10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington DC 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2004
OR
o	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)

400 Nickerson Road

Marlborough, Massachusetts 01752

(508) 460-4646

(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:     None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

(Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2):     Yes þ          No o

      The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing sale price of the registrant’s common stock on June 30, 2004, as reported on the NASDAQ National Market was approximately $208,801,000

      The number of shares outstanding of Common Stock as of March 11, 2005 was 18,494,361.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Form 10-K Reference
Portions of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on May 4, 2005 to be filed within 120 days of the end of the fiscal year ended December 31, 2004.	Part III, Items 10, 11, 12 and 14

TABLE OF CONTENTS

PART I
Item 1.	Business	1
Item 2.	Properties	20
Item 3.	Legal Proceedings	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
PART II
Item 5.	Market for the Registrant’s Common Stock and Related Stockholder Matters	22
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	47
Item 8.	Financial Statements and Supplementary Data	48
Item 9A.	Controls and Procedures	48
PART III
Item 10.	Directors and Officers of the Registrant	49
Item 11.	Executive Compensation	50
Item 12.	Security Ownership of Certain Beneficial Owners and Management	50
Item 13.	Certain Relationships and Related Transactions	50
Item 14.	Principal Accountant Fees and Services	50
PART IV
Item 15.	Exhibits and Financial Statement Schedules	51
	Signatures	83
	Exhibit Index	84
Ex-3.02 Restated By-Laws of the Company
EX-10.06 1997 STOCK PLAN
Ex-10.08 1997 Non-Employee-Director Stock Option Plan
Ex-10.16 2004 Non-Executive Employee Stock Purchase Plan
Ex-10.18 Form of 1997 Non-Qualified Stock Plan Agreement
Ex-10.25 Form of 1997 Non-Qualified Option Agreement
Ex-10.30 Form of 1997 Executive Incentive Stock Option Agreement
Ex-10.33 Aprisma Management Technologies 2003 Equity Participation & Retention Plan
Ex-10.40 Management Change in Control Agreement
Ex-10.42 Form of Restricted Stock Grant Agreement
Ex-21.01 Subsidiaries of the Company
Ex-23.01 Consent of PricewaterhouseCoopers LLP
Ex-31.1 Certification of John A. Blaeser
Ex-31.2 Certification of Melissa H. Cruz
Ex-32.1 Sect. 906 Certification of John A. Blaeser
Ex-32.2 Sect. 906 Certification of Melissa H. Cruz

PART I

      This document contains forward-looking statements. Any statements contained herein that do not describe historical facts are forward-looking statements. Concord Communications, Inc. (“Concord”) makes such forward-looking statements under the provisions of the “safe harbor” provided in Section 21E of the Securities Exchange Act of 1934. 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 “Factors That Could Affect Future Results.”

Item 1. Business

Overview and Recent Acquisitions

      Concord provides a Business Service Management (“BSM”) software solution to enterprises and service providers. Concord’s software solution, the eHealth® Suite,

•  maps information technology (“IT”) services to business needs,

•  measures the actual end user experience; and

•  manages application, system and network infrastructures.

      On February 22, 2005, we completed the acquisition of Aprisma Holdings, Inc. Prior to its acquisition by Concord, Aprisma Holdings, Inc. was a privately held software company owned by Gores Technology Group and its operating subsidiary, Aprisma Management Technologies, Inc. (“Aprisma”). The purchase price was $93.0 million, which payment was adjusted by (i) the amount of net debt owing by Aprisma to certain of its lenders at the time of closing (which debt will be paid off by Concord) and (ii) certain payment obligations owing by Aprisma under its equity participation plan. Concord’s cash payment to acquire Aprisma on February 22, 2005 was approximately $82.4 million. The acquisition was completed in the first quarter of 2005 and will be accounted for under the purchase method of accounting in the three months ended March 31, 2005 (see Note 14 of the Notes to Consolidated Financial Statements).

      Aprisma’s SPECTRUM® software manages the availability of IT infrastructures and the business services that rely on them. Concord believes that strategically combining the two companies’ complementary technologies will enable Concord to expand its ability to deliver a new generation of intelligent BSM software that maps IT services to business processes, measures the actual end-use experience, and manages the entire IT infrastructure. Aprisma, which profitably generated approxmately $43.8 million in 2004 revenues, will operate as a business within Concord.

      On January 5, 2005, we completed the acquisition of privately held Vitel Software, Incorporated. Vitel’s software enables enterprises and service providers to manage the performance of voice networks and messaging systems that are either internet protocol-based, time division multiplexing-based, or include a hybrid of both. In addition, Concord’s eHealth for Voice provides a unified view into the performance of voice networks built on equipment from multiple vendors such as market leaders Avaya, Cisco, and Nortel Networks. The purchase price was $4.1 million, including $0.1 million in direct costs of acquisition and was substantially paid in cash during the three months ending March 31, 2005. The acquisition will be accounted for under the purchase method of accounting in the three months ending March 31, 2005. (see Note 14 of the Notes to Consolidated Financial Statements).

      On July 17, 2003, we completed the acquisition of privately held netViz. netViz’s software enables users to visualize business processes and allows them to map relationships within the supporting technology infrastructure through data-driven icons. Consideration for the acquisition totaled $10.3 million, including transaction costs of $0.3 million. The consideration paid to netViz’s stockholders consisted of $5.0 million in cash paid at closing and $5.0 million of our common stock. (see Note 2 of the Notes to Consolidated Financial Statements).

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      We were organized as a Massachusetts corporation in 1980 under the name Concord Data Systems, Inc., and changed our name to Concord Communications, Inc. in 1986. Our principal executive offices are located at 400 Nickerson Road, Marlboro, Massachusetts 01752 and our telephone number is 508-460-4646. Our web site is http://www.concord.com/. We make available, free of charge, through our website, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished as soon as reasonably practicable after we have filed them with the Securities and Exchange Commission. The information posted on our web site is not incorporated into this Annual Report. The public can also obtain access to such reports at the Securities and Exchange Commission’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC’s website which is http://www.sec.gov/.

Business Service Management Market

      Business process automation has resulted in tremendous increases in productivity and profitability, but has also presented new business challenges. For one, maintaining the availability and performance of business services has become more critical. Specifically, Line of Business (“LOB”) and IT managers require knowledge of the following metrics to understand how IT relates to business services provided:

•  Availability of the services is critical, because a service that is not available has a detrimental effect on the business;

•  Performance of the services matters because slow services have an economic cost and may indicate that more serious problems are to follow; and

•  Service capacity. Excess service capacity is expensive. However, inadequate capacity leads to shortages or outages. IT managers rely on capacity data to closely manage expenses as well as to plan additional investments necessary to provide particular levels of service.

      Business Service Management (“BSM”) solutions provide knowledge about availability, performance and service capacity. These solutions link IT services to business needs. They help detect problems before end users are impacted. They enable IT managers and their business counterparts to speak a common language. They also help IT managers and the LOB manage their portfolio of IT services.

      Using solutions to holistically view business services, rather than narrowly view the infrastructure and application components, helps companies reduce costs and increase revenue by maintaining higher availability and better performance of business services. The core benefits of BSM include:

•  Maintaining business service delivery by quickly identifying and correcting IT service problems;

•  Creating a high level of customer service and satisfaction;

•  Sustaining the company’s revenue stream;

•  Creating a unified business focus for the whole company — management, business units, and the IT staff;

•  Improving communication between the IT department and the business units; and

•  Increasing the value of the IT resource.

General

      Concord develops, markets and supports a BSM software solution, the eHealth® Suite. The eHealth Suite of products is designed for three main functions: map, measure, and manage.

•  MAP — eHealth maps IT services to business processes and delivers an executive business view to key performance indicators.

•  MEASURE — eHealth measures the actual end-user experience. This is the most effective method to determine how well a business service is being delivered. Observational testing is one method of

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	directly measuring actual user experience, while synthetic testing simulates the same. Concord’s eHealth delivers both of these measurement capabilities, allowing organizations to see the impact of IT services on the business.
•	MANAGE — eHealth manages the end-to-end IT infrastructure and enables IT organizations to move away from the “stove-pipe” management frameworks of the past. As a result, IT organizations are better able to meet or exceed service level agreements (“SLAs”) with their line of business customers, increase uptime, accelerate performance and reduce costs.

Market Segments Served

      Specific business market segments that we target are enterprises across a number of key verticals and service providers.

•  Enterprises use our eHealth® Suite of products to protect their revenue by ensuring that critical applications are available when needed. Our software also allows them to reduce expenses by limiting the need for incremental IT administrators and equipment as their business and IT infrastructures expand. IT personnel can also use our software to plan the future capacity of their IT infrastructure. Concord sells into 17 different vertical markets, with a focus on financial services, insurance, manufacturing, and retail. Government is also a key target market for Concord.

•  Service providers include both managed service providers and traditional telecommunication companies. Managed service providers are those organizations that provide IT services to enterprises for a fee. These companies use the eHealth® Suite to monitor compliance with service level agreements, maintain the quality of their services and introduce new services for their business customers. Telecommunication carriers that provide services like cable, broadband internet and wireless services to residential and commercial businesses rely on the eHealth® Suite to maintain the quality of their services such as network and bandwidth services, web hosting, data center/co-location services or to provide internet services.

      We market to our customers through a direct sales force, sales agents, value-added resellers, distributors, managed service providers and telecommunication carriers. As of December 31, 2004, we had over 3,000 eHealth customer accounts operating in and serving a broad variety of industries. Additionally, we had several thousand netViz customers, also with a broad industry vertical mix. One North American telecommunications customer accounted for 10.1% of revenues in 2004 and no individual customer or reseller accounted for more than 10% of revenues in 2003 and 2002.

The eHealth® Solution

      Our eHealth® Suite software is automated, scalable, web-based management software for business-critical applications, systems, and networks. We work to incorporate the following distinctive features into our software:

      Easy to Deploy and Manage. Often, our software can be installed quickly. Once installed, our products have logical drilldowns and their use is intuitive. Our reporting provides easy to understand metrics with information about critical areas of the infrastructure and related services. The eHealth® Suite is designed to simplify management of the heterogeneous mix of network devices, client and server operating systems, hardware platforms, technologies, and applications that typically comprise today’s IT infrastructures.

      Wide Technology Coverage. eHealth® embeds algorithms, intelligence, knowledge, and analysis for hundreds of different devices and many applications. This saves customers enormous amounts of time in collecting detailed data from various devices. It also quickly enables management across a broad spectrum of industry standard applications like Microsoft Exchange and Information Internet Server; open source Apache; CRM systems from Siebel; application services like Citrix; industry standard operating systems like UNIX, Microsoft Windows NT and Windows 2000, and Linux; and industry standard networking technologies such as ATM, Frame Relay, VoIP, Quality of Service (“QoS”), DSL, cable, and wireless.

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      Flexible Reporting. eHealth can generate many types of reports for multiple levels of management. For example, chief information officers can get a general overview of application availability and performance while technical personnel can get detailed reports about specific transactions, client and server components, hardware equipment components, bandwidth components and network services.

      Highly Scalable. eHealth is scaleable to meet the demands of management as an organization’s IT infrastructure expands. Add-on software licenses or additional agent software can be purchased as a customer grows and expands. As expansion occurs, eHealth is capable of data collection, analysis, and reporting for up to 80,000 elements by a single console. Our distributed architecture allows configurations, viewable from a single console that supports collection and reporting of up to 1,000,000 elements.

Products and Technology

      eHealth contains three solution sets designed to manage applications, servers and networks. eHealth® also contains a number of suite-wide products that operate across applications, networks and servers such as the Business Service Console and Live Health.

eHealth® E2E Console

      eHealth® E2E console is the centerpiece of the eHealth Suite. It provides a centralized view of availability and performance data across applications, systems and networks. It is a graphical user interface for end-users and administrators that combines an efficient engine for collecting data, an industry standard database, and flexible reporting capabilities. It analyzes collected information, along with the raw data, and stores the information in the database. This analysis and information is available via the console, and it is also accessible through a web based user interface or through scheduled reports.

eHealth® for Applications

      This solution enables IT personnel to manage the availability and performance of applications through the following methods:

•  Synthetic Testing is the execution of repeatable, scheduled simulated application transactions. Active testing can take place at the desktop, server, or router, providing availability or performance data about an application from these strategic locations in customers’ infrastructures.

•  Observational Monitoring collects application performance information from actual users in a non-intrusive, observational manner; it occurs at the client desktop and measures the actual experience of the end user.

•  Managing Applications on Servers helps IT personnel optimize the performance and availability of applications running on systems, such as Apache, Microsoft Exchange, SQL Server and Oracle. Our solution works by collecting application metrics from eHealth® application insight modules residing on application servers.

      Using the methods described for application management, IT personnel can analyze the historical availability and performance of applications. IT personnel can also analyze the availability and performance through our eHealth® Live Health product for real-time detection of degrading performance and declining availability.

      eHealth® for Systems — provides information about servers and systems. It also enables IT personnel to manage the performance and availability of these devices and collects metrics such as available memory and disk space from Concord’s and other third-party agents. The information is stored in the database. Comprehensive analysis is then performed on various combinations of metrics and time periods. The information is also delivered to Concord’s eHealth® Live Health application for real-time detection of system failures, potential outages, and delays.

      eHealth® for Networks — manages the performance and availability of key network devices such as LANs, WANs, Frame Relay, ATM, QoS, Wireless LAN, DSL, VoIP, cable technologies and Remote Ac-

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cess Equipment. This product discovers, analyzes, and reports on network resources. This allows network managers to track performance, plan capacity, and detect sources of service delay. This permits network managers to understand service levels, proactively address potential network failures, manage bandwidth and capacity, watch for security violations, and understand the usage patterns of the network and the network’s various elements. It integrates with operational support systems (“OSS”) from Lucent, Newbridge, Hewlett-Packard, Micromuse, and Cisco’s VPN Solutions Center.

eHealth® — Suite Wide Solutions

•  eHealth® Live Health — identifies outages, potential outages and sources of delay across applications in real time, enabling rapid problem diagnosis. eHealth® Live Health provides out-of-the-box profiles that detect IT slowdowns and service degradation.

•  Distributed eHealth®  — runs and manages eHealth® applications across multiple eHealth® systems as if they are one system. Our distributed architecture solution allows configurations, viewable from a single console, which supports collection and reporting of up to 1,000,000 data elements.

•  Netviz®  — enables users to visualize business processes and allows them to map relationships within the supporting technology infrastructure through data-driven icons.

•  Spectrum®  — manages the health and performance of networks and the business services that rely on them, including performing root cause analysis, event correlation, service modeling, and topological discovery and display.

•  Vitel IVIZE Product — enables enterprises and service providers to manage the performance of next-generation IP and legacy voice networks and messaging systems, including voice mail, from multiple vendors.

Sales and Marketing

      We sell our products in the United States through a direct sales force, sales agents, and value added resellers (“VARs”). Internationally we sell primarily through distributors.

      As of December 31, 2004, we had 30 North America sales teams, each composed of one direct sales person and a shared regional resource pool of technical pre-sales people. The North America sales teams rolled up into 8 regions targeting the following four divisions: East, Central, West, and Federal Government. We had 25 international sales teams, also composed of one direct sales person and three shared regional resource pools of technical pre-sales people. The international sales teams rolled up into 7 regions targeting the following three geographic divisions: Europe, Middle East and Africa; Asia/ Pacific; and Latin America. In addition, we employed 25 inside sales, technical and management individuals who support both the North America and International sales teams. As of December 31, 2004, we employed 125 sales personnel.

      In 2004, we had relationships with 11 North American VARs and 64 international VARs. It is the responsibility of each sales team to manage all sales within its geographic territory by managing sales agents, VARs, distributors, network service providers and outsourcers, as well as selling directly to customers. In 2003, we introduced the Concord Authorized Reseller (“CAR”) program, which provides for a fixed annual fee, product, services, and sales training to our VARs and distributors. This program was set up to improve the ability of the indirect channel to better penetrate international markets, such as Europe and the Asia/ Pacific region.

      Additionally, we had relationships with 228 telecommunication carriers and managed service providers. These carriers and service providers offer our products as part of their service offerings. As of December 31, 2004, we also had relationships with development partners that work with our direct sales force, including Alcatel SA, Cap Gemini Ernst & Young, Cisco Systems, Inc., Dimension Data, Hewlett-Packard Co., KPMG Consulting, Juniper Networks, Inc., Nortel Networks Corp., and Siemens AG. We also have a professional services referral program aimed at our key network-consulting partners. Under this program, we will provide professional services through these partners directly to our customers.

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      We generate sales leads through seminars, trade shows, internet postings, press articles, referrals, mass mailings and cold calling as well as through relationships with sales agents, distributors, VARs, network service providers and outsourcers. As of December 31, 2004, we employed 34 marketing personnel who position, promote, and market our products. These individuals are engaged in a variety of activities, including direct marketing, public relations, tradeshows, advertising, internet postings, and seminars.

Customer Service

      Our post-sales support organization is responsible for providing ongoing technical support, professional service and training for our customers. For an annual maintenance fee, a customer receives telephone, email, and web-based support, as well as updated product releases. We offer support coverage 24 hours a day, seven days a week to customers for an additional annual fee. We offer a web-based tool, Service Express, which enables customers to find, via our website, answers to questions and solutions to technical support issues. We also provide a toll-free customer support line to all customers via our call center located in the United States and Australia. In early 2003, we opened a call center in Australia in order to improve our ability to support our customers and resellers in the Asia-Pacific region. Support personnel are on call to answer the technical support calls and generally provide same-day responses to questions that cannot be resolved during the initial call. All calls are logged, opened, tracked, and closed with regular updates to the customer, our sales teams, and our executive management team.

      As of December 31, 2004, we employed 42 technical post-sales support personnel and 4 inside sales representatives. In addition, we had 48 professional service and training personnel who provide services to our customers on a fee-for-service basis.

Research and Product Development

      Our future success depends in large part on our ability to enhance existing products and develop new products that maintain technological competitiveness and deliver value to existing and new customers. We have made and intend to continue to make substantial investments in product development. Extensive product development input is obtained through customers; our monitoring of end user needs and changes in the marketplace.

      During 2002, we introduced a new distributed infrastructure with a focus on large-scale installations and ease of administration. The introductions of new technologies like DSL, VPN, SAN, wireless, and others rounded out the end-to-end solution set in that same year. During 2003, we integrated the Oracle database software into our products, which enabled us to replace the Ingres database with the Oracle product. We now offer one single database solution to our customers. We also added significant enhancements to our wireless offerings and introduced our VoIP product. In 2004, we developed and released the Business Services Console, supplementing our current E2E Console, by providing our customers’ senior managers with a top-level view of key IT business services.

      Research and product development expenses, excluding in process research & development (“IPRD”) expenses, were $25.2 million, $22.8 million and $21.9 million in 2004, 2003 and 2002, respectively, representing 23.7%, 21.9% and 23.3% of total revenues for those 3 years. IPRD expenses were $0.1 million, $1.0 and $0 in 2004, 2003 and 2002, respectively, representing 0.1%, 1.0% and 0.0% of total revenues for those 3 years. IPRD in 2004 relates to the licensing of components of Tavve’s technology, which will become redundant with the acquisition of Aprisma, as this acquired company has similar technology.

      We anticipate that we will continue to commit substantial resources to research and development in the future and that product development expenses may increase in absolute dollars in future periods. To date, our development efforts have not resulted in any capitalized software development costs. As of December 31, 2004, our product development organization consisted of 116 people.

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License and Service Revenues

      Our revenues are generated from license revenues and service revenues. License revenues represent fees earned from licensing our software. License revenues accounted for 47.1%, 52.1% and 54.6% of total revenues in 2004, 2003 and 2002, respectively. Concord’s service revenues consist of fees for maintenance, training and professional services. Service revenues accounted for 52.9% 47.9% and 45.4% of total revenues in 2004, 2003 and 2002, respectively. See “Results of Operations” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations for a more complete discussion of license and service revenues.

Competition

      We compete with the following types of companies:

      (i) application performance software vendors such as Mercury Interactive;

      (ii) fault management software vendors such as Hewlett-Packard Company, Micromuse, Inc., and Smarts (acquired by EMC);

      (iii) enterprise management software, framework and platform providers such as BMC Software, Inc. and Computer Associates, Inc;

      (iv) large, well established network management framework companies such as International Business Machines Corporation and Lucent Technologies Inc.;

      (v) wireless management vendors like Valient Corporation and TTI Team Telecom International Ltd.;

      (vi) probe vendors such as NetScout Systems, Inc.; and

      (vii) reporting niche vendors such as InfoVista and Visual Networks, Inc.

      Additional competitors, including large networking or telecommunication equipment manufacturers, telecommunications service providers, and computer hardware and software companies, may enter this market. In addition, one or more of our customers may develop competing products internally, or one or more of the companies we have developed relationships with, such as the network management platform developers and probe vendors, may develop products that compete more directly with our products.

      Many of our current and prospective competitors have significantly greater financial, sales and marketing, technical and other resources than we do. As a result, these competitors may be able to devote greater resources than us to the development, promotion, sale, and support of their products. Moreover, these companies may introduce additional products that are competitive with or better than our products or may enter into strategic relationships to offer better products than those we currently offer. Our products may not effectively compete with such new products. In addition to the risk that other products will be developed, current and prospective competitors may be able to market, sell and support their products more effectively.

Intellectual Property and Other Proprietary Rights

      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. However, use of contractual, statutory and common law protections of our proprietary technologies offer only limited protection.

      We have thirteen issued U.S. patents, twelve 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 by those patents 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.

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      We also continue to protect our intellectual property through the use of copyright, trademark, and trade secret laws. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise misappropriate 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.

      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 end user license agreements (also known as shrink-wrap licenses) that are not signed by licensees. The law governing the enforceability of shrink-wrap license agreements is not settled in most jurisdictions. There can be no guarantee that we would achieve success in enforcing one or more shrink-wrap license agreements if we sought to do so in a court of law.

Revenue by Geographic region

      The following table presents Concord’s revenue by major geographic regions (in thousands):

		Year Ended December, 31
		2004			Percent Change			2003			Percent Change			2002
		(Dollars in thousands)
United States		$	69,549			17.2	%	$	59,325			2.6	%	$	57,812
United Kingdom			7,526			(27.7	)%		10,412			81.7	%		5,731
Europe (excluding the U.K.)			16,112			(19.1	)%		19,907			19.6	%		16,640
Rest of the World			13,001			(9.8	)%		14,419			5.5	%		13,661
	Total		106,188			2.0	%	$	104,063			10.9	%	$	93,844
Percent of Revenues
United States			65.5	%					57.0	%					61.6	%
United Kingdom			7.1	%					10.0	%					6.1	%
Europe (excluding the U.K.)			15.2	%					19.1	%					17.7	%
Rest of the World			12.2	%					13.9	%					14.6	%

      Revenues are assigned to a country and geographic region based upon the location of our salespeople, which is generally the same as the country and geographic location of the customer. No one country, except the United States, accounted for greater than 10% of total revenues in 2004 and 2002. No one country, except the United States and the United Kingdom, accounted for greater than 10% of total revenues in 2003.

Business Segment Data

      Enterprise customers comprised 54.4%, 55.0% and 57.8% of revenues in 2004, 2003 and 2002, respectively. Managed service providers and telecommunication carriers comprised 45.6%, 45.0% and 42.2% of revenues in 2004, 2003 and 2002, respectively. See Note 13 of Notes to Consolidated Financial Statements for information regarding revenue and profitability by segment. Also see “Results of Operations” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations for a more complete discussion of segment revenues and profitability.

Employees

      As of December 31, 2004, we had a total of 443 employees, all but 59 of whom were based in the United States. Of the total, 116 were in research and development, 94 were in customer service, 125 were in sales, 34 were in marketing, 35 were in operations and information technology, and 39 were in finance, human resources and administration. Our future performance depends in part, upon the continued service of our key engineering, technical support, and sales personnel. Competition for such personnel can be intense and we cannot assure that we will be successful in attracting or retaining such personnel in the future. None of our employees are represented by a labor union; however, in France, our employees are represented by workers’ councils or other representational organizations. We have not experienced any work stoppages and believe that our employee relations are good.

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FACTORS THAT COULD AFFECT FUTURE RESULTS

      References in these risk factors to “we,” “our,” the “Company,” “Concord,” 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 in this document that do not describe historical facts are forward-looking statements. Concord makes such forward-looking statements under the provisions of the “safe harbor” provided in Section 21E of the Securities Exchange Act of 1934. In particular, statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts (including, but not limited to, statements concerning: the plans and objectives of management; increases in absolute dollars or decreases as a percentage of revenues in sales and marketing, research and development, customer support and service, and general and administrative expenses; expectations regarding increased competition and Concord’s ability to compete successfully; sustenance of revenue growth both domestically and internationally; the size, scope and description of Concord’s target customer market; future product development, including but not limited to anticipated expense levels to fund product development, acquisitions and the integration of acquired companies; and our expected liquidity and capital resources) constitute forward-looking statements. 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 offer a Business Service Management (“BSM”) software solution to enterprise customers, managed service providers, and telecommunication carriers. This software, the eHealth® Suite, maps information technology (“IT”) services to business needs, measures the actual end user experience, and manages application, system and network infrastructures. We have a limited operating history in the BSM market upon which we can evaluate our business. This market is highly competitive, rapidly evolving, and targeted by many competitors with longer operating histories in the BSM market and greater resources. Our limited operating history, intense competition in the market, and an uncertain economic climate make the accurate prediction of future results of operations difficult or impossible.

      In addition to marketing and selling the eHealth® Suite in the BSM market, we acquired Aprisma in February 2005, a privately held software company, that also provides a software solution for the BSM market. Aprisma’s Spectrum® software manages the health and performance of networks and the business services that rely on them, including performing root cause analysis, event correlation, service modeling, and topological discovery and display. While we intend to provide a solution for the BSM market that maximizes the functionality of both the eHealth® Suite and Spectrum® software, our limited operating history marketing and selling this integrated solution, the risks associated with integrating both the companies and the software products, and intense competition in the market make it difficult to predict our future results of operations.

      In addition to sales of our eHealth® Suite, we will continue to sell netViz® products, which enable customers to visualize business processes and map relationships within the supporting technology infrastructure through data-driven icons. On January 5, 2005, Concord acquired Vitel, a provider of voice performance management solutions, which enables enterprises and service providers to manage the performance of next-generation IP and legacy voice network and messaging systems, including voice mail, from multiple vendors. We have a limited operating history in the product markets of netViz and Vitel, which makes the accurate prediction of future results of operations difficult or impossible.

      Our future operating results must be considered in light of these factors.

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Our acquisitions of netViz Corporation and Vitel Software, Inc. presents many risks, and we may not realize the financial and strategic goals we anticipate at the time of these acquisitions.

      On July 15, 2003, we acquired netViz Corporation and on January 5, 2005, we acquired Vitel Software, Inc. The acquisition of these companies provides us the opportunities to extend our capabilities in the data driven icon and voice network performance and management markets. However, we may fail to:

•  successfully integrate the acquired products;

•  successfully integrate personnel and management structures;

•  provide products or services that meet the demands of these markets;

•  develop an effective business strategy for these markets;

•  retain key customers;

•  retain key employees;

•  effectively control costs associated with the integration (including research and development costs);

•  meet expected timelines for product development and commercialization; and

•  account for exposure to liabilities of the acquired companies that were not known or accurately evaluated by us prior to consummating the acquisitions.

Our acquisition of Aprisma Management Technologies, Inc. presents many risks, and we may not realize the financial and strategic goals we anticipate at the time of the acquisition.

      On February 22, 2005, we acquired Aprisma Management Technologies, Inc. The acquisition of Aprisma will enable us to expand our ability to deliver a new generation of intelligent BSM software that maps information technology services to business processes, measures the actual end-user experience, and manages the entire IT infrastructure. The achievement of our financial and strategic goals from this acquisition depends on the successful integration of the two companies and our failure to successfully integrate could adversely affect our business. We must integrate our operations, people, and technology. However, we may fail to:

•  successfully integrate the acquired products;

•  implement a successful sales strategy for the integrated company;

•  attract and retain key distribution partners;

•  successfully integrate personnel and management structures;

•  provide products or services that meet the demands of the market;

•  gain expected efficiencies and other financial benefits from the integrated company;

•  retain key employees;

•  effectively control costs associated with the integration of these companies (including research and development costs);

•  meet expected timelines for product development and commercialization; and

•  account for exposure to liabilities of Aprisma that were not known or accurately evaluated by us prior to consummating the acquisition.

We cannot ensure that our revenues will grow or that we will again be profitable.

      We have expended considerable resources to the research and development of new technologies and new or improved product features that have enabled us to retain existing customers and penetrate new markets both in the United States and internationally. Despite this expenditure of resources, we cannot ensure that we

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can generate revenue growth on a quarterly or annual basis, or that we can achieve or sustain any revenue growth in the future.

      In an effort to again achieve and maintain profitability and adequately fund research and development, we continue to work to reduce our operating expenses while maintaining funding for product development. However, competition in the marketplace may require us to increase our operating expenses in the future in order to:

•  fund higher levels of research and development;

•  increase our sales and marketing efforts;

•  increase sales staff and sales training programs;

•  develop new distribution channels;

•  broaden our customer support capabilities; and

•  respond to unforeseeable economic or business circumstances.

      To the extent that increases in our operating expenses precede or are not followed by increased revenues, our goal of attaining profitability will be at risk.

Our operating results may fluctuate and you could lose the value of your investment.

      We are likely to experience significant fluctuations in our operating results caused by many factors, including, but not limited to:

•  changes in the demand for our products by customers or groups of customers;

•  the timing, composition, and size of orders from our customers, including the tendency for significant bookings to occur in the final two weeks of each fiscal quarter (including the fiscal year end);

•  difficulties penetrating new markets for our products;

•  costs associated with the integration of acquired companies and/or new technologies;

•  our customers’ spending patterns and budgetary resources for our products;

•  geopolitical conditions in the world;

•  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 our products are sold;

•  our success in anticipating and effectively adapting to developing markets and rapidly changing technologies;

•  our success in attracting, retaining, and motivating qualified personnel;

•  the publication of opinions about us and our products, or our competitors and their products, by industry analysts or others;

•  changes in general economic conditions; and

•  changes in accounting rules.

      Though our service revenues have been increasing as a percentage of total revenues, we do not have a significant ongoing revenue stream that may mitigate quarterly fluctuations in operating results.

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      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 will likely suffer.

We have increased our leverage as a result of the sale of the 3.0% Convertible Senior Notes due 2023.

      In connection with the sale of the Notes, we have incurred $86.25 million of indebtedness. As a result of this indebtedness, our interest payment obligations have increased. The degree to which we are now leveraged could adversely affect our ability to obtain further financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. Our ability to meet our debt service obligations will be dependent upon our future performance, which may be subject to the financial, business and other factors affecting our operations, many of which are beyond our control.

Our debt service obligations may adversely affect our cash flow.

      A higher level of indebtedness increases the risk that we may default on our debt obligations. We cannot assure that we will be able to generate sufficient cash flow to pay the interest on our debt or that future working capital, borrowings or equity financing will be available to pay or refinance such debt. If we are unable to generate sufficient cash flow to pay the interest on our debt, we may have to delay or curtail our research and development programs. The level of our indebtedness among other things, could:

•  make it difficult for us to make payments on the Notes;

•  make it difficult for us to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes;

•  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

•  make us more vulnerable in the event of a downturn in our business.

Our success is dependent upon sales to telecommunication carriers and managed service providers.

      We derive and likely will continue to derive a significant portion of our revenues from the sales of our products to telecommunication carriers and managed service providers. We expect that revenue from telecommunication carriers and managed service providers will be 40% to 50% of total revenues. Despite our expectations, these markets have been negatively affected by a general weakness in capital spending; making future results difficult to predict. The volume of sales of our products and services to telecommunication carriers and managed service providers may increase at a slower rate than we expect or our sales to these customers may decrease.

The market for business service management software is an emerging market and if we fail to assess it accurately, our business could suffer.

      The market is in an early stage of development. Targeting this market is central to the development and marketing of our products, but this market is emerging, and it is difficult to assess:

•  the size of the market;

•  the appropriate features and prices for products to address this market;

•  the optimal distribution strategy; and

•  the market that will develop and the impact of large competitors within the market.

      Presently, this market is very competitive and we are in direct competition with larger companies that have substantially greater resources to fund the development of competitive products and the creation and

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maintenance of direct and indirect sales channels. The rapidly evolving BSM market and the continued presence of larger companies in this market may impact our ability to retain or increase our market share.

Increased royalty costs and our reliance on third party technology partners could adversely impact our business.

      We license from third parties, generally on a non-exclusive basis, certain technologies used in our products. The incorporation of third party technology is an important component of our product development and an increase in royalty costs associated with our distribution of third party technologies could impact our business. Additionally, the termination of any such licenses, or the failure of third-party licensors to adequately maintain or update their products, could result in delay in shipment of certain of our products while we seek to implement technology offered by alternative sources, and any required replacement licenses and associated royalties could prove costly and impact our business.

      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.

The markets for our products are intensely competitive and rapidly evolving and competition could harm our ability to sell products and services and could reduce our revenues.

      We sell software in the BSM market to help companies effectively manage their applications, systems, and networks. We offer availability and performance products to manage the IT infrastructure, and therefore compete both with companies that market comprehensive products to manage the IT infrastructure and with companies that market products for particular segments of the IT infrastructure (e.g., applications and networks). The markets for our products are intensely competitive and rapidly evolving. Our competitors include:

•  application performance software vendors;

•  fault management software vendors;

•  IT visualization software vendors;

•  application availability and performance management software vendors;

•  report toolset niche vendors;

•  enterprise management software, framework and platform providers;

•  software vendors providing service assurance for the wireless market;

•  large, well-established management framework companies that have developed network or application management platforms;

•  developers of network element management solutions;

•  probe vendors;

•  telecommunication vendors;

•  system agent vendors; and

•  vendors that provide, as a service, some of the functionality of our products.

      We expect competition to persist, increase, and intensify in the future, which will likely result in price competition within our market. If we do not provide products that achieve success in our market in the short term, or lower our prices to compete more effectively, 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.

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Market acceptance of our eHealth® products and services is critical to our success.

      We currently derive significant revenues from the sale of eHealth® Suite products and services, and we expect that revenues from these products and services will continue to account for a significant portion of our revenues in the foreseeable future. Broad market acceptance of these products and services is critical to our future success. We cannot ensure that market acceptance of our eHealth® Suite products and services will increase or even remain at current levels. Factors that may affect the market acceptance of our products and services include:

•  the availability and price of competing integrated solutions, products and technologies;

•  our ability to continue to provide product functionality and related services to meet the needs of our market;

•  our ability to continue research and development at levels necessary for the growth of our business;

•  the demand for integrated, as opposed to stand-alone, solutions; and

•  the success of our sales efforts and those of our marketing partners.

      Moreover, if demand for integrated fault and performance management software products and services increases, we anticipate that our competitors will introduce additional competitive products and services and new competitors could enter our market and offer alternative products and services resulting in decreased market acceptance of our products and services.

Market acceptance of Spectrum® products and services is critical to our success.

      As a result of the acquisition of Aprisma on February 22, 2005 we will market and sell Spectrum® products and services, from which we expect to derive significant revenue. Broad market acceptance of these products and services is critical to our future success. We cannot ensure that market acceptance of Spectrum® products and services will increase or even remain at current levels. Factors that may affect the market acceptance of our products and services include:

•  the availability and price of competing integrated solutions, products and technologies;

•  our ability to continue to provide product functionality and related services to meet the needs of our market;

•  our ability to continue research and development at levels necessary for the growth of our business; and

•  the success of our sales efforts and those of our marketing partners.

      Moreover, if demand increases for software products that provide root cause analysis, event correlation, service modeling, and topological discovery and display, we anticipate that our competitors will introduce additional competitive products and services and new competitors could enter our market and offer alternative products and services resulting in decreased market acceptance of our products and services.

Market acceptance of our netViz® products is critical to our success.

      We market and sell netViz products and services. Our revenue is derived primarily from the sale of eHealth Suite products and services, but revenue derived from the sale of netViz products and services constitutes an important component of our quarterly and annual results. Market acceptance of the netViz products and services is critical to our future success. We cannot ensure that market acceptance of netViz products and services will increase or even remain at current levels. Factors that may affect the market acceptance of netViz products and services include:

•  the availability and price of competitive products and services;

•  the ability of others to develop products and services that meet the needs of the market;

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•  our ability to continue to provide product functionality and related services to meet the needs of our market;

•  our ability to continue research and development at levels necessary for the growth of our business;

•  the demand for data-driven visualization software; and

•  the success of our sales efforts and those of our channel partners.

      Moreover, if demand for data-driven visualization products increases, we anticipate increased competition in the market from existing and new competitors that could enter our market and offer alternative products resulting in decreased market acceptance of our products.

We may need future capital funding which may be unavailable on favorable terms, or at all.

      We plan to continue to expend substantial funds on the continued development, marketing, and sale of our products. We have approximately $159.5 million in short term investments (cash, cash equivalents and marketable securities), excluding restricted cash totaling $0.1 million as of December 31, 2004, which was reduced by approximately $82.4 million on February 22, 2005 due to the acquisition of Aprisma. However, we cannot ensure that our existing capital resources 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.

We must introduce product enhancements and new products on a timely basis in order to remain competitive.

      Because of rapid technological change in the software industry, potential changes in the architecture of the IT infrastructure, changes in the software markets in which our product and services are sold, and changes in industry standards, the market acceptance of updated versions of our products is difficult to estimate. We cannot ensure that:

•  we will successfully develop and market enhancements to our products or successfully develop new products that respond to technological changes, evolving industry standards, or customer requirements;

•  we will not experience difficulties that could delay or prevent the successful development, introduction, and sale of enhancements or new products; or

•  enhancements or new products will adequately address the requirements of the marketplace and achieve market acceptance.

The need for our products may decrease if manufacturers incorporate our product features into their product offerings.

      Our products manage the performance and availability of computer applications, systems, and networks. Presently, manufacturers of both hardware and software have not implemented these management functions into their products in any significant manner. These products typically include, but are not limited to, operating systems, workstations, network devices, and software. If manufacturers begin to incorporate these management functions into their products it may decrease the value of our products and have a substantial impact on our business.

Current geopolitical instability and the continuing threat of domestic and international terrorist attacks may adversely impact our revenues.

      International tensions, exacerbated by the war in Iraq and the war against global terrorism, contribute to an uncertain political and economic climate, both in the United States and globally, which may affect our

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ability to generate revenue on a predictable basis. As we sell products both in the United States and internationally, the threat of future terrorist attacks may adversely affect our business.

An adverse impact on our outsourcing activities may affect our business.

      We currently outsource, on a limited basis, development and testing of certain software products to locations in Europe and Asia. Our efforts to outsource development and testing of software may be adversely affected by various factors, including: geopolitical instability, political conditions in countries where our development and testing activities occur, increased costs associated with outsourcing, relationships with independent contractors performing such product development and testing, and the enforceability of legal arrangements by which we protect our intellectual property rights in connection with these activities. The occurrence of any event that would adversely affect our outsourcing of development and testing of software may have an impact on our business.

Our common stock price could experience significant volatility.

      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;

•  announcements of results of operations by other companies;

•  announcements by government or other agencies regarding the economic health of the United States and the rest of the world;

•  announcements relating to financial improprieties by public companies; 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 leading to an increased risk of securities class action litigation. Such litigation could result in substantial costs and a diversion of our attention and resources.

Our industry is subject to rapid technological change. Our failure to maintain standard protocols could affect our sales.

      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 and integrated product solutions obsolete and unmarketable. While we actively work to develop products that operate with standard protocols, any change in industry standards or the emergence of new network technologies could affect the compatibility of our products, which in turn could affect the demand for, or the pricing of, our products and services.

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We rely on strategic partners and other evolving distribution channels who may not be able to market or sell our products and services effectively.

      Our distribution strategy is to develop multiple distribution channels, including sales through:

•  strategic marketing partners;

•  value added resellers;

•  service providers

•  system integrators;

•  telecommunication carriers;

•  original equipment manufacturers; and

•  independent software vendors and international distributors.

      We have focused on identifying and developing our key distribution partners worldwide to maximize the success of our indirect sales. Our success will depend in large part on our development of these distribution relationships and on the performance and success of other third parties that distribute our products and services, particularly telecommunication carriers and other network service providers. We sell our products and services in the United States through both direct sales to customers and indirect sales to customers through our channel partners. Outside the United States, we sell our products and services primarily through indirect sales via our channel partners, but direct sales to customers have been increasing as we have expanded our sales personnel in our markets. Our international channel partners are located in Europe, the Middle East, Africa, Asia, and North and South America and are subject to local laws, regulations, and customs that may make it difficult to accurately assess the potential revenues that can be generated from a certain market. Our success depends upon our ability to attract and retain valuable channel partners and to accurately assess the size and vitality of the markets in which our products and services are sold. While we have implemented policies and procedures to achieve this, we cannot predict the extent to which we are able to attract and retain financially stable, motivated channel partners. Additionally, our channel partners may not be successful in marketing and selling our products and services. We may:

•  fail to attract important and effective channel partners;

•  fail to penetrate our targeted market segments through the use of channel partners; or

•  lose any of our channel partners as a result of competitive products and services offered by other companies, products and services developed internally by these channel partners, their financial insolvency or otherwise.

We may fail to manage successfully the growth of our business.

      We have experienced employee turnover in our sales and operations personnel. Our products and services have become increasingly complex, and our distribution channels are being developed and expanded. The rapid evolution of our markets and the increasing complexity of our products and services have placed, and are likely to continue to place, significant strains on our administrative, operational, and financial resources and increase demands on our internal systems, procedures, and controls that may impact our ability to grow our business.

Our success depends on our retention of key personnel and we may be unable to recruit, integrate and retain the personnel we need.

      Our performance depends substantially on the performance of our key technical, senior management, and sales and marketing personnel. We may lose the services of any of such persons. We experience intense competition for such personnel and are constantly exploring new avenues for attracting and retaining key personnel. However, we cannot ensure that we will successfully attract, assimilate, or retain highly qualified technical, managerial or sales and marketing personnel in the future.

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Our failure to continue 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 continued establishment and maintenance of channel partner arrangements. As mentioned above, we have concentrated recently on developing more focused relationships with fewer key distributors. 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.

      In addition we face certain difficulties and risks inherent in doing business internationally, including, but not limited to:

•  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 collections;

•  potentially adverse tax consequences;

•  compliance with a variety of laws outside the United States;

•  the impact of possible recessionary environments in economies outside the United States;

•  political and economic instability; and

•  exposure to foreign currency fluctuations.

      Our successful expansion into certain countries will require additional modification of our products and services, particularly national language support. Presently, the majority of our 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 our products and services more expensive and, therefore, potentially less competitive in international markets. In certain European Union countries, however, we have introduced pricing in Euros. While we do maintain a foreign currency-hedging program on accounts receivable, 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. Additionally, as we increase our international sales, seasonal fluctuations in revenue generation 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 failure to protect our intellectual property rights may harm our competitive position.

      Our success depends significantly upon our proprietary technology. We rely on a combination of patent, copyright, trademark and trade secret laws, product and services agreements, non-disclosure agreements, and other contractual provisions to establish, maintain, and protect our proprietary rights. These means afford only limited protection.

      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

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that any rights granted by those patents 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 sought also to protect our intellectual property through the use of copyright, trademark, and trade secret laws. 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, some of our products are licensed under end user license agreements (also known as shrink-wrap licenses) that are not signed by licensees. The law governing the enforceability of shrink-wrap license agreements is not settled in most jurisdictions. There can be no guarantee that we would achieve success in enforcing one or more shrink-wrap license agreements if we sought to do so in a court of law.

Patent Infringement Litigation, including patent infringement litigation with Micromuse, Inc., could adversely affect our business.

      We acquired Aprisma Management Technologies, Inc. (“Aprisma”) in February 2005. Aprisma is engaged in patent infringement suits with Micromuse, Inc. Aprisma filed a complaint for patent infringement against Micromuse, Inc. in the U.S. District Court for the District of New Hampshire in December 2002, and Micromuse, Inc. filed a complaint for patent infringement against Aprisma in the United States District Court for the Southern District of New York in January 2005. Both cases remain pending, with trials presently unscheduled.

      We will vigorously protect our intellectual property, but patent litigation, with or without merit, could be time-consuming and expensive to litigate or settle and could divert managements attention from focusing on the core business. We cannot ensure that we will prevail in either suit. An adverse decision in either suit could materially affect our business by: (i) impairing our ability to market, sell, and distribute our products, (ii) incurring a substantial financial exposure in the form of patent infringement damages, (iii) incurring royalty costs to secure a license to continue marketing, selling, and distributing our products, if any such license is available, (iv) losing rights to company patents, and (v) requiring significant investment to costly, non-infringing technology, if possible.

      Any of these results would increase our expenses and could decrease the functionality of our products, which would make our products less attractive to our current or potential customers. We have agreed in some of our customer agreements, and may agree in the future, to indemnify other parties for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties. If we are required to make payments pursuant to these indemnification agreements, it could have an adverse effect on our business, results of operations and financial condition.

Intellectual property infringement claims could result in costly litigation and could harm our business.

      As mentioned above, although we do not believe that we are infringing upon the intellectual property rights of others, claims of infringement are becoming increasingly common as the software industry develops legal protections for 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 may not be available on terms acceptable to us or at all.

We may not have sufficient protection against product liability claims.

      Because our products are used by our customers to identify and predict current and future application, system, and network problems and to avoid failures of the IT infrastructure 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, may arise from the use of our products and could result in financial or other damages to our customers. 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.

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As a matter of practice, our license agreements limit our liability in regards to product liability claims, and in many agreements, our maximum liability for product liability claims is limited to the equivalent of the cost of the products licensed under that agreement. However, any litigation or similar procedure related to a product liability claim may require considerable resources to be expended that could adversely affect our business and financial condition and decrease future revenues.

Changes in accounting policies could adversely affect our business.

      Our financial statements are prepared in conformity with United States Generally Accepted Accounting Principles (“U.S. GAAP”). A change in U.S. GAAP could significantly impact our reported financial results and could retroactively affect prior reporting periods. Our accounting policies that have been, or may be, affected by changes in U.S. GAAP include:

•  software revenue recognition;

•  measurement of stock-based compensation at fair value in accordance with Financial Accounting Standards Board Statement No. 123R Share-Based Payment; and

•  accounting for goodwill and other intangible assets.

      Changes in U.S. GAAP in these areas or others may have a significant impact on our business.

The conviction of Arthur Andersen LLP may limit potential recoveries related to their prior service as our independent auditors.

      Arthur Andersen LLP served as our independent auditors until June 10, 2002. On June 10, 2002, we dismissed Arthur Andersen LLP and on June 11, 2002, we retained PricewaterhouseCoopers LLP as our independent auditors. On June  15, 2002, Arthur Andersen LLP was found guilty on federal obstruction of justice charges arising from the government’s investigation of Enron Corporation. Following this conviction, on August 31, 2002, Arthur Andersen LLP ceased operations and can no longer reissue its audit reports or provide its consent to include its audit reports in financial reports filed with the Securities and Exchange Commission (“SEC”). Accordingly, Arthur Andersen LLP has not performed any procedures in connection with the preparation and filing of this report. Events arising out of the indictment and conviction will likely preclude Arthur Andersen LLP from satisfying any claims arising from the provision of auditing services to us, including claims that may arise out of Arthur Andersen LLP’s audit of financial statements incorporated by reference in this quarterly report.

      SEC rules require us to present historical audited financial statements in various SEC filings, along with consents from Arthur Andersen LLP to include its audit report in those filings. In light of the cessation of Arthur Andersen LLP’s SEC practice, we will not be able to obtain the consent of Arthur Andersen LLP for the inclusion of its audit report in our relevant current and future filings. The SEC has provided regulatory relief designed to allow companies that file reports with the SEC to dispense with the requirement to file a consent of Arthur Andersen LLP in certain circumstances, but purchasers of securities sold under our registration statements, which were not filed with the consent of Arthur Andersen LLP for the inclusion of its audit report will not be able to file suit against Arthur Andersen LLP pursuant to Section 11(a)(4) of the Securities Act and therefore their right of recovery under that section may be limited as a result of the lack of our ability to obtain the consent of Arthur Andersen LLP. If the SEC ceases to accept financial statements from a prior period audited by Arthur Andersen LLP for which Arthur Andersen LLP will not reissue an audit report prior to the date on which our periodic reports are due, our ability to make timely filings with the SEC and access the capital markets could be impaired. In that case, we would not be able to make timely filings with the SEC or access the public capital markets unless another independent accounting firm were able to audit the financial statements originally audited by Arthur Andersen LLP.

Item 2. Properties

      Our corporate headquarters and principal facilities are located in approximately 142,400 square feet of office space in Marlborough, Massachusetts under lease arrangements that expire in August 2007. These principal facilities accommodate our finance, administration and operations, research and development, customer support, marketing, and sales departments. We also lease office space in Atlanta, GA and

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Gaithersburg, MD. In addition, we lease sales office space in Dallas, TX; Plymouth, MI; Spokan, WA; Bellevue, WA; Tyson, VA; Morrisville, NC; Gold River, CA; Bay Area, CA; Mesa, AZ; United Kingdom; France; Germany; the Netherlands; Spain; Sweden; Australia; Hong Kong; Japan; Singapore; Mexico; South Korea and China. We believe that our current facilities are adequate for our needs through the next twelve months and that, should it be needed, suitable additional or substitute space will be available to accommodate expansion of our operations on commercially reasonable terms, although there can be no assurance in this regard.

      Our reportable segments are determined by customer type: managed service providers/telecommunication carriers and enterprise. We evaluate segment performance based on revenue only. Accordingly, all of our facilities are used by each of our operating segments.

Item 3. Legal Proceedings

a) Claims

      On April 30, 2004, we received a letter from LMS Technology Distributions SDN BHD (“LMS”) of Malaysia that demands that we reimburse LMS for approximately $4.65 million in alleged losses arising out of our purported wrongful termination of a Concord Authorized Reseller Agreement (the “CAR Agreement”) with LMS. We dispute that the CAR Agreement was wrongfully terminated or that LMS is owed any of the amounts claimed, and we intend to defend vigorously against the demand. It is not possible to predict or determine the outcome of these demands or to provide ranges of losses that may arise, if any.

      In November 2003, Concord received notice from a former sales employee in France, stating that he was wrongfully dismissed in July 2003. The former employee filed a wrongful termination lawsuit against Concord claiming approximately $0.4 million in damages. In January 2005, the Labor Court of Poissy issued its decision on the former employees unfair dismissal and failure to pay commissions claims. The court found that we did not fulfill our obligations as required by French law and awarded the former employee approximately $12,000. Accordingly, Concord has accrued a liability of $12,000 at December 31, 2004.

      On December 6, 2002, Aprisma filed a complaint for patent infringement against Micromuse, Inc. in the U. S. District Court for the District of New Hampshire. This case remains pending, with a trial presently unscheduled. This case involves Aprisma’s claim that Micromuse’s systems management products, including NetcoolÒ products such as Netcool/OMNIbus, Impact and Precision infringe the following U.S. Patents: 5,436,909; 5,504,921; 5,777,549; 5,696,486; 5,768,501; and 6,064,304. Aprisma seeks injunctive relief and damages based on Micromuse’s infringement. Micromuse has denied infringement, and has alleged that the asserted patents are invalid and are unenforceable. On January 11, 2005, following a two-day hearing, the Court issued a Memorandum and Order in which it adopted the proposed claim construction of the seven disputed claim terms at issue offered by Aprisma. Based on the Court’s claim construction ruling, the parties filed summary judgment motions on the issue of infringement, for which they are awaiting a hearing.

      On January 26, 2005, Aprisma was named as a defendant in litigation filed in the Southern District of New York alleging patent infringement of various U.S. patents allegedly owned by Micromuse. This case remains pending, with a trial presently unscheduled. This case involves Micromuse’s claim that Aprisma’s SNMP support products, the SPECTRUM Assurance Server, the SPECTRUM Alarm Monitor, Gateways and MPLS Manager products infringe the following U.S. Patents: 6,192,034; 6,219,648; 6,330,598; 6,687,335; 6,763,333; 5,936,547; and 6,766,375. Micromuse seeks declaratory, injunctive relief and damages for Aprisma’s alleged infringement. On March 8, 2005, Aprisma filed a Motion to Dismiss or Transfer the Complaint to the District of New Hampshire. This Motion remains pending. We believe the allegations in this suit are without merit and we intend to vigorously defend against them.

Item 4. Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2004.

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PART II

Item 5. Market for the Registrant’s Common Stock and Related Stockholder Matters

      Our Common Stock trades on the NASDAQ National Market under the symbol “CCRD”. The following table sets forth, for the periods indicated, the high and low intraday sales prices for the Common Stock, all as reported by the NASDAQ National Market.

Price Range of Common Stock

Period		High		Low
Fiscal 2004:
	First Quarter	$	21.02	$	13.60
	Second Quarter		15.65		10.33
	Third Quarter		11.45		7.87
	Fourth Quarter		11.22		7.76
Fiscal 2003:
	First Quarter	$	11.50	$	6.60
	Second Quarter		15.38		8.58
	Third Quarter		16.95		11.67
	Fourth Quarter		23.12		13.18

As of March 10, 2005, we had approximately 281 holders of record of our common stock. This number does not include beneficial owners holding shares of our Common Stock through nominee names.

Dividend Policy

      We did not declare or pay any cash dividends on our capital stock during the fiscal years ended 2004 or 2003. We currently anticipate that we will retain all future earnings for use in our business and we do not anticipate that we will pay any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition, general business conditions and contractual restrictions on the payment of dividends, if any.

Use of Proceeds

      On October 16, 1997, Concord commenced an initial public offering (“IPO”) of 2,900,000 shares of Common Stock pursuant to a final prospectus dated October 15, 1997 (the “Prospectus”). The Prospectus was contained in our 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 registered, 2,300,000 shares were offered and sold by Concord and 600,000 shares were offered and sold by certain shareholders of Concord. As part of the IPO, Concord granted the several underwriters an over allotment 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. The managing underwriters for the IPO were Nationsbanc Montgomery Securities Inc., BancAmerica Robertson Stephens and Wessels, Arnold and Henderson, L.L.C. (the “Representatives”). On October 24, 1997, the Representatives, on behalf of the several underwriters, exercised the Underwriters’ Option, purchasing 435,000 additional shares of our Common Stock. The aggregate offering price of the IPO to the public was $40,600,000 (exclusive of the Underwriters’ Option), with proceeds to Concord and the selling shareholders, after deduction of the underwriting discount, of $29,946,000 (before deducting offering expenses payable by Concord) and $7,812,000, respectively. The aggregate offering price of the Underwriters’ Option exercised was $6,090,000, with proceeds to Concord, after deduction of the underwriting discount, of $5,663,700 (before deducting offering expenses payable by Concord). The aggregate amount of expenses

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incurred by Concord 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.

      None of the expenses paid by Concord in connection with the IPO or the exercise of the Underwriters’ Option was paid, directly or indirectly, to directors, officers, persons owning ten percent or more of the Concord’s equity securities, or affiliates of Concord.

      The net proceeds to Concord from the IPO, after deducting underwriting discounts and commissions and other offering expenses were approximately $34.7 million. To date, we have not utilized any of the net proceeds from the IPO. Concord has invested all such net proceeds primarily in US treasury obligations and other interest bearing investment grade securities. None of the net proceeds from the IPO was used to pay, directly or indirectly, directors, officers, persons owning ten percent or more of Concord’s equity securities, or affiliates of Concord.

Item 6. Selected Financial Data

      The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes to those statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The selected financial data as of and for each of the five fiscal years in the period ended December 31, 2004 have been derived from our audited consolidated financial statements. The historical results are not necessarily indicative of the operating results to be expected in the future.

      Concord adopted Statement of Financial Accounting Standards (“SFAS”) No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of January 1, 2003. The adoption of SFAS No. 145 retroactively changes guidance related to the reporting of gains and losses from extinguishment of debt as extraordinary items. The effect of SFAS No. 145 on our consolidated statement of operations data for the five years ended December 31, 2004 is for amounts previously recorded as “Extraordinary loss on early extinguishment of debt” to instead be recorded as a component of “Other income, net”. We have reclassified extraordinary loss of $0.22 million, net of tax benefit of $0.07 million, for the year ended December 31, 2000. There were no extraordinary items in the years ended December 31, 2004, 2003, 2002 and 2001.

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			Fiscal Year Ended December 31,
			2004			2003			2002			2001			2000
			(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
	License revenues		$	49,973		$	54,267		$	51,230		$	54,406		$	69,464
	Service revenues			56,215			49,796			42,614			33,572			22,020
		Total revenues		106,188			104,063			93,844			87,978			91,484
Cost of Revenues:
	Cost of license revenues			3,490			3,117			1,850			2,272			1,997
	Cost of service revenues			17,488			16,127			15,120			15,544			11,104
		Total cost of revenues		20,978			19,244			16,970			17,816			13,101
		Gross profit		85,210			84,819			76,874			70,162			78,383
Operating Expenses:
	Research and development			25,218			22,827			21,973			24,284			21,624
	Sales and marketing			49,911			48,352			47,383			51,041			42,996
	General and administrative			11,676			9,035			7,665			8,705			8,403
	Asset impairment charge			—			—			—			—			2,337
	Acquisition-related charges			—			40			—			—			4,300
	In-process research and development			100			994			—			—			—
		Total operating expenses		86,905			81,248			77,021			84,030			79,660
	Operating (loss) income			(1,695	)		3,571			(147	)		(13,868	)		(1,277	)
Other income, net				1,049			2,084			2,916			3,161			2,850
		(Loss) income before income taxes		(646	)		5,655			2,769			(10,707	)		1,573
(Benefit from) provision for income taxes				(112	)		(2,015	)		568			447			447
Net (loss) income available to common shareholders			$	(534	)	$	7,670		$	2,201		$	(11,154	)	$	1,126
Net (loss) income per common and potential common share:
	Basic		$	(0.03	)	$	0.44		$	0.13		$	(0.67	)	$	0.07
	Diluted		$	(0.03	)	$	0.42		$	0.12		$	(0.67	)	$	0.07
Weighted average common and potential common shares outstanding:
	Basic			18,280			17,534			17,057			16,683			16,144
	Diluted			18,280			18,208			17,627			16,683			16,746

	Fiscal Year Ended December 31,
	2004		2003		2002		2001		2000
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities (net of restricted cash)	$	159,455	$	161,891	$	72,831	$	68,344	$	63,251
Working capital		147,925		149,433		57,792		48,966		54,131
Total assets		223,491		218,426		105,930		102,480		102,276
Long-term debt, net of current portion		—		—		—		—		—
Redeemable convertible preferred stock		—		—		—		—		—
Convertible senior notes		86,250		86,250		—		—		—
Total stockholders’ equity	$	91,529	$	87,841	$	68,936	$	63,507	$	70,746

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      You should read the following discussion together with our Consolidated Financial Statements and related Notes to Consolidated Financial Statements that are included elsewhere in this Report. The following discussion contains forward-looking statements that reflect plans, estimates, trends and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See “Factors That Could Affect Future Results” herein.

