-----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, Ammn91v6fYtREEidQ0rI5Ao21STTcITBrKFMgqe6CGlZptX87BW3PdXgJ8In2Lhs kD+qH8lKU6wAnVRhTPPYFQ== 0000950135-01-501073.txt : 20010510 0000950135-01-501073.hdr.sgml : 20010510 ACCESSION NUMBER: 0000950135-01-501073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCORD COMMUNICATIONS INC CENTRAL INDEX KEY: 0000915290 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 042710876 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23067 FILM NUMBER: 1626298 BUSINESS ADDRESS: STREET 1: 600 NICKERSON RD CITY: MARLBORO STATE: MA ZIP: 01752 BUSINESS PHONE: 5084604646 MAIL ADDRESS: STREET 1: 600 NICKERSON RD CITY: MARLBORO STATE: MA ZIP: 01752 10-Q 1 b39240cce10-q.txt CONCORD COMMUNICATIONS, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2001. 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 NUMBER 0-23067 CONCORD COMMUNICATIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2710876 (State of incorporation) (IRS Employer Identification Number) 600 NICKERSON ROAD MARLBORO, MASSACHUSETTS 01752 (508) 460-4646 (ADDRESS AND TELEPHONE OF PRINCIPAL EXECUTIVE OFFICES) ---------------- INDICATE BY CHECK MARK WHETHER 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, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS; YES X NO --- --- 16,620,898 SHARES OF THE REGISTRANT'S COMMON STOCK, $0.01 PAR VALUE, WERE OUTSTANDING AS OF MAY 4, 2001. THIS DOCUMENT CONTAINS 33 PAGES. THE EXHIBIT INDEX IS ON PAGE 24. 2 CONCORD COMMUNICATIONS, INC. FORM 10-Q, MARCH 31, 2001 CONTENTS
Item Number Page PART I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets: March 31, 2001 and December 31, 2000 2 Condensed Consolidated Statements of Operations: Three months ended March 31, 2001 and March 31, 2000 3 Consolidated Statements of Cash Flows: Three months ended March 31, 2001 and March 31, 2000 4 Notes to Condensed Consolidated Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-19 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 PART II: OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURE 23 EXHIBIT INDEX 24-25
1 3 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONCORD COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31, 2001 2000 ------------- ------------- ASSETS Current Assets: Cash, cash equivalents and marketable securities $ 62,115,223 $ 63,251,427 Accounts receivable, net of allowance of $1,320,770 and $1,525,965 in 2001 and 2000, respectively 17,158,926 20,000,193 Prepaid expenses and other current assets 2,813,138 2,409,350 ------------- ------------- Total current assets 82,087,287 85,660,970 ------------- ------------- Equipment and Improvements, at cost: Equipment 17,369,468 16,085,465 Leasehold improvements 6,115,789 6,080,105 ------------- ------------- 23,485,257 22,165,570 Less--Accumulated depreciation and amortization 10,625,169 9,140,170 ------------- ------------- Equipment and Improvements, Net 12,860,088 13,025,400 ------------- ------------- Deferred Tax Asset 3,500,000 3,500,000 Other Long-term Assets 95,244 89,689 ------------- ------------- $ 98,542,619 $ 102,276,059 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,335,094 $ 3,117,627 Accrued expenses 11,261,429 11,108,921 Deferred revenue 18,392,968 17,303,928 ------------- ------------- Total current liabilities 31,989,491 31,530,476 ------------- ------------- Common Stock, $0.01 par value: Authorized -- 50,000,000 shares Issued and outstanding-- 16,574,655 and 16,554,944 shares, in 2001 and 2000, respectively 165,747 165,549 Additional paid-in capital 94,445,671 95,479,340 Deferred compensation (245,348) (1,509,880) Accumulated other comprehensive income 1,077,147 135,159 Accumulated deficit (28,890,089) (23,524,585) ------------- ------------- Total stockholders' equity 66,553,128 70,745,583 ------------- ------------- $ 98,542,619 $ 102,276,059 ============= =============
The accompanying notes are an integral part of these unaudited consolidated financial statements. 2 4 CONCORD COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED ----------------------------------- MARCH 31, MARCH 31, 2001 2000 ------------ ------------ Revenues: License revenues $ 13,070,834 $ 14,852,527 Service revenues 7,360,499 4,415,746 ------------ ------------ Total revenues 20,431,333 19,268,273 Cost of Revenues 4,961,427 2,426,363 ------------ ------------ Gross profit 15,469,906 16,841,910 ------------ ------------ Operating Expenses: Research and development 6,404,872 4,788,080 Sales and marketing 12,419,248 9,226,056 General and administrative 2,546,759 1,415,687 Stock-based compensation 191,823 254,257 Acquisition-related charges -- 4,300,000 ------------ ------------ Total operating expenses 21,562,702 19,984,080 ------------ ------------ Operating loss (6,092,796) (3,142,170) Other income, net 727,292 755,931 ------------ ------------ Loss before income taxes and extraordinary items (5,365,504) (2,386,239) Benefit from income taxes -- (891,000) ------------ ------------ Loss before extraordinary items (5,365,504) (1,495,239) Extraordinary loss upon early retirement of debt, net of tax benefit of $72,000 -- (216,010) ------------ ------------ Net loss $ (5,365,504) $ (1,711,249) ============ ============ Net loss per common and potential common share: Basic $ (0.32) $ (0.11) ============ ============ Diluted $ (0.32) $ (0.11) ============ ============ Weighted average common and potential common shares outstanding: Basic 16,560,541 15,436,856 ============ ============ Diluted 16,560,541 15,436,856 ============ ============
The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 5 CONCORD COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED ----------------------------------- MARCH 31, MARCH 31, 2001 2000 ------------ ------------ Cash Flows from Operating Activities: Net loss $ (5,365,504) $ (1,711,249) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,484,999 669,853 Stock-based compensation 191,823 254,257 Deferred tax benefit -- (963,000) Changes in current assets and liabilities: Accounts receivable 2,841,267 (2,143,198) Prepaid expenses and other assets (409,343) 255,856 Accounts payable (782,533) (89,918) Accrued expenses 152,508 (818,600) Deferred revenue 1,089,040 2,062,117 Deferred tax asset -- (963,000) ------------ ------------ Net cash used in operating activities (797,743) (2,483,882) ------------ ------------ Cash Flows from Investing Activities: Purchases of equipment and improvements (1,319,687) (2,162,002) Net (investments in) proceeds from marketable securities (417,812) 1,803,253 ------------ ------------ Net cash used in investing activities (1,737,499) (358,749) ------------ ------------ Cash Flows from Financing Activities: Repayments of bank borrowings -- (2,962,466) Proceeds from shares issued in connection with employee stock plans and warrants exercised 39,238 839,170 ------------ ------------ Net cash provided by (used in) financing activities 39,238 (2,123,296) ------------ ------------ Net Decrease in Cash and Cash Equivalents (2,496,004) (4,965,927) Cash and Cash Equivalents, beginning of period 10,725,265 10,629,528 ------------ ------------ Cash and Cash Equivalents, end of period $ 8,229,261 $ 5,663,601 ============ ============ Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ -- $ 33,592 ============ ============ Cash paid for taxes $ 40,500 $ 147,306 ============ ============ Supplemental Disclosure of Noncash Transactions: Deferred compensation related to grants of stock options $ (1,072,709) $ 150,274 ============ ============ Conversion of redeemable convertible preferred stock to common stock $ -- $ 11,723,017 ============ ============ Unrealized gain (loss) on available-for-sale securities $ 941,988 $ (81,150) ============ ============
The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 6 CONCORD COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FORM 10-Q, MARCH 31, 2001 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements have been presented by Concord Communications, Inc. (the "Company") unaudited (except the balance sheet information as of December 31, 2000 which has been derived from audited financial statements) in accordance with accounting principles generally accepted in the United States for interim financial statements and with the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements. Accordingly, these interim financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements reflect all adjustments and accruals which management considers necessary for a fair presentation of financial position as of March 31, 2001 and December 31, 2000, and the results of operations for the three months ended March 31, 2001 and 2000. The results for the interim periods presented are not necessarily indicative of results to be expected for any future period. The financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's 2000 Annual Report on Form 10-K filed with the Securities and Exchange Commission in March 2001. REVENUE RECOGNITION The Company's revenues consist of software license revenues and service revenues. Software license revenues are recognized in accordance with the American Institute of Certified Public Accountants' Statement of Position ("SOP") 97-2, Software Revenue Recognition, as modified by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with respect to Certain Transactions. Under SOP 97-2, software license revenues are recognized upon execution of a contract and delivery of software, provided that the license fee is fixed and determinable, no significant production, modification or customization of the software is required and collection is considered probable by management. Revenues under multiple element arrangements, which typically include software products and maintenance sold together, are allocated to each element using the residual method in accordance with SOP 98-9. Service revenues are recognized as the services are performed. Maintenance revenues are derived from customer support agreements generally entered into in connection with initial license sales and subsequent renewals. Maintenance revenues are recognized ratably over the term of the maintenance period. Payments for maintenance fees are generally made in advance. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. BASIC AND DILUTED LOSS PER COMMON SHARE The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during the period. Dilutive common-equivalent shares primarily consist of employee stock options. Diluted loss per share is the same as basic loss per share for all periods presented, as the effects of potential common stock are antidilutive. For the three months ending March 31, 2001, and 2000, employee stock options to purchase 3,542,350 and 2,972,386 shares respectively, were outstanding but not included in the diluted weighted-average share calculation as the effect would have been antidilutive. Additionally, warrants to purchase 18,033 common shares and 1,252,616 potential common shares pursuant to 5 7 conversion of redeemable convertible preferred stock were partially outstanding during the three months ending March 31, 2000 and have been excluded from the diluted weighted-average share calculation. 3. COMPREHENSIVE LOSS Comprehensive loss for the three months ended March 31, 2001 and 2000 is as follows:
