The ISD division's second quarter sales and marketing expenses increased $0.1 million compared to the same period in the prior year primarily due to an increase in personnel to focus on domestic opportunities. The VOD division's sales and marketing expenses decreased $0.4 million primarily due to reduced salaries and wages of $0.3 million as a result of non-recurring European severance that occurred during the same period of the prior year and the elimination of certain personnel costs in the fourth quarter of fiscal 2003. In addition, the VOD division reduced trade show and other advertising costs during the three months ended December 31, 2003 by $0.2 million compared to the same period of the prior year. Research and Development. Research and development expenses decreased as a percentage of sales to 20.8% for the three months ended December 31, 2003 from 22.7% for the same period of the prior year. These expenses increased $0.1 million, or 2.8%, to $4.7 million during the three month period ended December 31, 2003 from $4.6 million during the same period of the prior year. The $0.1 million increase in research and development expense is due to a $0.4 million increase in salaries and related costs as the VOD and ISD divisions added new development staff since the same period of the prior year and a $0.1 million increase in fixed asset depreciation expense in the VOD division, offset by a $0.4 million decrease in external software development and consulting expenses in the VOD division as compared to the same period of the prior year. General and Administrative. General and administrative expenses decreased as a percentage of sales to 9.6% for the three months ended December 31, 2003 from 11.3% for the same period of the prior year. These expenses decreased $0.1 million, or 4.1%, to $2.2 million during the three months ended December 31, 2003 compared to $2.3 million in same period of the prior year due primarily to a reduction in the bad debt reserve of $0.3 million, partially offset by a $0.1 million increase in consulting and legal costs, and a $0.1 million increase in accounting salaries and wages in the three months ended December 31, 2003 as compared to the same period of the prior year. Recovery (Impairment Loss) of Minority Investment. In the second and third quarters of fiscal 2003, in the aggregate, a net impairment charge of $13.0 million was recorded due to an other-than-temporary decline in the market value of the equity investment in Thirdspace, which included a $6.1 million charge for the write off of two $3.0 million notes receivable and related accrued interest. At the end of fiscal 2003, Thirdspace was sold and placed into liquidation resulting in a recovery for Concurrent of $1.5 million prior to September 30, 2003. Additionally, in the quarter ended December 31, 2003 Concurrent received an additional $1.7 million out of the liquidation. The income recognized related to these proceeds is recorded in the line item "Recovery (impairment loss) of minority investment" in the Condensed Consolidated Statements of Operations and the value of the investment and notes receivables remain at zero on our December 31, 2003 Condensed Consolidated Balance Sheets. Subsequent to December 31, 2003, Concurrent received approximately $300,000, which is expected to be substantially all of the remaining anticipated proceeds related to the liquidation of Thirdspace's remaining assets. The income related to these proceeds will be recognized during the third quarter of fiscal 2004 in the line item "Recovery (impairment loss) of minority investment" in the Condensed Consolidated Statements of Operations. Provision (Benefit) for Income Taxes. Income tax expense for our domestic and foreign subsidiaries of $0.7 million was recorded during the three months ended December 31, 2003 based on a pre-tax income of $1.9 million resulting in an effective tax rate for the quarter of 35%. This expense is primarily attributable to U.S. federal income tax that is offset by net operating losses originating prior to the quasi-reorganization in November 1991. For accounting purposes, the benefit from the utilization of the pre quasi-reorganization net operating losses must be recognized directly in equity rather than through the income statement. An income tax benefit of $126,000 was recorded during the three months ended December 31, 2002 based on pre-tax net loss of $4.8 million. 17 Net Income (Loss). Net income was $1.2 million or $0.02 per basic and diluted share for the three months ended December 31, 2003. A net loss of $4.7 million or $0.08 per basic and diluted share for the three months ended December 31, 2002 was recorded. THE SIX MONTHS ENDED DECEMBER 31, 2003 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 2002 Product Sales. Total product sales were $30.7 million for the six months ended December 31, 2003, a decrease of $0.6 million, or 1.9%, from $31.3 million for the same period of the prior year. The decrease in product sales resulted from the decrease in VOD product sales of $0.6 million, or 2.9%, to $20.7 million in the six month period ended December 31, 2003 from $21.3 million for same period of the prior year. The decrease in VOD product sales for the six months ended December 31, 2003 was due primarily to a different mix of customers and products, including decreased sales of internal QAMs and Upconverters and a decrease in prices of certain system components in the six months ended December 31, 2003 as compared to the prior year period. The decrease in VOD product sales was also due to an increase of approximately $0.4 million in revenue reductions resulting from additional warrants being earned by Comcast as compared to the same period of the prior year. The decrease in VOD product sales was partially offset by software sales of our newly released Real-Time Media content ingestion product as compared to the prior year period. Sales of real-time products were unchanged at $10.0 million for the six month periods ended December 31, 2003 and 2002. Service Revenue. Service revenue decreased $0.2 million, or 1.4%, to $10.8 million for the six month period ended December 31, 2003, from $11.0 million for the same period of the prior year. VOD service revenue increased $0.8 million, or 46.6%, to $2.6 million in the six month period ended December 31, 2003 from $1.8 million for the same period of the prior year, as the VOD division continued to recognize deferred maintenance revenue and expand its VOD customer base requiring additional installation, training, technical support, and software and hardware maintenance services. The increase in VOD service revenue was offset by a $1.0 million, or 10.9%, decrease in real-time service revenue to $8.2 million for the six month period ended December 31, 2003 from $9.2 million for the same period of the prior year. Real-time service revenue continued to decline primarily due to the cancellation of maintenance contracts as machines were removed from service and, to a lesser extent, from customers purchasing our new products that are less expensive to maintain. Product Gross Margin. Product gross margin increased $0.5 million, or 3.1%, to $17.6 million for the six months ended December 31, 2003 from $17.1 million for the same period of the prior year. The product gross margin as a percentage of sales increased to 57.3% in the six month period ended December 31, 2003 from 54.5% in the six month period ended December 31, 2002. VOD product gross margin increased to 55.9% in the six month period ended December 31, 2003 from 52.3% in the same period of the prior year. The increase in VOD margin is due to the $1.3 million reversal from cost of sales of previously recognized warrant expense in the six months ended December 31, 2003 and also due to the lower cost of the MediaHawk 4000 video server solution predominantly sold during the current period versus the previous generation MediaHawk 3000 server solution sold during the same period of the prior year. The favorable impact from the SAI warrant