Overview

      We are a software company that provides a solution to enterprise customers, managed service providers and telecommunication carriers. Our solution, the eHealth® Suite of products, maps IT services to business needs, measures the actual end user experience and manages application, system and network infrastructure. Our software simplifies the management of the underlying technology and infrastructure required to deliver business services.

      We sell our products worldwide through a direct sales force, channel partners, and other resellers. We have sales offices in 13 countries, including the United States and we have customers in 63 countries.

      For the fiscal year ended December 31, 2004, we increased our revenue while reducing profitability year over year. Our total revenues are generated from license revenue and service revenue. In 2004, total revenues were $106.2 million, up 2% from $104.1 million in 2003. Our diluted loss per share was $0.03 per share in 2004. Our diluted income per share was $0.42 per share in fiscal 2003. We generated $0.1 million in operating cash during the year and finished 2004 with $159.5 million of cash, cash equivalents, and marketable securities.

      After benefiting from an economic recovery which started in the second quarter of 2002 and continued throughout 2003, we encountered sales and marketing execution issues in the first quarter of 2004, which negatively affected our licenses revenues in that quarter and slowed our growth for the year. We have replaced sales personnel in many of the underperforming areas. Internal initiatives implemented in the third quarter of 2004, such as targeted marketing programs and specific sales incentives, helped improve our effectiveness in the second half of 2004.

      Last year, we made several major improvements to our eHealth Suite, which allow IT managers to map IT services to business processes and deliver an executive view of key performance indicators. We introduced the Business Service Console, a product that provides executives a single view into an organization’s IT infrastructure. In addition, we continued to increase our penetration into our installed base; most of our license revenue came from existing customers returning to buy new eHealth® capabilities. Finally, we hired a new Executive Vice President of Field Operations and Professional Services to lead us in our next phase of growth.

      In October 2004, Concord consummated an offer to purchase any and all outstanding options to purchase shares of its common stock with an exercise price per share of $25.00 or more granted under its 1997 Stock Plan (the “Option Repurchase”). In connection with the Option Repurchase, Concord incurred compensation expense of $3.3 million, excluding fees and expenses, in the three-month period ended December 31, 2004. The compensation expense was distributed as follows: $0.2 millions in cost of service revenues, $1.3 millions in research and development expenses, $0.5 million in sales and marketing expenses, and $1.3 million in general and administrative expenses. The option purchase price was determined to be the weighted average fair market value as calculated by the Black-Scholes option-pricing model. Substantially all eligible option holders elected to tender their options to Concord pursuant to the terms and conditions of the Option Repurchase. We purchased a total of 965,242 options pursuant to the terms and conditions of the Option Repurchase. These shares were returned to the pool of options available for new grants under the 1997 Stock Plan.

      On January 5, 2005, we completed the acquisition of privately held Vitel Corporation. Vitel’s software enables enterprises and service providers to manage the performance of next-generation IP and legacy voice networks and messaging systems, including voice mail, from multiple vendors such as market leaders Avaya and Nortel Networks. The purchase price was at $4.1 million, including direct costs of the acquisition of $0.1 million, and was paid in cash. The acquisition will be accounted for under the purchase method of

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accounting in the three months ending March 31, 2005. (See Note 14 of the Notes to Consolidated Financial Statements).

      On February 22, 2005, we acquired Aprisma, a privately held software company owned by Gores Technology Group. Aprisma’s SPECTRUM® software manages the health and performance of networks and the business services that rely on them, including performing root cause analysis, fault management, event correlation, service modeling, and topological discovery and display. These technologies are critical to managing the availability of IT infrastructures and related business services. The purchase price was $93.0 million, which payment was adjusted by (i) the amount of net debt owing by Aprisma to certain of its lenders at the time of closing (which debt will be paid off by Concord) and (ii) certain payment obligations owing by Aprisma under its equity participation plan. Concord’s cash payment to acquire Aprisma on February 22, 2005 was approximately $82.4 million. The acquisition will be accounted for under the purchase method of accounting in the three months ending March 31, 2005. (See Note 14 of the Notes to Consolidated Financial Statements).

Management’s Outlook

      In the coming year, our first goal is to integrate the acquired technologies of Aprisma and Vitel.

•  Aprisma — Our investment in Aprisma — SPECTRUM® is based on our assumption that market demand for integrated performance and fault management solutions is growing. The acquisition of Aprisma allows us to access this integrated market. Aprisma will initially be managed as a business unit reporting to our CEO. However, we will be immediately merging our finance, HR, and internal IT departments to achieve some economies of scale. We expect to cross-compensate salespeople on joint deals.

•  Vitel — Vitel provides Concord the ability to address a significant portion of the voice market. Historically, Concord was only able to address a small fraction of the traditional enterprise voice network market. Vitel’s strength is that their products manage legacy telephony devices from Nortel and Avaya. With the acquisition of Vitel, Concord has expanded its ability to increase our penetration of this market. We have integrated the sales, development and business support functions. No significant savings are expected from this integration.

      These acquisitions are considered important as they will significantly increase the breadth of products that Concord brings to market. Combined, this will provide Concord with an expanded solution set, which can address the needs of customers to get BSM solutions from a single vendor. We expect this expanded solution set will increase our average sale price to new customers as these customers will purchase an increased number of products from Concord.

      Our second goal is to strengthen sales of new and enhanced products to current and new markets. To accomplish this, we are planning several new product releases, expanding our presence in the traditional enterprise voice network market and positioning ourselves in the wireless market as more applications migrate to 2.5 and 3G environments. This will be challenging as these markets have the potential to be very large; the technology in many cases will be unfamiliar to us and there will be many competitors focused on these markets as well.

      Metrics that we are tracking to measure success in this area include:

      1) percentage of sales of our newer products (such as application management revenue) as a percent of total revenues;

      2) number of new customer accounts;

      3) average sales price per new customer accounts; and

      4) number of transactions over $100,000.

      Our third goal is to achieve profitability by increasing revenues while continuing to closely manage our expenses. The 2004 combined revenues of Concord and Aprisma were approximately $150.0 million.

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Achieving profitability will be challenging for several reasons. Achieving profitability requires that we become more efficient by increasing our license revenues while maintaining or decreasing our operating expenses. We monitor a certain number of metrics internally to gauge our success in this area such as:

      1) revenue per employee,

      2) percentage of direct and indirect revenue

      3) geographic revenue

      4) research and development expense as a percentage of total sales,

      5) sales and marketing expense as a percentage of total sales.

Trends and Uncertainties

      Key trends and related uncertainties include:

      1) Consolidation is beginning to take place in our industry. Customers are increasingly coming to expect more robust solutions at a lower price. This puts increased demands on companies like ours to become more efficient and produce software code of higher quality at a lower price.

      2) Niche vendors are struggling and are dropping prices to remain viable. While in the long run, this trend will benefit Concord, in the short run it forces us to also drop prices to remain competitive.

      3) The network market appears to be more mature. Customers are increasingly buying solutions for systems that are not as mission critical as in previous years, and these customers expect to pay less for the same amount of product.

      4) There is becoming a greater need to partner. Customers want to standardize on a set of products and are more favorably inclined to make an investment in software where the standardization is easier. Tighter integrated solutions are considered cost efficient as they reduce the management costs. Outsourcing research and development is becoming more common. Cost structures overseas for research and development labor tends to be exponentially lower than in domestic markets. In order to stay competitive with foreign and domestic competitors, companies like Concord must invest in outsourcing software development to keep costs low.

Critical Accounting Policies, Significant Estimates and Judgments

      The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”). The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustment. US GAAP requires us to make estimates and judgments in several areas. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements. See our audited consolidated financial statements and notes thereto of this Annual Report on Form 10-K and which contain accounting policies and other disclosures required by US GAAP.

      We believe that the policies, significant estimates and judgments discussed below are the most critical to our financial statements and the understanding of our financial condition and results of operations because their application places the most significant demands on management’s judgment.

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     (a)  Revenue Recognition

      Our 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. Software license revenues are recognized when persuasive evidence of an arrangement exists and delivery of the software has occurred, provided that the license fee is fixed or determinable, collection is considered reasonably assured and no customer acceptance clauses exist. If an arrangement includes an acceptance provision, revenue recognition occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period. If an arrangement includes a right of return for the possibility that the software does not meet published specifications during the warranty period, which is typically 90 days, revenue is recognized upon shipment if all other criteria are met as our product is mature and we have not experienced returns of our products. If the fee is determined not to be fixed or determinable, revenue is recognized when the fees become due. If collection is not considered reasonably assured, revenue is recognized upon the receipt of cash. Revenues under multiple-element arrangements, which typically include software products, services, maintenance and sometimes undelivered specified software upgrades sold together, are allocated to each element using the residual method in accordance with SOP 98-9. Under the residual method, the fair value of the undelivered elements is deferred and subsequently recognized when these elements are delivered; the remainder of the arrangement consideration is allocated to the software. We have established sufficient vendor specific objective evidence for professional services, training, maintenance, customer support services and specified software upgrades based on the price charged when these elements are sold separately. Accordingly, software license revenues are recognized under the residual method in arrangements in which software is licensed with professional services, training, maintenance, customer support services and specified software upgrades.

      Service revenues include professional services, training, and maintenance and customer support fees. Professional services are not essential to the functionality of the other elements in an arrangement and are accounted for separately. Service revenues are recognized as the services are performed, provided evidence of an arrangement exists, fees are fixed or determinable, and collection is considered reasonably assured.

      Maintenance revenues, a component of service revenues, are derived from customer support agreements generally entered into in connection with initial license sales and subsequent renewals. Maintenance fees include the right to unspecified upgrades on a when-and-if-available basis and ongoing technical support. Maintenance revenues are recognized ratably over the term of the maintenance period. Payments for maintenance fees are generally made in advance and are included in deferred revenue.

      We license our software to end-users and resellers. Decisions regarding revenue recognition are centralized at our corporate headquarters, located in the United States. Our arrangements with customers do not generally include provisions involving acceptance of our products by our customers. However, if a customer arrangement includes an acceptance provision, revenue recognition occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period. With respect to revenues from our channel partners and other resellers, we recognize revenue upon delivery of our software to the channel partner or reseller. We do not offer any right of return, price protection or similar rights to our channel partners and other resellers.

      For all sales, in the absence of a signed license agreement, we use either a purchase order or purchase order equivalent as evidence of an arrangement. If a signed license agreement is obtained, we use either the license agreement or the license agreement and a purchase order as evidence of an arrangement. Sales to resellers are usually evidenced by a master agreement governing the relationship together with purchase orders on a transaction-by-transaction basis.

      Delivery generally occurs when product is delivered to a common carrier and the delivery terms are FOB Concord. The costs of shipping and handling related to the delivery of the product is included in revenue. In the case of arrangements with resellers, revenue is recognized upon delivery to the reseller. Most of these arrangements involve a sell-through by the reseller to an end user. For a reseller, evidence usually comes in the form of a purchase order typically identifying the end-user.

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      At the time of the transaction, we assess whether the fee associated with our revenue transaction is fixed or determinable and whether or not collection is reasonably assured. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction. If a significant portion of a fee is due after our normal payment terms, which are usually 30 to 60 days from invoice date, depending upon the region, we account for the fee as not being fixed or determinable. In these cases, we recognize revenue when the fees become due.

      We assess collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue upon receipt of cash. Concord’s channel partners and other resellers are responsible to Concord upon delivery.

      For arrangements with multiple elements (for example, undelivered maintenance and support or undelivered specified software upgrades), we allocate revenue to each component of the arrangement using the residual value method based on the fair value of the undelivered elements. This means that we defer revenue from the fee arrangement equivalent to the fair value of the undelivered elements. We determine fair values for ongoing maintenance and support obligations using our internal pricing policies for maintenance and by referencing the prices at which we have sold separate maintenance contract renewals to our customers. We determine fair value of services, such as training or consulting, by referencing the prices at which we have separately sold comparable services to our customers. For specified undelivered software upgrades, we determine fair value of these upgrades by referencing the prices at which we sell upgrades separately to our customers.

      The majority of our sales transactions are completed using standard terms and conditions; however, there are agreements that contain non-standard terms and conditions. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including whether the deliverables specified in a multiple obligations arrangement should be treated as separate units of accounting for revenue recognition purposes, and if so, how the price should be allocated among the deliverable elements and when to recognize the revenue for each element. Changes in the allocation of the sales price between deliverable elements might impact the timing of revenue recognition, but would not change the total revenue recognized for the transaction.

     (b)  Accounts Receivable

      We record our trade accounts receivable at the invoiced amount; these accounts do not bear interest. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based on our historical experience and any specific customer collection issues that we have identified. We review our allowance for doubtful accounts on a monthly basis. We review all past due balances over 60 days individually for collectability. We charge account balances against the allowance when we feel it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure to our customers.

      While credit losses have historically been within our expectations and the appropriate reserves have been established, we cannot guarantee that we will continue to experience the same credit loss rates that we have experienced in the past. Thus, if the financial condition of our customers were to deteriorate, our actual losses may exceed our estimates, and additional allowances would be required.

     (c)  Accounting for Income Taxes

      As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. To do this, we estimate our actual current tax liabilities, while also assessing temporary differences resulting from differing treatment of items, such as deferred revenue and expense accruals, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the

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likelihood that our deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations. To the extent we reverse any portion of the valuation allowance, we must recognize a benefit within the tax provision in the statement of operations or to additional paid-in capital for the benefit of deductions for stock option exercises.

      Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have not placed any reserve on our deferred tax assets by recording a valuation allowance. The resulting net deferred tax asset of $14.0 million at December 31, 2004 is based on our estimate that future taxable income we expect to generate will be sufficient to realize the net deferred asset. In the event the actual results differ from the estimates or we adjust these estimates in future periods, we may need to establish another valuation allowance. Establishing new or additional valuation allowances could materially adversely impact our financial position and results of operations.

     (d)  Accounting for Acquisitions and Acquired In-process Research and Development

      The purchase price of businesses acquired accounted for as purchase business combinations, is allocated to the tangible and intangible assets acquired based on their estimated fair values with any amount in excess of such allocations designated as goodwill, in accordance with SFAS No. 141, Business Combinations. Our accounting for acquisitions involves significant judgments and estimates regarding primarily, but not limited to: the fair value of acquired intangible assets, which are based on projections of future revenues and cash flows, assumptions regarding discount factors, royalty rates, tax rates, amortization methodologies and related useful lives, as well as the fair value of other acquired assets and assumed liabilities, including potential contingencies and deferred income taxes. The valuation of purchased intangibles is based upon estimates of the future performance and cash flows from the acquired business. If different assumptions are used, it could materially impact the purchase price allocations and our financial position and results of operations. Our identifiable assets are generally amortized at the greater of (a) the ratio that current revenues bear to the total of current and anticipated future revenues or (b) the straight-line method over their respective remaining useful lives.

      We completed our acquisition of netViz on July 13, 2003, which was accounted for under the purchase method of accounting and resulted in recording significant goodwill and other intangible asset balances. The purchase price of netViz has been allocated to the assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, as determined by management and, with respect to the identifiable intangible assets, an appraisal. The values of the completed technology, reseller relationships, maintenance relationships, contractor agreements and trade name/trademarks of netViz were determined using the income approach. The income approach requires a projection of revenues and expenses specifically attributed to the intangible assets. The discounted cash flow (“DCF”) method is then applied to the potential income streams after making necessary adjustments with respect to such factors as the wasting nature of the identifiable intangible assets and the allowance of a fair return on the net tangible assets and other intangible assets employed. There are several variations on the income approach, including the relief-from-royalty method, the avoided cost method, and the lost profits method.

      The relief-from-royalty method was used to value the trade name/trademarks of netViz. The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of the intangible assets that would otherwise have to pay royalties or licensee fees on revenues earned through the use of the asset. The royalty rate used in the analysis is based on an analysis of empirical, market-derived royalty rates for guideline intangible assets. Typically, revenue is projected over the expected remaining useful life of the intangible asset. The market-derived royalty rate is then applied to estimate the royalty savings. The key assumptions used in valuing the trade name/trademarks of netViz are as follows: royalty rate 1%, discount rate 21%, tax rate 40% and estimated average economic life of 3 years.

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      The avoided cost method was used to value the reseller relationships and contractor agreements of netViz. The avoided cost method considers the concept of avoided cost as an indicator of value. The avoided cost method is appropriate for estimating the fair value of an asset where reliable data for sales of comparable property are not available and where the property does not directly produce an income stream. The key assumptions used in valuing the reseller relationships of netViz are as follows: tax rate 40% and estimated average economic life of 5 years. The key assumptions used in valuing the contractor agreements of netViz are as follows: tax rate 40% and estimated average economic life of 4 years.

      The completed technology (software) of netViz was valued using the income approach without variation. The key assumptions used in valuing the completed technology of netViz are as follows: discount rate 21%, tax rate 40% and estimated life of 4 years. The key assumptions used in valuing the maintenance relationships of netViz are as follows: discount rate 21%, tax rate 40% and estimated average economic life of 5 years.

      We completed our acquisition of Vitel on January 5, 2005. The values of the completed technology (software), reseller relationships, and maintenance relationships for Vitel were determined using the income approach.

      The relief-from-royalty method was used to value the completed technology. The key assumptions used in valuing the completed technology of Vitel are as follows: royalty rate 5%, discount rate 18.5%, tax rate 40% and estimated average economic life of 5 years.

      The maintenance relationships of Vitel were valued using the income approach without variation. The key assumptions used in valuing the maintenance relationships of Vitel are as follows: discount rate 18.5%, tax rate 40% and estimated average economic life of 6 years.

      The avoided cost method was used to value the reseller relationship of Vitel. The key assumptions used in valuing the reseller relationships of Vitel are as follows: tax rate 40% and estimated average economic life of 5 years.

      We completed our acquisition of Aprisma on February 22, 2005. We are still in the process of performing our allocation of purchase price and valuation of identifiable intangibles, but we expect to assign a significant portion of the purchase price to identifiable intangibles and goodwill.

      We have also completed our accounting of the license agreement with Tavve whereby Concord licensed components of Tavve’s technology. Our accounting for the Tavve license as in-process research & development involved significant judgments and estimates regarding primarily, but not limited to: assessing if the acquired technology has reached technological feasibility and if the acquired technology has no alternative future use.

      Technological feasibility is established when either of two sets of criteria is met:

      a) the detail program design has been completed, documented, and traced to product specifications and its high-risk development issues have been resolved; or

      b) a working model of the product has been finished and determined to be complete and consistent with the product design.

      Upon acquiring the licensed components of Tavve’s technology, Concord did not have a completed product design and did not have a working model, as defined. In addition, the purchased source code has no alternative future use, i.e., Concord will not use the source code for any other purpose than described above. The detailed program design for the integration of Tavve’s technology into Concord eHealth® Suite of products has not been completed. The acquisition of Aprisma eliminates our need for this technology, which will now become redundant.

     (e)  Valuation of Long-Lived Tangible and Intangible Assets and Goodwill

      We have significant long-lived tangible and intangible assets and goodwill, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. The long-lived tangible assets are fixed assets, which are depreciated over their estimated useful lives. The long-lived intangible assets are

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completed technology (software), reseller relationships, maintenance relationships and trade name/trademarks, which are amortized at the greater of (a) the ratio that current revenues bear to the total of current and anticipated future revenues or (b) the straight line method over their respective remaining useful lives; and contractor agreements, which are being amortized using the straight-line method over their useful lives. Goodwill is not amortized.

      At each quarter-end, the carrying value of the completed technology (software) is compared to its net realizable value (“NRV”). NRV is the estimated future gross revenues from products that incorporate the software reduced by the estimated future costs of disposal. If NRV is less than the carrying value, the excess is written-off and the then current NRV becomes the new carrying value of the software. We assess the potential impairment of other identifiable intangible assets and fixed assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important, which could trigger an impairment of such assets, include the following:

•  significant underperformance relative to historical or projected future operating results;

•  significant changes in the manner of or use of the acquired assets or the strategy for our overall business;

•  significant negative industry or economic trends;

•  significant decline in our stock price for a sustained period; and

•  a decline in our market capitalization below net book value.

      Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact future results of operations and financial position in the reporting period identified.

      Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, or SFAS 142 requires goodwill acquired as a result of a purchase method business combination to be tested for impairment using a two-step process. The first step compares the fair value of the reporting unit with the unit’s carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit’s goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit’s goodwill is compared with the carrying amount of the unit’s goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. Goodwill is required to be tested for impairment at least annually, or more frequently when events and circumstances occur indicating that the recorded goodwill might be impaired. We perform the annual assessment at June 30 of each fiscal year.

      As of June 30, 2004, we performed our annual test for impairment on the carrying value of goodwill of our MSP/ TC and Enterprise reporting units. We compared the fair value of each reporting unit to which goodwill has been allocated to its book value and determined that no impairment existed at that date.

      Factors we consider important, which could trigger an impairment of goodwill, include the following:

•  significant underperformance relative to historical or projected future operating results;

•  significant negative industry or economic trends;

•  significant decline in our stock price for a sustained period; and

•  a decline in our market capitalization below net book value.

      Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact future results of operations and financial position in the reporting period identified.

      Significant judgments and estimates are involved in determining the useful lives of our intangible assets, determining what reporting units exist and assessing when events or circumstances would require an interim impairment analysis of goodwill or other long-lived assets to be performed. Changes in events or circumstances, including but not limited to technological advances or competition which could result in shorter useful

32

lives, additional reporting units which may require alternative methods of estimating fair value, or economic or market conditions which may affect previous assumptions and estimates, could have a significant impact on our results of operations or financial position through accelerated amortization expense or impairment charges.

Results of Operations

      The following table sets forth, for the periods indicated, certain financial data as percentages of Concord’s total revenues.

				Year Ended December 31,
				2004			2003			2002
Revenues:
	License revenues				47.1	%		52.1	%		54.6	%
	Service revenues				52.9			47.9			45.4
		Total revenues			100.0			100.0			100.0
Cost of Revenues:
	Cost of license revenues				3.3			3.0			2.0
	Cost of service revenues				16.5			15.5			16.1
		Total cost of revenues			19.8			18.5			18.1
			Gross profit		80.2			81.5			81.9
Operating Expenses:
	Research and development				23.7			21.9			23.4
	Sales and marketing				47.0			46.5			50.5
	General and administrative				11.0			8.7			8.2
	Acquisition-related charges				—			—			—
	In-process research and development				0.1			1.0			—
		Total operating expenses			81.8			78.1			82.1
			Operating (loss) income		(1.6	)		3.4			(0.2	)
Other Income (Expense):
	Interest income				4.2			2.7			3.3
	Interest expense				(3.1	)		(0.2	)		0.0
	Other expense				(0.1	)		(0.4	)		(0.2	)
		Total other income, net			1.0			2.1			3.1
		(Loss) income before income taxes			(0.6	)		5.5			2.9
(Benefit from) provision for income taxes					(0.1	)		(1.9	)		0.6
Net (loss) income					(0.5	)%		7.4	%		2.3	%

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Total Revenues

      Concord’s total revenues are generated from license revenue and service revenue. License revenues are derived from the licensing of software products. Service revenues consist of fees for maintenance, training and professional services.

	Year Ended December 31,
				Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
License Revenues	$	49,973			(7.9	)%	$	54,267			5.9	%	$	51,230
Service Revenues		56,215			12.9	%		49,796			16.9	%		42,614
Total Revenues	$	106,188			2.0	%	$	104,063			10.9	%	$	93,844
Percent of Total Revenues
License Revenues		47.1	%					52.1	%					54.6	%
Service Revenues		52.9	%					47.9	%					45.4	%

License Revenues

      Concord’s license revenues are derived from the licensing of software products.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
License Revenues	$	49,973			(7.9	)%	$	54,267			5.9	%	$	51,230
Percent of Total Revenues
License Revenues		47.1	%					52.1	%					54.6	%

      Fiscal 2004 compared to fiscal 2003: The decrease in license revenues in absolute dollars from 2003 to 2004 was due to a decrease in large sales transactions with European service providers, mainly in Germany and the UK. This decrease was partially offset by $2.4 million in license revenues generated by netViz, a company which was acquired by Concord in July 2003.

      Fiscal 2003 compared to fiscal 2002: The increase in license revenues in absolute dollars from 2002 to 2003 was due to an increase in sales to European service providers and to the license revenues generated by netViz, a company acquired in 2003. The increase in sales to European service providers was driven by the increased demand for outsourced services by European enterprises, which in turn, are using these services to reduce their operational costs. NetViz contributed over $1.0 million of the license revenues in 2003 while increased sales to European service providers comprise the majority of the balance of the increase.

      The continuing decrease of license revenues as a percent of total revenues from 2003 to 2004 and from 2002 to 2003 was the result of a significant increase in service revenues during the same periods, consisting primarily of maintenance revenue increases. Our large customer installed base that continues to renew their annual maintenance contracts drives this trend.

New eHealth customer accounts

      License revenues are partially dependent on our ability to sell to new eHealth customer accounts. New eHealth customer accounts represent the number of new customer accounts that purchase software from the Concord eHealth® Suite of products. NetViz new customer accounts are excluded from this count as these products are not considered key drivers of our primary business. Due to the nature of netViz® products, customers that purchase netViz® products do not generate significant revenue for the initial or subsequent purchase.

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      License revenues are partially dependent on our ability to sell to new customer accounts. License revenues can also be dependent on the number of transactions over $100,000 that we are able to close during the period.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
New eHealth Customer Accounts		86			(41.5	)%		147			(45.6	)%		270
eHealth transactions greater than $100K		153			( 7.3	)%		165			1.9	%		162
Percent of Total Revenues
New eHealth Customer Accounts		15	%					18	%					21	%

      Fiscal 2004 compared to fiscal 2003: The decrease in the number of sales to new eHealth customer accounts from 2003 to 2004 was due, primarily, to sales and marketing execution issues in the first quarter of 2004. Our sales teams focused their efforts mainly on our large install base in the first two quarters of 2004. Internal initiatives implemented in the third quarter of 2004, such as targeted marketing programs and specific sales incentives, helped improve our effectiveness at winning new eHealth customer accounts in the third and fourth quarters of 2004. The decrease in the number of transactions greater than $100,000 in 2004 was driven by a decrease in transactions generated by our indirect channel.

      Fiscal 2003 compared to fiscal 2002: The decrease in the number of sales to new customer accounts from 2002 to 2003 is due primarily, to an increase in repeat sales to our customer base driven by the release of new functionality that continues to appeal to our existing customer base. The slight increase in the number of transactions greater than $100,000 is due primarily to the investment in the solution selling training of our sales force; this training provides a business-focused approach to the sales process.

      There were no material price increases for products during 2004, 2003, or 2002. Inflation did not have a significant impact on our revenues or income during 2004, 2003 or 2002.

Service Revenues

      Concord’s service revenues consist of fees for maintenance, training and professional services.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Service Revenues	$	56,215			12.9	%	$	49,796			16.9	%	$	42,614
Percent of Total Revenues
Service Revenues		52.9	%					47.9	%					45.4	%

      Fiscal 2004 compared to fiscal 2003: The increase in service revenues from 2003 to 2004 was due mainly to an increase in maintenance revenues, which are generated from new and renewed maintenance contracts, and the maintenance generated by netViz. Service revenues generated by netViz contributed approximately $1.8 million of the increase. Increased service revenues from new and renewed maintenance contracts, driven by our large install base, comprised the balance of the increase.

      Fiscal 2003 compared to fiscal 2002: The increase in service revenues, from 2002 to 2003, was due to a significant increase in maintenance revenues, which are generated from new and renewed maintenance contracts, and the maintenance generated by netViz. NetViz contributed over $0.6 million in service revenue in 2003 while increased service revenues from new and renewed maintenance contracts primarily comprised the balance of the increase.

      Maintenance revenues represent fees earned by granting our customers rights to technical support, software product upgrades, and maintenance patches during the support period, which is usually one year. The majority of our license customers purchase maintenance upon the initial licensing of our software. In addition, the majority of these customers renew their maintenance agreements annually. An increase in the number of

35

our customers and the resulting demand for these services further helped drive the increase in service revenues from 2003 to 2004 and from 2002 to 2003.

Direct and Indirect Revenues

      Concord markets its products in the United States primarily through a direct sales force. Internationally, Concord markets primarily through indirect channels, which include channel partners and other resellers.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
				(Dollars in thousands)
Direct	$	69,226			7.9	%	$	64,162			(5.5	)%	$	67,925
Indirect		36,962			(7.4	)%		39,901			53.9	%		25,919
Total Revenues	$	106,188			2.0	%	$	104,063			10.9	%	$	93,844
Percent of Total Revenues
Direct		65.2	%					61.7	%					72.4	%
Indirect		34.8	%					38.3	%					27.6	%

      Fiscal 2004 compared to fiscal 2003: The increase of direct sales in 2004 in both absolute dollars and percentage of revenue is due to improved performance by the domestic sales force due to our continued investment in sales training as well as large deals with domestic service providers. The decrease in indirect sales for the same period is due to lower sales in Europe and Asia. Sales execution issues in Asia in the first quarter of 2004 explain in part this decrease. We have since replaced sales personnel in that region.

      Fiscal 2003 compared to fiscal 2002: The increase of indirect sales is primarily driven by increased sales in Europe, which are usually done through resellers. In 2003, we introduced the Concord Authorized Reseller (CAR) program, which provides, for a fixed annual fee, product, services, and sales training to our VARs and distributors. This training had a positive impact in 2003 on the ability of the indirect channel to better penetrate international markets, such as Europe.

International Revenues

      Concord has twelve international subsidiaries and five international branch offices. Concord has customers in 63 countries.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
United Kingdom	$	7,526			(27.7	)%	$	10,412			81.7	%	$	5,731
Europe (excluding the U.K.)		16,112			(19.1	)%		19,907			19.6	%		16,640
Rest of the World		13,001			(9.8	)%		14,419			5.5	%		13,661
Total	$	36,639			(18.1	)%	$	44,738			24.2	%	$	36,032
Percent of Total Revenues
United Kingdom		7.1	%					10.0	%					6.1	%
Europe (excluding the U.K.)		15.2	%					19.1	%					17.7	%
Rest of the World		12.2	%					13.9	%					14.6	%

      Fiscal 2004 compared to fiscal 2003: The decrease in international revenues in both absolute dollars and percentage of revenues for 2004 was due mainly to strong demand by European managed service providers in Germany and the UK in 2003. Sales to these segments in Europe were lower in 2004 as demand for our products was not as robust as compared to the corresponding prior year periods. Sales in specific countries and

36

regions can be affected by large transactions and can lead to unpredictable buying patterns. This variability can lead to fluctuations in revenues between regions.

      Fiscal 2003 compared to fiscal 2002: The increase in international revenues as a percentage of total revenues was driven primarily by strong demand by European service providers, manly due to several specific large transactions in 2003.

      The increase in international revenues as a percentage of total revenues is primarily the result of Concord’s expansion of its operations outside the United States, which has included both the hiring of additional personnel as well as the establishment of additional reseller relationships.

      Although international revenues decreased year over year, we expect revenue from international customers will continue to be approximately 30% to 50% of total revenues. We continue to commit additional time, training, and development resources to customizing our products and services for selected international markets and this will improve our ability to meet our international sales targets. We believe that continued growth and profitability will require further expansion of our sales, marketing and customer service functions in international markets. However, there can be no assurance that we will be successful in meeting this estimate.

Segment Revenues

      Concord’s reportable segments are determined by customer type: managed service providers/telecommunication carriers (“MSP/ TC”) and enterprise.

			Year Ended December 31,
						Percent						Percent
			2004			Change			2003			Change			2002
			(Dollars in thousands)
Segment Revenues
	MSP/ TC		$	48,374			3.2	%	$	46,872			18.3	%	$	39,636
	Enterprise			57,814			1.1	%		57,191			5.5	%		54,208
		Total Revenues	$	106,188			2.0	%	$	104,063			10.9	%	$	93,844
Percent of Total Revenues
	MSP/ TC			45.6	%					45.0	%					42.2	%
	Enterprise			54.4	%					55.0	%					57.8	%

      Fiscal 2004 compared to fiscal 2003: The increase in MSP/ TC revenue in absolute dollars and as a percentage of total revenue, from 2003 to 2004 was driven by several large telecommunication carriers’ orders in the US. The increase in enterprise revenues in absolute dollars was due to an increase in demand for our products from repeat sales to existing customers.

      Fiscal 2003 compared to fiscal 2002: The increase in MSP/ TC revenue in absolute dollars and as a percentage of total revenues from 2002 to 2003 was driven primarily by increased sales to European based MSP/ TC customers. The increase in enterprise revenues in absolute dollars was due to an increase in demand for our products from new customers and repeat sales to existing customers.

      We expect that MSP/ TC revenue will continue to be approximately 40% to 50% of total revenues; however, there can be no assurance that we will be successful in meeting this estimate.

Revenues Recognized in Connection With Third Party Software.

      Concord bundles third party software in some of its products when it determines that bundling such software is cost-effective or increases the effectiveness of Concord’s products. In some instances, Concord has determined that it can be cost prohibitive to develop such software applications, especially if such applications are already available in the marketplace. In addition, bundling third party software allows Concord, in certain instances, to accelerate the delivery of increased functionality within a short timeframe.

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      Revenues generated by Concord products that included third party software were:

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Revenues	$	15,628			27.3	%	$	12,281			271.8	%	$	3,303
Percent of Total Revenues
Revenues		14.7	%					11.8	%					3.5	%

      Fiscal 2004 compared to fiscal 2003: The increase of revenues from third party software in 2004 as compared to 2003 in both absolute dollars and percentage of total revenues was mostly driven by increased demand for Oracle® database software that is integrated into our product offering. Demand for the Oracle® database product is also driven by the transition of our large installed base from the Ingres database to the Oracle® database.

      Fiscal 2003 compared to fiscal 2002: In 2002, we integrated the Oracle® database software into our product offering; this enabled us to replace the Ingres database with the Oracle® product and to offer one single database solution to our customers. In the first quarter of 2003, we repackaged some of our product offerings to increase the value proposition of some components of the eHealth Suite; this repackaging, which included the Oracle database in some instances, resulted in new products with a higher average selling price. This repackage resulted in higher revenues recognized in connection with third party software.

Cost of Revenues

      Cost of revenues includes cost of license revenues and cost of service revenues.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Cost of License Revenues	$	3,490			12.0	%	$	3,117			68.5	%	$	1,850
Cost of Service Revenues		17,488			8.4	%		16,127			6.7	%		15,120
Total Cost of Revenues	$	20,978			9.0	%	$	19,244			13.4	%	$	16,970
Percent of Total Revenues
Cost of License Revenues		3.3	%					3.0	%					2.0	%
Cost of Service Revenues		16.5	%					15.5	%					16.1	%

Cost of License Revenues

      Cost of license revenues includes expenses associated with royalty fees, production, fulfillment of orders, product documentation and amortization expense associated with the completed technology intangible asset. Royalty costs are composed of third party software costs. The amortization expense is related to the acquisition of netViz.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Cost of License Revenues	$	3,490			12.0	%	$	3,117			68.5	%	$	1,850
Percent of Total Revenues
Cost of License Revenues		3.3	%					3.0	%					2.0	%

      Fiscal 2004 compared to fiscal 2003: The increase of cost of license revenues in absolute dollars is driven mainly by higher royalty costs, which are fees paid to third party software companies.

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      Fiscal 2003 compared to fiscal 2002: The increase of cost of license revenues in absolute dollars is driven by amortization expense and higher royalty costs. The factors contributed approximately 21% and 56%, respectively, of the increase in cost of license revenues.

Expenses Recognized in Connection With Third Party Software.

      Royalty costs are comprised of third party software costs. Costs associated with revenues generated by Concord products that included third party software were:

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Expenses		1,801			29.0	%		1,396			104.7	%	$	682
Percent of Total Revenues
Expenses		1.7	%					1.3	%					0.7	%

      Fiscal 2004 compared to fiscal 2003: The increase in royalty costs was mostly driven by increased demand for Oracle® database software that is integrated into our product offering. Demand for the Oracle® database product is also driven by the transition of our large installed base from the Ingres database to the Oracle®database. In 2002, we integrated the Oracle® database software into our product offering; this enabled us to replace the Ingres database we used previously with the Oracle® product and to offer one single database solution to our customers. As our installed base has grown, the number of products under maintenance, which includes third party software, has also increased. Third party maintenance charges are usually based on the number of sold units.

      Fiscal 2003 compared to fiscal 2002: The increase in royalty costs is mostly driven by the cost of distribution of the Oracle database and the related maintenance costs.

Cost of Service Revenues

      Cost of service revenues includes the personnel costs associated with providing customer support in connection with maintenance, training and professional service contracts.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Cost of Service Revenues		17,488			8.4	%		16,127			6.7	%		15,120
Percent of Total Revenues
Cost of Service Revenues		16.5	%					15.5	%					16.1	%

      Fiscal 2004 compared to fiscal 2003: The increase in absolute dollars and percentage of revenues was driven by supporting a growing base of service customers in the US, which resulted in an increase in personnel and related costs in servicing those customers.

      Fiscal 2003 compared to fiscal 2002: The increase in absolute dollars is attributable to the costs associated with the opening, in the first quarter of 2003, of a technical support call center in Australia, which is servicing our customers in the Asia-Pacific region.

      The decrease of the cost of service revenues as a percentage of revenue from 2002 to 2003 is mainly attributable to investments made in our information technology infrastructure, which have improved the productivity of the service organization.

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Gross Profit

      Total gross profit includes gross profit from license revenues and gross profit from service revenues.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Gross Profit	$	85,210			0.5	%	$	84,819			10.3	%	$	76,874
Percent of Total Revenues
Gross Profit		80.2	%					81.5	%					81.9	%

      Fiscal 2004 compared to fiscal 2003: The increase in total gross profit, in absolute dollars, is driven by the increase of total revenues, while the decrease of the gross profit percentage is driven by the increase in royalty and a full year of amortization expenses related to the netViz acquisition.

      Fiscal 2003 compared to fiscal 2002: The increase in total gross profit, in absolute dollars is driven by the increase of total revenues. The decrease of the gross profit percentage is driven by the increase in royalty costs.

      We expect to increase our gross profit in absolute dollars; however, this will depend upon our revenue growth, among other factors. Accordingly, there can be no assurance that we will be successful in increasing our gross profit on an absolute basis of total revenues.

Research and Development Expenses

      Research and development expenses consist primarily of personnel costs associated with software development.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Research and Development	$	25,218			10.5	%	$	22,827			3.9	%	$	21,973
Percent of Total Revenues
Research and Development		23.7	%					21.9	%					23.4	%

      Fiscal 2004 compared to fiscal 2003: The increase in research and development expenses in both absolute dollars and percentage of revenues was related to the compensation expenses related to the Option Repurchase program, severance costs for reduction in force, and offshore development consulting. The Option Repurchase program accounted for 57% of the increase in research and development expenses. The severance costs and offshore development costs accounted for 13% and 28%, respectively, to the increase in research and development costs. Offshore development consulting consists of consultants engaged to accelerate the time to market of certain modules of our eHealth® Suite of products.

      Fiscal 2003 compared to fiscal 2002: The increase is due to the acquisition of netViz, which resulted in higher headcount, increased consulting fees and amortization expenses. Each of these factors contributed 73%, 14% and 13% to the increase. Research and development expenses would have remained similar to 2002 when excluding the impact of the netViz acquisition.

      We intend to decrease our research and development expenses as a percentage of total revenues. Our ability to decrease these expenses as a percentage of total revenues will depend upon our revenue growth, among other factors. Accordingly, there can be no assurance that we will be successful in decreasing our research and development expenses as a percentage of total revenues.

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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.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Sales and Marketing	$	49,911			3.2	%	$	48,352			2.0	%	$	47,383
Percent of Total Revenues
Sales and Marketing		47.0	%					46.5	%					50.5	%

      Fiscal 2004 compared to fiscal 2003: The increase is due to the acquisition of netViz and increased sales expenses, which were partially offset by lower marketing expenses. NetViz sales and marketing functions accounted for about $0.5 million of the increase in costs. Excluding netViz, the increase of $2.7 million in sales expenses is driven by ongoing recruiting fees due to sales turnover, severance costs related to terminations of sales employees, higher travel expenses, sales commissions and bonus payments to our sales force due to the increase attainment rate by some of our sales teams, and compensation cost associated with the Option Repurchase program. Each of these factors contributed 24%, 19%, 15%, 11% and 13%, respectively, to the increase. The decrease of $1.6 million in marketing expenses was mainly driven by lower headcount-related expenses and lower travel expenses. Each factor contributed about 54% and 14%, respectively, to the decrease.

      Fiscal 2003 compared to fiscal 2002: The increase in absolute dollars is due to the acquisition of netViz and increased sales expenses, which were partially offset by lower marketing expenses. The integration and investments made in the sales and marketing functions of netViz account for about $0.4 million of the increase. Sales expenses increased by approximately $3.7 million due to additional headcount and higher sales commissions and bonus payments to our sales force resulting from higher license revenues. Our sales force is compensated on the initial sales of licenses and services. Each factor contributed approximately 32% and 58%, respectively, to the increase. Marketing expenses decreased by approximately by $3.2 million due to lower marketing program spending and lower headcount. Each factor contributed about 36% and 31%, respectively, to the decrease.

      We expect to decrease these expenses as a percentage of total revenues; however, this will ultimately depend upon our revenue growth, among other factors. Accordingly, there can be no assurance that we will be successful in decreasing our sales and marketing expenses as a percentage of total revenues.

General and Administrative Expenses

      General and administrative expenses consist primarily of salaries for financial, accounting, legal, investor relations, human resources, administrative and management personnel.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
General and Administrative	$	11,676			29.2	%	$	9,035			17.9	%	$	7,665
Percent of Total Revenues
General and Administrative		11.0	%					8.7	%					8.2	%

      Fiscal 2004 compared to fiscal 2003: The increase in general and administrative expenses in both absolute dollars and percentage of revenues was primarily attributed to the compensation expenses related to the Option Repurchase program, and increased fees relating to compliance with the Sarbanes-Oxley Act of 2002. The increased fees incurred include legal, audit and consulting fees. Each factor contributed approximately 48% and 40%, respectively, to the variance. Lower bad debt expenses due to an adjustment to the allowance for doubtful accounts resulting from a refinement in methodology partially offset these increases and contributed (11%) to the variance. The adjustment to the allowance for doubtful accounts resulted in the

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amount of $0.9 million, which served to reduce general and administrative expenses and had an impact of $0.03 per share on our diluted earnings per share.

      Fiscal 2003 compared to fiscal 2002: The increase in absolute dollars from 2002 to 2003 was due to the integration of netViz, higher salary and bonus expenses, increased administrative fees, which include legal and auditing fees, and an increase in the use of consultants in preparation for new rules governing publicly-traded companies in the United States. Lower bad debt expenses offset these increases, in part. Each factor contributed approximately 10%, 48%, 34%, 14%, and (39%), respectively, to the variance.

      We expect to decrease these expenses as a percentage of total revenues; however, this will ultimately depend upon our revenue growth, among other factors. Accordingly, there can be no assurance that we will be successful in decreasing our expenses as a percentage of total revenues.

Acquisition-Related Charges

      Acquisition-related charges in 2003 were expenses associated with the acquisition of netViz; these include mostly legal and audit fees.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Acquisition-related charges	$	—			0.0	%	$	40			0.0	%	$	—
Percent of Total Revenues
Acquisition-related charges		0.0	%					0.0	%					0.0	%

      There were no acquisition related charges incurred in 2002 or 2004.

In-Process Research & Development Expenses

      In process research & development expenses relate to our licensing of components of Tavve’s technology. Concord has licensed Tavve’s root cause analysis and discovery of layer 2 and 3 network topology to build upon our current position in optimizing application availability and performance across networks and systems.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
In-process research & development	$	100			(89.9)	%	$	994			0.0	%	$	—
Percent of Total Revenues
In-process research & development		0.1	%					1.0	%					0.0	%

      Concord completed two purchases of source code from Tavve; one totaling $1.0 million in 2003 and the second for $0.1 million in 2004. There were no in process research & development expenses incurred in 2002.

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Other Income

      Other income consists of interest earned on funds available for investment, interest expenses payable on the Convertibles Senior Notes issued in December 2003, foreign currency exchange gains and losses and miscellaneous foreign taxes.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Interest Income	$	4,471			59.2	%	$	2,808			(10.2	)%	$	3,127
Interest Expense		(3,283	)		1245.5	%		(244	)		1335.3	%		(17	)
Other		(139	)		(71.0	)%		(480	)		147.4	%		(194	)
Total Other Income, net	$	1,049			(49.7	)%	$	2,084			(28.5	)%	$	2,916
Percent of Total Revenues
Other Income		1.0	%					2.1	%					3.1	%

      Fiscal 2004 compared to fiscal 2003: The $1.7 million increase in interest income in 2004 as compared to 2003 is attributable to the additional interest income generated by the investment of the $83.0 million in proceeds from the issuance of our 3.0% Senior Convertible Notes due 2023 (the “Notes”) in December 2003.

      Interest expense includes interest paid on the Notes and amortization of the issuance costs which primarily consist of investment banker, legal and other professional fees. Interest expense was $2.6 million while amortization expense was $0.7 million, respectively, for 2004. Issuance costs are being amortized over a five-year period to the first date holders of the Notes may require Concord to repurchase the outstanding Notes.

      The decrease in other expenses in 2004 as compared to 2003 is due to smaller foreign currency transaction and translation losses attributable to the U.S. dollar remaining stable or slightly weaker against certain foreign currencies offset by the U.S. dollar strengthening against the Euro.

      Fiscal 2003 compared to fiscal 2002: The decrease of interest income is due to lower yield on our investment portfolio, which is driven by lower interest rates. Concord incurred interest expenses of $0.2 million following the issuance of $86.25 million in Convertible Senior Notes in December of 2003. The increase in other expenses is due to larger foreign currency transaction and translation losses attributable to a weaker U.S. dollar.

Provision for Income Taxes

      The provision for income taxes relates to federal, state and foreign taxes resulting from the profitability of certain of our foreign operations and the release of a portion of our deferred tax asset valuation reserve.

	Year Ended December 31,
				Percent						Percent
	2004			Change			2003			Change			2002
	(Dollars in thousands)
(Benefit from) provision for income taxes	$	(112	)		(94.4	)%	$	(2,015	)		(454.8	)%	$	568
Percent of Total Revenues
(Benefit from) provision for income taxes		(0.1	)%					(1.9	)%					0.6	%

      Fiscal 2004 compared to fiscal 2003: In 2004, we recorded an income tax benefit of $0.8 million in connection with the increase of our deferred tax assets, net of the effect of items benefited in the additional paid in capital and other comprehensive income accounts. This was offset by approximately $0.7 million in foreign and state income taxes.

      Fiscal 2003 compared to fiscal 2002: In 2003, we recorded an income tax benefit of $2.6 million in connection with the reversal of our non-cash deferred tax valuation allowance; this was offset by approximately $0.6 million in foreign taxes. In 2002, the provision mostly related to foreign taxes.

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Liquidity and Capital Resources

	December 31,					December 31,					December 31,
	2004		Change			2003		Change			2002
	(Dollars in thousands)
Working Capital	$	147,925		(1.0	)%	$	149,433		158.6	%	$	57,792
Cash, cash equivalents and marketable securities (net of restricted cash)	$	159,455		(1.5	)%	$	161,891		122.3	%	$	72,831

	Year Ended December 31,
	2004			Change			2003			Change			2002
	(Dollars in thousands)
Cash provided by operating activities	$	143			(98.6	)%	$	10,387			81.5	%	$	5,724
Cash used for investing activities	$	(56,426	)		46.3	%	$	(38,574	)		452.6	%	$	(6,980	)
Cash provided by financing activities	$	2,663			(96.9	)%	$	87,261			3247.2	%	$	2,607

Working capital

      Fiscal 2004 compared to fiscal 2003: The decrease in working capital is driven by decline in cash, cash equivalents, and marketable securities.

      Fiscal 2003 compared to fiscal 2002: The increase in working capital, from 2002 to 2003, is primarily due to the issuance of $86.25 million of convertible senior notes, for which we received $82.7 million, net of commissions and fees. The rest of the increase is due, in part, to an increase of $6.0 million of cash, cash equivalents and marketable securities, which was the cash generated through our normal operations.

Cash, cash equivalents and marketable securities (net of restricted cash)

      Cash, cash equivalents and marketable securities consist of highly liquid investments in time deposits held at major banks, commercial paper, United States government agency discount notes, money market mutual funds and other money market securities with original maturities of 90 days or less.

      Fiscal 2004 compared to fiscal 2003: The decrease of cash, cash equivalents and marketable securities is mainly due to an increase in the unrealized loss in marketable securities following the increase of interest rates.

      Fiscal 2003 compared to fiscal 2002: The increase of cash, cash equivalents and marketable securities is primarily due to the issuance of convertible senior notes; this accounts for $82.7 million of the increase. The rest of change is due to the increase in net income and changes in various working capital components.

Cash provided by operating activities

      Cash flows from operating activities fluctuations are driven by changes in net income, accrued expenses, accounts receivable and deferred taxes.

      Fiscal 2004 compared to fiscal 2003: Cash flows from operating activities decreased due to a decline in profitability from 2003 to 2004. Average daily sales outstanding (DSO) for the quarter increased to 76 days at December 31, 2004 compared to 72 days at December 31, 2003. DSO is calculated by dividing the period end accounts receivable by the quarterly revenue. DSO measures both the age, in terms of days, of our accounts receivable and the average time it takes to turn the receivable into cash. There are a number of factors affecting DSO, including our payment terms, collection ability and the timing of sales made during a quarter.

      Fiscal 2003 compared to fiscal 2002: Cash flows from operating activities increased due to an improvement in profitability from 2002 to 2003. Average daily sales outstanding (DSO) for the quarter increased to 72 days at December 31, 2003 compared to 66 days at December 31, 2002.

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Cash used for investing activities

      Investing activities have consisted of the investments in marketable securities, acquisition of property and equipment, most notably computer and networking equipment to support the corporate infrastructure, and business acquisitions. Concord manages its market risk on its investment securities by selecting investment grade securities with the highest credit ratings and relatively short duration that trade in highly liquid markets.

      Fiscal 2004 compared to fiscal 2003: The increase in cash used in investing activities is mainly due to the timing of purchase and sales of marketable securities. Following the issuance of $86.25 million of Convertible Senior Notes, Concord invested these funds into marketable securities.

      Fiscal 2003 compared to fiscal 2002: The increase from 2002 to 2003 in cash used in investing activities is mainly due to the timing of the purchases and maturities of investments and the acquisition of netViz. These factors contributed 80% and 13% to the change, respectively.

Cash provided by financing activities

      Financing activities consisted primarily of the issuance of Common Stock and debt.

      Fiscal 2004 compared to fiscal 2003: In 2004, Concord received approximately $2.7 million from the exercise of employee stock options. There was no issuance of debt in 2004. On December 8, 2003, Concord received $82.7 million, net of fees and commissions, following the issuance of $86.25 million of Convertible Senior Notes. The issuance of these Notes explains the change from 2003 to 2004 in the cash provided by financing activities.

      Fiscal 2003 compared to fiscal 2002: In 2002, Concord received approximately $2.6 million from the exercise of employee stock options. There was no issuance of debt in 2002.

Contractual obligations

      The following table is a summary of our contractual obligations:

		Year Ended December 31,
		2005		2006		2007		2008		2009		Total
		(In thousands)
Facility and certain equipment leases		$	4,053	$	2,275	$	887	$	196	$	3	$	7,414
Minimum royalties payments			565		565		565		—		—		1,695
Convertible notes			—		—		—		86,250		—		86,250
Interest payments on the Convertible Notes			2,588		2,588		2,588		2,588		—		10,352
	Total commitments	$	7,206	$	5,428	$	4,040	$	89,034	$	3	$	105,711

      Concord leases its facilities and certain equipment under operating lease agreements extending through August 2007. Concord’s remaining lease commitments for all leased facilities and equipment with an initial or remaining term of at least one-year total $7.4 million.

      Concord has entered into several software license agreements for exclusive worldwide licenses to distribute or utilize certain patented computer software. Concord bundles third-party software in some of its products when it determines that bundling such software is cost-effective or increases the effectiveness of Concord’s products. The minimum royalties payment for these exclusive arrangements is $1.7 million for 2005 to 2007.

      On December 8, 2003, Concord raised $82.7 million, net of fees and commissions, following the issuance of convertible senior notes with a principal of $86.25 million. The Convertible Senior Notes mature in 2023 and bear interest of 3.0%, payable semi-annually in June and December of each year. Concord intends to use the net proceeds of the offering for working capital and general corporate purposes and potentially for future acquisitions of complementary businesses and technologies. Holders of the Convertible Senior Notes may elect to convert some or all of the outstanding Convertible Senior Notes upon certain events, including a

45

change in control or if during a conversion period, the closing price of our stock exceeds $32.24, which is 120% of the conversion price ($26.87) for 20 trading days in a period of 30 trading days, which starts on the first business day of a quarter. If the threshold is met, then holders may convert their Convertible Senior Notes into our Common Stock at any time during the succeeding 90 days, beginning on the 30th trading day of the quarter. We may redeem some or all of the Convertible Senior Notes at any time on or after December 15, 2008. Holders have the right to require Concord to purchase all or a portion of their notes for cash on December 15, 2008, December 15, 2013, and December 15, 2018. If Concord elects to redeem on December 15, 2008, our contractual obligation for interest payments in 2008 would be reduced by approximately $0.1 million.

      As of December 31, 2004, Concord’s stock price had not exceeded 120% of the conversion price on any trading day since December 8, 2003 and no other events had occurred which would make the Convertible Senior Notes convertible. Holders may convert the notes into shares of our common stock at an initial conversion rate of 37.2148 shares of common stock per $1,000 principal amount of notes (representing a conversion price of approximately $26.87 per share which converts into 3,209,776 shares of common stock), subject to adjustment. We may redeem some or all of the convertible senior notes on or after December  15, 2008.

      As of December 31, 2004, Concord had available for U.S. federal income tax purposes net operating loss carry forwards of approximately $24.1 million, which expire at various dates through 2024. In addition, as of December 31, 2004, Concord had U.S. federal research and development tax credit carry forwards of approximately $2.8 million, which expire at various dates through 2022. Under current tax law, the utilization of net operating loss and research and development tax credit carry forwards may be subject to annual limitations in the event of certain changes in ownership. Pursuant to the Tax Reform Act of 1986, the utilization of net operating loss carry forwards 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 of December 31, 2004, Concord’s principal sources of liquidity included cash, cash equivalents, and marketable securities. Concord believes that its current cash, cash equivalents, marketable securities and cash provided by future operations will be sufficient to meet its working capital and anticipated capital expenditure requirements for at least the next 12 months. Although operating activities may provide cash in certain periods, to the extent Concord experiences growth in the future, its operating and investing activities may require additional cash. Consequently, any such future growth may require Concord to obtain additional equity or debt financing.

Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board (FASB) issued a revision to SFAS No. 123, SFAS 123R Share-Based Payment. SFAS No. 123R requires all companies to measure compensation costs for all share-based payments, including stock options, at fair value and expense such payments over the service period. SFAS No. 123R specifies that companies must use an option-pricing model to estimate fair value, although it does not specifically require the use of a particular model. The new standard is effective for interim or annual periods beginning after June 15, 2005, and, therefore, will be effective for Concord beginning with the third quarter of 2005. Under the provisions of FAS 123R, companies can select from three transition methods for the implementation of this standard. The modified prospective method would require all new awards that are granted after the effective date to use the provisions of FAS 123R. Under this method, for vested awards that are outstanding on the effective date of FAS 123R, a company would not have to record any additional compensation expense. For unvested awards that are outstanding on the effective date of FAS 123R and were previously included as part of pro forma net income and earnings per share under the provisions of FAS 123 would be charged to expense over the remaining vesting period, without any changes in measurement. The second alternative is a variation of the modified prospective method, which would allow companies to restate earlier interim periods in the year that FAS 123R is adopted using the applicable FAS 123 pro forma amounts. Under the third alternative, the modified retrospective method, companies would apply the modified prospective method and also restate their prior financial statements to include the amounts that were previously recognized in their pro forma disclosures under the original

46

provisions of FAS 123. Currently, we disclose the estimated effect on net income of these share-based payments in the footnotes to the financial statements and the estimated fair value of the share-based payments has historically been determined using the Black-Scholes pricing model. We have not determined which option-pricing model or transition method to use upon implementation of this standard and have not yet completed our evaluation of the impact of SFAS No. 123R, but expect the adoption to have a material effect on our consolidated financial statements.

      In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary Assets — Amendment of APB Opinion No. 29. The provisions of SFAS No. 153 are based upon the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and it eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” The provisions in SFAS 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Concord does not expect the adoption of SFAS 153 to have a material effect on its consolidated financial statements.

      The FASB has issued two FASB Staff Positions (FSP) that provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004.

      The American Jobs Creation Act of 2004 allows for temporary dividend deductions equal to 85% of cash dividends received during the tax year from controlled foreign corporations and invested in the United States. The result of this legislation could affect how companies report their deferred income tax balances. The first FSP is FSP SFAS 109-1 and concludes that the tax relief from this legislation should be accounted for as a “special deduction” instead of a tax rate reduction. The second FSP is FSP SFAS 109-2 and gives a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earning for purposes of applying FASB Statement No. 109, Accounting for Income Taxes. Concord has not yet completed its evaluation of the provisions of the American Jobs Creation Act of 2004. The repatriation of foreign earnings would not have a material effect on Concord’s consolidated financial statements. We do not anticipate the repatriation of foreign earnings to the United States in the future.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     (a)  Market and Interest Rate Risk

      Most of Concord’s current export sales are denominated in United States dollars. To the extent that a majority of our 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 our products and services more expensive and, therefore, potentially less competitive in international markets. Substantially all of our business outside the United States is conducted in U.S. dollar-denominated transactions, whereas our operating expenses in our international branches are denominated in local currency. We believe that the operating expenses of our foreign operations are immaterial, and therefore any associated market risk is unlikely to have a material adverse effect on our business, results of operations or financial condition.