THREE MONTHS ENDED ------------------ MARCH 31, MARCH 31, 2001 2000 ----------- ----------- Net loss ........................ $(5,365,504) $(1,711,249) Unrealized gain (loss) on marketable securities....... 941,988 (81,150) ----------- ----------- Comprehensive loss .............. $(4,423,516) $(1,792,399) =========== ===========
4. ACQUISITIONS On February 4, 2000, the Company consummated a transaction pursuant to which it acquired FirstSense Software, Inc. ("FirstSense"). Under the terms of the agreement, the shareholders and option holders of FirstSense received an aggregate of 1,940,000 equivalent Concord shares to effect the business combination. The transaction is being accounted for as a pooling of interests. Accordingly, all prior period financial statements presented have been restated to reflect the combination of the respective companies, as required by APB Opinion No. 16, "Accounting for Business Combinations". All inter-company transactions have been eliminated as a result of the business combination. As a part of the transaction, the Company incurred direct, acquisition-related charges of approximately $4,300,000. All of such costs have been charged to operations in fiscal 2000 upon consummation of the FirstSense acquisition in February 2000. 5. SEGMENT REPORTING AND INTERNATIONAL INFORMATION The Company follows the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company's chief decision making group, as defined under SFAS 131, is the Executive Management Committee. The following table presents the approximate revenue by major geographical regions:
THREE MONTHS ENDED ------------------ MARCH 31, MARCH 31, 2001 2000 ----------- ----------- United States ................ $13,044,000 $11,984,000 Europe ....................... 4,149,000 4,794,000 Rest of the World............. 3,238,000 2,490,000 ----------- ----------- Total ........................ $20,431,000 $19,268,000 =========== ===========
6 8 No one country, except the United States, accounts for greater than 10% of total revenues. Substantially all of the Company's assets are located in the United States. The Company's reportable segments are determined by customer type: service providers/telecommunications companies (SP/T) and enterprise. The accounting policies of the segments are the same as those described in Note 1. The Executive Management Committee evaluates segment performance based on revenue. Accordingly, all expenses are considered corporate level activities and are not allocated to segments. Also, the Executive Management Committee does not assign assets to these segments. The table presents the approximate revenue by reportable segment:
THREE MONTHS ENDED ------------------ MARCH 31, MARCH 31, 2001 2000 ----------- ----------- SP/T .................... $ 8,451,000 $ 9,162,000 Enterprise............... 11,980,000 10,106,000 ----------- ----------- Total ................... $20,431,000 $19,268,000 =========== ===========
7 9 CONCORD COMMUNICATIONS, INC. FORM 10-Q, MARCH 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Concord develops, markets and supports a suite of highly scalable software solutions, our eHealth Suite(TM) family of products, which maximizes the availability and performance of networks, systems, and applications that form the critical underlying internet infrastructure on which businesses depend for their operations. Concord's software solutions monitor to detect fault conditions throughout the infrastructure in real time; test availability and responsiveness of critical services; collect, consolidate, normalize and analyze high volumes of data from the internet infrastructure; alert IT personnel to faults and potential outages and automatically execute corrective action to restore availability and maximize uptime of the internet infrastructure, if desired. This document contains forward-looking statements. Any statements contained herein that do not describe historical facts are forward-looking statements. Concord makes such forward-looking statements under the provisions of the "safe harbor" section of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein are based on current expectations, but are subject to a number of risks and uncertainties. Concord's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed elsewhere in this Form 10-K under the heading "Risk Factors". RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data as percentages of the Company's total revenue:
UNAUDITED THREE MONTHS ENDED ------------------------ MARCH 31, MARCH 31, 2001 2000 --------- --------- Revenues: License revenues 64.0% 77.1% Service revenues 36.0 22.9 ----- ----- Total revenues 100.0 100.0 Cost of Revenues 24.3 12.6 ----- ----- Gross profit 75.7 87.4 ----- ----- Operating Expenses: Research and development 31.3 24.8 Sales and marketing 60.8 47.9 General and administrative 12.5 7.3 Stock-based compensation 0.9 1.3 Acquisition-related charges 0.0 22.3 ----- ----- Loss from Operations -29.8 -16.3 Other income, net 3.6 3.9 ----- ----- Loss before taxes -26.3 -12.4 Benefit from income taxes 0.0 -4.6 ----- ----- Net Loss before extraordinary items -26.3 -7.8 Extraordinary Items 0.0 -1.1 ----- ----- Net Loss -26.3% -8.9% ===== =====
8 10 TOTAL REVENUES. The Company's total revenues increased 6.0% to $20.4 million in the three months ended March 31, 2001 from $19.3 million in the three months ended March 31, 2000. LICENSE REVENUES. The Company's license revenues, which are derived from the licensing of software products, decreased 12.0% to $13.1 million, or 64.0% of total revenues, in the three months ended March 31, 2001 from $14.8 million, or 77.1% of total revenues, in the three months ended March 31, 2000. The decrease in license revenues resulted mainly from the widespread economic slowdown. The decrease in license revenues as a percent of total revenues was, in part, due to a significant increase in service revenues. SERVICE REVENUES. The Company's service revenues, which consist of fees for maintenance, training and professional services, increased 66.7% to $7.3 million, or 36.0% of total revenues, in the three months ended March 31, 2001 from $4.4 million, or 22.9% of total revenues, in the three months ended March 31, 2000. The increase in service revenues was attributable to an increase in the number of customers and the resulting demand for services by these customers. COST OF REVENUES. Cost of revenues includes expenses associated with royalty costs, production, fulfillment and product documentation, along with personnel costs associated with providing customer support in connection with maintenance, training and professional service contracts. Royalty costs are composed of third party software costs. Cost of revenues increased 104.5% to $4.9 million, or 24.3% of total revenues, in the three months ended March 31, 2001 from $2.4 million, or 12.6% of total revenues, in the three months ended March 31, 2000, resulting in gross margins of 75.7% and 87.4% in each respective period. The increase in cost of revenues as a percent of sales was primarily driven by the increased spending in customer support to be more responsive to growing customer needs. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consist primarily of personnel costs associated with software development. Research and development expenses increased 33.8% to $6.4 million, or 31.3% of total revenues, in the three months ended March 31, 2001 from $4.8 million, or 24.8% of total revenues, in the three months ended March 31, 2000. The increase in absolute dollars in research and development expenses was primarily due to the increased headcount in research and development from 103 to 143 for the period from March 31, 2000 to March 31, 2001. SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily of salaries, commissions to sales personnel and agents, travel, tradeshow participation, public relations, advertising and other promotional expenses. Sales and marketing expenses increased 34.6% to $12.4 million, or 60.8% of total revenues, in the three months ended March 31, 2001 from $9.2 million, or 47.9% of total revenues, in the three months ended March 31, 2000. The increase in absolute dollars was primarily the result of increased headcount to continue to build the direct sales force along with additional marketing and promotional activities to penetrate the market. Headcount in sales and marketing increased from 132 to 181 people from March 31, 2000 to March 31, 2001. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist primarily of salaries for financial, administrative and management personnel and related travel expenses, as well as legal and accounting expenses. General and administrative expenses increased 79.9% to $2.5 million, or 12.5% of total revenues, in the three months ended March 31, 2001 from $1.4 million, or 7.3% of total revenues, in the three months ended March 31, 2000. The increase in absolute dollars is associated with an increase of costs in general support areas, such as human resources, finance and legal services, which will enable the Company to scale its infrastructure in anticipation of future growth. Headcount in general and administrative functions increased from 25 to 43 people from March 31, 2000 to March 31, 2001. ACQUISITION-RELATED EXPENSES. Acquisition-related expenses of approximately $4.3 million were incurred in the three months ending March 31, 2000 related to accounting, legal and investment banking fees associated with the acquisition of FirstSense Software, Inc. OTHER INCOME. Other income consists of interest earned on funds available for investment net of interest expense in connection with the financing of capital equipment and interest expense paid, FirstSense, on an outstanding term loan (FirstSense). The Company had net other income of $727,000 for the three months ended March 31, 2001 and net other income of $756,000 for the three months ended March 31, 2000. EXTRAORDINARY ITEMS. The Company recognized an extraordinary loss of $216,000 (net of the tax benefit of $72,000) in the three months ended March 31, 2000 related to the early extinguishment of certain debt that the Company assumed as part of the FirstSense acquisition. 