expense reversal and lower production costs was partially offset by an increase in the revenue reduction from the warrant accrual for Comcast of approximately $0.4 million over the prior year period due to an increase in the Black-Scholes value of the warrants and increased sales to Comcast during the six months ended December 31, 2003. Real-time product gross margin increased to 60.1% in the six month period ended December 31, 2003 from 59.2% for the same period of the prior year due to a more favorable product mix, particularly related to higher margin software sales in first quarter of fiscal 2004, as compared to the same period of the prior fiscal year. Service Gross Margin. The gross margin on service sales increased to 44.2% for the six month period ended December 31, 2003 from 40.1% for the same period of the prior year. VOD service margins increased to 39.2% compared to 19.4% in the prior year period as the VOD division continues to build its VOD customer base and revenue at a faster rate than the costs required to provide these services. Real-time 18 service gross margin increased to 45.9% from 44.2% due primarily to reduced costs from the restructuring initiatives implemented in the fourth quarter of fiscal 2003. Sales and Marketing. Sales and marketing expenses decreased as a percentage of sales to 20.5% for the six months ended December 31, 2003 from 21.7% for the same period of the prior year. These expenses decreased $0.7 million, or 7.1%, to $8.5 million during the six month period ended December 31, 2003 from $9.2 million in the same period of the prior year. The ISD division's sales and marketing expenses remained relatively constant as compared to the same period of the prior year as $0.1 million of additional trade show and marketing expense was offset by a $0.1 million decrease in commissions. The VOD division's sales and marketing expenses decreased $0.7 million primarily due to $0.7 million less severance expense and reduced salaries and wages as a result of the elimination of certain personnel costs in the fourth quarter of fiscal 2003. In addition, the VOD division reduced trade show and other advertising costs during the six months ended December 31, 2003 by $0.2 million compared to the same period of the prior year. Research and Development. Research and development expenses increased as a percentage of sales to 22.6% for the six months ended December 31, 2003 from 21.3% for the same period of the prior year. These expenses increased $0.4 million, or 3.9%, to $9.4 million during the six month period ended December 31, 2003 from $9.0 million during the same period of the prior year. The $0.4 million increase in research and development expense is due to a $0.8 increase in salaries and related costs as the VOD and ISD divisions added new development staff since the same period of the prior year and a $0.2 million increase in fixed asset depreciation expense in the VOD division, partially offset by a $0.6 million decrease in external software development and consulting expenses in the VOD division as compared to the same period of the prior year. General and Administrative. General and administrative expenses decreased as a percentage of sales to 10.5% for the six months ended December 31, 2003 from 10.9% for the same period of the prior year. These expenses decreased $0.3 million, or 5.5%, to $4.3 million during the six months ended December 31, 2003 compared to $4.6 million in same period of the prior year due primarily to a reduction in the bad debt reserve of $0.6 million and insurance expense of $0.1 million. These reduced costs were partially offset by a $0.1 million increase in legal costs and a $0.3 million increase in accounting salaries, wages and consulting fees in the six months ended December 31, 2003 as compared to the same period of the prior year. Recovery (Impairment Loss) of Minority Investment. In the second and third quarters of fiscal 2003, in the aggregate, a net impairment charge of $13.0 million was recorded due to an other-than-temporary decline in the market value of our equity investment in Thirdspace, which included a $6.1 million charge for the write off of two $3.0 million notes receivable and related accrued interest. At the end of fiscal 2003, Thirdspace was sold and placed into liquidation resulting in a recovery for Concurrent of $0.5 million prior to July 1, 2003. Additionally, in the six months ended December 31, 2003 Concurrent received an additional $2.8 million out of the liquidation. The income recognized related to these proceeds is recorded in the line item "Recovery (impairment loss) of minority investment" in the Condensed Consolidated Statements of Operations and the value of the investment and notes receivables remain at zero on our December 31, 2003 Condensed Consolidated Balance Sheets. Subsequent to December 31, 2003, Concurrent received approximately $300,000, which is expected to be substantially all of the remaining anticipated proceeds related to the liquidation of Thirdspace's remaining assets. The income related to these proceeds will be recognized during the third quarter of fiscal 2004 in the line item "Recovery (impairment loss) of minority investment" in the Condensed Consolidated Statements of Operations. Provision (Benefit) for Income Taxes. Income tax expense for our domestic and foreign subsidiaries of $1.1 million was recorded for the six month period ended December 31, 2003 based on pre-tax income of $2.9 million resulting in an effective tax rate for the period of 36.7%. This expense is primarily attributable to U.S. federal income tax that is offset by net operating losses originating prior to our quasi-reorganization in November 1991. For accounting purposes, the benefit from the utilization of the pre quasi-reorganization net operating losses must be recognized directly in equity rather than through the income statement. We recorded income tax expense of $0.1 million during the six months ended December 19 31, 2002 based on pre-tax net loss of $4.0 million. This expense was primarily attributable to foreign withholding taxes and income earned in foreign locations, which cannot be offset by net operating loss carryforwards. Net Income (Loss). Net income of $1.8 million or $0.03 per basic and diluted share was recorded for the six months ended December 31, 2003. A net loss of $4.0 million or $0.07 per basic and diluted share for the six months ended December 31, 2002. LIQUIDITY AND CAPITAL RESOURCES Our liquidity is dependent on many factors, including sales volume, operating profit and the efficiency of asset use and turnover. Our future liquidity will be affected by, among other things: - the actual versus anticipated decline in sales of real-time proprietary systems and service maintenance revenue; - revenues from real-time systems; - revenue growth from VOD systems and the pace at which cable companies implement VOD technology; - ongoing cost control actions and expenses, including for example, research and development and capital expenditures; - the margins on the VOD and real-time businesses; - our ability to raise additional capital, if necessary; - our ability to obtain bank financing, if necessary; - timing of product shipments which occur primarily during the last month of the quarter; - the percentage of sales derived from outside the United States where there are generally longer accounts receivable collection cycles; - the number of countries in which we operate, which may require maintenance of minimum cash levels in each country and, in certain cases, may restrict the repatriation of cash, such as cash held on deposit to secure office leases; and - the success of the fourth generation VOD platform and our real time Linux products. We used cash of $4.8 million from operating activities during the six months ended December 31, 2003 compared to providing cash of $5.1 million during the same period of the prior year. The decrease in cash from operations was primarily due to timing differences between payments for inventory