      At December 31, 2003 Concord had $86.25 million of convertible senior notes with a fixed interest rate of 3%. Accordingly, changes in the fair value of our fixed rate debt will not have any impact.

      All of Concord’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 Concord’s books. Accordingly, Concord has no quantitative information concerning the market risk of participating in such investments. Due to the short-term nature of our investments, we believe we have minimal market risk. Our investment portfolio of cash equivalents and marketable securities is subject to interest rate fluctuations, but we believe this risk is immaterial due to the short-term nature of these investments.

47

     (b)  Foreign Currency Exchange Rate Risk

      We use forward contracts to reduce our exposure to foreign currency risk due to fluctuations in exchange rates underlying the value of accounts receivable denominated in foreign currencies held until such receivables are collected. A forward contract obligates us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates. These forward contracts, to qualify as hedges of existing assets, are denominated in the same currency in which the underlying foreign currency receivables are denominated and bear a contract value and maturity date that approximate the value and expected settlement date, respectively, of the underlying transactions. For contracts that are designated and effective as hedges, unrealized gains and losses on open contracts at the end of each accounting period, resulting from changes in the fair value of these contracts, are recognized in earnings in the same period as gains and losses on the underlying foreign denominated receivables are recognized and generally offset.

      We do not enter into or hold derivatives for trading or speculative purposes, and we only enter into contracts with highly rated financial institutions. At December 31, 2004, we had no forward contracts outstanding.

      We plan to continue to utilize forward contracts and other instruments in the future to reduce our exposure to exchange rate fluctuations from accounts receivable denominated in foreign currencies, and we may not be able to do this successfully. Accordingly, we may experience economic loss and a negative impact on earnings and equity as a result of foreign currency exchange rate fluctuations. Also, as we continue to expand our operations outside of the United States, our exposure to fluctuations in currency exchange rates could increase.

Item 8. Financial Statements and Supplementary Data

      Concord’s financial statements together with the related notes and the reports of PricewaterhouseCoopers LLP, independent registered public accounting firm, are set forth in Item 15.

Item 9A. Controls and Procedures

      (a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, Concord carried out an evaluation, under the supervision and with the participation of its management, including Concord’s President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Concord’s disclosure controls and procedures, as defined in Exchange Act Rule 15d-14 (c). Based upon that evaluation, Concord’s President and Chief Executive Officer and Chief Financial Officer concluded that Concord’s disclosure controls and procedures are effective in enabling Concord to record, process, summarize, and report information required to be included in Concord’s periodic SEC filings within the required time period.

      (b) Changes in Internal Controls over Financial Reporting. There were no changes in Concord’s internal controls over financial reporting (as defined in Rule 13a-15 (f) under the Exchange Act) during the fourth quarter that has materially affected, or would be reasonably likely to materially affect Concord’s internal controls over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

      Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organiza-

48

tions of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2004.

      Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

PART III

Item 10. Directors and Officers of the Registrant

      The information under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” as set forth in Concord’s Proxy Statement for its annual stockholders’ meeting to be held May 4, 2005 is incorporated herein by reference.

      Set forth below is certain information relating to each executive officer’s business experience:

Name	Position
John A. Blaeser	President, Chief Executive Officer and Chairman of the Board
Douglas A. Batt	Executive Vice President, General Counsel and Clerk
Melissa H. Cruz	Executive Vice President, Business Services Chief Financial Officer, Asst. Clerk and Treasurer
Ferdinand Engel	Executive Vice President, Engineering and Chief Technology Officer
Michael Fabiaschi	Executive Vice President and General Manager, Spectrum Business Unit
Dayton Semerjian	Executive Vice President, Marketing
Ted Williams	Executive Vice President, Worldwide Sales and Professional Services

      Our executive officers and their ages as of December 31, 2004 are as follows:

      John A. Blaeser, 63, has been Concord’s President, Chief Executive Officer and Chairman of the Board, since January 1996 and a director of Concord since 1985. Prior to joining Concord as Chief Executive Officer and President, from 1991 until 1996, Mr. Blaeser was Managing General Partner of EG&G Venture Management, a venture capital firm. Mr. Blaeser currently serves as a director for Network Engines, Inc.

      Douglas A. Batt, 44, has been Concord’s Executive Vice President and General Counsel since November 2002, and Vice President and General Counsel from July 2000 until November 2002. Prior to joining Concord, Mr. Batt was Technology Counsel at Reebok International Ltd. from October 1997 until July 2000 and from September 1991 until October 1997, Mr. Batt was an attorney with the law firm of Goodwin Procter LLP in Boston.

      Melissa H. Cruz, 42, has been Concord’s Executive Vice President, Business Services and Chief Financial Officer since April 2000, Vice President Finance from January 2000 until April 2000, Director of Finance from August 1998 until January 2000 and Manager, Financial Planning from August 1997 until August 1998. Prior to joining Concord, Ms. Cruz was Director of Finance at SeaChange International, Inc. from November 1996 to August 1997, International Controller at Bay Networks, Inc. from November 1993 to July 1996 and from December 1984 to November 1993, Ms. Cruz held a variety of financial management roles at Digital Equipment Corporation.

49

      Ferdinand Engel, 56, has been Concord’s Executive Vice President of Engineering and Chief Technology Officer since April 2000, Senior Vice President of Engineering of Concord from September 1999 until April 2000 and Vice President of Engineering of Concord from 1989 until September 1999. Prior to joining Concord, Mr. Engel was Vice President of Engineering for Technology Concepts at Bell Atlantic Corp.

      Michael Fabiaschi, 49, has been Concord’s Executive Vice President and General Manager of the Spectrum Business Unit since the acquisition of Aprisma Management Technologies, Inc. in February 2005. Prior to joining Concord, Mr. Fabiaschi was the Chief Executive Officer of Aprisma Management Technologies from October 2002 to February 2005. Prior to joining Aprisma, Mr. Fabiaschi was the President and Chief Executive Officer of Xelus, Inc. from November 1998 to September 2002 and President and Chief Executive Officer of Racotek Corporation from March of 1996 to November of 1998. Prior to November 1998, Mr. Fabiaschi was Vice President of Sales and Services for Racotek and held various sales management positions at MAI/Basic 4.

      Dayton Semerjian, 40, has been Concord’s Executive Vice President of Marketing since April 2004 and Concord’s Director of Marketing from April 2003 to April 2004. Prior to joining Concord Mr. Semerjian was Principal of Inflection Point Consulting Group from June of 2002 to April of 2003, Executive Vice President of Worldwide Sales and Marketing of Openreach, Inc. from April of 2000 to May of 2002 and Vice President of Worldwide Marketing of Shiva Corporation from August of 1996 to January 2000.

      Ted Williams, 56, has been Concord’s Executive Vice President, Worldwide Field Operations since October 2004. Prior to joining Concord, Mr. Williams was Executive Vice President of Worldwide Sales for MRO Software. From 1988 to 1993 Mr. Williams was President and Chief Operating Officer of Comac Systems Corporation. Prior to 1988, Mr. Williams held industry marketing positions at Project Software and Development, Inc. and engineering positions at Stone and Webster Engineering Corporation and Fluor Corporation.

      Our Code of Business Conduct and Ethics (“Code”) applies to all of our directors, officers, and employees. It is publicly available on our website at www.concord.com/aboutus/invest/corp govern.shtml. Amendments to the Code and waivers of any provision thereof which require disclosure under applicable SEC and NASDAQ rules will be disclosed on our website.

Item 11. Executive Compensation

      The information under the caption “Executive Compensation” as set forth in Concord’s Proxy Statement for its annual stockholders’ meeting to be held May  4, 2005 is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      The information under the caption “Securities Ownership of Certain Beneficial Owners and Management” as set forth in Concord’s Proxy Statement for its Annual Stockholders’ Meeting to be held May 4, 2005 is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

      None.

Item 14. Principal Accountant Fees and Services

      The response to this Item will be contained in the Proxy Statement for the annual stockholders meeting to be held on May 4, 2005 under the caption “Statement of Fees Paid to Independent Auditors,” and is incorporated herein by reference.

50

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Form:

      1. Consolidated Financial Statements:

		Page
		Number
Report of Independent Registered Public Accounting Firm			52
Consolidated Balance Sheets:
	December 31, 2004 and 2003		54
Consolidated Statements of Operations:
	Years ended December 31, 2004, 2003 and 2002		55
Consolidated Statements of Stockholders’ Equity:
	Years ended December 31, 2004, 2003 and 2002		56
Consolidated Statements of Cash Flows:
	Years ended December 31, 2004, 2003 and 2002		57
Notes to Consolidated Financial Statements			58

      2. Consolidated Financial Statement Schedules

      Schedule II — Valuation and Qualifying Accounts Included in Note 12 of Notes to Consolidated Financial Statements

      All other financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements and notes thereto.

      (b) Exhibits:

      See Exhibit Index. The Exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report.

51

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of Concord Communications, Inc.:

      We have completed an integrated audit of Concord Communications, Inc.’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

      In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(l) present fairly, in all material respects, the financial position of Concord Communications, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

      Also, in our opinion, management’s assessment, included in “Management’s Report on Internal Control Over Financial Reporting,” appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on out audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

52

company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Boston, Massachusetts

March 14, 2005

53

CONCORD COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

			December 31,			December 31,
			2004			2003
ASSETS
Current Assets:
	Cash and cash equivalents		$	15,816		$	69,436
	Marketable securities			143,639			92,455
	Restricted cash			66			194
	Accounts receivable, net of allowance of $423 and $1,050 at December 31, 2004 and 2003, respectively			24,183			22,194
	Deferred tax assets			1,763			4,638
	Prepaid expenses and other current assets			8,170			4,851
		Total current assets		193,637			193,768
Equipment and improvements:
	Equipment			22,557			19,433
	Leasehold improvements			6,291			6,225
				28,848			25,658
	Less — accumulated depreciation and amortization			22,622			18,961
				6,226			6,697
Goodwill				6,225			6,225
Other intangible assets, net				2,191			3,004
				8,416			9,229
Deferred tax assets				12,211			4,962
Unamortized debt issuance costs and other long-term assets				3,001			3,770
				15,212			8,732
		Total assets	$	223,491		$	218,426
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable		$	6,334		$	5,218
	Accrued expenses			12,171			12,627
	Deferred revenue			27,207			26,490
		Total current liabilities		45,712			44,335
	Convertible senior notes			86,250			86,250
		Total liabilities		131,962			130,585
Commitments and Contingencies (Note 9)
Stockholders’ Equity:
	Preferred stock, $0.01 par value:
		Authorized — 1,000,000 shares
		Issued and outstanding — none		—			—
	Common stock, $0.01 par value:
		Authorized — 50,000,000 shares
		Issued and outstanding — 18,449,964 and 18,121,211 shares at December 31, 2004 and 2003, respectively		184			181
	Additional paid-in capital			117,113			111,651
	Accumulated other comprehensive (loss) income			(427	)		816
	Accumulated deficit			(25,341	)		(24,807	)
		Total stockholders’ equity		91,529			87,841
		Total liabilities and stockholders’ equity	$	223,491		$	218,426

The accompanying notes are an integral part of these consolidated financial statements.

54

CONCORD COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

				Year Ended December 31,
				2004			2003			2002
Revenues:
	License revenues			$	49,973		$	54,267		$	51,230
	Service revenues				56,215			49,796			42,614
		Total revenues			106,188			104,063			93,844
Cost of Revenues:
	Cost of license revenues				3,490			3,117			1,850
	Cost of service revenues				17,488			16,127			15,120
		Total cost of revenues			20,978			19,244			16,970
			Gross profit		85,210			84,819			76,874
Operating Expenses:
	Research and development				25,218			22,827			21,973
	Sales and marketing				49,911			48,352			47,383
	General and administrative				11,676			9,035			7,665
	Acquisition-related charges				—			40			—
	Acquired in-process research and development				100			994			—
		Total operating expenses			86,905			81,248			77,021
			Operating (loss) income		(1,695	)		3,571			(147	)
Other Income (Expense):
	Interest income				4,471			2,808			3,127
	Interest expense				(3,283	)		(244	)		(17	)
	Other expense				(139	)		(480	)		(194	)
		Total other income, net			1,049			2,084			2,916
		(Loss) income before income taxes			(646	)		5,655			2,769
(Benefit from) provision for income taxes					(112	)		(2,015	)		568
Net (loss) income				$	(534	)	$	7,670		$	2,201
Net (loss) income per common and potential common share:
	Basic			$	(0.03	)	$	0.44		$	0.13
	Diluted			$	(0.03	)	$	0.42		$	0.12
Weighted average common and potential common shares outstanding:
	Basic				18,280,294			17,533,509			17,057,188
	Diluted				18,280,294			18,207,541			17,627,122

The accompanying notes are an integral part of these consolidated financial statements.

55

CONCORD COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

		Common Stock
												Accumulated
				$0.01		Additional						Other
		Number of		Par		Paid-in			Deferred			Comprehensive			Accumulated						Comprehensive
		Shares		Value		Capital			Compensation			Income (Loss)			Deficit			Total			Income (Loss)
BALANCE, DECEMBER 31, 2001			16,901,193		169		96,365			(242	)		1,892			(34,678	)		63,506
Shares issued in connection with employee stock plans			344,812		3		2,604												2,607
Reversal of deferred compensation related to forfeitures of unvested stock options and restricted stock							(76	)		76									—
Amortization of deferred compensation related to grants of stock options										106									106
Unrealized gains on available-for-sale securities, net of tax of $0													516						516		$	516
Net income																2,201			2,201			2,201
	Comprehensive income																				$	2,717
BALANCE, DECEMBER 31, 2002			17,246,005		172		98,893			(60	)		2,408			(32,477	)		68,936
Shares issued in connection with employee stock plans			534,210		5		4,525												4,530
Tax benefit from exercise of stock options							2,726												2,726
Shares issued in connection with netViz acquisition			340,996		4		4,964												4,968
Amortization of deferred compensation related to grants of stock options										60									60
Unrealized losses on available-for-sale securities, net of tax expense of $544							543						(1,592	)					(1,049	)	$	(1,049	)
Net income																7,670			7,670			7,670
	Comprehensive income																				$	6,621
BALANCE, DECEMBER 31, 2003			18,121,211	$	181	$	111,651		$	—		$	816		$	(24,807	)	$	87,841
Shares issued in connection with employee stock plans			328,753		3		2,660												2,663
Unrealized losses on available-for-sale securities, net of tax benefit of $806													(1,243	)					(1,243	)	$	(1,243	)
Tax benefit from exercise of stock options							2,802												2,802
Net loss																(534	)		(534	)		(534	)
	Comprehensive income																				$	(1,777	)
BALANCE, DECEMBER 31, 2004			18,449,964	$	184	$	117,113		$	—		$	(427	)	$	(25,341	)	$	91,529

The accompanying notes are an integral part of these consolidated financial statements.

56

CONCORD COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

			Year Ended December 31,
			2004			2003			2002
Cash Flows from Operating Activities:
Net (loss) income			$	(534	)	$	7,670		$	2,201
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
	Depreciation and amortization			4,528			5,223			6,077
	Gain on disposal or sale of equipment and improvements			(3	)		(14	)		(7	)
	Stock-based compensation			—			60			106
	Amortization of debt issuance costs			793			59			—
	Deferred tax benefit			(766	)		(2,624	)		—
	Changes in assets and liabilities:
		Accounts receivable		(1,989	)		(4,473	)		(880	)
		Prepaid expenses and other current assets		(3,319	)		(1,892	)		176
		Accounts payable		1,116			1,591			31
		Accrued expenses		(456	)		2,292			(3,217	)
		Deferred revenue		717			2,551			1,207
		Other assets		60			(56	)		30
		Net cash provided by operating activities		147			10,387			5,724
Cash Flows from Investing Activities:
		Purchases of equipment and improvements		(3,226	)		(3,203	)		(3,520	)
		Investments in marketable securities		(86,717	)		(58,895	)		(20,363	)
		Proceeds from sales of marketable securities		33,484			27,860			17,742
		Deposit of restricted cash		(66	)		—			(839	)
		Release of restricted cash		194			645			—
		Purchases of software		(99	)		—			—
		Acquisition of business — net of cash acquired		—			(4,981	)		—
		Net cash used for investing activities		(56,430	)		(38,574	)		(6,980	)
Cash Flows from Financing Activities:
		Proceeds from convertible senior notes		—			86,250			—
		Debt issuance costs		—			(3,519	)		—
		Proceeds from issuance of common stock		2,663			4,530			2,607
		Net cash provided by financing activities		2,663			87,261			2,607
Net (decrease) increase in cash and cash equivalents				(53,620	)		59,074			1,351
Cash and cash equivalents, beginning of year				69,436			10,362			9,011
Cash and cash equivalents, end of year			$	15,816		$	69,436		$	10,362
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes			$	659		$	513		$	476
Cash paid for interest			$	2,644		$	20		$	17
Supplemental Disclosure of Noncash Financing and Investing Transactions:
Reversal of deferred compensation related to forfeitures of stock options			$	—		$	—		$	(76	)
Retirements of fully depreciated equipment and improvements			$	—		$	4,615		$	—
Unrealized gain/(loss) on available-for-sale securities			$	(2,049	)	$	(1,592	)	$	516
Common stock issued to acquire business			$	—		$	4,968		$	—

The accompanying notes are an integral part of these consolidated financial statements.

57

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Organization and Significant Accounting Policies

      Concord Communications, Inc. (the “Company” or “Concord”) is primarily engaged in the development and sale of Business Service Management (BSM) software to enterprise customers, managed service providers and telecommunication carriers principally located in the United States, Europe, the Middle East, Africa, Latin America and Asia Pacific.

      The Company is subject to the risks associated with technology-oriented companies. Primary among these risks are competition from substitute products and the ability to successfully develop and market the Company’s current and future products.

     (a)  Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

     (b)  Cash, Cash Equivalents and Marketable Securities

      The Company follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company has classified its investment securities as available-for-sale and recorded them at fair value, with the unrealized gains and losses reported as a separate component of stockholders’ equity. The Company considers highly liquid investments, purchased with an original maturity of 90 days or less, to be cash equivalents. Cash equivalents were $9.6 million and $57.1 million at December 31, 2004 and 2003, respectively, and consisted primarily of money market funds.

     (c)  Restricted Cash

      Restricted cash totaling $0.07 million and $0.2 million at December 31, 2004 and 2003, respectively, consists of money market funds held in the Company’s name and held with a major financial institution. Such funds are being used as collateral under a letter of credit arrangement required by a landlord for a lease that terminates in 2007.

     (d)  Revenue Recognition

      Concord’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. Software license revenues are recognized when persuasive evidence of an arrangement exists and delivery of the software has occurred, provided that the license fee is fixed or determinable, collection is considered reasonably assured and no customer acceptance clauses exist. The costs of shipping and handling related to the delivery of the product is included in revenue. If an arrangement includes an acceptance provision, revenue recognition occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period. If an arrangement includes a right of return for the possibility that the software does not meet published specifications during the warranty period, which is typically 90 days, revenue is recognized upon shipment if all other criteria are met as the Company’s product is mature and the Company has not experienced returns of product. If the fee is determined not to be fixed or determinable, revenue is recognized when the fees become due. If collection is not considered reasonably assured, revenue is recognized upon the receipt of cash. Revenues under multiple-element arrangements, which typically include software products, professional services, maintenance and sometimes undelivered specified software upgrades sold together, are allocated to each element using the

58

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

residual method in accordance with SOP 98-9. Under the residual method, the fair value of the undelivered elements are deferred and subsequently recognized when these elements are delivered; the remainder of the arrangement consideration is allocated to the software. The Company has established sufficient vendor specific objective evidence for professional services, maintenance, and specified software upgrades based on the price charged when these elements are sold separately. Accordingly, software license revenues are recognized under the residual method in arrangements in which software is licensed with professional services, maintenance and specified software upgrades.

      Service revenues include professional services and maintenance fees. Professional services are not essential to the functionality of the other elements in an arrangement and are accounted for separately. Professional service revenues are recognized as the services are performed, provided evidence of an arrangement exists, fees are fixed or determinable, and collection is considered reasonably assured.

      Maintenance revenues, a component of service revenues, are derived from customer support agreements generally entered into in connection with initial license sales and subsequent renewals. Maintenance fees include the right to unspecified upgrades on a when-and-if-available basis and ongoing technical support. Maintenance revenues are recognized ratably over the term of the maintenance period. Payments for maintenance fees are generally made in advance and are included in deferred revenue. As of December 31, 2004 and 2003, deferred revenue includes $19.9 million and $20.8 million, respectively, of deferred maintenance revenues.

     (e)  Accounts Receivable

      The Company records trade accounts receivable at the invoiced amount; these accounts do not bear interest. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by a review of their current credit information. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based on historical experience and any specific customer collection issues that have been identified. The Company reviews its allowance for doubtful accounts on a monthly basis. The Company reviews all past due balances over 60 days individually for collectability. The Company charges account balances against the allowance when it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure to customers.

      While credit losses have historically been within expectations and the appropriate reserves have been established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has experienced in the past. Thus, if the financial condition of customers were to deteriorate, actual losses may exceed estimates, and additional allowances would be required.

     (f)  Equipment and Improvements

      Equipment and improvements are recorded at cost. Depreciation is provided for on a straight-line basis over the useful lives of the assets, which are estimated to be three years for all assets other than leasehold improvements, which are amortized over the shorter of the life of the asset or the term of the lease. Upon retirement or sale, the related cost and accumulated depreciation or amortization is removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation expense of $3.7 million, $4.8 million and $6.1 million was incurred in fiscal years 2004, 2003 and 2002, respectively.

     (g)  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 of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial

59

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     (h)  Financial Instruments, Concentration of Credit Risk and Significant Customers

      The Company has estimated the fair value of financial instruments using available market information and appropriate valuation methodologies. The carrying values of cash, cash equivalents, restricted cash, marketable securities, accounts receivable, accounts payable and accrued expenses approximate fair market value due to the short-term nature of these financial instruments. Given the relatively stable interest rate environment, the Convertible Senior Notes’ fair value approximates their carrying value. Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash, cash equivalents, restricted cash, marketable securities, and accounts receivable. The Company has no significant off-balance-sheet or concentration of credit risk exposure such as foreign exchange contracts or option contracts. The Company maintains its cash, cash equivalents, restricted cash, and marketable securities with established financial institutions. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce its credit risk, the Company routinely assesses the financial strength of its customers. The Company maintains an allowance for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. One North American telecommunications customer accounted for 10.1% of revenues in 2004 and no individual customer or reseller accounted for more than 10% of revenues in 2003 or 2002. One North American telecommunications customer accounted for approximately 16% of accounts receivable at December 31, 2004 and no individual customer accounted for more than 10% of the Company’s accounts receivable at December 31, 2003.

     (i)  Foreign Currency Translation and Transactions

      The Company translates the assets and liabilities of its foreign subsidiaries and branches at exchange rates in accordance with SFAS No. 52, Foreign Currency Translation. Revenues and expenses are translated using average exchange rates in effect during each period. Because the Company’s subsidiaries and branches are considered extensions of domestic operations, translation gains and losses are included in the Company’s consolidated statements of operations and are classified as other income (expense). Transaction and translation losses totaling $0.33 million, $0.44 million and $0.13 million were recognized in fiscal years 2004, 2003 and 2002, respectively.

     (j)  Derivative Financial Instruments

      The Company occasionally uses forward contracts to reduce its exposure to foreign currency risk and variability in operating results due to fluctuations in exchange rates underlying the value of accounts receivable denominated in foreign currencies until such receivables are collected. A forward contract obligates the Company to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates. These foreign currency forward exchange contracts are denominated in the same currency in which the underlying foreign currency receivables are denominated and bear a contract value and maturity date that approximate the value and expected settlement date, respectively, of the underlying transactions. For contracts that are designated and effective as hedges, unrealized gains and losses on open contracts at the end of each accounting period, resulting from changes in the fair value of these contracts, are recognized in earnings in the same period as gains and losses on the underlying foreign denominated receivables are recognized and generally offset. The Company does not enter into or hold derivatives for trading or speculative purposes and only enters into contracts with highly rated financial institutions. The Company did not have any open forward contracts at either December 31, 2004 or 2003. The Company records the gains or losses on forward contracts in other income and expense. In the years ended December 31, 2004, 2003 and 2002 the Company did not record any material gains or losses on forward contracts.

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     (k)  Software Development Costs

      SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, requires the capitalization of certain computer software development costs incurred after technological feasibility is established. The Company believes that once technological feasibility of a software product has been established, the additional development costs incurred to bring the product to a commercially acceptable level are not significant. There were no capitalized software development costs related to internal development efforts at either December 31, 2004 or 2003.

      The Company may in the course of business purchase software to be used in its products. If the purchased software has reached technological feasibility in accordance with SFAS No. 86, the cost to purchase this software is capitalized and amortized at the greater of the ratio of current period revenues to the total of anticipated future revenues or the straight-line method over its remaining useful life. The Company assesses the recoverability of capitalized purchased software costs at each quarter end by comparing the carrying value to its net realizable value (“NRV”). NRV is the estimated future gross revenues from products that incorporate the software reduced by the estimated future costs of disposal. If NRV is less than the carrying value, the excess is written-off and the then current NRV becomes the new carrying value of the software. During the three months ended December 31, 2004, the Company capitalized $0.1 million of purchased software. The carrying value of capitalized software at December 31, 2004 was $0.08 million. There were no capitalized software development costs at December 31, 2003.

     (l)  Stock-Based Compensation

      The Company accounts for employee stock-based compensation arrangements under the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. SFAS No. 123, Accounting for Stock-Based Compensation, permits the use of either a fair-value based method or the intrinsic value method under APB No. 25 to account for employee stock-based compensation arrangements. Companies that elect to use the intrinsic value method provided in APB No. 25 are required to disclose the pro forma net income (loss) and net income (loss) per share that would have resulted from the use of the fair value method. The Company has provided, below, the pro forma disclosures of the effect on net income (loss) and net income (loss) per share as if SFAS No. 123, as amended by

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an Amendment to FASB Statement No. 123, had been applied in measuring compensation expense for all periods presented.

		Year Ended December 31,
		2004			2003			2002
		(In thousands, except per share data)
Net income (loss):
	As reported	$	(534	)	$	7,670		$	2,201
Add:
	Stock-based employee compensation expense included in reported net income (loss), net of related taxes		3,298			60			106
Less:
	Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(6,810	)		(9,533	)		(15,553	)
Pro forma loss		$	(4,046	)	$	(1,803	)	$	(13,246	)
Basic net (loss) income per share:
	As reported	$	(.03	)	$	0.44		$	0.13
	Pro forma	$	(.22	)	$	(0.10	)	$	(0.78	)
Diluted net (loss) income per share:
	As reported	$	(.03	)	$	0.42		$	0.12
	Pro forma	$	(.22	)	$	(0.10	)	$	(0.78	)

     (m)  Net (Loss) Income per Share

      The Company computes earnings per share following the provisions of SFAS No. 128, Earnings Per Share. Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding for a period. Diluted net income (loss) per share is computed using the weighted-average number of common and dilutive potential common shares outstanding for the period. For the year ended December 31, 2004, options to purchase 389,815 shares of the Company’s common stock had exercise prices below the average market price. These options have been excluded from the calculation of the diluted net loss for the year ended December 31, 2004 solely because the effect of their inclusion would have been anti-dilutive, due to the net loss for the year ended December 31, 2004. For the years ended December 31, 2003 and 2002, all dilutive potential common shares consisted of outstanding options. The dilutive effect of outstanding stock options is computed using the treasury stock method. The dilutive effect of convertible preferred stock is computed using the if-converted method.

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Calculations of the basic and diluted net income (loss) per common share and potential common shares are as follows:

	Year Ended December, 31
	2004			2003		2002
	(In thousands except share and per share data)
Basic:
Net (loss) income applicable to common stockholders	$	(534	)	$	7,670	$	2,201
Weighted average common shares outstanding		18,280,294			17,533,509		17,057,188
Basic net (loss) income per share	$	(.03	)	$	0.44	$	0.13
Diluted:
Net (loss) income applicable to common stockholders	$	(534	)	$	7,670	$	2,201
Weighted average common shares outstanding		18,280,294			17,533,509		17,057,188
Potential common shares pursuant to stock options		—			674,032		569,934
Diluted weighted average shares		18,280,294			18,207,541		17,627,122
Diluted net (loss) income per share	$	(.03	)	$	0.42	$	0.12

      Diluted weighted average shares outstanding exclude options to purchase shares of the Company’s common stock with exercise prices above the average market price for the year. For the years ended December 31, 2004, 2003, and 2002 options to purchase shares of the Company’s common stock of 2,731,776, 1,931,133 and 2,113,271, respectively, have been excluded .

      The Emerging Issues Task Force (EITF) has issued a final consensus on Issue 04-08, Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share, which requires that convertible securities must be included in the a dilutive earnings per share calculation, if dilutive, regardless of whether the market price trigger has been met. The Company’s Convertible Senior Notes fall within the scope of EITF 04-08. In the three months ended December 31, 2004, the Company adopted the provisions of EITF 04-08 retroactively for previously reported earnings per share calculations. For all periods presented since the issuance of the Convertible Senior Notes, common stock reserved for issuance upon conversion of approximately 3,209,776 shares was not included in diluted earnings per share because the effect of their inclusion would have been anti-dilutive.

     (n)  Comprehensive Income (Loss)

      Comprehensive income (loss) is defined as the change in net assets of the Company during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The only components of comprehensive income (loss) reported by the Company are net income (loss) and unrealized gains (losses) on available-for-sale securities.

     (o)  Reclassifications

      Certain prior period amounts have been reclassified to conform to the current period presentations.

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     (p)  Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board (FASB) issued a revision to SFAS No. 123, SFAS 123R Share-Based Payment. SFAS No. 123R requires all companies to measure compensation costs for all share-based payments, including stock options, at fair value and expense such payments over the service period. SFAS No. 123R specifies that companies must use an option-pricing model to estimate fair value, although it does not specifically require the use of a particular model. The new standard is effective for interim or annual periods beginning after June 15, 2005, and, therefore, will be effective for the Company beginning with the third quarter of 2005. Under the provisions of FAS 123R, companies can select from three transition methods for the implementation of this standard. The modified prospective method would require all new awards that are granted after the effective date to use the provisions of FAS 123R. Under this method, for vested awards that are outstanding on the effective date of FAS 123R, a company would not have to record any additional compensation expense. For unvested awards that are outstanding on the effective date of FAS 123R and were previously included as part of pro forma net income and earnings per share under the provisions of FAS 123 would be charged to expense over the remaining vesting period, without any changes in measurement. The second alternative is a variation of the modified prospective method, which would allow companies to restate earlier interim periods in the year that FAS 123R is adopted using the applicable FAS 123 pro forma amounts. Under the third alternative, the modified retrospective method, companies would apply the modified prospective method and also restate their prior financial statements to include the amounts that were previously recognized in their pro forma disclosures under the original provisions of FAS 123. Currently, the Company discloses the estimated effect on net income of these share-based payments in the footnotes to the financial statements and the estimated fair value of the share-based payments has historically been determined using the Black-Scholes pricing model. The Company has not determined which option-pricing model or transition method to use upon implementation of this standard and has not yet completed its evaluation of the impact of SFAS No. 123R, but expects the adoption to have a material effect on its consolidated financial statements.

      In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary Assets — Amendment of APB Opinion No. 29. The provisions of SFAS No. 153 are based upon the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and it eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” The provisions in SFAS 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS 153 to have a material effect on its consolidated financial statements.

      The FASB has issued two FASB Staff Positions (FSP) that provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004. The American Jobs Creation Act of 2004 allows for temporary dividend deductions equal to 85% of cash dividends received during the tax year from controlled foreign corporations and invested in the United States. The result of this legislation could affect how companies report their deferred income tax balances. The first FSP is FSP SFAS 109-1 and concludes that the tax relief from this legislation should be accounted for as a “special deduction” instead of a tax rate reduction. The second FSP is FSP SFAS 109-2 and gives a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earning for purposes of applying FASB Statement No. 109, Accounting for Income Taxes. The Company has not yet completed its evaluation of the provisions of the American Jobs Creation Act of 2004. The repatriation of foreign earnings would not have a material effect on the Company’s consolidated financial statements. The Company does not anticipate the repatriation of foreign earnings to the United States in the future.

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(2)  Acquisition of netViz Corporation

      On July 17, 2003, the Company completed the acquisition of netViz Corporation (“netViz”). netViz’s software enables users to visualize business processes and allows them to map relationships within the supporting technology infrastructure through data-driven icons. The integration of netViz’s technologies with Concord’s eHealth® Suite will provide a new, more automated means of application service optimization. This integration will enable enterprises and service providers to employ data-driven icons to visualize and take action on the critical relationships between business processes, application services, and network and system infrastructures.

      The results of operations of netViz have been included in the financial statements of the Company since the date of acquisition.

      Consideration for the acquisition totaled $10.3 million, including transaction costs of $0.3 million. The consideration consisted of $5.0 million in cash paid at closing and the issuance of 340,996 shares of Common Stock, valued at approximately $5.0 million.

      The acquisition was accounted for using the purchase method of accounting. The purchase price has been allocated to the assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, as determined by management and, with respect to the identifiable intangible assets, an appraisal. The excess of the purchase price over the amounts allocated to the assets acquired and liabilities assumed was recorded as goodwill. The following represents the purchase price allocation of the acquisition:

			(In thousands)
Total consideration:
	Cash		$	5,000
	Stock			5,000
	Transaction costs			342
		Total purchase consideration	$	10,342
Allocation of the purchase consideration
	Current assets		$	813
	Equipment and improvements			51
	Deferred tax asset			750
	Identifiable intangible assets			3,410
	Goodwill			6,225
		Total assets acquired		11,249
	Fair value of liabilities assumed			(907	)
			$	10,342

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following are the identifiable intangible assets acquired and the respective estimated periods over which the assets will be amortized:

				Amortization
		Amount		Period
		(In thousands)		(In years)
Completed technology (software)		$	2,130		4
Reseller relationships			570		5
Maintenance relationships			340		5
Contractor agreements			300		4
Trade name/trademark			70		3
	Total	$	3,410
	Weighted average amortization period:				4

      The completed technology (software), reseller relationships, maintenance relationships and trade name/ trademark are being amortized at the greater of (a) the ratio that current revenues bear to the total of current and anticipated future revenues or (b) the straight-line method over their respective remaining useful lives. The contractor agreements are being amortized using the straight-line method over their useful lives. For the years ended December 31, 2004 and 2003, the identifiable intangible assets have been amortized using the straight-line method over their respective remaining useful lives. The values of the completed technology (software), reseller relationships, maintenance relationships, contractor agreements and trade name/trademark were determined using the income approach. The income approach requires a projection of revenues and expenses specifically attributed to the intangible assets. The discounted cash flow (“DCF”) method is then applied to the potential income streams after making necessary adjustments with respect to such factors as the wasting nature of the identifiable intangible assets and the allowance of a fair return on the net tangible assets and other intangible assets employed. There are several variations on the income approach, including the relief-from-royalty method, the avoided cost method, and the lost profits method.

      The relief-from-royalty method was used to value the trade name/trademark. The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of the intangible assets that would otherwise have to pay royalties or licensee fees on revenues earned through the use of the asset. The royalty rate used in the analysis is based on an analysis of empirical, market-derived royalty rates for guideline intangible assets. Typically, revenue is projected over the expected remaining useful life of the intangible asset. The market-derived royalty rate is then applied to estimate the royalty savings. The key assumptions used in valuing the trade name/trademark are as follows: royalty rate 1%, discount rate 21%, tax rate 40% and estimated average economic life of 3 years.

      The avoided cost method was used to value the reseller relationships and contractor agreements. The avoided cost method considers the concept of avoided cost as an indicator of value. The avoided cost method is appropriate for estimating the fair value of an asset where reliable data for sales of comparable property are not available and where the property does not directly produce an income stream. The key assumptions used in valuing the reseller relationships are as follows: tax rate 40% and estimated average economic life of 5 years. The key assumptions used in valuing the contractor agreements are as follows: tax rate 40% and estimated average economic life of 4 years.

      The completed technology (software) and maintenance relationships were valued using the income approach without variation. The key assumptions used in valuing the completed technology (software) are as follows: discount rate 21%, tax rate 40% and estimated life of 4 years. The key assumptions used in valuing the maintenance relationships are as follows: discount rate 21%, tax rate 40% and estimated average economic life of 5 years.

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pro Forma Results (Unaudited)

      The following table reflects unaudited pro forma results of operations of the Company assuming that the netViz acquisition had occurred on January 1, 2002 (in thousands, except per share data):

	Year Ended December 31,
	2003		2002
Revenues	$	106,067	$	97,947
Net income	$	7,420	$	2,215
Net income per diluted share	$	0.41	$	0.13

      The unaudited pro forma results of operations are not necessarily indicative of the actual results that would have occurred had the transaction actually taken place at the beginning of these periods.

(3)  Goodwill and Other Intangible Assets

      The changes in the carrying amount of goodwill, by reportable segment, for the years ended December 31, 2003 and 2004 are as follows (in thousands):

	MSP/TC		Enterprise		Total
Balance as of January 1, 2003	$	—	$	—	$	—
Goodwill acquired during year		2,800		3,425		6,225
Impairment losses		—		—		—
Balance as of December 31, 2003		2,800		3,425		6,225
Goodwill acquired during year		—		—		—
Impairment losses		—		—		—
Balance as of December 31, 2004	$	2,800	$	3,425	$	6,225

      All of the Company’s goodwill resulted from the acquisition of netViz (see Note 2). The goodwill is tested for impairment on June 30th of each year and whenever changes in circumstances indicate goodwill could be impaired. As of June 30, 2004, the Company performed its annual test for impairment on the carrying value of goodwill of its MSP/ TC and Enterprise reporting units. The Company compared the fair value of each reporting unit to which goodwill has been allocated to its book value and determined that no impairment existed at that date.

      Other intangible assets consist of the following (in thousands):

	Year Ended December 31,
	2003							2004
			Accumulated							Accumulated
	Cost		Amortization			Net		Cost		Amortization			Net
Completed technology (software)	$	2,130	$	(266	)	$	1,864	$	2,130	$	(799	)	$	1,331
Reseller relationships		570		(57	)		513		570		(171	)		399
Maintenance relationships		340		(34	)		306		340		(102	)		238
Contractor agreements		300		(37	)		263		300		(112	)		188
Trade name/trademark		70		(12	)		58		70		(35	)		35
Total	$	3,410	$	(406	)	$	3,004	$	3,410	$	(1,219	)	$	2,191

      All of the Company’s other intangible assets resulted from the acquisition of netViz (see Note 2). Aggregate amortization expense was $0.8 million for the year ended December 31, 2004 and $0.4 million for

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

year ended December 31, 2003. Of the 2004 amount, $0.5 million was included in cost of revenues, and $0.3 million was included in operating expenses. Of the 2003 amount, $0.3 million was included in cost of revenues and $0.1 million was included in operating expenses. Estimated amortization expense for the five succeeding fiscal years as of December 31, 2004 is as follows (in thousands):

	Cost of		Operating
Year Ending	Revenues		Expenses		Total
2005		532		280		812
2006		532		269		801
2007		267		219		486
2008		—		92		92
Total	$	1,331	$	860	$	2,191

(4)  Acquired In-Process Research and Development

      On July 11, 2003, Concord entered into a license agreement with Tavve Software Company (“Tavve”) whereby Concord licensed components of Tavve’s technology. Concord has licensed Tavve’s root cause analysis and discovery of layer 2 and 3 network topology to build upon Concord’s current position in optimizing application availability and performance across networks and systems. The transaction, valued at $1.2 million, included $0.2 million of prepaid maintenance and $1.0 million of in-process research and development. This was accounted for as in-process-research-and-development as an integrated product has not reached technological feasibility and has no alternative future use. Accordingly, the $1.0 million was expensed in 2003.

      Technological feasibility is established when either of two sets of criteria is met:

      a) the detail program design has been completed, documented, and traced to product specifications and its high-risk development issues have been resolved; or

      b) a working model of the product has been finished and determined to be complete and consistent with the product design.

      Upon acquiring the licensed components of Tavve’s technology, Concord did not have a completed product design at the time of the purchase as it had not completed, documented, and traced the detail program design to product specifications. Concord did not have the high-risk development issues resolved.

      A working model is defined as an operative version of the computer software product that is completed in the same software language as the product to be ultimately marketed, performs all the major functions planned for the product, and is ready for initial customer testing (usually identified as beta testing). Upon acquiring the licensed components of Tavve’s technology, Concord did not have a working model as defined.

      In addition, the purchased source code has no alternative future use, i.e., Concord will not use the source code for any other purpose than described above.

      The detail program design for the integration of Tavve’s technology into Concord eHealth® Suite of products has not been completed. The acquisition of Aprisma eliminates our need for this technology, which will now become redundant.

(5)  Convertible Senior Notes

      In December 2003, Concord issued $86.25 million in 3.0% convertible senior notes due 2023. The Convertible Senior Notes mature on July 1, 2023 (the “Convertible Senior Notes”) and bear interest at a rate of 3.00% per annum, payable semiannually on June 15 and December 15 of each year. The Convertible Senior

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Notes will rank equally to existing and future unsecured senior indebtedness. The Convertible Senior Notes are contingently convertible into shares of the Company’s common stock at the occurrence of specific events, including a change in control or if during a conversion period, the closing price of Concord stock exceeds $32.24, which is 120% of the conversion price ($26.87) for 20 trading days in a period of 30 trading days, which starts on the first business day of a quarter. If the threshold is met, then holders may convert their Convertible Senior Notes into the Company’s Common Stock at any time during the succeeding 90 days, beginning on the 30th trading day of the quarter. The Company may redeem some or all of the Convertible Senior Notes at any time on or after December 15, 2008. Holders have the right to require the Company to purchase all or a portion of their notes for cash on December 15, 2008, December 15, 2013 and December 15, 2018.

      As of December 31, 2004, the Company’s Common Stock had not exceeded 120% of the conversion price on any trading day since the date of issuance and no other events had occurred which would make the Convertible Senior Notes convertible. The Convertible Senior Notes will be convertible into shares of Common Stock at an initial conversion price of $26.87 per share. Holders may convert the Convertible Senior Notes into shares of Common Stock at an initial conversion rate of 37.2148 shares of Common Stock per $1,000 principal amount of Convertible Senior Notes, which converts into 3,209,776 shares of common stock subject to adjustment.

      The Convertible Senior Notes may be redeemed by the Company or by the holders of the Notes, under certain conditions. The Company may redeem some or all of the Convertible Notes at any time on or after December 15, 2008. Holders of the Convertible Senior Notes will have the right to require Concord to repurchase some or all of the outstanding notes on December 15, 2008, 2013, and 2018 and upon certain events, including a change in control. Accrued interest to the redemption date will be paid by Concord in any such redemption. Total interest expense under this debt for the years ended December 31, 2004 and 2003 was $3.3 million and $0.17 million, respectively.

      Under the terms of the Convertible Senior Notes, Concord is required to comply with certain restrictive covenants, which require that the Company maintain solvency and liquidity. The Company was in compliance with all covenants as of December 31, 2004.

      In connection with the issuance of the Convertible Senior Notes, the Company incurred $3.42 million of issuance costs, which primarily consisted of investment banker fees, legal, and other professional fees. These costs are being amortized to interest expense over the five year period to the first date holders of the Convertible Senior Notes may require Concord to repurchase the outstanding Convertible Senior Notes. Amortization expense related to the issuance costs was $0.70 million for the year ended December 31, 2004. Amortization expense related to issuance costs was $0.06 million for the year ended December 31, 2003, which represents approximately one month of amortization expense. At December 31, 2004, there were unamortized debt issuance costs of $2.67 million.

(6)  Marketable Securities

      It is the Company’s intent to maintain a liquid investment portfolio to support current operations and to take advantage of investment opportunities; therefore, all marketable securities are considered to be available-for-sale and are classified as current assets.

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The unrealized gains and fair value of marketable securities available-for-sale as of December 31, 2004 with maturity dates from January 19, 2005 through February 17, 2009, are as follows (in thousands):

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized					Unrealized					Unrealized
Description of Securities	Value		Losses			Fair Value		Losses			Fair Value		Losses
US government and municipal obligations	$	13,824	$	—		$	20,391	$	(126	)	$	34,215	$	(126	)
Foreign government obligations		—		—			—		—			—		—
Corporate bonds and notes		23,331		(44	)		86,093		(519	)		109,424		(563	)
Total	$	37,155	$	(44	)	$	106,484	$	(645	)	$	143,639	$	(689	)

      The unrealized gains and fair value of marketable securities available-for-sale as of December 31, 2003 with maturity dates from January 15, 2004 through December 1, 2008, are as follows (in thousands):

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Gains		Value		Gains		Value		Gains
US government and municipal obligations	$	16,512	$	67	$	8,251	$	267	$	24,763	$	334
Foreign government obligations		1,032		27		—		—		1,032		27
Corporate bonds and notes		16,523		123		50,137		876		66,660		999
Total	$	34,067	$	217	$	58,388	$	1,143	$	92,455	$	1,360

(7)  Stock Option Plans

     (a)  Employee Stock Purchase Plans

      In October 2001, the Board of Directors adopted the 2001 Non-Executive Employee Stock Purchase Plan (“NEESPP Plan”), which was subsequently approved by the shareholders of the Company in April 2002. The Company has reserved 500,000 of its shares for issuance under the NEESPP Plan. Eligible employees may purchase shares at 85% of the lower of the closing market price at the beginning or ending date of each NEESPP Plan payment period, as defined. Officers and directors are not eligible employees under the NEESPP Plan. During the years ended December 31, 2004, 2003 and 2002, 85,233, 208,331 and 180,697 shares, respectively, were issued under the NEESPP Plan. As of December 31, 2004, 25,472 shares were available for future issuance under the NEESPP Plan.

      In May 2004, the Board of Directors adopted the 2004 Non-Executive Employee Stock Purchase Plan (“2004 NEESPP Plan”), which was also approved by the shareholders of the Company in May 2004. The Company has reserved 500,000 of its shares for issuance under the 2004 NEESPP Plan. Eligible employees may purchase shares up to 20,000 shares at 85% of the lower of the closing market price at the beginning or ending date of each 2004 NEESPP Plan payment period, as defined. Officers and directors are not eligible employees under the 2004 NEESPP Plan. During the year ended December 31, 2004, 124,426 shares were issued under the 2004 NEESPP Plan. As of December 31, 2004, 375,574 shares were available for future issuance under the 2004 NEESPP Plan.

     (b)  Stock Option Plans

      The Company’s 1995 Stock Option Plan (“1995 Plan”) has been terminated; however, the 1995 Plan continues to govern all options, awards, and other grants issued and outstanding under the 1995 Plan. The 1995 Plan provided for the granting of both incentive stock options and nonqualified stock options.

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In July 1997, the Board of Directors adopted the 1997 Stock Plan (“1997 Plan”), as amended, which permits granting of incentive and non-qualified stock options as well as other stock rights to employees, officers, or consultants of the Company and its subsidiaries at prices determined by the Board of Directors prior to the Company’s IPO and at market value at the date of grant subsequent to the IPO. The 1997 Plan also permits direct purchases of stock by individuals at prices determined by the Board of Directors. Options become exercisable as determined by the Board of Directors and expire up to 5 to 10 years from the date of grant. The number of shares of common stock subject to issuance under the 1997 Plan is 3,250,000. At December 31, 2004, 1,130,221 shares were available for future grant under the 1997 Plan.

      In July 1997, the Board of Directors adopted the 1997 Non-employee Director Stock Option Plan (“1997 Director Plan”), as amended, which was subsequently approved by the shareholders of the Company. The 1997 Director Plan provides for the granting of nonqualified stock options to members of the Board of Directors who are not employees or officers of the Company. Options generally vest over 4 years and expire up to 10 years from the date of grant. The number of shares of common stock originally subject to issuance under the 1997 Director Plan was 130,000. In February 2002, the Board of Directors adopted an amendment to the 1997 Director Plan, which was subsequently approved by the shareholders of the Company in April 2003, increasing the number of shares of common stock available for future grants there under by 200,000 for a total of 330,000. At December 31, 2004, 123,750 shares of common stock were available for future grant under the 1997 Director Plan.

      In November 2000, the Board of Directors adopted the 2000 Non-Executive Employee Equity Incentive Plan (“2000 Equity Incentive Plan”). The 2000 Equity Incentive Plan provides for the granting of nonqualified stock options, stock bonuses, stock appreciation rights and other stock based awards to employees of Concord who are not officers or directors of the Company. To date, only stock options have been awarded under this plan. Options become exercisable as determined by the Board of Directors and expire up to 10 years from the date of grant. The number of shares of common stock originally reserved for issuance under the 2000 Equity Incentive Plan was 1,500,000. In January 2002, the Board of Directors adopted an amendment to the 2000 Equity Incentive Plan increasing the number of shares of common stock reserved for issuance there under by 500,000 for a total of 2,000,000. As of December 31, 2004, 160,790 shares were available for future grant under the 2000 Equity Incentive Plan.

      In accordance with SFAS No. 123, the Company accounts for stock-based compensation for employees under APB No. 25, using the intrinsic value method and has elected the disclosure-only alternative under SFAS No. 123 for options granted using the Black-Scholes option pricing model prescribed by SFAS No. 123.

      The assumptions are as follows:

	Year Ended December 31,
	2004			2003			2002
Risk-free interest rate		3.49	%		3.65	%		3.90	%
Expected dividend yield		0	%		0	%		0	%
Expected lives		5  years			5 years			7 years
Expected volatility		91	%		96	%		91	%

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes information about options outstanding and exercisable at December 31, 2004:

		Options Outstanding						Options Exercisable
				Weighted		Weighted				Weighted
		Number of		Average		Average		Number of		Average
Range of		Shares		Remaining		Exercise Price		Shares		Exercise Price
Exercise Prices		Outstanding		Contractual Life		per Share		Exercisable		per Share
$	1.66 - 6.69		386,076		2.70	$	6.40		366,339	$	6.43
	6.81 - 8.69		242,479		4.47		7.90		122,186		7.80
	8.72 - 9.01		493,472		4.02		9.00		236,596		9.00
	9.03 - 9.51		445,625		6.22		9.36		131,622		9.33
	9.55 - 12.50		220,594		5.57		11.71		28,587		11.49
	12.51 - 13.05		409,389		2.85		13.04		291,942		13.05
	13.19 - 14.65		382,689		5.96		14.48		112,744		14.33
	14.69 - 17.38		353,455		3.31		16.68		144,173		16.87
	17.56 - 21.56		349,928		3.09		20.39		239,690		20.63
	21.63 - 53.00		212,963		2.03		25.01		209,837		25.05
			3,496,670			$	12.82		1,883,716	$	13.30

      The following table summarizes the activity under the stock option plans for the three-year period ended December 31, 2004:

							Weighted
							Average
		Number of			Price per		Price per
		Shares			Share		Share
Outstanding at December 31, 2001			4,154,700		$	0.10-64.25	$	22.15
	Granted		935,350			5.05-23.80		10.71
	Exercised		(161,412	)		0.10-21.75		6.82
	Terminated		(736,185	)		0.10-64.25		22.39
Outstanding at December 31, 2002			4,192,453			0.10-62.03		20.14
	Granted		939,875			6.66-21.06		14.78
	Exercised		(326,684	)		0.10-18.95		8.85
	Terminated		(494,709	)		5.08-62.03		19.77
Outstanding at December 31, 2003			4,310,935			0.10-62.03		19.86
	Granted		622,750			8.02-20.88		11.43
	Exercised		(119,359	)		0.10-14.07		7.60
	Terminated		(1,317,656	)		0.40-62.03		35.88
Outstanding at December 31, 2004			3,496,670		$	1.66-53.00	$	12.82
Exercisable at December 31, 2004			1,883,716		$	1.66-53.00	$	13.30
Exercisable at December 31, 2003			2,327,447		$	0.10-62.03	$	25.97
Exercisable at December 31, 2002			1,984,413		$	0.10-62.03	$	27.55

      The weighted average price per share of options granted during 2004, 2003 and 2002 was $11.43, $14.78 and $10.71, respectively. Prior to the Company’s acquisition of FirstSense in 2000, FirstSense recorded deferred compensation of $0.15 million and $3.42 million in 2000 and 1999, respectively, representing the

72

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

difference between the exercise price of stock options granted and the estimated fair market value of the underlying common stock at the date of grant. The difference was recorded as deferred compensation and was being amortized over the vesting period of applicable options, typically four years. Including amounts applicable to prior Company grants, the Company amortized $0, $0.06 million and $0.11 million of deferred compensation during the years ended December 31, 2004, 2003 and 2002, respectively.

      The amortization of deferred compensation is recorded as an operating expense. Additionally, the Company reversed $0.8 million of deferred compensation in 2002, due to the forfeiture of unvested stock options upon the termination of certain employees.

      The exercise price of all other options outstanding represents the fair market value per share of common stock as of the date of grant.

     (c)  Option Repurchase

      In October 2004, the Company consummated an offer to purchase any and all outstanding options to purchase shares of its common stock with an exercise price per share of $25.00 or more granted under its 1997 Stock Plan (the “Option Repurchase”). In connection with the Option Repurchase, the Company incurred compensation expense of $3.3 million, excluding fees and expenses, in the three-month period ended December 31, 2004.

      The option purchase price was determined to be the weighted average fair market value as calculated by the Black-Scholes option pricing model using a risk-free interest rate of 3.85%, average stock price of $8.99, expected dividend yield of 0%, expected volatility of 92.2% and approximately a three year life.

      The option purchase price per share was as follows:

Option Exercise Price per Share		Purchase Price per Share
	$25.00 to $29.99	$	4.07
	$30.00 to $34.99	$	3.84
	$35.00 to $39.99	$	3.54
	$40.00 to $44.99	$	3.40
	$45.00 to 49.99	$	3.16
	$50.00 to $54.99	$	2.99
	$55.00 to $59.99	$	2.91
Greater than $60.00		$	2.76

      Substantially all eligible option holders elected to tender their options to the Company pursuant to the terms and conditions of the Option Repurchase, and the Company repurchased a total of 965,242 options. These shares were returned to the pool of options available for new grants under the 1997 Stock Plan.

(8)  Income Taxes

      The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. This standard requires, among other things, recognition of future tax effects, measured by enacted tax rates, attributable to deductible temporary differences between the financial statement and income tax bases of assets and liabilities.

73

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The approximate income tax effects of these temporary differences, net operating loss and tax credit carry forwards are as follows:

		Year Ended December 31,
		2004			2003
Net operating loss carry forwards			8,192		$	5,870
Research and development and other tax credits			2,820			3,020
Accruals not yet deductible for tax purposes			1,071			1,824
Depreciation			1,436			882
Deferred revenue			778			1,064
Capitalized research and development expenses			30			195
Other			50			42
Marketable securities			262			(544	)
NetViz Intangibles			(665	)		(974	)
Valuation reserve			—			(1,779	)
	Deferred tax asset	$	13,974		$	9,600

      As of December 31, 2004, the Company had available for federal income tax purposes net operating loss carry forwards of approximately $24.1 million, which expire at various dates through 2024. In addition, as of December 31, 2004, the Company had federal research and development tax credit carry forwards of approximately $2.8 million, which expire at various dates through 2022. Under current tax law, the utilization of net operating loss and research and development tax credit carry forwards may be subject to annual limitations in the event of certain changes in ownership.

      As required by SFAS No. 109, the Company has evaluated the positive and negative evidence bearing upon the realizability of the Company’s deferred tax assets, which consist principally of net operating loss and tax credit carry forwards. For the year ended December 31 2003, the Company evaluated the deferred tax asset valuation allowance and determined that $1.8 million was required based on the Company’s recent profitability and expected future profitability. As a result, the Company recognized an income tax benefit of $2.6 million and a credit to additional paid in capital of $2.7 million in the year ended December 31, 2003. The tax benefit was partially offset by an income tax expense of $0.6 million. During the year ended December 31, 2004, the Company released the remaining valuation allowance of $1.8 million as a credit to additional paid in capital based on cumulative profitability in recent years. The reversal of the deferred tax assets valuation allowance is based upon management’s expectation that the Company will generate sufficient taxable income in future periods to allow it to realize its deferred tax assets resulting from the tax benefits associated with its net operating loss carry forwards and its research and development tax credit carry forwards, as well as certain other tax benefits related to the differences in book and tax income timing.

      The factors that weighed most heavily on management’s decision to release the valuation allowances in 2003 and 2004 were the Company’s history of recent profitability, current economic conditions and forecasted profitability over the next several years. Significant management judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to establish a valuation allowance. Establishing new or additional valuation allowances could materially adversely impact the Company’s financial position and results of operations.

74

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The components of the Company’s tax provision (benefit) are as follows

			Year Ended December 31,
			2004			2003			2002
Current:
	Federal		$	—		$	50		$	—
	State			109			100			116
	Foreign			546			459			452
		Total current		655			609			568
Deferred:
	Federal			(802	)		(2,524	)		—
	State			35			(100	)		—
	Foreign			—			—			—
		Total deferred		(767	)		(2,624	)		—
Total income tax (benefit) provision			$	(112	)	$	(2,015	)	$	568

      A reconciliation of the statutory federal tax rate to the Company’s effective tax rate is as follows:

	Year Ended December 31,
	2004			2003			2002
Statutory rate		(34.0	)%		34.0	%		34.0	%
State tax rate, net of federal benefit		8.3			1.2			2.8
Foreign earnings taxed at different rates		12.9			(1.1	)		3.9
Research and development tax credits		—			(3.5	)		—
Non-deductible expenses		27.0			1.6			2.9
Change in valuation allowance		0.0			(68.6	)		(24.6	)
Other		(31.6	)		0.8			1.5
		(17.4	)%		(35.6	)%		20.5	%

(9)  Commitments and Contingencies

     (a)  Leases

      The Company leases its facilities and certain equipment under operating lease agreements expiring through October 2008.

      The Company’s remaining lease commitments for all leased facilities and equipment with an initial or remaining term of at least one year as of December 31, 2004 are as follows (in thousands):

2005	$	4,053
2006		2,275
2007		887
2008		196
2009		3
Total	$	7,414

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CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Rent expense was $4.8 million, $4.7 million and $4.5 million for the years ended December 31, 2004, 2003 and 2002, respectively. Certain operating leases are subject to cost escalations with the lease expense being recorded on a straight-line basis and the difference being reflected as an accrued liability. As of December 31, 2004 and 2003, this deferred rent liability was $0.8 million and $1.03 million, respectively.