9 11 BENEFIT FROM INCOME TAXES. The Company did not record any income tax benefit in the three months ended March 31, 2001 versus a benefit of $891,000 in the three months ended March 31, 2000. The Company did not record such a benefit in 2001 based on its estimate of its year-end tax position. LIQUIDITY AND CAPITAL RESOURCES The Company financed its operations, prior to its initial public offering, primarily through the private sales of equity securities and a credit line for equipment purchases. On October 24, 1997, the Company completed its initial public offering yielding the Company net proceeds of approximately $34.7 million. The Company had working capital of $50.1 million at March 31, 2001. Net cash used in operating activities was $798,000 and $2.5 million for the three months ended March 31, 2001 and 2000, respectively. Accounts receivable decreased $2.8 million mainly due to lower license revenue. Cash, cash equivalents and marketable securities were $62.1 million and $63.3 million at March 31, 2001 and December 31, 2000, respectively. Investing activities have consisted of the acquisition of property and equipment, most notably computer and networking equipment to support the growing employee base and corporate infrastructure and also investments in marketable securities. The Company manages its market risk on its investment securities by selecting investment grade securities with the highest credit ratings of relatively short duration that trade in highly liquid markets. Financing activities consisted primarily of the issuance of common stock and exercise of options during the three months ended March 31, 2001 and 2000 and from the repayments on borrowings on a subordinated debt financing by FirstSense. As of March 31, 2001, the Company's principal sources of liquidity included cash and marketable securities. The Company believes that its current cash, marketable securities and cash provided by future operations will be sufficient to meet its working capital and anticipated capital expenditure requirements for the next 12 months. Although operating activities may provide cash in certain periods, to the extent the Company experiences growth in the future, its operating and investing activities may require significant cash. Consequently, any such future growth may require the Company to obtain additional equity or debt financing. Pursuant to the Tax Reform Act of 1986, the utilization of net operating loss carryforwards for tax purposes may be subject to an annual limitation if a cumulative change of ownership of more than 50% occurs over a three-year period. As a result of the Company's 1995 preferred stock financings, such a change in ownership has occurred. As a result of this ownership change, the use of the net operating loss (NOL) carryforwards is limited. The Company has determined that its initial public offering did not cause another ownership change. In addition, NOL carryforwards acquired as a result of the FirstSense acquisition are also restricted as a result of a prior ownership change. The Company has deferred tax assets of approximately $14.9 million composed primarily of net operating loss carryforwards and research and development credits. The Company has partially reserved for these deferred tax assets by recording a valuation allowance of $11.4 million. The net tax asset is based on the Company's estimate of NOL carryforwards it expects to use in the next two years; all other tax assets have been fully reserved. Pursuant to paragraphs 20 to 25 of SFAS No. 109, the Company considered both positive and negative evidence in assessing the need for a valuation allowance. The factors that weighed most heavily on the Company's decision to record a valuation allowance were (i) the substantial restrictions on the use of certain of its existing NOL carryforwards and (ii) the uncertainty of future profitability. As a result of the Company's ownership change described above, the future use of approximately $6.6 million of the Company's NOL carryforwards are limited to only $330,000 per year; the substantial majority of such NOL carryforwards will expire before they can be used. The FirstSense NOL carryforwards are limited to $4.2 million per year. Pursuant to the provisions of SFAS No. 109, the Company used all of its remaining unrestricted NOL and credit carryforwards in computing the 1998 tax provision. As a part of restating its 1999 financial statements to reflect the FirstSense acquisition, the Company determined that approximately $3.0 million of valuation allowance previously recorded by FirstSense prior to the acquisition was not necessary, given the Company's estimates of future taxable income. Accordingly, pursuant to SFAS No. 109, the Company recorded an asset and reduced its provision for income taxes in the period in which such NOL carryforwards were generated by FirstSense. The Company is also subject to rapid technological change, competition from substantially larger competitors, a limited family of products and other related risks, as more thoroughly described in the "Risk Factors" section beginning on page 11 and in the "Risk Factors" section of the Company's Form 10-K, for the fiscal year ended December 31, 2000. The Company's dependence on a single product family in an emerging market makes the prediction of future results difficult, if not impossible, especially in the highly competitive software industry. As a result, the 10 12 Company found the evidence described above to be the most reliable objective evidence available in determining that a valuation allowance against its tax assets would be necessary. The Company's net operating loss deferred tax asset includes approximately $3.75 million pertaining to the benefit associated with the exercise and subsequent disqualifying disposition of incentive stock options by the Company's employees. When and if the Company realizes this asset, the resulting change in the valuation allowance will be credited directly to additional paid-in capital, pursuant to the provisions of SFAS No. 109. 11 13 RISK FACTORS References in these risk factors to "we," "our" the "Company" and "us" refer to Concord Communications, Inc., a Massachusetts corporation. Any investment in our common stock involves a high degree of risk. If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. This document contains forward-looking statements. Any statements contained herein that do not describe historical facts are forward-looking statements. Concord makes such forward-looking statements under the provisions of the "safe harbor" section of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein are based on current expectations, but are subject to a number of risks and uncertainties. Concord's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. OUR FUTURE OPERATING RESULTS ARE UNCERTAIN. We changed our focus to network management software in 1991 and commercially introduced our first Network Health(R) product in 1995. We acquired Empire Technologies in October 1999 and FirstSense Software in February 2000, bringing us into the broader performance, availability and fault management market. Accordingly, we have a relatively limited operating history in this broader market upon which you can evaluate our business and prospects can be based. We incurred significant net losses in each of the five fiscal years prior to earning a small profit in 1997, and remaining profitable in 1998, 1999 and 2000. As of March 31, 2001, we had accumulated net losses of approximately $28.9 million. Our limited operating history makes the prediction of future results of operations difficult or impossible. Our prospects must be considered in light of the risks, costs and difficulties frequently encountered by emerging companies, particularly companies in the competitive software industry. WE CANNOT ENSURE THAT OUR REVENUES WILL GROW OR THAT WE WILL BE PROFITABLE. Although we have achieved revenue growth and profitability for the fiscal years ended 2000, 1999, 1998 and 1997, we cannot ensure that we can generate revenue growth on a quarterly or annual basis, or that we can achieve or sustain any revenue growth. In addition, we have increased, and plan to increase further, our operating expenses in order to: - - fund higher levels of research and development; - - increase our sales and marketing efforts; - - develop new distribution channels; - - broaden our customer support capabilities; and - - expand our administrative resources in anticipation of future growth. To the extent that increases in our expenses precede or are not followed by increased revenue, our profitability will continue to suffer. Our revenue must grow substantially in order for us to become profitable on a quarterly or annual basis. In addition, in view of the rapidly evolving nature of our business and markets, our recent acquisitions and our limited operating history in our current market, we believe that one should not rely on period-to-period comparisons of our financial results as an indication of our future performance. In light of our strong performance in 1998, we used all of our remaining unrestricted tax net operating loss and credit carryforwards in 1998. Accordingly, we recorded a tax provision of $532,600 during 1998, $5.6 million during 1999 and $447,000 for 2000. The continuing restrictions on our future use of our net operating loss carryforwards will severely limit the benefit, if any, we will attribute to this asset. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE. We are likely to experience significant fluctuations in our quarterly operating results caused by many factors, including, but not limited to: - - changes in the demand for our products by customers or group of customers; - - the timing, composition and size of orders from our customers, including the tendency for significant bookings to occur in the last month of each fiscal quarter; 12 14 - - our success in integrating products from acquisitions to our current product line; - - our customers' spending patterns and budgetary resources for performance management software solutions; - - the success of our new customer generation activities; - - introductions or enhancements of products, or delays in the introductions or enhancements of products, by us or our competitors; - - changes in our pricing policies or those of our competitors; - - changes in the distribution channels through which products are sold; - - our success in anticipating and effectively adapting to developing markets and rapidly changing technologies; - - changes in networking or communications technologies; - - our success in attracting, retaining and motivating qualified personnel; - - changes in the mix of products sold by us and our competitors; - - the publication of opinions about us and our products, or our competitors and their products, by industry analysts or others; and - - changes in general economic conditions. Unlike other software companies with a longer history of operations, we do not derive a significant portion of our revenues from maintenance contracts, and therefore we do not have a significant ongoing revenue stream that may mitigate quarterly fluctuations in operating results. Furthermore, we are trying to expand our channels of distribution. Increases in our revenues will depend on our successful implementation of our distribution strategy. Due to the buying patterns of certain of our customers and also to our own sales incentive programs focused on annual sales goals, revenues in our fourth quarter could be higher than revenues in our first quarter of the following year. There also may be other factors, such as seasonality and the timing of receipt and delivery of orders within a fiscal quarter, that significantly affect our quarterly results, which are difficult to predict given our limited operating history. Our quarterly sales and operating results depend generally on: - - the volume and timing of orders within the quarter; - - the tendency of sales to occur late in fiscal quarters; and - - our fulfillment of orders received within the quarter. In addition, our expense levels are based in part on our expectations of future orders and sales, which are extremely difficult to predict. A substantial portion of our operating expenses are related to personnel, facilities and sales and marketing programs. Accordingly, we may not be able to adjust our fixed expenses quickly enough to address any significant shortfall in demand for our products in relation to our expectations. Due to all of the foregoing factors, we believe that our quarterly operating results are likely to vary significantly in the future. Therefore, in some future quarter our results of operations may fall below the expectations of securities analysts and investors. In such event, the trading price of our common stock would likely suffer. THE MARKET FOR PERFORMANCE MANAGEMENT SOFTWARE IS EMERGING. The market for our products is in an early stage of development. Although the rapid expansion and increasing complexity of computer networks, systems and applications in recent years has increased the demand for performance management software products, the awareness of and the need for such products is a recent development. Because the market for these products is only beginning to develop, it is difficult to assess: - - the size of this market; - - the appropriate features and prices for products to address this market; - - the optimal distribution strategy; and - - the competitive environment that will develop. 13 15 The development of this market and our growth will depend significantly upon the willingness of telecommunications carriers, ISPs, systems integrators and outsourcers to integrate performance management software into their product and service offerings. The market for performance management software may not grow or we may fail to assess properly and address the needs of this market. OUR SUCCESS IS DEPENDENT UPON SALES TO TELECOMMUNICATIONS CARRIERS. We derive a significant portion of our revenues, and likely will continue to, from the sales of our products to telecommunications carriers. The domestic telecommunications market has suffered from a turbulent economy during 2000 and early 2001, and Concord has been negatively affected by the downturn in capital spending within this market. Our future performance depends upon telecommunications carriers' increased incorporation of our products and services as part of their package of product and service offerings to end users. Our products may fail to perform favorably in and become an accepted component of the telecommunications carriers' product and service offerings. The volume of sales of our products and services to telecommunications carriers may increase slower than we expect or may decrease. MARKET ACCEPTANCE OF OUR eHEALTH(TM) PRODUCT FAMILY IS CRITICAL TO OUR SUCCESS. We currently derive substantially all of our product revenues from our eHealth(TM) product family, and we expect that revenues from these products will continue to account for substantially all of our product revenues for the foreseeable future. Broad market acceptance of these products is critical to our future success. We cannot ensure that market acceptance of our eHealth(TM) product will increase or even remain at current levels. Factors that may affect the market acceptance of our products include: - - the availability and price of competing products and technologies; and - - the success of our sales efforts and those of our marketing partners. Moreover, if demand for performance management software products increases, we anticipate that our competitors will introduce additional competitive products and new competitors could enter our market and offer alternative products. Product introductions by our competitors may also reduce future market acceptance of our products. OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE. OUR SUCCESS DEPENDS UPON MAINTENANCE OF STANDARD PROTOCOLS. The software industry is characterized by: - - rapid technological change; - - frequent introductions of new products; - - changes in customer demands; and - - evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. Our Network Health(R) products' analysis and reporting, as well as the quality of its reports, depends upon its utilization of the industry-standard Simple Network Management Protocol (SNMP) and the data resident in conventional Management Information Bases (MIBs). Any change in these industry standards, the development of vendor-specific proprietary MIB technology, or the emergence of new network technologies could affect the compatibility of our Network Health(R) products with these devices which, in turn, could affect its analysis and generation of comprehensive reports or the quality of the reports. Furthermore, although our products currently run on industry-standard UNIX operating systems and Windows NT, any significant change in industry-standard operating systems could affect the demand for, or the pricing of, our products. WE MUST INTRODUCE PRODUCT ENHANCEMENTS AND NEW PRODUCTS ON A TIMELY BASIS. Because of rapid technological change in the software industry and potential changes in the performance management software market and industry standards, the life cycle of versions of our eHealth(TM) products is difficult to estimate. We cannot ensure that: - - we will successfully develop and market enhancements to our eHealth(TM) products or successfully develop new products that respond to technological changes, evolving industry standards or customer requirements; 14 16 - - we will not experience difficulties that could delay or prevent the successful development, introduction and sale of such enhancements or new products; or - - that such enhancements or new products will adequately address the requirements of the marketplace and achieve any significant degree of market acceptance. OUR ACQUISITIONS MAY NEGATIVELY IMPACT OUR RESULTS OF OPERATIONS. In October 1999, we acquired Empire Technologies, Inc. Empire is a provider of solutions for proactive self-management of UNIX, Linux and Windows NT systems, as well as mission-critical applications. In February 2000, we acquired FirstSense Software, Inc. FirstSense is a provider of application response management solutions. Because these acquisitions will be recorded as "poolings-of-interests" for accounting and financial reporting purposes, we recorded the expenses of these acquisitions, which are substantial, in the period in which each acquisition occurred. The reporting of expenses of each acquisition as a current charge will have a significant adverse impact on our post-acquisition results of operations. INTEGRATING OUR ACQUIRED PRODUCTS AND SERVICES MAY BE DIFFICULT. The anticipated benefits of our acquisitions may not be achieved unless, among other things, our operations, products, services and personnel are successfully combined with those of our acquired companies in a timely and efficient manner. The diversion of our attention, and any difficulties encountered in our transition processes, could harm the combined enterprise. We cannot ensure that we will successfully integrate our acquired companies, because, among other things: - - the products and services offered by us and our acquired companies are highly complex and have been developed independently; and - - integration of our product lines with those of our acquired companies will require coordination of separate development and engineering teams from each company. If the anticipated benefits of our acquisitions are not achieved or are not achieved in a timely fashion, then our acquisitions could harm our operating results for a significant period of time that cannot now be determined. THE MARKET FOR OUR PRODUCTS IS INTENSELY COMPETITIVE. The market for our products is new, intensely competitive, rapidly evolving and subject to technological change. Our current and future competitors include: - - remote monitoring (RMON) probe vendors; - - element management software vendors; - - systems management software vendors; - - other performance analysis and reporting vendors; - - companies offering network performance reporting services; - - large network management platform vendors which may bundle their products with other hardware and software in a manner that may discourage users from purchasing our products; and - - developers of network element management solutions. We expect competition to persist, increase and intensify in the future with possible price competition developing in our markets. Many of our current and potential competitors have longer operating histories and significantly greater financial, technical and marketing resources and name recognition than us. We do not believe our market will support a large number of competitors and their products. In the past, a number of software markets have become dominated by one or a small number of suppliers, and a small number of suppliers or even a single supplier may dominate our market. If we do not provide products that achieve success in our market in the short term, we could suffer an insurmountable loss in market share and brand name acceptance. We cannot ensure that we will compete effectively with current and future competitors. 