purchased, processed and sold during the year and collections of receivables generated from these sales, partially offset by net income in the six months ended December 31, 2003 compared to a net loss in the six months ended December 31, 2002. We invested $2.1 million in property, plant and equipment during the six months ended December 31, 2003 compared to $3.0 million during the six months ended December 31, 2002. Capital additions during the first six months of fiscal 2004 related primarily to product development and testing equipment and demonstration equipment for our VOD division. Concurrent received an additional $2.8 million from the continued liquidation of Thirdspace during the six month period ended December 31, 2003. Subsequent to December 31, 2003, Concurrent received approximately $300,000, which is expected to be substantially all of the remaining anticipated proceeds related to the liquidation of Thirdspace's remaining assets. We received $1.1 million and $8,000 from the issuance of common stock to employees and directors who exercised stock options during the six months ended December 31, 2003 and 2002, respectively. At December 31, 2003, we had working capital of $34.7 million and had no material commitments for capital expenditures. We believe that the existing cash balances and funds generated by operations will be sufficient to meet the anticipated working capital and capital expenditure requirements for the next 12 months. 20 Deferred revenues increased $4.5 million from $7.6 million at June 30, 2003 to $12.1 million at December 31, 2003. This increase is primarily due to billings to a North America cable operator in advance of our ability to recognize revenue under SOP 97-2 and due to the growing base of cable customers with maintenance programs where the revenue is recognized ratably over the maintenance period. We maintain pension plans for certain employees and former employees in the United Kingdom and Germany. The projected benefit obligation for the benefit plans at June 30, 2003 and June 30, 2002 as determined in accordance with SFAS No. 87, "Employers Accounting for Pensions", was $21.5 million and $17.0 million, respectively, and the value of the plans assets was $12.9 million and $12.0 million, respectively. As a result, the plans were underfunded by $8.6 million at June 30, 2003 and by $5.0 million at June 30, 2002. The value of plan assets was $14.8 million at December 31, 2003. It is likely that the amount of our contribution to the plans will increase from the $394,000 of contributions made in fiscal 2003. In addition, management expects the pension cost to be recognized in the financial statements will increase from the $747,000 recognized in fiscal 2003 to approximately $1,060,000 in fiscal 2004, of which approximately $530,000 was recognized in the six months ended December 31, 2003. The expense to be recognized in future periods could increase further, depending upon the amount of the change in the fair market value of the plan assets and the change in the projected benefit obligation. The funding deficiency of $8.6 million at June 30, 2003 may increase further or decrease in the future depending primarily upon the actual investment performance of the pension assets as compared to the assumed rate of return on plan assets and the amount of contributions to the plan by the Company. The Company is currently in the process of completing its valuation to determine the amount of contributions to the plan that the Company will be required to make for the next 3 years. We also recorded a reduction to stockholders' equity as of June 30, 2003 and 2002, amounting to $3.0 million and $1.6 million, respectively, due to the decrease in the discount rate used to calculate the accumulated benefit obligation and the less than anticipated investment returns. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS Our only significant contractual obligations and commitments relate to certain operating leases for sales, service and manufacturing facilities in the United States, Europe and Asia. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made or incorporated by reference in this report on Form 10-Q may constitute "forward-looking statements" within the meaning of the federal securities laws. When used or incorporated by reference in this prospectus, the words "believes," "expects," "estimates", "anticipates" and similar expressions are intended to identify forward-looking statements. Statements regarding future events and developments and our future performance, as well as our expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected. The risks and uncertainties which could affect our financial condition or results of operations include, without limitation: - the concentration of our customers; - capital spending patterns by a limited customer base; - system errors or failures; - the success of new products in both the VOD and ISD divisions; - our ability to keep our customers satisfied; - failure to effectively manage growth; - availability of VOD content; - changes in product demand; 21 - delays in testing and introductions of new products; - reliance on a limited number of suppliers; - the highly competitive environment in which we operate and predatory pricing pressures; - failure to effectively service the installed base; - the entry of new well-capitalized competitors into our markets; - uncertainties relating to the development and ownership of intellectual property; - rapid technology changes; - economic conditions; - uncertainties relating to our ability and the ability of other companies to enforce their intellectual property rights; - the pricing and availability of equipment, materials and inventories; - the limited operating history of our VOD segment; - demand shifts from high-priced, proprietary real-time systems to low-priced, open server systems; - contract obligations that could impact revenue recognition; - delays or cancellations of customer orders; - various inventory risks due to changes in market conditions; - the availability of Linux software in light of issues raised by the SCO Group; - the success of our new initiative in our Concurrent Federal Systems (CFSI) subsidiary to penetrate opportunities with the U.S. government; - uncertainties associated with international business activities, including foreign regulations, trade controls, taxes and currency fluctuations; and - the valuation of equity investments and collectibility of notes receivable. Other important risk factors are discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2003. Our forward-looking statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to market risk from changes in interest rates and foreign currency exchange rates. We are exposed to the impact of interest rate changes on our short-term cash investments, which are backed by U.S. government obligations, and other investments in respect of institutions with the highest credit ratings, all of which have maturities of three months or less. These short-term investments carry a degree of interest rate risk. We believe that the impact of a 10% increase or decline in interest rates would not be material to the financial statements. We conduct business in the United States and around the world. The most significant foreign currency transaction exposures relate to the United Kingdom, those Western European countries that use the Euro as a common currency, Australia, and Japan. We do not hedge against fluctuations in exchange rates and believe that a hypothetical 10% upward or downward fluctuation in foreign currency exchange rates relative to the United States dollar would not have a material impact on future earnings, fair values, or cash flows. ITEM 4. CONTROLS AND PROCEDURES As required by Securities and Exchange Commission rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2003, the end of the quarter to which this report relates. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure 22 controls and procedures are effective. There were no changes to our internal controls over financial reporting during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting subsequent to the date of their evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, we may be involved in litigation relating to claims arising out of our ordinary course of business. We are not presently involved in any material litigation, but have the following matters pending: - SeaChange International, Inc. v. Putterman, et al, Arkansas Court of --------------------------------------------------- Appeals, Case No. CA 01-1126. The suit was filed on June 14, 1999 alleging that we defamed SeaChange International, Inc. ("SeaChange"). On June 14, 2000, we counterclaimed against SeaChange alleging that SeaChange defamed us. On January 4, 2001, the court granted our motion to dismiss all claims against us. SeaChange subsequently and successfully appealed and the actual trial began January 26, 2004. - Eason v. Concurrent Computer Corp, et al., Superior Court of New ----------------------------------------------- Jersey, Appellate Division, Docket No. A-003181-02T2. This suit arose out of a personal injury claim filed in 1994 wherein plaintiff alleged that he was injured when a lamp post fell in our parking lot. The case against us was dismissed in 1995, but in 2000 the plaintiff amended the cause of action and refiled against us alleging spoliation of evidence. The plaintiff obtained a default judgment for $119,800 in December 2001 that was vacated in August 2002. Plaintiff subsequently refiled and in February 2003 the court granted our motion to dismiss all claims. Plaintiff has appealed, and the matter has been briefed. A decision by the appellate court is expected this fiscal year. We are involved in various other legal proceedings. We believe that any liability which may arise as a result of these proceedings, including the proceedings specifically discussed above, will not have a material adverse effect on our financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Concurrent's Annual Meeting of Stockholders was held on October 21, 2003. The results of the voting were as follows: - The following persons were elected as directors to serve until the next annual meeting of stockholders: Alex B. Best (56,041,065 votes for, 493,058 votes withheld), Charles Blackmon (54,697,430 votes for, 1,836,693 votes withheld), Michael A. Brunner (54,607,721 votes for, 1,926,402 votes withheld), Jack A. Bryant (55,860,076 votes for, 674,047 votes withheld), Bruce N. Hawthorne (48,736,123 votes for, 7,798,000 votes withheld), C. Shelton James (54,614,155 votes for, 1,919,968 votes withheld) and Steve G. Nussrallah (55,074,429 votes for, 1,459,694 votes withheld). 23 - The selection by the Audit Committee of Deloitte & Touch LLP as Concurrent's independent auditors for the fiscal year ending June 30, 2004 was ratified (53,959,589 votes for, 2,489,125 votes against, 85,409 votes abstained). ITEM 5. OTHER INFORMATION Our Vice President of Worldwide Sales and Marketing for our ISD division, Robert T. Menzel, informed the Company of his plans to retire from Concurrent effective February 13, 2004. Mr. Menzel's retirement comes after over 25 years of service in the computer and simulation business and after 12 years of service at Concurrent. Our Vice President of Sales for our VOD division, David M. Nicholas, announced his resignation. David began his employment with Concurrent in March of 1999. Mr. Nicholas will be pursuing other interests. 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.1 - Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant's Registration Statement on Form S-2 (No. 33-62440)). 3.2 - Amended and Restated Bylaws of the Registrant Certificate (incorporated by reference to the Registrants Quarterly report on Form 10-Q for the quarter ended March 31, 2003). 3.3 - Certificate of Correction to Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2002). 3.4 - Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A, dated August 9, 2002). 3.5 - Amendment to Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A, dated August 9, 2002). 4.1 - Form of Common Stock Certificate (incorporated by reference to the Registrants Quarterly report on Form 10-Q for the quarter ended March 31, 2003). 4.2 - Form of Rights Certificate (incorporated by reference to the Registrant's Current Report on Form 8-K/A filed August 12, 2002). 4.3 - Amended and Restated Rights Agreement dated as of August 7, 2002 between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to the Registrant's Current Report on Form 8-K/A filed on August 12, 2002). 10.1 - Form Indemnification Agreement and Schedule of Directors who have entered into such agreement (incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). 10.2** - Schedule of officers who have entered into the Form Indemnification Agreement, referenced in Exhibit 10.1. 10.3** - Indemnification Agreement between the Registrant and Robert E. Chism, dated June 27, 1996. 11.1* - Statement Regarding Computation of Per Share Earnings. 31.1** - Certification of Chief Executive Officer, pursuant to Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2** - Certification of Chief Financial Officer, pursuant to Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** - Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** - Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Data required by Statement of Financial Accounting Standards No. 128, "Earnings per Share," is provided in the Notes to the condensed consolidated financial statements in this report. ** Filed herewith. (b) Reports on Form 8-K. The following reports on Form 8-K were filed during the period covered by this report: - Current Report on Form 8-K furnished on October 23, 2003, relating to results of operations and financial condition as of and for the quarter ended September 30, 2003. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report for the quarter ended December 31, 2003, to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 12, 2004 CONCURRENT COMPUTER CORPORATION By: /s/ Steven R. Norton --------------------------------- Steven R. Norton Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer, Authorized Officer) 26 EXHIBIT INDEX ------------- 3.1 - Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant's Registration Statement on Form S-2 (No. 33-62440)). 3.2 - Amended and Restated Bylaws of the Registrant Certificate (incorporated by reference to the Registrants Quarterly report on Form 10-Q for the quarter ended March 31, 2003). 3.3 - Certificate of Correction to Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2002). 3.4 - Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A, dated August 9, 2002). 3.5 - Amendment to Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A, dated August 9, 2002). 4.1 - Form of Common Stock Certificate (incorporated by reference to the Registrants Quarterly report on Form 10-Q for the quarter ended March 31, 2003). 4.2 - Form of Rights Certificate (incorporated by reference to the Registrant's Current Report on Form 8-K/A filed August 12, 2002). 4.3 - Amended and Restated Rights Agreement dated as of August 7, 2002 between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to the Registrant's Current Report on Form 8-K/A filed on August 12, 2002). 10.1 - Form Indemnification Agreement and Schedule of Directors who have entered into such agreement (incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). 10.2** - Schedule of officers who have entered into the Form Indemnification Agreement, referenced in Exhibit 10.1. 10.3** - Indemnification Agreement between the Registrant and Robert E. Chism, dated June 27, 1996. 11.1* - Statement Regarding Computation of Per Share Earnings. 31.1** - Certification of Chief Executive Officer, pursuant to Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2** - Certification of Chief Financial Officer, pursuant to Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** - Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** - Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Data required by Statement of Financial Accounting Standards No. 128, "Earnings per Share," is provided in the Notes to the condensed consolidated financial statements in this report. ** Filed herewith. 