<SUBMISSION>
<ACCESSION-NUMBER>0000891618-05-000675
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>6
<PERIOD>20050729
<FILING-DATE>20050902
<DATE-OF-FILING-DATE-CHANGE>20050902
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>NETWORK APPLIANCE INC
<CIK>0001002047
<ASSIGNED-SIC>3572
<IRS-NUMBER>770307520
<STATE-OF-INCORPORATION>CA
<FISCAL-YEAR-END>0430
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-27130
<FILM-NUMBER>051068686
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>495 EAST JAVA DR
<CITY>SUNNYVALE
<STATE>CA
<ZIP>94089
<PHONE>4088226000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>495 EAST JAVA DR
<CITY>SUNNYVALE
<STATE>CA
<ZIP>94089
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>f10502e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 2pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 3pt;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Form 10-Q</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 12pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<TR style="font-size: 10pt;">
    <TD align="center" nowrap>(Mark One)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="wingdings">&#254;
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <B>QUARTERLY REPORT PURSUANT TO SECTION&nbsp;13 OR 15(d)<BR>
    OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <B>For the quarterly period ended July&nbsp;29, 2005</B></TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <B>or</B></TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="wingdings">&#111;
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <B>TRANSITION REPORT PURSUANT TO SECTION&nbsp;13 OR 15(d)<BR>
    OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <B>For the transition period
    from&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Commission file number 0-27130</B>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Network Appliance, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Exact name of registrant as specified in its charter)</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Delaware</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>77-0307520</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>(State or other jurisdiction of</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(IRS Employer</I></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>incorporation or organization)</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>Identification No.)</I></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>495 East Java Drive,</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Sunnyvale, California 94089</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Address of principal executive offices, including zip
code)</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Registrant&#146;s telephone number, including area code:</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(408)&nbsp;822-6000</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the registrant (1)&nbsp;has filed
all reports required to be filed by Section&nbsp;13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12&nbsp;months (or for such shorter period that the registrant
was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past
90&nbsp;days.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule&nbsp;12b-2 of the Exchange
Act).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the registrant is a shell company
(as defined in Rule&nbsp;12b-2 of the
Act).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#254;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Number of shares outstanding of the registrant&#146;s common
stock, $0.001&nbsp;par value, as of the latest practicable date.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Class</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Outstanding at July&nbsp;29, 2005</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common Stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    367,932,522</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 3pt; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 4pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">
<!-- TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TABLE OF CONTENTS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Page</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>No.</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="9" align="center" valign="top">
    &nbsp;<A HREF='#101'><B>PART&nbsp;I&nbsp;&#151; FINANCIAL
    INFORMATION</A></B></TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#102'>Item&nbsp;1.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#102'>Condensed Consolidated Financial Statements
    (Unaudited)</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#103'>Condensed Consolidated Balance Sheets as of
    July&nbsp;29, 2005 (Unaudited) and April&nbsp;30, 2005</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#104'>Condensed Consolidated Statements of Income
    for the three-month periods ended July&nbsp;29, 2005 and
    July&nbsp;30, 2004 (Unaudited)</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#105'>Condensed Consolidated Statements of Cash
    Flows for the three-month periods ended July&nbsp;29, 2005 and
    July&nbsp;30, 2004 (Unaudited)</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#106'>Notes to Condensed Consolidated Financial
    Statements (Unaudited)</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#107'>Item&nbsp;2.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#107'>Management&#146;s Discussion and Analysis
    of Financial Condition and Results of Operations</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#108'>Item&nbsp;3.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#108'>Quantitative and Qualitative Disclosures
    About Market Risk</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#109'>Item&nbsp;4.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#109'>Controls and Procedures</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="9" align="center" valign="top">
    &nbsp;<A HREF='#110'><B>PART&nbsp;II&nbsp;&#151; OTHER
    INFORMATION</A></B></TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#111'>Item&nbsp;1.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#111'>Legal Proceedings</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#112'>Item&nbsp;2.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#112'>Unregistered Sales of Equity Securities and
    Use of Proceeds</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#113'>Item&nbsp;3.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#113'>Defaults Upon Senior Securities</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#114'>Item&nbsp;4.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#114'>Submission of Matters to a Vote of Security
    holders</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#115'>Item&nbsp;5.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#115'>Other Information</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#116'>Item&nbsp;6.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#116'>Exhibits</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="right" valign="top">&nbsp;<A HREF='#117'>SIGNATURE</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    </A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f10502exv2w3.htm">EXHIBIT 2.3</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f10502exv31w1.htm">EXHIBIT 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f10502exv31w2.htm">EXHIBIT 31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f10502exv32w1.htm">EXHIBIT 32.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f10502exv32w2.htm">EXHIBIT 32.2</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt;">2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='101'></A>
</DIV>

<!-- link1 "PART I. FINANCIAL INFORMATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PART&nbsp;I. FINANCIAL INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='102'></A>
</DIV>

<!-- link1 "Item 1. Condensed Consolidated Financial Statements (Unaudited)" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;1.</B></TD>
    <TD>
    <B><I>Condensed Consolidated Financial Statements
    (Unaudited)</I></B></TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='103'></A>
</DIV>

<!-- link1 "CONDENSED CONSOLIDATED BALANCE SHEETS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONDENSED CONSOLIDATED BALANCE SHEETS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands&nbsp;&#151; unaudited)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>April&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>ASSETS</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Current Assets:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>231,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>193,542</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Short-term investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>983,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>976,423</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable, net of allowances of $5,037 at
    July&nbsp;29, 2005 and $5,445 at April&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>239,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>296,885</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventories</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,983</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,472</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,558</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,584</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,562,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,575,889</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Property and Equipment, net</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>443,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>418,749</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Goodwill</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>297,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>291,816</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Intangible Assets, net</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,448</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Other Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>68,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64,745</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,396,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,372,647</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Current Liabilities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>80,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>83,572</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,823</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and related benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,534</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,262</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>278,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>261,998</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>495,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>520,189</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Long-Term Deferred Revenue</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>206,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>187,180</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Long-Term Obligations</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,474</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>705,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>711,843</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Stockholders&#146; Equity:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock (385,761&nbsp;shares at July&nbsp;29, 2005 and
    381,509&nbsp;shares at April&nbsp;30, 2005)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>381</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,418,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,347,352</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred stock compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17,633</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,782</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Treasury stock (17,828&nbsp;shares at July&nbsp;29, 2005 and
    14,566&nbsp;shares at April&nbsp;30, 2005)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(424,618</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(329,075</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>722,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>661,978</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,377</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,050</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,690,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,660,804</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,396,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,372,647</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to unaudited condensed consolidated
financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='104'></A>
</DIV>

<!-- link1 "CONDENSED CONSOLIDATED STATEMENTS OF INCOME" -->

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONDENSED CONSOLIDATED STATEMENTS OF INCOME</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands, except per share amounts&nbsp;&#151;
unaudited)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Revenues:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>394,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>324,627</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,794</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448,403</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>358,421</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cost of Revenues:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of product revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>133,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>114,215</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of service revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,248</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total cost of revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>174,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>143,463</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross margin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>273,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>214,958</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Operating Expenses:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103,311</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,703</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,882</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,104</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring recoveries</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,256</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total operating expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>209,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Income from Operations</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>63,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,958</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Other Income (Expense), net:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,048</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,082</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other expenses, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(272</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(912</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net gain on investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total other income, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,170</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Income before Income Taxes</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,128</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Provision for Income Taxes</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,266</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net Income</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>60,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46,862</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net Income per Share:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Shares Used in per Share Calculations:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>367,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>356,743</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>386,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>372,974</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (1) Stock compensation includes:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>510</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,384</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,104</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to unaudited condensed consolidated
financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='105'></A>
</DIV>

<!-- link1 "CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands&nbsp;&#151; unaudited)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash Flows from Operating Activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>60,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46,862</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net income to net cash provided by
    operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,242</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,333</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of patents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,104</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net gain on investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(33</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(29</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss on disposal of equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for doubtful accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(379</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(154</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred rent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in assets and liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,757</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventories</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,998</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,331</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses and other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,997</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,429</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,691</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,075</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,851</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and related benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32,418</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,535</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,302</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,697</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,342</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>138,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,668</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash Flows from Investing Activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(222,787</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(148,646</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemptions of investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>213,977</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>139,045</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase in restricted cash</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,504</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(33,538</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32,265</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sales of investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>298</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of equity securities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(275</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase of business, net of cash acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,831</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(55,896</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,568</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash Flows from Financing Activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sale of common stock related to employee stock
    transactions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,202</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax withholding payments reimbursed by restricted stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(419</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repurchases of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(95,543</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(47,742</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(45,199</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,540</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Effect of Exchange Rate Changes on Cash and Cash
    Equivalents</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>334</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net Increase in Cash and Cash Equivalents</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,894</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash and Cash Equivalents:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>92,328</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    End of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>231,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>103,222</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Noncash Investing and Financing Activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of evaluation inventory to fixed assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,729</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred stock compensation, net of reversals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(546</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax benefit from employee stock transactions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,692</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of property and equipment on account</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options assumed for acquired business</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Supplemental cash flow information:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,826</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to unaudited condensed consolidated
financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='106'></A>
</DIV>

<!-- link1 "NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" -->

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Dollar and share amounts in thousands, except per-share
data)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>1.</B></TD>
    <TD>
    <B>The Company</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Based in Sunnyvale, California, Network Appliance was
incorporated in California in April 1992 and reincorporated in
Delaware in November 2001. Network Appliance, Inc. is a leading
supplier of enterprise storage and data management software and
hardware products and services. Our solutions help global
enterprises meet major information technology challenges such as
managing storage growth, assuring secure and timely information
access, protecting data and controlling costs by providing
innovative solutions that simplify the complexity associated
with managing corporate data. Network Appliance solutions are
the data management and storage foundation for many of the
world&#146;s leading corporations and government agencies.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>2.</B></TD>
    <TD>
    <B>Condensed Consolidated Financial Statements</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accompanying interim unaudited condensed consolidated
financial statements have been prepared by Network Appliance,
Inc. without audit and reflect all adjustments, consisting only
of normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of our financial
position, results of operations and cash flows for the interim
periods presented. The statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (&#147;generally accepted accounting
principles&#148;) for interim financial information and in
accordance with the instructions to Form&nbsp;10-Q and
Article&nbsp;10-01 of Regulation&nbsp;S-X. Accordingly, they do
not include all information and footnotes required by generally
accepted accounting principles for annual consolidated financial
statements. Certain prior period balances have been reclassified
to conform with the current period presentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We operate on a 52-week or 53-week year ending on the last
Friday in April. For presentation purposes we have indicated in
the accompanying interim unaudited condensed consolidated
financial statements that our fiscal year end is April&nbsp;30.
The first quarters of fiscal 2006 and 2005 were both 13-week
fiscal periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
These financial statements should be read in conjunction with
the audited consolidated financial statements and accompanying
notes included in our Annual Report on Form&nbsp;10-K for the
year ended April&nbsp;30, 2005. The results of operations for
the three-month period ended July&nbsp;29, 2005 are not
necessarily indicative of the operating results to be expected
for the full fiscal year or future operating periods. In the
following notes to our interim condensed consolidated financial
statements, Network Appliance Inc. is also referred to as
&#147;we&#148;, &#147;our&#148; and &#147;us&#148;.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>3.</B></TD>
    <TD>
    <B>Use of Estimates</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of the condensed consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period.
Such estimates include, but are not limited to, revenue
recognition and allowances; valuation of goodwill and
intangibles; accounting for income taxes; inventory reserves and
write-down; restructuring accruals; impairment losses on
investments; accounting for stock-based compensation; and loss
contingencies. Actual results could differ from those estimates.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>4.</B></TD>
    <TD>
    <B>Stock Compensation</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We account for stock-based compensation in accordance with the
provisions of Accounting Principle Board Opinion
(&#147;APB&#148;) No.&nbsp;25, <I>&#147;Accounting for Stock
Issued to Employees,&#148; </I>and comply with the disclosure
provisions of Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;123. Deferred compensation
</DIV>

<P align="center" style="font-size: 10pt;">6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
recognized under APB No.&nbsp;25 is amortized ratably to expense
over the vesting periods. We account for stock options issued to
non-employees in accordance with the provisions of
SFAS&nbsp;No.&nbsp;123 under the fair value based method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We amortize deferred stock-based compensation ratably over the
vesting periods of the applicable stock purchase rights,
restricted stocks and stock options, generally four years.
Deferred stock compensation under APB No.&nbsp;25 and pro forma
net income under the provisions of SFAS&nbsp;No.&nbsp;123 are
adjusted to reflect cancellations and forfeitures due to
employee terminations as they occur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We recorded $1,982 and $2,027 of deferred compensation expense
for the three-month periods ended July&nbsp;29, 2005 and
July&nbsp;30, 2004, respectively, primarily related to the
amortization of deferred stock compensation from unvested
options assumed in the acquisitions, the retention escrow shares
relative to Spinnaker, the grant of stock options to certain
highly compensated employees below fair value at the date of
grant (discontinued as of December&nbsp;31, 2004) and the award
of restricted stock to certain employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Based on deferred stock compensation recorded at July&nbsp;29,
2005, estimated future deferred stock compensation amortization
for the remainder of fiscal year 2006, fiscal years 2007, 2008
and 2009 are expected to be $5,981, $6,550, $4,385 and $718,
respectively, and none thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We recorded $46 and $77 in compensation expense in the
three-month periods ending July&nbsp;29, 2005 and July&nbsp;30,
2004, for the fair value of options granted to a member of the
Board of Directors in recognition for services performed outside
of the normal capacity of a board member.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Had compensation expense been determined based on the fair value
at the grant date for awards, consistent with the provisions of
SFAS&nbsp;No.&nbsp;123, the impact on net income and net income
per share would be as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>60,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46,862</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add: stock based employee compensation expense included in
    reported net income under APB No.&nbsp;25, net of related tax
    effects</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,216</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct: total stock based compensation determined under fair
    value based method for all awards, net of related tax effects</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,648</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,551</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29,527</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic net income per share, as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted net income per share, as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic net income per share, pro forma</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted net income per share, pro forma</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>5.</B></TD>
    <TD>
    <B>Inventories</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inventories are stated at the lower of cost (first-in, first-out
basis) or market. Inventories consist of the following:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>April&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchased components</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,784</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Work in process</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>686</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Finished goods</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,513</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>40,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>38,983</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>6.</B></TD>
    <TD>
    <B>Goodwill and Intangible Assets</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Goodwill is reviewed annually for impairment (or more frequently
if indicators of impairment arise). We completed our annual
impairment assessment in fiscal 2005 and concluded that goodwill
was not impaired. In the first quarter of fiscal 2006, there
were no indicators that would suggest the impairment of goodwill
and intangible assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During May 2005, we acquired Alacritus Inc.
(&#147;Alacritus&#148;) and recorded goodwill of $5,845 and
intangible assets of $5,700 resulting from the allocation of the
purchase price. See Note&nbsp;14, &#147;Business
Combination.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Balances as of July&nbsp;29, 2005 and April&nbsp;30, 2005 are
summarized as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>July&nbsp;29, 2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>April&nbsp;30, 2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization Period</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Gross</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Gross</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Net</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(Years)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Assets</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Net Assets</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Assets</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Assets</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Intangible Assets:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Patents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,962</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,467</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,573</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Existing technology</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21,620</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,512</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,013</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trademarks/tradenames</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(134</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(111</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>169</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer Contracts/ relationships</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,069</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(885</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>215</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Covenants Not to Compete</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.5&nbsp;&#151; 2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,488</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,132</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,478</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Intangible Assets, Net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>58,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(34,273</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>52,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(31,107</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,448</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Amortization expense for identified intangible assets is
summarized below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Patents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>450</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Existing technology</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>858</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other identified intangibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,475</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,783</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Based on the identified intangible assets recorded at
July&nbsp;29, 2005, the future amortization expense of
identified intangibles for the remainder of fiscal 2006 and the
next four fiscal years and thereafter is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="87%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Year Ending April,</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Remainder of Fiscal 2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,385</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,838</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,414</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,196</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2010</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,149</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,982</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>7.</B></TD>
    <TD>
    <B>Derivative Instruments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a result of our significant international operations, we are
subject to risks associated with fluctuating exchange rates. We
use derivative financial instruments, principally currency
forward contracts and currency options, to attempt to minimize
the impact of exchange rate movements on our balance sheet and
operating results. Factors that could have an impact on the
effectiveness of our hedging program include the accuracy of
forecasts and the volatility of foreign currency markets. These
programs reduce, but do not always entirely eliminate, the
impact of currency exchange movements. The maturities of these
instruments are generally less than one year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Currently, we do not enter into any foreign exchange forward
contracts to hedge exposures related to firm commitments or
equity investments. Our major foreign currency exchange
exposures and related hedging programs are described below:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Balance Sheet Exposures.</I> We utilize foreign currency
    forward and options contracts to hedge exchange rate
    fluctuations related to certain foreign assets and liabilities.
    Gains and losses on these derivatives offset gains and losses on
    the assets and liabilities being hedged and the net amount is
    included in earnings. For the three-month period ended
    July&nbsp;29, 2005, net gains generated by hedged assets and
    liabilities totaled $3,450 and were offset by losses on the
    related derivative instruments of $3,713. For the three-month
    period ended July&nbsp;30, 2004, net gains generated by hedged
    assets and liabilities totaled $1,288, and were offset by losses
    on the related derivative instruments of $2,216.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    The premiums paid on the foreign currency option contracts are
    recognized as a reduction to other income when the contract is
    entered into. Other than the risk associated with the financial
    condition of the counterparties, our maximum exposure related to
    foreign currency options is limited to the premiums paid.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Forecasted Transactions.</I> We use currency forward
    contracts to hedge exposures related to forecasted sales and
    operating expenses denominated in certain foreign currencies.
    These contracts are designated as cash flow hedges and in
    general closely match the underlying forecasted transactions in
    duration. The contracts are carried on the balance sheet at fair
    value and the effective portion of the contracts&#146; gains and
    losses is recorded as other comprehensive income until the
    forecasted transaction occurs.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    If the underlying forecasted transactions do not occur, or it
    becomes probable that they will not occur, the gain or loss on
    the related cash flow hedge is recognized immediately in
    earnings. For the three-month periods ended July&nbsp;29, 2005
    and July&nbsp;30, 2004, we did not record any gains or losses
    related to forecasted transactions that did not occur or became
    improbable.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of July&nbsp;29, 2005, our notional fair values of foreign
exchange forward and foreign currency option contracts totaled
$224,220. We do not believe that these derivatives present
significant credit risks, because the counterparties to the
derivatives consist of major financial institutions, and we
manage the notional amount of contracts entered into with any
one counterparty. We do not enter into derivative financial
instruments for speculative or trading purposes. Other than the
risk associated with the financial condition of the
counterparties, our maximum exposure related to foreign currency
forward and option contracts is limited to the premiums paid.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>8.</B></TD>
    <TD>
    <B>Earnings Per Share</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Basic net income per share is computed by dividing income
available to common stockholders by the weighted average number
of common shares outstanding excluding unvested restricted stock
for that period. Diluted net income per share is computed giving
effect to all dilutive potential shares that were outstanding
during the period. Dilutive potential common shares consist of
incremental common shares subject to repurchase, common shares
issuable upon exercise of stock options and restricted stock
awards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During all periods presented, we had certain options
outstanding, which could potentially dilute basic earnings per
share in the future, but were excluded in the computation of
diluted earnings per share in such periods, as their effect
would have been antidilutive. These certain options were
antidilutive in the three-month periods ended July&nbsp;29, 2005
and July&nbsp;30, 2004 as these options&#146; exercise prices
were above the average market prices in such periods. For the
three-month periods ended July&nbsp;29, 2005 and July&nbsp;30,
2004, 17,969 and 27,992&nbsp;shares of common stock options with
a weighted average exercise price of $49.80 and $38.88,
respectively, were excluded from the diluted net income per
share computation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a reconciliation of the numerators and
denominators of the basic and diluted net income per share
computations for the periods presented:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net Income (Numerator):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income, basic and diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>60,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46,862</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Shares (Denominator):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average common shares outstanding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>367,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>357,290</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average common shares outstanding subject to repurchase</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(404</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(547</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares used in basic computation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>367,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>356,743</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average common shares outstanding subject to repurchase</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>547</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common shares issuable upon exercise of stock options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,684</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares used in diluted computation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>386,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>372,974</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net Income Per Share:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>9.</B></TD>
    <TD>
    <B>Stockholders&#146; Equity</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Stock Repurchase Program</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the first quarter of fiscal 2006, our Board of Directors
approved an increase in the amount authorized to be used to
repurchase common shares from $350,000 to $650,000. Share
repurchase activities for the first quarters of fiscal 2006 and
2005, were as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares repurchased</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,460</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of shares repurchased</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>95,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,742</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average price per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19.41</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Since the inception of the stock repurchase program through
July&nbsp;29, 2005, we have purchased a total of
17,828&nbsp;shares of our common stock at an average price of
$23.82&nbsp;per share for an aggregate purchase price of
$424,618. At July&nbsp;29, 2005, $225,382 remained available for
repurchases under the plan.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Comprehensive Income</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The components of comprehensive income, were as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>60,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46,862</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,838</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,363</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized loss on investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,106</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,307</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized gain (loss) on derivatives</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(656</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>55,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>43,536</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The components of accumulated other comprehensive loss were as
follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>April&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated translation adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(556</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,283</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated unrealized loss on available-for-sale investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,549</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,444</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated realized gain on derivatives</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>111</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total accumulated other comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,377</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,050</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>10.</B></TD>
    <TD>
    <B>Restructuring Charges</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In fiscal 2002, as a result of continuing unfavorable economic
conditions and a reduction in IT spending rates, we implemented
two restructuring plans, which included reductions in workforce
and consolidations of facilities. As of July&nbsp;29, 2005, we
have no outstanding balance in our restructuring liability for
the first restructuring. The second restructuring related to the
closure of an engineering facility and consolidation of
resources to the Sunnyvale headquarters. As a result of this
restructuring, we incurred a charge of $5,850. The restructuring
charge included $813 of severance-related amounts, $4,564 of
committed excess facilities and facility closure expenses, and
$473 in fixed assets write-offs. Of the restructuring reserve
balance at July&nbsp;29,
</DIV>