15 17 OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS MAY HARM OUR COMPETITIVE POSITION IN THE NETWORK MANAGEMENT SOFTWARE MARKET. Our success depends significantly upon our proprietary technology. We rely on a combination of patent, copyright, trademark and trade secret laws, non-disclosure agreements and other contractual provisions to establish, maintain and protect our proprietary rights. These means afford only limited protection. We have ten issued U.S. patents, six pending U.S. patent applications, and various foreign counterparts. We cannot ensure that patents will issue from our pending applications or from any future applications or that, if issued, any claims allowed will be sufficiently broad to protect our technology. In addition, we cannot ensure that any patents that have been or may be issued will not be challenged, invalidated or circumvented, or that any rights granted thereunder would protect our proprietary rights. Failure of any patents to protect our technology may make it easier for our competitors to offer equivalent or superior technology. We have registered or applied for registration for certain trademarks, and will continue to evaluate the registration of additional trademarks as appropriate. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or services or to obtain and use information that we regard as proprietary. Third parties may also independently develop similar technology without breach of our proprietary rights. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States. In addition, many of our products are licensed under shrinkwrap license agreements that are not signed by licensees. The law governing the enforceability of shrinkwrap license agreement is not settled in most jurisdictions. There can be no guarantee that we would achieve success in enforcing one or more shrinkwrap license agreements if we sought to do so in a court of law. WE LICENSE CERTAIN TECHNOLOGIES FROM THIRD PARTIES. We license from third parties, generally on a non-exclusive basis, certain technologies used in our products. The termination of any such licenses, or the failure of the third-party licensors to maintain adequately or update their products, could result in delay in our shipment of certain of our products while we seek to implement technology offered by alternative sources, and any required replacement licenses could prove costly. While it may be necessary or desirable in the future to obtain other licenses relating to one or more of our products or relating to current or future technologies, we cannot ensure that we will be successful in doing so on commercially reasonable terms or at all. INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS WOULD HARM OUR BUSINESS. Although we do not believe that we are infringing the intellectual property rights of others, claims of infringement are becoming increasingly common as the software industry develops and legal protections, including patents, are applied to software products. Litigation may be necessary to protect our proprietary technology, and third parties may assert infringement claims against us with respect to their proprietary rights. Any claims or litigation can be time-consuming and expensive regardless of their merit. Infringement claims against us can cause product release delays, require us to redesign our products or require us to enter into royalty or license agreements, which agreements may not be available on terms acceptable to us or at all. PRODUCT DEFECTS COULD RESULT IN LOSS OR DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS. As a result of their complexity, software products may contain undetected errors or failures when first introduced or as new versions are released. We cannot ensure that, despite testing by us and testing and use by current and potential customers, errors will not be found in new products we begin of commercial shipments or, if discovered, that we will successfully correct such errors in a timely manner or at all. The occurrence of errors and failures in our products could result in loss of or delay in market acceptance of our products, and alleviating such errors and failures could require significant expenditure of capital and other resources by us. WE MAY NOT HAVE SUFFICIENT PROTECTION AGAINST PRODUCT LIABILITY CLAIMS. Since our products are used by our customers to predict future network, system and application problems and avoid failures of the network to support critical business functions, design defects, software errors, misuse of our products, incorrect data from network elements or other potential problems within or out of our control that may arise from the use of our products could result in financial or other damages to our customers. We do not maintain product liability insurance. Although our license agreements with our customers typically contain provisions designed to limit our exposure to potential claims as well as any liabilities arising from such claims, such provisions may not effectively protect us against such claims and the liability and costs associated therewith. We provide warranties for our products for a period of time (currently three months) after purchase. Our license agreements generally do not permit product returns by the customer, and product returns for fiscal 2000, 1999 and 1998 represented less than 1.0% of total 16 18 revenues during each of such periods. We cannot ensure that product returns will not increase as a percentage of total revenues in future periods. WE RELY ON STRATEGIC PARTNERS AND OTHER EVOLVING DISTRIBUTION CHANNELS. Our distribution strategy is to develop multiple distribution channels, including sales through: - - strategic marketing partners, such as Cisco Systems; - - value added resellers, such as Empowered Networks; - - telecommunications carriers, such as MCI WorldCom; - - OEMs, such as Network Associates Inc.; and - - independent software vendors and international distributors. We have developed a number of these relationships and intend to continue to develop new "channel partner" relationships. Our success will depend in large part on our development of these additional distribution relationships and on the performance and success of these third parties, particularly telecommunications carriers and other network service providers. We have recently established many of our channel partner relationships. Accordingly, we cannot predict the extent to which our channel partners will be successful in marketing our products. We generally expect that our agreements with our channel partners may be terminated by either party without cause. None of our channel partners are required to purchase minimum quantities of our products and none of these agreements contain exclusive distribution arrangements. We may: - - fail to attract important and effective channel partners; - - fail to penetrate the market segments of our channel partners; or - - lose any of our channel partners, as a result of competitive products offered by other companies, products developed internally by these channel partners or otherwise. WE MAY FAIL TO MANAGE SUCCESSFULLY OUR GROWTH. We have experienced significant growth in our sales and operations and in the complexity of our products and product distribution channels. We have increased and are continuing to increase the size of our sales force and coverage territories. Furthermore, we have established and are continuing to establish additional distribution channels through third party relationships. Our growth, coupled with the rapid evolution of our markets, has placed, and is likely to continue to place, significant strains on our administrative, operational and financial resources and increase demands on our internal systems, procedures and controls. OUR SUCCESS DEPENDS ON OUR RETENTION OF KEY PERSONNEL. Our performance depends substantially on the performance of our key technical and senior management personnel, none of whom is bound by an employment agreement. We may lose the services of any of such persons. We do not maintain key person life insurance policies on any of our employees. Our success depends on our continuing ability to identify, hire, train, motivate and retain highly qualified management, technical, and sales and marketing personnel, including recently hired officers and other employees. We experience intense competition for such personnel. We cannot ensure that we will successfully attract, assimilate or retain highly qualified technical, managerial or sales and marketing personnel in the future. OUR FAILURE TO EXPAND INTO INTERNATIONAL MARKETS COULD HARM OUR BUSINESS. We intend to continue to expand our operations outside of the United States and enter additional international markets, primarily through the establishment of additional reseller arrangements. We expect to commit additional time and development resources to customizing our products and services for selected international markets