27 EX-10.2 3 doc2.txt EXHIBIT 10.2 The following officers have entered into the Form Indemnification Agreement filed by the Company with its Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, as of the date indicated below: OFFICER DATED EXECUTED ------------------------ ------------------ Jack Bryant 10/6/03 Steve Norton 10/10/03 Steve Necessary 10/7/03 Kirk Somers 10/13/03 EX-10.3 4 doc7.txt EXHIBIT 10.3 INDEMNIFICATION AGREEMENT ------------------------- THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into as of June 27, 1996, by and between Concurrent Computer Corporation, a Delaware corporation (the "Company"), and Robert E. Chism (the "Indemnitee"). RECITALS WHEREAS, in recent years it has been increasingly difficult to obtain directors' and officers' liability insurance, and there have been significant increases in the premiums charged to maintain such insurance and substantial reductions in the types of risks and amount of coverage provided by such insurance; WHEREAS, the law regarding the duties and liabilities of directors, officers and other agents of corporations is frequently difficult to apply or ambiguous and, therefore, in many instances fails to provide such directors, officers and other agents with adequate or accurate information with respect to the legal risks to which they are exposed; WHEREAS, there has been a substantial increase in recent years in the number of lawsuits filed against directors, officers and other agents of corporations and such lawsuits frequently involve plaintiffs whose claims are without merit and who seek compensation for alleged damages which is far in excess of the compensation from the corporation received by such directors, officers and other agents, and often in excess of the personal resources of such persons derived independently from service to the Company; WHEREAS, Section 145 of the General Corporation Law of Delaware, Article Eleventh of the Certificate of Incorporation and Article XXIII of the Bylaws of the Company permit the Company to enter into an indemnification agreement with the Company's directors and officers; and WHEREAS, the Company, in order to induce Indemnitee to continue to serve the Company, is willing to provide Indemnitee with the benefits hereinafter set forth. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing and the covenants, terms and conditions hereinafter set forth, the Company and Indemnitee hereby agree as follows: 1. Definitions. For purposes of this Agreement, the following terms ----------- shall have the following meanings: (a) "Agent of the Company" means any person who (i) is or was a ---------------------- director, officer, employee or other agent of the Company or a Subsidiary, (ii) is or was serving at the request of, for the convenience of or to represent the interest of the Company or a Subsidiary, as a director, officer, employee or other agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, (iii) was a director, officer or other agent of a foreign or domestic corporation which was a predecessor corporation of the Company or a Subsidiary, or (iv) was a director, officer, employee or other agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise at the request of, for the convenience of or to represent the interests of any such predecessor corporation. (b) "Change of Control" means any of the following events: ------------------- (i) the consummation of any transaction after which any "person" or "group" (as such terms are used in Sections 3(a)(9), 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities or possesses the power to vote or control the vote of securities of the Company representing 30% or more of the combined voting power of either the Common Stock or all outstanding securities of the Company; or (ii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation or entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (c) "Continuing Director" shall mean any member of the Company's board --------------------- of directors as of the date of this Agreement, and any successor to a Continuing Director who is recommended to succeed a Continuing Director by a majority of Continuing Directors who are then members of the board of directors. (d) "Corporate Status" means the status of an Agent of the Company, ------------------ and includes anything done or omitted to be done by an Agent of the Company in any such capacity. (e) "D&O Insurance" has the meaning set forth in Section 2 of this --------------- Agreement. (f) "Disinterested Director" means a director of the Company who is ------------------------ not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (g) "Dispute" has the meaning set forth in Section 8 of this --------- Agreement. (h) "Expenses" includes all out-of-pocket costs of any type or nature ---------- whatsoever (including, without limitation, all attorneys' fees and related disbursements), actually and 2 reasonably incurred by or on behalf of Indemnitee either in connection with the investigation, defense, adjudication, settlement or appeal of a Proceeding, in preparing to defend a Proceeding, or in connection with establishing or enforcing a right to indemnification or advancement of Expenses under this Agreement, the Certificate of Incorporation or By-laws of the Company, applicable law or otherwise; provided, however, that Expenses shall not include judgments, fines, penalties or amounts paid in settlement of a Proceeding. (i) "Good Faith" means in good faith and in a manner Indemnitee ------------ reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, with no reasonable cause to believe Indemnitee's conduct was unlawful. (j) "Independent Counsel" means a law firm, or a member of a law firm, --------------------- that is experienced in matters of corporation law and neither presently is, nor in the past three years has been, retained to represent (i) the Company or Indemnitee in any manner material to either such party (except representation as Independent Counsel under this Agreement or any similar agreement), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, could be precluded from representing either the Company or Indemnitee due to actual or potential conflicts of interest in an action to determine Indemnitee's rights under this Agreement. (k) "Proceeding" means any threatened, pending or completed action, ------------ suit or other proceeding, or any inquiry or investigation, whether conducted by the Company or any other party that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or of any other type whatsoever. (l) "Subsidiary" means any corporation of which 50% or more of the ------------ outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more other Subsidiaries, or by one or more other Subsidiaries. 2. D&O Insurance. To the extent that the Company maintains at any time -------------- during the term hereof an insurance policy or policies providing liability insurance for any Agent of the Company ("D&O Insurance"), the Company shall use commercially reasonable efforts to obtain coverage for Indemnitee under such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any Agent of the Company occupying the same office or position with respect to the Company, provided that outside directors of the Company shall receive coverage no less extensive than coverage provided to any executive officer or other director of the Company. 