<P align="center" style="font-size: 10pt;">11

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
2005, $566 was included in other accrued liabilities and the
remaining $2,591 was classified as long-term obligations, all
relating to the facility charges for the second restructuring.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our restructuring estimates are reviewed and revised
periodically and may result in a substantial charge to
restructuring expense should different conditions prevail than
were anticipated in previous management estimates. Such
estimates included various assumptions such as the time period
over which the facilities will be vacant, expected sublease
terms, and expected sublease rates. During the first quarter of
fiscal 2006, we recorded a reduction in restructuring reserve of
$1,256 resulting from the execution of new sublease agreement
for our Tewksbury facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following analysis sets forth the changes in the
restructuring reserve for the three months ended July&nbsp;29,
2005 (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="85%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Facility</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accrual</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reserve balance at April&nbsp;30, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,208</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(705</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reserve balance at April&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,503</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(90</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,256</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reserve balance at July&nbsp;29, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,157</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>11.</B></TD>
    <TD>
    <B>Short-Term Investments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All our investments are classified as available for sale at
July&nbsp;29, 2005 and April&nbsp;30, 2005. Available-for-sale
investments with original maturities of greater than three
months are classified as short-term investments, as these
investments generally consist of highly marketable securities
that are intended to be available to meet current cash
requirements. Investment securities classified as
available-for-sale are reported at fair market value, and net
unrealized gains or losses are recorded in accumulated other
comprehensive loss, a separate component of stockholders&#146;
equity. Realized gains or losses on sales of investments are
computed based upon specific identification and are included in
interest income and other, net. For all periods presented,
realized gains and losses on available-for-sale investments were
not material. Management evaluates investments on a regular
basis to determine if an other-than-temporary impairment has
occurred and there were none as of July&nbsp;29, 2005. The
unrealized losses on these investments at July&nbsp;29, 2005
were primarily due to interest rate fluctuations. We have the
ability and intent to hold these investments until recovery of
their carrying values. We also believe that we will be able to
collect all principal and interest amounts due to us at maturity
given the high credit quality of these investments. Accordingly,
we do not consider these investments to be
other-than-temporarily impaired at July&nbsp;29, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Beginning in the third quarter of fiscal 2005, we have
classified all investments in auction rate securities as
short-term investments. To conform to current period
presentation, we have reclassified $124,823 of auction rate
securities from cash equivalents to short-term investments for
the first quarter of fiscal 2005. The impact on the Consolidated
Statements of Cash Flows was a decrease in cash used for
investing activities of $25,019 for the first quarter of fiscal
2005. The reclassification had no impact on the Consolidated
Statements of Income or Cash Flows from Operations for any of
the periods presented.
</DIV>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>12.</B></TD>
    <TD>
    <B>New Accounting Pronouncements</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March 2005, the Financial Accounting Standards Board
(&#147;FASB&#148;) issued Interpretation No.&nbsp;47,
<I>&#147;Accounting for Conditional Asset Retirement
Obligations.&#148; </I>Interpretation No.&nbsp;47 clarifies that
an entity must record a liability for a &#147;conditional&#148;
asset retirement obligation if the fair value of the obligation
can be
</DIV>

<P align="center" style="font-size: 10pt;">12

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
reasonably estimated. Interpretation No.&nbsp;47 also clarifies
when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
Interpretation No.&nbsp;47 is effective no later than the end of
the fiscal year ending after December&nbsp;15, 2005. We are
currently evaluating the provision and do not expect that our
adoption in the fourth quarter of fiscal 2006 will have a
material impact on our results of operations or financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March 2005, the Securities and Exchange Commission
(&#147;SEC&#148;) issued Staff Accounting Bulletin
(&#147;SAB&#148;) No.&nbsp;107, which provides guidance on the
implementation of Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;123R, <I>&#147;Share-Based
Payments&#148; </I>(see discussion below). In particular,
SAB&nbsp;No.&nbsp;107 provides key guidance related to valuation
methods (including assumptions such as expected volatility and
expected term), the accounting for income tax effects of
share-based payment arrangements upon adoption of
SFAS&nbsp;No.&nbsp;123R, the modification of employee share
options prior to the adoption of SFAS&nbsp;No.&nbsp;123R, the
classification of compensation expense, capitalization of
compensation cost related to share-based payment arrangements,
first-time adoption of SFAS&nbsp;No.&nbsp;123R in an interim
period, and disclosures in Management&#146;s Discussion and
Analysis subsequent to the adoption of SFAS&nbsp;No.&nbsp;123R.
SAB&nbsp;No.&nbsp;107 became effective on March&nbsp;29, 2005.
It did not have a material impact on our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the FASB issued SFAS&nbsp;123R,
<I>&#147;Share-Based Payments&#148;.</I> Generally, the
requirements of SFAS&nbsp;123R are similar to those of
SFAS&nbsp;123. However, SFAS&nbsp;123R requires companies to now
recognize all share-based payments to employees, including
grants of employee stock options, in their statements of
operations based on the fair value of the payments. Pro forma
disclosure will no longer be an alternative. The effective date
of the new standard for our consolidated financial statements is
the first fiscal quarter of fiscal 2007, which begins on
May&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
SFAS&nbsp;123R permits public companies to adopt its
requirements using one of two methods: (1)&nbsp;a &#147;modified
prospective&#148; method under which compensation cost is
recognized beginning with the effective date based on the
requirements of SFAS&nbsp;123R for all share-based payments
granted after the effective date and based on the requirements
of SFAS&nbsp;123 for all awards granted to employees prior to
the effective date of SFAS&nbsp;123R that are unvested on the
effective date; or (2)&nbsp;a &#147;modified retrospective&#148;
method which includes the requirements of the modified
prospective method and also permits companies to restate either
all prior periods presented or prior interim periods of the year
of adoption using the amounts previously calculated for pro
forma disclosure under SFAS&nbsp;123. We have not yet determined
which method we will select for our adoption of SFAS&nbsp;123R.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As permitted by SFAS&nbsp;123, we currently account for
share-based payments to employees using APB&nbsp;25&#146;s
intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options through our
consolidated statements of operations but rather, discloses the
effect in its consolidated financial statement footnotes.
Accordingly, the adoption of SFAS&nbsp;123R&#146;s fair value
method will have a significant impact on our reported results of
operations. However, the impact of the adoption of
SFAS&nbsp;123R cannot be quantified at this time because it will
depend on levels of share-based payments granted in the future
as well as other variables that effect the fair market value
estimates, which cannot be forecasted at this time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In January 2005, the FASB issued FASB Staff Position
(&#147;FSP&#148;) No.&nbsp;FAS&nbsp;109-1, <I>&#147;Application
of SFAS&nbsp;No.&nbsp;109 to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act
of 2004.&#148; </I>This FSP provides guidance for the accounting
of a deduction provided to U.S.&nbsp;manufacturing companies and
is effective immediately. We believe the adoption of this
position currently will not have a material effect of its
financial position or results of operations. However, there is
no assurance that there will not be a material impact in the
future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the FASB issued FASB Staff Position
(FSP)&nbsp;No.&nbsp;109-2, <I>&#147;Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004.&#148;</I>
</DIV>

<P align="center" style="font-size: 10pt;">13

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The American Jobs Creation Act introduces a special one-time
dividends received deduction on the repatriation of certain
foreign earnings to U.S.&nbsp;companies, provided certain
criteria are met. FSP No.&nbsp;109-2 provides accounting and
disclosure guidance on the impact of the repatriation provision
on a company&#146;s income tax expense and deferred tax
liability. We are currently studying the impact of the one-time
favorable foreign dividend provision and intend to complete the
analysis during the third quarter of fiscal 2006. Accordingly,
we have not adjusted income tax expense or deferred tax
liability to reflect the tax impact of any repatriation of
non-U.S.&nbsp;earnings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November 2004, the Financial Accounting Standards Board
(FASB)&nbsp;issued SFAS&nbsp;No.&nbsp;151 <I>Inventory Costs
</I>(SFAS&nbsp;151). This statement amends the guidance in ARB
No.&nbsp;43, Chapter&nbsp;4, &#147;Inventory Pricing,&#148; to
clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material
(spoilage). SFAS&nbsp;151 requires that those items be
recognized as current-period charges. In addition, this
Statement requires that allocation of fixed production overhead
to costs of conversion be based upon the normal capacity of the
production facilities. The provisions of SFAS&nbsp;151 are
effective for inventory cost incurred in fiscal years beginning
after June&nbsp;15, 2005. As such, we are required to adopt
these provisions at the beginning of fiscal 2007, which begins
on May&nbsp;1, 2006. We do not expect the adoption of
SFAS&nbsp;No.&nbsp;151 to have a material impact on our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March 2004, the Emerging Issues Task Force (&#147;EITF&#148;)
reached a consensus on Issue No.&nbsp;03-01, <I>&#147;The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments.&#148; </I>EITF Issue No.&nbsp;03-01
provides guidance on evaluating and recording impairment losses
on debt and equity investments and requires additional
disclosures for those investments. In September 2004, the FASB
delayed the measurement and recognition provisions of EITF Issue
No.&nbsp;03-01; however, the disclosure requirements remain
effective. We will evaluate the impact of EITF Issue
No.&nbsp;03-01 once final guidance is issued.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>13.</B></TD>
    <TD>
    <B>Commitments and Contingencies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following summarizes our commitments and contingencies at
July&nbsp;29, 2005, and the effect such obligations may have on
our future periods:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Contractual Obligations:</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2006</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2007</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2008</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2009</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2010</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Thereafter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rent operating lease payments(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,075</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>88,161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equipment operating lease payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,381</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Venture capital funding commitments(2)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,899</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase commitments and other(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,164</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital Expenditures(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,610</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Communications&nbsp;&#38; Maintenance(5)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,870</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Contractual Cash Obligations</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>34,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>125,085</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Other Commercial Commitments:</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2006</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2007</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2008</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2009</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2010</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Thereafter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lines of Credit(6)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>787</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted Cash(7)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,569</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Commercial Commitments</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,356</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    We lease sales offices and research and development facilities
    throughout the U.S. and internationally. These sales offices are
    also leased under operating leases which expire through fiscal
    2015. We are</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    responsible for certain maintenance costs, taxes, and insurance
    under these leases. Substantially all lease agreements have
    fixed payment terms based on the passage of time. Some lease
    agreements provide us with the option to renew or terminate the
    lease. Our future operating lease obligations would change if we
    were to exercise these options and if we were to enter into
    additional operating lease agreements. Sublease income of $120
    has been included as a reduction of the payment amounts shown in
    the table. Rent operating lease payments in the table exclude
    lease payments which are accrued as part of our 2002
    restructurings and include only rent lease commitments that are
    over one year.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Venture capital funding commitments includes a quarterly
    committed management fee based on a percentage of our committed
    funding to be payable through June 2011.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Purchase commitments and other represent agreements to purchase
    component inventory from our suppliers and/or contract
    manufacturers that are enforceable and legally binding against
    us. Other examples include minimum cash commitments relating to
    facilities and utilities. Purchase commitments and other
    excludes (a)&nbsp;purchases of goods and services we expect to
    consume in the ordinary course of business in the next
    12&nbsp;months; (b)&nbsp;open purchase orders that represent an
    authorization to purchase rather than a binding agreement;
    (c)&nbsp;agreements that are cancelable without penalty and
    costs that are not reasonably estimable at this time.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Capital expenditures include worldwide contractual commitments
    to purchase equipment and to construct building and leasehold
    improvements, which will be recorded as Property and Equipment.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    Under certain communications contracts with major telephone
    companies as well as maintenance contracts with multiple
    vendors, we are required to pay based on a minimum volume. Such
    obligations expire in April 2010.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(6)&nbsp;</TD>
    <TD align="left">
    The amounts outstanding under these letters of credit relate to
    workers&#146; compensation, a customs guarantee, a corporate
    credit card program, and a foreign lease.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(7)&nbsp;</TD>
    <TD align="left">
    Restricted cash arrangements relate to facility lease
    requirements, service performance guarantees, customs and duties
    guarantees, and VAT requirements, and are included under Prepaid
    Expenses and Other and Other Assets on our Consolidated Balance
    Sheets.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
From time to time, we have committed to purchase various key
components used in the manufacture of our products. We establish
accruals for estimated losses on purchased components for which
we believe it is probable that they will not be utilized in
future operations. To the extent that such forecasts are not
achieved, our commitments and associated accruals may change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to various legal proceedings and claims which may
arise in the normal course of business. While the outcome of
these legal matters is currently not determinable, we do not
believe that any current litigation or claims will have a
material adverse effect on our business, cash flow, operating
results, or financial condition.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>14.</B></TD>
    <TD>
    <B>Business Combinations</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On May&nbsp;2, 2005, we acquired Alacritus, Inc., a privately
held company based in Pleasanton, California, that develops and
sells disk-based data protection software solutions. Under terms
of the agreement, we paid Alacritus $11,000 in cash and assumed
options to acquire 79&nbsp;shares of common stock at an average
price of $26.37&nbsp;per share and 43&nbsp;shares of restricted
stock units at $0&nbsp;per share. We also incurred certain
transaction costs and assumed certain operating assets and
liabilities. The historical operations of Alacritus were not
significant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with FASB Interpretation No.&nbsp;44,
&#147;Accounting for Certain Transactions involving Stock
Compensation&#148;, we recorded the intrinsic value, measured as
the difference between the grant price and fair market value on
the acquisition consummation date, of unvested options and
restricted stock units assumed in
</DIV>

<P align="center" style="font-size: 10pt;">15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NETWORK APPLIANCE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
the Alacritus acquisition as deferred stock compensation. Such
deferred stock compensation which aggregated $1,199, is recorded
as a separate component of stockholders&#146; equity in the
accompanying condensed consolidated balance sheet and will be
amortized over the vesting term of the related options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The acquisition was accounted for under the purchase method of
accounting. The total purchase price for Alacritus is summarized
below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Alacritus</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Purchase Price:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash consideration</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Value of options assumed</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,314</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transaction costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>337</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,651</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The total purchase price was allocated to the estimated fair
value of assets acquired and liabilities assumed based on
independent appraisals and management estimates as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period (Years)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase Price Allocation:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of tangible assets acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Existing/ Core Technology</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Covenants Not to Compete</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,844</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of liabilities assumed</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(810</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred stock compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>15.</B></TD>
    <TD>
    <B>Subsequent Events</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On August&nbsp;26, 2005, Network Appliance, Inc. completed its
acquisition of Decru, Inc. (&#147;Decru&#148;), a Delaware
corporation that develops and sells encryption software and
appliances to secure network data storage, pursuant to an
Agreement and Plan of Merger and Reorganization, by and among
Network Appliance Inc., Decru, Dolphin Acquisition Corp., a
wholly-owned subsidiary of the Registrant, and certain other
parties, dated June&nbsp;15, 2005 (the &#147;Merger&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the closing of the Merger, we issued to the
stockholders of Decru 8,245&nbsp;shares of Common Stock, par
value $0.001&nbsp;per share, and assumed all options to purchase
Decru common stock granted under the Decru, Inc. 2001 Equity
Incentive Plan that were outstanding at the closing of the
Merger, which options shall be exercisable for an aggregate of
1,926&nbsp;shares of our Common Stock. In addition, we paid to
the Decru stockholders approximately $54,480 in cash, of which
approximately $34,049 has been placed in escrow to secure the
Decru stockholders&#146; indemnification obligations to us
pursuant to the Agreement and Plan of Merger and Reorganization.
</DIV>

<P align="center" style="font-size: 10pt;">16

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<DIV align="left" style="font-size: 10pt;">
<A name='107'></A>
</DIV>