     (b)  Royalties

      The Company has entered into several software license agreements that provide the Company with exclusive worldwide licenses to distribute or utilize certain patented computer software. The Company is required to pay royalties on all related sales. Under one software license agreement, as amended, the Company was obligated to make minimum quarterly royalty payments from 2000 through 2002. The minimum payments were non-cancelable and nonrefundable, but any minimum payments in excess of amounts due for actual license sales in any quarter could be used as a credit against future royalty fees in excess of the specified minimum payments. Under another software license agreement, the Company was obligated to make certain minimum royalty payments from 2002 through 2004. This obligation was secured by a letter of credit arrangement with the royalty provider. A third software license agreement was entered into in 2004, which obligates the Company to make certain royalty and support services payments through 2007. Total royalty expense under royalty agreements was approximately $1.8 million, $1.4 million and $0.68 million for the years ended December 31, 2004, 2003 and 2002, respectively. The minimum remaining royalty payments will total $1.7 million through 2007.

     (c)  Indemnifications

      As permitted under Massachusetts law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The term of the indemnification period is for the officer or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a Director and Officer insurance policy pursuant to which the company may recover all or a portion of amounts it pays to directors or officers under their indemnification agreements. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

      The Company warrants that its software products will perform in all material respects in accordance with its standard published specifications in effect at the time of delivery of the licensed products to the customer for a period of 90 days. Additionally, the Company warrants that its maintenance services will be performed consistent with its maintenance policy in effect at the time those services are delivered. The Company believes its maintenance policy is consistent with generally accepted industry standards. If necessary, the Company would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history; however, the Company has never incurred significant expense under product or services warranties. As a result, the Company believes the estimated liability of these warranties is minimal.

      The Company enters into standard indemnification agreements in the ordinary course of its business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally its business partners or customers, in connection with any patent, copyright, trademark, trade secret or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is often capped at a dollar figure. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.

76

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      When, as part of an acquisition, Concord acquires all of the stock or all or a portion of the assets and/or liabilities of a company, it may assume liability for certain events or occurrences that took place prior to the date of acquisition. The maximum potential amount of future payments it could be required to make for such obligations is undeterminable at this time. The Company has not incurred any such liabilities or made any such payments in the past and the Company has no liabilities recorded for these exposures as of December 31, 2004.

     (d)  Legal Proceedings

      On April 30, 2004, the Company received a letter from LMS Technology Distributions SDN BHD (“LMS”) of Malaysia that demands that the Company reimburse LMS for approximately $4.65 million in alleged losses arising out of the Company’s purported wrongful termination of a Concord Authorized Reseller Agreement (the “CAR Agreement”) with LMS. The Company disputes that the CAR Agreement was wrongfully terminated or that LMS is owed any of the amounts claimed, and the Company intends to defend vigorously against the demand. It is not possible to predict or determine the outcome of these demands or to provide ranges of losses that may arise, if any.

      In November 2003, Concord received notice from a former sales employee in France, stating that he was wrongfully dismissed in July 2003. The former employee filed a wrongful termination lawsuit against Concord claiming approximately $0.4 million in damages. In January 2005, the Labor Court of Poissy issued its decision on the former employees unfair dismissal and failure to pay commissions claims. The court found that the Company did not fulfill its obligations as required by French law and awarded the former employee approximately $12,000. Accordingly, Concord has accrued a liability of $12,000 at December 31, 2004.

      On December 6, 2002, Aprisma filed a complaint for patent infringement against Micromuse, Inc. in the U.S. District Court for the District of New Hampshire. This case remains pending, with a trial presently unscheduled. This case involves Aprisma’s claim that Micromuse’s systems management products, including NetcoolÒ products such as Netcool/OMNIbus, Impact and Precision infringe the following U.S. Patents: 5,436,909; 5,504,921; 5,777,549; 5,696,486; 5,768,501; and 6,064,304. Aprisma seeks injunctive relief and damages based on Micromuse’s infringement. Micromuse has denied infringement, and has alleged that the asserted patents are invalid and are unenforceable. On January 11, 2005, following a two-day hearing, the Court issued a Memorandum and Order in which it adopted the proposed claim construction of the seven disputed claim terms at issue offered by Aprisma. Based on the Court’s claim construction ruling, the parties filed summary judgment motions on the issue of infringement, for which they are awaiting a hearing.

      On January 26, 2005, Aprisma was named as a defendant in litigation filed in the Southern District of New York alleging patent infringement of various U.S. patents allegedly owned by Micromuse. This case remains pending, with a trial presently unscheduled. This case involves Micromuse’s claim that Aprisma’s SNMP support products, the SPECTRUM Assurance Server, the SPECTRUM Alarm Monitor, Gateways and MPLS Manager products infringe the following U.S. Patents: 6,192,034; 6,219,648; 6,330,598; 6,687,335; 6,763,333; 5,936,547; and 6,766,375. Micromuse seeks declaratory, injunctive relief and damages for Aprisma’s alleged infringement. On March 8, 2005, Aprisma filed a Motion to Dismiss or Transfer the Complaint to the District of New Hampshire. This Motion remains pending. The Company believes the allegations in this suit are without merit and we intend to vigorously defend against them.

77

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(10)  Accrued Expenses

      Accrued expenses consist of the following (in thousands):

	December 31,		December 31,
	2004		2003
Payroll and payroll-related	$	5,820	$	5,293
Customer deposits		295		1,901
Deferred rent		761		1,025
Administrative services		1,019		638
Royalties		866		423
Sales and marketing		508		321
Taxes		881		943
Travel-related		528		566
Other		1,493		1,517
	$	12,171	$	12,627

(11)  Employee Benefit Plan

      The Company maintains an employee benefit plan (the “Plan”)under Section 401(k) of the Internal Revenue Code covering all eligible employees, as defined. The Plan allows for employees to defer a portion of their salary up to IRS maximums of pretax compensation. No matching contributions were made to the Plan during 2004, 2003 and 2002.

(12)  Valuation and Qualifying Accounts

      The following table sets forth activity in the Company’s accounts receivable reserve account (in thousands):

			Net
	Balance at		Charges to/
	Beginning		(Reversal of)						Balance at
	of Year		Expense			Write-offs			End of Year
2002	$	1,410	$	355		$	(285	)	$	1,480
2003	$	1,480	$	(222	)	$	(208	)	$	1,050
2004	$	1,050	$	(512	)	$	(115	)	$	423

      During the three months ended December 31, 2004, the Company refined its methodology for estimating credit losses based upon historical experience, which resulted in an adjustment to the allowance for doubtful accounts in the amount of $0.9 million, which served to reduce general and administrative expenses and had an impact of $0.03 per share on the Company’s diluted earnings per share.

(13)  Segment Reporting and Geographic 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

78

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and assess performance. The Company’s chief decision-making group, as defined under SFAS No. 131, is the executive management committee, which is comprised of the executive officers of the Company. The Company records revenue by geographic region based on the location of each of the Company’s sales offices.

      The following table presents the revenue by major geographical regions (in thousands):

	Year Ended December, 31
	2004		2003		2002
United States	$	69,549	$	59,325	$	57,812
United Kingdom		7,526		10,412		5,731
Europe (excluding the U.K.)		16,112		19,907		16,640
Rest of the World		13,001		14,419		13,661
Total	$	106,188	$	104,063	$	93,844

      No one country, except the United States, accounted for greater than 10% of total revenues in the years ended December 31, 2004 and 2002. No one country, except the United States and the United Kingdom, accounted for greater than 10% of total revenues in the year ended December 31, 2003. Substantially all of the Company’s assets are located in the United States.

      The Company’s reportable segments are determined by customer type: managed service providers/ telecommunication carriers (“MSP/ TC”) 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 Company currently does not provide revenues by product or product family, as it is impractical due to the nature of its single suite of products. Some components of the suite cannot be categorized into a specified and defined product family while others could be included in more than one product family. In addition, categorization and classification of our components into product families is changing in nature; changes in packaging, licensing, and product categorization occur on a frequent basis.

      The following table presents the approximate revenue by reportable segment (in thousands):

	Year Ended December, 31
	2004		2003		2002
MSP/ TC	$	48,374	$	46,872	$	39,636
Enterprise		57,814		57,191		54,208
Total	$	106,188	$	104,063	$	93,844

(14)  Subsequent Events

     (a)  Acquisition of Vitel Software, Incorporated

      On January 5, 2005, Concord acquired 100% of the common stock of privately-held Vitel Software, Incorporated (“Vitel”) a provider of voice network performance management solutions. Vitel technology enables enterprises and service providers to manage the performance of next-generation IP and legacy voice networks and messaging systems, including voice mail, from multiple vendors. The purchase of Vitel will position Concord to deliver innovative solutions to customers before, during, and after their migration to an IP-based voice network. This strategic acquisition will enable Concord to proactively manage voice network performance across multiple vendors, multiple applications, and multiple technologies.

79

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Consideration for the acquisition totaled $4.0 million of cash purchase price and transaction costs of $0.1 million. The acquisition will be accounted for in the three months ending March 31, 2005 using the purchase method of accounting and the results of operations of the acquired business since the date of acquisition will be included in the financial statements of the Company for the three month period ending March 31, 2005. The total purchase consideration will be allocated to the assets and liabilities assumed at their estimated fair values on the date of acquisition, as determined by management and, with respect to identifiable intangible assets, an appraisal. The allocation of purchase consideration is based upon a preliminary appraisal of identified intangible assets which will be finalized in the three months ended March 31, 2005. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed will be recorded as goodwill. In accordance with current accounting standards, the goodwill will not be amortized and will be tested for impairment annually as required by SFAS 142.

      The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

			(In thousands)
Total consideration:
	Cash		$	4,000
	Transaction costs			125
		Total purchase consideration	$	4,125
Allocation of the purchase consideration
	Current assets, including cash of $32		$	145
	Fixed assets			7
	Net deferred tax asset			79
	Identifiable intangible assets			790
	Goodwill			3,957
		Total assets acquired		4,978
	Less: fair value of liabilities assumed			853
			$	4,125

      The following are identified intangible assets acquired and the respective estimated periods over which the assets will be amortized:

				Amortization
		Amount		Period
		(In thousands)		(In years)
Completed technology (software)		$	320		5
Maintenance relationships			400		6
Reseller relationships			70		5
	Total	$	790

      The completed technology (software), reseller relationships and maintenance relationships will be amortized at the greater of (a) the ratio that current revenues bear to the total of current and anticipated future revenues or (b) the straight-line method over their respective remaining useful lives. The values of the completed technology (software), reseller relationships, and maintenance relationships were determined using the income approach. The income approach requires a projection of revenues and expenses specifically attributed to the intangible assets. The discounted cash flow (“DCF”) method is then applied to the potential income streams after making necessary adjustments with respect to such factors as the wasting nature of the

80

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

identifiable intangible assets and the allowance of a fair return on the net tangible assets and other intangible assets employed. There are several variations on the income approach, including the relief-from-royalty method, the avoided cost method, and the lost profits method.

      The relief-from-royalty method was used to value the completed technology. The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of the intangible assets that would otherwise have to pay royalties or licensee fees on revenues earned through the use of the asset. The royalty rate used in the analysis is based on an analysis of empirical, market-derived royalty rates for guideline intangible assets. Typically, revenue is projected over the expected remaining useful life of the intangible asset. The market-derived royalty rate is then applied to estimate the royalty savings. The key assumptions used in valuing the completed technology are as follows: royalty rate 5%, discount rate 18.5%, tax rate 40% and estimated average economic life of 5 years.

      The maintenance relationships were valued using the income approach without variation. The key assumptions used in valuing the maintenance relationships are as follows: discount rate 18.5%, tax rate 40% and estimated average economic life of 6 years.

      The avoided cost method was used to value the reseller relationship. The avoided cost method considers the concept of avoided cost as an indicator of value. The avoided cost method is appropriate for estimating the fair value of an asset where reliable data for sales of comparable property are not available and where the property does not directly produce an income stream. The key assumptions used in valuing the reseller relationships are as follows: tax rate 40% and estimated average economic life of 5 years.

     (b)  Acquisition of Aprisma Holdings, Inc.

      On February 22, 2005, the Company acquired privately held Aprisma Holdings Inc. (“Aprisma”) for $93.0 million, which payment was adjusted by (i) the amount of debt owing by Aprisma to certain of its lenders at the time of closing (which debt will be paid off by Concord), and (ii) certain payment obligations owing by Aprisma under its equity participation plan. The Company’s cash payment to acquire Aprisma on February 22, 2005 was approximately $82.4 million. Aprisma’s software provides business service intelligence and manages the availability of IT infrastructures and business services that rely upon them. Strategically combining the two companies’ complementary technologies will enable Concord to expand its ability to deliver a new generation of intelligent software that maps IT services to business processes, measures the actual end-user experience and manages the entire IT infrastructure. With its acquisition of Aprisma, Concord expects to significantly extend its ability to address this market by augmenting its product suite with proven fault management and sophisticated service modeling technologies. The Company is currently still in the process of performing its allocation of purchase price, but expects to assign a significant portion of the purchase price to identifiable intangibles and goodwill. During the year ended December 31, 2004, Aprisma was profitable and generated approximately $43.8 million in revenues and will operate as a business unit within Concord.

81

CONCORD COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(15)  Supplemental Quarterly Financial Disclosure (Unaudited)

		Q1-04			Q2-04		Q3-04		Q4-04
		(In thousands, except per share amounts)
Revenue		$	23,845		$	26,705	$	26,897	$	28,741
Gross profit			19,074			21,494		21,566		23,076
Net income (loss)			(482	)		333		230		(615	)
Per common and potential common share:
	Basic net income (loss)	$	(0.03	)	$	0.02	$	0.01	$	(0.03	)
	Diluted net income (loss)	$	(0.03	)	$	0.02	$	0.01	$	(0.03	)
Shares used in computing basic net income per common share			18,160			18,258		18,304		18,398
Shares used in computing diluted net income per common share			18,160			18,564		18,456		18,398

		Q1-03		Q2-03		Q3-03		Q4-03
		(In thousands, except per share amounts)
Revenue		$	24,117	$	25,615	$	26,560	$	27,771
Gross profit			19,486		20,887		21,649		22,797
Net income			836		1,197		481		5,156
Per common and potential common share:
	Basic net income	$	0.05	$	0.07	$	0.03	$	0.29
	Diluted net income	$	0.05	$	0.07	$	0.03	$	0.27
Shares used in computing basic net income per common share			17,254		17,372		17,500		18,000
Shares used in computing diluted net income per common share			17,449		18,022		18,238		19,081

82

CONCORD COMMUNICATIONS, INC.

FORM 10-K, December 31, 2004

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this 16th day of March 2005.

Concord Communications, INC.

/s/ Melissa H. Cruz

Name: Melissa H. Cruz

Title:  Executive Vice President, Business Services
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ John A. Blaeser John A. Blaeser	President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)	March 16, 2005
/s/ Melissa H. Cruz Melissa H. Cruz	Executive Vice President, Business Services, Chief Financial Officer and Treasurer, (Principal Financial and Accounting Officer)	March 16, 2005
/s/ Frederick W.W. Bolander Frederick W.W. Bolander	Director	March 16, 2005
/s/ Richard M. Burnes, Jr. Richard M. Burnes, Jr.	Director	March 16, 2005
/s/ Robert M. Wadsworth Robert M. Wadsworth	Director	March 16, 2005
/s/ Jack M. Cooper Jack M. Cooper	Director	March 16, 2005
/s/ Robert E. Donahue Robert E. Donahue	Director	March 16, 2005

83

EXHIBIT INDEX

      The following designated exhibits are either filed herewith or, where information is provided under the SEC Document Reference heading corresponding to such exhibit, incorporated by reference to such filing

Exhibit
No.		Description	SEC Document Reference
	3.01	Restated Articles of Organization of the Company	Exhibit No. 3.01 to Form 10-K, for the period ended December 31, 1997
	*3.02	Restated By-laws of the Company as restated June 30, 2004
	4.01	Indenture by and between the Company and Wilmington Trust Company, as Trustee dated as of December 8, 2003	Exhibit No. 4.3 to Registration Statement On Form S-3 (No. 333-112091)
	4.02	Registration Rights Agreement by and between the Company and Bear, Stearns & Co. Inc. dated as of December 8, 2003	Exhibit No. 4.4 to Registration Statement On Form S-3 (No. 333-112091)
	10.03	Equipment Line of Credit Letter Agreement between the Company and Fleet Bank dated as of June 9, 1997	Exhibit No. 10.03 to Registration Statement on Form S-1 (No. 333-33227)
	†10.04	1995 Stock Option Plan of the Company	Exhibit No. 10.04 to Registration Statement on Form S-1 (No. 333-33227)
	*†10.06	1997 Stock Plan of the Company, as amended through March 8, 2000	Exhibit No. 10.06 to Form 10-K, for the period ended December 31, 1997
	†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 as amended through August 20, 2004
	†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 Mutual Life Insurance Company dated March 17, 1994	Exhibit No. 10.09 to Registration Statement on Form S-1 (No. 333-33227)
	10.11	First Amendment to Lease Agreement between the Company and John Hancock Mutual Life Insurance Company dated March 25, 1997	Exhibit No. 10.10 to Registration Statement on Form S-1 (No. 333-33227)
	10.12	Form of Indemnification Agreement for directors and officers of the Company	Exhibit No. 10.11 to Registration Statement on Form S-1 (No. 333-33227)
	10.13	Restated Common Stock Registration Rights Agreement between the Company and certain investors dated August 7, 1986	Exhibit No. 10.12 to Registration Statement on Form S-1 (No. 333-33227)
	10.14	Amended and Restated Registration Rights Agreement between the Company and certain investors dated December 28, 1995	Exhibit No. 10.13 to Registration Statement on Form S-1 (No. 333-33227)
	†10.15	Management Change in Control Agreement between the Company and John A. Blaeser dated as of August 7, 1997	Exhibit No. 10.14 to Registration Statement on Form S-1 (No. 333-33227)
	*†10.16	2004 Non-Executive Employee Stock Purchase Plan
	†10.17	Management Change in Control Agreement between the Company and Ferdinand Engel dated July 23, 1997	Exhibit No. 10.16 to Registration Statement on Form S-1 (No. 333-33227)
	*†10.18	Form of 1997 Non-Qualified Stock Option Agreement for Non-Employee Directors

84

Exhibit
No.		Description	SEC Document Reference
	†10.19	Management Change in Control Agreement dated June 12, 2000 between the Company and Melissa Cruz	Exhibit No. 10.18 to Form 10-Q filed on August 14, 2000
	†10.21	Stock Option Agreement dated January 1, 1996 between the Company and John A. Blaeser	Exhibit No. 10.19 to Registration Statement on Form S-1 (No. 333-33227)
	†10.22	Stock Option Agreement dated January 1, 1996 between the Company and John A. Blaeser	Exhibit No. 10.20 to Registration Statement on Form S-1 (No. 333-33227)
	10.24	Form of Shrink-Wrap License	Exhibit No. 10.22 to Registration Statement on Form S-1 (No. 333-33227)
	*†10.25	Form of 1997 Non-Qualified Employee Stock Option Agreement
	10.26	Stock Purchase Agreement between the Company and Aprisma Holdings, Inc.	Exhibit 2.1 to Form 8-K filed on January 8, 2005
	10.27	Schedule T.O. Tender Offer Statement and related amendments	File No. 05-52793, Filed September 27, 2004 and amended October 20, 2004 and October 27, 2004
	†10.28	2000 Non-Executive Employee Equity Incentive Plan	Exhibit 10.28 to Form 10-K, for the period ended December 31, 2000
	†10.29	Management Change in Control Agreement between the Company and Michael Fabiaschi	Exhibit No. 10.1 to Form 8-K filed on March 15, 2005.
	*†10.30	Form of 1997 Executive Incentive Stock Option Agreement
	†10.31	2001 Non-Executive Employee Stock Purchase Plan	Exhibit No. 10.31 to Form 10-Q filed on November 5, 2001
	*†10.33	Aprisma Management Technologies, Inc. 2003 Equity Participation and Retention Plan
	†10.34	Management Change in Control Agreement between the Company and Douglas Batt dated as of November 18, 2002	Exhibit No. 10.34 to Form 10-K filed on March 19, 2003
	10.37	Registration Rights Agreement by and between the Company and Vo Ngoc Tran dated July 17, 2003.	Exhibit No. 4.1 to Registration Statement on Form S-3 (No. 333-108068)
	*†10.40	Management Change in Control Agreement between the Company and Ted D. Williams
	†10.41	Restricted Stock Grant Agreement between the Company and Michael Fabiaschi	Exhibit No. 10.2 to Form 8-K filed on March 15, 2005.
	*†10.42	Form of Restricted Stock Grant Agreement of the Company
	12.01	Statement regarding Computation of Ratio of Earnings to Fixed Charges	Exhibit No. 12.01 to Registration Statement on Form S-3 (No. 333-112091)
	*21.01	Subsidiaries of the Company
	*23.01	Consent of PricewaterhouseCoopers LLP
	*31.1	Certification of John A. Blaeser pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	*31.2	Certification of Melissa H. Cruz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

85

Exhibit
No.		Description	SEC Document Reference
	*32.1	Certification of John A. Blaeser pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	*32.2	Certification of Melissa H. Cruz pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*  filed herewith

†  Indicates a management contract or compensatory plan or arrangement.