3. Indemnification. ---------------- (a) General Intent. If, by reason of Indemnitee's Corporate Status, --------------- Indemnitee is a party or is threatened to be made a party to any Proceeding, the Company shall indemnify and advance Expenses to Indemnitee to the fullest extent permitted by applicable law in effect on the 3 date hereof and to such greater extent as applicable law may thereafter from time to time permit. Without limiting the generality of the foregoing, the Company shall indemnify and advance Expenses to Indemnitee as provided under this Agreement. (b) Proceedings Other Than Proceedings by or in the Right of the ------------------------------------------------------------ Company. If, by reason of Indemnitee's Corporate Status, Indemnitee is, or is - ------- threatened to be made, a party to any Proceeding, other than a Proceeding by or in the right of the Company, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement, including all interest, assessments and other charges paid or payable with respect thereto, actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in Good Faith with respect to the matters which are the subject of the Proceeding (determined either by adjudication or pursuant to Sections 5 or 8). (c) Proceeding by or in the Right of the Company. If, by reason of --------------------------------------------- Indemnitee's Corporate Status, Indemnitee is, or is threatened to be made, a party to any Proceeding brought by or in the right of the Company to procure a judgment in its favor, Indemnitee shall be indemnified against Expenses and amounts paid in settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with such Proceeding if Indemnitee acted in Good Faith with respect to the matters which are the subject of the Proceeding (determined either by adjudication or pursuant to Sections 5 or 8). Notwithstanding the foregoing, no such indemnification shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company if applicable law prohibits such indemnification; provided, however, that indemnification shall nevertheless be made in such event to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine. (d) Indemnification of a Party Who is Wholly or Partly Successful. -------------------------------------------------------------- Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a party to any Proceeding and is successful, on the merits or otherwise, in the defense of such Proceeding, Indemnitee shall be indemnified to the maximum extent permitted by law, against all Expenses in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee to the maximum extent permitted by law, against all Expenses in connection with each such successfully resolved claim, issue or matter. For purposes of this Section 3(d) and without limitations the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter, so long as there has been no determination (either adjudicated or pursuant to Sections 5 or 8) that Indemnitee did not act in Good Faith. (e) Indemnification for Expenses of a Witness. Notwithstanding any ------------------------------------------ other provisions of this Agreement, to the extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall be indemnified against all Expenses in connection therewith. 4 (f) Partial Indemnification. If Indemnitee is entitled under this ------------------------ Agreement to indemnification by the Company for some or a portion of any Expenses, judgments, penalties, fines or amounts paid in settlement in connection with any Proceeding but is not entitled to indemnification for the full amount thereof, the Company shall nevertheless indemnify Indemnitee for such full amount thereof less the portion to which it is ultimately determined (either by adjudication or pursuant to Sections 5 or 8, as applicable) that Indemnitee is not entitled. (g) Claims Initiated by Indemnitee. Notwithstanding any other ------------------------------ provision of this Agreement to the contrary, the Company shall not be obligated under this Agreement to indemnify the Indemnitee in connection with any Proceeding initiated by the Indemnitee and not by way of defense, cross-claim or counter-claim unless (i) the initiation of such Proceeding is joined in or consented to by the Board of Directors of the Company or (ii) Indemnitee initiates the Proceeding in order to establish or enforce a right to indemnification or advancement of Expenses under this Agreement, the Certificate of Incorporation or Bylaws of the Company, applicable law or otherwise. (h) Exclusions. Notwithstanding any other provisions of this Agreement ----------- to the contrary, the Company shall not be obligated under this Agreement to make any payments: (i) to indemnify the Indemnitee for any Expenses, judgments, penalties, fines and amounts paid in settlement for which payment is actually made to or on behalf of the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance policy; or (ii) to indemnify the Indemnitee for any Expenses, judgments, penalties, fines and amounts paid in settlement pursuant to any Proceeding for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules and regulations promulgated thereunder and amendments thereto. 4. Advancement of Expenses. Notwithstanding any provision to the ----------------------- contrary herein, the Company shall advance all Expenses which, by reason of Indemnitee's Corporate Status, were incurred in connection with any Proceeding, within thirty days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred (which, in the case of legal bills, shall include information regarding hours spent and billing rates) and shall include or be preceded or accompanied by an undertaking, in substantially the form attached hereto as Exhibit A, by or on behalf of Indemnitee to repay any --------- Expenses as to which it shall ultimately be determined (either by adjudication or pursuant to Sections 5 or 8, as applicable) that Indemnitee is not entitled to be indemnified. 5 5. Procedures for Determination of Entitlement. -------------------------------------------- (a) Method of Determination. When, in connection with any Proceeding, ----------------------- an Expense, judgment, penalty, fine or amount paid in settlement has been incurred by Indemnitee or on Indemnitee's behalf, and where a determination would be required by Section 145(d) of the Delaware General Corporation Law or any successor statute, Indemnitee's entitlement to indemnification pursuant to Section 3 of this Agreement or to retain Expenses advanced pursuant to Section 4 of this Agreement shall be determined by Independent Counsel in a written opinion to the then current Board of Directors of the Company, a copy of which shall be delivered to Indemnitee. (b) Selection, Payment, Discharge of Independent Counsel. The ----------------------------------------------------- Independent Counsel shall be selected, paid and discharged in the following manner. (i) If a Change of Control has not occurred, the Independent Counsel shall be selected by a majority vote of a quorum of Disinterested Directors of the Board of Directors, and the Company shall give written notice to Indemnitee advising Indemnitee of the identity of the Independent Counsel so selected. (ii) If a Change of Control has occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event clause (i) of this Section 5(b) shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. (iii) Following the initial selection described in clauses (i) and (ii) of this Section 5(b), Indemnitee or the Company, as the case may be, may, within fourteen (14) calendar days after such written notice of selection has been given, deliver to the other party a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 1(j) of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is made by the Board of Directors or Indemnitee, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit or the Indemnitee and the Board of Directors otherwise agree. (iv) The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to this Agreement, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 5(b) regardless of the manner in which such Independent Counsel was selected or appointed. 