<!-- link1 "Item 2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;2.</B></TD>
    <TD>
    <B><I>Management&#146;s Discussion and Analysis of Financial
    Condition and Results of Operations</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Quarterly Report on Form&nbsp;10-Q contains forward-looking
statements within the meaning of Section&nbsp;27A of the
Securities Act of 1933, as amended, and Section&nbsp;21E of the
Securities Exchange Act of 1934, as amended (the &#147;Exchange
Act&#148;), and are subject to the safe harbor provisions set
forth in the Exchange Act. Forward-looking statements usually
contain the words &#147;estimate,&#148; &#147;intend,&#148;
&#147;plan,&#148; &#147;predict,&#148; &#147;seek,&#148;
&#147;may,&#148; &#147;will,&#148; &#147;should,&#148;
&#147;would,&#148; &#147;anticipate,&#148; &#147;expect,&#148;
&#147;believe,&#148; or similar expressions and variations or
negatives of these words. In addition, any statements that refer
to expectations, projections or other characterizations of
future events or circumstances, including any underlying
assumptions, are forward-looking statements. All forward-looking
statements, including, but not limited to, (1)&nbsp;our belief
that our new FAS3000 will be a very competitive product;
(2)&nbsp;our expectation that units shipped of the FAS3000 will
increase and FAS960 and R200&nbsp;units will continue to
decline; (3)&nbsp;our expectation that the FAS960 and R200
products will be gradually replaced by the FAS3000 series and
next-generation products for the remainder of fiscal 2006;
(4)&nbsp;our expectation to see growth in the number of units
shipped for our next-generation R210 NearStore products;
(5)&nbsp;our belief in the competitiveness of our products and
our ability to grow our business; (6)&nbsp;our belief that our
products continue to offer the best price-performance value in
the industry; (7)&nbsp;our expectation to continue to introduce
new products and to deliver our next-generation operating
systems and data protection solutions; (8)&nbsp;our plan to
invest in the people, processes and systems necessary to best
optimize our revenue growth; (9)&nbsp;our expectation that
higher discount associated with high-end storage systems will
negatively affect our gross margin; (10)&nbsp;our estimates of
future intangibles and stock compensation amortization expense
relating to our acquisitions; (11)&nbsp;our expectation that
service margins will vary over time; (12)&nbsp;our expectation
that we will continue to add sales capacity; (13)&nbsp;our
expectation that we will increase sales and marketing expenses
commensurate with future revenue growth; (14)&nbsp;our intention
to continuously broaden our existing product offerings and
introduce new products; (15)&nbsp;our estimates regarding future
capitalized patents amortization expenses and future
amortization of existing technology; (16)&nbsp;our expectation
that we will continuously support current and future product
development and enhancement efforts and incur corresponding
charges; (17)&nbsp;our belief that our research and development
expenses will increase in absolute dollars for the remainder of
fiscal 2006; (18)&nbsp;our belief that our general and
administrative expenses will increase in absolute terms in the
remainder of fiscal 2006; (19)&nbsp;our expectation that we may
repatriate foreign earnings and pay taxes under the Jobs Act;
(20)&nbsp;our expectation regarding estimated future deferred
stock compensation amortization expenses and future covenants
not to compete; (21)&nbsp;our expectation that interest income
will increase for the remainder of fiscal 2006; (22)&nbsp;our
expectations regarding our contractual cash obligations and
other commercial commitments at July&nbsp;29, 2005 for the
remainder of fiscal 2006 and fiscal years 2007 through 2010 and
thereafter, which we anticipate will be approximately
$134.6&nbsp;million in the aggregate; (23)&nbsp;our expectation
that capital expenditures will increase consistent with our
business growth; (24)&nbsp;our expectation that our existing
facilities and those currently being developed, will be
sufficient for our needs for at least the next two years and
that our contractual commitments, including operating leases,
and any required capital expenditures over the next few years
will be funded through cash from operations and existing cash
and investments; (25)&nbsp;our belief that our existing
liquidity and capital resources are sufficient to fund our
operations for at least the next twelve months; (26)&nbsp;our
belief that foreign currency hedging contracts will not subject
us to significant credit risk; (27)&nbsp;our belief that we have
been able to compete successfully with our principal competitors
based on the superior technology of our products; (28)&nbsp;our
intent to regularly introduce new products and product
enhancements; (29)&nbsp;the possibility that we may need to
increase our materials purchases, contract manufacturing
capacity and internal test and quality functions to meet
anticipated demand; (30)&nbsp;our intention to continue to
establish and maintain business relationships with technology
companies; (31)&nbsp;the possibility that we will continue to
engage in future acquisitions; (32)&nbsp;our expectation that we
will increasingly rely on our indirect sales channel for a
significant portion of our revenue; (33)&nbsp;our expectation
that the ultimate costs to resolve any outstanding legal claims
or proceedings will not be material to our business;
(34)&nbsp;our expectation that companies in the appliance market
will increasingly be subject to infringement claims as the
industry grows; (35)&nbsp;our expectation that the value of our
investments will not decline significantly because of changes in
market interest rates, (36)&nbsp;our expectation regarding
ATA&#146;s future impact on the storage market; (37)&nbsp;our
expectation that our investments in emerging technologies will
contribute to our long term growth; (38)&nbsp;cash
</DIV>

<P align="center" style="font-size: 10pt;">17

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<DIV align="left" style="font-size: 10pt;">
from operating activities may fluctuate in future periods, and
(39)&nbsp;our expectation that we will acquire products and
businesses complementary to our business, are inherently
uncertain as they are based on management&#146;s current
expectations and assumptions concerning future events, and they
are subject to numerous known and unknown risks and
uncertainties. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the
date hereof and are based upon information available to us at
this time. These statements are not guarantees of future
performance. We disclaim any obligation to update information in
any forward-looking statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>First Quarter Fiscal 2006 Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenues for the first quarter of fiscal 2006 were
$448.4&nbsp;million, which grew 25.1% year over year and
decreased 0.8% sequentially over the previous quarter. We
experienced a revenue shortfall relative to the targets we
stated on our May&nbsp;25, 2005 earnings conference call. We
believe the principal factor impacting our revenue was the
product transition to our new midrange FAS3000 series. The
launch of our new midrange products impacted our revenues in two
main ways. First, the May&nbsp;23, 2005 introduction of the
FAS3000 products caused evaluation periods for many of our sales
engagements to be extended. We experienced delays in customer
purchase decisions while our customers evaluated these new
products, both competitively and compared to our other product
lines. Approximately 90% of the FAS3000 Series orders came in
the last month of the quarter, with a significant number of
orders for the FAS3000 series received in the last few days of
the quarter. As a result, many of these orders could not be
recognized before the quarter ended, causing a large
concentration of FAS3000&nbsp;units in our backlog coming into
the second quarter of fiscal 2006. Secondly, the FAS3000 caused
a greater decline in units shipped of both our FAS960 and
NearStore products than we had anticipated, which also
contributed to the shortfall.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our new FAS3000 series delivers the best value and cost per
megabyte to our customers by utilizing lower-cost ATA drives
combined with our patented RAID-DP protection and our
FlexVol<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
technology. This combination allows more cost-effective Advanced
Technology Attachment (&#147;ATA&#148;) drives to be used safely
in primary storage applications, which we believe will be a
competitive product in the marketplace.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a result, we expect units shipped of the FAS3000 to increase
and units of the FAS960 and Nearstore R200 to continue to
decline in the second quarter of fiscal 2006. We expect the
FAS960 and low-capacity NearStore products to be gradually
replaced by the FAS3000 series products. However, this shift to
the FAS3000 may continue to negatively impact our revenue in the
near term as the dollar value of deals will be lower compared to
the FAS960 and R200 products. We expect to see growth in the
number of NearStore units shipped when we introduce the
next-generation R210 with a lower entry price and upgradeability
to cluster failover capabilities later in fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Despite the revenue shortfall resulting from transitional issues
affecting our short-term performance, we believe our business
fundamentals remain intact. We remain confident in the
competitiveness of our products and in our ability to grow our
business over the long term. We continue to make progress across
many areas of the organization, including broadening and
enhancing our enterprise solutions, supporting our
channel/partners, and deepening our professional services
coverage. We believe our products continue to offer the best
price-performance value in the industry, and we further extended
our ability to help customers do &#147;more-with-less&#148; with
the introduction of our FAS&nbsp;3000 midrange series.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Continued revenue growth is dependent on the introduction and
market acceptance of our new products. In fiscal 2006, we expect
to continue to introduce new products, deliver our
next-generation operating system with enhanced storage grid
functionality and offer a comprehensive suite of data protection
solutions. If we fail to timely introduce new products or
successfully integrate acquired technology into our existing
architecture, or if there is no or reduced demand for these or
our current products, we may experience a decline in revenue. We
plan to invest in the people, processes, and systems necessary
to best optimize our revenue growth and long-term profitability.
However, we cannot assure you that such investments will achieve
our financial objectives.
</DIV>

<P align="center" style="font-size: 10pt;">18

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>First Quarter Fiscal 2006 Financial Performance</B>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Our revenues for the first quarter of fiscal 2005 were
    $448.4&nbsp;million, a 25.1% increase over the same period a
    year ago. This represented a decrease of 0.8% sequentially over
    the last quarter. This year-over-year increase in revenue from
    our new mid-range FAS3020, FAS3050 products, FAS980 and FAS270
    products was partially offset by a decline in revenue of our
    FAS960, FAS940 and NearStore R200 products compared to the same
    quarter a year ago.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Our overall gross margins improved to 61.0% in the three-month
    period ended July&nbsp;29, 2005 from 60.0% in the same period a
    year ago. The improvement in our gross margin was primarily
    attributable to a favorable change in product and add-on
    software mix and improved services margin.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Net income for the first quarter of fiscal 2005 increased 28.3%
    to $60.1&nbsp;million compared to net income of
    $46.9&nbsp;million for the same period a year ago.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    With the exception of long-term restructuring and deferred rent
    liabilities totaling $3.3&nbsp;million, our balance sheet as of
    July&nbsp;29, 2005 remains debt-free, with cash, cash
    equivalents and investments of $1,214.7&nbsp;million due
    primarily to our net income and the related cash generated from
    operations partially offset by cash repurchases of our common
    stock of $95.5&nbsp;million. Days Sales Outstanding decreased to
    49&nbsp;days as of July&nbsp;29, 2005 compared to 60&nbsp;days
    as of April&nbsp;30, 2005. Inventory turns were 17.2 times and
    17.9 times as of July&nbsp;29, 2005 and April&nbsp;30, 2005,
    respectively. Deferred revenue increased to $485.4&nbsp;million
    as of July&nbsp;29, 2005 from $449.2&nbsp;million reported as of
    April&nbsp;30, 2005 due to higher software subscription and
    service billings attributable to our continuing shift toward
    larger enterprise customers. Capital purchases of plant,
    property and equipment for the three-month period ended
    July&nbsp;29, 2005 were $33.5&nbsp;million.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth certain consolidated statements
of income data as a percentage of total revenues for the periods
indicated:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>88.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of Revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of product revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of service revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross margin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating Expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring recoveries</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.3</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total operating expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">19

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Three Months</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;29,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>July&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income from Operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other Income (Expense), net:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other expenses, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.1</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.2</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net gain on investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total other income, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before Income Taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for Income Taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net Income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Discussion and Analysis of Results of Operations</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Product Revenues</I>&nbsp;&#151; Product revenues increased
by 21.6% to $394.6&nbsp;million for the first quarter of fiscal
2006, from $324.6&nbsp;million for the first quarter of fiscal
2005. Product revenues growth was primarily in the U.S. and
Europe. The increase in product revenues year over year was
specifically attributable to increased software licenses and
software subscriptions partially offset by lower average selling
prices caused by a mix shift towards ATA in primary storage,
enabled by our new mid-range FAS3000 series compared to our
FAS960 and R200 products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Product revenues were favorably impacted by the following
factors:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increased revenues from our new and current product portfolio,
    such as: FAS3020 and FAS3050, FAS980, and FAS270 filer products
    and add-on software;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increased sales of software subscriptions representing 12.0% and
    10.2% of total revenues for the three-month periods ended
    July&nbsp;29, 2005 and July&nbsp;30, 2004, respectively;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increased sales through indirect channels in absolute dollars,
    including sales through our resellers, distributors and OEM
    partners, representing 50.4% and 45.9% of total revenues for the
    three-month periods ended July&nbsp;29, 2005 and July&nbsp;30,
    2004, respectively.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Product revenues were negatively impacted by the following
factors:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a mix shift to ATA in primary storage enabled by our new
    midrange FAS&nbsp;3000 series, driving down units shipped and
    revenues from our FAS960, FAS940 and NearStore R200 products;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    longer evaluation periods with our new mid-range products
    causing delays in customer purchase decisions;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    lower average selling prices associated with the new FAS3000
    series using a mix of ATA and fibre channel drives;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    lower-cost-per-megabyte disks;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    declining average selling prices and unit sales of our older
    products.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot assure you that we will be able to maintain or
increase market demand for our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Service Revenues</I>&nbsp;&#151; Service revenues, which
include hardware support, professional services, and educational
services, increased by 59.1% to $53.8&nbsp;million in the first
quarter of fiscal 2006, from $33.8&nbsp;million in the first
quarter of fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The increase in absolute dollars was due to the following
factors:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    an increasing number of enterprise customers, which typically
    purchase more complete and generally longer-term service
    packages than our non-enterprise customers;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">20

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a growing installed base resulting in new customer support
    contracts in addition to support contract renewals by existing
    customers;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    growth in professional services revenue.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
While it is an element of our strategy to expand and offer a
more comprehensive, global enterprise support and service
solution, we cannot assure you that service revenue will grow at
the current rate in the remainder of fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Service revenues are generally deferred and, in most cases,
recognized ratably over the service obligation periods, which
are typically one to three years. Service revenues represented
12.0% and 9.4% of total revenues for the three-month periods
ended July&nbsp;29, 2005 and July&nbsp;30, 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>International total revenues</I>&nbsp;&#151; International
total revenues (including United States exports) increased by
21.7% for the three-month period ended July&nbsp;29, 2005 as
compared to the same period in fiscal 2005. International total
revenues were $181.6&nbsp;million, or 40.5% of total revenues
for the three-month periods ended July&nbsp;29, 2005.
International total revenues were $149.3&nbsp;million, or 41.6%
of total revenues for the three-month period ended July&nbsp;30,
2004. The increase in international sales was primarily a result
of European net revenues growth, driven by increased demand for
our solutions portfolio, new customers and higher storage
spending in certain geographic regions, as compared to the same
periods in the prior fiscal year. We cannot assure you that we
will be able to maintain or increase international revenues in
the remainder of fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Product Gross Margin</I>&nbsp;&#151; Product gross margin
increased to 66.1% for the first quarter of fiscal 2006, from
64.8% for the first quarter of fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Product gross margin was favorably impacted by:
</DIV>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    favorable product and add-on software mix;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    growth in software subscription upgrades and software licenses
    due primarily to a larger installed base and an increasing
    number of new enterprise customers.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Product gross margin was negatively impacted by:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    higher disk content with an expanded storage capacity for the
    higher-end filers and NearStore systems, as resale of disk
    drives generates lower gross margin;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    sales price reductions due to competitive pricing pressure and
    selective pricing discounts;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    lower average selling price of certain add-on software options.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect higher disk content associated with high-end storage
systems will negatively affect our gross margin in the future if
not offset by increases in software revenue and new
higher-margin products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Amortization of existing technology included in cost of product
revenues was $1.1&nbsp;million and $0.9&nbsp;million for the
three-month periods ended July&nbsp;29, 2005 and July&nbsp;30,
2004, respectively. Estimated future amortization of existing
technology to cost of product revenues relating to our Spinnaker
and Alacritus acquisitions will be $3.3&nbsp;million for the
remainder of fiscal 2006, $4.4&nbsp;million for fiscal years
2007 and 2008, $3.7&nbsp;million for fiscal year 2009;
$1.0&nbsp;million for fiscal year 2010; and none thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Service Gross Margin</I>&nbsp;&#151; Service gross margin
increased to 23.5% in the first quarter of fiscal 2006 as
compared to 13.5% in the first quarter of fiscal 2005. Cost of
service revenue increased by 40.7% to $41.2&nbsp;million in the
first quarter of fiscal 2006, from $29.2&nbsp;million in the
first quarter of fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The improvement in service gross margin for the first quarter of
fiscal 2006 compared to the same quarter in fiscal 2005 was
primarily due to an increase in services revenue and improved
headcount utilization partially offset by the continued spending
in our service infrastructure to support our increasing
enterprise customer base. This spending included additional
professional support engineers, increased support center
activities, and global service partnership programs. Service
gross margin will typically experience some variability over
time due to the timing of technical support service initiations
and renewals and additional investments in our customer support
infrastructure. In fiscal 2006, we expect service margin to be
in the mid 20% range, as we
</DIV>

<P align="center" style="font-size: 10pt;">21

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<DIV align="left" style="font-size: 10pt;">
continue to build out our service capability and capacity to
support our growing enterprise customers and new products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Sales and Marketing</I>&nbsp;&#151; Sales and marketing
expenses consist primarily of salaries, commissions, advertising
and promotional expenses, and certain customer service and
support costs. Sales and marketing expenses increased 32.9% to
$137.3&nbsp;million for the first quarter of fiscal 2006, from
$103.3&nbsp;million for the first quarter of fiscal 2005. These
expenses were 30.6% and 28.8% of total revenues for the first
quarters of fiscal 2006 and fiscal 2005, respectively. The
increase in absolute dollars was attributed to increased
commission expenses resulting from increased revenues, higher
performance-based payroll expenses due to higher profitability,
higher partner program expenses, and the continued worldwide
investment in our sales and global service organizations
associated with selling complete enterprise solutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Amortization of Spinnaker trademarks/tradenames and customer
contracts/relationships included in sales and marketing expenses
was $0.2&nbsp;million for both three-month periods ended
July&nbsp;29, 2005 and July&nbsp;30, 2004. Estimated future
amortization of trademarks, tradenames, customer contracts and
relationships relating to the Spinnaker acquisition and included
in sales and marketing expenses will be $0.1&nbsp;million for
the remainder of fiscal 2006, and $0.1&nbsp;million for fiscal
2007 and none thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Sales and marketing headcount increased to 2,010 at
July&nbsp;29, 2005 from 1,515 at July&nbsp;30, 2004. We expect
to continue to selectively add sales capacity in an effort to
expand domestic and international markets, introduce new
products, establish and expand new distribution channels, and
increase product and company awareness. We expect to increase
our sales and marketing expenses commensurate with future
revenue growth.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Research and Development</I>&nbsp;&#151; Research and
development expenses consist primarily of salaries and benefits,
prototype expenses, non-recurring engineering charges, fees paid
to outside consultants and amortization of capitalized patents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Research and development expenses increased 31.3% to
$50.8&nbsp;million for the first quarter of fiscal 2006 from
$38.7&nbsp;million for the first quarter of fiscal 2005. These
expenses represented 11.3% and 10.8% of total revenues for the
first quarters of fiscal 2006 and 2005, respectively. The
increase in research and development expenses was primarily a
result of increased headcount, ongoing operating impact of the
acquisitions, ongoing support of current and future product
development and enhancement efforts, higher performance-based
payroll expenses due to higher profitability, partially offset
by cost control, and reduction in discretionary spending
efforts. Research and development headcount increased to 886 as
of July&nbsp;29, 2005 compared to 687 as of July&nbsp;30, 2004.
For both the three-month periods ended July&nbsp;29, 2005 and
July&nbsp;30, 2004, no software development costs were
capitalized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Included in research and development expenses is capitalized
patents amortization of $0.5&nbsp;million for both the
three-month periods ended July&nbsp;29, 2005 and July&nbsp;30,
2004, respectively. Based on capitalized patents recorded at
July&nbsp;29, 2005, estimated future capitalized patents
amortization expenses for the remainder of fiscal 2006 will be
$1.5&nbsp;million, $2.0&nbsp;million for fiscal years 2007,
2008, $0.5&nbsp;million in fiscal 2009, $0.2&nbsp;million in
fiscal 2010, and none thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our future performance will depend in large part
on our ability to maintain and enhance our current product line,
develop new products that achieve market acceptance, maintain
technological competitiveness, and meet an expanding range of
customer requirements. We expect to continuously support current
and future product development and enhancement efforts, and
incur prototyping expenses and nonrecurring engineering charges
associated with the development of new products and
technologies. We intend to continuously broaden our existing
product offerings and introduce new products that expand our
solutions portfolio.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our research and development expenses will
increase in absolute dollars for fiscal 2006, primarily due to
ongoing costs associated with the development of new products
and technologies, projected headcount growth and the operating
impact of potential future acquisitions as compared to fiscal
2005.
</DIV>