86 EX-3.02 2 b53041ccexv3w02.txt EX-3.02 RESTATED BY-LAWS OF THE COMPANY EXHIBIT 3.02 CONCORD COMMUNICATIONS, INC. RESTATED BY-LAWS ARTICLE I Stockholders 1. Annual Meeting. The annual meeting of stockholders shall be held on the date and at the time fixed, from time to time, by the directors, provided that the date so fixed is within six months of the end of the fiscal year of the corporation. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization or by these By-Laws, may be specified by the Directors or the President. In the event an annual meeting has not been held on the date fixed in these By-Laws, a special meeting in lieu of the annual meeting may be held with all the force and effect of an annual meeting. 2. Special Meetings. Special meetings of stockholders may be called by the President or by the Directors. Upon written application of one or more stockholders who hold at least 10% of the capital stock entitled to vote at a meeting, a special meeting shall be called by the Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer. Notwithstanding the immediately preceding sentence, if the corporation has a class of voting stock registered under the Securities Exchange Act of 1934, as amended, upon written application of one or more stockholders who hold at least 40% in interest of the capital stock entitled to vote at a meeting, a special meeting shall be called by the Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer. 3. Place of Meetings. All meetings of stockholders shall be held at the principal office of the corporation unless a different place (within or without Massachusetts, but within the United States) is fixed by the Directors or the President and stated in the notice of the meeting. -2- 4. Notice of Meetings. A written notice of the place, date and hour of all meetings of stockholders stating the purpose of the meeting shall be given by the Clerk or an Assistant Clerk or by the person calling the meeting at least seven days before the meeting unless such longer period is required by law to each stockholder entitled to vote thereat and to each stockholder who under the law, under the Articles of Organization or under these By-Laws, is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Whenever notice of a meeting is required to be given a stockholder under any provision of the Massachusetts Business Corporation Law or of the Articles of Organization or these By-Laws, a written waiver thereof, executed before or after the meeting by such stockholder or his attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. 5. Notice of Stockholder Business. The following provisions of this Section 5 shall apply to the conduct of business at any meeting of the stockholders (as used in this Section 5, the term annual meeting shall include a special meeting in lieu of annual meeting). (a) At any meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the corporation who is a stockholder of record at the time of giving of the notice provided for in paragraph (b) of this Section 5, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in paragraph (b) of this Section 5. (b) For business to be properly brought before any meeting of the stockholders by a stockholder pursuant to clause (iii) of paragraph (a) of this By-law, the stockholder must have -3- given timely notice thereof in writing to the Clerk of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation: (i) in the case of any annual meeting, not less than 60 days nor more than 90 days prior to the date specified in Section 1 above for such annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if a special meeting in lieu of annual meeting of stockholders is to be held on a date prior to the date specified in Section 1 above, and if less than seventy days' notice or prior public disclosure of the date of such special meeting in lieu of annual meeting is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth day following the earlier of the date on which notice of the date of such special meeting in lieu of annual meeting was mailed or the day on which public disclosure was made of the date of such special meeting in lieu of annual meeting; and (ii) in the case of a special meeting (other than a special meeting in lieu of an annual meeting), not later than the tenth day following the earlier of the day on which notice of the date of the scheduled meeting was mailed or the day on which public disclosure was made of the date of the scheduled meeting. A stockholder's notice to the Clerk shall set forth as to each matter the stockholder proposes to bring before the meeting, (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, the name and address of the beneficial owner, if any, on whose behalf the proposal is made, and the name and address of any other stockholders or beneficial owners known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder of record, by the beneficial owner, if any, on whose behalf the -4- proposal is made and by any other stockholders or beneficial owners known by such stockholder of record and/or of the beneficial owner, if any, on whose behalf the proposal is made, in such proposed business and any material interest of any other stockholders or beneficial owners known by such stockholder to be supporting such proposal in such proposed business, to the extent known by such stockholder. (c) Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in these By-Laws. The person presiding at the meeting shall, if the facts warrant, determine that business was not properly brought before the meeting and in accordance with the procedures prescribed by these By-laws, and if he should so determine, he shall so declare at the meeting and any such business not properly brought before the meeting shall not be transacted. (d) This provision shall not prevent the consideration and approval or disapproval at the meeting of reports of officers, Directors and committees of the Board of Directors, but, in connection with such reports, no new business shall be acted upon at such meeting unless properly brought before the meeting as herein provided. (e) Notwithstanding the foregoing provisions of this Section 5 to the contrary, a stockholder shall comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (or any successor provision), and the rules and regulations thereunder with respect to the matters set forth in this Section 5. 6. Quorum. Unless otherwise provided by law, or in the Articles of Organization, or these By-Laws or a resolution of the Board of Directors requiring satisfaction of a greater quorum requirement for any voting group, a majority of the votes entitled to be cast on the matter by a voting group constitutes a quorum of that voting group for action on that matter. As used in -5- these By-Laws, a voting group includes all shares of one or more classes or series that, under the Articles of Organization or the Massachusetts Business Corporation Act, as in effect from time to time, are entitled to vote and to be counted together collectively on a matter at a meeting of shareholders. A share once represented for any purpose at a meeting is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless (1) the shareholder attends solely to object to lack of notice, defective notice or the conduct of the meeting on other grounds and does not vote the shares or otherwise consent that they are to be deemed present, or (2) in the case of an adjournment, a new record date is or shall be set for that adjourned meeting. 7. Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote owned by him and a proportionate vote for a fractional share, unless otherwise provided by the Articles of Organization in the case that the corporation has two or more classes or series of stock. Capital stock shall not be voted if any installment of the subscription therefor has been duly demanded in accordance with the law of the Commonwealth of Massachusetts and is overdue and unpaid. Stockholders may vote either in person or by written proxy dated not more than six months before the meeting named therein. Proxies shall be filed with the clerk of the meeting, or of any adjournment thereof, before being voted. Except as otherwise limited therein, proxies shall entitle the persons named therein to vote at any adjournment of such meeting but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a -6- stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. 8. Action at Meeting. If a quorum of a voting group exists, favorable action on a matter, other than the election of Directors, is taken by a voting group if the votes cast within the group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law, or the Articles of Organization, or these By-Laws or a resolution of the Board of Directors requiring receipt of a greater affirmative vote of the shareholders, including more separate voting groups. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. No ballot shall be required for such election unless requested by a shareholder present or represented at the meeting and entitled to vote in the election. The corporation shall not directly or indirectly vote any share of its own stock. 9. Action Without Meeting. Any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders. Such consent shall be treated for all purposes as a vote at a meeting. ARTICLE II Directors 1. Powers. The business of the corporation shall be managed by a Board of Directors who may exercise all the powers of the corporation except as otherwise provided by law, by the Articles of Organization or by these By-Laws. In the event of vacancy in the Board -7- of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. 2. Number, Election and Qualification; Vacancies, Enlargement of the Board; Tenure; Removal. The number of Directors, and the provisions governing their election and qualification, vacancies, enlargement of the Board of Directors and their tenure and removal shall be as provided by law and as set forth in the Articles of Organization. 3. Meetings. Regular meetings of the Directors may be held without call or notice at such places and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice at the same place as the annual meeting of stockholders. Special meetings of the Directors may be held at any time and place designated in a call by the President or two or more Directors. 4. Telephone Conference Meetings. Members of the Board of Directors may participate in a meeting of the board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. 5. Notice of Meetings. Notice of all special meetings of the Directors shall be given to each Director by the Secretary, or Assistant Secretary, or if there be no Secretary or Assistant Secretary, by the Clerk, or Assistant Clerk, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone or by telegram sent to his business or home address at -8- least twenty-four hours in advance of the meeting, or by written notice mailed to his business or home address at least forty-eight hours in advance of the meeting. Notice of a meeting need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a Directors' meeting need not specify the purposes of the meeting. 6. Quorum. At any meeting of the Directors, a majority of the Directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time without further notice. 7. Action at Meeting. At any meeting of the Directors at which a quorum is present, a majority of the Directors present may take any action on behalf of the Board except to the extent that a larger number is required by law or the Articles of Organization or these By-Laws. 8. Action by Consent. Any action required or permitted to be taken at any meeting of the Directors may be taken without a meeting, if all the Directors consent to the action in writing and the written consents are filed with the records of the meetings of Directors. Such consents shall be treated for all purposes as a vote at a meeting. 9. Committees. The Directors may, by vote of a majority of the Directors then in office, elect from their number an executive or other committees and may by like vote delegate thereto some or all of their powers except those which by law, the Articles of Organization or these By-Laws they are prohibited from delegating to such committee. Except as the Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the Directors. -9- ARTICLE III Officers 1. Enumeration. The officers of the corporation shall consist of a President, a Treasurer, a Clerk, and such other officers, including a Chairman of the Board of Directors, one or more Vice Presidents, Assistant Treasurers, Assistant Clerks, Secretary and Assistant Secretaries as the Directors may determine. 2. Election. The President, Treasurer and Clerk shall be elected annually by the Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen by the Directors at such meeting or at any other meeting. 3. Qualification. The President may, but need not be, a Director. No officer need be a stockholder. Any two or more offices may be held by the same person, provided that the President and Clerk shall not be the same person. The Clerk shall be a resident of Massachusetts unless the corporation has a resident agent appointed for the purpose of service of process. Any officer may be required by the Directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the Directors may determine. 4. Tenure. Except as otherwise provided by law, by the Articles of Organization or by these By-Laws, the President, Treasurer and Clerk shall hold office until the first meeting of the Directors following the next annual meeting of stockholders and until their successors are chosen and qualified; and all other officers shall hold office until the first meeting of the Directors following the next annual meeting of stockholders and until their successors are chosen and qualified, unless a shorter term is specified in the vote choosing or appointing them. Any officer may resign by delivering his written resignation to the corporation at its principal office or -10- to the President, Clerk or Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 5. Removal. The Directors may remove any officer with or without cause by vote of a majority of the Directors then in office; provided, that an officer may be removed for cause only after a reasonable notice and opportunity to be heard before the Board of Directors. 6. President, Chairman of the Board, and Vice-President. The President shall, unless otherwise provided by the Directors, be the chief executive officer of the corporation and shall, subject to the direction of the Directors, have general supervision and control of its business. Unless otherwise provided by the Directors he shall preside, when present, at all meetings of stockholders and, unless a Chairman of the Board has been elected and is present, of the Directors. If a Chairman of the Board of Directors is elected he shall preside at all meetings of the Board of Directors at which he is present. The Chairman shall have such other powers as the Directors may from time to time designate. Any Vice-President shall have such powers as the Directors may from time to time designate. 7. Treasurer and Assistant Treasurer. The Treasurer shall, subject to the direction of the Directors, have general charge of the financial affairs of the corporation and shall cause accurate books of account to be kept. He shall have custody of all funds, securities, and valuable documents of the corporation, except as the Directors may otherwise provide. Any assistant treasurer shall have such powers as the Directors may from time to time designate. -11- 8. Clerk and Assistant Clerks. The Clerk shall record all proceedings of the stockholders in a book to be kept therefor. Unless a transfer agent is appointed, the Clerk shall keep or cause to be kept in Massachusetts, at the principal office of the corporation or at his office, the stock and transfer records of the corporation, in which are contained the names of all stockholders and the record address and the amount of stock held by each. In case a Secretary is not elected, the Clerk shall record all proceedings of the Directors in a book to be kept therefor. In the absence of the Clerk from any meeting of the stockholders, an Assistant Clerk, if one be elected, otherwise a Temporary Clerk designated by the person presiding at the meeting, shall perform the duties of the Clerk. Any Assistant Clerk shall have such additional powers as the Directors may from time to time designate. 9. Secretary and Assistant Secretaries. If a Secretary is elected, he shall keep a record of the meetings of the Directors and in his absence, an Assistant Secretary, if one be elected, otherwise a Temporary Secretary designated by the person presiding at the meeting, shall keep a record of the meetings of the Directors. Any Assistant Secretary shall have such additional powers as the Directors may from time to time designate. 10. Other Powers and Duties. Each officer shall, subject to these By-Laws, have in addition to the duties and powers specifically set forth in these By-Laws, such duties and powers as are customarily incident to his office, and such duties and powers as the Directors may from time to time designate. -12- ARTICLE IV Capital Stock 1. Certificates of Stock. Subject to the provisions of Section 2 below, each stockholder shall be entitled to a certificate of the capital stock of the corporation in such form as may be prescribed from time to time by the Directors. The certificate shall be signed by the President or a Vice-President, and by the Treasurer or an Assistant Treasurer; provided, however, such signatures may be facsimiles if the certificate is signed by a transfer agent, or by a registrar, other than a Director, officer or employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue. Every certificate issued for shares of stock at a time when such shares are subject to any restriction on transfer pursuant to the Articles of Organization, these By-Laws or any agreement to which the corporation is a party shall have the restriction noted conspicuously on the certificate and shall also set forth on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. Every stock certificate issued by the corporation at a time when it is authorized to issue more than one class or series of stock shall set forth upon the face or back of the certificate either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series, if any, authorized to be issued, as set forth in the Articles of Organization, or a statement of the existence of such preferences, powers, qualifications, and -13- rights, and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. 2. Stockholder Open Accounts. The corporation may maintain or cause to be maintained stockholder open accounts in which may be recorded all stockholders' ownership of stock and all changes therein. Certificates need not be issued for shares so recorded in a stockholder open account unless requested by the stockholder. 3. Transfers. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred in the records of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor, properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the corporation or its transfer agent may reasonably require. When such stock certificates are thus properly surrendered to the corporation or its transfer agent, the corporation or transfer agent shall cause the records of the corporation to reflect the transfer of the shares of stock. Except as may be otherwise required by law, by the Articles of Organization or by these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown in its records as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereof, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws. It shall be the duty of each stockholder to notify the corporation of his post office address. 4. Record Date. The Directors may fix in advance a time which shall be not more than sixty (60) days before the date of any meeting of stockholders or the date for the payment of -14- any dividend or the making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. Without fixing such record date the Directors may for any of such purposes close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed, the record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect thereto. 5. Replacement of Certificates. In case of the alleged loss, mutilation or destruction of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms and conditions as the Directors may prescribe. 6. Issue of Capital Stock. The whole or any part of the then authorized but unissued shares of each class of stock may be issued at any time or from time to time by the Board of Directors without action by the stockholders. 7. Reacquisition of Stock. Shares of stock previously issued which have been reacquired by the corporation, may be restored to the status of authorized but unissued shares by vote of the Board of Directors, without amendment of the Articles of Organization. -15- ARTICLE V Provisions Relative to Directors, Officers, Stockholders and Employees 1. Certain Contracts and Transactions. In the absence of fraud or bad faith, no contract or transaction by this corporation shall be void, voidable or in any way affected by reason of the fact that the contract or transaction is (a) with one or more of its officers, Directors, stockholders or employees, (b) with a person who is in any way interested in this corporation, or (c) with a corporation, organization or other concern in which an officer, Director, stockholder or employee of this corporation is an officer, director, stockholder, employee or in any way interested. The provisions of this section shall apply notwithstanding the fact that the presence of a Director or stockholder, with whom a contract or transaction is made or entered into or who is an officer, director, stockholder or employee of a corporation, organization or other concern with which a contract or transaction is made or entered into or who is in any way interested in such contract or transaction, was necessary to constitute a quorum at the meeting of the Directors (or any authorized committee thereof) or stockholders at which such contract or transaction was authorized and/or that the vote of such Director or stockholder was necessary for the adoption of such contract or transaction, provided that if said interest was material, it shall have been known or disclosed to the Directors or stockholders voting at said meeting on said contract or transaction. A general notice to any person voting on said contract or transaction that an officer, Director, stockholder or employee has a material interest in any corporation, organization or other concern shall be sufficient disclosure as to such officer, Director, stockholder or employee with respect to all contracts and transactions with such corporation, organization or other concern. This section shall be subject to amendment or repeal only by action of the stockholders. -16- 2. Indemnification. Each Director, officer, employee and other agent of the corporation, and any person who, at the request of the corporation, serves as a director, officer, employee or other agent of another organization in which the corporation directly or indirectly owns shares or of which it is a creditor shall be indemnified by the corporation against any cost, expense (including attorneys' fees), judgment, liability and/or amount paid in settlement reasonably incurred by or imposed upon him in connection with any action, suit or proceeding (including any proceeding before any administrative or legislative body or agency), to which he may be made a party or otherwise involved or with which he shall be threatened, by reason of his being, or related to his status as a director, officer, employee or other agent of the corporation or of any other organization in which the corporation directly or indirectly owns shares or of which the corporation is a creditor, which other organization he serves or has served as director, officer, employee or other agent at the request of the corporation (whether or not he continues to be an officer, Director, employee or other agent of the corporation or such other organization at the time such action, suit or proceeding is brought or threatened), unless such indemnification is prohibited by the Business Corporation Law of the Commonwealth of Massachusetts. The foregoing right of indemnification shall be in addition to any rights to which any such person may otherwise be entitled and shall inure to the benefit of the executors or administrators of each such person. The corporation may pay the expenses incurred by any such person in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit, or proceeding, upon receipt of an undertaking by such person to repay such payment if it is determined that such person is not entitled to indemnification hereunder. This section shall be subject to amendment or repeal only by action of the stockholders, and any such amendment or -17- repeal shall not affect the rights arising hereunder prior to the effective date of the amendment or repeal. ARTICLE VI Miscellaneous Provisions 1. Fiscal Year. Except as from time to time otherwise determined by the Directors, the fiscal year of the corporation shall end on December 31 in each year. Following any change in the fiscal year previously adopted, a certificate of such change, signed under the penalties of perjury by the Clerk or an Assistant Clerk, shall be filed forthwith with the state secretary. 2. Seal. The seal of this corporation shall, subject to alteration by the Directors, bear its name, the word "Massachusetts," and the year of its incorporation. 3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations authorized to be executed by an officer of the corporation in its behalf shall be signed by the President or the Treasurer except as the Directors may generally or in particular cases otherwise determine. 4. Voting of Securities. Except as the Directors may otherwise designate, the President or Treasurer may waive notice of, and appoint any person or persons to act as proxy or attorney-in-fact for this corporation (with or without power of substitution) at any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. 5. Corporate Records. The original, or attested copies, of the Articles of Organization, By-Laws and records of all meetings of incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal -18- office of the corporation or at an office of its transfer agent or of the Clerk or of its resident agent. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to the inspection of any stockholder for any proper purpose but not to secure a list of stockholders or other information for the purpose of selling said list or information or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation. 6. Articles of Organization. All references in these By-Laws to the Articles of Organization shall be deemed to refer to the Articles of Organization of the corporation, as amended and in effect from time to time. 7. Amendments. These By-Laws, to the extent provided in these By-Laws, may be amended or repealed, in whole or in part, and new By-Laws adopted either (a) by the stockholders at any meeting of the stockholders by the affirmative vote of the holders of at least a majority in interest of the capital stock present and entitled to vote, provided that notice of the proposed amendment or repeal or of the proposed making of new By-Laws shall have been given in the notice of such meeting, or (b) if so authorized by the Articles of Organization, by the Board of Directors at any meeting of the Board by the affirmative vote of a majority of the Directors then in office, but no amendment or repeal of a By-law shall be voted by the Board of Directors and no new By-law shall be made by the Board of Directors which alters the provisions of these By-Laws with respect to removal of Directors, or the election of committees by Directors and the delegation of powers thereto, nor shall the Board of Directors make, amend or repeal any provision of the By-Laws which by law, the Articles of Organization or the By-Laws requires action by the stockholders. Not later than the time of giving notice of the meeting of stockholders next following the making, amending, or repealing by the Directors of any By-law, -19- notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-Laws. Any By-law or amendment of a By-law made by the Board of Directors may be amended or repealed by the stockholders by affirmative vote as above provided in this Section 7. 8. 1987 Massachusetts Control Share Acquisition Act. The 1987 Massachusetts Control Share Acquisition Act, Chapter 110D of the Massachusetts General Laws, as it may be amended from time to time, shall not apply to the corporation. EX-10.06 3 b53041ccexv10w06.txt EX-10.06 1997 STOCK PLAN Exhibit 10.06 CONCORD COMMUNICATIONS, INC. 1997 STOCK PLAN (AS AMENDED ON MARCH 12, 1998, MARCH 1, 1999, MAY 15, 1999 AND MARCH 8, 2000) 1. PURPOSE; TERMINATION OF PRIOR PLAN. The purpose of the 1997 Stock Plan (the "Plan") is to encourage key employees of Concord Communications, Inc. (the "Company") and of any present or future parent or subsidiary of the Company (collectively, "Related Corporations") and other individuals who render services to the Company or a Related Corporation, by providing opportunities to participate in the ownership of the Company and its future growth through (a) the grant of options which qualify as "incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); (b) the grant of options which do not qualify as ISOs ("Non-Qualified Options"); (c) awards of stock in the Company ("Awards"); and (d) opportunities to make direct purchases of stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter individually as an "Option" and collectively as "Options." Options, Awards and authorizations to make Purchases are referred to hereafter collectively as "Stock Rights." As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation," respectively, as those terms are defined in Section 424 of the Code. The Company's 1995 Stock Plan (the "1995 Stock Plan") is terminated effective as of October 16, 1997 and henceforth, the Company shall make no grants under the 1995 Stock Plan. The 1995 Stock Plan shall, however, continue to govern all options, awards and other grants granted and outstanding under the 1995 Stock Plan. 2. ADMINISTRATION OF THE PLAN. A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by the Board of Directors of the Company (the "Board") or, subject to paragraph 2(D) (relating to compliance with Section 162(m) of the Code), by a committee appointed by the Board of two or more of its members (the "Committee"). Hereinafter, all references in this Plan to the "Committee" shall mean the Board if no Committee has been appointed. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine to whom (from among the class of employees eligible under paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options and Awards and to make Purchases) Non-Qualified Options, Awards and authorizations to make Purchases may be granted; (ii) determine the time or times at which Options or Awards shall be granted or Purchases made; (iii) determine the purchase price of shares subject to each Option or Purchase, which prices shall not be less than the minimum price specified in paragraph 6; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) determine whether restrictions such as repurchase options are to be - 2 - imposed on shares subject to Options, Awards and Purchases and the nature of such restrictions, if any; and (vii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. B. COMMITTEE ACTIONS. The Committee may select one of its members as its chairman, and shall hold meetings at such time and places as it may determine. A majority of the Committee shall constitute a quorum and acts of a majority of the members of the Committee at a meeting at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee (if consistent with applicable state law), shall be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Notwithstanding the provisions of paragraph 2.A., no Stock Rights shall be granted to any person who is, at the time of the proposed grant, a member of the Board unless such grant is approved by a majority vote of the disinterested members of the Board. All grants of Stock Rights to members of the Board shall in all respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who either (i) are eligible to receive grants of Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act upon the granting to himself or herself of Stock Rights, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to such member of Stock Rights. Notwithstanding any other provision of this paragraph 2, in the event the Company registers any class of any equity security pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grants to members of the Board of Options made at any time from the effective date of such registration until six months after the termination of such registration shall be made only by the Board; provided, however, that if a majority of the Board is eligible to participate in the Plan or in any other stock option or other stock plan - 3 - of the Company or any of its affiliates, or has been so eligible at any time within the preceding year, any grant to directors of Options must be made by, or only in accordance with the recommendation of, a Committee consisting of three or more persons, who may but need not be members of the Board or employees of the Company, appointed by the Board but having full authority to act in the matter, none of whom is eligible to participate in this Plan or any other stock option or other stock plan of the Company or any of its affiliates, or has been eligible at any time within the preceding year. The requirements imposed by the preceding sentence shall also apply with respect to grants to officers who are not also members of the Board. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. D. PERFORMANCE-BASED COMPENSATION. The Board, in its discretion, may take such action as may be necessary to ensure that Stock Rights granted under the Plan qualify as "qualified performance-based compensation" within the meaning of Section 162(m) of the Code and applicable regulations promulgated thereunder ("Performance-Based Compensation"). Such action may include, in the Board's discretion, some or all of the following (i) if the Board determines that Stock Rights granted under the Plan generally shall constitute Performance-Based Compensation, the Plan shall be administered, to the extent required for such Stock Rights to constitute Performance-Based Compensation, by a Committee consisting solely of two or more "outside directors" (as defined in applicable regulations promulgated under Section 162(m) of the Code), (ii) if any Non-Qualified Options with an exercise price less than the fair market value per share of Common Stock are granted under the Plan and the Board determines that such Options should constitute Performance-Based Compensation, such options shall be made exercisable only upon the attainment of a pre-established, objective performance goal established by the Committee, and such grant shall be submitted for, and shall be contingent upon shareholder approval and (iii) Stock Rights granted under the Plan may be subject to such other terms and conditions as are necessary for compensation recognized in connection with the exercise or disposition of such Stock Right or the disposition of Common Stock acquired pursuant to such Stock Right, to constitute Performance-Based Compensation. 3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees of the Company or any Related Corporation. Non-Qualified Options, Awards and authorizations to make Purchases may be granted to any employee, officer or director (whether or not also an employee) or consultant of the Company or any Related Corporation. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant a Stock Right. The granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify such individual or entity from, participation in any other grant of Stock Rights. 4. STOCK. The stock subject to Stock Rights shall be authorized but unissued shares of Common Stock of the Company, par value $.01 per share (the "Common Stock"), or shares of - 4 - Common Stock reacquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is 3,250,000, subject to adjustment as provided in paragraph 13. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the unpurchased shares of Common Stock subject to such Option shall again be available for grants of Stock Rights under the Plan. No employee of the Company or any Related Corporation may be granted Options to acquire, in the aggregate, more than 70% of the aggregate number of shares of Common Stock which may be issued pursuant to the Plan during any fiscal year of the Company. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the shares subject to such Option shall be included in the determination of the aggregate number of shares of Common Stock deemed to have been granted to such employee under the Plan. 5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at any time on or after October 16, 1997 and prior to October 15, 2007. The date of grant of a Stock Right under the Plan will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. 6. MINIMUM OPTION PRICE; ISO LIMITATIONS. A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. Subject to paragraph 2(D) (relating to compliance with Section 162(m) of the Code), the exercise price per share specified in the agreement relating to each Non-Qualified Option granted, and the purchase price per share of stock granted in any Award or authorized as a Purchase, under the Plan may be less than the fair market value of the Common Stock of the Company on the date of grant; provided that, in no event shall such exercise price or such purchase price be less than the lesser of (i) the book value per share of Common Stock as of the end of the fiscal year of the Company immediately preceding the date of such grant, or (ii) 50 percent of the fair market value per share of Common Stock on the date of such grant. B. PRICE FOR ISOS. The exercise price per share specified in the agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share specified in the agreement relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of grant. - 5 - For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply. C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible employee may be granted Options treated as ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any Related Corporation, ISOs do not become exercisable for the first time by such employee during any calendar year with respect to stock having a fair market value (determined at the time the ISOs were granted) in excess of $100,000. The Company intends to designate any Options granted in excess of such limitation as Non-Qualified Options, and the Company shall issue separate certificates to the optionee with respect to Options that are Non-Qualified Options and Options that are ISOs. D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the date of grant or, if the prices or quotes discussed in this sentence are unavailable for such date, the last business day for which such prices or quotes are available prior to the date of grant and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market. If the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall mean the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. OPTION DURATION. Subject to earlier termination as provided in paragraphs 9 and 10 or in the agreement relating to such Option, each Option shall expire on the date specified by the Committee, but not more than (i) ten years from the date of grant in the case of Options generally and (ii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, as determined under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9 and 10, the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to paragraph 16. - 6 - 8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through 12, each Option granted under the Plan shall be exercisable as follows: A. VESTING. The Option shall either be fully exercisable on the date of grant or shall become exercisable thereafter in such installments as the Committee may specify. B. FULL VESTING OF INSTALLMENTS. Once an installment becomes exercisable, it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. PARTIAL EXERCISE. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. D. ACCELERATION OF VESTING. The Committee shall have the right to accelerate the date that any installment of any Option becomes exercisable; provided that the Committee shall not, without the consent of an optionee, accelerate the permitted exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 16) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in paragraph 6(C). 9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the agreement relating to such ISO, if an ISO optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or disability as defined in paragraph 10, no further installments of his or her ISOs shall become exercisable, and his or her ISOs shall terminate after the passage of 60 days from the date of termination of his or her employment, but in no event later than on the specified expiration dates of such ISOs, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified Options pursuant to paragraph 16. For purposes of this paragraph 9, a leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the employee after the approved period of absence. Employment shall also be considered as continuing uninterrupted during any other bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute or by contract. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under this paragraph 9, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan - 7 - shall be deemed to give any grantee of any Stock Right the right to be retained in employment or other service by the Company or any Related Corporation for any period of time. 10. DEATH; DISABILITY. A. DEATH. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his or her death, any ISO owned by such optionee may be exercised, to the extent otherwise exercisable on the date of death, by the estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, at any time prior to the earlier of (i) the specified expiration date of the ISO or (ii) 180 days from the date of the optionee's death. B. DISABILITY. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his or her disability, such optionee shall have the right to exercise any ISO held by him or her on the date of termination of employment, for the number of shares for which he or she could have exercised it on that date, at any time prior to the earlier of (i) the specified expiration date of the ISO or (ii) 180 days from the date of the termination of the optionee's employment. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or any successor statute. 11. ASSIGNABILITY. No ISO shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution, and during the lifetime of the optionee shall be exercisable only by such optionee. Stock Rights other than ISOs shall be transferable to the extent set forth in the agreement relating to such Stock Right. 12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 through 11 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options. The Committee may specify that any Non-Qualified Option shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 13. ADJUSTMENTS. Upon the occurrence of any of the following events, an optionee's rights with respect to Options granted to such optionee hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: - 8 - A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with or acquired by another entity in a merger or other reorganization in which the holders of the outstanding voting stock of the Company immediately preceding the consummation of such event, shall, immediately following such event, hold, as a group, less than a majority of the voting securities of the surviving or successor entity, or in the event of a sale of all or substantially all of the Company's assets or otherwise (each, an "Acquisition"), the Committee may take one or more of the following actions: (i) provide for the acceleration and/or termination of any time period relating to the exercise of the Options, (ii) provide for the purchase of the Options, upon the optionee's request, for the amount in cash that could have been received upon the exercise of the Options and sale of the shares obtained thereby, (iii) adjust the terms of the Options in a manner determined by the Committee, (iv) cause the Options to be assumed, or new rights substituted therefor, by another entity or (v) make such other provision as the Committee may consider equitable and in the best interests of the Company. C. RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization or reorganization of the Company (other than a transaction described in subparagraph B above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise the securities he or she would have received if he or she had exercised such Option prior to such recapitalization or reorganization. D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs or would cause adverse tax consequences to the holders, it may refrain from making such adjustments. - 9 - E. RESTRICTED SECURITIES. If any person or entity owning restricted Common Stock obtained by exercise of an Option made hereunder receives new or additional or different shares or securities ("New Securities") in connection with a transaction described in subparagraphs A, B or C above, as a result of owning such restricted Common Stock, such New Securities shall be subject to all of the conditions and restrictions applicable to the restricted Common Stock with respect to which such New Securities were issued. F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. G. FRACTIONAL SHARES. No fractional shares shall be issued under the Plan. Any fractional shares which, but for this subparagraph G, would have been issued to an optionee pursuant to an Option, shall be deemed to have been issued and immediately sold to the Company for their fair market value, and the optionee shall receive from the Company cash in lieu of such fractional shares. H. ADJUSTMENTS. Upon the happening of any of the events described in subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Stock Rights which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee shall determine the specific adjustments to be made under this paragraph 13 and, subject to paragraph 2, its determination shall be conclusive. 14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address, or to such transfer agent as the Company shall designate. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery of shares of Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Option, (c) at the discretion of the Committee, by delivery of the optionee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion of the Committee and consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise, or (e) at the discretion of the Committee, by any combination of (a), (b), (c) and (d) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in - 10 - clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of an Option shall not have the rights of a shareholder with respect to the shares covered by such Option until the date of issuance of a stock certificate to such holder for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board in July 1997 and by the stockholders of the Company on September 9, 1997. The Plan was amended on March 12, 1998 to increase the number of shares authorized for issuance under the Plan by 750,000 shares to 1,500,000, and such amendment was approved by the stockholders of the Company at the Annual Meeting held on April 30, 1998. On March 1, 1999, the Board of Directors further amended the Plan to increase the number of Shares authorized for issuance under the Plan by 1,000,000 shares to 2,500,000 shares and to make certain other minor modifications, and such amendment was approved by the stockholders of the Company at the Annual Meeting held on April 27, 1999. On May 15, 1999, the Board of Directors further amended the Plan by adding Section 22 to the Plan. On March 8, 2000 the Board of Directors further amended the Plan to increase the number of shares authorized for issuance under the Plan by 750,000 shares to 3,250,000, subject to the approval of the amendment of the Plan by the stockholders of the Company at the next Meeting of Stockholders. The Plan shall expire at the end of the day on October 15, 2007 (except as to Options outstanding on that date). Subject to the provisions of paragraph 5 above, Options may be granted under the Plan prior to the date of stockholder approval of the Plan. The Board may terminate or amend the Plan in any respect at any time, except that, without the approval of the stockholders obtained within 12 months before or after the Board adopts a resolution authorizing any of the following actions: (a) the total number of shares that may be issued under the Plan may not be increased (except by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c) the provisions of paragraph 6(B) regarding the exercise price at which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan may not be extended. Except as otherwise provided in this paragraph 15, in no event may action of the Board or stockholders alter or impair the rights of a grantee, without such grantee's consent, under any Stock Right previously granted to such grantee. 16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. Subject to paragraph 13(D), without the prior written consent of the holder of an ISO, the Committee shall not alter the terms of such ISO (including the means of exercising such ISO) if such alteration would constitute a modification (within the meaning of Section 424(h)(3) of the Code). The Committee, at the written request or with the written consent of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Such actions may include, but shall not be limited to, extending the - 11 - exercise period of such ISOs. At the time of such conversion, the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. Upon the taking of such action, the Company shall issue separate certificates to the optionee with respect to Options that are Non-Qualified Options and Options that are ISOs. The Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such conversion. 17. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO granted under the Plan, each optionee agrees to notify the Company in writing immediately after such optionee makes a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the Code and regulations thereunder) of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A Disqualifying Disposition is generally any disposition occurring on or before the later of (a) the date two years following the date the ISO was granted or (b) the date one year following the date the ISO was exercised. 19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to an arm's-length transaction, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition (as defined in paragraph 18), the vesting or transfer of restricted stock or securities acquired on the exercise of an Option hereunder, or the making of a distribution or other payment with respect to such stock or securities, the Company may withhold, or may require the grantee to pay, additional withholding taxes in respect of amounts that constitute compensation includible in gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified Stock Option, (iii) the grant of an Award, (iv) the making of a Purchase of Common Stock for less than its fair market value, or (v) the vesting or transferability of restricted stock or securities acquired by exercising an Option, on the grantee's making satisfactory arrangement for such withholding. Such arrangement may include payment by the grantee in cash or by check of the amount of the withholding taxes or, at the discretion of the Committee, by the grantee's delivery of previously held shares of Common Stock or the withholding from the shares of Common Stock otherwise deliverable upon exercise of a Option shares having an aggregate fair market value equal to the amount of such withholding taxes. 20. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. - 12 - For example, the Company may be required to send tax information statements to employees and former employees that exercise ISOs under the Plan, and the Company may be required to file tax information returns reporting the income received by grantees of Options in connection with the Plan. 21. GOVERNING LAW. The validity and construction of the Plan and the instruments evidencing Stock Rights shall be governed by the laws of the Commonwealth of Massachusetts, or the laws of any jurisdiction in which the Company or its successors in interest may be organized. 22. REPRICING. Without the prior approval of the Company's stockholders, Options issued under the Plan shall not be repriced, replaced or regranted through cancellation or by lowering the Option exercise price of a previously granted Option. EX-10.08 4 b53041ccexv10w08.txt EX-10.08 1997 NON-EMPLOYEE-DIRECTOR STOCK OPTION PLAN EXHIBIT 10.08 CONCORD COMMUNICATIONS, INC. 1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN (AS AMENDED MARCH 12, 1998, MARCH 8, 2000, APRIL 25, 2001, FEBRUARY 6, 2002, AUGUST 20, 2004) 1. Purpose. This Non-Qualified Stock Option Plan, to be known as the 1997 Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is intended to promote the interests of CONCORD COMMUNICATIONS, INC. (hereinafter, the "Company") by providing an inducement to obtain and retain the services of qualified persons who are not employees or officers of the Company to serve as members of its Board of Directors (the "Board"). 2. Available Shares. The total number of shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock") for which options may be granted under this Plan shall not exceed three hundred thirty thousand (330,000) shares, subject to adjustment in accordance with Section 10 of this Plan; provided, however, that such number of shares shall not be subject to adjustment by reason of the stock split in the form of a stock dividend declared by the Board of the Directors of the Company on August 7, 1997. Shares subject to this Plan are authorized but unissued shares or shares that were once issued and subsequently reacquired by the Company. If any options granted under this Plan are surrendered before exercise or lapse without exercise, in whole or in part, the shares reserved therefor shall continue to be available under this Plan. 3. Administration. This Plan shall be administered by the Board or by a committee appointed by the Board (the "Committee"). In the event the Board fails to appoint or refrains from appointing a Committee, the Board shall have all power and authority to administer this Plan. In such event, the word "Committee" wherever used herein shall be deemed to mean the Board. The Committee shall, subject to the provisions of the Plan, have the power to construe this Plan, to determine all questions hereunder, and to adopt and amend such rules and regulations for the administration of this Plan as it may deem desirable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any option granted under it. 4. Automatic Grant of Options. Subject to the availability of shares under this Plan, (a) each person who becomes a member of the Board on or after October 16, 1997 and who is not an employee or officer of the Company during the term of the Plan (a "Non-Employee Director"), shall be granted on the date such person is first elected to the Board, without further action by the Board, an option to purchase 25,000 shares of Common Stock, and (b) each person who is a Non-Employee Director immediately following the final adjournment of each Annual Meeting of Stockholders of the Company during the term of this Plan shall be automatically granted on each such date an option to purchase 10,000 shares of Common Stock. The options to be granted under this Section 4 shall be the only options ever to be granted at any time to such member under this Plan. The number of shares covered by options granted under this Section 4 shall be subject to adjustment in accordance with the provisions of Section 10 of this Plan. -2- 5. Option Price. The purchase price of the stock covered by an option granted pursuant to this Plan shall be 100% of the fair market value of such shares on the day the option is granted. The option price will be subject to adjustment in accordance with the provisions of Section 10 of this Plan. For purposes of this Plan, if, at the time an option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market List. However, if the Common Stock is not publicly traded at the time an option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 6. Period of Option. Unless sooner terminated in accordance with the provisions of Section 8 of this Plan, an option granted hereunder shall expire on the date which is ten (10) years after the date of grant of the option. 7. (a) Vesting of Shares and Non-Transferability of Options. Options granted under this Plan shall not be exercisable until they become vested. Options granted under this Plan shall vest in the optionee and thus become exercisable, in accordance with the following schedule, provided that the optionee has continuously served as a member of the Board through such vesting date: Percentage of Option Shares for which Option Will be Exercisable Date of Vesting 25% one year from the date of grant 6.25% per quarter on the last day of the quarter beginning the quarter ending immediately following the date to occur which is one year from the date of grant The number of shares as to which options may be exercised shall be cumulative, so that once the option shall become exercisable as to any shares it shall continue to be exercisable as to said shares, until expiration or termination of the option as provided in this Plan. -3- (b) Non-transferability. Any option granted pursuant to this Plan shall not be assignable or transferable other than by will or the laws of descent and distribution or pursuant to a domestic relations order and shall be exercisable during the optionee's lifetime only by him or her. 8. Termination of Option Rights. (a) In the event an optionee ceases to be a member of the Board for any reason other than death or permanent disability, any then unexercised portion of options granted to such optionee shall, to the extent not then vested, immediately terminate and become void; any portion of an option which is then vested but has not been exercised at the time the optionee so ceases to be a member of the Board may be exercised, to the extent it is then vested, by the optionee within 60 days of the date the optionee ceased to be a member of the Board; and all options shall terminate after such 60 days have expired. (b) In the event that an optionee ceases to be a member of the Board by reason of his or her death or permanent disability, any option granted to such optionee may be exercised, to the extent of the number of shares with respect to which he or she could have exercised it on the date of death or permanent disability, by the optionee (or by the optionee's personal representative, heir or legatee, in the event of death) until the scheduled expiration date of the option. 9. Exercise of Options and Resale Restrictions. (a) Exercise of Option. Subject to the terms and conditions of this Plan and the option agreements, an option granted hereunder shall, to the extent then exercisable, be exercisable in whole or in part by giving written notice to the Company by mail or in person addressed to the Chief Financial Officer at 600 Nickerson Road, Marlboro, Massachusetts 01752, its principal executive offices, stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such shares. Payment may be (a) in United States dollars in cash or by check, (b) in whole or in part in shares of the Common Stock of the Company already owned by the person or persons exercising the option or shares subject to the option being exercised (subject to such restrictions and guidelines as the Board may adopt from time to time), valued at fair market value determined in accordance with the provisions of Section 5 or (c) consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise; provided, however, that there shall be no such exercise at any one time as to fewer than one hundred (100) shares or all of the remaining shares then purchasable by the person or persons exercising the option, if fewer than one hundred (100) shares. The Company's transfer agent shall, on behalf of the Company, prepare a certificate or certificates representing such shares acquired pursuant to exercise of the option, shall register the optionee as the owner of such shares on the books of the Company and shall cause the fully executed certificate(s) representing such shares to be delivered to the optionee as soon as practicable after payment of the option price in -4- full. The holder of an option shall not have any rights of a stockholder with respect to the shares covered by the option, except to the extent that one or more certificates for such shares shall be delivered to him or her upon the due exercise of the option. (b) Resale Restrictions. Under no circumstances may shares acquired pursuant to the exercise of options granted pursuant to this Plan be disposed of on or prior to the date that is six months after the date such options were granted. 10. Adjustments Upon Changes in Capitalization and Other Events. Upon the occurrence of any of the following events, an optionee's rights with respect to options granted to him or her hereunder shall be adjusted as hereinafter provided: (a) Stock Dividends and Stock Splits. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. (b) Recapitalization Adjustments. In the event of a reorganization, recapitalization, merger, consolidation, or any other change in the corporate structure or shares of the Company, to the extent permitted by Rule 16b-3 under the Securities Exchange Act of 1934, adjustments in the number and kind of shares authorized by this Plan and in the number and kind of shares covered by, and in the option price of outstanding options under this Plan necessary to maintain the proportionate interest of the optionee and preserve, without exceeding, the value of such option, shall be made. Notwithstanding the foregoing, no such adjustment shall be made which would, within the meaning of any applicable provisions of the Internal Revenue Code of 1986, as amended, constitute a modification, extension or renewal of any Option or a grant of additional benefits to the holder of an Option. (c) Issuances of Securities. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. (d) Adjustments. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Sections 2 and 4 of this Plan that are subject to options which previously have been or subsequently may be granted under this Plan shall also be appropriately adjusted to reflect such events. The Board shall determine the specific adjustments to be made under this Section 10 and its determination shall be conclusive. (e) Consolidations or Mergers. If the Company is to be consolidated with or acquired by another entity in a merger or other reorganization in which the holders of the outstanding voting stock of the Company immediately preceding the consummation of such -5- event, shall, immediately following such event, hold, as a group, less than a majority of the voting securities of the surviving or successor entity, or in the event of a sale of all or substantially all of the Company's assets or otherwise (each, an "Acquisition"), the vesting of all outstanding options issued pursuant hereto will be accelerated so that all outstanding options are vested and exercisable in full prior to the consummation of any such Acquisition. If such options are not exercised prior to the consummation of such Acquisition, and are not assumed or replaced by the successor entity, such options will terminate. 11. Restrictions on Issuance of Shares. Notwithstanding the provisions of Sections 4 and 9 of this Plan, the Company shall have no obligation to deliver any certificate or certificates upon exercise of an option until one of the following conditions shall be satisfied: (i) The issuance of shares with respect to which the option has been exercised is at the time of the issue of such shares effectively registered under applicable Federal and state securities laws as now in force or hereafter amended; or (ii) Counsel for the Company shall have given an opinion that the issuance of such shares is exempt from registration under Federal and state securities laws as now in force or hereafter amended; and the Company has complied with all applicable laws and regulations with respect thereto, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Common Stock is then listed. 12. Legend on Certificates. The certificates representing shares issued pursuant to the exercise of an option granted hereunder shall carry such appropriate legend, and such written instructions shall be given to the Company's transfer agent, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933 or any state securities laws. 13. Representation of Optionee. If requested by the Company, the optionee shall deliver to the Company written representations and warranties upon exercise of the option that are necessary to show compliance with Federal and state securities laws, including representations and warranties to the effect that a purchase of shares under the option is made for investment and not with a view to their distribution (as that term is used in the Securities Act of 1933). 14. Option Agreement. Each option granted under the provisions of this Plan shall be evidenced by an option agreement, which agreement shall be duly executed and delivered on behalf of the Company and by the optionee to whom such option is granted. The option agreement shall contain such terms, provisions and conditions not inconsistent with this Plan as may be determined by the officer executing it. 15. Termination and Amendment of Plan. Options may no longer be granted under this Plan ten (10) years after the Approval Date, and this Plan shall terminate when all options granted or to be granted hereunder are no longer outstanding. The Board may at any time terminate this Plan or make such modification or amendment thereof as it deems advisable; -6- provided, however, that the Board may not, without approval of the stockholders, modify or amend this Plan, if such approval is required by the Federal securities laws or applicable regulatory authorities (at the time of any such modification or amendment). Termination or any modification or amendment of this Plan shall not, without consent of a participant, affect his or her rights under an option previously granted to him or her. The Plan was adopted by the Board of Directors in July 1997 and by the stockholders of the Company on September 9, 1997. The Plan was amended on March 12, 1998 by the Board of Directors to increase the number of option shares granted to Directors on the date such person is first elected to the Board from 7,500 shares to 20,000 shares and to increase the number of option shares automatically granted to Directors immediately following the final adjournment of each Annual Meeting of Stockholders from 1,875 shares to 5,000 shares. The Plan was further amended on March 8, 2000 by the Board of Directors to increase the number of shares authorized for issuance under the Plan by 35,000 subject to approval of the amendment of the Plan by the stockholders of the Company at the next meeting of stockholders. The stockholders of the Company approved such amendment on April 25, 2000. The Plan was further amended on April 25, 2001 to increase the number of option shares automatically granted to Directors immediately following the final adjournment of each Annual Meeting of Stockholders from 5,000 shares to 7,500 shares. The Plan was further amended on February 6, 2002 by the Board of Directors to increase the number of shares authorized for issuance under the Plan by 200,000 subject to approval of the amendment of the Plan by the stockholders of the Company at the next meeting of stockholders. The stockholders of the Company approved such amendment on April 24, 2002. The Plan was further amended by the Board of Directors on August 20, 2004 to increase the number of option shares automatically granted to Directors on the date such person is first elected to the Board from 20,000 shares to 25,000 shares and to increase the number of option shares automatically granted to Directors immediately following the final adjournment of each Annual Meeting of Stockholders from 7,500 to 10,000 shares. 16. Withholding of Income Taxes. Upon the exercise of an option, the Company, in accordance with Section 3402(a) of the Internal Revenue Code, may require the optionee to pay withholding taxes in respect of amounts considered to be compensation includible in the optionee's gross income. 17. Compliance with Regulations. It is the Company's intent that the Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor or amended provision thereof) and any applicable Securities and Exchange Commission interpretations thereof. If any provision of this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall be null and void. 18. Governing Law. The validity and construction of this Plan and the instruments evidencing options shall be governed by the laws of the Commonwealth of Massachusetts, without giving effect to the principles of conflicts of law thereof. EX-10.16 5 b53041ccexv10w16.txt EX-10.16 2004 NON-EXECUTIVE EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.16 CONCORD COMMUNICATIONS, INC. 2004 NON-EXECUTIVE EMPLOYEE STOCK PURCHASE PLAN ARTICLE 1 - PURPOSE. This 2004 Non-Executive Employee Stock Purchase Plan (the "Plan") is intended to encourage stock ownership by all eligible employees of CONCORD COMMUNICATIONS, INC. (the "Company"), a Massachusetts corporation, and its participating subsidiaries (as defined in Article 17) so that they may share in the growth of the Company by acquiring or increasing their proprietary interest in the Company. The Plan is designed to encourage eligible employees to remain in the employ of the Company and its participating subsidiaries. The Plan is intended to constitute an "employee stock purchase plan" within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"). ARTICLE 2 - ADMINISTRATION OF THE PLAN. The Plan may be administered by the Compensation Committee of the Board of Directors or a committee appointed by the Board of Directors of the Company (the "Committee"). The Committee shall consist of not less than two members of the Company's Board of Directors (the "Board of Directors"). The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee may select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The interpretation and construction by the Committee of any provisions of the Plan or of any option granted under it shall be final, unless otherwise determined by the Board of Directors. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best, provided that any such rules and regulations shall be applied on a uniform basis to all employees under the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. In the event the Board of Directors fails to appoint or refrains from appointing a Committee, the Board of Directors shall have all power and authority to administer the Plan. In such event, the word "Committee" wherever used herein shall be deemed to mean the Board of Directors. ARTICLE 3 - ELIGIBLE EMPLOYEES. All employees, (excluding Officers and Directors to the extent described below), of the Company or any of its participating subsidiaries whose customary employment is more than 20 hours per week and for more than five months in any calendar year shall be eligible to receive options under the Plan to purchase common stock of the Company, and all eligible employees shall have the same rights and privileges hereunder. Persons who are eligible employees on the -2- first business day of any Payment Period (as defined in Article 5) shall receive their options as of such day. Persons who become eligible employees after any date on which options are granted under the Plan shall be granted options on the first day of the next succeeding Payment Period on which options are granted to eligible employees under the Plan. In no event, however, may an employee be granted an option if such employee, immediately after the option was granted, would be treated as owning stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of any parent corporation or subsidiary corporation, as the terms "parent corporation" and "subsidiary corporation" are defined in Section 424(e) and (f) of the Code. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee. Notwithstanding the foregoing, Officers and Directors of the Company who are "highly compensated employees" (within the meaning of Section 414(q) of the Code) shall not be eligible employees and shall not be eligible to receive options under the Plan. For purpose of the Plan, (a) "Officers" shall mean a person who is an officer of the Company within the meaning of the interpretations of the National Association of Securities Dealers, Inc. ("NASD") under Section 4350(i)(1)(a) of the NASD Marketplace Rules and (b) "Director" shall mean a member of the Board of Directors of the Company. ARTICLE 4 - STOCK SUBJECT TO THE PLAN. The stock subject to the options under the Plan shall be shares of the Company's authorized but unissued common stock, par value $0.01 per share (the "Common Stock"), or shares of Common Stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the Plan is 500,000, subject to adjustment as provided in Article 12. If any option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject thereto shall again be available under the Plan. ARTICLE 5 - PAYMENT PERIOD AND STOCK OPTIONS. The first Payment Period during which payroll deductions will be accumulated under the Plan shall commence on the later to occur of May 1, 2004 and the first day of the first calendar month following effectiveness of the Form S-8 registration statement filed with the Securities and Exchange Commission covering the shares to be issued pursuant to the Plan and shall end on October 31, 2004. For the remainder of the duration of the Plan, Payment Periods shall consist of the six-month periods commencing on November 1 and May 1, respectively, and ending on April 30 and October 31, respectively, of each calendar year. Twice each year, on the first business day of each Payment Period, the Company will grant to each eligible employee an option to purchase on the last day of such Payment Period, at the Option Price hereinafter provided for, a maximum of 20,000 shares, on condition that such employee remains eligible to participate in the Plan throughout the remainder of such Payment Period. The employee shall be entitled to exercise the option so granted only to the extent of the employee's accumulated payroll deductions on the last day of such Payment Period. If the -3- participant's accumulated payroll deductions on the last day of the Payment Period would enable the participant to purchase more than 20,000 shares except for the 20,000-share limitation, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the 20,000 shares shall be promptly refunded to the participant by the Company, without interest. The Option Price per share for each Payment Period initially shall be the lesser of (i) 85% of the average market price of the Common Stock on the first business day of the Payment Period and (ii) 85% of the average market price of the Common Stock on the last business day of the Payment Period, in either event rounded up to the nearest cent. Notwithstanding the foregoing, the Committee may, by giving written notice to the eligible employees at least 20 days before the first day of the next succeeding Payment Period, increase or decrease the then prevailing Option Price for such next succeeding Payment Period and successive Payment Periods; provided that (x) such written notice shall set forth the revised Option Price, and (y) the Option Price shall not be less than the lesser of (i) 85% of the average market price of the Common Stock on the first business day of the Payment Period and (ii) 85% of the average market price of the Common Stock on the last business day of the Payment Period, in either event rounded up to the nearest cent. The foregoing limitation on the number of shares subject to option and the Option Price shall be subject to adjustment as provided in Article 12. For purposes of the Plan, the term "average market price" on any date means (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market; or (iv) if the Common Stock is not publicly traded, the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. For purposes of the Plan, the term "business day" means a day on which there is trading on the Nasdaq National Market or the aforementioned national securities exchange, whichever is applicable pursuant to the preceding paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or legal holiday in The Commonwealth of Massachusetts. No employee shall be granted an option which permits the employee's right to purchase stock under the Plan, and under all other Section 423(b) employee stock purchase plans of the Company and any parent or subsidiary corporations, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined on the date or dates that options on such stock were granted) for each calendar year in which such option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. If the participant's accumulated payroll deductions on the last day of the Payment Period would otherwise enable the participant to purchase Common Stock in excess of the Section 423(b)(8) limitation described in this paragraph, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the shares actually purchased shall be promptly refunded to the participant by the Company, without interest. -4- ARTICLE 6 - EXERCISE OF OPTION. Each eligible employee who continues to be a participant in the Plan on the last day of a Payment Period shall be deemed to have exercised his or her option on such date and shall be deemed to have purchased from the Company such number of full shares of Common Stock reserved for the purpose of the Plan as the participant's accumulated payroll deductions on such date will pay for at the Option Price, subject to the 20,000-share limit of the option and the Section 423(b)(8) limitation described in Article 5. If the individual is not a participant on the last day of a Payment Period, then he or she shall not be entitled to exercise his or her option and the amount of his or her payroll deduction shall be refundable without interest. Only full shares of Common Stock may be purchased under the Plan. Unused payroll deductions remaining in a participant's account at the end of a Payment Period by reason of the inability to purchase a fractional share shall be carried forward to the next Payment Period. ARTICLE 7 - AUTHORIZATION FOR ENTERING THE PLAN. An employee may elect to authorize payroll deductions under the Plan by filling out, signing and delivering to the Company an authorization: A. Stating the percentage to be deducted regularly from the employee's pay; B. Authorizing the purchase of stock for the employee in each Payment Period in accordance with the terms of the Plan; and C. Specifying the exact name or names in which stock purchased for the employee is to be issued as provided under Article 11 hereof. Such authorization must be received by the Company at least ten days before the first day of the next succeeding Payment Period and shall take effect only if the employee is an eligible employee on the first business day of such Payment Period. Notwithstanding the foregoing, solely for purposes of the first Payment Period under the Plan, an employee who is an eligible employee on the first business day of such Payment Period may elect to authorize payroll deductions under the Plan by filling out, signing, and delivering to the Company the written authorization described above so that the Company receives such authorization no later than [April 30, 2004]. Unless a participant files a new authorization or withdraws from the Plan, the deductions and purchases under the authorization the participant has on file under the Plan will continue from one Payment Period to succeeding Payment Periods as long as the Plan remains in effect. The Company will accumulate and hold for each participant's account the amounts deducted from his or her pay. No interest will be paid on these amounts. ARTICLE 8 - MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS. -5- An employee may authorize payroll deductions in an amount (expressed as a whole percentage) not less than one percent (1%) but not more than ten percent (10%) of the employee's total compensation, including base pay or salary and any overtime, bonuses or commissions. ARTICLE 9 - CHANGE IN PAYROLL DEDUCTIONS. Deductions may not be increased or decreased during a Payment Period. However, a participant may withdraw in full from the Plan in which event the Company will promptly refund (without interest) the entire balance of the employer's deduction not previously used to purchase stock under the Plan. ARTICLE 10 - WITHDRAWAL FROM THE PLAN. A participant may withdraw from the Plan (in whole but not in part) at any time prior to the last day of a Payment Period by delivering a withdrawal notice to the Company. To re-enter the Plan, an employee who has previously withdrawn must file a new authorization at least ten days before the first day of the next Payment Period in which he or she wishes to participate. The employee's re-entry into the Plan becomes effective at the beginning of such Payment Period, provided that he or she is an eligible employee on the first business day of the Payment Period. ARTICLE 11 - ISSUANCE OF STOCK. Certificates for stock issued to participants shall be delivered as soon as practicable after each Payment Period by the Company's transfer agent. Stock purchased under the Plan shall be issued only in the name of the participant, or if the participant's authorization so specifies, in the name of the participant and another person of legal age as joint tenants with rights of survivorship. ARTICLE 12 - ADJUSTMENTS. Upon the happening of any of the following described events, a participant's rights under options granted under the Plan shall be adjusted as hereinafter provided: A. In the event that the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a reorganization, split-up, liquidation, recapitalization or the like of the Company, the shares of Common Stock shall be exchanged for other securities of the Company, each participant shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Common Stock or amount of other securities of the Company as were exchangeable for the number of shares of Common Stock that such participant would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange; and -6- B. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to option hereunder, each participant upon exercising such an option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which the participant is exercising his or her option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as is equal to the number of shares thereof and the amount of cash in lieu of fractional shares, respectively, which the participant would have received if the participant had been the holder of the shares as to which the participant is exercising his or her option at all times between the date of the granting of such option and the date of its exercise. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Article 4 hereof which are subject to options which have been or may be granted under the Plan and the limitations set forth in the second paragraph of Article 5 shall also be appropriately adjusted to reflect the events specified in paragraphs A and B above. Notwithstanding the foregoing, any adjustments made pursuant to paragraphs A or B shall be made only after the Committee, based on advice of counsel for the Company, determines whether such adjustments would constitute a "modification" (as that term is defined in Section 424 of the Code). If the Committee determines that such adjustments would constitute a modification, it may refrain from making such adjustments. If the Company is to be consolidated with or acquired by another entity in a merger, a sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board") shall, with respect to options then outstanding under the Plan, either (i) make appropriate provision for the continuation of such options by arranging for the substitution on an equitable basis for the shares then subject to such options either (a) the consideration payable with respect to the outstanding shares of the Common Stock in connection with the Acquisition, (b) shares of stock of the successor corporation, or a parent or subsidiary of such corporation, or (c) such other securities as the Successor Board deems appropriate, the fair market value of which shall not materially exceed the fair market value of the shares of Common Stock subject to such options immediately preceding the Acquisition; or (ii) terminate each participant's options in exchange for a cash payment equal to the excess of (a) the fair market value on the date of the Acquisition, of the number of shares of Common Stock that the participant's accumulated payroll deductions as of the date of the Acquisition could purchase, at an option price determined with reference only to the first business day of the applicable Payment Period and subject to the 20,000-share, Code Section 423(b)(8) and fractional-share limitations on the amount of stock a participant would be entitled to purchase, over (b) the result of multiplying such number of shares by such option price. The Committee or Successor Board shall determine the adjustments to be made under this Article 12, and its determination shall be conclusive. -7- ARTICLE 13 - NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS. An option granted under the Plan may not be transferred or assigned to or availed by, any other person than by will or the laws of descent and distribution and may be exercised only by the employee during the employee's lifetime. ARTICLE 14 - TERMINATION OF EMPLOYEE'S RIGHTS. Whenever a participant ceases to be an eligible employee because of retirement, voluntary or involuntary termination, resignation, layoff, discharge, death or for any other reason, his or her rights under the Plan shall immediately terminate, and the Company shall promptly refund, without interest, the entire balance of his or her payroll deduction account under the Plan. Notwithstanding the foregoing, eligible employment shall be treated as continuing intact while a participant is on military leave, sick leave or other bona fide leave of absence, for up to 90 days, or for so long as the participant's right to re-employment is guaranteed either by statute or by contract, if longer than 90 days. ARTICLE 15 - TERMINATION AND AMENDMENTS TO PLAN. The Plan may be terminated at any time by the Company's Board of Directors but such termination shall not affect options then outstanding under the Plan. It will terminate in any case when all or substantially all of the unissued shares of stock reserved for the purposes of the Plan have been purchased. If at any time shares of stock reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among participants in proportion to the amount of payroll deductions accumulated on behalf of each participant that would otherwise be used to purchase stock, and the Plan shall terminate. Upon such termination, all payroll deductions not used to purchase stock will be refunded, without interest. The Committee or the Board of Directors may from time to time adopt amendments to the Plan provided that, without the approval of the stockholders of the Company, no amendment may (i) increase the number of shares that may be issued under the Plan; (ii) change the class of employees eligible to receive options under the Plan, if such action would be treated as the adoption of a new plan for purposes of Section 423(b) of the Code; or (iii) cause Rule 16b-3 under the Securities Exchange Act of 1934 to become inapplicable to the Plan. ARTICLE 16 - LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN. The Plan is intended to provide shares of Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any employee in the conduct of his or her own affairs. An employee may, therefore, sell stock purchased under the Plan at any time the employee chooses, subject to compliance with any applicable federal or state securities laws and subject to any restrictions imposed under Article 21 to ensure that tax withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK. -8- ARTICLE 17 - PARTICIPATING SUBSIDIARIES. The term "participating subsidiary" shall mean any present or future subsidiary of the Company, as that term is defined in Section 424(f) of the Code, which is designated from time to time by the Board of Directors to participate in the Plan. The Board of Directors shall have the power to make such designation before or after the Plan is approved by the stockholders. ARTICLE 18 - OPTIONEES NOT STOCKHOLDERS. Neither the granting of an option to an employee nor the deductions from his or her pay shall constitute such employee a stockholder of the shares covered by an option until such shares have been actually purchased by the employee. ARTICLE 19 - APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock pursuant to options granted under the Plan will be used for general corporate purposes. ARTICLE 20 - NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By electing to participate in the Plan, each participant agrees to notify the Company in writing immediately after the participant transfers Common Stock acquired under the Plan, if such transfer occurs within two years after the first business day of the Payment Period in which such Common Stock was acquired. Each participant further agrees to provide any information about such a transfer as may be requested by the Company or any subsidiary corporation in order to assist it in complying with the tax laws. Such dispositions generally are treated as "disqualifying dispositions" under Sections 421 and 424 of the Code, which have certain tax consequences to participants and to the Company and its participating subsidiaries. ARTICLE 21 - WITHHOLDING OF ADDITIONAL INCOME TAXES. By electing to participate in the Plan, each participant acknowledges that the Company and its participating subsidiaries are required to withhold taxes with respect to the amounts deducted from the participant's compensation and accumulated for the benefit of the participant under the Plan, and each participant agrees that the Company and its participating subsidiaries may deduct additional amounts from the participant's compensation, when amounts are added to the participant's account, used to purchase Common Stock or refunded, in order to satisfy such withholding obligations. Each participant further acknowledges that when Common Stock is purchased under the Plan the Company and its participating subsidiaries may be required to withhold taxes with respect to all or a portion of the difference between the fair market value of the Common Stock purchased and its purchase price, and each participant agrees that such taxes may be withheld from compensation otherwise payable to such participant. It is intended that tax withholding will be accomplished in such a manner that the full amount of payroll deductions elected by the participant under Article 7 will be used to purchase Common Stock. However, if amounts sufficient to satisfy applicable tax withholding obligations have not been withheld from compensation otherwise payable to any participant, then, notwithstanding any other provision of -9- the Plan, the Company may withhold such taxes from the participant's accumulated payroll deductions and apply the net amount to the purchase of Common Stock, unless the participant pays to the Company, prior to the exercise date, an amount sufficient to satisfy such withholding obligations. Each participant further acknowledges that the Company and its participating subsidiaries may be required to withhold taxes in connection with the disposition of stock acquired under the Plan and agrees that the Company or any participating subsidiary may take whatever action it considers appropriate to satisfy such withholding requirements, including deducting from compensation otherwise payable to such participant an amount sufficient to satisfy such withholding requirements or conditioning any disposition of Common Stock by the participant upon the payment to the Company or such subsidiary of an amount sufficient to satisfy such withholding requirements. ARTICLE 22 - GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver shares of Common Stock under the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to identify shares of Common Stock issued under the Plan on its stock ownership records and send tax information statements to employees and former employees who transfer title to such shares. ARTICLE 23 - GOVERNING LAW. The validity and construction of the Plan shall be governed by the laws of The Commonwealth of Massachusetts, without giving effect to the principles of conflicts of law thereof. ARTICLE 24 - APPROVAL OF BOARD OF DIRECTORS AND STOCKHOLDERS OF THE COMPANY. The Plan was adopted by the Board of Directors on March 15, 2004 and will be considered for approval by the stockholders of the Company on or before May 5, 2005. EX-10.18 6 b53041ccexv10w18.txt EX-10.18 FORM OF 1997 NON-QUALIFIED STOCK PLAN AGREEMENT EXHIBIT 10.18 CONCORD COMMUNICATIONS, INC. NON-QUALIFIED STOCK OPTION AGREEMENT FOR NON-EMPLOYEE DIRECTORS 1. Grant Under 1997 Non-Employee Director Stock Option Plan. This option is granted pursuant to and is governed by the Company's 1997 Non-Employee Director Stock Option Plan (the "Plan") and, unless the context otherwise requires, terms used herein shall have the meanings assigned to them in the Plan. Determinations made in connection with this option pursuant to the Plan shall be governed by the Plan as it exists on the date hereof. In the event of any conflict between this Agreement and the provisions of the Plan, the Plan shall govern. 2. Grant as Non-Qualified Option; Other Options. This option is intended to be a non-qualified option (rather than an incentive stock option) granted pursuant to Section 4(b) of the Plan, and the Board of Directors of the Company (the "Board") intends to take appropriate action, if necessary, to achieve this result. This option is in addition to any other options heretofore or hereafter granted to the Optionee by the Company, but a duplicate original of this instrument shall not affect the grant of another option. 3. Exercise of Option if Service as a Director Continues. Unless sooner terminated pursuant to Section 4 hereof, this option shall vest in the Optionee and thus become exercisable in accordance with the vesting schedule set forth in Section 7 of the Plan, provided that the Optionee has continuously served as a member of the Board through such vesting date. This option shall expire on the date, which is ten (10) years from the date this option is granted. 4. Termination of Option Rights. (a) In the event that Optionee ceases to be a member of the Board for any reason other than death or permanent disability, any then unexercised portion of this option shall, to the extent not then vested, immediately terminate and become void. Any portion of this option which is vested but has not been exercised at the time the Optionee so ceases to be a member of the Board may be exercised, to the extent it is then vested, by the Optionee within 60 days of the date the Optionee ceased to be a member of the Board, and this option shall terminate after such 60 days has expired. (b) In the event that the Optionee ceases to be a member of the Board by reason of his or her permanent disability or death, this option may be exercised, to the extent of the number of shares with respect to which he or she could have exercised it on the date of death or permanent disability, by the Optionee (or by Optionee's personal representative, heir or legatee, in the event of death) until the scheduled expiration date of the option. -2- 5. Exercise. To the extent then exercisable, the Optionee may exercise this option in whole or in part at any time and from time to time as provided by the terms of this Agreement and the Plan, except that this option may not be exercised for a fraction of a share unless such exercise is with respect to the final installment of stock subject to this option and a fractional share (or cash in lieu thereof) would otherwise be required to be issued to permit the Optionee to exercise completely such final installment. Any fractional share with respect to which an installment of this option cannot be exercised because of the limitation contained in the preceding sentence shall remain subject to this option and shall be available for later purchase by the Optionee in accordance with the terms hereof. There shall be no such exercise at any one time as to fewer than one hundred (100) shares or all of the remaining shares then purchasable by the person or persons exercising the option, if fewer than one hundred (100) shares. 6. Payment of Price. The option price is payable in United States dollars and may be paid: (a) in cash or by check, or any combination of the foregoing, equal in amount to the option price; (b) in whole or in part in shares of the Common Stock of the Company already owned by the person or persons exercising the option or shares subject to the option being exercised (subject to such restrictions and guidelines as the Board may adopt from time to time), valued at fair market value determined in accordance with the provisions of Section 5 of the Plan; or (c) consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of Option Shares acquired upon exercise of this option and an authorization to the broker or selling agent to pay that amount to the Company, which shall be at the Optionee's direction at the time of exercise. 7. Method of Exercising Option. Subject to the terms and conditions of the Plan and this Agreement, this option may be exercised by written notice to the Company by mail or in person, addressed to the Chief Financing Officer at 400 Nickerson Road, Marlboro, Massachusetts 01752, its principal executive offices. Such notice shall state the election to exercise this option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising this option. Such notice shall be accompanied by payment of the full purchase price of such shares. The Company's transfer agent shall, on behalf of the Company, prepare a certificate or certificates representing Option Shares acquired upon exercise of this option, shall register the Optionee (or the Optionee's personal representative, heir or legatee if this option is being exercised pursuant to Section 4 hereof) as the owner of the Option Shares on the books of the Company and shall cause the fully executed certificate(s) representing such shares to be delivered to the Optionee (or the Optionee's personal representative, heir or legatee if this option is being exercised pursuant to Section 4 hereof) as soon as practicable after payment of the option price in full. In the event this option shall be exercised, pursuant to Section 4 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise this option. All shares that shall be purchased upon the exercise of this option as provided herein shall be fully paid and non-assessable. -3- 8. Option Not Transferable. This option is not transferable or assignable except by will or by the laws of descent and distribution or pursuant to a domestic relations order. During the Optionee's lifetime only the Optionee can exercise the option. 9. No Obligation to Exercise Option. The grant and acceptance of this option imposes no obligation on the Optionee to exercise it. 10. No Rights As Stockholder until Exercise. The Optionee shall have no rights as a stockholder with respect to any of the Option Shares until a stock certificate therefore has been issued to the Optionee and is fully paid for. Except as is expressly provided in Section 10 of the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date such stock certificate is issued. 11. Capital Changes and Business Successions. The Plan contains extensive provisions designed to preserve options at full value in a number of contingencies. Therefore, provisions in the Plan for adjustment with respect to stock subject to options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference. 12. Withholding Taxes. The Optionee hereby acknowledges that the Company may be required to withhold federal, state and local taxes attributable to the Optionee's exercise of any installment of this option and therefore agrees to pay the Company any such amounts upon the Company's request. 13. Agreement to Purchase for Investment. By acceptance of this option, the Optionee agrees that a purchase of shares under this option will be made for investment and will not be made with a view to their distribution, as that term is used in the Securities Act of 1933, unless in the opinion of counsel to the Company such transaction is in compliance with or exempt from the registration and prospectus requirements of that Act. The Optionee agrees to sign a certification to such effect at the time of exercising this option and agrees that the certificate for the shares so purchased may be enscribed with a legend to ensure compliance with the Securities Act of 1933 and with any other applicable securities laws. The certificates representing such shares shall carry such appropriate legend and such written instructions with respect thereto shall be given to the Company's transfer agent, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933 or any state securities laws. 14. Resale Restrictions. Under no circumstances may shares acquired hereunder be disposed of on or prior to the date that is six months after the date that this option was granted. -4- 15. Governing Law. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof, supersedes any and all correspondence, discussions or agreements between the parties regarding equity incentives for the Optionee and satisfies all of the Company's obligations with respect to the grant of equity incentives to the Optionee as in effect on the date hereof. IN WITNESS WHEREOF the Company and the Optionee have caused this instrument to be executed, and the Optionee whose signature appears below acknowledges receipt of a copy of the Plan and acceptance of an original copy of this Agreement. CONCORD COMMUNICATIONS, INC. 400 Nickerson Road Marlboro, MA 01752 By: ________________________ Name: Title: ____________________________ (OPTIONEE) ____________________________ Street Address ____________________________ City State Zip Code EX-10.25 7 b53041ccexv10w25.txt EX-10.25 FORM OF 1997 NON-QUALIFIED OPTION AGREEMENT Exhibit 10.25 CONCORD COMMUNICATIONS, INC. Employee Non-Qualified Option Agreement 1. Grant Under 1997 Stock Plan This Option Agreement is effective only when attached to a Notice of Grant of Stock Options (the "Notice") signed on behalf of Concord Communications, Inc. (the "Company") and by the option holder (the "Employee"). The option granted under the Notice (the "Option") is granted pursuant to and is governed by the Company's 1997 Stock Plan (the e Plan") and , unless the context otherwise requires, terms used herein shall have the same meaning as in the Plan. Determinations made in connection with this Option pursuant to the Plan shall be governed by the Plan as it exists on this date. In the event of any inconsistency or conflict between this Agreement and the Plan, the terms of the Plan shall govern. This option shall not be treated as an incentive stock option. 2. Other Options This Option is in addition to any other Options heretofore or hereafter granted to the Employee by the Company, but a duplicate original of this instrument shall not effect the grant of another Option. 3. Extent of Option if Employment Continues If the Employee continues to be employed by the Company on the date(s) described in the Notice, the Employee may exercise the Option for the number of shares indicated. Shares which vest "quarterly" vest in equal installments as of the end of each three-month period during the interval described in the Notice. The foregoing rights are cumulative and, while the Employee continues to be employed by the Company, may be exercised up to and including the time of Expiration set forth in the Notice. All of the foregoing rights are subject to Sections 4 and 5 of this Agreement, as appropriate, if the Employee ceases to be employed by the Company or becomes disabled or dies while in the employ of the Company. In the event that the Company becomes a party to a merger, consolidation, reorganization or similar corporate transaction in which the Company is not, in effect, the acquiring corporation, or which is not solely a consolidation with the Company's parent, or shall determine to liquidate or dissolve, the Company agrees to so advise the Employee in writing, and upon the giving of such notice, the "Full Vest" date(s) set forth in the Notice -2- shall be reduced by eighteen (18) months, but in no event to a date earlier than the date of grant of the Option. 4. Termination of Employment If the Employee ceases to be employed by the Company other than by reason of death or disability, the Option shall terminate after the passage of sixty (60) days from the date employment ceases, but in no event later than the scheduled expiration date. In such a case, the Employee's only rights hereunder shall be those which are properly exercised before the termination of the Option. 5. Death or Disability If the Employee dies while in the employ of the Company, the Option may be exercised, to the extent of the number of shares with respect to which the Employee could have exercised it on the date of his death, by his estate, personal representative, or beneficiary to whom the Option has been assigned pursuant to Section 9, at any time within 180 days after the date of death, but not later than the scheduled expiration date. If the Employee ceases to be employed by the Company by reason of his disability (as defined in the Plan), the Option may be exercised to the extent of the number of shares with respect to which he could have exercised it on the date of the termination of his employment, at any time within 180 days after such termination, but not later than the scheduled expiration date. At the expiration of such 180 day period or the scheduled expiration date, whichever is the earlier, the Option shall terminate and the only rights hereunder shall be those as to which the Option was properly exercised before such termination. 6. Partial Exercise Exercise of the Option up to the extent stated in the Notice of Grant may be made in part at any time and from time to time within the above limits, except that the Option may not be exercised for a fraction of a share. 7. Agreement to Purchase for Investment By acceptance of the Option, the Employee agrees that a purchase of shares under the Option will not be made with a view to their distribution, as that term is used in the Securities Act of 1933, as amended, unless in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Act, and the Employee agrees if requested to sign a certificate to such effect at the time of exercising the Option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with the Act and with any applicable state securities laws. -3- 8. Method of Exercising Option (a) Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company, at the principal executive office of the Company, or to such transfer agent as the Company shall designate. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising the Option. Such notice shall be accompanied by payment of the full purchase price of such shares, and the Company shall deliver a certificate or certificates representing such shares as soon as practicable after the notice and payment have been received. (b) The Option price shall be paid in cash or by check or, with the consent of the Committee in its sole discretion, in the following manner: (i) subject to Section 8(c) below, by delivery of shares of the Company's Common Stock having a fair market value (as determined by the Committee) equal as of the date of exercise to the option price; (ii) by delivery of the Employee's personal recourse note bearing interest payable not less than annually at the rate set forth in the Plan; or (iii) by any combination of the foregoing. (c) If the Employee delivers Common Stock held by the Employee ("Old Stock") to the Company in full or partial payment of the option price, and the Old Stock so delivered is subject to restrictions or limitations imposed by agreement between the Employee and the Company, an equivalent number of option shares shall be subject to all restrictions and limitations applicable to the Old Stock to the extent that the Employee paid for the option shares by delivery of Old Stock, in addition to any restrictions or limitations imposed by this Agreement. Notwithstanding the foregoing, the Employee may not pay any part of the exercise price hereof by transferring Common Stock to the Company unless such Common Stock has been owned by the Employee free of any substantial risk of forfeiture for at least six months. (d) The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option (or, if the Option shall be exercised by the Employee and if the Employee shall so request in the notice exercising the Option, shall be registered in the name of the Employee and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. In the event the Option shall be exercised, pursuant to Section 5 hereof, by any person or persons other than the Employee, such notice shall be -4- accompanied by appropriate proof of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable. 9. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. During the Employee's lifetime, only the Employee can exercise the Option. 10. No Obligation to Exercise Option The grant and acceptance of the Option imposes no obligation on the Employee to exercise it. 11. No Obligation to Continue Employment The Company is not by the Plan or the Option obligated to continue the Employee in employment. 12. No Rights as Stockholder Until Exercise The Employee shall have no rights as a stockholder with respect to shares subject to the Option until a stock certificate therefor has been issued to the Employee and is fully paid for. Except as expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date such stock certificate is issued. 13. Withholding Taxes If the Company in its discretion determines that it is obligated to withhold any tax in connection with the exercise of this option, or in connection with the transfer of, or the lapse of restrictions on, any Common Stock or other property acquired pursuant to the Option, the Employee hereby agrees that the Company may withhold from the Employee's wages or other remuneration the appropriate amount of tax. At the discretion of the Company, the amount required to be withheld may be withheld in cash from such wages or other remuneration or in kind from the Common Stock or other property otherwise deliverable to the Employee on exercise of the Option. The Employee further agrees that, if the Company does not withhold an amount from the Employee's wages or other remuneration sufficient to satisfy the withholding obligation of the Company, the Employee will make reimbursement on demand, in cash, for the amount underwithheld. 14. Arbitration -5- Any dispute, controversy, or claim arising out of, in connection with, or relating to the performance of this Agreement or its termination shall be settled by arbitration in the Commonwealth of Massachusetts, pursuant to the rules then obtaining of the American Arbitration Association. Any award shall be final, binding and conclusive upon the parties and a judgment rendered thereon may be entered in any court having jurisdiction thereof. 15. Provision of Documentation to Employee By signing the Notice the Employee acknowledges receipt of a copy of this Agreement and a copy of the Plan. 16. Miscellaneous (a) Notices. All communications hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, to the address set forth in the Notice. The addresses for such communications may be changed from time to time by written notice given in the manner provided for herein. (b) Entire Agreement; Modification. The Notice and this Agreement constitute the entire agreement between the parties relative to the subject matter hereof, and supersede all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties. (c) Severability. The invalidity, illegality or unenforceability of any provision of the Notice or this Agreement shall in no way affect the validity, legality or enforceability of any other provision. (d) Successors and Assigns. The Notice and this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth in Section 9 hereof. (e) Governing Law. This Agreement shall be governed by and interpreted in accordance with the internal laws of The Commonwealth of Massachusetts. EX-10.30 8 b53041ccexv10w30.txt EX-10.30 FORM OF 1997 EXECUTIVE INCENTIVE STOCK OPTION AGREEMENT EXHIBIT 10.30 CONCORD COMMUNICATIONS, INC. Executive Incentive Stock Option Agreement 1. Grant Under 1997 Stock Plan This Option Agreement is effective only when attached to a Notice of Grant of Stock Options (the "Notice") signed on behalf of Concord Communications, Inc. (the "Company") and by the option holder (the "Employee"). The option granted under the Notice (the "Option") is granted pursuant to and is governed by the Company's 1997 Stock Plan (the e Plan") and , unless the context otherwise requires, terms used herein shall have the same meaning as in the Plan. Determinations made in connection with this Option pursuant to the Plan shall be governed by the Plan as it exists on this date. In the event of any inconsistency or conflict between this Agreement and the Plan, the terms of the Plan shall govern. 2. Other Options This Option is in addition to any other Options heretofore or hereafter granted to the Employee by the Company, but a duplicate original of this instrument shall not effect the grant of another Option. 3. Extent of Option if Employment Continues If the Employee continues to be employed by the Company on the date(s) described in the Notice, the Employee may exercise the Option for the number of shares indicated. Shares which vest "quarterly" vest in equal installments as of the end of each three-month period during the interval described in the Notice. The foregoing rights are cumulative and, while the Employee continues to be employed by the Company, may be exercised up to and including the time of Expiration set forth in the Notice. All of the foregoing rights are subject to Sections 4 and 5 of this Agreement, as appropriate, if the Employee ceases to be employed by the Company or becomes disabled or dies while in the employ of the Company. Effective upon the date immediately following any Change in Control (as defined) of the Company, the "Full Vest" date(s) ser forth in the Notice shall be automatically accelerated by twenty-four (24) months. Notwithstanding the foregoing, of within twenty-four (24) months after a Change in Control there is a Termination Event (as defined), all of the Employee's unvested Options shall automatically become fully vested as of the date of such Termination Event. For purposes hereof, a "Change in Control" shall have occurred if at any time any of the -2- following events shall occur: (A) The Company 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 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 the Company ("Voting Stock") immediately prior to such transaction; (B) The Company sells or other wise 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 the Company 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) The Company 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 the Company 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, a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities (iii) any Company sponsored employee stock ownership plan or any other employee benefit plan of the Company, 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 become obligated to file a report or a proxy statement under or in response to the 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 the Company reports that a change in -3- control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. Notwithstanding anything to the contrary in the 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 the 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 eh Employee, taking into account all the facts and circumstances including any tax savings resulting from the reduction. For purposes hereof, "Cause" shall mean: (i) the Employee's willful and substantial misconduct with respect to the business and affairs of the Company, or any subsidiary or affiliate thereof; (ii) the Employee's gross neglect of duties, dishonesty, deliberate disregard of any material rule or policy of the Company or the commission by the Employee of any other action with the intent to injure the Company, 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 the Company to breach a contract or purchase order with the Company, or any subsidiary or affiliate thereof. "Good Reason" means the occurrence of one or more of the following events following a Change in Control: (i) Without the Employee's express written consent, the Company 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, the Company shall require the Employee to have his 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 -4- (iii) Without the Employee's express written consent, the Company 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. For purposes hereof, a "Termination Event" shall occur if at any time after a Change in Control of the Company, the Company (or any successor corporation) terminates the Employee's employment without Cause or the Employee voluntarily terminates his employment for Good Reason. The rights afforded to the Employee under this Section shall terminate (except as to options that have been deemed to vest immediately upon a Change in Control) upon the earlier of (i) twenty-four (24) months following any Change in Control of the Company, (ii) the date prior to any Change in Control of the Company that the Employee for any reason ceases to be an employee of the Company and (iii) the date following any Change in Control of the Company that the Employee is terminated for Cause or voluntarily terminates his employment (other than for Good Reason). 4. Termination of Employment If the Employee ceases to be employed by the Company other than by reason of death or disability, the Option shall terminate after the passage of sixty (60) days from the date employment ceases, but in no event later than the scheduled expiration date. In such a case, the Employee's only rights hereunder shall be those which are properly exercised before the termination of the Option. 5. Death or Disability If the Employee dies while in the employ of the Company, the Option may be exercised, to the extent of the number of shares with respect to which the Employee could have exercised it on the date of his death, by his estate, personal representative, or beneficiary to whom the Option has been assigned pursuant to Section 9, at any time within 180 days after the date of death, but not later than the scheduled expiration date. If the Employee ceases to be employed by the Company by reason of his disability (as defined in the Plan), the Option may be exercised to the extent of the number of shares with respect to which he could have exercised it on the date of the termination of his employment, at any time within 180 days after such termination, but not later than the scheduled expiration date. At the expiration of such 180 day period or the scheduled expiration date, whichever is the earlier, the Option shall terminate and the only rights hereunder shall be those as to which the Option was properly exercised before such termination. 6. Partial Exercise -5- Exercise of the Option up to the extent stated in the Notice of Grant may be made in part at any time and from time to time within the above limits, except that the Option may not be exercised for a fraction of a share. 7. Agreement to Purchase for Investment By acceptance of the Option, the Employee agrees that a purchase of shares under the Option will not be made with a view to their distribution, as that term is used in the Securities Act of 1933, as amended, unless in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Act, and the Employee agrees if requested to sign a certificate to such effect at the time of exercising the Option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with the Act and with any applicable state securities laws. 8. Method of Exercising Option (a) Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company, at the principal executive office of the Company, or to such transfer agent as the Company shall designate. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising the Option. Such notice shall be accompanied by payment of the full purchase price of such shares, and the Company shall deliver a certificate or certificates representing such shares as soon as practicable after the notice and payment have been received. (b) The Option price shall be paid in cash or by check or, with the consent of the Committee in its sole discretion, in the following manner: (i) subject to Section 8(c) below, by delivery of shares of the Company's Common Stock having a fair market value (as determined by the Committee) equal as of the date of exercise to the option price; (ii) by delivery of the Employee's personal recourse note bearing interest payable not less than annually at the rate set forth in the Plan; or (iii) by any combination of the foregoing. (c) If the Employee delivers Common Stock held by the Employee ("Old Stock") to the Company in full or partial payment of the option price, and the Old Stock so delivered is subject to restrictions or limitations imposed by agreement between the Employee and the Company, an equivalent number of option shares shall be subject to all -6- restrictions and limitations applicable to the Old Stock to the extent that the Employee paid for the option shares by delivery of Old Stock, in addition to any restrictions or limitations imposed by this Agreement. Notwithstanding the foregoing, the Employee may not pay any part of the exercise price hereof by transferring Common Stock to the Company unless such Common Stock has been owned by the Employee free of any substantial risk of forfeiture for at least six months. (d) The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option (or, if the Option shall be exercised by the Employee and if the Employee shall so request in the notice exercising the Option, shall be registered in the name of the Employee and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. In the event the Option shall be exercised, pursuant to Section 5 hereof, by any person or persons other than the Employee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable. 9. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. During the Employee's lifetime, only the Employee can exercise the Option. 10. No Obligation to Exercise Option The grant and acceptance of the Option imposes no obligation on the Employee to exercise it. 11. No Obligation to Continue Employment The Company is not by the Plan or the Option obligated to continue the Employee in employment. 12. No Rights as Stockholder Until Exercise The Employee shall have no rights as a stockholder with respect to shares subject to the Option until a stock certificate therefor has been issued to the Employee and is fully paid for. Except as expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date such stock certificate is issued. 13. Early Disposition -7- The Employee agrees to notify the Company of any disposition of any shares of Common Stock acquired on the exercise of the Option within the two year period beginning on the date of grant or within one year after the date of the transfer of such shares to the Employee. The Employee also agrees to provide the Company with any information which it shall request concerning any such disposition. Employees who receive incentive stock options will be disqualified under Section 422 of the Internal Revenue Code from receiving the favorable income tax treatment otherwise available with respect to the exercise of such an option if they dispose of the stock received on exercise of the option within either of the one or two year periods described in the preceding sentence. 14. Withholding Taxes If the Company in its discretion determines that it is obligated to withhold any tax in connection with the exercise of this option, or in connection with the transfer of, or the lapse of restrictions on, any Common Stock or other property acquired pursuant to the Option, the Employee hereby agrees that the Company may withhold from the Employee's wages or other remuneration the appropriate amount of tax. At the discretion of the Company, the amount required to be withheld may be withheld in cash from such wages or other remuneration or in kind from the Common Stock or other property otherwise deliverable to the Employee on exercise of the Option. The Employee further agrees that, if the Company does not withhold an amount from the Employee's wages or other remuneration sufficient to satisfy the withholding obligation of the Company, the Employee will make reimbursement on demand, in cash, for the amount underwithheld. 15. Arbitration Any dispute, controversy, or claim arising out of, in connection with, or relating to the performance of this Agreement or its termination shall be settled by arbitration in the Commonwealth of Massachusetts, pursuant to the rules then obtaining of the American Arbitration Association. Any award shall be final, binding and conclusive upon the parties and a judgment rendered thereon may be entered in any court having jurisdiction thereof. 16. Provision of Documentation to Employee By signing the Notice the Employee acknowledges receipt of a copy of this Agreement and a copy of the Plan. 17. Miscellaneous (a) Notices. All communications hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, to the address set forth in the Notice. The addresses for such communications may be changed from time to time by written notice given in the manner provided for -8- herein. -9- (b) Entire Agreement; Modification. The Notice and this Agreement constitute the entire agreement between the parties relative to the subject matter hereof, and supersede all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties. (c) Severability. The invalidity, illegality or unenforceability of any provision of the Notice or this Agreement shall in no way affect the validity, legality or enforceability of any other provision. (d) Successors and Assigns. The Notice and this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth in Section 9 hereof. (e) Governing Law. This Agreement shall be governed by and interpreted in accordance with the internal laws of The Commonwealth of Massachusetts. EX-10.33 9 b53041ccexv10w33.txt EX-10.33 APRISMA MANAGEMENT TECHNOLOGIES 2003 EQUITY PARTICIPATION & RETENTION PLAN EXHIBIT 10.33 APRISMA MANAGEMENT TECHNOLOGIES, INC. 2003 EQUITY PARTICIPATION AND RETENTION PLAN SECTION 1. PURPOSE. The purpose of this Aprisma Management Technologies, Inc. 2003 Equity Participation and Retention Plan (this "Plan") is to provide additional incentive compensation to certain designated directors, officers, employees and independent contractors of Aprisma Management Technologies, Inc., a Delaware corporation (the "Aprisma"), or any of its direct or indirect subsidiaries. Directors, officers, employees and independent contractors designated by the board of directors of Aprisma (the "Board") to receive benefits under this Plan are collectively referred to as "Participants" (each, a "Participant"). The benefits granted to Participants shall consist of rights to receive deferred compensation based upon liquidity events with respect to the Company (as hereinafter defined). Such rights shall be in the form of units, which shall vest in accordance with the provisions hereof and become payable upon the occurrence of certain events specified herein. This Plan is not meant to, and does not, create any legal or equitable rights in or to the Company or the Company's capital stock in favor of any Participant. Rather, this Plan is merely designed to create a mechanism to provide to Participants deferred cash compensation that is related to the net proceeds upon the sale of all or substantially all of the Company. SECTION 2. EFFECTIVE DATE. The effective date of this Plan shall be July 1, 2003, or such other date as designated by the Board. SECTION 3. DEFINITIONS 3.1 "Account" shall mean the unfunded account established for each Participant. 3.2 "Benefit Amounts" shall have the meaning set forth in Section 5.1 below. 3.3 "Company" shall mean Aprisma and its subsidiaries. 3.4 "Common Stock" shall mean the Common Stock, $0.01 par value per share, of Aprisma. 3.5 "Common Stock Equivalents" shall mean the sum of (i) the Common Stock, plus (ii) the number of shares of Common Stock issuable at any time in respect of any stock or other securities convertible or exchangeable for Common Stock ("Convertible Securities"), plus (iii) the number of shares of Common Stock issuable at any time in respect of any options, warrants, or other rights to subscribe for or to purchase any Common Stock or Convertible Securities, plus (iv) the number of units issuable at any time under any other equity participation plan of the Company, in each case whether issued prior to or after the Grant Date. 3.6 "Disability" shall mean permanent and total disability within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. 3.7 "Good Cause" shall mean with respect to the termination of a Participant's employment by or other relationship to the Company or a particular business unit thereof, including any successor thereto, the occurrence of any one of the following events as determined by the Board (or the board of directors or similar body of any successor to the Participant's business unit) in its sole discretion: (i) Participant's conviction of, or the entry of a pleading of guilty or nolo contendre by Participant to, a felony or a crime involving moral turpitude, (ii) Participant's material failure to perform Participant's duties required under Participant's employment by or other relationship to the Company (provided that failure of the Company to achieve operating results or similar poor performance of the Company shall not, in and of itself, be deemed a failure to perform Participant's duties), material failure to comply with the Company's standard policies and procedures generally applicable to persons in Participant's relation to the Company, or failure to comply with any provision of any agreement with respect to Participant's services, (iii) a willful act by Participant as a result of which Participant receives an improper personal benefit at the expense of the Company, (iv) an act of fraud or dishonesty committed by Participant against the Company, or (v) any other misconduct by Participant that is materially injurious to the business or reputation of the Company. For purposes of this definition, the "Company" shall include any particular subsidiary, business unit or division of Aprisma with respect to which Participant performs Participant's duties and any successor to such subsidiary, business unit or division following a Liquidity Event. 3.8 "Grant Letter" shall mean the written notice to a Participant by the Board setting forth the number of Units granted to such Participant and the date (the "Grant Date") to be used for purposes of calculating the Benefit Amounts payable to the Participant under the Plan, along with any applicable terms, vesting requirements and conditions to such grant. 3.9 "Liquidity Event" shall mean the sale of greater than 90% of the business, properties and assets of the Company, or any acquisition by any person or group (as defined in Section 13(d) of the Securities Exchange Act of 1934) of beneficial ownership of more than 90% of Aprisma's then outstanding shares, whether by a reorganization, merger, consolidation, sale or exchange of securities of the Company or otherwise; provided, that a transaction solely between Aprisma and any affiliate or affiliates of Aprisma or between any two (2) or more affiliates of Aprisma shall not constitute a Liquidity Event. There shall be no more than one (1) Liquidity Event under the Plan. 3.10 "Net Proceeds" shall mean the gross proceeds received by the Company, its stockholders or Parent's stockholders in connection with a Liquidity Event, less (i) any outstanding third party indebtedness of the Company or Parent and any advances of Parent to the Company for expenses of Parent or the Company, (ii) any transaction fees and expenses paid in connection with the Liquidity Event, (iii) any liabilities of the Company retained in connection with or with respect to the Liquidity Event, (iv) any amounts paid as a return of the Funded Capital Commitment, and (v) in the event the Liquidity Event is a Liquidation, any costs associated with the Liquidation. Net Proceeds shall not include the amounts of any intercompany account or note receivable between the Company, Parent and/or Parent's stockholders which is forgiven or remains unpaid in connection with a Liquidity Event. The Net Proceeds with respect to a Liquidity Event shall be determined by the Board. 2 3.11 "Parent" shall mean GTG Acquisition Corp., a Delaware corporation. 3.12 "Redemption Date" shall have the meaning set forth in Section 6.1 below. 3.13 "Unit" shall mean the units credited to a Participant's Account representing a right to receive Benefit Amounts upon the occurrence of a Liquidity Event. Units hereunder carry no voting, dividend, participation, liquidation or other equity rights or characteristics. The total number of Units authorized to be granted hereunder is 11,111. 3.13 "Unit Value", with respect to a Liquidity Event, shall mean the Net Proceeds with respect to such Liquidity Event, divided by (i) the total number of Units authorized under this Plan, plus (ii) the total number of Common Stock Equivalents outstanding, in each case, as of such Liquidity Event. The Board shall determine the Unit Value pursuant to this Plan, and such determination shall be final, binding and conclusive on all parties and their successors or assigns. For purposes of computing any amount under this Plan that includes both shares of Common Stock and Units, one (1) Unit shall be equal to one (1) share of Common Stock. The Board shall determine the Unit Value pursuant to this Plan, and such determination shall be final, binding and conclusive on all parties and their successors or assigns. SECTION 4. PARTICIPATION 4.1 Designation of Participants. The Board shall designate from time to time directors, officers, employees and independent contractors eligible for participation in this Plan as Participants and so notify them in writing by delivery of a Grant Letter which shall specify the grant date, the number of Units granted and the vesting requirements (if any) applicable to such Participant; provided that the aggregate number of Units granted to all Participants shall not exceed the authorized number pursuant to Section 3.12. A Participant may, but is not entitled to, receive more than one grant during the period of his or her service with the Company. 4.2 Grant of Units. An Account shall be established and maintained for each Participant indicating the number of Units granted to such Participant, the applicable grant date and the vesting requirements (if any) for each grant. 4.3 Forfeiture of Units. Prior to a Liquidity Event, a Participant's Units shall be forfeited immediately upon the termination of such Participant's employment or other relationship with the Company, whether voluntary or involuntary, with or without Good Cause, or by virtue of a Participant's death or Disability. Notwithstanding the foregoing, the Board at its sole discretion may determine that such Participant's Units shall not be forfeited. SECTION 5. DETERMINATION OF BENEFIT AMOUNTS 5.1 Benefit Amounts. Each vested Unit shall entitle a Participant to receive upon redemption of such Unit, subject to the provisions of Section 6 below, an amount equal to the Unit Value of a Unit determined on the Redemption Date (collectively, the "Benefit Amounts"). 3 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NO REPRESENTATION OR WARRANTY IS MADE WITH RESPECT TO THE VALUE, IF ANY, OF ANY UNITS GRANTED UNDER THIS PLAN. 5.2 Type of Consideration. In payment of Benefit Amounts, Participants shall receive to the extent practicable (at the discretion of the Board) the same kind of consideration as is received by the Company, the Parent or the Parent's stockholders, as the case may be. In the event the gross proceeds of a Liquidity Event include non-cash or contingent consideration, the Board, in its sole discretion, may calculate or determine Benefit Amounts based on an estimate of the value of such consideration and such calculation or determination shall be final, binding and conclusive and not subject to change based upon actual results. 5.3 Modification of Units. The Board may, in its sole discretion, from time to time increase or decrease the number of Units authorized to be granted hereunder (whether such increase or decrease is by reason of the issuance or redemption of the Company's equity securities, a distribution (upon liquidation or otherwise) by the Company, a merger, consolidation, reorganization, recapitalization, stock exchange or other change in organizational structure of the Company, or otherwise). In the event any such change is made to the number of Units, then (i) the relevant sections of the Plan shall be deemed to be amended to reflect the authorized number of Units as so modified, and (ii) the Board may, in its sole discretion, make appropriate adjustments to the number of Units held in some or all Participants' Accounts in order to prevent the dilution and/or increase of Benefit Amounts with respect to such Units and this Plan. Any such adjustments as determined by the Board (or the decision to make no such adjustments) shall be final, binding and conclusive. SECTION 6. PAYMENT OF BENEFIT AMOUNTS 6.1 Redemption of Units. Upon the occurrence of a Liquidity Event with respect to one or more Participants, the Company shall redeem all of the Units granted to such Participants and vested under this Plan as of the date of such Liquidity Event (the "Redemption Date") that shall have the right to receive Benefit Amounts in respect of such Liquidity Event, and shall provide for payment to each such Participant (or his or her estate) of the Benefit Amounts, if any, in accordance with Section 6.2. Upon the Redemption Date, the Units to be so redeemed shall be deducted from such Participant's Account. Thereafter, such Participant's participation with respect to such Units shall be terminated, except for the right to payment of the Benefit Amounts with respect to such Units in accordance with the terms of the Plan. The determination of a Liquidity Event shall be at the sole discretion of the Board, and the Participants and their estates and beneficiaries shall have no rights or recourse against the Board arising from the Board's determination or manner of determining not to pursue, consummate or declare a Liquidity Event. 6.2 Manner of Payment of Benefit Amount. Benefit Amounts with respect to a Liquidity Event shall be earned in three (3) equal installments: the first, on the closing of such Liquidity Event; the second, on the six (6) month anniversary of such closing; and the third, on the one (1) year anniversary of such closing; provided, at each such date, that the Participant is employed by the 4 Company, an affiliate of the Company or the successor to the subsidiary, business unit or division of which Participant performed his or her duties prior to such closing; provided further, that the immediately preceding proviso shall not apply in the event the Participant's employment is terminated by the Company or such successor after the Liquidity Event but before payment without Good Cause, by the Participant by reason of retirement, so long as such Participant is 65 years or older, or is terminated due to the Participant's death or Disability. Payments under the Plan shall coincide with installment dates set forth above, subject to actual receipt of the relevant proceeds by the Company, its stockholders or Parent's stockholders. Notwithstanding anything to the contrary contained herein, in no event shall the Board be obligated to make any estimate with respect to future amounts to be received as gross proceeds in connection with a Liquidity Event. All payments under this Plan shall be delivered in person or mailed to the last address of the Participant (or, in the case of the death of the Participant, to that of the Participant's estate). Each Participant shall be responsible for furnishing the Company with his or her current address. 6.3 Limitation on Payments. Notwithstanding any other provision in this Plan to the contrary, no payment of any Benefit Amounts shall be made if such payment would conflict with, or result in a breach of, (i) any terms, conditions, restrictions, or provisions of, or would constitute a default under, any bond, note, or other evidence of indebtedness or any contract, lease, loan agreement or other credit agreement or instrument to which the Company is a party or by which the Company may be bound or (ii) any applicable law. In the event that the amount of Net Proceeds is reduced following the closing of a Liquidity Event, including without limitation due to a purchase price adjustment or indemnification obligations of the Company or other expense or liability, the Parent or the Parent's stockholders in connection with such Liquidity Event, any outstanding payments of Benefit Amounts owed to a Participant shall be reduced by such Participant's pro rata share of the reduction in net proceeds; provided, that in no event shall a Participant be obligated to return any Benefit Amounts previously paid to such Participant. 6.4 Waiver and Representations. Notwithstanding anything in this Plan to the contrary, no Benefit Amounts shall be payable to any Participant hereunder, and no Participant whose employment is terminated may continue to participate, unless and until such Participant (or such Participant's successor(s), in the case of death) executes and delivers, no later than 90 days after the request of the Company, a waiver and release of any and all claims that such Participant, or Participant's successor(s), may have against the Company, its directors, officers, affiliates, subsidiaries and/or stockholders (collectively with the Company, "Related Persons") and all directors, officers, managers, members and shareholders of any of the Related Persons in such form as may be acceptable to the Board. 6.5 Withholding Taxes. The Company shall deduct from all payments made to Participants the then applicable withholding and employment taxes as required by federal or state law; provided, that to the extent any party other than the Company makes payments to Participants, such payor may elect to pay amounts due without deduction and to report such payments to participants on IRS Form 1099 or its equivalent. 5 6.6 Benefit Amounts Not Salary. Any Benefit Amounts payable under this Plan shall not be deemed salary or other compensation to the Participant for the purpose of computing benefits to which a Participant may be entitled under any vacation, disability, profit sharing, pension plan or other arrangement of the Company for the benefit of its employees or independent contractors. 6.7 Funded Status. This Plan is intended to be an unfunded compensation arrangement, with benefits payable, when due, by the Company out of the Net Proceeds of a Liquidity Event. All rights created under this Plan shall be mere unsecured contractual rights of the Participants against the Company. SECTION 7. ADMINISTRATION 7.1 General Administration. (a) This Plan shall be administered by the Board. Any action or decision of the Board with respect to the modification of this Plan shall be in writing. (b) The Board is authorized to interpret this Plan and to adopt rules and procedures relating to the administration of this Plan. All actions of the Board in connection with the interpretation and administration of this Plan, including valuations of assets, liabilities and accounts, shall be binding and conclusive on all parties and their successors or assigns. (c) The Board is expressly authorized to make such modifications to this Plan as are necessary to effectuate the intent of this Plan, including without limitation as a result of any changes in the tax, accounting, or securities laws treatment of the Participant, this Plan, or the Company. (d) The Board may delegate its responsibilities to one of more officers of the Company under such conditions and limitations as it may determine. (e) Neither the Board nor any officer of the Company shall be liable for any action or determination made with respect to the Plan or any Unit granted under it or the management or results of operation of the Company. 7.2 Indemnification. To the maximum extent permitted by law, the Company shall indemnify each member of the Board, as well as any other employee of the Company with duties under this Plan, against any and all liabilities and expenses (including any amount paid in judgment or settlement) reasonably incurred by the individual in connection with any claims against the individual by reason of the performance of the individual's duties under this Plan, unless the losses are due to the individual's lack of good faith. 7. 3 Termination/Amendment. Notwithstanding any other provision of this Plan, the Board may at any time and from time to time terminate or amend this Plan as to all Participants or as to any Participant if, in its sole and absolute discretion, it finds such action appropriate under the 6 existing circumstances; provided, however, no termination or amendment of this Plan shall adversely affect any right or obligation with respect to any Units held in such Participant's Account which are vested as of the date of such termination or amendment. 7.4 No Trust Created. Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. 7.5 Forfeited Units. All Units that are forfeited by Participants pursuant to this Plan shall be canceled and all rights of Participants, or their heirs, devisees, designated beneficiaries, successors or assigns in or to such canceled Units shall terminate. Forfeited Units shall again become available for grant. SECTION 8. MISCELLANEOUS 8.1 No Additional Rights. The granting of Units under this Plan shall not entitle any Participant to any rights as a stockholder or equityholder of the Company, including, without limitation, voting, dividends or any other rights of a stockholder or equityholder of the Company. A Unit only represents a contingent right to certain Benefit Amounts as of the respective Redemption Date and confers no other rights whatsoever. Neither the adoption of this Plan nor the participation of any Participant in this Plan shall (a) affect or restrict in any way the power of the Company to undertake any action otherwise permitted under applicable law or (b) affect or restrict in any way the discretion or authority of the Board or officers of the Company in the management of the business and affairs of the Company or (c) confer upon any Participant the right to continue performing services for the Company as an employee or as an independent contractor or (d) interfere in any way with the right of the Company to terminate the services of any Participant as an employee at any time, with or without cause or (e) create any security or otherwise confer any rights or duties under or in respect of any state or federal securities laws. The Board retains full discretion to determine the procedure, occurrence and declaration of Liquidity Events, and all other determinations hereunder. 8.2 Non-Transferability. Benefits under this Plan are not assignable or transferable. No Participant or beneficiary designated according to this Plan shall have the right to sell, assign, transfer, pledge, gift, bequeath, encumber or hypothecate his or her right in or to any Units in any manner, nor shall such right of any Participant or beneficiary be subject to claims of his or her creditors other than the Company, or be liable to attachment, execution or other process of law. Any attempted sale, assignment, transfer, pledge, hypothecation, gift, bequest or other disposition of Participant's right in or to the Units and other amounts held in Participant's Account shall be null and void and without effect. 8.3 Notices. All notices or communications required or permitted to be given under this Plan shall be given in writing and signed by the appropriate party, dated, and shall be effective on the date such notice or communication is delivered to the executive offices of the Company or sent to the last address provided by a Participant to the Company, as the case may be. 7 8.4 Severability. If any provision of this Plan is invalid or unenforceable, such provision shall not affect any other provision of this Plan. 8.5 Captions. Captions of the various sections herein are solely for the convenience of the parties and shall not affect or control the meaning or construction of this Plan. 8.6 Applicable Law. This Plan shall be construed and applied under the laws of the State of California. 8.7 Successors. The Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Participants, and their heirs, executors, administrators, legal representatives and beneficiaries. 8.8 Integration. This Plan (together with any Grant Letter issued pursuant hereto) supercedes all prior plans, agreements, arrangements and commitments with or to any Participant with respect to equity participation or equity-related deferred compensation in the Company. 8 EX-10.40 10 b53041ccexv10w40.txt EX-10.40 MANAGEMENT CHANGE IN CONTROL AGREEMENT EXHIBIT 10.40 MANAGEMENT CHANGE IN CONTROL AGREEMENT MANAGEMENT CHANGE IN CONTROL AGREEMENT entered into this 15th day of October 2004, by and among Concord Communications, Inc., a Massachusetts corporation ("Concord"), and the undersigned employee of Concord, Ted D. Williams (the "Employee"). WITNESSETH: WHEREAS, Concord and the Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee during the course of employment and sets 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 his/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 him/her immediately prior to such termination) (the "Severance Benefit"). If a Termination Event occurs, and the Employee receives the Severance Benefit, then he shall not be entitled to continue to receive (i) any other salary or bonus or the severance benefit referenced in Section 2(b) or (ii) any other employee benefits (other than those specified in the following sentence). 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 his/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 -2- (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; (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 -3- (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, Severance, and Bonus Guarantee. (a) Concord may, immediately and unilaterally, terminate the Employee's employment with "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 -4- (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. 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 Sections 1 and 2(b) and 2(c) herein. (b) If employment is terminated without Cause, Concord will pay severance in a cash amount equal to twelve months' base annual salary (at the rate being paid immediately prior to such termination), payable twice a month in accordance with Concord's normal payroll cycle, upon execution of a full release of all claims that you may have against Concord, which will be supplied by Concord. The Employee will 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 twelve (12) months following termination. Notwithstanding anything contained herein to the contrary, Concord shall have no obligation to make the salary and health insurance severance payments described in this subsection (b) after Employee commences employment following his termination from Concord. Employee is obligated to inform Concord promptly of such event. (c) Employee is guaranteed a minimum, non-recoverable quarterly bonus of $32,500 for each of the four quarters during the one (1) year beginning on January 1, 2005, which will be payable to Employee with the last payroll of the month following the close of each quarter, and only during active employment. This guaranteed bonus shall not limit the Employee's ability to obtain additional bonuses under the 2004 and 2005 Executive Bonus Programs, but the guaranteed bonus provided under this section shall be deducted from amounts earned thereunder. Any entitlement to this bonus guarantee ceases upon termination of employment for any reason. (d) The Employee's employment shall automatically terminate upon his/her death and may be terminated by Concord due to him/her disability. If the Employee dies or his/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 his/her duties for a total of six consecutive months. (e) The Employee expressly acknowledges and agrees that, prior to any Change in Control, Concord may terminate the Employee with or without "Cause" at any time, subject to the Employee's rights and Concord's obligations specified in this Agreement. 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. -5- (f) Concord agrees to make up any portion of Employee's earned 2004 year-end bonus from MRO Software, Inc. that Employee loses as a result of resignation from MRO Software, Inc. prior to joining Concord. Concord agrees to pay any such loss within 30 days after the date that such bonuses are paid to other MRO employees. Employee shall, at the request of Concord, submit such reasonable documentation as may be required to establish the amount of the bonus lost, including an affidavit from the Employee. 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, subject to the Employee's rights and Concord's obligations specified in this Agreement. 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 he/she has obtained all waivers and/or consents from third parties which are necessary to enable him/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 his/her rights or delegate any of his/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 -6- 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. 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: Concord Communications, Inc. 600 Nickerson Road Marlboro, MA 01752 Attention: General Counsel 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). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. CONCORD COMMUNICATIONS, INC. By: /s/ John A. Blaeser --------------------------- Name: John A. Blaeser Title:President EMPLOYEE /s/ Ted D. Williams ------------------------------- Name: Ted D. Williams Address: 9 Denton Rd. Wellesley, MA 02482 Exhibit A 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. 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. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the 15th day of October, 2004. /s/ Ted D. Williams ----------------------------- Name: Ted D. Williams EX-10.42 11 b53041ccexv10w42.txt EX-10.42 FORM OF RESTRICTED STOCK GRANT AGREEMENT Exhibit 10.42 CONCORD COMMUNICATIONS, INC. _______ PLAN RESTRICTED STOCK GRANT AGREEMENT THIS AGREEMENT made this ___ day of _____, 200__, by and between CONCORD COMMUNICATIONS, INC. a corporation organized under the laws of the Commonwealth of Massachusetts (the "Company"), and the individual identified below, residing at the address there set out (the "Grantee"). W I T N E S S E T H T H A T: WHEREAS, Grantee's association with the Company or Related Corporation is considered by the Company to be important for the growth of it and the Related Corporations; and WHEREAS, the company desires to grant to grantee shares of the company's Common Stock (the "Common Stock") pursuant to the Company's _______ Plan (the "Plan") according to the terms and conditions hereof; NOW, THEREFORE, in consideration of the promises and mutual covenants herein set forth, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto hereby mutually covenant and agree as follows: 1. ISSUANCE OF COMMON STOCK 1.1. The Company hereby agrees to grants to Grantee an aggregate of ______________ (____) shares of Common Stock in consideration of his or her performance of future services and on the terms and conditions of this Agreement and all other applicable terms and conditions of the Plan. For purposes of this Agreement, "Acquired Shares" means all of such shares, together with any shares of stock or other securities issued in respect of or in replacement for the shares of Common Stock described in the preceding sentence as a result of a corporate or other action such as a stock dividend, stock split, merger, consolidation, reorganization, or recapitalization. 1.2. Upon receipt by the Company of a copy of this Agreement duly executed and completed by the Grantee, the Company shall issue in the name of Grantee duly executed certificates evidencing the Acquired Shares endorsed with the legend set forth in Section 7.3 below. Certificates evidencing Acquired Shares shall be held in escrow by the Company as hereinafter provided. - 2 - 2. VESTING AND FORFEITURE OF ACQUIRED SHARES 2.1. As of the date of this Agreement, all of the Acquired Shares shall be subject to the risk of forfeiture in accordance with Section 2.2 (the Acquired Shares, while and to the extent so subject to the risk of forfeiture pursuant to Section 2.2, being hereafter referred to as "Restricted Shares"). Restricted Shares shall vest and no longer be subject to the risk of forfeiture under Section 2.2 in accordance with the provisions of Schedule A attached hereto. Restricted Shares which have vested in accordance with the provisions of Schedule A attached are herein referred to as "Vested Shares". Unless otherwise expressly provided on such Schedule A, no Restricted Shares shall become Vested Shares following the date (the Grantee's "Termination Date"), reasonably fixed and determined by the Committee, of the voluntary or involuntary termination of the Grantee's employment or other association with all of the Company and its Related Corporations, for any or no reason whatsoever, including death or disability and an entity ceasing to be a Related Corporation; provided, however, that military or sick leave shall not be deemed a termination of employment or other association, if it does not exceed the longer of 90 days or the period during which the Grantee's reemployment rights, if any, are guaranteed by statute or by contract. 2.2. As of the Grantee's Termination Date, all of the then Restricted Shares shall be forfeited by the Grantee or any Permitted Transferee (as defined in Section 3.1 below). As of the Grantee's Termination Date, and without requirement of notice or other action, the Company shall become the legal and beneficial owner of the then Restricted Shares and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name such Restricted Shares for no consideration whatsoever. 3. RESTRICTION ON TRANSFER 3.1. Subject to the remaining provisions of this Section and except for the escrow described in Section 4, none of the Restricted Shares or any beneficial interest therein shall be sold, transferred, assigned, pledged, encumbered or otherwise disposed of in any way at any time (including, without limitation, by operation of law) other than (i) to the Company or its assignees or (ii), to any other person on (but only upon) death by will, bequest or operation of law (each, a "Permitted Transferee"). 3.2. All Permitted Transferees of Restricted Shares or any interest therein shall be required as a condition of such transfer to agree in writing, in form satisfactory to the Company, that they shall receive and hold such Shares or interest subject to the provisions of this Agreement, including, without limitation, the forfeiture provisions of Section 3. Any sale, transfer, assignment, pledge, encumbrance or other disposition of the Restricted Shares other than in accordance with this Section shall be void. The Company shall not be required (i) to transfer on its books any Restricted Shares sold, transferred or otherwise disposed of in violation of this Section or (ii) to treat as owner of any Restricted Shares, or to pay dividends in respect of Restricted Shares to, any person purporting to have acquired Restricted Shares or any beneficial interest therein unless such Restricted Shares or interest were acquired in compliance with the provisions of this Section. - 3 - 4. ESCROW OF SHARES 4.1. Each Restricted Share granted pursuant to this Agreement shall be held in escrow by the Company, as escrow holder ("Escrow Holder"), together with a stock power executed in blank by the Grantee, until it shall either (a) be forfeited to the Company at the Grantee's Termination Date in accordance with Section 2.2 or (b) have become a Vested Share and the Grantee shall have satisfied the requirements of Section 5.1 (relating to tax withholdings) with respect to any taxable income attributable to such Share. 4.2. Upon the forfeiture of any Restricted Shares to the Company in accordance with Section 2.2, the Company shall have the right, as Escrow Holder, to take all steps necessary to accomplish the transfer of such Share to it, including but not limited to presentment of certificates representing the Restricted Shares, together with a stock power executed by or in the name of the Grantee appropriately completed by the Escrow Holder, to the Company's transfer agent with irrevocable instructions to register transfer of such Shares into the name of the Company. The Grantee hereby appoints the Company, in its capacity as Escrow Holder, as his or her irrevocable attorney-in-fact to execute in his or her name, acknowledge and deliver all stock powers and other instruments as may be necessary or desirable with respect to the Shares. 4.3. When any portion of the Restricted Shares have become Vested Shares, upon Grantee's request the Company, as Escrow Holder, shall promptly cause a new certificate to be issued for such Shares and shall deliver such certificate to Grantee subject, however, to the Grantee's satisfaction of the requirements of Section 5.1 (relating to tax withholdings). 4.4. Subject to the terms hereof, Grantee shall have all the rights of a stockholder with respect to the Acquired Shares while they are held in escrow, including without limitation, the right to receive any dividends declared thereon. If, from time to time during the term of the escrow, there occurs any corporate or other action giving rise to substituted or additional securities by reason of ownership of the Shares such substituted or additional securities, with the legend required by Section 7.3 if applicable, shall be immediately subject to this escrow and deposited with the Escrow Holder. 5. TAX CONSEQUENCES 5.1. It is understood by the Company and Grantee that the issuance of the Acquired Shares hereunder may be deemed compensatory in purpose and in effect and that as a result the Company or a Related Corporation may be obligated to pay withholding taxes in respect of such Acquired Shares at the time Grantee becomes subject to income taxation as a result of the receipt or vesting of the Acquired Shares hereunder. In the event that at the time the above-said withholding tax obligations arise (i) Grantee is no longer in the employ of the Company or a Related Corporation or (ii) Grantee's other cash compensation from the Company and its Related Corporations is not sufficient to meet the aforesaid withholding tax obligation, Grantee hereby agrees to provide the Company or its Related Corporation with an amount sufficient to pay all withholding taxes required to be paid as and when such taxes become payable (which amount in the sole discretion of the Company and subject to any - 4 - applicable requirements of the Plan, may be provided in the form of shares of Common Stock, including Vested Shares then held by the Escrow Holder). Grantee agrees to pay such amount on or before the later of the date the withholding tax obligation arises, or the Company's next subsequent payroll date. Grantee agrees that in the event and to the extent the Company and its Related Corporations determine that they are not obligated to withhold taxes payable by Grantee with respect to Acquired Shares but the Company or a Related Corporation is later held liable due to any non-payment of taxes on the part of Grantee, the Grantee shall indemnify and hold the Company and its Related Corporations harmless from the amount of any payment made by them in respect of such liability. 5.2. Grantee hereby agrees to deliver to the Company (and his or her employing Related Corporation, if applicable) a signed copy of any instrument, letter or other document he or she may execute and file with the Internal Revenue Service evidencing his or her election under Section 83(b)(2) of the Internal Revenue Code of 1986, as amended, to treat his or her receipt of the Acquired Shares as includible in his or her gross income in the year of receipt. Grantee shall deliver said copy of any such instrument of election within five (5) days after the date on which any such election is required to be made in accordance with the appropriate provisions of the Internal Revenue Code or applicable Regulations thereunder. 6. COMPLIANCE WITH LAW 6.1. Grantee represents and warrants, and each Permitted Transferee shall, as a condition of transfer, represent and warrant, that he or she is acquiring the Acquired Shares of his or her own account for the purpose of investment and not with a view to, or for sale in connection with, the distribution of any such Acquired Shares. 6.2. Grantee acknowledges and agrees, and each Permitted Transferee shall, as a condition of transfer, acknowledge and agree, that neither the Company nor any agent of the Company shall be under any obligation to recognize any transfer of any of the Acquired Shares if, in the opinion of counsel for the Company, such transfer would result in violation by the Company of any federal or state law with respect to the offering, issuance or sale of securities. 7. GENERAL PROVISIONS 7.1. This Agreement shall be governed and enforced in accordance with the terms of the Plan and the laws of the Commonwealth of Massachusetts, without regard to the conflict of laws principles thereof, and shall be binding upon the heirs, personal representatives, executors, administrators, successors and assigns of the parties. 7.2. This Agreement and the applicable terms of the Plan embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof, supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject - 5 - matter hereof in any way and may only be modified or amended in writing signed by the Company and the Grantee. 7.3. The certificates representing the Restricted Shares shall be endorsed with the following legend: The transferability of this certificate and the shares represented by this certificate are subject to the terms and conditions (including, without limitation, the potential forfeiture of the same) of the _______ Plan and a Restricted Stock Grant Agreement entered into by the registered owner and Concord Communications, Inc. Copies of such Plan and Agreement are on file in the offices of Concord Communications, Inc. 7.4. The rights and obligations of each party under this Agreement shall inure to the benefit of and be binding upon such party's heirs, legal representatives, successors and permitted assigns. The rights and obligations of the Company under this Agreement shall be assignable by the Company to any one or more persons or entities without the consent of the Grantee or any other person. The rights and obligations of any person other than the Company under this Agreement may only be assigned with the prior written consent of the Company. 7.5. No consent to or waiver of any breach or default in the performance of any obligations hereunder shall be deemed or construed to be a consent to or waiver of any other breach or default in the performance of any of the same or any other obligations hereunder. Failure on the part of any party to complain of any act or failure to act of any other party or to declare any party in default, irrespective of the duration of such failure, shall not constitute a waiver of rights hereunder and no waiver hereunder shall be effective unless it is in writing, executed by the party waiving the breach or default hereunder. 7.6. If any provision of this Agreement shall be held illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other severable provisions of this Agreement. 7.7. The headings in this Agreement are for convenience of identification only, do not constitute a part hereof, and shall not affect the meaning or construction hereof. 7.8. Grantee agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement. 7.9. Any dispute, controversy, or claim arising out of, or in connection with, or relating to the performance of this Agreement or its termination, shall be settled by arbitration in the Commonwealth of Massachusetts, pursuant to the rules then in effect of the American Arbitration Association. Any award shall be final, binding and conclusive upon the parties and a judgment rendered thereon may be entered in any court having jurisdiction thereof. - 6 - 7.10. Nothing contained in this Agreement shall confer upon the Grantee any right with respect to the continuation of his or her employment or other association with the Company or any Related Corporation, or interfere in any way with the right of the Company and its Related Corporations, subject to the terms of Grantee's separate employment or consulting agreement, if any, or provision of law or corporate articles or by-laws to the contrary, at any time to terminate such employment or consulting agreement or otherwise modify the terms and conditions of Grantee's employment or association with the Company or a Related Corporation. 7.11. This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. In making proof of this Agreement it shall not be necessary to produce or account for more than one such counterpart. 7.12. All capitalized terms used but not defined herein shall have the respective meaning given such terms in the Plan. REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK - 7 - IN WITNESS WHEREOF, the parties have duly executed this Agreement under seal as of the month, day and year first set forth above. CONCORD COMMUNICATIONS, INC. GRANTEE By: ----------------------- ------------------------- Title: Grantee's Name & Address: ------------------------- ------------------------- (Number of Acquired Shares) This Schedule A provides for the vesting of the Acquired Shares granted the Grantee in the Restricted Stock Purchase Agreement (the "Agreement") to which it is attached. Capitalized terms not defined herein shall have the same meaning as such terms are assigned under the Agreement. 1. Release Based on Continued Employment. At each anniversary of the date of the Agreement, that percentage of the Acquired Shares set forth opposite such anniversary shall be released from the Company's Repurchase Right and become Vested Shares, with any fractions rounded down except on the final installment. ________ Stock Plan Anniversary Percentage EX-21.01 12 b53041ccexv21w01.txt EX-21.01 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.01 SUBSIDIARIES Concord Communications Securities Corporation 600 Nickerson Road Marlborough, MA 01752 State of incorporation: Massachusetts Concord Communications International, Inc. 600 Nickerson Road Marlborough, MA 01752 State of incorporation: Delaware CCA Holdings, Inc. 600 Nickerson Road Marlborough, MA 01752 State of incorporation: Delaware FirstSense Software, Inc. 600 Nickerson Road Marlborough, MA 01752 State of incorporation: Delaware Concord Communications FSC, Ltd. 600 Nickerson Road Marlborough, MA 01752 Organized under the laws of: Bermuda NetViz LLC 600 Nickerson Road Marlborough, MA 01752 State of incorporation: Delaware Vitel Software, Incorporated 600 Nickerson Road Marlborough, MA 01752 State of incorporation: Massachusetts Aprisma Holdings, Inc. 600 Nickerson Road Marlboro, MA 01752 State of incorporation: Delaware EX-23.01 13 b53041ccexv23w01.txt EX-23.01 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.01 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File nos. 333-115512, 333-87516, 333-82252, 333-72518, 333-57672, 333-40456, 333-31484, 333-78087, 333-51945, 333-40645 and 333-38363) and on Form S-3 (File nos. 333-108068, 333-112091 and 333-36170) of Concord Communications, Inc. of our report dated March 14, 2005 relating to the financial statements, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 16, 2005 EX-31.1 14 b53041ccexv31w1.txt EX-31.1 CERTIFICATION OF JOHN A. BLAESER EXHIBIT 31.1 CERTIFICATIONS I, John A. Blaeser, certify that: 1. I have reviewed this annual report on Form 10-K of Concord Communications, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15a-15(f)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. /s/ JOHN A. BLAESER ------------------------------------- John A. Blaeser President and Chief Executive Officer March 16, 2005 EX-31.2 15 b53041ccexv31w2.txt EX-31.2 CERTIFICATION OF MELISSA H. CRUZ EXHIBIT 31.2 CERTIFICATIONS I, Melissa H. Cruz, certify that: 1. I have reviewed this annual report on Form 10-K of Concord Communications, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. /s/ MELISSA H. CRUZ ------------------------------------------ Melissa H. Cruz Executive Vice President Business Services Chief Financial Officer and Treasurer March 16, 2005 EX-32.1 16 b53041ccexv32w1.txt EX-32.1 SECT. 906 CERTIFICATION OF JOHN A. BLAESER EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Concord Communications, Inc. (the "Company") on Form 10-K for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John A. Blaeser, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ JOHN A. BLAESER ------------------------------------- John A. Blaeser President and Chief Executive Officer March 16, 2005 EX-32.2 17 b53041ccexv32w2.txt EX-32.2 SECT. 906 CERTIFICATION OF MELISSA H. CRUZ EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Concord Communications, Inc. (the "Company") on Form 10-K for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Melissa H. Cruz, Executive Vice President, Business Services, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ MELISSA H. CRUZ -------------------------------------------- Melissa H. Cruz Executive Vice President, Business Services, Chief Financial Officer and Treasurer March 16, 2005 -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.02