6 (v) The Company and Indemnitee shall use all reasonable efforts to assist and cooperate with Independent Counsel, as requested by such counsel, so that counsel may deliver its written opinion with respect to Indemnitee's entitlement to indemnification within twenty (20) calendar days of its selection. Such twenty (20) day period shall be stayed for such period of time that the Indemnitee or the Board of Directors continues to object to the selection of Independent Counsel pursuant to Section 5 (b)(iii) hereof. (c) Failure to Select Independent Counsel. In the event that the Board -------------------------------------- of Directors fails or refuses to select the Independent Counsel pursuant to Section 5(b)(i), within twenty (20) calendar days after receipt by the Company of the request for indemnification, such failure or refusal shall be treated as determination that Indemnitee is entitled to the indemnification sought; provided, however, that if the Board of Directors is prevented from acting to select Independent Counsel within such twenty (20) day period by court order or other act or event beyond the reasonable control of the Board of Directors, then the twenty (20) day period shall be stayed for such time that the Board of Directors is so prevented from acting. (d) Payment. Following any determination or deemed determination that -------- Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) calendar days after such determination or on such later date as may be required pursuant to any judgment or structured settlement of the related Proceeding. 6. Proceedings Involving this Agreement. Notwithstanding any other ------------------------------------ provision of this Agreement to the contrary, the Company shall indemnify and hold harmless Indemnitee against all Expenses in connection with any Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement, unless a court of competent jurisdiction determines that each of the claims and/or defenses of Indemnitee in any such Proceeding was frivolous or made in bad faith. 7. Notice of Proceedings and Assumption of Defense. ------------------------------------------------ (a) Notice to Company. Promptly after receipt by Indemnitee of notice ------------------ of the commencement or the threat of commencement of any Proceeding with respect to which Indemnitee believes that Indemnitee may be entitled to indemnification or the advancement of Expenses under this Agreement, Indemnitee shall notify the Company in writing of the commencement or the threat of commencement thereof; provided, however, that Indemnitee's failure to provide any such notice shall not relieve the Company of any of its obligations under this Agreement unless the failure to provide such notice has a material adverse effect on the Company's ability to meet such obligations. (b) Notice to Insurers. Upon receipt of a notice as provided in ------------------- Section 7(a) hereof, the Company shall promptly give notice to its D&O Insurance carrier(s), if any, of the commencement or threat of commencement of the Proceeding described in such notice provided to the Company under Section 7(a), and shall thereafter take all steps reasonably necessary or desirable in order to 7 cause such D&O Insurance carrier(s) to pay to or on behalf of Indemnitee all amounts payable under such D&O Insurance in connection with such Proceeding. (c) Assumption of Defense. Within thirty (30) calendar days after the ---------------------- receipt by the Company of a notice pursuant to Section 7(a) hereof of the commencement or threat of commencement of a Proceeding, the Company may elect by written notice to Indemnitee to assume the defense of such Proceeding, with counsel selected by the Company and in whom Indemnitee has reasonable confidence after having interviewed such counsel. After the retention of such counsel by the Company, and for so long as the Company continues to retain such counsel, the Company shall not be liable to Indemnitee for any fees or disbursements of counsel incurred by Indemnitee in connection with such Proceeding; provided, however, that (i) Indemnitee shall have the continued right to employ counsel at the expense of Indemnitee and (ii) the Company shall pay the reasonable fees and disbursements of counsel retained by Indemnitee in the event that such counsel retained by Indemnitee shall advise Indemnitee and the Company that one or more non-frivolous legal defenses reasonably believed to be meritorious may be available to Indemnitee which are different from, in conflict with, or additional to those available to the Company (or any other person represented by counsel selected by the Company to represent Indemnitee in connection with such Proceeding) and may place the Company (or such person) and Indemnitee in potentially adverse positions and the Company, after consultation with its counsel, agrees in writing with such advice. 8. Remedies of Indemnitee. ----------------------- (a) Application. This Section 8 shall apply in the event of a Dispute. ------------ For purposes of this Section 8, "Dispute" shall mean any of the following events: (i) a determination is made pursuant to Section 5 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement and Indemnitee disagrees with such determination; (ii) a determination is made by Independent Counsel pursuant to Section 5(a) of this Agreement, or is deemed made pursuant to Section 5(c), that Indemnitee is entitled to indemnification under this Agreement and the Board of Directors of the Company fails or refuses to implement such indemnification with such determination; (iii) advancement of Expenses is not timely made pursuant to Section 4 of this Agreement; (iv) a determination of entitlement to be made pursuant to Section 5(a) of this Agreement has not been made within twenty (20) calendar days after selection of Independent Counsel; (v) selection of Independent Counsel pursuant to Section 5(b) hereof has not been made within twenty (20) calendar days after receipt by the Company of the request for indemnification; 8 (vi) payment of indemnification is not made pursuant to Section 3(d) of this Agreement within thirty (30) calendar days after receipt by the Company of written notice from Indemnitee's counsel stating that Indemnitee has been successful on the merits or otherwise in any Proceeding as to one or more claims, issues or matters in such Proceeding; or (vii) payment of indemnification is not made when due under Section 5(d). (b) Adjudication. In the event of a Dispute, Indemnitee (or the ------------- Company in the case of a Dispute arising under Section 8(a)(ii)) shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee's entitlement to such indemnification or advancement of Expenses. Alternatively, in the event of a Dispute, Indemnitee (or the Company in the case of a Dispute arising under Section 8(a)(ii)) may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. Neither party shall oppose the other party's right to seek any such adjudication or arbitration. (c) De Novo Review. In the event a Dispute arises under Section --------------- 8(a)(i) or (ii), any judicial proceeding or arbitration commenced pursuant to this Section 8 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and the party seeking to overturn a prior adverse determination shall not be prejudiced by reasons of such prior adverse determination. In any such proceeding or arbitration, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (d) Procedures Valid. Subject to Section 21 hereof, the Company shall ---------------- be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 8 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is contractually bound by the provisions of this Agreement. 9. Non-Exclusivity; Other Provisions. The benefits and rights provided ---------------------------------- to Indemnitee under this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any law, the Certificate of Incorporation or By-laws of the Company, other agreements or otherwise. During the period from the date of this Agreement until the expiration of two (2) years from the date on which Indemnitee ceases to be an Agent of the Company (unless a Proceeding is then pending, in which case this obligation shall continue until the final conclusion of such Proceeding), the Company agrees not to amend any provision of the Company's Certificate of Incorporation or By-laws now or hereafter in effect that authorizes the indemnification of Agents of the Company, or that limits or eliminates the liability of any Agent of the Company with respect to any action or inaction in such capacity, in a manner which materially and adversely affects Indemnitee's rights thereunder, without the express written consent of Indemnitee. 