<P align="center" style="font-size: 10pt;">22

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General and Administrative</I>&nbsp;&#151; General and
administrative expenses increased 24.6% to $21.0&nbsp;million
for the first quarter of fiscal 2006, from $16.9&nbsp;million
for the first quarter of fiscal 2005. These expenses represented
4.7% of total revenues for both the first quarters of fiscal
2006 and 2005. This increase in absolute dollars was primarily
due to higher legal expenses and professional fees for general
corporate matters including patents, higher performance-based
payroll expenses due to higher profitability and higher
headcount growth.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
General and administrative headcount increased to 457 at
July&nbsp;29, 2005 from 348 at July&nbsp;30, 2004. We believe
that our general and administrative expenses will increase in
absolute dollars for fiscal 2006 due to projected general and
administrative headcount growth. Amortization of covenants not
to compete included in general and administrative expenses was
$1.4&nbsp;million and $1.3&nbsp;million for the three-month
periods ended July&nbsp;29, 2005 and July&nbsp;30, 2004,
respectively. Estimated future amortization of covenants not to
compete relating to our acquisitions will be $0.5&nbsp;million
in the remainder of fiscal 2006 and $0.4&nbsp;million for fiscal
year 2007, and none thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock Compensation</I>&nbsp;&#151; Stock compensation
expenses were $2.0&nbsp;million and $2.1&nbsp;million in the
three-month periods ended July&nbsp;29, 2005 and July&nbsp;30,
2004, respectively. The net decrease in deferred compensation
expense year over year reflected deferred compensation expenses
amortization from WebManage and the deferred salary compensation
program recorded in the first quarter of fiscal 2005 that were
fully amortized by the first quarter of fiscal 2006 partially
offset by higher stock compensation relating to newly issued
restricted stock awards and assumed options from the Alacritus
acquisition in the first quarter of fiscal 2006. Based on
deferred stock compensation recorded at July&nbsp;29, 2005,
estimated future deferred stock compensation amortization
expenses are $6.0&nbsp;million in the remainder of fiscal 2006,
$6.5&nbsp;million in fiscal 2007, $4.4&nbsp;million in fiscal
2008 and $0.7&nbsp;million in fiscal 2009 and none thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Restructuring Charges</I>&nbsp;&#151; In fiscal 2002, as a
result of continuing unfavorable economic conditions and a
reduction in IT spending rates, we implemented two restructuring
plans, which included reductions in workforce and consolidations
of facilities. As of July&nbsp;29, 2005, we have no outstanding
balance in our restructuring liability for the first
restructuring. The second restructuring related to the closure
of an engineering facility and consolidation of resources to the
Sunnyvale headquarters. As a result of this restructuring, we
incurred a charge of $5.9&nbsp;million. The restructuring charge
included $0.8&nbsp;million of severance-related amounts,
$4.6&nbsp;million of committed excess facilities and facility
closure expenses, and $0.5&nbsp;million in fixed assets
write-offs. Of the reserve balance at July&nbsp;29, 2005,
$0.6&nbsp;million was included in other accrued liabilities and
the remaining $2.6&nbsp;million was classified as long-term
obligations, all relating to the facility charge for the second
restructuring.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our restructuring estimates are reviewed and revised
periodically and may result in a substantial charge to
restructuring expense should different conditions prevail than
were anticipated in previous management estimates. Such
estimates included various assumptions such as the time period
over which the facilities will be vacant, expected sublease
terms, and expected sublease rates. During the first quarter of
fiscal 2006, we recorded a reduction in restructuring reserve of
$1.3&nbsp;million resulting from the execution of new sublease
agreement for our Tewksbury facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following analysis sets forth the changes in the
restructuring reserve for the three months ended July&nbsp;29,
2005 (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="85%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Facility</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accrual</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reserve balance at April&nbsp;30, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,208</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(705</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reserve balance at April&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,503</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(90</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,256</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reserve balance at July&nbsp;29, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,157</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">23

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Interest Income</I>&nbsp;&#151; Interest income was
$9.0&nbsp;million and $4.1&nbsp;million for the first quarters
of fiscal 2006 and 2005, respectively. The increase in interest
income was primarily driven by higher cash and investment
balances provided by operating activities and higher average
interest rates on our investment portfolio. We expect interest
income to increase for fiscal 2006 as a result of rising average
interest rates and higher cash and invested balances in a higher
interest-rate portfolio environment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Other Income (Expense), Net</I>&nbsp;&#151; Other Income
(Expense), Net, included net exchange losses from foreign
currency transactions of $0.3&nbsp;million and $0.9&nbsp;million
in the three-month periods ended July&nbsp;29, 2005 and
July&nbsp;30, 2004, respectively. We believe that
period-to-period changes in foreign exchange gain or losses will
continue to be impacted by hedging costs associated with our
forward and option activities and forecast variance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Provision for Income Taxes</I>&nbsp;&#151; For the
three-month period ended July&nbsp;29, 2005, we applied an
annual tax rate of 16.9% to pretax income versus 18.0% for the
comparable period in the prior year. These rates reflect a
favorable foreign tax ruling for our principal European
subsidiary. Our estimate is based on existing tax laws and our
current projections of income (loss) and distributions of income
(loss) among different entities and tax jurisdictions, and is
subject to change, based primarily on varying levels of
profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Liquidity and Capital Resources</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following sections discuss the effects of changes in our
balance sheet and cash flow, contractual obligations and other
commercial commitments, stock repurchase program, capital
commitments, other sources and uses of cash flow and potential
tax opportunities on our liquidity and capital resources.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Balance Sheet and Other Cash Flows</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of July&nbsp;29, 2005, as compared to April&nbsp;30, 2005,
our cash, cash equivalents, and short-term investments increased
by $44.8&nbsp;million to $1,214.7&nbsp;million. We derive our
liquidity and capital resources primarily from our cash flow
from operations and from working capital. Working capital
increased by $10.8&nbsp;million to $1,066.5&nbsp;million as of
July&nbsp;29, 2005, compared to $1,055.7&nbsp;million as of
April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the three-month period ended July&nbsp;29, 2005, we
generated cash flows from operating activities of
$139.0&nbsp;million as compared with $76.7&nbsp;million in the
same period in fiscal 2005. The largest driver of this increase
was the first quarter fiscal 2006&nbsp;net income of
$60.1&nbsp;million as compared to $46.9&nbsp;million in the same
period in fiscal 2005. In addition to higher net income and
noncash adjustments in the first quarter of fiscal 2006, the
primary factors that impacted the period-to-period change in
cash flows relating to operating activities included the
following:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    An increase in deferred revenues from higher software
    subscription and service billings attributable to our continuing
    shift toward larger enterprise customers, as well as renewals of
    existing maintenance agreements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Increased income taxes payable, primarily reflecting higher
    profitability in the three-month period ended July&nbsp;29, 2005
    as compared to the same period in the prior year and lower tax
    payments compared to the same period in the prior year;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Decreased accounts receivable balances due primarily to more
    linear shipments in the first quarter of fiscal 2006.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The above factors were partially offset by the effects of:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Decreased accrued compensation and related benefits due to
    payout of higher commission and higher performance-based payroll
    expenses accrued in fiscal 2005 and paid in the first quarter of
    fiscal 2006 as compared the same period a year ago;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    An increase in inventories due primarily to ramping up of
    purchased components in anticipation of revenue growth.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">24

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that cash provided by operating activities may
fluctuate in future periods as a result of a number of factors,
including fluctuations in our operating results, shipment
linearity, accounts receivable collections, inventory
management, and the timing of tax and other payments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Capital expenditures for the three-month period ended
July&nbsp;29, 2005 were $33.5&nbsp;million as compared to
$32.3&nbsp;million in the same period a year ago. We used net
proceeds of $8.8&nbsp;million and $9.6&nbsp;million in the
three-month periods ended July&nbsp;29, 2005 and July&nbsp;30,
2004, respectively, for net purchases/redemptions of short-term
investments. Investing activities in the three-month period
ended July&nbsp;29, 2005 also included new investments in
privately held companies of $0.3&nbsp;million. In the first
quarter of fiscal 2006, we acquired Alacritus for a purchase
price of approximately $13.7&nbsp;million, including assumed
options, cash payments of $11.0&nbsp;million and related
transaction costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We received $45.2&nbsp;million and $24.5&nbsp;million in the
three-month periods ended July&nbsp;29, 2005 and July&nbsp;30,
2004, respectively, from net financing activities, which
included sales of common stock related to employee stock
transactions net of common stock repurchases. We repurchased
3.3&nbsp;million and 2.5&nbsp;million shares of common stock at
a total of $95.5&nbsp;million and $47.7&nbsp;million during
three-month periods ended July&nbsp;29, 2005 and July&nbsp;30,
2004, respectively. Other financing activities provided
$50.8&nbsp;million and $23.2&nbsp;million in the three-month
periods ended July&nbsp;29, 2005 and July&nbsp;30, 2004,
respectively, which related to sales of common stock related to
employee stock transactions. During the three-month period ended
July&nbsp;29, 2005, we withheld $0.4&nbsp;million from certain
employees&#146; exercised shares of their restricted stock to
reimburse for federal, state, and local withholding taxes
obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The change in cash flow from financing was primarily due to the
effects of higher common stock repurchases partially offset by
proceeds from issuance of common stock under employee programs
compared to the same period in the prior year. Net proceeds from
the issuance of common stock related to employee participation
in employee stock programs have historically been a significant
component of our liquidity. The extent to which our employees
participate in these programs generally increases or decreases
based upon changes in the market price of our common stock. As a
result, our cash flow resulting from the issuance of common
stock related to employee participation in employee stock
programs will vary.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Other Sources and Uses of Cash and Tax
    Opportunities</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The American Jobs Creation Act of 2004 (&#147;the Jobs
Act&#148;) created a temporary incentive for
U.S.&nbsp;corporations to repatriate accumulated income earned
abroad by providing an 85% dividend-received deduction for
certain dividends from certain non-U.S.&nbsp;subsidiaries. The
deduction is subject to a number of limitations, and we are
currently considering recently issued Treasury and IRS guidance
on the application of the deduction. We are not yet in a
position to decide whether, and to what extent, foreign earnings
that have not yet been remitted to the U.S.&nbsp;might be
repatriated. Based on the analysis to date, however, it is
reasonably possible that as much as $355.0&nbsp;million might be
repatriated, with a respective tax liability of up to
$15.0&nbsp;million. We expect to be in a position to finalize
our analysis during our third quarter of fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For the three-month periods ended July&nbsp;29, 2005 and
July&nbsp;30, 2004, we recorded tax benefits, in the form of
reduced payments, of $16.3&nbsp;million and $5.7&nbsp;million,
respectively, associated with disqualifying dispositions of
employee stock options. If stock option exercise patterns
change, we may receive less cash from stock option exercises and
may not receive the same level of tax benefits in the future,
which could cause our cash payments for income taxes to increase.
</DIV>

<P align="center" style="font-size: 10pt;">25

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Contractual Cash Obligations and Other Commercial
    Commitments</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following summarizes our contractual cash obligations and
commercial commitments at July&nbsp;29, 2005, and the effect
such obligations are expected to have on our liquidity and cash
flow in future periods, (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD align="left" nowrap><B>Contractual Obligations:</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2006</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2007</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2008</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2009</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2010</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Thereafter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rent operating lease payments(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,075</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>88,161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equipment operating lease payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,381</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Venture capital funding commitments(2)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,899</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase commitments and other(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,164</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital Expenditures(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,610</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Communications&nbsp;&#38; Maintenance(5)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,870</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring Charges(6)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,157</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Contractual Cash Obligations</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>35,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,607</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>128,242</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For purposes of the above table, contractual obligations for the
purchase of goods and services are defined as agreements that
are enforceable, legally binding on us, and subject us to
penalties if we cancel the agreement. Some of the figures we
include in this table are based on management&#146;s estimates
and assumptions about these obligations, including their
duration, the possibility of renewal or termination, anticipated
actions by third parties, and other factors. Because these
estimates and assumptions are necessarily subjective, the
enforceable and legally binding obligations we will actually pay
in future periods may vary from those reflected in the table.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD align="left" nowrap><B>Other Commercial Commitments:</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2006</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2007</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2008</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2009</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2010</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Thereafter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lines of Credit(7)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>787</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted Cash(8)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,569</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Commercial Commitments</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,356</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    We enter into operating leases in the normal course of business.
    We lease sales offices, research and development facilities, and
    other property and equipment under operating leases throughout
    the U.S. and internationally, which expire through fiscal 2015.
    Substantially all lease agreements have fixed payment terms
    based on the passage of time and contain escalation clauses.
    Some lease agreements provide us with the option to renew the
    lease or to terminate the lease. Our future operating lease
    obligations would change if we were to exercise these options
    and if we were to enter into additional operating lease
    agreements. Sublease income of $0.1&nbsp;million has been
    included as a reduction of the payment amounts shown in the
    table. Facilities operating lease payments exclude the leases
    impacted by the restructurings. The amounts for the leases
    impacted by the restructurings are included in
    subparagraph&nbsp;(6)&nbsp;below.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Venture capital funding commitments includes a quarterly
    committed management fee based on a percentage of our committed
    funding to be payable through June 2011.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Purchase commitments and other represent agreements to purchase
    component inventory from our suppliers and/or contract
    manufacturers that are enforceable and legally binding against
    us. Other examples include minimum cash commitments related to
    facilities and utilities. Purchase commitments and other
    excludes (a)&nbsp;purchases of goods and services we expect to
    consume in the ordinary course of business in the next
    12&nbsp;months; (b)&nbsp;open purchase orders that represent an
    authorization to purchase</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">26

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    rather than a binding agreement; (c)&nbsp;agreements that are
    cancelable without penalty and costs that are not reasonably
    estimable at this time.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Capital expenditures include worldwide contractual commitments
    to purchase equipment and to construct building and leasehold
    improvements, which will be recorded as Property and Equipment.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    Under certain communication contracts with major
    telecommunication companies as well as maintenance contracts
    with multiple vendors, we are required to pay based on a minimum
    volume. Such obligations expire in April 2010.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(6)&nbsp;</TD>
    <TD align="left">
    These amounts are included on our Consolidated Balance Sheets
    under Long-term Obligations and Other Accrued Liabilities, which
    is comprised of committed lease payments and operating expenses
    net of committed and estimated sublease income. The
    restructuring estimated sublease income included various
    assumptions such as the time period over which the facilities
    will be vacant, expected sublease terms, and expected sublease
    rates.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(7)&nbsp;</TD>
    <TD align="left">
    The amounts outstanding under these letters of credit relate to
    workers&#146; compensation, a customs guarantee, a corporate
    credit card program, and a foreign lease.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(8)&nbsp;</TD>
    <TD align="left">
    Restricted cash arrangements relate to facility lease
    requirements, service performance guarantees, customs and duties
    guarantees, and VAT requirements, and are included under Prepaid
    Expenses and Other and Other Assets on our Consolidated Balance
    Sheets.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Capital Expenditure Requirements</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect capital expenditures to increase in the future
consistent with the growth in our business, as we continue to
invest in people, land, buildings, capital equipment and
enhancements to our worldwide infrastructure. We expect that our
existing facilities and those being developed in Sunnyvale,
California, Research Triangle Park (&#147;RTP&#148;), North
Carolina and worldwide are adequate for our requirements over at
least the next two years and that additional space will be
available as needed. We expect to finance all our construction
projects, including our contractual commitments, operating
leases, and any required capital expenditures over the next few
years through cash from operations and existing cash and
investments.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Off-Balance Sheet Arrangements</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of July&nbsp;29, 2005, our financial guarantees of
$1.7&nbsp;million that were not recorded on our balance sheet
consisted of standby letters of credit related to workers&#146;
compensation, a customs guarantee, a corporate credit card
program, and a foreign lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of July&nbsp;29, 2005, our notional fair values of foreign
exchange forward and foreign currency option contracts totaled
$224.2&nbsp;million. We do not believe that these derivatives
present significant credit risks, because the counterparties to
the derivatives consist of major financial institutions, and we
manage the notional amount of contracts entered into with any
one counterparty. We do not enter into derivative financial
instruments for speculative or trading purposes. Other than the
risk associated with the financial condition of the
counterparties, our maximum exposure related to foreign currency
forward and option contracts is limited to the premiums paid.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We offer both recourse and nonrecourse lease financing
arrangements to our customers. Under the terms of recourse
leases, which are generally three years or less, we remain
liable for the aggregate unpaid remaining lease payments to the
third-party leasing company in the event that any customers were
to default. We initially defer 100% of the recourse lease
receivable and recognize revenue over the term of the lease as
the lease payments become due. As of July&nbsp;29, 2005, and
April&nbsp;30, 2005, the maximum recourse exposure under such
leases totaled approximately $8.3&nbsp;million and
$7.0&nbsp;million, respectively. Under the terms of the
nonrecourse leases we do not have any continuing obligations or
liabilities. To date, we have not experienced significant losses
under this lease financing program.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have entered into indemnification agreements with third
parties in the ordinary course of business. Generally, these
indemnification agreements require us to reimburse losses
suffered by the third party due to various events, such as
lawsuits arising from patent or copyright infringement. These
indemnification
</DIV>

<P align="center" style="font-size: 10pt;">27

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
obligations are considered off-balance sheet arrangements in
accordance with FASB, Interpretation 45, of FIN&nbsp;45,
<I>&#147;Guarantor&#146;s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.&#148;</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of July&nbsp;29, 2005, except for operating leases and other
contractual obligations outlined under the &#147;Contractual
Cash Obligations&#148; table, we do not have any off-balance
sheet financing arrangements or liabilities, retained or
contingent interests in transferred assets, or any obligation
arising out of a material variable interest in an unconsolidated
entity. We also do not have any majority-owned subsidiaries that
are not included in the consolidated financial statements.
Additionally, we do not have any interest in or relationship
with, any special purpose entities.
</DIV>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Liquidity and Capital Resource Requirements</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Key factors affecting our cash flows include our ability to
effectively manage our working capital, in particular, accounts
receivable and inventories and future demand for our products
and related pricing. We expect to incur higher capital
expenditures in the near future to expand our operations. We
will from time to time acquire products and businesses
complementary to our business. In the future, we may continue to
repurchase our common stock, which would reduce cash, cash
equivalents, and/or short-term investments available to fund
future operations and meet other liquidity requirements. Based
on past performance and current expectations, we believe that
our cash and cash equivalents, short-term investments, and cash
generated from operations will satisfy our working capital
needs, capital expenditures, stock repurchases, contractual
obligations, and other liquidity requirements associated with
our operations through at least the next 12&nbsp;months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Critical Accounting Estimates and Policies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of such statements
requires us to make estimates and assumptions that affect the
reported amounts of revenues and expenses during the reporting
period and the reported amounts of assets and liabilities as of
the date of the financial statements. Our estimates are based on
historical experience and other assumptions that we consider to
be appropriate in the circumstances. However, actual future
results may vary from our estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that the following accounting policies are
&#147;critical&#148; as defined by the Securities and Exchange
Commission, in that they are both highly important to the
portrayal of our financial condition and results, and require
difficult management judgments and assumptions about matters
that are inherently uncertain. We also have other important
policies, including those related to derivative instruments and
concentration of credit risk. However, these policies do not
meet the definition of critical accounting policies because they
do not generally require us to make estimates or judgments that
are difficult or subjective. These policies are discussed in the
Notes to the Consolidated Financial Statements, which are
included in our Annual Report on Form&nbsp;10-K for the fiscal
year ended April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe the accounting policies described below are the ones
that most frequently require us to make estimates and judgments,
and therefore are critical to the understanding of our results
of operations:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    revenue recognition and allowances;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    valuation of goodwill and intangibles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    accounting for income taxes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    inventory write-down and reserves;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restructuring accruals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    impairment losses on investments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    accounting for stock-based compensation;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    loss contingencies.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">28

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
These accounting estimates and policies should be read in
conjunction with the audited consolidated financial statements
and accompanying notes included in our Annual Report on
Form&nbsp;10-K for the year ended April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>New Accounting Standards</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
See Note&nbsp;12 of the Consolidated Condensed Financial
Statements for a full description of recent accounting
pronouncements including the respective expected dates of
adoption and effects on results of operations and financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risk Factors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following risk factors and other information included in
this Form&nbsp;10-Q should be carefully considered. The risks
and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or
that we presently deem less significant may also impair our
business operations. If any of the following risks actually
occur, our business, operating results, and financial condition
could be materially adversely affected.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Factors beyond our control could cause our quarterly
    results to fluctuate.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and should not be
relied upon as indicators of future performance. Many of the
factors that could cause our quarterly operating results to
fluctuate significantly in the future are beyond our control and
include, but are not limited to, the following:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Changes in general economic conditions and specific economic
    conditions in the computer, storage, and networking industries</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    General decrease in global corporate spending on information
    technology leading to a decline in demand for our products</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    A shift in federal government spending pattern</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The effects of terrorist activity and international conflicts,
    which could lead to business interruptions and difficulty in
    forecasting</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The level of competition in our target product markets</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The size, timing, and cancellation of significant orders</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Product configuration and mix</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The extent to which our customers renew their service and
    maintenance contracts with us</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Market acceptance of new products and product enhancements</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Announcements, introductions, and transitions of new products by
    us or our competitors</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Deferrals of customer orders in anticipation of new products or
    product enhancements introduced by us or our competitors</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Changes in pricing by us in response to competitive pricing
    actions</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Our ability to develop, introduce, and market new products and
    enhancements in a timely manner</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Supply constraints</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Technological changes in our target product markets</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The levels of expenditure on research and development and sales
    and marketing programs</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Our ability to achieve targeted cost reductions</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">29