                                                                    EXHIBIT 3.02

                          CONCORD COMMUNICATIONS, INC.

                                RESTATED BY-LAWS

                                    ARTICLE I

                                  Stockholders

      1.    Annual Meeting. The annual meeting of stockholders shall be held on
the date and at the time fixed, from time to time, by the directors, provided
that the date so fixed is within six months of the end of the fiscal year of the
corporation. The purposes for which the annual meeting is to be held, in
addition to those prescribed by law, by the Articles of Organization or by these
By-Laws, may be specified by the Directors or the President. In the event an
annual meeting has not been held on the date fixed in these By-Laws, a special
meeting in lieu of the annual meeting may be held with all the force and effect
of an annual meeting.

      2.    Special Meetings. Special meetings of stockholders may be called by
the President or by the Directors. Upon written application of one or more
stockholders who hold at least 10% of the capital stock entitled to vote at a
meeting, a special meeting shall be called by the Clerk, or in case of the
death, absence, incapacity or refusal of the Clerk, by any other officer.
Notwithstanding the immediately preceding sentence, if the corporation has a
class of voting stock registered under the Securities Exchange Act of 1934, as
amended, upon written application of one or more stockholders who hold at least
40% in interest of the capital stock entitled to vote at a meeting, a special
meeting shall be called by the Clerk, or in case of the death, absence,
incapacity or refusal of the Clerk, by any other officer.

      3.    Place of Meetings. All meetings of stockholders shall be held at the
principal office of the corporation unless a different place (within or without
Massachusetts, but within the United States) is fixed by the Directors or the
President and stated in the notice of the meeting.



                                      -2-

      4.    Notice of Meetings. A written notice of the place, date and hour of
all meetings of stockholders stating the purpose of the meeting shall be given
by the Clerk or an Assistant Clerk or by the person calling the meeting at least
seven days before the meeting unless such longer period is required by law to
each stockholder entitled to vote thereat and to each stockholder who under the
law, under the Articles of Organization or under these By-Laws, is entitled to
such notice, by leaving such notice with him or at his residence or usual place
of business, or by mailing it, postage prepaid, and addressed to such
stockholder at his address as it appears in the records of the corporation.
Whenever notice of a meeting is required to be given a stockholder under any
provision of the Massachusetts Business Corporation Law or of the Articles of
Organization or these By-Laws, a written waiver thereof, executed before or
after the meeting by such stockholder or his attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent to such
notice.

      5.    Notice of Stockholder Business. The following provisions of this
Section 5 shall apply to the conduct of business at any meeting of the
stockholders (as used in this Section 5, the term annual meeting shall include a
special meeting in lieu of annual meeting).

      (a)   At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) pursuant to the
corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in paragraph (b) of this
Section 5, who shall be entitled to vote at such meeting and who complies with
the notice procedures set forth in paragraph (b) of this Section 5.

      (b)   For business to be properly brought before any meeting of the
stockholders by a stockholder pursuant to clause (iii) of paragraph (a) of this
By-law, the stockholder must have



                                      -3-

given timely notice thereof in writing to the Clerk of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation: (i) in the case of any
annual meeting, not less than 60 days nor more than 90 days prior to the date
specified in Section 1 above for such annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if a special meeting in lieu of annual meeting of
stockholders is to be held on a date prior to the date specified in Section 1
above, and if less than seventy days' notice or prior public disclosure of the
date of such special meeting in lieu of annual meeting is given or made, notice
by the stockholder to be timely must be so delivered or received not later than
the close of business on the tenth day following the earlier of the date on
which notice of the date of such special meeting in lieu of annual meeting was
mailed or the day on which public disclosure was made of the date of such
special meeting in lieu of annual meeting; and (ii) in the case of a special
meeting (other than a special meeting in lieu of an annual meeting), not later
than the tenth day following the earlier of the day on which notice of the date
of the scheduled meeting was mailed or the day on which public disclosure was
made of the date of the scheduled meeting. A stockholder's notice to the Clerk
shall set forth as to each matter the stockholder proposes to bring before the
meeting, (i) a brief description of the business desired to be brought before
the meeting and the reasons for conducting such business at the meeting, (ii)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, the name and address of the beneficial
owner, if any, on whose behalf the proposal is made, and the name and address of
any other stockholders or beneficial owners known by such stockholder to be
supporting such proposal, (iii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder of
record, by the beneficial owner, if any, on whose behalf the



                                      -4-

proposal is made and by any other stockholders or beneficial owners known by
such stockholder of record and/or of the beneficial owner, if any, on whose
behalf the proposal is made, in such proposed business and any material interest
of any other stockholders or beneficial owners known by such stockholder to be
supporting such proposal in such proposed business, to the extent known by such
stockholder.

      (c)   Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in these By-Laws. The person presiding at the meeting
shall, if the facts warrant, determine that business was not properly brought
before the meeting and in accordance with the procedures prescribed by these
By-laws, and if he should so determine, he shall so declare at the meeting and
any such business not properly brought before the meeting shall not be
transacted.

      (d)   This provision shall not prevent the consideration and approval or
disapproval at the meeting of reports of officers, Directors and committees of
the Board of Directors, but, in connection with such reports, no new business
shall be acted upon at such meeting unless properly brought before the meeting
as herein provided.

      (e)   Notwithstanding the foregoing provisions of this Section 5 to the
contrary, a stockholder shall comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended (or any successor provision), and
the rules and regulations thereunder with respect to the matters set forth in
this Section 5.

      6.    Quorum. Unless otherwise provided by law, or in the Articles of
Organization, or these By-Laws or a resolution of the Board of Directors
requiring satisfaction of a greater quorum requirement for any voting group, a
majority of the votes entitled to be cast on the matter by a voting group
constitutes a quorum of that voting group for action on that matter. As used in



                                      -5-

these By-Laws, a voting group includes all shares of one or more classes or
series that, under the Articles of Organization or the Massachusetts Business
Corporation Act, as in effect from time to time, are entitled to vote and to be
counted together collectively on a matter at a meeting of shareholders.

      A share once represented for any purpose at a meeting is deemed present
for quorum purposes for the remainder of the meeting and for any adjournment of
that meeting unless (1) the shareholder attends solely to object to lack of
notice, defective notice or the conduct of the meeting on other grounds and does
not vote the shares or otherwise consent that they are to be deemed present, or
(2) in the case of an adjournment, a new record date is or shall be set for that
adjourned meeting.

      7.    Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote owned by him and a proportionate vote for a
fractional share, unless otherwise provided by the Articles of Organization in
the case that the corporation has two or more classes or series of stock.
Capital stock shall not be voted if any installment of the subscription therefor
has been duly demanded in accordance with the law of the Commonwealth of
Massachusetts and is overdue and unpaid. Stockholders may vote either in person
or by written proxy dated not more than six months before the meeting named
therein. Proxies shall be filed with the clerk of the meeting, or of any
adjournment thereof, before being voted. Except as otherwise limited therein,
proxies shall entitle the persons named therein to vote at any adjournment of
such meeting but shall not be valid after final adjournment of such meeting. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the corporation receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a



                                      -6-

stockholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger.

      8.    Action at Meeting. If a quorum of a voting group exists, favorable
action on a matter, other than the election of Directors, is taken by a voting
group if the votes cast within the group favoring the action exceed the votes
cast opposing the action, unless a greater number of affirmative votes is
required by law, or the Articles of Organization, or these By-Laws or a
resolution of the Board of Directors requiring receipt of a greater affirmative
vote of the shareholders, including more separate voting groups. Directors are
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. No ballot shall be required
for such election unless requested by a shareholder present or represented at
the meeting and entitled to vote in the election. The corporation shall not
directly or indirectly vote any share of its own stock.

      9.    Action Without Meeting. Any action required or permitted to be taken
at any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consent shall be treated for all purposes as a vote at a meeting.

                                   ARTICLE II

                                    Directors

      1.    Powers. The business of the corporation shall be managed by a Board
of Directors who may exercise all the powers of the corporation except as
otherwise provided by law, by the Articles of Organization or by these By-Laws.
In the event of vacancy in the Board



                                      -7-

of Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.

      2.    Number, Election and Qualification; Vacancies, Enlargement of the
Board; Tenure; Removal. The number of Directors, and the provisions governing
their election and qualification, vacancies, enlargement of the Board of
Directors and their tenure and removal shall be as provided by law and as set
forth in the Articles of Organization.

      3.    Meetings. Regular meetings of the Directors may be held without call
or notice at such places and at such times as the Directors may from time to
time determine, provided that any Director who is absent when such determination
is made shall be given notice of the determination. A regular meeting of the
Directors may be held without a call or notice at the same place as the annual
meeting of stockholders.

      Special meetings of the Directors may be held at any time and place
designated in a call by the President or two or more Directors.

      4.    Telephone Conference Meetings. Members of the Board of Directors may
participate in a meeting of the board by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.

      5.    Notice of Meetings. Notice of all special meetings of the Directors
shall be given to each Director by the Secretary, or Assistant Secretary, or if
there be no Secretary or Assistant Secretary, by the Clerk, or Assistant Clerk,
or in case of the death, absence, incapacity or refusal of such persons, by the
officer or one of the Directors calling the meeting. Notice shall be given to
each Director in person or by telephone or by telegram sent to his business or
home address at


                                      -8-

least twenty-four hours in advance of the meeting, or by written notice mailed
to his business or home address at least forty-eight hours in advance of the
meeting. Notice of a meeting need not be given to any Director if a written
waiver of notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any Director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him. A
notice or waiver of notice of a Directors' meeting need not specify the purposes
of the meeting.

      6.    Quorum. At any meeting of the Directors, a majority of the Directors
then in office shall constitute a quorum. Less than a quorum may adjourn any
meeting from time to time without further notice.

      7.    Action at Meeting. At any meeting of the Directors at which a quorum
is present, a majority of the Directors present may take any action on behalf of
the Board except to the extent that a larger number is required by law or the
Articles of Organization or these By-Laws.

      8.    Action by Consent. Any action required or permitted to be taken at
any meeting of the Directors may be taken without a meeting, if all the
Directors consent to the action in writing and the written consents are filed
with the records of the meetings of Directors. Such consents shall be treated
for all purposes as a vote at a meeting.

      9.    Committees. The Directors may, by vote of a majority of the
Directors then in office, elect from their number an executive or other
committees and may by like vote delegate thereto some or all of their powers
except those which by law, the Articles of Organization or these By-Laws they
are prohibited from delegating to such committee. Except as the Directors may
otherwise determine, any such committee may make rules for the conduct of its
business, but unless otherwise provided by the Directors or in such rules, its
business shall be conducted as nearly as may be in the same manner as is
provided by these By-Laws for the Directors.



                                      -9-

                                  ARTICLE III

                                    Officers

      1.    Enumeration. The officers of the corporation shall consist of a
President, a Treasurer, a Clerk, and such other officers, including a Chairman
of the Board of Directors, one or more Vice Presidents, Assistant Treasurers,
Assistant Clerks, Secretary and Assistant Secretaries as the Directors may
determine.

      2.    Election. The President, Treasurer and Clerk shall be elected
annually by the Directors at their first meeting following the annual meeting of
stockholders. Other officers may be chosen by the Directors at such meeting or
at any other meeting.

      3.    Qualification. The President may, but need not be, a Director. No
officer need be a stockholder. Any two or more offices may be held by the same
person, provided that the President and Clerk shall not be the same person. The
Clerk shall be a resident of Massachusetts unless the corporation has a resident
agent appointed for the purpose of service of process. Any officer may be
required by the Directors to give bond for the faithful performance of his
duties to the corporation in such amount and with such sureties as the Directors
may determine.

      4.    Tenure. Except as otherwise provided by law, by the Articles of
Organization or by these By-Laws, the President, Treasurer and Clerk shall hold
office until the first meeting of the Directors following the next annual
meeting of stockholders and until their successors are chosen and qualified; and
all other officers shall hold office until the first meeting of the Directors
following the next annual meeting of stockholders and until their successors are
chosen and qualified, unless a shorter term is specified in the vote choosing or
appointing them. Any officer may resign by delivering his written resignation to
the corporation at its principal office or



                                      -10-

to the President, Clerk or Secretary, and such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event.

      5.    Removal. The Directors may remove any officer with or without cause
by vote of a majority of the Directors then in office; provided, that an officer
may be removed for cause only after a reasonable notice and opportunity to be
heard before the Board of Directors.

      6.    President, Chairman of the Board, and Vice-President. The President
shall, unless otherwise provided by the Directors, be the chief executive
officer of the corporation and shall, subject to the direction of the Directors,
have general supervision and control of its business. Unless otherwise provided
by the Directors he shall preside, when present, at all meetings of stockholders
and, unless a Chairman of the Board has been elected and is present, of the
Directors.

      If a Chairman of the Board of Directors is elected he shall preside at all
meetings of the Board of Directors at which he is present. The Chairman shall
have such other powers as the Directors may from time to time designate.

      Any Vice-President shall have such powers as the Directors may from time
to time designate.

      7.    Treasurer and Assistant Treasurer. The Treasurer shall, subject to
the direction of the Directors, have general charge of the financial affairs of
the corporation and shall cause accurate books of account to be kept. He shall
have custody of all funds, securities, and valuable documents of the
corporation, except as the Directors may otherwise provide.

      Any assistant treasurer shall have such powers as the Directors may from
time to time designate.



                                      -11-

      8.    Clerk and Assistant Clerks. The Clerk shall record all proceedings
of the stockholders in a book to be kept therefor. Unless a transfer agent is
appointed, the Clerk shall keep or cause to be kept in Massachusetts, at the
principal office of the corporation or at his office, the stock and transfer
records of the corporation, in which are contained the names of all stockholders
and the record address and the amount of stock held by each.

      In case a Secretary is not elected, the Clerk shall record all proceedings
of the Directors in a book to be kept therefor.

      In the absence of the Clerk from any meeting of the stockholders, an
Assistant Clerk, if one be elected, otherwise a Temporary Clerk designated by
the person presiding at the meeting, shall perform the duties of the Clerk. Any
Assistant Clerk shall have such additional powers as the Directors may from time
to time designate.

      9.    Secretary and Assistant Secretaries. If a Secretary is elected, he
shall keep a record of the meetings of the Directors and in his absence, an
Assistant Secretary, if one be elected, otherwise a Temporary Secretary
designated by the person presiding at the meeting, shall keep a record of the
meetings of the Directors.

      Any Assistant Secretary shall have such additional powers as the Directors
may from time to time designate.

      10.   Other Powers and Duties. Each officer shall, subject to these
By-Laws, have in addition to the duties and powers specifically set forth in
these By-Laws, such duties and powers as are customarily incident to his office,
and such duties and powers as the Directors may from time to time designate.



                                      -12-

                                   ARTICLE IV

                                  Capital Stock

      1.    Certificates of Stock. Subject to the provisions of Section 2 below,
each stockholder shall be entitled to a certificate of the capital stock of the
corporation in such form as may be prescribed from time to time by the
Directors. The certificate shall be signed by the President or a Vice-President,
and by the Treasurer or an Assistant Treasurer; provided, however, such
signatures may be facsimiles if the certificate is signed by a transfer agent,
or by a registrar, other than a Director, officer or employee of the
corporation. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer at the time of its issue.

      Every certificate issued for shares of stock at a time when such shares
are subject to any restriction on transfer pursuant to the Articles of
Organization, these By-Laws or any agreement to which the corporation is a party
shall have the restriction noted conspicuously on the certificate and shall also
set forth on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction and a statement
that the corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge. Every stock certificate
issued by the corporation at a time when it is authorized to issue more than one
class or series of stock shall set forth upon the face or back of the
certificate either the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class and
series, if any, authorized to be issued, as set forth in the Articles of
Organization, or a statement of the existence of such preferences, powers,
qualifications, and



                                      -13-

rights, and a statement that the corporation will furnish a copy thereof to the
holder of such certificate upon written request and without charge.

      2.    Stockholder Open Accounts. The corporation may maintain or cause to
be maintained stockholder open accounts in which may be recorded all
stockholders' ownership of stock and all changes therein. Certificates need not
be issued for shares so recorded in a stockholder open account unless requested
by the stockholder.

      3.    Transfers. Subject to the restrictions, if any, stated or noted on
the stock certificates, shares of stock may be transferred in the records of the
corporation by the surrender to the corporation or its transfer agent of the
certificate therefor, properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the corporation or its
transfer agent may reasonably require. When such stock certificates are thus
properly surrendered to the corporation or its transfer agent, the corporation
or transfer agent shall cause the records of the corporation to reflect the
transfer of the shares of stock. Except as may be otherwise required by law, by
the Articles of Organization or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown in its records as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect thereof, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-Laws.

      It shall be the duty of each stockholder to notify the corporation of his
post office address.

      4.    Record Date. The Directors may fix in advance a time which shall be
not more than sixty (60) days before the date of any meeting of stockholders or
the date for the payment of



                                      -14-

any dividend or the making of any distribution to stockholders or the last day
on which the consent or dissent of stockholders may be effectively expressed for
any purpose, as the record date for determining the stockholders having the
right to notice of and to vote at such meeting and any adjournment thereof or
the right to receive such dividend or distribution or the right to give such
consent or dissent. In such case only stockholders of record on such record date
shall have such right, notwithstanding any transfer of stock on the books of the
corporation after the record date. Without fixing such record date the Directors
may for any of such purposes close the transfer books for all or any part of
such period.

      If no record date is fixed and the transfer books are not closed, the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.

      5.    Replacement of Certificates. In case of the alleged loss, mutilation
or destruction of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms and conditions as the Directors may prescribe.

      6.    Issue of Capital Stock. The whole or any part of the then authorized
but unissued shares of each class of stock may be issued at any time or from
time to time by the Board of Directors without action by the stockholders.

      7.    Reacquisition of Stock. Shares of stock previously issued which have
been reacquired by the corporation, may be restored to the status of authorized
but unissued shares by vote of the Board of Directors, without amendment of the
Articles of Organization.



                                      -15-

                                    ARTICLE V

                        Provisions Relative to Directors,
                      Officers, Stockholders and Employees

      1.    Certain Contracts and Transactions. In the absence of fraud or bad
faith, no contract or transaction by this corporation shall be void, voidable or
in any way affected by reason of the fact that the contract or transaction is
(a) with one or more of its officers, Directors, stockholders or employees, (b)
with a person who is in any way interested in this corporation, or (c) with a
corporation, organization or other concern in which an officer, Director,
stockholder or employee of this corporation is an officer, director,
stockholder, employee or in any way interested. The provisions of this section
shall apply notwithstanding the fact that the presence of a Director or
stockholder, with whom a contract or transaction is made or entered into or who
is an officer, director, stockholder or employee of a corporation, organization
or other concern with which a contract or transaction is made or entered into or
who is in any way interested in such contract or transaction, was necessary to
constitute a quorum at the meeting of the Directors (or any authorized committee
thereof) or stockholders at which such contract or transaction was authorized
and/or that the vote of such Director or stockholder was necessary for the
adoption of such contract or transaction, provided that if said interest was
material, it shall have been known or disclosed to the Directors or stockholders
voting at said meeting on said contract or transaction. A general notice to any
person voting on said contract or transaction that an officer, Director,
stockholder or employee has a material interest in any corporation, organization
or other concern shall be sufficient disclosure as to such officer, Director,
stockholder or employee with respect to all contracts and transactions with such
corporation, organization or other concern. This section shall be subject to
amendment or repeal only by action of the stockholders.



                                      -16-

      2.    Indemnification. Each Director, officer, employee and other agent of
the corporation, and any person who, at the request of the corporation, serves
as a director, officer, employee or other agent of another organization in which
the corporation directly or indirectly owns shares or of which it is a creditor
shall be indemnified by the corporation against any cost, expense (including
attorneys' fees), judgment, liability and/or amount paid in settlement
reasonably incurred by or imposed upon him in connection with any action, suit
or proceeding (including any proceeding before any administrative or legislative
body or agency), to which he may be made a party or otherwise involved or with
which he shall be threatened, by reason of his being, or related to his status
as a director, officer, employee or other agent of the corporation or of any
other organization in which the corporation directly or indirectly owns shares
or of which the corporation is a creditor, which other organization he serves or
has served as director, officer, employee or other agent at the request of the
corporation (whether or not he continues to be an officer, Director, employee or
other agent of the corporation or such other organization at the time such
action, suit or proceeding is brought or threatened), unless such
indemnification is prohibited by the Business Corporation Law of the
Commonwealth of Massachusetts. The foregoing right of indemnification shall be
in addition to any rights to which any such person may otherwise be entitled and
shall inure to the benefit of the executors or administrators of each such
person. The corporation may pay the expenses incurred by any such person in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit, or proceeding, upon receipt of an undertaking
by such person to repay such payment if it is determined that such person is not
entitled to indemnification hereunder. This section shall be subject to
amendment or repeal only by action of the stockholders, and any such amendment
or



                                      -17-

repeal shall not affect the rights arising hereunder prior to the effective date
of the amendment or repeal.

                                   ARTICLE VI

                            Miscellaneous Provisions

      1.    Fiscal Year. Except as from time to time otherwise determined by the
Directors, the fiscal year of the corporation shall end on December 31 in each
year. Following any change in the fiscal year previously adopted, a certificate
of such change, signed under the penalties of perjury by the Clerk or an
Assistant Clerk, shall be filed forthwith with the state secretary.

      2.    Seal. The seal of this corporation shall, subject to alteration by
the Directors, bear its name, the word "Massachusetts," and the year of its
incorporation.

      3.    Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the President or the Treasurer
except as the Directors may generally or in particular cases otherwise
determine.

      4.    Voting of Securities. Except as the Directors may otherwise
designate, the President or Treasurer may waive notice of, and appoint any
person or persons to act as proxy or attorney-in-fact for this corporation (with
or without power of substitution) at any meeting of stockholders or shareholders
of any other corporation or organization, the securities of which may be held by
this corporation.

      5.    Corporate Records. The original, or attested copies, of the Articles
of Organization, By-Laws and records of all meetings of incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the principal



                                      -18-

office of the corporation or at an office of its transfer agent or of the Clerk
or of its resident agent. Said copies and records need not all be kept in the
same office. They shall be available at all reasonable times to the inspection
of any stockholder for any proper purpose but not to secure a list of
stockholders or other information for the purpose of selling said list or
information or copies thereof or of using the same for a purpose other than in
the interest of the applicant, as a stockholder, relative to the affairs of the
corporation.

      6.    Articles of Organization. All references in these By-Laws to the
Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to time.

      7.    Amendments. These By-Laws, to the extent provided in these By-Laws,
may be amended or repealed, in whole or in part, and new By-Laws adopted either
(a) by the stockholders at any meeting of the stockholders by the affirmative
vote of the holders of at least a majority in interest of the capital stock
present and entitled to vote, provided that notice of the proposed amendment or
repeal or of the proposed making of new By-Laws shall have been given in the
notice of such meeting, or (b) if so authorized by the Articles of Organization,
by the Board of Directors at any meeting of the Board by the affirmative vote of
a majority of the Directors then in office, but no amendment or repeal of a
By-law shall be voted by the Board of Directors and no new By-law shall be made
by the Board of Directors which alters the provisions of these By-Laws with
respect to removal of Directors, or the election of committees by Directors and
the delegation of powers thereto, nor shall the Board of Directors make, amend
or repeal any provision of the By-Laws which by law, the Articles of
Organization or the By-Laws requires action by the stockholders. Not later than
the time of giving notice of the meeting of stockholders next following the
making, amending, or repealing by the Directors of any By-law,



                                      -19-

notice thereof stating the substance of such change shall be given to all
stockholders entitled to vote on amending the By-Laws. Any By-law or amendment
of a By-law made by the Board of Directors may be amended or repealed by the
stockholders by affirmative vote as above provided in this Section 7.

      8.    1987 Massachusetts Control Share Acquisition Act. The 1987
Massachusetts Control Share Acquisition Act, Chapter 110D of the Massachusetts
General Laws, as it may be amended from time to time, shall not apply to the
corporation.

EX-10.06

                                                                   Exhibit 10.06

                          CONCORD COMMUNICATIONS, INC.
                                 1997 STOCK PLAN

 (AS AMENDED ON MARCH 12, 1998, MARCH 1, 1999, MAY 15, 1999 AND MARCH 8, 2000)

      1. PURPOSE; TERMINATION OF PRIOR PLAN. The purpose of the 1997 Stock Plan
(the "Plan") is to encourage key employees of Concord Communications, Inc. (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code. The Company's 1995 Stock Plan (the "1995 Stock Plan") is terminated
effective as of October 16, 1997 and henceforth, the Company shall make no
grants under the 1995 Stock Plan. The 1995 Stock Plan shall, however, continue
to govern all options, awards and other grants granted and outstanding under the
1995 Stock Plan.

      2.    ADMINISTRATION OF THE PLAN.

                  A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
            administered by the Board of Directors of the Company (the "Board")
            or, subject to paragraph 2(D) (relating to compliance with Section
            162(m) of the Code), by a committee appointed by the Board of two or
            more of its members (the "Committee"). Hereinafter, all references
            in this Plan to the "Committee" shall mean the Board if no Committee
            has been appointed. Subject to ratification of the grant or
            authorization of each Stock Right by the Board (if so required by
            applicable state law), and subject to the terms of the Plan, the
            Committee shall have the authority to (i) determine to whom (from
            among the class of employees eligible under paragraph 3 to receive
            ISOs) ISOs shall be granted, and to whom (from among the class of
            individuals and entities eligible under paragraph 3 to receive
            Non-Qualified Options and Awards and to make Purchases)
            Non-Qualified Options, Awards and authorizations to make Purchases
            may be granted; (ii) determine the time or times at which Options or
            Awards shall be granted or Purchases made; (iii) determine the
            purchase price of shares subject to each Option or Purchase, which
            prices shall not be less than the minimum price specified in
            paragraph 6; (iv) determine whether each Option granted shall be an
            ISO or a Non-Qualified Option; (v) determine (subject to paragraph
            7) the time or times when each Option shall become exercisable and
            the duration of the exercise period; (vi) determine whether
            restrictions such as repurchase options are to be

                                     - 2 -

            imposed on shares subject to Options, Awards and Purchases and the
            nature of such restrictions, if any; and (vii) interpret the Plan
            and prescribe and rescind rules and regulations relating to it. If
            the Committee determines to issue a Non-Qualified Option, it shall
            take whatever actions it deems necessary, under Section 422 of the
            Code and the regulations promulgated thereunder, to ensure that such
            Option is not treated as an ISO. The interpretation and construction
            by the Committee of any provisions of the Plan or of any Stock Right
            granted under it shall be final unless otherwise determined by the
            Board. The Committee may from time to time adopt such rules and
            regulations for carrying out the Plan as it may deem best. No member
            of the Board or of the Committee shall be liable for any action or
            determination made in good faith with respect to the Plan or any
            Stock Right granted under it.

                  B. COMMITTEE ACTIONS. The Committee may select one of its
            members as its chairman, and shall hold meetings at such time and
            places as it may determine. A majority of the Committee shall
            constitute a quorum and acts of a majority of the members of the
            Committee at a meeting at which a quorum is present, or acts reduced
            to or approved in writing by all the members of the Committee (if
            consistent with applicable state law), shall be the valid acts of
            the Committee. From time to time the Board may increase the size of
            the Committee and appoint additional members thereof, remove members
            (with or without cause) and appoint new members in substitution
            therefor, fill vacancies however caused, or remove all members of
            the Committee and thereafter directly administer the Plan.