and to developing international sales and support channels. We cannot ensure that such efforts will be successful. We face certain difficulties and risks inherent in doing business internationally, including, but not limited to: 17 19 - - costs of customizing products and services for international markets; - - dependence on independent resellers; - - multiple and conflicting regulations; - - exchange controls; - - longer payment cycles; - - unexpected changes in regulatory requirements; - - import and export restrictions and tariffs; - - difficulties in staffing and managing international operations; - - greater difficulty or delay in accounts receivable collection; - - potentially adverse tax consequences; - - the burden of complying with a variety of laws outside the United States; - - the impact of possible recessionary environments in economies outside the United States; and - - political and economic instability. Our successful expansion into certain countries will require additional modification of our products, particularly national language support. Our current export sales are denominated in United States dollars and we currently expect to largely continue this practice as we expand internationally. To the extent that international sales continue to be denominated in U.S. dollars, an increase in the value of the United States dollar relative to other currencies could make our products and services more expensive and, therefore, potentially less competitive in international markets. To the extent that future international sales are denominated in foreign currency, our operating results will be subject to risks associated with foreign currency fluctuation. We would consider entering into forward exchange contracts or otherwise engaging in hedging activities. To date, as all export sales are denominated in U.S. dollars, we have not entered into any such contracts or engaged in any such activities. As we increase our international sales, seasonal fluctuations resulting from lower sales that typically occur during the summer months in Europe and other parts of the world may affect our total revenues. OUR COMMON STOCK PRICE COULD EXPERIENCE SIGNIFICANT VOLATILITY. We completed an initial public offering of our common stock during October 1997. The market price of our common stock may be highly volatile and could be subject to wide fluctuations in response to: - - variations in results of operations; - - announcements of technological innovations or new products by us or our competitors; - - changes in financial estimates by securities analysts; or - - other events or factors. In addition, the financial markets have experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many high technology companies and that often have been unrelated to the operating performance of such companies or have resulted from the failure of the operating results of such companies to meet market expectations in a particular quarter. Broad market fluctuations or any failure of our operating results in a particular quarter to meet market expectations may adversely affect the market price of our common stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of our attention and resources. 18 20 WE MAY NEED FUTURE CAPITAL FUNDING. We plan to continue to expend substantial funds on the continued development, sales and marketing of the eHealth(TM) product family. We cannot ensure that our existing capital resources, the proceeds from our initial public offering during October 1997 and any funds that may be generated from future operations together will be sufficient to finance our future operations or that other sources of funding will be available on terms acceptable to us, if at all. In addition, future sales of substantial amounts of our securities in the public market could adversely affect prevailing market prices and could impair our future ability to raise capital through the sale of our securities. 19 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS AND DERIVATIVE COMMODITY INSTRUMENTS. The Company does not invest in derivative financial instruments, other financial instruments or derivative commodity instruments for which fair value disclosure would be required under SFAS No. 107. All of the Company's investments are in investment grade securities with high credit ratings of relatively short duration that trade in highly liquid markets and are carried at fair value on the Company's books. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments. PRIMARY MARKET RISK EXPOSURES. The Company's primary market risk exposure is in the area of interest rate risk. The Company's investment portfolio of cash equivalents and marketable securities is subject to interest rate fluctuations, but the Company believes this risk is immaterial due to the short-term nature of these investments. Substantially all of the Company's business outside the United States is conducted in U.S. dollar-denominated transactions, whereas the Company's operating expenses in its international branches are denominated in local currency. The Company has no foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company believes that the operating expenses of its foreign operations are immaterial, and therefore any associated market risk is unlikely to have a material adverse effect on the Company's business, results of operations or financial condition. The Company's current export sales are denominated in United States dollars. To the extent that international sales continue to be denominated in United States dollars, an increase in the value of the United States dollar relative to other currencies could make the Company's products and services more expensive and, therefore, potentially less competitive in international markets. 20 22 CONCORD COMMUNICATIONS, INC. FORM 10-Q, MARCH 31, 2001 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any litigation that it believes could have a material adverse effect on the business, results of operations and financial condition of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Issuance of Securities On February 4, 2000, the Company completed a merger with FirstSense Software, Inc. The Company has reserved for issuance in connection with the merger, 1,940,000 shares of Concord Common Stock. The Company issued the shares in a private placement transaction pursuant to Section 4(2) under the Securities Act of 1933. The merger was accounted for as a pooling of interests. The Company has filed a Form S-3 Registration Statement to cover the resale of the securities issued in the merger. (b) Use of Proceeds On October 16, 1997, the Company commenced an initial public offering ("IPO") of 2,900,000 shares of common stock, par value $.01 per share (the "Common Stock"), of the Company pursuant to the Company's final prospectus dated October 15, 1997 (the "Prospectus"). The Prospectus was contained in the Company's Registration Statement on Form S-1, which was declared effective by the Securities and Exchange Commission (SEC File No. 333-33227) on October 15, 1997. Of the 2,900,000 shares of Common Stock offered, 2,300,000 shares were offered and sold by the Company and 600,000 shares were offered and sold by certain shareholders of the Company. As part of the IPO, the Company granted the several underwriters an overallotment option to purchase up to an additional 435,000 shares of Common Stock (the "Underwriters' Option"). The IPO closed on October 21, 1997 upon the sale of 2,900,000 shares of Common Stock to the underwriters. On October 24, 1997, the Representatives, on behalf of the several underwriters, exercised the Underwriters' Option, purchasing 435,000 additional shares of Common Stock from the Company. The aggregate offering price of the shares of Common stock in the IPO to the public was $40,600,000 (exclusive of the Underwriters' Option), with proceeds to the Company and selling shareholders, after deduction of the underwriting discount, of $29,946,000 (before deducting offering expenses payable by the Company) and $7,812,000 respectively. The aggregate offering price of the Underwriters' Option exercised was $6,090,000, with proceeds to the Company, after deduction of the underwriting discount, of $5,663,700 (before deducting offering expenses payable by the Company). The aggregate amount of expenses incurred by the Company in connection with the issuance and distribution of the shares of Common Stock offered and sold in the IPO were approximately $3.6 million, including $2.7 million in underwriting discounts and commissions and $950,000 in other offering expenses. The net proceeds to the Company from the IPO, after deducting underwriting discounts and commissions and other offering expenses were approximately $34.7 million. To date, the Company has not utilized any of the net proceeds from the IPO. The Company has invested all such net proceeds primarily in US treasury obligations and other interest bearing investment grade securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable 21 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits listed in the accompanying Exhibit Index on page 24 and page 25 are filed or incorporated by reference as part of this Report. 