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Excess facilities</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Future accounting pronouncements and changes in accounting
    policies</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Seasonality</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, sales for any future quarter may vary and
accordingly be inconsistent with our plans. We manufacture
products based on a combination of specific order requirements
and forecasts of our customer demands. Products are typically
shipped within one to four weeks following receipt of an order.
In certain circumstances, customers may cancel or reschedule
orders without penalty. Product sales are also difficult to
forecast because the network storage market is rapidly evolving
and our sales cycle varies substantially from customer to
customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The majority of revenue in any given quarter is derived from
orders booked in the same quarter. Bookings typically follow
intra-quarter seasonality patterns weighted towards the back-end
of the quarter. If bookings in the latter part of a quarter are
not achieved, there is a potential impact to revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Due to all of the foregoing factors, it is possible that in one
or more future quarters our results may fall below the
expectations of public market analysts and investors. In such
event, the trading price of our common stock would likely
decrease.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>An increase in competition could materially adversely
    affect our operating results.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The storage and content delivery markets are intensely
competitive and are characterized by rapidly changing technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the storage market, our primary and nearline storage system
products and our associated storage software portfolio competes
primarily with storage system products and data management
software from EMC&nbsp;Corporation, Hitachi Data Systems,
Hewlett-Packard Company, IBM Corporation, and Sun Microsystems,
Inc. We also see Dell, Inc. as an emerging competitor in the
storage marketplace, primarily due to a business partnership
that has been established between Dell and EMC, allowing Dell to
resell EMC storage hardware and software products. We have also
historically encountered less-frequent competition from
companies including Engenio Information Technologies, Inc.
(formerly the Storage Systems Group of LSI&nbsp;Logic Corp.),
StorageTek Technology Corporation, Dot Hill Systems Corporation,
and Xiotech Corporation. In the nearline storage market, which
includes the disk-to-disk backup and regulated data storage
segments, our NearStore appliances compete primarily against
products from EMC and StorageTek. Our NearStore appliances also
compete indirectly with traditional tape backup solutions in the
broader data backup/recovery space.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the content delivery market, our NetCache appliances and
content delivery software compete against caching appliance and
content delivery software vendors including BlueCoat Systems
(formerly CacheFlow, Inc.) and Cisco Systems, Inc. Our NetCache
business is also subject to indirect competition from content
delivery service products such as those offered by Akamai
Technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additionally, a number of new, privately held companies are
currently attempting to enter the storage systems and data
management software markets, the nearline storage market, and
the caching and content delivery markets, some of which may
become significant competitors in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that the principal competitive factors affecting the
storage and content delivery markets include product benefits
such as response time, reliability, data availability,
scalability, ease of use, price, multiprotocol capabilities, and
global service and support. We must continue to maintain and
enhance this technological advantage over our competitors.
Otherwise, if those competitors with greater financial,
marketing, service, support, technical, and other resources were
able to offer products that matched or surpassed the
technological capabilities of our products, these competitors
would, by virtue of these greater resources, gain a competitive
advantage over us that could lead to greater sales for these
competitors at the expense of our own market share, which would
have a material adverse affect on our business, financial
condition, and results of operations.
</DIV>

<P align="center" style="font-size: 10pt;">30

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Increased competition could also result in price reductions,
reduced gross margins, and loss of market share, any of which
could materially adversely affect our operating results. Our
competitors may be able to respond more quickly than we can to
new or emerging technologies and changes in customer
requirements or devote greater resources to the development,
promotion, sale, and support of their products. In addition,
current and potential competitors have established or may
establish cooperative relationships among themselves or with
third parties. Accordingly, it is possible that new competitors
or alliances among competitors may emerge and rapidly acquire
significant market share. We cannot assure you that we will be
able to compete successfully against current or future
competitors. Competitive pressures we face could materially
adversely affect our operating results.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>We rely on a limited number of suppliers, and any
    disruption or termination of these supply arrangements could
    delay shipment of our products and could materially and
    adversely affect our operating results.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We rely on a limited number of suppliers of several key
components utilized in the assembly of our products. We purchase
most of our disk drives through a single supplier. We purchase
computer boards and microprocessors from a limited number of
suppliers. Our reliance on a limited number of suppliers
involves several risks, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    A potential inability to obtain an adequate supply of required
    components because we do not have long-term supply commitments</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Supplier capacity constraints</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Price increases</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Timely delivery</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Component quality</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Component quality is particularly significant with respect to
our suppliers of disk drives. In order to meet product
performance requirements, we must obtain disk drives of
extremely high quality and capacity. In addition, there are
periodic supply-and-demand issues for disk drives,
microprocessors, and semiconductor memory components, which
could result in component shortages, selective supply
allocations, and increased prices of such components. We cannot
assure you that we will be able to obtain our full requirements
of such components in the future or that prices of such
components will not increase. In addition, problems with respect
to yield and quality of such components and timeliness of
deliveries could occur. Disruption or termination of the supply
of these components could delay shipments of our products and
could materially adversely affect our operating results. Such
delays could also damage relationships with current and
prospective customers.
</DIV>

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In addition, we license certain technology and software from
third parties that is incorporated into our products. If we are
unable to obtain or license the technology and software on a
timely basis, we will not be able to deliver products to our
customers in a timely manner.
</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
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    <TD></TD>
    <TD>
    <B><I>The loss of any contract manufacturers or the failure to
    accurately forecast demand for our products or successfully
    manage our relationships with our contract manufacturers could
    negatively impact our ability to manufacture and sell our
    products.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We currently rely on several contract manufacturers to
manufacture most of our products. Our reliance on our
third-party contract manufacturers reduces our control over the
manufacturing process, exposing us to risks, including reduced
control over quality assurance, production costs, and product
supply. If we should fail to effectively manage our
relationships with our contract manufacturers, or if our
contract manufacturers experience delays, disruptions, capacity
constraints, or quality control problems in their manufacturing
operations, our ability to ship products to our customers could
be impaired and our competitive position and reputation could be
harmed. Qualifying a new contract manufacturer and commencing
volume production are expensive and time-consuming. If we are
required to change contract manufacturers or assume internal
</DIV>

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manufacturing operations, we may lose revenue and damage our
customer relationships. If we inaccurately forecast demand for
our products, we may have excess or inadequate inventory or
incur cancellation charges or penalties, which could adversely
impact our operating results. As of April&nbsp;30, 2005, we have
no purchase commitment under these agreements.
</DIV>

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We intend to regularly introduce new products and product
enhancements, which will require us to rapidly achieve volume
production by coordinating with our contract manufacturers and
suppliers. We may need to increase our material purchases,
contract manufacturing capacity, and internal test and quality
functions to meet anticipated demand. The inability of our
contract manufacturers to provide us with adequate supplies of
high-quality products, or the inability to obtain raw materials,
could cause a delay in our ability to fulfill orders.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>Our future financial performance depends on growth in the
    network storage and content delivery markets. If these markets
    do not continue to grow at the rates at which we forecast
    growth, our operating results will be materially and adversely
    impacted.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of our products address the storage and content delivery
markets. Accordingly, our future financial performance will
depend in large part on continued growth in the storage and
content delivery markets and on our ability to adapt to emerging
standards in these markets. We cannot assure you that the
markets for storage and content delivery will continue to grow
or that emerging standards in these markets will not adversely
affect the growth of UNIX, Windows, and the World Wide Web
server markets upon which we depend.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For example, we provide our open access data retention solutions
to customers within the financial services, healthcare,
pharmaceuticals, and government market segments, industries that
are subject to various evolving governmental regulations with
respect to data access, reliability, and permanence (such as
Rule&nbsp;17(a)(4) of the Securities Exchange Act of 1934, as
amended) in the United States and in the other countries in
which we operate. If our products do not meet, and continue to
comply with, these evolving governmental regulations in this
regard, customers in these market and geographical segments will
not purchase our products, and, therefore, we will not be able
to expand our product offerings in these market and geographical
segments at the rates for which we have forecast.
</DIV>

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In addition, our business also depends on general economic and
business conditions. A reduction in demand for network storage
and content delivery caused by weakening economic conditions and
decreases in corporate spending will result in decreased
revenues and lower revenue growth rates. The network storage and
content delivery market growth declined significantly beginning
in the third quarter of fiscal 2001, causing both our revenues
and operating results to decline. If the network storage and
content delivery markets grow more slowly than anticipated or if
emerging standards other than those adopted by us become
increasingly accepted by these markets, our operating results
could be materially adversely affected.
</DIV>

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    <TD width="3%"></TD>
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    <TD></TD>
    <TD>
    <B><I>If we are unable to develop and introduce new products and
    respond to technological change, if our new products do not
    achieve market acceptance, or if we fail to manage the
    transition between our new and old products, our operating
    results could be materially and adversely affected.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our future growth depends upon the successful development and
introduction of new hardware and software products. Due to the
complexity of storage subsystems and Internet caching devices,
and the difficulty in gauging the engineering effort required to
produce new products, such products are subject to significant
technical risks. However, we cannot assure you that any of our
new products will achieve market acceptance. Additional product
introductions in future periods may also impact our sales of
existing products. In addition, our new products must respond to
technological changes and evolving industry standards. If we are
unable, for technological or other reasons, to develop and
introduce new products in a timely manner in response to
changing market conditions or customer requirements, or if such
products do not achieve market acceptance, our operating results
could be materially adversely affected.
</DIV>

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In particular, in conjunction with the introduction of our
product offerings in the fabric-attached storage market, we
introduced products with new features and functionality that
address the storage area network market. We face risks relating
to these product introductions, including risks relating to
forecasting of demand
</DIV>

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for such products, as well as possible product and software
defects and a potentially different sales and support
environment associated with selling these new systems. If any of
the foregoing occurs, our operating results could be adversely
affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As new or enhanced products are introduced, we must successfully
manage the transition from older products in order to minimize
disruption in customers&#146; ordering patterns, avoid excessive
levels of older product inventories, and ensure that enough
supplies of new products can be delivered to meet
customers&#146; demands.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>Our gross margins may vary based on the configuration of
    our product and service solutions, and such variation may make
    it more difficult to forecast our earnings.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We derive a significant portion of our sales from the resale of
disk drives as components of our storage systems, and the resale
market for hard disk drives is highly competitive and subject to
intense pricing pressures. Our sales of disk drives generate
lower gross margin percentages than those of our storage
systems. As a result, as we sell more highly configured systems
with greater disk drive content, overall gross margin
percentages may be negatively affected.
</DIV>

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Our gross margins have been and may continue to be affected by a
variety of other factors, including:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Demand for storage and content delivery products</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Discount levels and price competition</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Direct versus indirect sales</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Product and add-on software mix</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The mix of services as a percentage of revenue</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The mix and average selling prices of products</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The mix of disk content</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    New product introductions and enhancements</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Excess inventory purchase commitments as a result of changes in
    demand forecasts and possible product and software defects as we
    transition our products</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The cost of components, manufacturing labor, and quality</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Changes in service gross margin may result from various factors
such as continued investments in our customer support
infrastructure, changes in the mix between technical support
services and professional services, as well as the timing of
technical support service contract initiations and renewals.
</DIV>

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</TR>

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    <TD></TD>
    <TD>
    <B><I>We may incur problems with current or future acquisitions
    and equity investments, and these investments may not achieve
    our objectives.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As part of our strategy, we are continuously evaluating
opportunities to buy other businesses or technologies that would
complement our current products, expand the breadth of our
markets, or enhance our technical capabilities. We may engage in
future acquisitions that dilute our stockholders&#146;
investments and cause us to use cash, to incur debt, or to
assume contingent liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Acquisitions of companies entail numerous risks, and we may not
be able to successfully integrate acquired operations and
products or realize anticipated synergies, economies of scale,
or other value. Integration risks and issues may include, but
not limited to, key personnel retention and assimilation,
management distraction, technical development, and unexpected
costs and liabilities, including goodwill impairment charges. In
addition, we may experience a diversion of management&#146;s
attention, the loss of key employees of acquired operations, or
the inability to recover strategic investments in development
stage entities. Any such problems could have a material adverse
effect on our business, financial condition, and results of
operation.
</DIV>

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From time to time, we make equity investments for the promotion
of business and strategic objectives. We have already made
strategic investments in a number of network storage-related
technology companies. Equity investments may result in the loss
of investment capital. The market price and valuation of our
equity investments in these companies may fluctuate due to
market conditions and other circumstances over which we have
little or no control. To the extent that the fair value of these
securities is less than our cost over an extended period of
time, our results of operations and financial position could be
negatively impacted.
</DIV>

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    <TD width="3%"></TD>
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</TR>

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    <TD></TD>
    <TD>
    <B><I>Our ability to increase our revenues depends on expanding
    our direct sales operations and reseller distribution channels
    and continuing to provide excellent global service and support.
    If we are unable to effectively develop, retain, and expand our
    global sales and service workforce or to establish and cultivate
    relationships with our indirect reseller and distribution
    channels, our ability to grow and increase revenue could be
    harmed.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In an effort to gain market share and support our global
customers, we will need to expand our worldwide direct sales
operations and global service and support infrastructure to
support new and existing enterprise customers. Expansion of our
direct sales operations, reseller/distribution channels, and
global service and support operations may not be successfully
implemented, and the cost of any expansion may exceed the
revenues generated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We market and sell our storage solutions directly through our
worldwide sales force and indirectly through channels such as
value-added resellers (&#147;VARs&#148;), systems integrators,
distributors, and strategic business partners and derive a
significant portion of our revenue from these indirect channel
partners. However, in order for us to maintain our current
revenue sources and grow our revenue as we have forecasted, we
must effectively manage our relationships with these indirect
channel partners. To do so, we must attract and retain a
sufficient number of qualified channel partners to successfully
market our products. However, because we also sell our products
directly to customers through our sales force, on occasion we
compete with our indirect channels for sales of our products to
our end customers, competition that could result in conflicts
with these indirect channel partners and make it harder for us
to attract and retain these indirect channel partners. At the
same time, our indirect channel partners may develop and offer
products of their own that are competitive to ours. Or, because
our reseller partners generally offer products from several
different companies, including products of our competitors,
these resellers may give higher priority to the marketing,
sales, and support of our competitors&#146; products than ours.
If we fail to manage effectively our relationships with these
indirect channel partners to minimize channel conflict and
continue to evaluate and meet our indirect sales partners&#146;
needs with respect to our products, we will not be able to
maintain or increase our revenue as we have forecasted, which
would have a materially adverse affect on our business,
financial condition, and results of operations. Additionally, if
we do not manage distribution of our products and services and
support effectively, or if our resellers&#146; financial
conditions or operations weaken, our revenues and gross margins
could be adversely affected.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>Risks inherent in our international operations could have
    a material adverse effect on our operating results.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We conduct business internationally. For the first quarter of
fiscal year 2006, 40.5% of our total revenues was from
international customers (including U.S.&nbsp;exports).
Accordingly, our future operating results could be materially
adversely affected by a variety of factors, some of which are
beyond our control, including regulatory, political, or economic
conditions in a specific country or region, trade protection
measures and other regulatory requirements, government spending
patterns, and acts of terrorism and international conflicts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our international sales are denominated in U.S.&nbsp;dollars and
in foreign currencies. An increase in the value of the
U.S.&nbsp;dollar relative to foreign currencies could make our
products more expensive and, therefore, potentially less
competitive in foreign markets. For international sales and
expenditures denominated in foreign currencies, we are subject
to risks associated with currency fluctuations. We utilize
forward and option contracts to hedge our foreign currency
exposure associated with certain assets and liabilities as well
as anticipated foreign currency cash flow. All balance sheet
hedges are marked to market through earnings every period, while
gains and losses on cash flow hedges are recorded in other
comprehensive income. These hedges
</DIV>

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attempt to reduce, but do not always entirely eliminate, the
impact of currency exchange movements. Factors that could have
an impact on the effectiveness of our hedging program include
the accuracy of forecasts and the volatility of foreign currency
markets. There can be no assurance that such hedging strategies
will be successful and that currency exchange rate fluctuations
will not have a material adverse effect on our operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additional risks inherent in our international business
activities generally include, among others, longer accounts
receivable payment cycles and difficulties in managing
international operations. Such factors could materially
adversely affect our future international sales and,
consequently, our operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Potentially adverse tax consequences could also negatively
impact the operating and financial results from international
operations. International operations currently benefit from a
tax ruling concluded in the Netherlands.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additional risks inherent in our international business
activities generally include, among others, longer accounts
receivable payment cycles, difficulties in managing
international operations, and potentially adverse tax
consequences. Such factors could materially adversely affect our
future international sales and, consequently, our operating
results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Although operating results have not been materially adversely
affected by seasonality in the past, because of the significant
seasonal effects experienced within the industry, particularly
in Europe, our future operating results could be materially
adversely affected by seasonality.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot assure you that we will be able to maintain or
increase international market demand for our products.
</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>If we are unable to maintain our existing relationships
    and develop new relationships with major strategic partners, our
    revenue may be impacted negatively.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An element of our strategy to increase revenue is to
strategically partner with major third-party software and
hardware vendors that integrate our products into their products
and also comarket our products with these vendors. A number of
these strategic partners are industry leaders that offer us
expanded access to segments of the storage market. There is
intense competition for attractive strategic partners, and even
if we can establish strategic relationships with these partners,
we cannot assure you that these partnerships will generate
significant revenue or that the partnerships will continue to be
in effect for any specific period of time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to continue to establish and maintain business
relationships with technology companies to accelerate the
development and marketing of our storage solutions. To the
extent we are unsuccessful in developing new relationships and
maintaining our existing relationships, our future revenue and
operating results could be impacted negatively. In addition, the
loss of a strategic partner could have a material adverse effect
on the progress of our new products under development with that
partner.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>A significant percentage of our expenses are fixed, which
    could materially and adversely affect our net income.</I></B></TD>
</TR>

</TABLE>

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Our expense levels are based in part on our expectations as to
future sales, and a significant percentage of our expenses are
fixed. As a result, if sales levels are below expectations or
previously higher levels, net income will be disproportionately
affected in a material and adverse manner.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>If we fail to manage our expanding business effectively,
    our operating results could be materially adversely
    affected.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have experienced growth in fiscal 2005 and 2004. Our future
operating results depend to a large extent on management&#146;s
ability to successfully manage expansion and growth, including
but not limited to expanding international operations,
forecasting revenues, addressing new markets, controlling
expenses, implementing infrastructure and systems, and managing
our assets. In addition, an unexpected decline in the
</DIV>

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growth rate of revenues without a corresponding and timely
reduction in expense growth or a failure to manage other aspects
of growth could materially adversely affect our operating
results.
</DIV>

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    <TD width="97%"></TD>
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    <TD></TD>
    <TD>
    <B><I>The market price for our common stock has fluctuated
    significantly in the past and will likely continue to do so in
    the future.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The market price for our common stock has experienced
substantial volatility in the past, and several factors could
cause the price to fluctuate substantially in the future. These
factors include but are not limited to:
</DIV>

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    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Fluctuations in our operating results</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Fluctuations in the valuation of companies perceived by
    investors to be comparable to us</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Economic developments in the network storage market as a whole</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    International conflicts and acts of terrorism</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    A shortfall in revenues or earnings compared to securities
    analysts&#146; expectations</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Changes in analysts&#146; recommendations or projections</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Announcements of new products, applications, or product
    enhancements by us or our competitors</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Changes in our relationships with our suppliers, customers, and
    channel and strategic partners</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    General market conditions</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the stock market has experienced volatility that
has particularly affected the market prices of equity securities
of many technology companies. Additionally, certain
macroeconomic factors such as changes in interest rates, the
market climate for the technology sector, and levels of
corporate spending on information technology could also have an
impact on the trading price of our stock. As a result, the
market price of our common stock may fluctuate significantly in
the future, and any broad market decline, as well as our own
operating results, may materially and adversely affect the
market price of our common stock.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>Our business could be materially adversely affected as a
    result of a natural disaster, terrorist acts, or other
    catastrophic events.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our operations, including our suppliers&#146; and contract
manufacturers&#146; operations, are susceptible to outages due
to fire, floods, power loss, power shortages, telecommunications
failures, break-ins, and similar events. In addition, our
headquarters are located in Northern California, an area
susceptible to earthquakes. If any significant disaster were to
occur, our ability to operate our business could be impaired.
</DIV>