9 10. Interpretation. The parties hereto intend that this Agreement be -------------- interpreted and enforced so as to provide indemnification and advancement of Expenses to Indemnitee to the fullest extent which is now or hereafter permitted by applicable law and, in the event that the validity, legality or enforceability of any provision of this Agreement is in question, such provision shall be interpreted in a manner such that the provision will be valid, legal and enforceable to the greatest extent possible. For purposes of this Agreement, the termination of any Proceeding by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contender, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that Indemnitee is not entitled to indemnification or expense advance or that indemnification or Expense advance is not permitted by applicable law, unless the issue of such standard of conduct, belief or determination of entitlement was specifically adjudicated, or admitted or acknowledged by Indemnitee, in connection with the terminated Proceeding. 11. Change of Law. If Section 145 of the Delaware General Corporation -------------- Law, or any successor statute, is hereafter amended (the "Amended Statute") in a manner that expands the authority of the Company to indemnify or advance Expenses to Indemnitee, this Agreement shall thereupon be deemed modified to provide for indemnification of and advancement of Expenses to Indemnitee to the fullest extent not prohibited by the Amended Statute. 12. Continuation of Indemnification. Except as provided in Section 21 ------------------------------- hereof, all obligations of the Company hereunder shall continue during the period Indemnitee is an Agent of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible Proceeding by reason of the fact that Indemnitee was serving or had served as an Agent of the Company. 13. Modification and Waiver. Except as expressly provided herein, no ------------------------ supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall such waiver constitute a continuing waiver. 14. Severability. If any provision of this Agreement is held by a court ------------- of competent jurisdiction to be invalid or unenforceable for any reason whatsoever, the validity and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and to the fullest extent possible the other provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision held invalid or unenforceable and to give effect to Section 10 hereof. 15. Counterparts. This Agreement may be executed in one or more ------------- counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. 16. Headings. The headings in this Agreement are inserted for -------- convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 10 17. Governing Law. This Agreement shall be governed by and construed -------------- according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 18. Burden of Proof. In the event of any Dispute under this Agreement --------------- involving the obligations of the Company to indemnify or advance Expenses to Indemnitee, the Company shall have the burden of proving that the Company is not so obligated to indemnify or advance Expenses to Indemnitee. 19. Notices. Any written notice required or permitted under this -------- Agreement shall be deemed to have been duly given on the date of service, if served personally on the party to whom notice is to be given, or on the fifth day after mailing if mailed by certified mail, postage prepaid and addressed to the addressee at the address stated opposite its name below, or at the most recent address specified by written notice by one of the parties to the other. Company Concurrent Computer Corporation 2101 West Cypress Creek Road Ft. Lauderdale, Florida 33309 Attention: General Counsel Indemnitee Robert E. Chism 10735 N.W. 54th Place Coral Springs, FL 33076 20. Successors and Assigns. The terms of this Agreement shall bind, ---------------------- and shall inure to the benefit of, the successors and assigns of the Company and the heirs, successors, administrators and assigns of Indemnitee, respectively, provided that Indemnitee's rights hereunder may not be assigned without the Company's written consent. 21. Stockholder Approval. In the event this Agreement is submitted to -------------------- the stockholders of the Company for ratification and the stockholders fail to ratify this Agreement, this Agreement shall terminate as of the date of such stockholder vote and have no further force and effect thereafter; provided, however, that to the extent permitted by law all obligations of the Company hereunder shall continue with respect to, and so long as Indemnitee shall be subject to any Proceeding relating to any act or omission of the Indemnitee which occurred or is alleged to have occurred on or after the date this Agreement is signed by the Company and prior to the date of such stockholder vote. 22. Subrogation. In the event of payment under this Agreement, the ----------- Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 11 IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the date first set forth above. CONCURRENT COMPUTER CORPORATION By: /s/ Karen G. Fink ------------------------------------ Karen G. Fink Vice President, General Counsel and Secretary INDEMNITEE /s/ Robert E. Chism --------------------------------------- Robert E. Chism 12 EXHIBIT A --------- Substance of Undertaking ------------------------ The undersigned hereby undertakes and agrees to repay to the Company any Expenses, advanced by the Company, as to which it shall ultimately be determined (either by adjudication or pursuant to Sections 5 or 8, as applicable, of the Indemnification Agreement between the undersigned and Concurrent Computer Corporation (the "Agreement")), that the undersigned is not entitled to be indemnified. The defined terms used in the preceding sentence shall have the meaningss set forth in the Agreement. 13 EX-31.1 5 doc3.txt EXHIBIT 31.1 CERTIFICATION ------------- I, Jack A. Bryant, III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Concurrent Computer Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 12, 2004 /s/ Jack A. Bryant, III ------------------------- Name: Jack A. Bryant, III Title: President and Chief Executive Officer EX-31.2 6 doc4.txt EXHIBIT 31.2 CERTIFICATION ------------- I, Steven R. Norton, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Concurrent Computer Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 12, 2004 /s/ Steven R. Norton ------------------------- Name: Steven R. Norton Title: Executive Vice President, Chief Financial Officer and Secretary EX-32.1 7 doc5.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Concurrent Computer Corporation (the "Corporation") for the quarter ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the President and Chief Executive Officer of the Corporation certifies that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Corporation. February 12, 2004 /s/ Jack A. Bryant, III ----------------------------- Jack A. Bryant, III President and Chief Executive Officer EX-32.2 8 doc6.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Concurrent Computer Corporation (the "Corporation") for the quarter ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the Executive Vice President, Chief Financial Officer and Secretary of the Corporation certifies that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Corporation. February 12, 2004 /s/ Steven R. Norton ------------------------- Steven R. Norton Executive Vice President, Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----