22 24 CONCORD COMMUNICATIONS, INC. FORM 10-Q, MARCH 31, 2001 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Concord Communications, Inc. /s/ Melissa H. Cruz ---------------------------------------- May 9, 2001 Name: Melissa H. Cruz Title: Executive Vice President of Business Services and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 23 25 CONCORD COMMUNICATIONS, INC. FORM 10-Q, MARCH 31, 2001 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE - ------- ----------- ---------------------- 3.01 Restated Articles of Organization of the Company Exhibit No. 3.01 on Form 10-K, for the period ended December 31, 1997 3.02 Restated By-laws of the Company Exhibit No. 3.02 on Form 10-K, for the period ended December 31, 1998 10.01 Working Capital Loan Agreement between the Company Exhibit No. 10.01 to Registration Statement on Form S-1 and Silicon Valley Bank dated April 3, 1997 (No. 333-33227) 10.02 Revolving Promissory Note made by the Company in Exhibit No. 10.02 to Registration Statement on Form S-1 favor of Silicon Valley Bank (No. 333-33227) 10.03 Equipment Line of Credit Letter Agreement between the Exhibit No. 10.03 to Registration Statement on Form S-1 Company and Fleet Bank dated as of June 9, 1997 (No. 333-33227) 10.04 1995 Stock Plan of the Company Exhibit No. 10.04 to Registration Statement on Form S-1 (No. 333-33227) 10.05 1997 Stock Plan of the Company Exhibit No. 10.01 on Form 10-Q, for the period ended June 30, 1998 10.06 1997 Stock Plan of the Company, as amended on March Exhibit No. 10.06 on Form 10-K, for the period ended December 12, 1998, March 1, 1999, May 15, 1999 and March 8, 31, 2000 2000 10.07 1997 Employee Stock Purchase Plan of the Company Exhibit No. 10.06 to Registration Statement on Form S-1 (No. 333-33227) 10.08 1997 Non-Employee Director Stock Option Plan of the Exhibit No. 10.08 on Form 10-K, for the period ended December Company as amended on March 8, 2000 31, 2000 10.09 The Profit Sharing/401(k) Plan of the Company Exhibit No. 10.08 to Registration Statement on Form S-1 (No. 333-33227) 10.10 Lease Agreement between the Company and John Hancock Exhibit No. 10.09 to Registration Statement on Form S-1 Mutual Life Insurance Company dated March 17, 1994, (No. 333-33227) as amended on March 25, 1997 10.11 First Amendment to Lease Agreement between the Exhibit No. 10.10 to Registration Statement on Form S-1 Company and John Hancock Mutual Life Insurance (No. 333-33227) Company dated March 25, 1997 10.12 Form of Indemnification Agreement for directors and Exhibit No. 10.11 to Registration Statement on Form S-1 officers of the Company (No. 333-33227) 10.13 Restated Common Stock Registration Rights Agreement Exhibit No. 10.12 to Registration Statement on Form S-1 between the Company and certain investors dated (No. 333-33227) August 7, 1986 10.14 Amended and Restated Registration Rights Agreement Exhibit No. 10.13 to Registration Statement on Form S-1 between the Company and certain investors dated (No. 333-33227) December 28, 1995 10.15 Management Change in Control Agreement between the Exhibit No. 10.14 to Registration Statement on Form S-1 Company and John A. Blaeser dated as of August 7, (No. 333-33227) 1997 10.16 Management Change in Control Agreement between the Exhibit No. 10.15 to Registration Statement on Form S-1 Company and Kevin J. Conklin dated as of July 23, (No. 333-33227) 1997 10.17 Management Change in Control Agreement between the Exhibit No. 10.16 to Registration Statement on Form S-1 Company and Ferdinand Engel dated as of July 23, 1997 (No. 333-33227) 10.18 Management Change in Control Agreement between the Exhibit No. 10.17 to Registration Statement on Form S-1 Company and Gary E. Haroian dated as of July 23, 1997 (No. 333-33227) 10.19 Management Change in Control Agreement between the Exhibit No. 10.18 on Form 10-Q filed on August 14, 2000 Company and Melissa H. Cruz dated as of June 12, 2000 10.20 Management Change in Control Agreement between the Exhibit No. 10.18 to Registration Statement on Form S-1 Company and Daniel D. Phillips, Jr. dated as of July (No. 333-33227) 23, 1997 10.21 Stock Option Agreement dated January 1, 1996 between Exhibit No. 10.19 to Registration Statement on Form S-1 the Company and John A. Blaeser (No. 333-33227) 10.22 Stock Option Agreement dated January 1, 1996 between Exhibit No. 10.20 to Registration Statement on Form S-1 the Company and John A. Blaeser (No. 333-33227) 10.23 Letter Agreement between the Company and Silicon Exhibit No. 10.21 to Registration Statement on Form S-1 Valley Bank dated March 25, 1996 together with the (No. 333-33227) Loan Modification Agreement dated November 14, 1996 10.24 Form of Shrink-Wrap License Exhibit No. 10.22 to Registration Statement on Form S-1 (No. 333-33227) 10.25 Agreement and Plan of Reorganization dated as of Exhibit No. 2.1 on Form 8-K filed on November 12, 1999 October 19, 1999 by and among Concord Communications, Inc., E Acquisition Corp., Empire Technologies, Inc. and the stockholders of Empire Technologies, Inc. 10.26 Agreement and Plan of Reorganization dated as of Exhibit No. 2.1 on Form 8-K filed on February 10, 2000 January 20, 2000 by and among Concord Communications, Inc., F Acquisition Corp., and FirstSense Software, Inc. 10.27 Registration Rights Agreement dated as of February 4, Exhibit No. 99.1 on Form 8-K filed on February 10, 2000 2000 by and among Concord Communications, Inc. and Timothy Barrows, as Securityholder Agent 10.28 2000 Non-Executive Employee Equity Incentive Plan Exhibit 10.28 on Form 10-K, for the period ended December 31, 2000
24 26 CONCORD COMMUNICATIONS, INC. FORM 10-Q, MARCH 31, 2001 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE - ------- ----------- ---------------------- *10.29 Management Change in Control Agreement between the Exhibit No. 10.29 to Current Report on Form 10-Q Company and Ellen Kokos dated as of February 2, 2001
* filed herewith 25 EX-10.29 2 b39240ccex10-29.txt MANAGEMENT CHANGE IN CONTROL AGREEMENT 1 EXHIBIT 10.29 MANAGEMENT CHANGE IN CONTROL AGREEMENT MANAGEMENT CHANGE IN CONTROL AGREEMENT entered into this 2nd day of February, 2001, by and among Concord Communications, Inc., a Massachusetts corporation ("Concord"), and the undersigned employee of Concord, Ellen Kokos (the "Employee"). WITNESSETH: WHEREAS, Concord and the Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Concord; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. SEVERANCE AND OPTION ACCELERATION. (a) During the Term (as hereinafter defined), if within six (6) months of a Change in Control of Concord, Concord (or any successor corporation) terminates (each, a "Termination Event") the Employee's employment without Cause (as hereinafter defined) or the Employee voluntarily terminates her employment for Good Reason (as hereinafter defined), the Employee shall receive a single severance payment in cash in an amount equal to six months' base annual salary (at the rate being paid to her immediately prior to such termination) (the "Severance Benefit"). The Employee shall not be entitled to continue to receive (i) any other salary or bonus in the event of a termination for any reason or (ii) any other employee benefits (other than those specified in the following sentence) in the event of a termination for any reason. Notwithstanding the foregoing, Concord shall continue to pay Concord's share of the Employee's health insurance in accordance with Concord's general policies for a period of six months following any Termination Event. (b) "Good Reason" means the occurrence of one or more of the following events during the Term and following a Change in Control: (i) Without the Employee's express written consent, Concord shall reduce the Employee's duties and responsibilities from those assigned to the Employee immediately prior to the Change in Control; or (ii) Without the Employee's express written consent, Concord shall require the Employee to have her principal location of work changed to any location which is in excess of 60 miles from the location thereof immediately prior to the Change in Control; or (iii) Without the Employee's express written consent, Concord shall materially reduce the Employee's benefits under existing benefit plans, unless there is a concurrent reduction uniformly among all persons entitled to such benefits. (c) Effective upon the date immediately following any Change in Control of Concord, the "Full Vest" date(s) set forth in each of the employee's then outstanding Notice of Option Grant shall be automatically accelerated by twenty-four (24) months. Notwithstanding the foregoing, if within twenty-four (24) months after a Change in Control there is a Termination Event, all of the Employee's unvested options (but only such options as have been granted to the Employee by Concord as of the date of the Change in Control or such options as have been exchanged by the Employee for new options in any acquiring company at the time of a change in Control) shall automatically become fully vested as of the date of such Termination Event. (d) For purposes of this Agreement, a "Change in Control" shall have occurred if at any time any of the following events shall occur: (A) Concord is merged, consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of the combined corporation or person immediately after such transaction are held in the aggregate by the holders of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of Concord ("Voting Stock") immediately prior to such transaction; 2 (B) Concord sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person, and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of the Voting Stock of concord immediately prior to such sale or transfer; (C) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act of 1934 (the "1934 Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the 1934 Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the 1934 Act) of securities representing 33% or more of the Voting Stock; or (D) Concord files a report or proxy statement with the Securities and Exchange Commission pursuant to the 1934 Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of Concord has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction. PROVIDED, HOWEVER, that notwithstanding the foregoing provisions of this Section 1, a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement solely because (i) Concord, (ii) an entity in which Concord directly or indirectly beneficially owns 50% or more of the voting securities, (iii) any Concord sponsored employee stock ownership plan or any other employee benefit plan of Concord, or (iv) any corporation or legal person approved by the Board of Directors prior to the occurrence of the event that, absent such approval by the Board of Directors, would have constituted a Change in Control, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the 1934 Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 33% or otherwise, or because Concord reports that a change in control of Concord has or may have occurred or will or may occur in the future by reason of such beneficial ownership. (e) Notwithstanding anything to the contrary in this Agreement, if the Employee is a Disqualified Individual (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")) and if any portion of any acceleration of vesting, payment or transfer of property under this Agreement would be an Excess Parachute Payment (as defined in Section 280G of the Code) but for the application of this sentence, then the amount of such acceleration, payment or transfer otherwise payable to the Employee pursuant to this Agreement shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of such payment, as so reduced, constitutes an Excess Parachute Payment; provided, however, that no reduction shall be made if the net economic effect would be disadvantageous to the Employee, taking into account all the facts and circumstances including any tax savings resulting from the reduction. 