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Weak economic conditions or terrorist actions could lead to
significant business interruptions. If such disruptions result
in cancellations of customer orders, a general decrease in
corporate spending on information technology, or direct impacts
on our marketing, manufacturing, financial functions or our
suppliers&#146; logistics function, our results of operations
and financial condition could be adversely affected.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>We depend on attracting and retaining qualified technical
    and sales personnel. If we are unable to attract and retain such
    personnel, our operating results could be materially and
    adversely impacted.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our continued success depends, in part, on our ability to
identify, attract, motivate, and retain qualified technical and
sales personnel. Because our future success is dependent on our
ability to continue to enhance and introduce new products, we
are particularly dependent on our ability to identify, attract,
motivate, and retain qualified engineers with the requisite
education, backgrounds, and industry experience. Competition for
qualified engineers, particularly in Silicon Valley, can be
intense. The loss of the services of a significant number of our
engineers or salespeople could be disruptive to our development
efforts or business relationships and could materially adversely
affect our operating results.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>Undetected software, hardware errors, or failures found in
    new products may result in loss of or delay in market acceptance
    of our products, which could increase our costs and reduce our
    revenues.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our products may contain undetected software, hardware errors,
or failures when first introduced or as new versions are
released. Despite testing by us and by current and potential
customers, errors may not be found in new products until after
commencement of commercial shipments, resulting in loss of or
delay in market acceptance, which could materially adversely
affect our operating results.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>If we are unable to protect our intellectual property, we
    may be subject to increased competition that could materially
    adversely affect our operating results.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our success depends significantly upon our proprietary
technology. We rely on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures, contractual
provisions, and patents to protect our proprietary rights. We
seek to protect our software, documentation, and other written
materials under trade secret, copyright, and patent laws, which
afford only limited protection. Some U.S.&nbsp;trademarks and
some U.S.-registered trademarks are registered internationally
as well. We will continue to evaluate the registration of
additional trademarks as appropriate. We generally enter into
confidentiality agreements with our employees and with our
resellers, strategic partners, and customers. We currently have
multiple U.S. and international patent applications pending and
multiple U.S.&nbsp;patents issued. The pending applications may
not be approved, and if patents are issued, such patents may be
challenged. If such challenges are brought, the patents may be
invalidated. We cannot assure you that we will develop
proprietary products or technologies that are patentable, that
any issued patent will provide us with any competitive
advantages or will not be challenged by third parties, or that
the patents of others will not materially adversely affect our
ability to do business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Litigation may be necessary to protect our proprietary
technology. Any such litigation may be time-consuming and
costly. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products
or to obtain and use information that we regard as proprietary.
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. We cannot assure you that our means of protecting
our proprietary rights will be adequate or that our competitors
will not independently develop similar technology, duplicate our
products, or design around patents issued to us or other
intellectual property rights of ours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to intellectual property infringement claims. We
may, from time to time, receive claims that we are infringing
third parties&#146; intellectual property rights. Third parties
may in the future claim infringement by us with respect to
current or future products, patents, trademarks, or other
proprietary rights. We expect that companies in the appliance
market will increasingly be subject to infringement claims as
the number of products and competitors in our industry segment
grows and the functionality of products in different industry
segments overlaps. Any such claims could be time-consuming,
result in costly litigation, cause product shipment delays,
require us to redesign our products, or require us to enter into
royalty or licensing agreements, any of which could materially
adversely affect our operating results. Such royalty or
licensing agreements, if required, may not be available on terms
acceptable to us or at all.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>Our business is subject to changing laws and regulations
    and public disclosure that has increased both our costs and the
    risk of noncompliance. Failure to comply with these new
    regulations could have an adverse effect on our business and
    stock price.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Because our common stock is publicly traded, we are subject to
certain rules and regulations of federal, state, and financial
market exchange entities charged with the protection of
investors and the oversight of companies whose securities are
publicly traded. These entities, including the Public Company
Accounting Oversight Board, the SEC, and NASDAQ, have
implemented new requirements and regulations and continue
developing additional regulations and requirements in response
to recent corporate scandals and laws enacted by Congress, most
notably the Sarbanes-Oxley Act of 2002. Our efforts to comply
with these new regulations have resulted in, and are likely to
continue resulting in, increased general and administrative
expenses and diversion of management time and attention from
revenue-generating activities to compliance activities.
</DIV>

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We have recently completed our evaluation of our internal
controls over financial reporting as required by
Section&nbsp;404 of the Sarbanes-Oxley Act of 2002. Although our
assessment, testing, and evaluation resulted in our conclusion
that as of April&nbsp;30, 2005, our internal controls over
financial reporting were effective, we cannot predict the
outcome of our testing in future periods. If our internal
controls are ineffective in future periods, our business and
reputation could be harmed. We may incur additional expenses and
commitment of management&#146;s time in connection with further
evaluations, either of which could materially increase our
operating expenses and accordingly reduce our net income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also face increasing complexity in our product design and
procurement operations as we adjust to new and upcoming
requirements relating to the materials composition of many of
our products. The European Union (&#147;EU&#148;) has adopted
two directives to facilitate the recycling of electrical and
electronic equipment sold in the EU. The first of these is the
Waste Electrical and Electronic Equipment (WEEE)&nbsp;directive,
which directs EU member states to enact laws, regulations, and
administrative provisions to ensure that producers of electrical
and electronic equipment are financially responsible for
specified collection, recycling, treatment, and environmentally
sound disposal of products placed on the market after
August&nbsp;13, 2005, and from products in use prior to that
date that are being replaced. The EU has also adopted the
Restriction on the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment (&#147;RoHS&#148;)
directive. The RoHS directive restricts the use of lead,
mercury, and certain other substances in electrical and
electronic products placed on the market in the European Union
after July&nbsp;1, 2006.
</DIV>

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Similar laws and regulations have been or may be enacted in
other regions, including in the United&nbsp;States, China, and
Japan. Other environmental regulations may require us to
reengineer our products to utilize components that are more
environmentally compatible, and such reengineering and component
substitution may result in additional costs to us. Although we
do not anticipate any material adverse effects based on the
nature of our operations and the effect of such laws, there is
no assurance that such existing laws or future laws will not
have a material adverse effect on our business.
</DIV>

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    <TD>
    <B><I>Changes in financial accounting standards or practices may
    cause adverse unexpected fluctuations and affect our reported
    business and financial results.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004 the FASB issued SFAS&nbsp;No.&nbsp;123R
(revised 2004), which will require us, beginning in the first
quarter of fiscal 2007, to expense employee stock options for
financial reporting purposes. Adoption of
SFAS&nbsp;No.&nbsp;123R will result in lower reported earnings
per share, which could negatively impact our future stock price.
In addition, this could also impact our ability or future
practice of utilizing broad-based employee stock plans to
attract, reward, and retain employees, which could also
adversely impact our operations.
</DIV>

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In addition, the FASB requires certain valuation models to
estimate the fair value of employee stock options. These models,
including the Black-Scholes option-pricing model, use varying
methods, inputs, and assumptions selected across companies. If
another party asserts that the fair value of our employee stock
options is misstated, securities class action litigation could
be brought against us, or the market price of our common stock
could decline, or both could occur. As a result of these
changes, we could incur losses, and our operating results and
gross margins may be below our expectations and those of
investors and stock market analysts.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>The U.S.&nbsp;government has contributed to our revenue
    growth and become an important customer for us. However,
    government demand is unpredictable, and there is no guarantee of
    future revenue growth from the U.S.&nbsp;government.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The U.S.&nbsp;government has become an important customer for
the storage market and for us. Government agencies are subject
to budgetary processes and expenditure constraints that could
lead to delays or decreased capital expenditures in IT spending
on infrastructures. If the government or individual agencies
within the government reduce or shift their capital spending
pattern, our financial results may be harmed. We cannot assure
you that revenue from the U.S.&nbsp;government will continue to
grow in the future.
</DIV>

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</DIV>

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    <TD><B>Item&nbsp;3.</B></TD>
    <TD>
    <B><I>Quantitative and Qualitative Disclosures About Market
    Risk</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are exposed to market risk related to fluctuations in
interest rates, market prices and foreign currency exchange
rates. We use certain derivative financial instruments to manage
these risks. We do not use derivative financial instruments for
speculative or trading purposes. All financial instruments are
used in accordance with management-approved policies.
</DIV>

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<B>Market Interest and Interest Income Risk</B>
</DIV>

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<I>Interest and Investment Income</I>&nbsp;&#151; As of
July&nbsp;29, 2005, we had short-term investments of
$983.2&nbsp;million. Our investment portfolio primarily consists
of highly liquid investments with original maturities at the
date of purchase of greater than three months, which are
classified as available-for-sale and investment in marketable
equity securities in primarily technology companies. These
highly liquid investments, consisting primarily of government
and corporate debt securities, and auction-rate securities, are
subject to interest rate and interest income risk and will
decrease in value if market interest rates increase. A
hypothetical 10&nbsp;percent increase in market interest rates
from levels at July&nbsp;29, 2005 would cause the fair value of
these short-term investments to decline by approximately $2.9
million. Because we have the ability to hold these investments
until maturity we would not expect any significant decline in
value of our investments caused by market interest rate changes.
Declines in interest rates over time will, however, reduce our
interest income. We do not use derivative financial instruments
in our investment portfolio.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Foreign Currency Exchange Rate Risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We hedge risks associated with foreign currency transactions in
order to minimize the impact of changes in foreign currency
exchange rates on earnings. We utilize forward and option
contracts to hedge against the short-term impact of foreign
currency fluctuations on certain assets and liabilities
denominated in foreign currencies. All balance sheet hedges are
marked to market through earnings every period. We also use
foreign exchange forward contracts to hedge foreign currency
forecasted transactions related to certain sales and operating
expenses. These derivatives are designated as cash flow hedges
under SFAS&nbsp;No.&nbsp;133. For cash flow hedges outstanding
at July&nbsp;29, 2005, the gains or losses were included in
other comprehensive income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We do not enter into foreign exchange contracts for speculative
or trading purposes. In entering into forward and option foreign
exchange contracts, we have assumed the risk that might arise
from the possible inability of counterparties to meet the terms
of their contracts. We attempt to limit our exposure to credit
risk by executing foreign exchange contracts with creditworthy
multinational commercial banks. All contracts have a maturity of
less than one year.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table provides information about our foreign
exchange forward and option contracts outstanding on
July&nbsp;29, 2005 (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Foreign</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Contract Value</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fair Value</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Currency</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Buy/Sell</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Currency Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>USD</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>in USD</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Forward contracts:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    CAD</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,359</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    ILS</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,354</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    EUR</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>140,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>139,985</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    GBP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,912</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    ZAR</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,030</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    AUD</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,504</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    CHF</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>455</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    DKK</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,949</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    EUR</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,304</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    GBP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,003</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    SEK</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,558</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,364</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Option contracts:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    EUR</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,344</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    GBP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,657</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<A name='109'></A>
</DIV>

<!-- link1 "Item 4. Controls and Procedures" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;4.</B></TD>
    <TD>
    <B><I>Controls and Procedures</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Disclosure controls are controls and procedures designed to
ensure that information required to be disclosed in our reports
filed under the Exchange Act, such as this Quarterly Report, is
recorded, processed, summarized and reported within the time
periods specified in the U.S.&nbsp;Securities and Exchange
Commission&#146;s rules and forms. Disclosure controls and
procedures are also designed to ensure that such information is
accumulated and communicated to our management, including the
CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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 the design and operation of our disclosure
controls and procedures, as defined in Rules&nbsp;13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended,
as of July&nbsp;29, 2005, the end of the fiscal period covered
by this quarterly report (the &#147;Evaluation Date&#148;).
Based on this evaluation, our principal executive officer and
principal financial officer concluded as of the Evaluation Date
that our disclosure controls and procedures were effective such
that the information relating to Network Appliance, including
our consolidated subsidiaries, required to be disclosed in our
Securities and Exchange Commission (&#147;SEC&#148;) reports
(i)&nbsp;is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms, and
(ii)&nbsp;is accumulated and communicated to Network
Appliance&#146;s management, including our principal executive
officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There was no change in our internal control over financial
reporting that occurred during the period covered by this
Quarterly Report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
</DIV>

<P align="center" style="font-size: 10pt;">40

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='110'></A>
</DIV>

<!-- link1 "PART II. OTHER INFORMATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PART&nbsp;II. OTHER INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='111'></A>
</DIV>

<!-- link1 "Item 1. Legal Proceedings" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;1.</B></TD>
    <TD>
    <B><I>Legal Proceedings</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='112'></A>
</DIV>

<!-- link1 "Item 2. Unregistered Sales of Equity Securities and Use of Proceeds" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;2.</B></TD>
    <TD>
    <B><I>Unregistered Sales of Equity Securities and Use of
    Proceeds</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below sets forth activity in the first quarter of
fiscal 2006:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Approximate Dollar</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares Purchased</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value of Shares</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>as Part of the</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>That May yet be</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price Paid</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Repurchase</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Purchased Under the</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Purchased</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>per Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Program(1)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Repurchase Program(2)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    May&nbsp;1, 2005&nbsp;&#151; May&nbsp;31, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,566,101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>320,925,379</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    June&nbsp;1, 2005&nbsp;&#151; June&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,261,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,828,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>225,382,165</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    July&nbsp;1, 2005&nbsp;&#151; July&nbsp;29, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,828,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>225,382,165</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,261,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,828,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>225,382,165</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    This amount represented total number of shares purchased under
    our publicly announced repurchase programs since inception.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    On May&nbsp;24, 2005, our Board approved a new, incremental
    stock repurchase program in which up to $300.0&nbsp;million of
    additional shares of our outstanding common stock may be
    purchased. The stock repurchase program may be suspended or
    discontinued at any time.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
<A name='113'></A>
</DIV>

<!-- link1 "Item 3. Defaults Upon Senior Securities" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;3.</B></TD>
    <TD>
    <B><I>Defaults Upon Senior Securities</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='114'></A>
</DIV>

<!-- link1 "Item 4. Submission of Matters to a Vote of Security Holders" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;4.</B></TD>
    <TD>
    <B><I>Submission of Matters to a Vote of Security Holders</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='115'></A>
</DIV>

<!-- link1 "Item 5. Other Information" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;5.</B></TD>
    <TD>
    <B><I>Other Information</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The information required by this item is incorporated by
reference from our Proxy Statement for the 2005 Annual Meeting
of Stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='116'></A>
</DIV>

<!-- link1 "Item 6. Exhibits" -->

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;6.</B></TD>
    <TD>
    <B><I>Exhibits</I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.1(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Agreement and Plan of Merger, dated as of November&nbsp;3, 2003,
    by and among Network Appliance, Inc., Nagano Sub, Inc., and
    Spinnaker Networks, Inc.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.2(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment to Merger Agreement, dated as of February&nbsp;9,
    2004, by and among Network Appliance, Inc., Nagano Sub, Inc.,
    and Spinnaker Networks, Inc.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Agreement and Plan of Merger and Reorganization, dated as of
    June&nbsp;15, 2005, by and among Network Appliance, Inc.,
    Dolphin Acquisition Corp., and Decru, Inc.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certificate of Incorporation of the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Bylaws of the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.3(6)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certificate of Amendment to the Bylaws of the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Reference is made to Exhibits&nbsp;3.1 and 3.2.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Spinnaker Networks, Inc. 2000 Stock Plan.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3(7)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Stock Option Grant Notice and Option Agreement under the
    Decru, Inc. Amended and Restated 2001 Equity Incentive Plan.</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">41

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.4(7)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Stock Option Grant Notice and Option Agreement under the
    Decru, Inc. 2001 Equity Incentive Plan</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.5(7)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Early Exercise Stock Purchase Agreement under the Decru,
    Inc. 2001 Equity Incentive Plan.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.6(7)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Restricted Stock Bonus Grant Notice and Agreement under
    the Decru, Inc. 2001 Equity Incentive Plan.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Asset Purchase Agreement dated June&nbsp;20, 2003, by and
    between Auspex Systems, Inc. and the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2(5)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Purchase and Sale Agreement dated July&nbsp;27, 2004 by and
    between Cisco Systems, Inc. and the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>31</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification of Chief Executive Officer pursuant to Securities
    Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e) as adopted
    pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002,
    dated September&nbsp;2, 2005.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>31</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification of Chief Financial Officer pursuant to Securities
    Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e) as adopted
    pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002,
    dated September&nbsp;2, 2005.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>32</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification of Chief Executive Officer pursuant to 18 U .S.C.
    Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
    the Sarbanes-Oxley Act of 2002, dated September&nbsp;2, 2005.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>32</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification of Chief Financial Officer pursuant to
    18&nbsp;U.S.C. Section&nbsp;1350, as adopted pursuant to
    Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, dated
    September&nbsp;2, 2005.</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Current
    Report on Form&nbsp;8-K dated December&nbsp;4, 2001.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Quarterly
    Report on Form&nbsp;10-Q dated September&nbsp;3, 2003.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Current
    Report on Form&nbsp;8-K dated February&nbsp;27, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s
    Form&nbsp;S-8 registration statement dated March&nbsp;1, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Quarterly
    Report on Form&nbsp;10-Q dated August&nbsp;31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(6)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Current
    Report on Form&nbsp;8-K dated May&nbsp;4, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(7)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s
    Form&nbsp;S-8 registration statement dated September&nbsp;2,
    2005.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">42

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<!-- link1 "SIGNATURE" -->

<DIV align="left" style="font-size: 10pt;">
<A name='117'></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SIGNATURE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    NETWORK APPLIANCE INC.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (Registrant)</TD>
</TR>

<TR>
    <TD style="font-size: 48pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    /s/ STEVEN J. GOMO</TD>
</TR>

<TR valign="top"  style="font-size: 3pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    Steven J. Gomo</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <I>Executive Vice President of Finance and</I></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <I>Chief Financial Officer</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Date: September&nbsp;2, 2005
</DIV>

<P align="center" style="font-size: 10pt;">43

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>EXHIBIT INDEX</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.1(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Agreement and Plan of Merger, dated as of November&nbsp;3, 2003,
    by and among Network Appliance, Inc., Nagano Sub, Inc., and
    Spinnaker Networks, Inc.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.2(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment to Merger Agreement, dated as of February&nbsp;9,
    2004, by and among Network Appliance, Inc., Nagano Sub, Inc.,
    and Spinnaker Networks, Inc.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Agreement and Plan of Merger and Reorganization, dated as of
    June&nbsp;15, 2005, by and among Network Appliance, Inc.,
    Dolphin Acquisition Corp., and Decru, Inc.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certificate of Incorporation of the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Bylaws of the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.3(6)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certificate of Amendment to the Bylaws of the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Reference is made to Exhibits&nbsp;3.1 and 3.2.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Spinnaker Networks, Inc. 2000 Stock Plan.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3(7)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Stock Option Grant Notice and Option Agreement under the
    Decru, Inc. Amended and Restated 2001 Equity Incentive Plan.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.4(7)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Stock Option Grant Notice and Option Agreement under the
    Decru, Inc. 2001 Equity Incentive Plan.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.5(7)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Early Exercise Stock Purchase Agreement under the Decru,
    Inc. 2001 Equity Incentive Plan.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.6(7)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Restricted Stock Bonus Grant Notice and Agreement under
    the Decru, Inc. 2001 Equity Incentive Plan.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Asset Purchase Agreement dated June&nbsp;20, 2003, by and
    between Auspex Systems, Inc. and the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2(5)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Purchase and Sale Agreement dated July&nbsp;27, 2004 by and
    between Cisco Systems, Inc. and the Company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>31</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification of Chief Executive Officer pursuant to Securities
    Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e) as adopted
    pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002,
    dated September&nbsp;2, 2005.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>31</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification of Chief Financial Officer pursuant to Securities
    Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e) as adopted
    pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002,
    dated September&nbsp;2, 2005.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>32</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification of Chief Executive Officer pursuant to 18 U .S.C.
    Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
    the Sarbanes-Oxley Act of 2002, dated September&nbsp;2, 2005.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>32</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification of Chief Financial Officer pursuant to
    18&nbsp;U.S.C. Section&nbsp;1350, as adopted pursuant to
    Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, dated
    September&nbsp;2, 2005.</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Current
    Report on Form&nbsp;8-K dated December&nbsp;4, 2001.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Quarterly
    Report on Form&nbsp;10-Q dated September&nbsp;3, 2003.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Current
    Report on Form&nbsp;8-K dated February&nbsp;27, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s
    Form&nbsp;S-8 registration statement dated March&nbsp;1, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Quarterly
    Report on Form&nbsp;10-Q dated August&nbsp;31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(6)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s Current
    Report on Form&nbsp;8-K dated May&nbsp;4, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(7)&nbsp;</TD>
    <TD align="left">
    Previously filed as an exhibit with the Company&#146;s
    Form&nbsp;S-8 registration statement dated September&nbsp;2,
    2005.</TD>
</TR>