                  C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Notwithstanding the
            provisions of paragraph 2.A., no Stock Rights shall be granted to
            any person who is, at the time of the proposed grant, a member of
            the Board unless such grant is approved by a majority vote of the
            disinterested members of the Board. All grants of Stock Rights to
            members of the Board shall in all respects be made in accordance
            with the provisions of this Plan applicable to other eligible
            persons. Members of the Board who either (i) are eligible to receive
            grants of Stock Rights pursuant to the Plan or (ii) have been
            granted Stock Rights may vote on any matters affecting the
            administration of the Plan or the grant of any Stock Rights pursuant
            to the Plan, except that no such member shall act upon the granting
            to himself or herself of Stock Rights, but any such member may be
            counted in determining the existence of a quorum at any meeting of
            the Board during which action is taken with respect to the granting
            to such member of Stock Rights. Notwithstanding any other provision
            of this paragraph 2, in the event the Company registers any class of
            any equity security pursuant to Section 12 of the Securities
            Exchange Act of 1934, as amended (the "Exchange Act"), any grants to
            members of the Board of Options made at any time from the effective
            date of such registration until six months after the termination of
            such registration shall be made only by the Board; provided,
            however, that if a majority of the Board is eligible to participate
            in the Plan or in any other stock option or other stock plan

                                     - 3 -

            of the Company or any of its affiliates, or has been so eligible at
            any time within the preceding year, any grant to directors of
            Options must be made by, or only in accordance with the
            recommendation of, a Committee consisting of three or more persons,
            who may but need not be members of the Board or employees of the
            Company, appointed by the Board but having full authority to act in
            the matter, none of whom is eligible to participate in this Plan or
            any other stock option or other stock plan of the Company or any of
            its affiliates, or has been eligible at any time within the
            preceding year. The requirements imposed by the preceding sentence
            shall also apply with respect to grants to officers who are not also
            members of the Board. Once appointed, the Committee shall continue
            to serve until otherwise directed by the Board.

                  D. PERFORMANCE-BASED COMPENSATION. The Board, in its
            discretion, may take such action as may be necessary to ensure that
            Stock Rights granted under the Plan qualify as "qualified
            performance-based compensation" within the meaning of Section 162(m)
            of the Code and applicable regulations promulgated thereunder
            ("Performance-Based Compensation"). Such action may include, in the
            Board's discretion, some or all of the following (i) if the Board
            determines that Stock Rights granted under the Plan generally shall
            constitute Performance-Based Compensation, the Plan shall be
            administered, to the extent required for such Stock Rights to
            constitute Performance-Based Compensation, by a Committee consisting
            solely of two or more "outside directors" (as defined in applicable
            regulations promulgated under Section 162(m) of the Code), (ii) if
            any Non-Qualified Options with an exercise price less than the fair
            market value per share of Common Stock are granted under the Plan
            and the Board determines that such Options should constitute
            Performance-Based Compensation, such options shall be made
            exercisable only upon the attainment of a pre-established, objective
            performance goal established by the Committee, and such grant shall
            be submitted for, and shall be contingent upon shareholder approval
            and (iii) Stock Rights granted under the Plan may be subject to such
            other terms and conditions as are necessary for compensation
            recognized in connection with the exercise or disposition of such
            Stock Right or the disposition of Common Stock acquired pursuant to
            such Stock Right, to constitute Performance-Based Compensation.

      3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees of
the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.

      4. STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of

                                     - 4 -


Common Stock reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is 3,250,000, subject to
adjustment as provided in paragraph 13. If any Option granted under the Plan
shall expire or terminate for any reason without having been exercised in full
or shall cease for any reason to be exercisable in whole or in part or shall be
repurchased by the Company, the unpurchased shares of Common Stock subject to
such Option shall again be available for grants of Stock Rights under the Plan.

      No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 70% of the aggregate number of
shares of Common Stock which may be issued pursuant to the Plan during any
fiscal year of the Company. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or shall be repurchased by
the Company, the shares subject to such Option shall be included in the
determination of the aggregate number of shares of Common Stock deemed to have
been granted to such employee under the Plan.

      5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at
any time on or after October 16, 1997 and prior to October 15, 2007. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.

      6.    MINIMUM OPTION PRICE; ISO LIMITATIONS.

                  A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES.
            Subject to paragraph 2(D) (relating to compliance with Section
            162(m) of the Code), the exercise price per share specified in the
            agreement relating to each Non-Qualified Option granted, and the
            purchase price per share of stock granted in any Award or authorized
            as a Purchase, under the Plan may be less than the fair market value
            of the Common Stock of the Company on the date of grant; provided
            that, in no event shall such exercise price or such purchase price
            be less than the lesser of (i) the book value per share of Common
            Stock as of the end of the fiscal year of the Company immediately
            preceding the date of such grant, or (ii) 50 percent of the fair
            market value per share of Common Stock on the date of such grant.

                  B. PRICE FOR ISOS. The exercise price per share specified in
            the agreement relating to each ISO granted under the Plan shall not
            be less than the fair market value per share of Common Stock on the
            date of such grant. In the case of an ISO to be granted to an
            employee owning stock possessing more than ten percent (10%) of the
            total combined voting power of all classes of stock of the Company
            or any Related Corporation, the price per share specified in the
            agreement relating to such ISO shall not be less than one hundred
            ten percent (110%) of the fair market value per share of Common
            Stock on the date of grant.

                                     - 5 -


            For purposes of determining stock ownership under this paragraph,
            the rules of Section 424(d) of the Code shall apply.

                  C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible
            employee may be granted Options treated as ISOs only to the extent
            that, in the aggregate under this Plan and all incentive stock
            option plans of the Company and any Related Corporation, ISOs do not
            become exercisable for the first time by such employee during any
            calendar year with respect to stock having a fair market value
            (determined at the time the ISOs were granted) in excess of
            $100,000. The Company intends to designate any Options granted in
            excess of such limitation as Non-Qualified Options, and the Company
            shall issue separate certificates to the optionee with respect to
            Options that are Non-Qualified Options and Options that are ISOs.

                  D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an
            Option is granted under the Plan, the Company's Common Stock is
            publicly traded, "fair market value" shall be determined as of the
            date of grant or, if the prices or quotes discussed in this sentence
            are unavailable for such date, the last business day for which such
            prices or quotes are available prior to the date of grant and shall
            mean (i) the average (on that date) of the high and low prices of
            the Common Stock on the principal national securities exchange on
            which the Common Stock is traded, if the Common Stock is then traded
            on a national securities exchange; or (ii) the last reported sale
            price (on that date) of the Common Stock on the Nasdaq National
            Market, if the Common Stock is not then traded on a national
            securities exchange; or (iii) the closing bid price (or average of
            bid prices) last quoted (on that date) by an established quotation
            service for over-the-counter securities, if the Common Stock is not
            reported on the Nasdaq National Market. If the Common Stock is not
            publicly traded at the time an Option is granted under the Plan,
            "fair market value" shall mean the fair value of the Common Stock as
            determined by the Committee after taking into consideration all
            factors which it deems appropriate, including, without limitation,
            recent sale and offer prices of the Common Stock in private
            transactions negotiated at arm's length.

      7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.

                                     - 6 -


      8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:

                  A. VESTING. The Option shall either be fully exercisable on
            the date of grant or shall become exercisable thereafter in such
            installments as the Committee may specify.

                  B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
            exercisable, it shall remain exercisable until expiration or
            termination of the Option, unless otherwise specified by the
            Committee.

                  C. PARTIAL EXERCISE. Each Option or installment may be
            exercised at any time or from time to time, in whole or in part, for
            up to the total number of shares with respect to which it is then
            exercisable.

                  D. ACCELERATION OF VESTING. The Committee shall have the right
            to accelerate the date that any installment of any Option becomes
            exercisable; provided that the Committee shall not, without the
            consent of an optionee, accelerate the permitted exercise date of
            any installment of any Option granted to any employee as an ISO (and
            not previously converted into a Non-Qualified Option pursuant to
            paragraph 16) if such acceleration would violate the annual vesting
            limitation contained in Section 422(d) of the Code, as described in
            paragraph 6(C).

      9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the agreement
relating to such ISO, if an ISO optionee ceases to be employed by the Company
and all Related Corporations other than by reason of death or disability as
defined in paragraph 10, no further installments of his or her ISOs shall become
exercisable, and his or her ISOs shall terminate after the passage of 60 days
from the date of termination of his or her employment, but in no event later
than on the specified expiration dates of such ISOs, except to the extent that
such ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 16. For purposes of this paragraph
9, a leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the employee after the approved period of absence.
Employment shall also be considered as continuing uninterrupted during any other
bona fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave does
not exceed 90 days or, if longer, any period during which such optionee's right
to reemployment is guaranteed by statute or by contract. A bona fide leave of
absence with the written approval of the Committee shall not be considered an
interruption of employment under this paragraph 9, provided that such written
approval contractually obligates the Company or any Related Corporation to
continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan

                                     - 7 -


shall be deemed to give any grantee of any Stock Right the right to be retained
in employment or other service by the Company or any Related Corporation for any
period of time.

      10.   DEATH; DISABILITY.

                  A. DEATH. If an ISO optionee ceases to be employed by the
            Company and all Related Corporations by reason of his or her death,
            any ISO owned by such optionee may be exercised, to the extent
            otherwise exercisable on the date of death, by the estate, personal
            representative or beneficiary who has acquired the ISO by will or by
            the laws of descent and distribution, at any time prior to the
            earlier of (i) the specified expiration date of the ISO or (ii) 180
            days from the date of the optionee's death.

                  B. DISABILITY. If an ISO optionee ceases to be employed by the
            Company and all Related Corporations by reason of his or her
            disability, such optionee shall have the right to exercise any ISO
            held by him or her on the date of termination of employment, for the
            number of shares for which he or she could have exercised it on that
            date, at any time prior to the earlier of (i) the specified
            expiration date of the ISO or (ii) 180 days from the date of the
            termination of the optionee's employment. For the purposes of the
            Plan, the term "disability" shall mean "permanent and total
            disability" as defined in Section 22(e)(3) of the Code or any
            successor statute.

      11. ASSIGNABILITY. No ISO shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee shall be exercisable only by such optionee. Stock
Rights other than ISOs shall be transferable to the extent set forth in the
agreement relating to such Stock Right.

      12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.

      13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:

                                     - 8 -


                  A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common
            Stock shall be subdivided or combined into a greater or smaller
            number of shares or if the Company shall issue any shares of Common
            Stock as a stock dividend on its outstanding Common Stock, the
            number of shares of Common Stock deliverable upon the exercise of
            Options shall be appropriately increased or decreased
            proportionately, and appropriate adjustments shall be made in the
            purchase price per share to reflect such subdivision, combination or
            stock dividend.

                  B. CONSOLIDATIONS OR MERGERS. If the Company is to be
            consolidated with or acquired by another entity in a merger or other
            reorganization in which the holders of the outstanding voting stock
            of the Company immediately preceding the consummation of such event,
            shall, immediately following such event, hold, as a group, less than
            a majority of the voting securities of the surviving or successor
            entity, or in the event of a sale of all or substantially all of the
            Company's assets or otherwise (each, an "Acquisition"), the
            Committee may take one or more of the following actions: (i) provide
            for the acceleration and/or termination of any time period relating
            to the exercise of the Options, (ii) provide for the purchase of the
            Options, upon the optionee's request, for the amount in cash that
            could have been received upon the exercise of the Options and sale
            of the shares obtained thereby, (iii) adjust the terms of the
            Options in a manner determined by the Committee, (iv) cause the
            Options to be assumed, or new rights substituted therefor, by
            another entity or (v) make such other provision as the Committee may
            consider equitable and in the best interests of the Company.

                  C. RECAPITALIZATION OR REORGANIZATION. In the event of a
            recapitalization or reorganization of the Company (other than a
            transaction described in subparagraph B above) pursuant to which
            securities of the Company or of another corporation are issued with
            respect to the outstanding shares of Common Stock, an optionee upon
            exercising an Option shall be entitled to receive for the purchase
            price paid upon such exercise the securities he or she would have
            received if he or she had exercised such Option prior to such
            recapitalization or reorganization.

                  D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
            adjustments made pursuant to subparagraphs A, B or C with respect to
            ISOs shall be made only after the Committee, after consulting with
            counsel for the Company, determines whether such adjustments would
            constitute a "modification" of such ISOs (as that term is defined in
            Section 424 of the Code) or would cause any adverse tax consequences
            for the holders of such ISOs. If the Committee determines that such
            adjustments made with respect to ISOs would constitute a
            modification of such ISOs or would cause adverse tax consequences to
            the holders, it may refrain from making such adjustments.

                                     - 9 -


                  E. RESTRICTED SECURITIES. If any person or entity owning
            restricted Common Stock obtained by exercise of an Option made
            hereunder receives new or additional or different shares or
            securities ("New Securities") in connection with a transaction
            described in subparagraphs A, B or C above, as a result of owning
            such restricted Common Stock, such New Securities shall be subject
            to all of the conditions and restrictions applicable to the
            restricted Common Stock with respect to which such New Securities
            were issued.

                  F. ISSUANCES OF SECURITIES. Except as expressly provided
            herein, no issuance by the Company of shares of stock of any class,
            or securities convertible into shares of stock of any class, shall
            affect, and no adjustment by reason thereof shall be made with
            respect to, the number or price of shares subject to Options. No
            adjustments shall be made for dividends paid in cash or in property
            other than securities of the Company.

                  G. FRACTIONAL SHARES. No fractional shares shall be issued
            under the Plan. Any fractional shares which, but for this
            subparagraph G, would have been issued to an optionee pursuant to an
            Option, shall be deemed to have been issued and immediately sold to
            the Company for their fair market value, and the optionee shall
            receive from the Company cash in lieu of such fractional shares.

                  H. ADJUSTMENTS. Upon the happening of any of the events
            described in subparagraphs A, B or C above, the class and aggregate
            number of shares set forth in paragraph 4 hereof that are subject to
            Stock Rights which previously have been or subsequently may be
            granted under the Plan shall also be appropriately adjusted to
            reflect the events described in such subparagraphs. The Committee
            shall determine the specific adjustments to be made under this
            paragraph 13 and, subject to paragraph 2, its determination shall be
            conclusive.

      14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the optionee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in

                                     - 10 -


clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be
exercised in writing at the time of the grant of the ISO in question. The holder
of an Option shall not have the rights of a shareholder with respect to the
shares covered by such Option until the date of issuance of a stock certificate
to such holder for such shares. Except as expressly provided above in paragraph
13 with respect to changes in capitalization and stock dividends, no adjustment
shall be made for dividends or similar rights for which the record date is
before the date such stock certificate is issued.

      15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board in July
1997 and by the stockholders of the Company on September 9, 1997. The Plan was
amended on March 12, 1998 to increase the number of shares authorized for
issuance under the Plan by 750,000 shares to 1,500,000, and such amendment was
approved by the stockholders of the Company at the Annual Meeting held on April
30, 1998. On March 1, 1999, the Board of Directors further amended the Plan to
increase the number of Shares authorized for issuance under the Plan by
1,000,000 shares to 2,500,000 shares and to make certain other minor
modifications, and such amendment was approved by the stockholders of the
Company at the Annual Meeting held on April 27, 1999. On May 15, 1999, the Board
of Directors further amended the Plan by adding Section 22 to the Plan. On March
8, 2000 the Board of Directors further amended the Plan to increase the number
of shares authorized for issuance under the Plan by 750,000 shares to 3,250,000,
subject to the approval of the amendment of the Plan by the stockholders of the
Company at the next Meeting of Stockholders. The Plan shall expire at the end of
the day on October 15, 2007 (except as to Options outstanding on that date).
Subject to the provisions of paragraph 5 above, Options may be granted under the
Plan prior to the date of stockholder approval of the Plan. The Board may
terminate or amend the Plan in any respect at any time, except that, without the
approval of the stockholders obtained within 12 months before or after the Board
adopts a resolution authorizing any of the following actions: (a) the total
number of shares that may be issued under the Plan may not be increased (except
by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action of the Board or
stockholders alter or impair the rights of a grantee, without such grantee's
consent, under any Stock Right previously granted to such grantee.

      16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS.
Subject to paragraph 13(D), without the prior written consent of the holder of
an ISO, the Committee shall not alter the terms of such ISO (including the means
of exercising such ISO) if such alteration would constitute a modification
(within the meaning of Section 424(h)(3) of the Code). The Committee, at the
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the

                                     - 11 -


exercise period of such ISOs. At the time of such conversion, the Committee
(with the consent of the optionee) may impose such conditions on the exercise of
the resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
Upon the taking of such action, the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options
that are ISOs. The Committee, with the consent of the optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
conversion.

      17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.

      18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.

      19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold, or may require the grantee to pay,
additional withholding taxes in respect of amounts that constitute compensation
includible in gross income. The Committee in its discretion may condition (i)
the exercise of an Option, (ii) the transfer of a Non-Qualified Stock Option,
(iii) the grant of an Award, (iv) the making of a Purchase of Common Stock for
less than its fair market value, or (v) the vesting or transferability of
restricted stock or securities acquired by exercising an Option, on the
grantee's making satisfactory arrangement for such withholding. Such arrangement
may include payment by the grantee in cash or by check of the amount of the
withholding taxes or, at the discretion of the Committee, by the grantee's
delivery of previously held shares of Common Stock or the withholding from the
shares of Common Stock otherwise deliverable upon exercise of a Option shares
having an aggregate fair market value equal to the amount of such withholding
taxes.

      20. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares. Government regulations may impose reporting or other
obligations on the Company with respect to the Plan.

                                     - 12 -


For example, the Company may be required to send tax information statements to
employees and former employees that exercise ISOs under the Plan, and the
Company may be required to file tax information returns reporting the income
received by grantees of Options in connection with the Plan.

      21. GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of the
Commonwealth of Massachusetts, or the laws of any jurisdiction in which the
Company or its successors in interest may be organized.

      22. REPRICING. Without the prior approval of the Company's stockholders,
Options issued under the Plan shall not be repriced, replaced or regranted
through cancellation or by lowering the Option exercise price of a previously
granted Option.

EX-10.08

                                                                   EXHIBIT 10.08

                          CONCORD COMMUNICATIONS, INC.

                  1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
  (AS AMENDED MARCH 12, 1998, MARCH 8, 2000, APRIL 25, 2001, FEBRUARY 6, 2002,
                                AUGUST 20, 2004)

      1. Purpose. This Non-Qualified Stock Option Plan, to be known as the 1997
Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is intended
to promote the interests of CONCORD COMMUNICATIONS, INC. (hereinafter, the
"Company") by providing an inducement to obtain and retain the services of
qualified persons who are not employees or officers of the Company to serve as
members of its Board of Directors (the "Board").

      2. Available Shares. The total number of shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") for which options may be
granted under this Plan shall not exceed three hundred thirty thousand (330,000)
shares, subject to adjustment in accordance with Section 10 of this Plan;
provided, however, that such number of shares shall not be subject to adjustment
by reason of the stock split in the form of a stock dividend declared by the
Board of the Directors of the Company on August 7, 1997. Shares subject to this
Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under this Plan.

      3. Administration. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.

      4. Automatic Grant of Options. Subject to the availability of shares under
this Plan, (a) each person who becomes a member of the Board on or after October
16, 1997 and who is not an employee or officer of the Company during the term of
the Plan (a "Non-Employee Director"), shall be granted on the date such person
is first elected to the Board, without further action by the Board, an option to
purchase 25,000 shares of Common Stock, and (b) each person who is a
Non-Employee Director immediately following the final adjournment of each Annual
Meeting of Stockholders of the Company during the term of this Plan shall be
automatically granted on each such date an option to purchase 10,000 shares of
Common Stock. The options to be granted under this Section 4 shall be the only
options ever to be granted at any time to such member under this Plan. The
number of shares covered by options granted under this Section 4 shall be
subject to adjustment in accordance with the provisions of Section 10 of this
Plan.



                                      -2-

      5. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of Section 10 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq National Market, if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market List. However, if the Common Stock is not publicly traded at the
time an option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.

      6. Period of Option. Unless sooner terminated in accordance with the
provisions of Section 8 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.

      7.    (a) Vesting of Shares and Non-Transferability of Options. Options
granted under this Plan shall not be exercisable until they become vested.
Options granted under this Plan shall vest in the optionee and thus become
exercisable, in accordance with the following schedule, provided that the
optionee has continuously served as a member of the Board through such vesting
date:

            Percentage of Option
            Shares for which
            Option Will be Exercisable  Date of Vesting

                      25%               one year from the date of grant

                      6.25%             per quarter on the last day of the
                                        quarter beginning the quarter ending
                                        immediately following the date to occur
                                        which is one year from the date of grant

      The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan.




                                      -3-

            (b) Non-transferability. Any option granted pursuant to this Plan
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.

      8. Termination of Option Rights.

            (a) In the event an optionee ceases to be a member of the Board for
any reason other than death or permanent disability, any then unexercised
portion of options granted to such optionee shall, to the extent not then
vested, immediately terminate and become void; any portion of an option which is
then vested but has not been exercised at the time the optionee so ceases to be
a member of the Board may be exercised, to the extent it is then vested, by the
optionee within 60 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 60 days have expired.

            (b) In the event that an optionee ceases to be a member of the Board
by reason of his or her death or permanent disability, any option granted to
such optionee may be exercised, to the extent of the number of shares with
respect to which he or she could have exercised it on the date of death or
permanent disability, by the optionee (or by the optionee's personal
representative, heir or legatee, in the event of death) until the scheduled
expiration date of the option.

      9. Exercise of Options and Resale Restrictions.

            (a) Exercise of Option. Subject to the terms and conditions of this
Plan and the option agreements, an option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Company by mail or in person addressed to the Chief Financial Officer at 600
Nickerson Road, Marlboro, Massachusetts 01752, its principal executive offices,
stating the number of shares with respect to which the option is being
exercised, accompanied by payment in full for such shares. Payment may be (a) in
United States dollars in cash or by check, (b) in whole or in part in shares of
the Common Stock of the Company already owned by the person or persons
exercising the option or shares subject to the option being exercised (subject
to such restrictions and guidelines as the Board may adopt from time to time),
valued at fair market value determined in accordance with the provisions of
Section 5 or (c) consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise; provided, however,
that there shall be no such exercise at any one time as to fewer than one
hundred (100) shares or all of the remaining shares then purchasable by the
person or persons exercising the option, if fewer than one hundred (100) shares.
The Company's transfer agent shall, on behalf of the Company, prepare a
certificate or certificates representing such shares acquired pursuant to
exercise of the option, shall register the optionee as the owner of such shares
on the books of the Company and shall cause the fully executed certificate(s)
representing such shares to be delivered to the optionee as soon as practicable
after payment of the option price in




                                      -4-

full. The holder of an option shall not have any rights of a stockholder with
respect to the shares covered by the option, except to the extent that one or
more certificates for such shares shall be delivered to him or her upon the due
exercise of the option.

            (b) Resale Restrictions. Under no circumstances may shares acquired
pursuant to the exercise of options granted pursuant to this Plan be disposed of
on or prior to the date that is six months after the date such options were
granted.

      10. Adjustments Upon Changes in Capitalization and Other Events. Upon the
occurrence of any of the following events, an optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:

            (a) Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.

            (b) Recapitalization Adjustments. In the event of a reorganization,
recapitalization, merger, consolidation, or any other change in the corporate
structure or shares of the Company, to the extent permitted by Rule 16b-3 under
the Securities Exchange Act of 1934, adjustments in the number and kind of
shares authorized by this Plan and in the number and kind of shares covered by,
and in the option price of outstanding options under this Plan necessary to
maintain the proportionate interest of the optionee and preserve, without
exceeding, the value of such option, shall be made. Notwithstanding the
foregoing, no such adjustment shall be made which would, within the meaning of
any applicable provisions of the Internal Revenue Code of 1986, as amended,
constitute a modification, extension or renewal of any Option or a grant of
additional benefits to the holder of an Option.

            (c) Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.

            (d) Adjustments. Upon the happening of any of the foregoing events,
the class and aggregate number of shares set forth in Sections 2 and 4 of this
Plan that are subject to options which previously have been or subsequently may
be granted under this Plan shall also be appropriately adjusted to reflect such
events. The Board shall determine the specific adjustments to be made under this
Section 10 and its determination shall be conclusive.

            (e) Consolidations or Mergers. If the Company is to be consolidated
with or acquired by another entity in a merger or other reorganization in which
the holders of the outstanding voting stock of the Company immediately preceding
the consummation of such




                                      -5-

event, shall, immediately following such event, hold, as a group, less than a
majority of the voting securities of the surviving or successor entity, or in
the event of a sale of all or substantially all of the Company's assets or
otherwise (each, an "Acquisition"), the vesting of all outstanding options
issued pursuant hereto will be accelerated so that all outstanding options are
vested and exercisable in full prior to the consummation of any such
Acquisition. If such options are not exercised prior to the consummation of such
Acquisition, and are not assumed or replaced by the successor entity, such
options will terminate.

      11. Restrictions on Issuance of Shares. Notwithstanding the provisions of
Sections 4 and 9 of this Plan, the Company shall have no obligation to deliver
any certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:

            (i) The issuance of shares with respect to which the option has been
exercised is at the time of the issue of such shares effectively registered
under applicable Federal and state securities laws as now in force or hereafter
amended; or

            (ii) Counsel for the Company shall have given an opinion that the
issuance of such shares is exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and the Company has
complied with all applicable laws and regulations with respect thereto,
including without limitation all regulations required by any stock exchange upon
which the Company's outstanding Common Stock is then listed.

      12. Legend on Certificates. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.

      13. Representation of Optionee. If requested by the Company, the optionee
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with Federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).

      14. Option Agreement. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.

      15. Termination and Amendment of Plan. Options may no longer be granted
under this Plan ten (10) years after the Approval Date, and this Plan shall
terminate when all options granted or to be granted hereunder are no longer
outstanding. The Board may at any time terminate this Plan or make such
modification or amendment thereof as it deems advisable;




                                      -6-

provided, however, that the Board may not, without approval of the stockholders,
modify or amend this Plan, if such approval is required by the Federal
securities laws or applicable regulatory authorities (at the time of any such
modification or amendment). Termination or any modification or amendment of this
Plan shall not, without consent of a participant, affect his or her rights under
an option previously granted to him or her. The Plan was adopted by the Board of
Directors in July 1997 and by the stockholders of the Company on September 9,
1997. The Plan was amended on March 12, 1998 by the Board of Directors to
increase the number of option shares granted to Directors on the date such
person is first elected to the Board from 7,500 shares to 20,000 shares and to
increase the number of option shares automatically granted to Directors
immediately following the final adjournment of each Annual Meeting of
Stockholders from 1,875 shares to 5,000 shares. The Plan was further amended on
March 8, 2000 by the Board of Directors to increase the number of shares
authorized for issuance under the Plan by 35,000 subject to approval of the
amendment of the Plan by the stockholders of the Company at the next meeting of
stockholders. The stockholders of the Company approved such amendment on April
25, 2000. The Plan was further amended on April 25, 2001 to increase the number
of option shares automatically granted to Directors immediately following the
final adjournment of each Annual Meeting of Stockholders from 5,000 shares to
7,500 shares. The Plan was further amended on February 6, 2002 by the Board of
Directors to increase the number of shares authorized for issuance under the
Plan by 200,000 subject to approval of the amendment of the Plan by the
stockholders of the Company at the next meeting of stockholders. The
stockholders of the Company approved such amendment on April 24, 2002. The Plan
was further amended by the Board of Directors on August 20, 2004 to increase the
number of option shares automatically granted to Directors on the date such
person is first elected to the Board from 20,000 shares to 25,000 shares and to
increase the number of option shares automatically granted to Directors
immediately following the final adjournment of each Annual Meeting of
Stockholders from 7,500 to 10,000 shares.

      16. Withholding of Income Taxes. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includible in the optionee's gross income.

      17. Compliance with Regulations. It is the Company's intent that the Plan
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended provision thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of this Plan
is deemed not to be in compliance with Rule 16b-3, the provision shall be null
and void.

      18. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.

EX-10.16

                                                                   EXHIBIT 10.16

                          CONCORD COMMUNICATIONS, INC.

                 2004 NON-EXECUTIVE EMPLOYEE STOCK PURCHASE PLAN

ARTICLE 1 - PURPOSE.

      This 2004 Non-Executive Employee Stock Purchase Plan (the "Plan") is
intended to encourage stock ownership by all eligible employees of CONCORD
COMMUNICATIONS, INC. (the "Company"), a Massachusetts corporation, and its
participating subsidiaries (as defined in Article 17) so that they may share in
the growth of the Company by acquiring or increasing their proprietary interest
in the Company. The Plan is designed to encourage eligible employees to remain
in the employ of the Company and its participating subsidiaries. The Plan is
intended to constitute an "employee stock purchase plan" within the meaning of
Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code").

ARTICLE 2 - ADMINISTRATION OF THE PLAN.

      The Plan may be administered by the Compensation Committee of the Board of
Directors or a committee appointed by the Board of Directors of the Company (the
"Committee"). The Committee shall consist of not less than two members of the
Company's Board of Directors (the "Board of Directors"). The Board of Directors
may from time to time remove members from, or add members to, the Committee.
Vacancies on the Committee, howsoever caused, shall be filled by the Board of
Directors. The Committee may select one of its members as Chairman, and shall
hold meetings at such times and places as it may determine. Acts by a majority
of the Committee, or acts reduced to or approved in writing by a majority of the
members of the Committee, shall be the valid acts of the Committee.

      The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final, unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best,
provided that any such rules and regulations shall be applied on a uniform basis
to all employees under the Plan. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.

      In the event the Board of Directors fails to appoint or refrains from
appointing a Committee, the Board of Directors shall have all power and
authority to administer the Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board of Directors.

ARTICLE 3 - ELIGIBLE EMPLOYEES.

      All employees, (excluding Officers and Directors to the extent described
below), of the Company or any of its participating subsidiaries whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year shall be eligible to receive options under the Plan to purchase
common stock of the Company, and all eligible employees shall have the same
rights and privileges hereunder. Persons who are eligible employees on the



                                      -2-

first business day of any Payment Period (as defined in Article 5) shall receive
their options as of such day. Persons who become eligible employees after any
date on which options are granted under the Plan shall be granted options on the
first day of the next succeeding Payment Period on which options are granted to
eligible employees under the Plan. In no event, however, may an employee be
granted an option if such employee, immediately after the option was granted,
would be treated as owning stock possessing five percent or more of the total
combined voting power or value of all classes of stock of the Company or of any
parent corporation or subsidiary corporation, as the terms "parent corporation"
and "subsidiary corporation" are defined in Section 424(e) and (f) of the Code.
For purposes of determining stock ownership under this paragraph, the rules of
Section 424(d) of the Code shall apply, and stock which the employee may
purchase under outstanding options shall be treated as stock owned by the
employee. Notwithstanding the foregoing, Officers and Directors of the Company
who are "highly compensated employees" (within the meaning of Section 414(q) of
the Code) shall not be eligible employees and shall not be eligible to receive
options under the Plan. For purpose of the Plan, (a) "Officers" shall mean a
person who is an officer of the Company within the meaning of the
interpretations of the National Association of Securities Dealers, Inc. ("NASD")
under Section 4350(i)(1)(a) of the NASD Marketplace Rules and (b) "Director"
shall mean a member of the Board of Directors of the Company.

ARTICLE 4 - STOCK SUBJECT TO THE PLAN.

      The stock subject to the options under the Plan shall be shares of the
Company's authorized but unissued common stock, par value $0.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company, including
shares purchased in the open market. The aggregate number of shares which may be
issued pursuant to the Plan is 500,000, subject to adjustment as provided in
Article 12. If any option granted under the Plan shall expire or terminate for
any reason without having been exercised in full or shall cease for any reason
to be exercisable in whole or in part, the unpurchased shares subject thereto
shall again be available under the Plan.

ARTICLE 5 - PAYMENT PERIOD AND STOCK OPTIONS.

      The first Payment Period during which payroll deductions will be
accumulated under the Plan shall commence on the later to occur of May 1, 2004
and the first day of the first calendar month following effectiveness of the
Form S-8 registration statement filed with the Securities and Exchange
Commission covering the shares to be issued pursuant to the Plan and shall end
on October 31, 2004. For the remainder of the duration of the Plan, Payment
Periods shall consist of the six-month periods commencing on November 1 and May
1, respectively, and ending on April 30 and October 31, respectively, of each
calendar year.

      Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee an option to purchase on the last
day of such Payment Period, at the Option Price hereinafter provided for, a
maximum of 20,000 shares, on condition that such employee remains eligible to
participate in the Plan throughout the remainder of such Payment Period. The
employee shall be entitled to exercise the option so granted only to the extent
of the employee's accumulated payroll deductions on the last day of such Payment
Period. If the




                                      -3-

participant's accumulated payroll deductions on the last day of the Payment
Period would enable the participant to purchase more than 20,000 shares except
for the 20,000-share limitation, the excess of the amount of the accumulated
payroll deductions over the aggregate purchase price of the 20,000 shares shall
be promptly refunded to the participant by the Company, without interest. The
Option Price per share for each Payment Period initially shall be the lesser of
(i) 85% of the average market price of the Common Stock on the first business
day of the Payment Period and (ii) 85% of the average market price of the Common
Stock on the last business day of the Payment Period, in either event rounded up
to the nearest cent. Notwithstanding the foregoing, the Committee may, by giving
written notice to the eligible employees at least 20 days before the first day
of the next succeeding Payment Period, increase or decrease the then prevailing
Option Price for such next succeeding Payment Period and successive Payment
Periods; provided that (x) such written notice shall set forth the revised
Option Price, and (y) the Option Price shall not be less than the lesser of (i)
85% of the average market price of the Common Stock on the first business day of
the Payment Period and (ii) 85% of the average market price of the Common Stock
on the last business day of the Payment Period, in either event rounded up to
the nearest cent. The foregoing limitation on the number of shares subject to
option and the Option Price shall be subject to adjustment as provided in
Article 12.

      For purposes of the Plan, the term "average market price" on any date
means (i) the average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities exchange; or
(ii) the last reported sale price (on that date) of the Common Stock on the
Nasdaq National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the average of the closing bid and asked prices
last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market; or (iv) if the Common Stock is not publicly traded, the fair
market value of the Common Stock as determined by the Committee after taking
into consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.

For purposes of the Plan, the term "business day" means a day on which there is
trading on the Nasdaq National Market or the aforementioned national securities
exchange, whichever is applicable pursuant to the preceding paragraph; and if
neither is applicable, a day that is not a Saturday, Sunday or legal holiday in
The Commonwealth of Massachusetts.

      No employee shall be granted an option which permits the employee's right
to purchase stock under the Plan, and under all other Section 423(b) employee
stock purchase plans of the Company and any parent or subsidiary corporations,
to accrue at a rate which exceeds $25,000 of fair market value of such stock
(determined on the date or dates that options on such stock were granted) for
each calendar year in which such option is outstanding at any time. The purpose
of the limitation in the preceding sentence is to comply with Section 423(b)(8)
of the Code. If the participant's accumulated payroll deductions on the last day
of the Payment Period would otherwise enable the participant to purchase Common
Stock in excess of the Section 423(b)(8) limitation described in this paragraph,
the excess of the amount of the accumulated payroll deductions over the
aggregate purchase price of the shares actually purchased shall be promptly
refunded to the participant by the Company, without interest.





                                      -4-

ARTICLE 6 - EXERCISE OF OPTION.

      Each eligible employee who continues to be a participant in the Plan on
the last day of a Payment Period shall be deemed to have exercised his or her
option on such date and shall be deemed to have purchased from the Company such
number of full shares of Common Stock reserved for the purpose of the Plan as
the participant's accumulated payroll deductions on such date will pay for at
the Option Price, subject to the 20,000-share limit of the option and the
Section 423(b)(8) limitation described in Article 5. If the individual is not a
participant on the last day of a Payment Period, then he or she shall not be
entitled to exercise his or her option and the amount of his or her payroll
deduction shall be refundable without interest. Only full shares of Common Stock
may be purchased under the Plan. Unused payroll deductions remaining in a
participant's account at the end of a Payment Period by reason of the inability
to purchase a fractional share shall be carried forward to the next Payment
Period.

ARTICLE 7 - AUTHORIZATION FOR ENTERING THE PLAN.

      An employee may elect to authorize payroll deductions under the Plan by
filling out, signing and delivering to the Company an authorization:

            A. Stating the percentage to be deducted regularly from the
      employee's pay;

            B. Authorizing the purchase of stock for the employee in each
      Payment Period in accordance with the terms of the Plan; and

            C. Specifying the exact name or names in which stock purchased for
      the employee is to be issued as provided under Article 11 hereof.

Such authorization must be received by the Company at least ten days before the
first day of the next succeeding Payment Period and shall take effect only if
the employee is an eligible employee on the first business day of such Payment
Period. Notwithstanding the foregoing, solely for purposes of the first Payment
Period under the Plan, an employee who is an eligible employee on the first
business day of such Payment Period may elect to authorize payroll deductions
under the Plan by filling out, signing, and delivering to the Company the
written authorization described above so that the Company receives such
authorization no later than [April 30, 2004].

      Unless a participant files a new authorization or withdraws from the Plan,
the deductions and purchases under the authorization the participant has on file
under the Plan will continue from one Payment Period to succeeding Payment
Periods as long as the Plan remains in effect.

      The Company will accumulate and hold for each participant's account the
amounts deducted from his or her pay. No interest will be paid on these amounts.

ARTICLE 8 - MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS.



                                      -5-

      An employee may authorize payroll deductions in an amount (expressed as a
whole percentage) not less than one percent (1%) but not more than ten percent
(10%) of the employee's total compensation, including base pay or salary and any
overtime, bonuses or commissions.

ARTICLE 9 - CHANGE IN PAYROLL DEDUCTIONS.

      Deductions may not be increased or decreased during a Payment Period.
However, a participant may withdraw in full from the Plan in which event the
Company will promptly refund (without interest) the entire balance of the
employer's deduction not previously used to purchase stock under the Plan.

ARTICLE 10 - WITHDRAWAL FROM THE PLAN.

      A participant may withdraw from the Plan (in whole but not in part) at any
time prior to the last day of a Payment Period by delivering a withdrawal notice
to the Company.

      To re-enter the Plan, an employee who has previously withdrawn must file a
new authorization at least ten days before the first day of the next Payment
Period in which he or she wishes to participate. The employee's re-entry into
the Plan becomes effective at the beginning of such Payment Period, provided
that he or she is an eligible employee on the first business day of the Payment
Period.

ARTICLE 11 - ISSUANCE OF STOCK.

      Certificates for stock issued to participants shall be delivered as soon
as practicable after each Payment Period by the Company's transfer agent.

      Stock purchased under the Plan shall be issued only in the name of the
participant, or if the participant's authorization so specifies, in the name of
the participant and another person of legal age as joint tenants with rights of
survivorship.

ARTICLE 12 - ADJUSTMENTS.

      Upon the happening of any of the following described events, a
participant's rights under options granted under the Plan shall be adjusted as
hereinafter provided:

            A. In the event that the shares of Common Stock shall be subdivided
      or combined into a greater or smaller number of shares or if, upon a
      reorganization, split-up, liquidation, recapitalization or the like of the
      Company, the shares of Common Stock shall be exchanged for other
      securities of the Company, each participant shall be entitled, subject to
      the conditions herein stated, to purchase such number of shares of Common
      Stock or amount of other securities of the Company as were exchangeable
      for the number of shares of Common Stock that such participant would have
      been entitled to purchase except for such action, and appropriate
      adjustments shall be made in the purchase price per share to reflect such
      subdivision, combination or exchange; and




                                      -6-

            B. In the event the Company shall issue any of its shares as a stock
      dividend upon or with respect to the shares of stock of the class which
      shall at the time be subject to option hereunder, each participant upon
      exercising such an option shall be entitled to receive (for the purchase
      price paid upon such exercise) the shares as to which the participant is
      exercising his or her option and, in addition thereto (at no additional
      cost), such number of shares of the class or classes in which such stock
      dividend or dividends were declared or paid, and such amount of cash in
      lieu of fractional shares, as is equal to the number of shares thereof and
      the amount of cash in lieu of fractional shares, respectively, which the
      participant would have received if the participant had been the holder of
      the shares as to which the participant is exercising his or her option at
      all times between the date of the granting of such option and the date of
      its exercise.

      Upon the happening of any of the foregoing events, the class and aggregate
number of shares set forth in Article 4 hereof which are subject to options
which have been or may be granted under the Plan and the limitations set forth
in the second paragraph of Article 5 shall also be appropriately adjusted to
reflect the events specified in paragraphs A and B above. Notwithstanding the
foregoing, any adjustments made pursuant to paragraphs A or B shall be made only
after the Committee, based on advice of counsel for the Company, determines
whether such adjustments would constitute a "modification" (as that term is
defined in Section 424 of the Code). If the Committee determines that such
adjustments would constitute a modification, it may refrain from making such
adjustments.

      If the Company is to be consolidated with or acquired by another entity in
a merger, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations of the Company hereunder (the "Successor Board")
shall, with respect to options then outstanding under the Plan, either (i) make
appropriate provision for the continuation of such options by arranging for the
substitution on an equitable basis for the shares then subject to such options
either (a) the consideration payable with respect to the outstanding shares of
the Common Stock in connection with the Acquisition, (b) shares of stock of the
successor corporation, or a parent or subsidiary of such corporation, or (c)
such other securities as the Successor Board deems appropriate, the fair market
value of which shall not materially exceed the fair market value of the shares
of Common Stock subject to such options immediately preceding the Acquisition;
or (ii) terminate each participant's options in exchange for a cash payment
equal to the excess of (a) the fair market value on the date of the Acquisition,
of the number of shares of Common Stock that the participant's accumulated
payroll deductions as of the date of the Acquisition could purchase, at an
option price determined with reference only to the first business day of the
applicable Payment Period and subject to the 20,000-share, Code Section
423(b)(8) and fractional-share limitations on the amount of stock a participant
would be entitled to purchase, over (b) the result of multiplying such number of
shares by such option price.

      The Committee or Successor Board shall determine the adjustments to be
made under this Article 12, and its determination shall be conclusive.




                                      -7-

ARTICLE 13 - NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS.

      An option granted under the Plan may not be transferred or assigned to or
availed by, any other person than by will or the laws of descent and
distribution and may be exercised only by the employee during the employee's
lifetime.

ARTICLE 14 - TERMINATION OF EMPLOYEE'S RIGHTS.

      Whenever a participant ceases to be an eligible employee because of
retirement, voluntary or involuntary termination, resignation, layoff,
discharge, death or for any other reason, his or her rights under the Plan shall
immediately terminate, and the Company shall promptly refund, without interest,
the entire balance of his or her payroll deduction account under the Plan.
Notwithstanding the foregoing, eligible employment shall be treated as
continuing intact while a participant is on military leave, sick leave or other
bona fide leave of absence, for up to 90 days, or for so long as the
participant's right to re-employment is guaranteed either by statute or by
contract, if longer than 90 days.

ARTICLE 15 - TERMINATION AND AMENDMENTS TO PLAN.

      The Plan may be terminated at any time by the Company's Board of Directors
but such termination shall not affect options then outstanding under the Plan.
It will terminate in any case when all or substantially all of the unissued
shares of stock reserved for the purposes of the Plan have been purchased. If at
any time shares of stock reserved for the purpose of the Plan remain available
for purchase but not in sufficient number to satisfy all then unfilled purchase
requirements, the available shares shall be apportioned among participants in
proportion to the amount of payroll deductions accumulated on behalf of each
participant that would otherwise be used to purchase stock, and the Plan shall
terminate. Upon such termination, all payroll deductions not used to purchase
stock will be refunded, without interest.

      The Committee or the Board of Directors may from time to time adopt
amendments to the Plan provided that, without the approval of the stockholders
of the Company, no amendment may (i) increase the number of shares that may be
issued under the Plan; (ii) change the class of employees eligible to receive
options under the Plan, if such action would be treated as the adoption of a new
plan for purposes of Section 423(b) of the Code; or (iii) cause Rule 16b-3 under
the Securities Exchange Act of 1934 to become inapplicable to the Plan.

ARTICLE 16 - LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN.

      The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any employee in the conduct of his or her own affairs. An employee may,
therefore, sell stock purchased under the Plan at any time the employee chooses,
subject to compliance with any applicable federal or state securities laws and
subject to any restrictions imposed under Article 21 to ensure that tax
withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY
MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.




                                      -8-

ARTICLE 17 - PARTICIPATING SUBSIDIARIES.

      The term "participating subsidiary" shall mean any present or future
subsidiary of the Company, as that term is defined in Section 424(f) of the
Code, which is designated from time to time by the Board of Directors to
participate in the Plan. The Board of Directors shall have the power to make
such designation before or after the Plan is approved by the stockholders.

ARTICLE 18 - OPTIONEES NOT STOCKHOLDERS.

      Neither the granting of an option to an employee nor the deductions from
his or her pay shall constitute such employee a stockholder of the shares
covered by an option until such shares have been actually purchased by the
employee.

ARTICLE 19 - APPLICATION OF FUNDS.

      The proceeds received by the Company from the sale of Common Stock
pursuant to options granted under the Plan will be used for general corporate
purposes.

ARTICLE 20 - NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.

      By electing to participate in the Plan, each participant agrees to notify
the Company in writing immediately after the participant transfers Common Stock
acquired under the Plan, if such transfer occurs within two years after the
first business day of the Payment Period in which such Common Stock was
acquired. Each participant further agrees to provide any information about such
a transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421 and 424 of the
Code, which have certain tax consequences to participants and to the Company and
its participating subsidiaries.

ARTICLE 21 - WITHHOLDING OF ADDITIONAL INCOME TAXES.

      By electing to participate in the Plan, each participant acknowledges that
the Company and its participating subsidiaries are required to withhold taxes
with respect to the amounts deducted from the participant's compensation and
accumulated for the benefit of the participant under the Plan, and each
participant agrees that the Company and its participating subsidiaries may
deduct additional amounts from the participant's compensation, when amounts are
added to the participant's account, used to purchase Common Stock or refunded,
in order to satisfy such withholding obligations. Each participant further
acknowledges that when Common Stock is purchased under the Plan the Company and
its participating subsidiaries may be required to withhold taxes with respect to
all or a portion of the difference between the fair market value of the Common
Stock purchased and its purchase price, and each participant agrees that such
taxes may be withheld from compensation otherwise payable to such participant.
It is intended that tax withholding will be accomplished in such a manner that
the full amount of payroll deductions elected by the participant under Article 7
will be used to purchase Common Stock. However, if amounts sufficient to satisfy
applicable tax withholding obligations have not been withheld from compensation
otherwise payable to any participant, then, notwithstanding any other provision
of




                                      -9-

the Plan, the Company may withhold such taxes from the participant's accumulated
payroll deductions and apply the net amount to the purchase of Common Stock,
unless the participant pays to the Company, prior to the exercise date, an
amount sufficient to satisfy such withholding obligations. Each participant
further acknowledges that the Company and its participating subsidiaries may be
required to withhold taxes in connection with the disposition of stock acquired
under the Plan and agrees that the Company or any participating subsidiary may
take whatever action it considers appropriate to satisfy such withholding
requirements, including deducting from compensation otherwise payable to such
participant an amount sufficient to satisfy such withholding requirements or
conditioning any disposition of Common Stock by the participant upon the payment
to the Company or such subsidiary of an amount sufficient to satisfy such
withholding requirements.

ARTICLE 22 - GOVERNMENTAL REGULATIONS.

      The Company's obligation to sell and deliver shares of Common Stock under
the Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.

      Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
identify shares of Common Stock issued under the Plan on its stock ownership
records and send tax information statements to employees and former employees
who transfer title to such shares.

ARTICLE 23 - GOVERNING LAW.

      The validity and construction of the Plan shall be governed by the laws of
The Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of law thereof.

ARTICLE 24 - APPROVAL OF BOARD OF DIRECTORS AND STOCKHOLDERS OF THE COMPANY.

      The Plan was adopted by the Board of Directors on March 15, 2004 and will
be considered for approval by the stockholders of the Company on or before May
5, 2005.

EX-10.18

                                                                   EXHIBIT 10.18

                          CONCORD COMMUNICATIONS, INC.

         NON-QUALIFIED STOCK OPTION AGREEMENT FOR NON-EMPLOYEE DIRECTORS

      1. Grant Under 1997 Non-Employee Director Stock Option Plan. This option
is granted pursuant to and is governed by the Company's 1997 Non-Employee
Director Stock Option Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the meanings assigned to them in the
Plan. Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on the date hereof. In the event of
any conflict between this Agreement and the provisions of the Plan, the Plan
shall govern.

      2. Grant as Non-Qualified Option; Other Options. This option is intended
to be a non-qualified option (rather than an incentive stock option) granted
pursuant to Section 4(b) of the Plan, and the Board of Directors of the Company
(the "Board") intends to take appropriate action, if necessary, to achieve this
result. This option is in addition to any other options heretofore or hereafter
granted to the Optionee by the Company, but a duplicate original of this
instrument shall not affect the grant of another option.

      3. Exercise of Option if Service as a Director Continues. Unless sooner
terminated pursuant to Section 4 hereof, this option shall vest in the Optionee
and thus become exercisable in accordance with the vesting schedule set forth in
Section 7 of the Plan, provided that the Optionee has continuously served as a
member of the Board through such vesting date. This option shall expire on the
date, which is ten (10) years from the date this option is granted.

      4. Termination of Option Rights.

            (a)   In the event that Optionee ceases to be a member of the Board
                  for any reason other than death or permanent disability, any
                  then unexercised portion of this option shall, to the extent
                  not then vested, immediately terminate and become void. Any
                  portion of this option which is vested but has not been
                  exercised at the time the Optionee so ceases to be a member of
                  the Board may be exercised, to the extent it is then vested,
                  by the Optionee within 60 days of the date the Optionee ceased
                  to be a member of the Board, and this option shall terminate
                  after such 60 days has expired.

            (b)   In the event that the Optionee ceases to be a member of the
                  Board by reason of his or her permanent disability or death,
                  this option may be exercised, to the extent of the number of
                  shares with respect to which he or she could have exercised it
                  on the date of death or permanent disability, by the Optionee
                  (or by Optionee's personal representative, heir or legatee, in
                  the event of death) until the scheduled expiration date of the
                  option.


                                      -2-

      5. Exercise. To the extent then exercisable, the Optionee may exercise
this option in whole or in part at any time and from time to time as provided by
the terms of this Agreement and the Plan, except that this option may not be
exercised for a fraction of a share unless such exercise is with respect to the
final installment of stock subject to this option and a fractional share (or
cash in lieu thereof) would otherwise be required to be issued to permit the
Optionee to exercise completely such final installment. Any fractional share
with respect to which an installment of this option cannot be exercised because
of the limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Optionee in
accordance with the terms hereof. There shall be no such exercise at any one
time as to fewer than one hundred (100) shares or all of the remaining shares
then purchasable by the person or persons exercising the option, if fewer than
one hundred (100) shares.

      6. Payment of Price. The option price is payable in United States dollars
and may be paid: (a) in cash or by check, or any combination of the foregoing,
equal in amount to the option price; (b) in whole or in part in shares of the
Common Stock of the Company already owned by the person or persons exercising
the option or shares subject to the option being exercised (subject to such
restrictions and guidelines as the Board may adopt from time to time), valued at
fair market value determined in accordance with the provisions of Section 5 of
the Plan; or (c) consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of Option Shares acquired upon exercise of this option and an authorization to
the broker or selling agent to pay that amount to the Company, which shall be at
the Optionee's direction at the time of exercise.

      7. Method of Exercising Option. Subject to the terms and conditions of the
Plan and this Agreement, this option may be exercised by written notice to the
Company by mail or in person, addressed to the Chief Financing Officer at 400
Nickerson Road, Marlboro, Massachusetts 01752, its principal executive offices.
Such notice shall state the election to exercise this option and the number of
shares in respect of which it is being exercised and shall be signed by the
person or persons so exercising this option. Such notice shall be accompanied by
payment of the full purchase price of such shares. The Company's transfer agent
shall, on behalf of the Company, prepare a certificate or certificates
representing Option Shares acquired upon exercise of this option, shall register
the Optionee (or the Optionee's personal representative, heir or legatee if this
option is being exercised pursuant to Section 4 hereof) as the owner of the
Option Shares on the books of the Company and shall cause the fully executed
certificate(s) representing such shares to be delivered to the Optionee (or the
Optionee's personal representative, heir or legatee if this option is being
exercised pursuant to Section 4 hereof) as soon as practicable after payment of
the option price in full. In the event this option shall be exercised, pursuant
to Section 4 hereof, by any person or persons other than the Optionee, such
notice shall be accompanied by appropriate proof of the right of such person or
persons to exercise this option. All shares that shall be purchased upon the
exercise of this option as provided herein shall be fully paid and
non-assessable.




                                      -3-

      8. Option Not Transferable. This option is not transferable or assignable
except by will or by the laws of descent and distribution or pursuant to a
domestic relations order. During the Optionee's lifetime only the Optionee can
exercise the option.

      9. No Obligation to Exercise Option. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise it.

      10. No Rights As Stockholder until Exercise. The Optionee shall have no
rights as a stockholder with respect to any of the Option Shares until a stock
certificate therefore has been issued to the Optionee and is fully paid for.
Except as is expressly provided in Section 10 of the Plan with respect to
certain changes in the capitalization of the Company, no adjustment shall be
made for dividends or similar rights for which the record date is prior to the
date such stock certificate is issued.

      11. Capital Changes and Business Successions. The Plan contains extensive
provisions designed to preserve options at full value in a number of
contingencies. Therefore, provisions in the Plan for adjustment with respect to
stock subject to options and the related provisions with respect to successors
to the business of the Company are hereby made applicable hereunder and are
incorporated herein by reference.

      12. Withholding Taxes. The Optionee hereby acknowledges that the Company
may be required to withhold federal, state and local taxes attributable to the
Optionee's exercise of any installment of this option and therefore agrees to
pay the Company any such amounts upon the Company's request.

      13. Agreement to Purchase for Investment. By acceptance of this option,
the Optionee agrees that a purchase of shares under this option will be made for
investment and will not be made with a view to their distribution, as that term
is used in the Securities Act of 1933, unless in the opinion of counsel to the
Company such transaction is in compliance with or exempt from the registration
and prospectus requirements of that Act. The Optionee agrees to sign a
certification to such effect at the time of exercising this option and agrees
that the certificate for the shares so purchased may be enscribed with a legend
to ensure compliance with the Securities Act of 1933 and with any other
applicable securities laws. The certificates representing such shares shall
carry such appropriate legend and such written instructions with respect thereto
shall be given to the Company's transfer agent, as may be deemed necessary or
advisable by counsel to the Company in order to comply with the requirements of
the Securities Act of 1933 or any state securities laws.

      14. Resale Restrictions. Under no circumstances may shares acquired
hereunder be disposed of on or prior to the date that is six months after the
date that this option was granted.




                                      -4-

      15. Governing Law. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof, supersedes any and all
correspondence, discussions or agreements between the parties regarding equity
incentives for the Optionee and satisfies all of the Company's obligations with
respect to the grant of equity incentives to the Optionee as in effect on the
date hereof.

      IN WITNESS WHEREOF the Company and the Optionee have caused this
instrument to be executed, and the Optionee whose signature appears below
acknowledges receipt of a copy of the Plan and acceptance of an original copy of
this Agreement.

                                                    CONCORD COMMUNICATIONS, INC.
                                                    400 Nickerson Road
                                                    Marlboro, MA  01752

                                                    By: ________________________
                                                        Name:
                                                        Title:

                                                    ____________________________
                                                    (OPTIONEE)

                                                    ____________________________
                                                    Street Address

                                                    ____________________________
                                                    City        State   Zip Code

EX-10.25

                                                                   Exhibit 10.25

                          CONCORD COMMUNICATIONS, INC.

                                    Employee

                         Non-Qualified Option Agreement

1.    Grant Under 1997 Stock Plan

      This Option Agreement is effective only when attached to a Notice of Grant
      of Stock Options (the "Notice") signed on behalf of Concord
      Communications, Inc. (the "Company") and by the option holder (the
      "Employee"). The option granted under the Notice (the "Option") is granted
      pursuant to and is governed by the Company's 1997 Stock Plan (the e Plan")
      and , unless the context otherwise requires, terms used herein shall have
      the same meaning as in the Plan. Determinations made in connection with
      this Option pursuant to the Plan shall be governed by the Plan as it
      exists on this date. In the event of any inconsistency or conflict between
      this Agreement and the Plan, the terms of the Plan shall govern. This
      option shall not be treated as an incentive stock option.

2.    Other Options

      This Option is in addition to any other Options heretofore or hereafter
      granted to the Employee by the Company, but a duplicate original of this
      instrument shall not effect the grant of another Option.

3.    Extent of Option if Employment Continues

      If the Employee continues to be employed by the Company on the date(s)
      described in the Notice, the Employee may exercise the Option for the
      number of shares indicated. Shares which vest "quarterly" vest in equal
      installments as of the end of each three-month period during the interval
      described in the Notice.

      The foregoing rights are cumulative and, while the Employee continues to
      be employed by the Company, may be exercised up to and including the time
      of Expiration set forth in the Notice. All of the foregoing rights are
      subject to Sections 4 and 5 of this Agreement, as appropriate, if the
      Employee ceases to be employed by the Company or becomes disabled or dies
      while in the employ of the Company.

      In the event that the Company becomes a party to a merger, consolidation,
      reorganization or similar corporate transaction in which the Company is
      not, in effect, the acquiring corporation, or which is not solely a
      consolidation with the Company's parent, or shall determine to liquidate
      or dissolve, the Company agrees to so advise the Employee in writing, and
      upon the giving of such notice, the "Full Vest" date(s) set forth in the
      Notice



                                      -2-

      shall be reduced by eighteen (18) months, but in no event to a date
      earlier than the date of grant of the Option.

      4.    Termination of Employment

      If the Employee ceases to be employed by the Company other than by reason
      of death or disability, the Option shall terminate after the passage of
      sixty (60) days from the date employment ceases, but in no event later
      than the scheduled expiration date. In such a case, the Employee's only
      rights hereunder shall be those which are properly exercised before the
      termination of the Option.

      5.    Death or Disability

      If the Employee dies while in the employ of the Company, the Option may be
      exercised, to the extent of the number of shares with respect to which the
      Employee could have exercised it on the date of his death, by his estate,
      personal representative, or beneficiary to whom the Option has been
      assigned pursuant to Section 9, at any time within 180 days after the date
      of death, but not later than the scheduled expiration date. If the
      Employee ceases to be employed by the Company by reason of his disability
      (as defined in the Plan), the Option may be exercised to the extent of the
      number of shares with respect to which he could have exercised it on the
      date of the termination of his employment, at any time within 180 days
      after such termination, but not later than the scheduled expiration date.
      At the expiration of such 180 day period or the scheduled expiration date,
      whichever is the earlier, the Option shall terminate and the only rights
      hereunder shall be those as to which the Option was properly exercised
      before such termination.

      6.    Partial Exercise

      Exercise of the Option up to the extent stated in the Notice of Grant may
      be made in part at any time and from time to time within the above limits,
      except that the Option may not be exercised for a fraction of a share.