2. TERMINATION. (a) Concord may, immediately and unilaterally, terminate the Employee's employment hereunder for "cause" at any time. As used in this Agreement, the term "cause" shall mean: (i) the Employee's willful and substantial misconduct with respect to the business and affairs of Concord, or any subsidiary or affiliate thereof; (ii) the Employee's gross neglect of duties, dishonesty, deliberate disregard of any material rule or policy of Concord or the commission by the Employee of any other action with the intent to injure Concord, or any subsidiary or affiliate thereof; (iii) the Employee's commission of an act involving embezzlement or fraud or commission of a felony; or (iv) the commission of an act which induces any customer of Concord to breach a contract or purchase order with Concord, or any subsidiary or affiliate thereof. 3 In the event of a termination for "cause" as described herein, the Employee shall not be entitled to severance or other termination benefits, including, without limitation, the benefits described in Section 1 herein. (b) The Employee's employment shall automatically terminate upon her death and may be terminated by Concord due to her disability. If the Employee dies or her employment is terminated due to disability during the Term, then Employee shall be eligible for such benefits as shall apply to employees of Concord generally under such circumstances at the time of such termination. As used in this Agreement, the term "disability" shall mean the occurrence of a mental or physical condition which renders the Employee incapable of performing her duties for a total of six consecutive months. (c) The Employee understands that, prior to any Change in Control, Concord may terminate the Employee with or without "Cause" at any time. Following any Change in Control, Concord may also terminate the Employee with or without "cause" at any time subject to the Employee's rights and Concord's obligations specified in this Agreement. 3. NO OBLIGATION OF EMPLOYMENT. Employee understands that the employment relationship between Employee and Concord will be "at will" and that Concord may terminate such relationship with or without cause or for any reason or no reason. 4. NONCOMPETITION AGREEMENT. Employee shall execute concurrently herewith the form of Noncompetition Agreement attached hereto as EXHIBIT A. 5. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby represents and warrants that she has obtained all waivers and/or consents from third parties which are necessary to enable her to execute and perform this Agreement without being in conflict with any other agreement, obligation or understanding with any such third party. 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 7. SEVERABILITY. In case any one or more of the provisions contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 8. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 8. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement sets forth all of the terms of the understandings between the parties with reference to the subject matter set forth herein and may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 9. ASSIGNMENT. The Employee may not assign any of her rights or delegate any of her duties or obligations under this Agreement. The rights and obligations of Concord under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Concord. 10. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between the Employee and Concord relating to the subject matter hereof; provided, however, that the Employee's existing option agreements, as modified hereby, shall remain in effect. 4 11. NOTICES. All notices hereunder shall be in writing and shall be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Concord, to: Concord Communications, Inc. 600 Nickerson Road Marlboro, MA 01752 Attention: John A. Blaeser With a copy to: Kevin M. Barry, Esq. Testa, Hurwitz & Thibeault, LLP High Street Tower 125 High Street Boston, MA 02110; and If to the Employee, at the Employee's address set forth on the signature page hereto. 12. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 13. SECTION HEADINGS. The descriptive section headings herein have been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 14. TERM. The term of this Agreement (the "Term") shall commence upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Concord, (ii) the date prior to any Change in Control of Concord that the employee for any reason ceases to be an employee of Concord and (iii) the date following any Change in Control of Concord that the Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. CONCORD COMMUNICATIONS, INC. By: /s/ J. A. Blaeser ------------------------------------ Name: John A. Blaeser Title: President EMPLOYEE /s/ Ellen Kokos ------------------------------------ Name: Ellen Kokos Address: 6 EMPLOYEE NONCOMPETITION AGREEMENT In consideration and as a condition of my continued employment, I hereby agree with Concord Communications, Inc. ("Concord") as follows: 1. During the period of my employment by Concord (the "Employment Period"), I will devote my full working time and best efforts to the business of Concord. Further, (i) for as long as I am an employee of Concord and (ii) for the period beginning as of the date of the occurrence of a change in Control through and including the date to occur which is six months following the date upon which I am no longer an employee of Concord, I agree that I will not, directly or indirectly, alone or as a partner, officer, director, employee or stockholder of any entity (except that I may own not more than 1% of the outstanding shares of any publicly-traded company), engage in any business activity which is in competition with the products or services being developed, manufactured or sold by Concord. The provisions of clause (ii) of the preceding sentence shall (A) apply only if following a Change in Control my employment with Concord shall have been terminated (1) without cause or for cause pursuant to Section 2 of my Management Change in Control Agreement of even date herewith or (2) for "Good Reason" (as that term is defined in my Management Change in Control Agreement) and (B) not apply if I shall have voluntarily terminated my employment with Concord. The period following the termination of my employment during which the restrictions described above shall apply (the "Post-employment Period") shall be extended by the length of any period of time during the Post-employment Period during which I am in violation of this paragraph. Nothing contained herein shall exclude me from participating in civic, charitable, religious or non-profit activities so long as such activities do not interfere with the performance of my duties to Concord. 2. I agree that any breach of this Agreement by me will cause irreparable damage to Concord and that in the event of such breach Concord shall have, in addition to any and all remedies of law, the right to an injunction, specific performance or other equitable relief to prevent the violation of my obligations hereunder. I further agree and acknowledge that the post-employment non-competition provision set forth in Paragraph 1 hereof, and the remedies set forth in this paragraph, are necessary and reasonable to protect the business of Concord. 3. I understand that this Agreement does not create an obligation on Concord or any other person or entity to continue my employment. 4. No claim of mine against Concord shall serve as a defense against Concord's enforcement of any provision of this Agreement. 5. I hereby represent that I am not a party to, or bound by the terms of, any agreement with any previous employer, other than Concord, or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my employment with Concord or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party, which would prevent me from performing services to or for Concord in any material way. I further represent that my performance of all the terms of this Agreement and as an employee of Concord does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with Concord, and I will not disclose to Concord or induce Concord to use any confidential or proprietary information or material belonging to any previous employer or others. I have not entered into, and I agree I will not enter into, any agreement, either written or oral, in conflict with the terms of this Agreement. 6. Any waiver by Concord of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof. 7. I hereby agree that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting or reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. 8. My obligations under this Agreement shall survive the termination of my employment regardless of the manner of such termination. 7 9. The term "Concord" as used herein shall also include Concord's subsidiaries, subdivisions or affiliates. Concord shall have the right to assign this Agreement to its successors and assigns, and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by said successors or assigns. 10. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts. Any claims or legal actions by one party against the other arising out of the relationship between the parties contemplated herein (whether or not arising under this Agreement) shall be governed by the laws of the Commonwealth of Massachusetts and shall be commenced and maintained in any state or federal court located in Massachusetts, and both parties hereby submit to the jurisdiction and venue of any such court. 11. Capitalized terms used herein and not otherwise defined shall have the meanings provided in the Management Change in Control Agreement of even date herewith. 8 IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the 2nd day of February, 2001. /s/ Ellen Kokos ------------------------------ Name: Ellen Kokos -----END PRIVACY-ENHANCED MESSAGE-----