      7.    Agreement to Purchase for Investment

      By acceptance of the Option, the Employee agrees that a purchase of shares
      under the Option will not be made with a view to their distribution, as
      that term is used in the Securities Act of 1933, as amended, unless in the
      opinion of counsel to the Company such distribution is in compliance with
      or exempt from the registration and prospectus requirements of the Act,
      and the Employee agrees if requested to sign a certificate to such effect
      at the time of exercising the Option and agrees that the certificate for
      the shares so purchased may be inscribed with a legend to ensure
      compliance with the Act and with any applicable state securities laws.




                                      -3-

      8.    Method of Exercising Option

            (a) Subject to the terms and conditions of this Agreement, the
      Option may be exercised by written notice to the Company, at the principal
      executive office of the Company, or to such transfer agent as the Company
      shall designate. Such notice shall state the election to exercise the
      Option and the number of shares in respect of which it is being exercised
      and shall be signed by the person or persons so exercising the Option.
      Such notice shall be accompanied by payment of the full purchase price of
      such shares, and the Company shall deliver a certificate or certificates
      representing such shares as soon as practicable after the notice and
      payment have been received.

            (b) The Option price shall be paid in cash or by check or, with the
      consent of the Committee in its sole discretion, in the following manner:

                  (i)   subject to Section 8(c) below, by delivery of shares of
                        the Company's Common Stock having a fair market value
                        (as determined by the Committee) equal as of the date of
                        exercise to the option price;

                  (ii)  by delivery of the Employee's personal recourse note
                        bearing interest payable not less than annually at the
                        rate set forth in the Plan; or

                  (iii) by any combination of the foregoing.

            (c) If the Employee delivers Common Stock held by the Employee ("Old
      Stock") to the Company in full or partial payment of the option price, and
      the Old Stock so delivered is subject to restrictions or limitations
      imposed by agreement between the Employee and the Company, an equivalent
      number of option shares shall be subject to all restrictions and
      limitations applicable to the Old Stock to the extent that the Employee
      paid for the option shares by delivery of Old Stock, in addition to any
      restrictions or limitations imposed by this Agreement. Notwithstanding the
      foregoing, the Employee may not pay any part of the exercise price hereof
      by transferring Common Stock to the Company unless such Common Stock has
      been owned by the Employee free of any substantial risk of forfeiture for
      at least six months.

            (d) The certificate or certificates for the shares as to which the
      Option shall have been so exercised shall be registered in the name of the
      person or persons so exercising the Option (or, if the Option shall be
      exercised by the Employee and if the Employee shall so request in the
      notice exercising the Option, shall be registered in the name of the
      Employee and another person jointly, with right of survivorship) and shall
      be delivered as provided above to or upon the written order of the person
      or persons exercising the Option. In the event the Option shall be
      exercised, pursuant to Section 5 hereof, by any person or persons other
      than the Employee, such notice shall be




                                      -4-

      accompanied by appropriate proof of the right of such person or persons to
      exercise the Option. All shares that shall be purchased upon the exercise
      of the Option as provided herein shall be fully paid and nonassessable.

      9.    Option Not Transferable

      The Option is not transferable or assignable except by will or by the laws
      of descent and distribution. During the Employee's lifetime, only the
      Employee can exercise the Option.

      10.   No Obligation to Exercise Option

      The grant and acceptance of the Option imposes no obligation on the
      Employee to exercise it.

      11.   No Obligation to Continue Employment

      The Company is not by the Plan or the Option obligated to continue the
      Employee in employment.

      12.   No Rights as Stockholder Until Exercise

      The Employee shall have no rights as a stockholder with respect to shares
      subject to the Option until a stock certificate therefor has been issued
      to the Employee and is fully paid for. Except as expressly provided in the
      Plan with respect to certain changes in the capitalization of the Company,
      no adjustment shall be made for dividends or similar rights for which the
      record date is prior to the date such stock certificate is issued.

      13.   Withholding Taxes

      If the Company in its discretion determines that it is obligated to
      withhold any tax in connection with the exercise of this option, or in
      connection with the transfer of, or the lapse of restrictions on, any
      Common Stock or other property acquired pursuant to the Option, the
      Employee hereby agrees that the Company may withhold from the Employee's
      wages or other remuneration the appropriate amount of tax. At the
      discretion of the Company, the amount required to be withheld may be
      withheld in cash from such wages or other remuneration or in kind from the
      Common Stock or other property otherwise deliverable to the Employee on
      exercise of the Option. The Employee further agrees that, if the Company
      does not withhold an amount from the Employee's wages or other
      remuneration sufficient to satisfy the withholding obligation of the
      Company, the Employee will make reimbursement on demand, in cash, for the
      amount underwithheld.

      14.   Arbitration




                                      -5-

      Any dispute, controversy, or claim arising out of, in connection with, or
      relating to the performance of this Agreement or its termination shall be
      settled by arbitration in the Commonwealth of Massachusetts, pursuant to
      the rules then obtaining of the American Arbitration Association. Any
      award shall be final, binding and conclusive upon the parties and a
      judgment rendered thereon may be entered in any court having jurisdiction
      thereof.

      15.   Provision of Documentation to Employee

      By signing the Notice the Employee acknowledges receipt of a copy of this
      Agreement and a copy of the Plan.

      16.   Miscellaneous

            (a) Notices. All communications hereunder shall be in writing and
      shall be deemed given when sent by certified or registered mail, postage
      prepaid, return receipt requested, to the address set forth in the Notice.
      The addresses for such communications may be changed from time to time by
      written notice given in the manner provided for herein.

            (b) Entire Agreement; Modification. The Notice and this Agreement
      constitute the entire agreement between the parties relative to the
      subject matter hereof, and supersede all proposals, written or oral, and
      all other communications between the parties relating to the subject
      matter of this Agreement. This Agreement may be modified, amended or
      rescinded only by a written agreement executed by both parties.

            (c) Severability. The invalidity, illegality or unenforceability of
      any provision of the Notice or this Agreement shall in no way affect the
      validity, legality or enforceability of any other provision.

            (d) Successors and Assigns. The Notice and this Agreement shall be
      binding upon and inure to the benefit of the parties hereto and their
      respective successors and assigns, subject to the limitations set forth in
      Section 9 hereof.

            (e) Governing Law. This Agreement shall be governed by and
      interpreted in accordance with the internal laws of The Commonwealth of
      Massachusetts.

EX-10.30

                                                                   EXHIBIT 10.30

                          CONCORD COMMUNICATIONS, INC.

                                    Executive

                        Incentive Stock Option Agreement

1.    Grant Under 1997 Stock Plan

      This Option Agreement is effective only when attached to a Notice of Grant
      of Stock Options (the "Notice") signed on behalf of Concord
      Communications, Inc. (the "Company") and by the option holder (the
      "Employee"). The option granted under the Notice (the "Option") is granted
      pursuant to and is governed by the Company's 1997 Stock Plan (the e Plan")
      and , unless the context otherwise requires, terms used herein shall have
      the same meaning as in the Plan. Determinations made in connection with
      this Option pursuant to the Plan shall be governed by the Plan as it
      exists on this date. In the event of any inconsistency or conflict between
      this Agreement and the Plan, the terms of the Plan shall govern.

2.    Other Options

      This Option is in addition to any other Options heretofore or hereafter
      granted to the Employee by the Company, but a duplicate original of this
      instrument shall not effect the grant of another Option.

3.    Extent of Option if Employment Continues

      If the Employee continues to be employed by the Company on the date(s)
      described in the Notice, the Employee may exercise the Option for the
      number of shares indicated. Shares which vest "quarterly" vest in equal
      installments as of the end of each three-month period during the interval
      described in the Notice.

      The foregoing rights are cumulative and, while the Employee continues to
      be employed by the Company, may be exercised up to and including the time
      of Expiration set forth in the Notice. All of the foregoing rights are
      subject to Sections 4 and 5 of this Agreement, as appropriate, if the
      Employee ceases to be employed by the Company or becomes disabled or dies
      while in the employ of the Company.

      Effective upon the date immediately following any Change in Control (as
      defined) of the Company, the "Full Vest" date(s) ser forth in the Notice
      shall be automatically accelerated by twenty-four (24) months.
      Notwithstanding the foregoing, of within twenty-four (24) months after a
      Change in Control there is a Termination Event (as defined), all of the
      Employee's unvested Options shall automatically become fully vested as of
      the date of such Termination Event.
      For purposes hereof, a "Change in Control" shall have occurred if at any
      time any of the



                                      -2-

following events shall occur:

            (A) The Company 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 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 the Company ("Voting Stock") immediately
            prior to such transaction;

            (B) The Company sells or other wise 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 the Company 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) The Company 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 the Company 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, a "Change in Control" shall not be deemed to have occurred for purposes
of this Agreement solely because (i) the Company, (ii) an entity in which the
Company directly or indirectly beneficially owns 50% or more of the voting
securities (iii) any Company sponsored employee stock ownership plan or any
other employee benefit plan of the Company, 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 become obligated to file a report or a proxy
statement under or in response to the 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 the Company reports that a
change in





                                      -3-

control of the Company has or may have occurred or will or may occur in the
future by reason of such beneficial ownership.

Notwithstanding anything to the contrary in the 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 the 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 eh Employee, taking into account all the
facts and circumstances including any tax savings resulting from the reduction.

For purposes hereof, "Cause" shall mean:

      (i) the Employee's willful and substantial misconduct with respect to the
      business and affairs of the Company, or any subsidiary or affiliate
      thereof;

      (ii) the Employee's gross neglect of duties, dishonesty, deliberate
      disregard of any material rule or policy of the Company or the commission
      by the Employee of any other action with the intent to injure the Company,
      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 the Company to
      breach a contract or purchase order with the Company, or any subsidiary or
      affiliate thereof.

"Good Reason" means the occurrence of one or more of the following events
following a Change in Control:

      (i)  Without the Employee's express written consent, the Company 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, the Company shall
      require the Employee to have his 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




                                      -4-

      (iii) Without the Employee's express written consent, the Company 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.

For purposes hereof, a "Termination Event" shall occur if at any time after a
Change in Control of the Company, the Company (or any successor corporation)
terminates the Employee's employment without Cause or the Employee voluntarily
terminates his employment for Good Reason.

The rights afforded to the Employee under this Section shall terminate (except
as to options that have been deemed to vest immediately upon a Change in
Control) upon the earlier of (i) twenty-four (24) months following any Change in
Control of the Company, (ii) the date prior to any Change in Control of the
Company that the Employee for any reason ceases to be an employee of the Company
and (iii) the date following any Change in Control of the Company that the
Employee is terminated for Cause or voluntarily terminates his employment (other
than for Good Reason).

4.    Termination of Employment

If the Employee ceases to be employed by the Company other than by reason of
death or disability, the Option shall terminate after the passage of sixty (60)
days from the date employment ceases, but in no event later than the scheduled
expiration date. In such a case, the Employee's only rights hereunder shall be
those which are properly exercised before the termination of the Option.

5.    Death or Disability

If the Employee dies while in the employ of the Company, the Option may be
exercised, to the extent of the number of shares with respect to which the
Employee could have exercised it on the date of his death, by his estate,
personal representative, or beneficiary to whom the Option has been assigned
pursuant to Section 9, at any time within 180 days after the date of death, but
not later than the scheduled expiration date. If the Employee ceases to be
employed by the Company by reason of his disability (as defined in the Plan),
the Option may be exercised to the extent of the number of shares with respect
to which he could have exercised it on the date of the termination of his
employment, at any time within 180 days after such termination, but not later
than the scheduled expiration date. At the expiration of such 180 day period or
the scheduled expiration date, whichever is the earlier, the Option shall
terminate and the only rights hereunder shall be those as to which the Option
was properly exercised before such termination.

6.    Partial Exercise





                                      -5-

Exercise of the Option up to the extent stated in the Notice of Grant may be
made in part at any time and from time to time within the above limits, except
that the Option may not be exercised for a fraction of a share.

7.    Agreement to Purchase for Investment

By acceptance of the Option, the Employee agrees that a purchase of shares under
the Option will not be made with a view to their distribution, as that term is
used in the Securities Act of 1933, as amended, unless in the opinion of counsel
to the Company such distribution is in compliance with or exempt from the
registration and prospectus requirements of the Act, and the Employee agrees if
requested to sign a certificate to such effect at the time of exercising the
Option and agrees that the certificate for the shares so purchased may be
inscribed with a legend to ensure compliance with the Act and with any
applicable state securities laws.

8.    Method of Exercising Option

      (a) Subject to the terms and conditions of this Agreement, the Option may
be exercised by written notice to the Company, at the principal executive office
of the Company, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise the Option and the number of shares
in respect of which it is being exercised and shall be signed by the person or
persons so exercising the Option. Such notice shall be accompanied by payment of
the full purchase price of such shares, and the Company shall deliver a
certificate or certificates representing such shares as soon as practicable
after the notice and payment have been received.

      (b) The Option price shall be paid in cash or by check or, with the
consent of the Committee in its sole discretion, in the following manner:

            (i)   subject to Section 8(c) below, by delivery of shares of the
                  Company's Common Stock having a fair market value (as
                  determined by the Committee) equal as of the date of exercise
                  to the option price;

            (ii)  by delivery of the Employee's personal recourse note bearing
                  interest payable not less than annually at the rate set forth
                  in the Plan; or

            (iii) by any combination of the foregoing.

      (c) If the Employee delivers Common Stock held by the Employee ("Old
Stock") to the Company in full or partial payment of the option price, and the
Old Stock so delivered is subject to restrictions or limitations imposed by
agreement between the Employee and the Company, an equivalent number of option
shares shall be subject to all





                                      -6-

restrictions and limitations applicable to the Old Stock to the extent that the
Employee paid for the option shares by delivery of Old Stock, in addition to any
restrictions or limitations imposed by this Agreement. Notwithstanding the
foregoing, the Employee may not pay any part of the exercise price hereof by
transferring Common Stock to the Company unless such Common Stock has been owned
by the Employee free of any substantial risk of forfeiture for at least six
months.

      (d) The certificate or certificates for the shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Employee and if the Employee shall so request in the notice exercising the
Option, shall be registered in the name of the Employee and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising the Option. In the
event the Option shall be exercised, pursuant to Section 5 hereof, by any person
or persons other than the Employee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and nonassessable.

9.    Option Not Transferable

The Option is not transferable or assignable except by will or by the laws of
descent and distribution. During the Employee's lifetime, only the Employee can
exercise the Option.

10.   No Obligation to Exercise Option

The grant and acceptance of the Option imposes no obligation on the Employee to
exercise it.

11.   No Obligation to Continue Employment

The Company is not by the Plan or the Option obligated to continue the Employee
in employment.

12.   No Rights as Stockholder Until Exercise

The Employee shall have no rights as a stockholder with respect to shares
subject to the Option until a stock certificate therefor has been issued to the
Employee and is fully paid for. Except as expressly provided in the Plan with
respect to certain changes in the capitalization of the Company, no adjustment
shall be made for dividends or similar rights for which the record date is prior
to the date such stock certificate is issued.

13.   Early Disposition





                                      -7-

The Employee agrees to notify the Company of any disposition of any shares of
Common Stock acquired on the exercise of the Option within the two year period
beginning on the date of grant or within one year after the date of the transfer
of such shares to the Employee. The Employee also agrees to provide the Company
with any information which it shall request concerning any such disposition.
Employees who receive incentive stock options will be disqualified under Section
422 of the Internal Revenue Code from receiving the favorable income tax
treatment otherwise available with respect to the exercise of such an option if
they dispose of the stock received on exercise of the option within either of
the one or two year periods described in the preceding sentence.

14.   Withholding Taxes

If the Company in its discretion determines that it is obligated to withhold any
tax in connection with the exercise of this option, or in connection with the
transfer of, or the lapse of restrictions on, any Common Stock or other property
acquired pursuant to the Option, the Employee hereby agrees that the Company may
withhold from the Employee's wages or other remuneration the appropriate amount
of tax. At the discretion of the Company, the amount required to be withheld may
be withheld in cash from such wages or other remuneration or in kind from the
Common Stock or other property otherwise deliverable to the Employee on exercise
of the Option. The Employee further agrees that, if the Company does not
withhold an amount from the Employee's wages or other remuneration sufficient to
satisfy the withholding obligation of the Company, the Employee will make
reimbursement on demand, in cash, for the amount underwithheld.

15.   Arbitration

Any dispute, controversy, or claim arising out of, in connection with, or
relating to the performance of this Agreement or its termination shall be
settled by arbitration in the Commonwealth of Massachusetts, pursuant to the
rules then obtaining of the American Arbitration Association. Any award shall be
final, binding and conclusive upon the parties and a judgment rendered thereon
may be entered in any court having jurisdiction thereof.

16.   Provision of Documentation to Employee

By signing the Notice the Employee acknowledges receipt of a copy of this
Agreement and a copy of the Plan.

17.   Miscellaneous

      (a) Notices. All communications hereunder shall be in writing and shall be
deemed given when sent by certified or registered mail, postage prepaid, return
receipt requested, to the address set forth in the Notice. The addresses for
such communications may be changed from time to time by written notice given in
the manner provided for





                                      -8-

herein.




                                      -9-

      (b) Entire Agreement; Modification. The Notice and this Agreement
constitute the entire agreement between the parties relative to the subject
matter hereof, and supersede all proposals, written or oral, and all other
communications between the parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or rescinded only by a
written agreement executed by both parties.

      (c) Severability. The invalidity, illegality or unenforceability of any
provision of the Notice or this Agreement shall in no way affect the validity,
legality or enforceability of any other provision.

      (d) Successors and Assigns. The Notice and this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the limitations set forth in Section 9
hereof.

      (e) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of The Commonwealth of Massachusetts.

EX-10.33

                                                                   EXHIBIT 10.33

                      APRISMA MANAGEMENT TECHNOLOGIES, INC.
                  2003 EQUITY PARTICIPATION AND RETENTION PLAN

      SECTION 1. PURPOSE. The purpose of this Aprisma Management Technologies,
Inc. 2003 Equity Participation and Retention Plan (this "Plan") is to provide
additional incentive compensation to certain designated directors, officers,
employees and independent contractors of Aprisma Management Technologies, Inc.,
a Delaware corporation (the "Aprisma"), or any of its direct or indirect
subsidiaries. Directors, officers, employees and independent contractors
designated by the board of directors of Aprisma (the "Board") to receive
benefits under this Plan are collectively referred to as "Participants" (each, a
"Participant"). The benefits granted to Participants shall consist of rights to
receive deferred compensation based upon liquidity events with respect to the
Company (as hereinafter defined). Such rights shall be in the form of units,
which shall vest in accordance with the provisions hereof and become payable
upon the occurrence of certain events specified herein. This Plan is not meant
to, and does not, create any legal or equitable rights in or to the Company or
the Company's capital stock in favor of any Participant. Rather, this Plan is
merely designed to create a mechanism to provide to Participants deferred cash
compensation that is related to the net proceeds upon the sale of all or
substantially all of the Company.

      SECTION 2. EFFECTIVE DATE. The effective date of this Plan shall be July
1, 2003, or such other date as designated by the Board.

      SECTION 3. DEFINITIONS

      3.1 "Account" shall mean the unfunded account established for each
Participant.

      3.2 "Benefit Amounts" shall have the meaning set forth in Section 5.1
below.

      3.3 "Company" shall mean Aprisma and its subsidiaries.

      3.4 "Common Stock" shall mean the Common Stock, $0.01 par value per share,
of Aprisma.

      3.5 "Common Stock Equivalents" shall mean the sum of (i) the Common Stock,
plus (ii) the number of shares of Common Stock issuable at any time in respect
of any stock or other securities convertible or exchangeable for Common Stock
("Convertible Securities"), plus (iii) the number of shares of Common Stock
issuable at any time in respect of any options, warrants, or other rights to
subscribe for or to purchase any Common Stock or Convertible Securities, plus
(iv) the number of units issuable at any time under any other equity
participation plan of the Company, in each case whether issued prior to or after
the Grant Date.

      3.6 "Disability" shall mean permanent and total disability within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.



      3.7 "Good Cause" shall mean with respect to the termination of a
Participant's employment by or other relationship to the Company or a particular
business unit thereof, including any successor thereto, the occurrence of any
one of the following events as determined by the Board (or the board of
directors or similar body of any successor to the Participant's business unit)
in its sole discretion: (i) Participant's conviction of, or the entry of a
pleading of guilty or nolo contendre by Participant to, a felony or a crime
involving moral turpitude, (ii) Participant's material failure to perform
Participant's duties required under Participant's employment by or other
relationship to the Company (provided that failure of the Company to achieve
operating results or similar poor performance of the Company shall not, in and
of itself, be deemed a failure to perform Participant's duties), material
failure to comply with the Company's standard policies and procedures generally
applicable to persons in Participant's relation to the Company, or failure to
comply with any provision of any agreement with respect to Participant's
services, (iii) a willful act by Participant as a result of which Participant
receives an improper personal benefit at the expense of the Company, (iv) an act
of fraud or dishonesty committed by Participant against the Company, or (v) any
other misconduct by Participant that is materially injurious to the business or
reputation of the Company. For purposes of this definition, the "Company" shall
include any particular subsidiary, business unit or division of Aprisma with
respect to which Participant performs Participant's duties and any successor to
such subsidiary, business unit or division following a Liquidity Event.

      3.8 "Grant Letter" shall mean the written notice to a Participant by the
Board setting forth the number of Units granted to such Participant and the date
(the "Grant Date") to be used for purposes of calculating the Benefit Amounts
payable to the Participant under the Plan, along with any applicable terms,
vesting requirements and conditions to such grant.

      3.9 "Liquidity Event" shall mean the sale of greater than 90% of the
business, properties and assets of the Company, or any acquisition by any person
or group (as defined in Section 13(d) of the Securities Exchange Act of 1934) of
beneficial ownership of more than 90% of Aprisma's then outstanding shares,
whether by a reorganization, merger, consolidation, sale or exchange of
securities of the Company or otherwise; provided, that a transaction solely
between Aprisma and any affiliate or affiliates of Aprisma or between any two
(2) or more affiliates of Aprisma shall not constitute a Liquidity Event. There
shall be no more than one (1) Liquidity Event under the Plan.

      3.10 "Net Proceeds" shall mean the gross proceeds received by the Company,
its stockholders or Parent's stockholders in connection with a Liquidity Event,
less (i) any outstanding third party indebtedness of the Company or Parent and
any advances of Parent to the Company for expenses of Parent or the Company,
(ii) any transaction fees and expenses paid in connection with the Liquidity
Event, (iii) any liabilities of the Company retained in connection with or with
respect to the Liquidity Event, (iv) any amounts paid as a return of the Funded
Capital Commitment, and (v) in the event the Liquidity Event is a Liquidation,
any costs associated with the Liquidation. Net Proceeds shall not include the
amounts of any intercompany account or note receivable between the Company,
Parent and/or Parent's stockholders which is forgiven or remains unpaid in
connection with a Liquidity Event. The Net Proceeds with respect to a Liquidity
Event shall be determined by the Board.

                                       2


      3.11 "Parent" shall mean GTG Acquisition Corp., a Delaware corporation.

      3.12 "Redemption Date" shall have the meaning set forth in Section 6.1
below.

      3.13 "Unit" shall mean the units credited to a Participant's Account
representing a right to receive Benefit Amounts upon the occurrence of a
Liquidity Event. Units hereunder carry no voting, dividend, participation,
liquidation or other equity rights or characteristics. The total number of Units
authorized to be granted hereunder is 11,111.

      3.13 "Unit Value", with respect to a Liquidity Event, shall mean the Net
Proceeds with respect to such Liquidity Event, divided by (i) the total number
of Units authorized under this Plan, plus (ii) the total number of Common Stock
Equivalents outstanding, in each case, as of such Liquidity Event. The Board
shall determine the Unit Value pursuant to this Plan, and such determination
shall be final, binding and conclusive on all parties and their successors or
assigns. For purposes of computing any amount under this Plan that includes both
shares of Common Stock and Units, one (1) Unit shall be equal to one (1) share
of Common Stock. The Board shall determine the Unit Value pursuant to this Plan,
and such determination shall be final, binding and conclusive on all parties and
their successors or assigns.

      SECTION 4. PARTICIPATION

      4.1 Designation of Participants. The Board shall designate from time to
time directors, officers, employees and independent contractors eligible for
participation in this Plan as Participants and so notify them in writing by
delivery of a Grant Letter which shall specify the grant date, the number of
Units granted and the vesting requirements (if any) applicable to such
Participant; provided that the aggregate number of Units granted to all
Participants shall not exceed the authorized number pursuant to Section 3.12. A
Participant may, but is not entitled to, receive more than one grant during the
period of his or her service with the Company.

      4.2 Grant of Units. An Account shall be established and maintained for
each Participant indicating the number of Units granted to such Participant, the
applicable grant date and the vesting requirements (if any) for each grant.

      4.3 Forfeiture of Units. Prior to a Liquidity Event, a Participant's Units
shall be forfeited immediately upon the termination of such Participant's
employment or other relationship with the Company, whether voluntary or
involuntary, with or without Good Cause, or by virtue of a Participant's death
or Disability. Notwithstanding the foregoing, the Board at its sole discretion
may determine that such Participant's Units shall not be forfeited.

      SECTION 5. DETERMINATION OF BENEFIT AMOUNTS

      5.1 Benefit Amounts. Each vested Unit shall entitle a Participant to
receive upon redemption of such Unit, subject to the provisions of Section 6
below, an amount equal to the Unit Value of a Unit determined on the Redemption
Date (collectively, the "Benefit Amounts").

                                       3


NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NO REPRESENTATION OR
WARRANTY IS MADE WITH RESPECT TO THE VALUE, IF ANY, OF ANY UNITS GRANTED UNDER
THIS PLAN.

      5.2 Type of Consideration. In payment of Benefit Amounts, Participants
shall receive to the extent practicable (at the discretion of the Board) the
same kind of consideration as is received by the Company, the Parent or the
Parent's stockholders, as the case may be. In the event the gross proceeds of a
Liquidity Event include non-cash or contingent consideration, the Board, in its
sole discretion, may calculate or determine Benefit Amounts based on an estimate
of the value of such consideration and such calculation or determination shall
be final, binding and conclusive and not subject to change based upon actual
results.

      5.3 Modification of Units. The Board may, in its sole discretion, from
time to time increase or decrease the number of Units authorized to be granted
hereunder (whether such increase or decrease is by reason of the issuance or
redemption of the Company's equity securities, a distribution (upon liquidation
or otherwise) by the Company, a merger, consolidation, reorganization,
recapitalization, stock exchange or other change in organizational structure of
the Company, or otherwise). In the event any such change is made to the number
of Units, then (i) the relevant sections of the Plan shall be deemed to be
amended to reflect the authorized number of Units as so modified, and (ii) the
Board may, in its sole discretion, make appropriate adjustments to the number of
Units held in some or all Participants' Accounts in order to prevent the
dilution and/or increase of Benefit Amounts with respect to such Units and this
Plan. Any such adjustments as determined by the Board (or the decision to make
no such adjustments) shall be final, binding and conclusive.

      SECTION 6. PAYMENT OF BENEFIT AMOUNTS

      6.1 Redemption of Units. Upon the occurrence of a Liquidity Event with
respect to one or more Participants, the Company shall redeem all of the Units
granted to such Participants and vested under this Plan as of the date of such
Liquidity Event (the "Redemption Date") that shall have the right to receive
Benefit Amounts in respect of such Liquidity Event, and shall provide for
payment to each such Participant (or his or her estate) of the Benefit Amounts,
if any, in accordance with Section 6.2. Upon the Redemption Date, the Units to
be so redeemed shall be deducted from such Participant's Account. Thereafter,
such Participant's participation with respect to such Units shall be terminated,
except for the right to payment of the Benefit Amounts with respect to such
Units in accordance with the terms of the Plan. The determination of a Liquidity
Event shall be at the sole discretion of the Board, and the Participants and
their estates and beneficiaries shall have no rights or recourse against the
Board arising from the Board's determination or manner of determining not to
pursue, consummate or declare a Liquidity Event.

      6.2 Manner of Payment of Benefit Amount. Benefit Amounts with respect to a
Liquidity Event shall be earned in three (3) equal installments: the first, on
the closing of such Liquidity Event; the second, on the six (6) month
anniversary of such closing; and the third, on the one (1) year anniversary of
such closing; provided, at each such date, that the Participant is employed by
the

                                       4


Company, an affiliate of the Company or the successor to the subsidiary,
business unit or division of which Participant performed his or her duties prior
to such closing; provided further, that the immediately preceding proviso shall
not apply in the event the Participant's employment is terminated by the Company
or such successor after the Liquidity Event but before payment without Good
Cause, by the Participant by reason of retirement, so long as such Participant
is 65 years or older, or is terminated due to the Participant's death or
Disability. Payments under the Plan shall coincide with installment dates set
forth above, subject to actual receipt of the relevant proceeds by the Company,
its stockholders or Parent's stockholders. Notwithstanding anything to the
contrary contained herein, in no event shall the Board be obligated to make any
estimate with respect to future amounts to be received as gross proceeds in
connection with a Liquidity Event. All payments under this Plan shall be
delivered in person or mailed to the last address of the Participant (or, in the
case of the death of the Participant, to that of the Participant's estate). Each
Participant shall be responsible for furnishing the Company with his or her
current address.

      6.3 Limitation on Payments. Notwithstanding any other provision in this
Plan to the contrary, no payment of any Benefit Amounts shall be made if such
payment would conflict with, or result in a breach of, (i) any terms,
conditions, restrictions, or provisions of, or would constitute a default under,
any bond, note, or other evidence of indebtedness or any contract, lease, loan
agreement or other credit agreement or instrument to which the Company is a
party or by which the Company may be bound or (ii) any applicable law. In the
event that the amount of Net Proceeds is reduced following the closing of a
Liquidity Event, including without limitation due to a purchase price adjustment
or indemnification obligations of the Company or other expense or liability, the
Parent or the Parent's stockholders in connection with such Liquidity Event, any
outstanding payments of Benefit Amounts owed to a Participant shall be reduced
by such Participant's pro rata share of the reduction in net proceeds; provided,
that in no event shall a Participant be obligated to return any Benefit Amounts
previously paid to such Participant.

      6.4 Waiver and Representations. Notwithstanding anything in this Plan to
the contrary, no Benefit Amounts shall be payable to any Participant hereunder,
and no Participant whose employment is terminated may continue to participate,
unless and until such Participant (or such Participant's successor(s), in the
case of death) executes and delivers, no later than 90 days after the request of
the Company, a waiver and release of any and all claims that such Participant,
or Participant's successor(s), may have against the Company, its directors,
officers, affiliates, subsidiaries and/or stockholders (collectively with the
Company, "Related Persons") and all directors, officers, managers, members and
shareholders of any of the Related Persons in such form as may be acceptable to
the Board.

      6.5 Withholding Taxes. The Company shall deduct from all payments made to
Participants the then applicable withholding and employment taxes as required by
federal or state law; provided, that to the extent any party other than the
Company makes payments to Participants, such payor may elect to pay amounts due
without deduction and to report such payments to participants on IRS Form 1099
or its equivalent.

                                       5


      6.6 Benefit Amounts Not Salary. Any Benefit Amounts payable under this
Plan shall not be deemed salary or other compensation to the Participant for the
purpose of computing benefits to which a Participant may be entitled under any
vacation, disability, profit sharing, pension plan or other arrangement of the
Company for the benefit of its employees or independent contractors.

      6.7 Funded Status. This Plan is intended to be an unfunded compensation
arrangement, with benefits payable, when due, by the Company out of the Net
Proceeds of a Liquidity Event. All rights created under this Plan shall be mere
unsecured contractual rights of the Participants against the Company.

      SECTION 7. ADMINISTRATION

      7.1 General Administration.

      (a) This Plan shall be administered by the Board. Any action or decision
of the Board with respect to the modification of this Plan shall be in writing.

      (b) The Board is authorized to interpret this Plan and to adopt rules and
procedures relating to the administration of this Plan. All actions of the Board
in connection with the interpretation and administration of this Plan, including
valuations of assets, liabilities and accounts, shall be binding and conclusive
on all parties and their successors or assigns.

      (c) The Board is expressly authorized to make such modifications to this
Plan as are necessary to effectuate the intent of this Plan, including without
limitation as a result of any changes in the tax, accounting, or securities laws
treatment of the Participant, this Plan, or the Company.

      (d) The Board may delegate its responsibilities to one of more officers of
the Company under such conditions and limitations as it may determine.

      (e) Neither the Board nor any officer of the Company shall be liable for
any action or determination made with respect to the Plan or any Unit granted
under it or the management or results of operation of the Company.

      7.2 Indemnification. To the maximum extent permitted by law, the Company
shall indemnify each member of the Board, as well as any other employee of the
Company with duties under this Plan, against any and all liabilities and
expenses (including any amount paid in judgment or settlement) reasonably
incurred by the individual in connection with any claims against the individual
by reason of the performance of the individual's duties under this Plan, unless
the losses are due to the individual's lack of good faith.

      7. 3 Termination/Amendment. Notwithstanding any other provision of this
Plan, the Board may at any time and from time to time terminate or amend this
Plan as to all Participants or as to any Participant if, in its sole and
absolute discretion, it finds such action appropriate under the

                                        6


existing circumstances; provided, however, no termination or amendment of this
Plan shall adversely affect any right or obligation with respect to any Units
held in such Participant's Account which are vested as of the date of such
termination or amendment.

      7.4 No Trust Created. Nothing contained herein shall be deemed to create a
trust of any kind or create any fiduciary relationship. To the extent that any
person acquires a right to receive payments from the Company under this Plan,
such right shall be no greater than the right of any unsecured general creditor
of the Company.

      7.5 Forfeited Units. All Units that are forfeited by Participants pursuant
to this Plan shall be canceled and all rights of Participants, or their heirs,
devisees, designated beneficiaries, successors or assigns in or to such canceled
Units shall terminate. Forfeited Units shall again become available for grant.

      SECTION 8. MISCELLANEOUS

      8.1 No Additional Rights. The granting of Units under this Plan shall not
entitle any Participant to any rights as a stockholder or equityholder of the
Company, including, without limitation, voting, dividends or any other rights of
a stockholder or equityholder of the Company. A Unit only represents a
contingent right to certain Benefit Amounts as of the respective Redemption Date
and confers no other rights whatsoever. Neither the adoption of this Plan nor
the participation of any Participant in this Plan shall (a) affect or restrict
in any way the power of the Company to undertake any action otherwise permitted
under applicable law or (b) affect or restrict in any way the discretion or
authority of the Board or officers of the Company in the management of the
business and affairs of the Company or (c) confer upon any Participant the right
to continue performing services for the Company as an employee or as an
independent contractor or (d) interfere in any way with the right of the Company
to terminate the services of any Participant as an employee at any time, with or
without cause or (e) create any security or otherwise confer any rights or
duties under or in respect of any state or federal securities laws. The Board
retains full discretion to determine the procedure, occurrence and declaration
of Liquidity Events, and all other determinations hereunder.

      8.2 Non-Transferability. Benefits under this Plan are not assignable or
transferable. No Participant or beneficiary designated according to this Plan
shall have the right to sell, assign, transfer, pledge, gift, bequeath, encumber
or hypothecate his or her right in or to any Units in any manner, nor shall such
right of any Participant or beneficiary be subject to claims of his or her
creditors other than the Company, or be liable to attachment, execution or other
process of law. Any attempted sale, assignment, transfer, pledge, hypothecation,
gift, bequest or other disposition of Participant's right in or to the Units and
other amounts held in Participant's Account shall be null and void and without
effect.

      8.3 Notices. All notices or communications required or permitted to be
given under this Plan shall be given in writing and signed by the appropriate
party, dated, and shall be effective on the date such notice or communication is
delivered to the executive offices of the Company or sent to the last address
provided by a Participant to the Company, as the case may be.

                                       7


      8.4 Severability. If any provision of this Plan is invalid or
unenforceable, such provision shall not affect any other provision of this Plan.

      8.5 Captions. Captions of the various sections herein are solely for the
convenience of the parties and shall not affect or control the meaning or
construction of this Plan.

      8.6 Applicable Law. This Plan shall be construed and applied under the
laws of the State of California.

      8.7 Successors. The Plan shall be binding upon and inure to the benefit of
the Company, its successors and assigns, and the Participants, and their heirs,
executors, administrators, legal representatives and beneficiaries.

      8.8 Integration. This Plan (together with any Grant Letter issued pursuant
hereto) supercedes all prior plans, agreements, arrangements and commitments
with or to any Participant with respect to equity participation or
equity-related deferred compensation in the Company.

                                        8

EX-10.40

                                                                   EXHIBIT 10.40

                     MANAGEMENT CHANGE IN CONTROL AGREEMENT

      MANAGEMENT CHANGE IN CONTROL AGREEMENT entered into this 15th day of
October 2004, by and among Concord Communications, Inc., a Massachusetts
corporation ("Concord"), and the undersigned employee of Concord, Ted D.
Williams (the "Employee").

                                   WITNESSETH:

      WHEREAS, Concord and the Employee desire to set forth certain terms and
conditions relating to benefits to be afforded to Employee during the course of
employment and sets 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 his/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
him/her immediately prior to such termination) (the "Severance Benefit"). If a
Termination Event occurs, and the Employee receives the Severance Benefit, then
he shall not be entitled to continue to receive (i) any other salary or bonus or
the severance benefit referenced in Section 2(b) or (ii) any other employee
benefits (other than those specified in the following sentence). 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 his/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



                                      -2-

                  (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;

                  (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




                                      -3-

                  (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, Severance, and Bonus Guarantee. (a) Concord may,
immediately and unilaterally, terminate the Employee's employment with "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




                                      -4-

                  (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.

            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 Sections 1 and 2(b) and
2(c) herein.

      (b) If employment is terminated without Cause, Concord will pay severance
in a cash amount equal to twelve months' base annual salary (at the rate being
paid immediately prior to such termination), payable twice a month in accordance
with Concord's normal payroll cycle, upon execution of a full release of all
claims that you may have against Concord, which will be supplied by Concord. The
Employee will 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 twelve (12) months following
termination. Notwithstanding anything contained herein to the contrary, Concord
shall have no obligation to make the salary and health insurance severance
payments described in this subsection (b) after Employee commences employment
following his termination from Concord. Employee is obligated to inform Concord
promptly of such event.

      (c) Employee is guaranteed a minimum, non-recoverable quarterly bonus of
$32,500 for each of the four quarters during the one (1) year beginning on
January 1, 2005, which will be payable to Employee with the last payroll of the
month following the close of each quarter, and only during active employment.
This guaranteed bonus shall not limit the Employee's ability to obtain
additional bonuses under the 2004 and 2005 Executive Bonus Programs, but the
guaranteed bonus provided under this section shall be deducted from amounts
earned thereunder. Any entitlement to this bonus guarantee ceases upon
termination of employment for any reason.

      (d) The Employee's employment shall automatically terminate upon his/her
death and may be terminated by Concord due to him/her disability. If the
Employee dies or his/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 his/her duties for a total of six consecutive months.

      (e) The Employee expressly acknowledges and agrees that, prior to any
Change in Control, Concord may terminate the Employee with or without "Cause" at
any time, subject to the Employee's rights and Concord's obligations specified
in this Agreement. 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.



                                      -5-

      (f) Concord agrees to make up any portion of Employee's earned 2004
year-end bonus from MRO Software, Inc. that Employee loses as a result of
resignation from MRO Software, Inc. prior to joining Concord. Concord agrees to
pay any such loss within 30 days after the date that such bonuses are paid to
other MRO employees. Employee shall, at the request of Concord, submit such
reasonable documentation as may be required to establish the amount of the bonus
lost, including an affidavit from the Employee.

      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, subject to the Employee's rights and Concord's obligations specified in
this Agreement.

      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 he/she has obtained all waivers and/or consents from third parties
which are necessary to enable him/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 his/her rights or
delegate any of his/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



                                      -6-

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.

      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:
                         Concord Communications, Inc.
                         600 Nickerson Road
                         Marlboro, MA 01752
                         Attention: General Counsel

      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).

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




      IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

                                             CONCORD COMMUNICATIONS, INC.

                                             By: /s/ John A. Blaeser
                                                 ---------------------------
                                                 Name: John A. Blaeser
                                                 Title:President

                                             EMPLOYEE

                                             /s/ Ted D. Williams
                                             -------------------------------
                                             Name: Ted D. Williams
                                             Address: 9 Denton Rd.
                                                      Wellesley, MA 02482



      Exhibit A

                        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.

      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.



      IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
15th day of October, 2004.

                                                  /s/ Ted D. Williams
                                                  -----------------------------
                                                      Name: Ted D. Williams

EX-10.42

                                                                   Exhibit 10.42

                          CONCORD COMMUNICATIONS, INC.

                                  _______ PLAN

                        RESTRICTED STOCK GRANT AGREEMENT

      THIS AGREEMENT made this ___ day of _____, 200__, by and between CONCORD
COMMUNICATIONS, INC. a corporation organized under the laws of the Commonwealth
of Massachusetts (the "Company"), and the individual identified below, residing
at the address there set out (the "Grantee").

                          W I T N E S S E T H T H A T:

      WHEREAS, Grantee's association with the Company or Related Corporation is
considered by the Company to be important for the growth of it and the Related
Corporations; and

      WHEREAS, the company desires to grant to grantee shares of the company's
Common Stock (the "Common Stock") pursuant to the Company's _______ Plan (the
"Plan") according to the terms and conditions hereof;

      NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto hereby mutually covenant and agree as
follows:

1.    ISSUANCE OF COMMON STOCK

      1.1. The Company hereby agrees to grants to Grantee an aggregate of
______________ (____) shares of Common Stock in consideration of his or her
performance of future services and on the terms and conditions of this Agreement
and all other applicable terms and conditions of the Plan. For purposes of this
Agreement, "Acquired Shares" means all of such shares, together with any shares
of stock or other securities issued in respect of or in replacement for the
shares of Common Stock described in the preceding sentence as a result of a
corporate or other action such as a stock dividend, stock split, merger,
consolidation, reorganization, or recapitalization.

      1.2. Upon receipt by the Company of a copy of this Agreement duly executed
and completed by the Grantee, the Company shall issue in the name of Grantee
duly executed certificates evidencing the Acquired Shares endorsed with the
legend set forth in Section 7.3 below. Certificates evidencing Acquired Shares
shall be held in escrow by the Company as hereinafter provided.


                                     - 2 -

2.    VESTING AND FORFEITURE OF ACQUIRED SHARES

      2.1. As of the date of this Agreement, all of the Acquired Shares shall be
subject to the risk of forfeiture in accordance with Section 2.2 (the Acquired
Shares, while and to the extent so subject to the risk of forfeiture pursuant to
Section 2.2, being hereafter referred to as "Restricted Shares"). Restricted
Shares shall vest and no longer be subject to the risk of forfeiture under
Section 2.2 in accordance with the provisions of Schedule A attached hereto.
Restricted Shares which have vested in accordance with the provisions of
Schedule A attached are herein referred to as "Vested Shares". Unless otherwise
expressly provided on such Schedule A, no Restricted Shares shall become Vested
Shares following the date (the Grantee's "Termination Date"), reasonably fixed
and determined by the Committee, of the voluntary or involuntary termination of
the Grantee's employment or other association with all of the Company and its
Related Corporations, for any or no reason whatsoever, including death or
disability and an entity ceasing to be a Related Corporation; provided, however,
that military or sick leave shall not be deemed a termination of employment or
other association, if it does not exceed the longer of 90 days or the period
during which the Grantee's reemployment rights, if any, are guaranteed by
statute or by contract.

      2.2. As of the Grantee's Termination Date, all of the then Restricted
Shares shall be forfeited by the Grantee or any Permitted Transferee (as defined
in Section 3.1 below). As of the Grantee's Termination Date, and without
requirement of notice or other action, the Company shall become the legal and
beneficial owner of the then Restricted Shares and all rights and interests
therein or relating thereto, and the Company shall have the right to retain and
transfer to its own name such Restricted Shares for no consideration whatsoever.

3.    RESTRICTION ON TRANSFER

      3.1. Subject to the remaining provisions of this Section and except for
the escrow described in Section 4, none of the Restricted Shares or any
beneficial interest therein shall be sold, transferred, assigned, pledged,
encumbered or otherwise disposed of in any way at any time (including, without
limitation, by operation of law) other than (i) to the Company or its assignees
or (ii), to any other person on (but only upon) death by will, bequest or
operation of law (each, a "Permitted Transferee").

      3.2. All Permitted Transferees of Restricted Shares or any interest
therein shall be required as a condition of such transfer to agree in writing,
in form satisfactory to the Company, that they shall receive and hold such
Shares or interest subject to the provisions of this Agreement, including,
without limitation, the forfeiture provisions of Section 3. Any sale, transfer,
assignment, pledge, encumbrance or other disposition of the Restricted Shares
other than in accordance with this Section shall be void. The Company shall not
be required (i) to transfer on its books any Restricted Shares sold, transferred
or otherwise disposed of in violation of this Section or (ii) to treat as owner
of any Restricted Shares, or to pay dividends in respect of Restricted Shares
to, any person purporting to have acquired Restricted Shares or any beneficial
interest therein unless such Restricted Shares or interest were acquired in
compliance with the provisions of this Section.


                                     - 3 -

4.    ESCROW OF SHARES

      4.1. Each Restricted Share granted pursuant to this Agreement shall be
held in escrow by the Company, as escrow holder ("Escrow Holder"), together with
a stock power executed in blank by the Grantee, until it shall either (a) be
forfeited to the Company at the Grantee's Termination Date in accordance with
Section 2.2 or (b) have become a Vested Share and the Grantee shall have
satisfied the requirements of Section 5.1 (relating to tax withholdings) with
respect to any taxable income attributable to such Share.

      4.2. Upon the forfeiture of any Restricted Shares to the Company in
accordance with Section 2.2, the Company shall have the right, as Escrow Holder,
to take all steps necessary to accomplish the transfer of such Share to it,
including but not limited to presentment of certificates representing the
Restricted Shares, together with a stock power executed by or in the name of the
Grantee appropriately completed by the Escrow Holder, to the Company's transfer
agent with irrevocable instructions to register transfer of such Shares into the
name of the Company. The Grantee hereby appoints the Company, in its capacity as
Escrow Holder, as his or her irrevocable attorney-in-fact to execute in his or
her name, acknowledge and deliver all stock powers and other instruments as may
be necessary or desirable with respect to the Shares.

      4.3. When any portion of the Restricted Shares have become Vested Shares,
upon Grantee's request the Company, as Escrow Holder, shall promptly cause a new
certificate to be issued for such Shares and shall deliver such certificate to
Grantee subject, however, to the Grantee's satisfaction of the requirements of
Section 5.1 (relating to tax withholdings).

      4.4. Subject to the terms hereof, Grantee shall have all the rights of a
stockholder with respect to the Acquired Shares while they are held in escrow,
including without limitation, the right to receive any dividends declared
thereon. If, from time to time during the term of the escrow, there occurs any
corporate or other action giving rise to substituted or additional securities by
reason of ownership of the Shares such substituted or additional securities,
with the legend required by Section 7.3 if applicable, shall be immediately
subject to this escrow and deposited with the Escrow Holder.

5.    TAX CONSEQUENCES

      5.1. It is understood by the Company and Grantee that the issuance of the
Acquired Shares hereunder may be deemed compensatory in purpose and in effect
and that as a result the Company or a Related Corporation may be obligated to
pay withholding taxes in respect of such Acquired Shares at the time Grantee
becomes subject to income taxation as a result of the receipt or vesting of the
Acquired Shares hereunder. In the event that at the time the above-said
withholding tax obligations arise (i) Grantee is no longer in the employ of the
Company or a Related Corporation or (ii) Grantee's other cash compensation from
the Company and its Related Corporations is not sufficient to meet the aforesaid
withholding tax obligation, Grantee hereby agrees to provide the Company or its
Related Corporation with an amount sufficient to pay all withholding taxes
required to be paid as and when such taxes become payable (which amount in the
sole discretion of the Company and subject to any


                                     - 4 -

applicable requirements of the Plan, may be provided in the form of shares of
Common Stock, including Vested Shares then held by the Escrow Holder). Grantee
agrees to pay such amount on or before the later of the date the withholding tax
obligation arises, or the Company's next subsequent payroll date. Grantee agrees
that in the event and to the extent the Company and its Related Corporations
determine that they are not obligated to withhold taxes payable by Grantee with
respect to Acquired Shares but the Company or a Related Corporation is later
held liable due to any non-payment of taxes on the part of Grantee, the Grantee
shall indemnify and hold the Company and its Related Corporations harmless from
the amount of any payment made by them in respect of such liability.

      5.2. Grantee hereby agrees to deliver to the Company (and his or her
employing Related Corporation, if applicable) a signed copy of any instrument,
letter or other document he or she may execute and file with the Internal
Revenue Service evidencing his or her election under Section 83(b)(2) of the
Internal Revenue Code of 1986, as amended, to treat his or her receipt of the
Acquired Shares as includible in his or her gross income in the year of receipt.
Grantee shall deliver said copy of any such instrument of election within five
(5) days after the date on which any such election is required to be made in
accordance with the appropriate provisions of the Internal Revenue Code or
applicable Regulations thereunder.

6.    COMPLIANCE WITH LAW

      6.1. Grantee represents and warrants, and each Permitted Transferee shall,
as a condition of transfer, represent and warrant, that he or she is acquiring
the Acquired Shares of his or her own account for the purpose of investment and
not with a view to, or for sale in connection with, the distribution of any such
Acquired Shares.

      6.2. Grantee acknowledges and agrees, and each Permitted Transferee shall,
as a condition of transfer, acknowledge and agree, that neither the Company nor
any agent of the Company shall be under any obligation to recognize any transfer
of any of the Acquired Shares if, in the opinion of counsel for the Company,
such transfer would result in violation by the Company of any federal or state
law with respect to the offering, issuance or sale of securities.

7.    GENERAL PROVISIONS

      7.1. This Agreement shall be governed and enforced in accordance with the
terms of the Plan and the laws of the Commonwealth of Massachusetts, without
regard to the conflict of laws principles thereof, and shall be binding upon the
heirs, personal representatives, executors, administrators, successors and
assigns of the parties.

      7.2. This Agreement and the applicable terms of the Plan embody the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and thereof, supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject


                                     - 5 -

matter hereof in any way and may only be modified or amended in writing signed
by the Company and the Grantee.

      7.3. The certificates representing the Restricted Shares shall be endorsed
with the following legend:

      The transferability of this certificate and the shares represented by this
      certificate are subject to the terms and conditions (including, without
      limitation, the potential forfeiture of the same) of the _______ Plan and
      a Restricted Stock Grant Agreement entered into by the registered owner
      and Concord Communications, Inc. Copies of such Plan and Agreement are on
      file in the offices of Concord Communications, Inc.

      7.4. The rights and obligations of each party under this Agreement shall
inure to the benefit of and be binding upon such party's heirs, legal
representatives, successors and permitted assigns. The rights and obligations of
the Company under this Agreement shall be assignable by the Company to any one
or more persons or entities without the consent of the Grantee or any other
person. The rights and obligations of any person other than the Company under
this Agreement may only be assigned with the prior written consent of the
Company.

      7.5. No consent to or waiver of any breach or default in the performance
of any obligations hereunder shall be deemed or construed to be a consent to or
waiver of any other breach or default in the performance of any of the same or
any other obligations hereunder. Failure on the part of any party to complain of
any act or failure to act of any other party or to declare any party in default,
irrespective of the duration of such failure, shall not constitute a waiver of
rights hereunder and no waiver hereunder shall be effective unless it is in
writing, executed by the party waiving the breach or default hereunder.

      7.6. If any provision of this Agreement shall be held illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render illegal, invalid
or unenforceable any other severable provisions of this Agreement.

      7.7. The headings in this Agreement are for convenience of identification
only, do not constitute a part hereof, and shall not affect the meaning or
construction hereof.

      7.8. Grantee agrees upon request to execute any further documents or
instruments necessary or desirable to carry out the purposes or intent of this
Agreement.

      7.9. Any dispute, controversy, or claim arising out of, or in connection
with, or relating to the performance of this Agreement or its termination, shall
be settled by arbitration in the Commonwealth of Massachusetts, pursuant to the
rules then in effect of the American Arbitration Association. Any award shall be
final, binding and conclusive upon the parties and a judgment rendered thereon
may be entered in any court having jurisdiction thereof.


                                     - 6 -

      7.10. Nothing contained in this Agreement shall confer upon the Grantee
any right with respect to the continuation of his or her employment or other
association with the Company or any Related Corporation, or interfere in any way
with the right of the Company and its Related Corporations, subject to the terms
of Grantee's separate employment or consulting agreement, if any, or provision
of law or corporate articles or by-laws to the contrary, at any time to
terminate such employment or consulting agreement or otherwise modify the terms
and conditions of Grantee's employment or association with the Company or a
Related Corporation.

      7.11. This Agreement may be executed in one or more counterparts, each of
which when executed shall be deemed an original and all of which, taken
together, shall constitute one and the same instrument. In making proof of this
Agreement it shall not be necessary to produce or account for more than one such
counterpart.

      7.12. All capitalized terms used but not defined herein shall have the
respective meaning given such terms in the Plan.

                 REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK


                                     - 7 -

      IN WITNESS WHEREOF, the parties have duly executed this Agreement under
seal as of the month, day and year first set forth above.

CONCORD COMMUNICATIONS, INC.                      GRANTEE

By:
    -----------------------                       -------------------------

Title:                                            Grantee's Name & Address:

                                                  -------------------------
                                                  -------------------------



(Number of Acquired Shares)

      This Schedule A provides for the vesting of the Acquired Shares granted
the Grantee in the Restricted Stock Purchase Agreement (the "Agreement") to
which it is attached. Capitalized terms not defined herein shall have the same
meaning as such terms are assigned under the Agreement.

      1. Release Based on Continued Employment. At each anniversary of the date
of the Agreement, that percentage of the Acquired Shares set forth opposite such
anniversary shall be released from the Company's Repurchase Right and become
Vested Shares, with any fractions rounded down except on the final installment.

                               ________ Stock Plan

                       Anniversary      Percentage

EX-21.01

                                                                   EXHIBIT 21.01



                                  SUBSIDIARIES



   Concord Communications Securities Corporation
   600 Nickerson Road
   Marlborough, MA  01752
   State of incorporation: Massachusetts

   Concord Communications International, Inc.
   600 Nickerson Road
   Marlborough, MA 01752
   State of incorporation: Delaware

   CCA Holdings, Inc.
   600 Nickerson Road
   Marlborough, MA 01752
   State of incorporation: Delaware

   FirstSense Software, Inc.
   600 Nickerson Road
   Marlborough, MA 01752
   State of incorporation: Delaware

   Concord Communications FSC, Ltd.
   600 Nickerson Road
   Marlborough, MA 01752
   Organized under the laws of: Bermuda

   NetViz LLC
   600 Nickerson Road
   Marlborough, MA 01752
   State of incorporation: Delaware

   Vitel Software, Incorporated
   600 Nickerson Road
   Marlborough, MA 01752
   State of incorporation: Massachusetts

   Aprisma Holdings, Inc.
   600 Nickerson Road
   Marlboro, MA 01752
   State of incorporation:  Delaware

EX-23.01

                                                                   Exhibit 23.01

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File nos. 333-115512, 333-87516, 333-82252, 333-72518,
333-57672, 333-40456, 333-31484, 333-78087, 333-51945, 333-40645 and 333-38363)
and on Form S-3 (File nos. 333-108068, 333-112091 and 333-36170) of Concord
Communications, Inc. of our report dated March 14, 2005 relating to the
financial statements, management's assessment of the effectiveness of internal
control over financial reporting and the effectiveness of internal control over
financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 16, 2005

EX-31.1

                                                                    EXHIBIT 31.1

                                 CERTIFICATIONS

I, John A. Blaeser, certify that:

      1. I have reviewed this annual report on Form 10-K of Concord
Communications, Inc.;

      2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

      4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13(a) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15a-15(f)) for the
registrant and we have:

            a. Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

            b. Evaluated the effectiveness of the registrant's disclosure
      controls and procedures and presented in this report our conclusions about
      the effectiveness of the disclosure controls and procedures, as of the end
      of the period covered by this report based on such evaluation;

            c. Disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter (the registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is reasonably
      likely to materially affect, the registrant's internal control over
      financial reporting; and

      5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

            a. All significant deficiencies and material weaknesses in the
      design or operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

            b. Any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      controls over financial reporting.

                                                      /s/ JOHN A. BLAESER
                                           -------------------------------------
                                                      John A. Blaeser
                                           President and Chief Executive Officer

March 16, 2005

EX-31.2

                                                                    EXHIBIT 31.2

                                 CERTIFICATIONS

I, Melissa H. Cruz, certify that:

      1. I have reviewed this annual report on Form 10-K of Concord
Communications, Inc.;

      2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

      4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13(a) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and we
have:

            a. Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

            b. Evaluated the effectiveness of the registrant's disclosure
      controls and procedures and presented in this report our conclusions about
      the effectiveness of the disclosure controls and procedures, as of the end
      of the period covered by this report based on such evaluation;

            c. Disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter (the registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is reasonably
      likely to materially affect, the registrant's internal control over
      financial reporting; and

      5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

            a. All significant deficiencies and material weaknesses in the
      design or operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

            b. Any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      controls over financial reporting.

                                                 /s/ MELISSA H. CRUZ
                                      ------------------------------------------
                                                 Melissa H. Cruz
                                      Executive Vice President Business Services
                                         Chief Financial Officer and Treasurer

March 16, 2005

EX-32.1

                                                                    EXHIBIT 32.1

    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Concord Communications, Inc. (the
"Company") on Form 10-K for the year ending December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, John A.
Blaeser, President and Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

            1. The Report fully complies with the requirements of Section 13(a)
      or 15(d) of the Securities Exchange Act of 1934; and

            2. The information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Company.

                                                     /s/ JOHN A. BLAESER
                                           -------------------------------------
                                                     John A. Blaeser
                                           President and Chief Executive Officer

March 16, 2005

EX-32.2

                                                                    EXHIBIT 32.2

    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Concord Communications, Inc. (the
"Company") on Form 10-K for the year ending December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Melissa
H. Cruz, Executive Vice President, Business Services, Chief Financial Officer
and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of my knowledge:

            1. The Report fully complies with the requirements of Section 13(a)
      or 15(d) of the Securities Exchange Act of 1934; and

            2. The information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Company.

                                                 /s/ MELISSA H. CRUZ
                                    --------------------------------------------
                                                 Melissa H. Cruz
                                    Executive Vice President, Business Services,
                                        Chief Financial Officer and Treasurer

March 16, 2005