</TABLE>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.3
<SEQUENCE>2
<FILENAME>f10502exv2w3.htm
<DESCRIPTION>EXHIBIT 2.3
<TEXT>
<HTML>
<HEAD>
<TITLE>exv2w3</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;2.3</B>



<P align="center" style="font-size: 10pt"><B>AGREEMENT AND PLAN OF MERGER AND REORGANIZATION</B>



<P align="center" style="font-size: 10pt"><B>by and among</B>



<P align="center" style="font-size: 10pt"><B>NETWORK APPLIANCE, INC.,</B>



<P align="center" style="font-size: 10pt"><B>DOLPHIN ACQUISITION CORP.,</B>



<P align="center" style="font-size: 10pt"><B>DECRU, INC.,</B>



<P align="center" style="font-size: 10pt"><B>and with respect to Article&nbsp;VIII and Article&nbsp;X only,</B>



<P align="center" style="font-size: 10pt"><B>DAN AVIDA</B>



<P align="center" style="font-size: 10pt"><B>as Stockholder Representative,</B>



<P align="center" style="font-size: 10pt"><B>and</B>



<P align="center" style="font-size: 10pt"><B>U.S. BANK, NATIONAL ASSOCIATION,<BR>
as Escrow Agent</B>



<P align="center" style="font-size: 10pt"><B>June&nbsp;15, 2005</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>TABLE OF CONTENTS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE I</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">DEFINITIONS AND INTERPRETATIONS</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">1.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Capitalized Terms</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">1.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Other Capitalized Terms</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">1.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interpretations</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE II</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">THE MERGER</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The Merger</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Closing and Effective Time</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">General Effects of the Merger</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certificates of Incorporation and Bylaws</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Directors and Officers</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Effect of Merger on Capital Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.7</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dissenting Shares for Holders of Company Capital Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.8</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Surrender of Certificates</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Further Ownership Rights in Company Capital Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.10</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lost, Stolen or Destroyed Certificates</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Taking of Necessary Action; Further Action</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2.12</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Tax Consequences</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporation, Standing and Power</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Company Capital Structure</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Authority; Enforceability</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Conflict</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Governmental Consents</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.7</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Company Financial Statements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.8</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Undisclosed Liabilities</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Changes</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.10</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Tax Matters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restrictions on Business Activities</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.12</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.13</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Intellectual Property</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.14</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreements, Contracts and Commitments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.15</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interested Party Transactions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.16</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Company Authorizations</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">-i-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.17</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Litigation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.18</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Accounts Receivable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.19</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Minute Books</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.20</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Environmental Matters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.21</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Brokers&#146; and Finders&#146; Fees</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.22</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employee Benefit Plans and Compensation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.23</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Insurance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.24</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Compliance with Laws</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.25</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Warranties; Indemnities</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.26</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complete Copies of Materials</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.27</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Information Statement</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.28</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Inventory</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.29</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Customers</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Suppliers</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Foreign Corrupt Practices Act</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">3.32</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Export Control Laws</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporation, Standing and Power</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Authority; Enforceability</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Capitalization</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Parent Common Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Conflict</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consents</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.7</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Brokers&#146; and Finders&#146; Fees</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.8</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">SEC Documents; Parent Financial Statements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Information Statement</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.10</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interim Operations of Merger Sub</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">4.11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Changes</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">5.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Conduct of Business of the Company</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">5.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Solicitation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE VI ADDITIONAL AGREEMENTS</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Information Statement; Fairness Hearing and Permit</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approval of the Company Stockholders</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Reasonable Best Efforts; Third Party Consents</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Regulatory Approvals</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Notification of Certain Matters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Access to Information</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.7</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Spreadsheet</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.8</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Transaction Expenses</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Arrangements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.10</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Parent Common Stock Listing</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">-ii-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form S-8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.12</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employee Benefit Matters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.13</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section 280G Payments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.14</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule 145 Affiliates</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.15</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Further Assurances</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.16</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Reorganization Matters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.17</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indemnification</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.18</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Alternative Structure</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">6.19</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Additional Option Grants</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE VII CONDITIONS TO THE MERGERS</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">7.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Conditions to Obligations of Each Party</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">7.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Conditions to the Obligations of Parent and Merger Sub</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">7.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Conditions to Obligations of the Company</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD colspan="3" align="left"><DIV style="margin-left:15px; text-indent:-15px">ARTICLE
VIII SURVIVAL; INDEMNIFICATION; ESCROW FUND; ESCROW AGENT;
STOCKHOLDER REPRESENTATIVE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">8.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Survival</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">8.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indemnification</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">8.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Limitations on Indemnification</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">8.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indemnification Claims</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">8.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Escrow Arrangements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">8.6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stockholder Representative</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE IX TERMINATION, AMENDMENT AND WAIVER</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">9.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Termination</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">9.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Effect of Termination</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">9.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">9.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Extension; Waiver</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" align="left">ARTICLE X GENERAL PROVISIONS</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Notices</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Public Disclosure</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Confidentiality</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entire Agreement</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Third Party Beneficiaries</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.7</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Severability</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.8</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Other Remedies</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Governing Law</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.10</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Choice of Jurisdiction and Venue</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">10.11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Waiver Of Jury Trial</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-iii-
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>INDEX OF SCHEDULES</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Schedule</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.2(e)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Schedule of Required Third Party Consents</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B>INDEX OF EXHIBITS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;A-1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Signatories to Voting Agreement</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;A-2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Voting Agreement</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;B-1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Signatories to Non-Compete Agreement</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;B-2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Non-Compete Agreement</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;C
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Market Standoff Agreement</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;D
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interim Company Hiring Plan</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;E
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Rule&nbsp;145 Affiliate Agreement</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;F
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Legal Opinion of Counsel to the Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;G
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Legal Opinion of Counsel to the Parent</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">iv
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this &#147;<B>Agreement</B>&#148;) is made and
entered into as of June&nbsp;15, 2005 by and among Network Appliance, Inc., a Delaware corporation
(&#147;<B>Parent</B>&#148;), Dolphin Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent (&#147;<B>Merger Sub</B>&#148;), Decru, Inc., a Delaware corporation (the &#147;<B>Company</B>&#148;), and with respect to
<B>Article&nbsp;VIII </B>and <B>Article&nbsp;X </B>hereof, Dan Avida as Stockholder Representative (the &#147;<B>Stockholder
Representative</B>&#148;), and U.S Bank, National Association, as Escrow Agent (the &#147;<B>Escrow Agent</B>&#148;).


<P align="center" style="font-size: 10pt"><B>RECITALS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;The Boards of Directors of each of Parent, Merger Sub and the Company believe it is
advisable and in the best interests of each company and their respective stockholders that Parent
acquire the Company through the statutory merger of the Company with and into Merger Sub upon the
terms and conditions set forth herein, and, in furtherance thereof, have approved this Agreement
and the transactions contemplated hereby.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;Pursuant to the Merger, among other things, and subject to the terms and conditions of this
Agreement, (i)&nbsp;all of the issued and outstanding capital stock of the Company shall be converted
into the right to receive the Merger Consideration on the terms and conditions set forth herein and
(ii)&nbsp;all issued and outstanding options to purchase capital stock of the Company shall be assumed
by Parent and converted into equivalent rights to receive consideration as set forth herein.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;Concurrent with the execution and delivery of this Agreement, and as a material inducement
to Parent and Merger Sub to enter into this Agreement, (i)&nbsp;each of the Company Stockholders
identified on <B>Exhibit&nbsp;A-1 </B>are entering into a Voting Agreement with Parent in the form attached
hereto as <B>Exhibit&nbsp;A-2 </B>(each, a &#147;<B>Voting Agreement</B>&#148; and collectively, the &#147;<B>Voting Agreements</B>&#148;), and
(ii)&nbsp;each of the individuals identified on <B>Exhibit&nbsp;B-1</B>, attached hereto, is entering into a
Non-Compete Agreement with Parent in the form attached hereto as <B>Exhibit&nbsp;B-2 </B>(each, a &#147;<B>Non-Compete
Agreement</B>&#148; and collectively, the &#147;<B>Non-Compete Agreements</B>&#148;).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;The Company, on the one hand, and Parent and Merger Sub, on the other hand, desire to make
certain representations, warranties, covenants and other agreements in connection with the
transactions contemplated hereby and to prescribe various conditions to their respective
obligations under this Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the mutual agreements, covenants and other promises set
forth herein, the mutual benefits to be gained by the performance thereof, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted,
the parties hereby agree as follows:


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;I</U>



<P align="center" style="font-size: 10pt"><U>DEFINITIONS AND INTERPRETATIONS</U>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1 <U>Capitalized Terms</U>. For all purposes of and under this Agreement, the following
terms shall have the respective meanings ascribed thereto below:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Antitrust Law</B>&#148; shall mean the Sherman Act, as amended, the Clayton Act, as amended, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the &#147;<B>HSR Act</B>&#148;), the Federal Trade
Commission Act, as amended, the EC Merger Regulations and all other federal, and state or foreign
statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other
laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>California Law</B>&#148; shall mean the General Corporation Law of the State of California.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Cash Balance</B>&#148; shall mean the amount of cash of the Company that would be required to be set
forth on the face of a balance sheet of the Company as of the Closing Date prepared in accordance
with GAAP (utilizing the same accounting policies, practices and procedures used to prepare the
Current Balance Sheet).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Cash Consideration</B>&#148; shall mean a cash amount equal to the product obtained by multiplying (x)
the Merger Consideration and (y)&nbsp;0.20, expressed in the following formula:



<P align="center" style="font-size: 10pt">Merger Consideration * 0.20.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Cash Exchange Ratio</B>&#148; shall mean the quotient obtained by dividing (x)&nbsp;the Cash Consideration
by (y)&nbsp;the Total Outstanding Shares, expressed in the following formula:



<P align="center" style="font-size: 10pt"><U>0.20 * Merger Consideration</U>


<DIV align="center" style="font-size: 10pt">Total Outstanding Shares</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>COBRA</B>&#148; shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended and
as codified in Section&nbsp;4980B of the Code and Section&nbsp;601 et. seq. of ERISA.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Code</B>&#148; shall mean the Internal Revenue Code of 1986, as amended.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Capital Stock</B>&#148; shall mean shares of Company Common Stock, Company Preferred Stock and
any other shares of capital stock of the Company.



<P align="center" style="font-size: 10pt">-2-
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Common Stock</B>&#148; shall mean shares of common stock of the Company, par value $0.001 per
share.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Employee Plan</B>&#148; shall mean any plan, program, policy, practice, contract, agreement or
other arrangement providing for compensation, severance, termination pay, retirement benefits,
deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other
employee benefits or remuneration of any kind, whether written or unwritten or otherwise, funded or
unfunded, including without limitation, each &#147;employee benefit plan,&#148; within the meaning of Section
3(3) of ERISA which is or has been maintained in the past three years, contributed to, or required
to be contributed to, by the Company or any ERISA Affiliate for the benefit of any Employee, or
with respect to which the Company or any ERISA Affiliate has or may have any liability or
obligation.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Intellectual Property</B>&#148; shall mean any Company Intellectual Property Rights and any
Technology owned by the Company or any of its Subsidiaries.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Intellectual Property Rights</B>&#148; shall mean any Intellectual Property Rights, including
the Company Registered Intellectual Property Rights that are owned by, or exclusively licensed to,
the Company.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Material Adverse Effect</B>&#148; shall mean any changes, events, violations, inaccuracies,
circumstances or effects that, individually or in the aggregate, are or are reasonably likely to be
materially adverse to (A)&nbsp;the business, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries, taken as a whole or (B)&nbsp;the ability of the Company to perform
its obligations under this Agreement or to consummate the Merger or any other transactions
contemplated hereby; <I>provided</I>, <I>however</I>, that none of the following shall be deemed, either alone or
in combination, in and of themselves to constitute a Company Material Adverse Effect: (i)&nbsp;any
change, event, violation, inaccuracy, circumstance or effect that results from changes or
conditions affecting the industry in which the Company operates generally or the economy in the
United States or any foreign markets where the Company has material operations or sales generally,
provided such changes or conditions do not have a materially disproportionate or unique effect on
the Company; (ii)&nbsp;any failure by the Company to meet internal or other estimates, predictions,
projections or forecasts of revenue, net income or bookings or any other measure of financial
performance in and of itself (it being understood that the underlying events or circumstances
(including the Company&#146;s financial condition or results of operations) may, if applicable, be taken
into account in determining whether there has been a
Company Material Adverse Effect); (iii)&nbsp;any action required to be taken, or any omission
required to be made, by the Company pursuant to the terms of this Agreement; or (iv)&nbsp;any change,
event, violation, inaccuracy, circumstance or effect arising from or attributable to the
announcement of this Agreement or the pendency of the transactions contemplated by this Agreement;
<I>provided, however</I>, that in the case of clauses (i)&nbsp;through (iv)&nbsp;above, inclusive, the Company has
the burden of proving that a change, event, violation, inaccuracy, circumstance or effect is not a




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<P align="left" style="font-size: 10pt">Company Material Adverse Effect because one or more of the foregoing exceptions applies.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Optionholders</B>&#148; shall mean all holders of Company Options.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Options</B>&#148; shall mean all options to purchase or otherwise acquire shares of Company
Capital Stock, whether or not vested or exercisable, that were granted or otherwise issued under
the Company Option Plan.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Option Plan</B>&#148; shall mean the Company&#146;s 2001 Equity Incentive Plan.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Preferred Stock</B>&#148; shall mean shares of Company Series&nbsp;A Preferred Stock, Company
Series&nbsp;B Preferred Stock and any other shares of preferred stock of the Company.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Series&nbsp;A Preferred Stock</B>&#148; shall mean shares of the Company&#146;s Series&nbsp;A Preferred
Stock, par value $0.001 per share.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Series&nbsp;B Preferred Stock</B>&#148; shall mean shares of the Company&#146;s Series&nbsp;B Preferred
Stock, par value $0.001 per share.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Stock Certificates</B>&#148; shall mean certificates representing shares of Company Capital
Stock.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Company Stockholders</B>&#148; shall mean holders of shares of Company Capital Stock.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Contract</B>&#148; shall mean any contract, mortgage, indenture, lease, covenant or other agreement,
instrument or commitment, permit, concession, franchise or license, whether written or oral, which
is legally binding upon the party against which enforcement is sought.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Delaware Law</B>&#148; shall mean the General Corporation Law of the State of Delaware.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>DOL</B>&#148; shall mean the United States Department of Labor.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Employee</B>&#148; shall mean any current, former or retired employee, consultant, contractor or
director of the Company or any ERISA Affiliate.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Employee Agreement</B>&#148; shall mean each employment, change in control, severance, consulting,
relocation, repatriation or expatriation agreement between the Company or any ERISA Affiliate and
any Employee.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ERISA</B>&#148; shall mean the Employee Retirement Income Security Act of 1974, as amended.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ERISA Affiliate</B>&#148; shall mean each Subsidiary of the Company and any other person or entity
under common control with the Company within the meaning of Section&nbsp;414(b), (c), (m)&nbsp;or (o)&nbsp;of the
Code and the regulations issued thereunder.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Escrow Amount</B>&#148; shall mean an amount of cash equal to the product of (i)&nbsp;the Merger
Consideration multiplied by (ii)&nbsp;0.125.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Exchange Act</B>&#148; shall mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>FMLA</B>&#148; shall mean the Family Medical Leave Act of 1993, as amended.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>GAAP</B>&#148; shall mean United States generally accepted accounting principles consistently applied.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Governmental Authority</B>&#148; shall mean any federal, state, county, local or other foreign
governmental authority, instrumentality, agency or commission, or any court, administrative agency
or commission.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Indebtedness</B>&#148; shall mean, with respect to any Person, (i)&nbsp;all indebtedness of such Person,
whether or not contingent, for borrowed money, (ii)&nbsp;all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (iii)&nbsp;all obligations, contingent or
otherwise, of such Person under acceptance, letter of credit or other similar facilities, and (iv)
all indebtedness of others referenced in the foregoing clauses (i), (ii)&nbsp;and (iii)&nbsp;directly or
indirectly guaranteed in any manner by such Person, or in effect directly or indirectly guaranteed
by such Person, including by way of agreement (A)&nbsp;to pay or purchase such indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (B)&nbsp;to purchase, sell or
lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such indebtedness or to assure the holder of such
indebtedness against loss, (C)&nbsp;to supply
funds to or in any other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received or such services are
rendered), or (D)&nbsp;otherwise to assure a creditor against loss.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Intellectual Property Rights</B>&#148; shall mean any or all of the following and all rights in,
arising out of, or associated therewith: (i)&nbsp;all United States and foreign patents and utility
models and applications therefor and all reissues, divisions, re-examinations, renewals,
extensions, provisionals, continuations and continuations-in-part thereof, and equivalent or
similar rights anywhere in the world in inventions and discoveries, including invention disclosures
(&#147;<B>Patents</B>&#148;); (ii)&nbsp;all trade



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<P align="left" style="font-size: 10pt">secrets and other rights in know-how and confidential or proprietary
information; (iii)&nbsp;all copyrights, copyright registrations and applications therefor and all other
rights corresponding thereto throughout the world (&#147;<B>Copyrights</B>&#148;); (iv)&nbsp;all industrial designs and
any registrations and applications therefor throughout the world; (v)&nbsp;mask works, mask work
registrations and applications therefor, and all other rights corresponding thereto throughout the
world (&#147;<B>Mask Works</B>&#148;); (vi)&nbsp;all rights in World Wide Web addresses and domain names and applications
and registrations therefor, all trade names, logos, common law trademarks and service marks,
trademark and service mark registrations and applications therefor and all goodwill associated
therewith throughout the world (&#147;<B>Trademarks</B>&#148;); and (vii)&nbsp;any similar, corresponding or equivalent
rights to any of the foregoing as recognized anywhere in the world.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>International Employee Plan</B>&#148; shall mean each Company Employee Plan that has been adopted or
maintained by the Company or any ERISA Affiliate, whether informally or formally, or with respect
to which the Company or any ERISA Affiliate will or may have any liability, for the benefit of
Employees who perform services outside the United States.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>IRS</B>&#148; shall mean the United States Internal Revenue Service.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Knowledge</B>&#148; shall mean, with respect to (a)&nbsp;the Company, the actual knowledge of the Company&#146;s
directors, as well as Dan Avida, Gideon Avida, Alan Beltran, Kevin Brown, Lisa Goldberg, Serge
Plotkin, Tyler Sloat and Bob Wood; <I>provided, however</I>, that such Persons shall be deemed to have
actual knowledge of all information in such Persons&#146; physical and electronic files and records,
wherever located, and (b)&nbsp;Parent, the actual knowledge of Parent&#146;s directors and executive
officers; <I>provided, however</I>, that such Persons shall be deemed to have actual knowledge of all
information in such Persons&#146; physical and electronic files and records, wherever located.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Long Term Debt</B>&#148; shall mean the amount of Indebtedness of the Company (including principal,
accrued and unpaid interest and any prepayment or other similar penalties payable upon satisfaction
of such debt at the
Closing) that would be required to be set forth as such on the face of a balance sheet of the
Company as of the Closing Date prepared in accordance with GAAP (utilizing the same accounting
policies, practices and procedures used to prepare the Current Balance Sheet).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Merger Consideration</B>&#148; shall mean (i) $265,000,000, plus (ii)&nbsp;the quotient obtained by
dividing (A)&nbsp;the result of (1)&nbsp;the Cash Balance, plus (2)&nbsp;the Net Working Capital, minus (3)&nbsp;the
Long Term Debt, minus (4)&nbsp;the Transaction Expenses (solely if (and to the extent) that any such
Transaction Expenses have not been paid by the Company prior to the Effective Time), by (B)&nbsp;two.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Multiemployer Plan</B>&#148; shall mean any &#147;Pension Plan&#148; which is a &#147;multiemployer plan,&#148; as defined
in Section&nbsp;3(37) of ERISA.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Option Exchange Ratio</B>&#148; shall mean the quotient obtained by dividing (i)&nbsp;the result of (A)&nbsp;the
Merger Consideration divided by (B)&nbsp;the Parent Trading Price, by (ii)&nbsp;the Total Fully Diluted
Number, expressed in the following formula:



<P align="center" style="font-size: 10pt"><U>Merger Consideration/Parent Trading Price</U>


<DIV align="center" style="font-size: 10pt">Total Fully Diluted Number</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Net Working Capital</B>&#148; shall mean (i)&nbsp;all accounts receivable of the Company that would be
required to be set forth on the face of a balance sheet of the Company as of the Closing Date
prepared in accordance with GAAP (utilizing the same accounting policies, practices and procedures
used to prepare the Current Balance Sheet), minus (ii)&nbsp;all accounts payable of the Company (other
than Transaction Expenses) that would be required to be set forth on the face of a balance sheet of
the Company as of the Closing Date prepared in accordance with GAAP (utilizing the same accounting
policies, practices and procedures used to prepare the Current Balance Sheet).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Parent Common Stock</B>&#148; shall mean shares of Common Stock, par value $0.001 per share, of
Parent.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Parent Material Adverse Effect</B>&#148; shall mean any changes, events, violations, inaccuracies,
circumstances or effects that, individually or in the aggregate, are or are reasonably likely to be
materially adverse to (A)&nbsp;the business, condition (financial or otherwise) or results of operations
of Parent and its Subsidiaries, taken as a whole or (B)&nbsp;the ability of Parent to perform its
obligations under this Agreement or to consummate the Merger or any other transactions contemplated
hereby; <I>provided</I>, <I>however</I>, that none of the following shall be deemed, either alone or in
combination, in and of themselves to constitute a Parent Material Adverse Effect: (i)&nbsp;any change,
event, violation, inaccuracy, circumstance or effect that results from changes or conditions
affecting any of the industries in which the Parent
operates generally or the economy in the United States or any foreign markets where the Parent
has material operations or sales generally, provided such changes or conditions do not have a
materially disproportionate or unique effect on Parent; (ii)&nbsp;Parent&#146;s failure to meet industry
analyst forecasts or expectations in and of itself (it being understood that the underlying events
or circumstances (including Parent&#146;s financial condition or results of operations) may, if
applicable, be taken into account in determining whether there has been a Parent Material Adverse
Effect); (iii)&nbsp;any change in the trading price or trading volume of Parent Common Stock in and of
itself (it being understood that the underlying events or circumstances may, if applicable, be
taken into account in determining whether there has been a Parent Material Adverse Effect); or (iv)
any change, event, violation, inaccuracy, circumstance or effect arising from or attributable to
the announcement of this Agreement or the pendency of the transactions contemplated by this
Agreement; <I>provided, however</I>, that in the case of clauses (i)&nbsp;through (iv), inclusive, Parent has
the burden of proving that a change, event, violation, inaccuracy, circumstance or effect is not a
Parent Material Adverse Effect because one or more of the foregoing exceptions applies.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Parent Trading Price</B>&#148; shall mean the Parent Closing Trading Price; <I>provided, however</I>, that if
the Parent Closing Trading Price is greater than 115% of the Parent Signing Trading Price, then the
&#147;<B>Parent Trading Price</B>&#148; shall mean the product of (i)&nbsp;the Parent Signing Trading Price multiplied by
(ii)&nbsp;1.15; <I>provided, further </I>that, if the Parent Closing Trading Price is less than 85% of the
Parent Signing Trading Price, then the &#147;<B>Parent Trading Price</B>&#148; shall mean the product of (i)&nbsp;the
Parent Signing Trading Price multiplied by (ii)&nbsp;0.85.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Parent Closing Trading Price</B>&#148; shall mean the average of the closing prices of one share of
Parent Common Stock on The Nasdaq National Market for the ten (10)&nbsp;consecutive trading days ending
two (2)&nbsp;trading days immediately prior to the Closing Date.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Parent Signing Trading Price</B>&#148; shall mean $29.25.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Pension Plan</B>&#148; shall mean an &#147;employee pension benefit plan,&#148; within the meaning of Section
3(2) of ERISA.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Permitted Liens</B>&#148; shall mean (i)&nbsp;statutory liens for Taxes that are not yet due and payable or
liens for Taxes being contested in good faith by appropriate proceedings for which adequate
reserves have been established, (ii)&nbsp;statutory liens to secure obligations to landlords, lessors or
renters under leases or rental agreements, (iii)&nbsp;deposits or pledges made in connection with, or to
secure payment of, workers&#146; compensation, unemployment insurance or similar programs mandated by
applicable law, (iv)&nbsp;statutory liens in favor of carriers, warehousemen, mechanics and materialmen,
to secure claims for labor, materials or supplies and other like liens for work not yet completed,
(v)&nbsp;liens in favor of customs and revenue authorities arising as a
matter of applicable law to secure payments of customs duties in connection with the
importation of goods, and (vi)&nbsp;such imperfections of title and encumbrances, if any, that do not
detract from the value or interfere with the present use of the property subject thereto or
affected thereby.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Person</B>&#148; shall mean any natural person, company, corporation, limited liability company,
general partnership, limited partnership, trust, proprietorship, joint venture, business
organization or Governmental Authority.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Pro Rata Portion</B>&#148; shall mean a fraction, (i)&nbsp;the numerator of which is the value of Merger
Consideration payable or issuable to such Company Stockholder pursuant to this Agreement (without
taking into account the deduction of any Escrow Amount to be deposited with the Escrow Agent on
behalf of such Company Stockholder pursuant to this Agreement), and (ii)&nbsp;the denominator of which
is the value of the Merger Consideration payable or issuable to all Company Stockholders pursuant
to this Agreement (without taking into account the deduction of any Escrow Amount to be deposited
with the Escrow Agent on behalf of all Company Stockholders pursuant to this Agreement); <I>provided
however</I>, that in the event that it is determined by the California



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<P align="left" style="font-size: 10pt">Commissioner that one or more
Company Stockholders may not contribute to the escrow in accordance with <B>Section&nbsp;2.6(e) </B>hereunder
(such stockholders, the &#147;<B>Non-Contributing Company Stockholders</B>&#148;), then the value of the Merger
Consideration payable or issuable to the Non-Contributing Company Stockholders (without taking into
account the deduction of any Escrow Amount to be deposited with the Escrow Agent on behalf of all
such Company Stockholders pursuant to this Agreement) shall be subtracted from the denominator of
the fraction referenced above. For purposes of calculating a Company Stockholder&#146;s Pro Rata
Portion and the value of Merger Consideration, Parent Common Stock shall be valued based upon the
Parent Trading Price.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Registered Intellectual Property Rights</B>&#148; shall mean all United States, international and
foreign: (i)&nbsp;Patents, including applications therefor; (ii)&nbsp;registered Trademarks, applications to
register Trademarks, including intent-to-use applications, or other registrations or applications
related to Trademarks; (iii)&nbsp;Copyrights and (iv)&nbsp;any other Intellectual Property Right that is the
subject of an application, certificate, filing, registration or other document issued by, filed
with, or recorded by, any state, government or other public legal authority at any time.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Securities Act</B>&#148; shall mean the Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Software</B>&#148; shall mean any and all computer software and code, including applets, applications,
operating systems, libraries, assemblers, compilers, design tools, source code, object code, data
(including image and sound data)
and user interfaces, in any form or format, however fixed. Software shall include source code
listings and documentation.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Stock Exchange Ratio</B>&#148; &#147;shall mean the quotient obtained by dividing (x) (1)&nbsp;the Stock
Consideration minus (2)&nbsp;the product obtained by multiplying (A)&nbsp;the Option Exchange Ratio and (B)
the Total Outstanding Options, by (y)&nbsp;the Total Outstanding Shares, expressed in the following
formula:



<P align="center" style="font-size: 10pt"><U>Stock Consideration &#150; (Option Exchange Ratio * Total Outstanding Options)</U>


<DIV align="center" style="font-size: 10pt">Total Outstanding Shares</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Stock Consideration</B>&#148; shall mean a number of shares of Parent Common Stock equal to the
quotient of (i)&nbsp;the product obtained by multiplying (x)&nbsp;the Merger Consideration, and (y)&nbsp;0.80,
divided by (ii)&nbsp;the Parent Trading Price, expressed in the following formula:



<P align="center" style="font-size: 10pt"><U>Merger Consideration * 0.80</U>


<DIV align="center" style="font-size: 10pt">Parent Trading Price</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Subsidiary</B>&#148; shall mean, with respect to any party, any corporation or other organization,
whether incorporated or unincorporated, of which (i)&nbsp;such party or



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<P align="left" style="font-size: 10pt">any other Subsidiary of such
party is a general partner (excluding such partnerships where such party or any Subsidiary of such
party does not have a majority of the voting interest in such partnership) or (ii)&nbsp;at least a
majority of the securities or other interests having by their terms ordinary voting power to elect
a majority of the board of directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Tax</B>&#148; shall mean (i)&nbsp;any and all federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities, including taxes based upon or
measured by gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property
taxes as well as public imposts, fees and social security charges (including but not limited to
health, unemployment and pension insurance), together with all interest, penalties and additions
imposed with respect to such items, (ii)&nbsp;any liability for the payment of any items of the type
described in clause (i)&nbsp;of this definition as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period, and (iii)&nbsp;any liability for the payment of
any items of the type described in clauses (i)&nbsp;or (ii)&nbsp;of this definition as a result of any
express or implied obligation to indemnify any other person or as a result of any obligation under
any agreement or arrangement with any other person with respect to such items and including any
liability for taxes of a predecessor entity.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Technology</B>&#148; shall mean any or all of the following: (i)&nbsp;works of authorship, including
computer programs, algorithms, routines, source code and executable code, whether embodied in
Software or otherwise, documentation, designs, files, records and data; (ii)&nbsp;inventions (whether or
not patentable), improvements, and technology; (iii)&nbsp;proprietary and confidential information,
including technical data and customer and supplier lists, trade secrets, show how, know how and
techniques; (iv)&nbsp;databases, data compilations and collections and technical data; (v)&nbsp;processes,
devices, prototypes, schematics, bread boards, net lists, mask works, test methodologies and
hardware development tools; (vi)&nbsp;logos, trade names, trade dress, trademarks, service marks, World
Wide Web addresses and domain names, tools, methods and processes; and all instantiations of the
foregoing in any form and embodied in any media.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Total Fully Diluted Number</B>&#148; shall mean the sum of (i)&nbsp;the Total Outstanding Shares and (ii)
the Total Outstanding Options.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Total Outstanding Options</B>&#148; shall mean the aggregate number of Company Options outstanding and
unexercised immediately prior to the Effective Time, other than the Company Options granted
pursuant to <B>Section&nbsp;6.19</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Total Outstanding Shares</B>&#148; shall mean the aggregate number of shares of Company Capital Stock
outstanding immediately prior to the Effective Time.



<P align="center" style="font-size: 10pt">-10-
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Transaction Expenses</B>&#148; shall mean all third party fees and expenses incurred by the Company in
connection with this Agreement, the Merger and the other transactions contemplated hereby
(including any fees and expenses of legal counsel, financial advisors, investment bankers, brokers,
accountants and auditors).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2 <U>Other Capitalized Terms</U>. For all purposes of and under this Agreement, the
following capitalized terms shall have the respective meanings ascribed thereto in the section of
this Agreement set forth opposite each such capitalized term below:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Capitalized Term</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Section</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Acquisition Proposal
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5.2(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Agreement
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Preamble</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Antitrust Laws
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.4(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Blue Sky Laws
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.6</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">California Commissioner
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.6</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">California Securities Law
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.6</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certificate of Merger
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.2(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Closing
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.2(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Closing Date
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.2(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Company
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Preamble</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Company Authorizations
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.16</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Company Disclosure Schedule
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Article&nbsp;III</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Company Financial Statements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.7(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Company Products
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.13(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Company Registered Intellectual Property Rights
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.13(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Company Source Code
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.13(x)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Conflict
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.5</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Continuing Employee
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.9(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Current Balance Sheet
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.7(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dissenting Shares
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.7(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dissenting Share Payments
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.7(c)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Effective Time
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.2(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Environmental Permits
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.20(c)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.12(e)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Escrow Agent
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Preamble</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exchange Agent
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.8(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exchange Fund
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.8(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Escrow Fund
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8.5(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Escrow Period
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8.5(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hazardous Material
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.20(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hazardous Materials Activities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.20(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hearing
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.1(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hearing Notice
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.1(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Inbound License Agreements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.13(n)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">-11-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Capitalized Term</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Section</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Indemnified Parties
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8.2</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Indemnifying Parties
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8.2</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Information Statement
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.1(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Interested Party
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.15(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lease Agreements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.12(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Leased Real Property
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.12(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Letter of Transmittal
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.8(c)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Liens
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.10(h)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Loss
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8.2</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Losses
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8.2</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Market Standoff Agreement
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.8(c)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Merger Sub
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Preamble</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Non-Disclosure Agreement
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10.3</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Offer Letter
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.9(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Officer&#146;s Certificate
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8.4(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Open Source Materials
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.13(t)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Order
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.4(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Parent
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Preamble</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Parent Common
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4.3</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Parent Plans
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.12</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Parent Preferred
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4.3</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Permit
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.6</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Permit Application
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.1(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PTO
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.13(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Repurchase Rights
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.6(f)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Requisite Stockholder Approval
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.4(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Returns
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.10(a)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Section&nbsp;280G Payments
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3.22(h)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Spreadsheet
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.7</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stockholder Representative
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Preamble</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Superior Proposal
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.2(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Survival Date
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8.1</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Surviving Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.1</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Terminated Company Employee Plans
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6.9(b)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Unvested Cash
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.6(f)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Unvested Company Common Stock
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.6(f)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Unvested Parent Common Stock
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.6(f)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Vested Cash
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2.6(e)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Voting Agreement
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Preamble</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.3 <U>Interpretations</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;When a reference is made in this Agreement to a Schedule or an Exhibit, such reference
shall be to a Schedule or an Exhibit to this Agreement unless



<P align="center" style="font-size: 10pt">-12-
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">otherwise indicated. When a
reference is made in this Agreement to an Article or a Section, such reference shall be to an
Article or a Section of this Agreement unless otherwise indicated.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The words &#147;include&#148;, &#147;includes&#148; and &#147;including&#148; when used herein shall be deemed in each
case to be followed by the words &#147;without limitation&#148;.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The headings set forth in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;All references in this Agreement to the Company shall be deemed to refer to the Company
and its Subsidiaries unless the context otherwise requires.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;All references in this Agreement to the Subsidiaries of an entity shall be deemed to
include all direct and indirect Subsidiaries of such entity.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;The parties hereto agree that they have been represented by legal counsel during the
negotiation and execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an agreement or other
document shall be construed against the party drafting such agreement or document.



<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;II</U>



<P align="center" style="font-size: 10pt"><U>THE MERGER</U>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 <U>The Merger</U>. At the Effective Time and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of the Delaware Law, the Company shall
be merged with and into Merger Sub (the &#147;<B>Merger</B>&#148;), the separate corporate existence of the Company
shall cease and the Merger Sub shall continue as the surviving corporation. The Merger Sub as the
surviving corporation after the Merger is sometimes referred herein to as the &#147;<B>Surviving
Corporation</B>.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 <U>Closing and Effective Time</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Closing</U>. Unless this Agreement is earlier terminated pursuant to <B>Section&nbsp;9.1</B>, the
closing of the Merger (the &#147;<B>Closing</B>&#148;) will take place on a business day as promptly as practicable
after the execution and delivery of this Agreement by the parties hereto, but no later than two (2)
business days following satisfaction or waiver of the conditions set forth in <B>Article&nbsp;VII </B>(other
than those conditions that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions), at the offices of Wilson Sonsini Goodrich &#038; Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California, unless another time and/or
place is mutually agreed



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<P align="left" style="font-size: 10pt">upon in writing by Parent and the Company. The date upon which the
Closing actually occurs shall be referred to herein as the &#147;<B>Closing Date</B>.&#148;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Effective Time</U>. On the Closing Date, the parties hereto shall cause the Merger to
be consummated by filing with the Secretary of State of the State of Delaware a certificate of
merger in customary form and substance for the Merger (the &#147;<B>Certificate of Merger</B>&#148;) in accordance
with the applicable provisions of Delaware Law. The time of filing of the Certificate of Merger is
referred to herein as the &#147;<B>Effective Time</B>.&#148;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3 <U>General Effects of the Merger</U>. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in Merger Sub as the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and duties of Merger Sub
as the Surviving Corporation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4 <U>Certificates of Incorporation and Bylaws</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Certificate of Incorporation of Surviving Corporation</U>. Unless otherwise
determined by Parent prior to the Effective Time, at the Effective Time, subject to <B>Section&nbsp;6.17</B>
and <B>Section&nbsp;6.18</B>, the certificate of incorporation of the Surviving Corporation shall be the
certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time
until thereafter amended in accordance with Delaware Law and as provided in such certificate of
incorporation.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Bylaws of Surviving Corporation</U>. Unless otherwise determined by Parent prior to
the Effective Time, at the Effective Time, subject to <B>Section&nbsp;6.17 </B>and <B>Section&nbsp;6.18</B>, the bylaws of
the Surviving Corporation shall be the bylaws of Merger Sub as in effect immediately prior to the
Effective Time, until thereafter amended in accordance with Delaware Law and as provided in the
certificate of incorporation of the Surviving Corporation and such bylaws.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5 <U>Directors and Officers</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Directors of Surviving Corporation</U>. Unless otherwise determined by Parent prior
to the Effective Time, the directors of Merger Sub immediately prior to the Effective Time shall be
the directors of the Surviving Corporation immediately after the Effective Time, each to hold the
office of a director of the Surviving Corporation in accordance with the provisions of Delaware
Law, the certificate of incorporation and bylaws of the Surviving Corporation until their
successors are duly elected and qualified, or until their earlier resignation or removal.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Officers of Surviving Corporation</U>. Unless otherwise determined by Parent prior to
the Effective Time, the officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation immediately after the Effective Time, each to hold office in
accordance with the provisions of the bylaws of the Surviving Corporation.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6 <U>Effect of Merger on Capital Stock</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Merger Sub Capital Stock</U>. At the Effective Time, each share of capital stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall remain outstanding
as one share of common stock, par value $0.001 per share, of the Surviving Corporation.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Company Capital Stock</U>. Subject to the terms and conditions of this Agreement, as
of the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub,
the Company or any Company Stockholder, each share of Company Capital Stock (other than any
Dissenting Shares and any shares of Company Capital Stock to be cancelled pursuant to <B>Section
2.6(c)</B>) shall be canceled and extinguished and converted automatically into the right to receive,
upon surrender of the certificate representing such share of Company Capital Stock in the manner
set forth in <B>Section&nbsp;2.8</B>, (i)&nbsp;an amount of cash (without interest) equal to the Cash Exchange Ratio
and (ii)&nbsp;a number of shares of Parent Common Stock equal to the Stock Exchange Ratio.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Company-Owned Company Capital Stock</U>. Notwithstanding anything to the contrary set
forth in this Agreement, at the Effective Time, by virtue of the Merger and without any action on
the part of any of the parties hereto, each share of Company Capital Stock owned by the Company
immediately prior to the Effective Time shall be cancelled and extinguished without any conversion
thereof.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Company Options.</U>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Except as otherwise provided in this <B>Section&nbsp;2.6(d)</B>, at the Effective Time, each then
outstanding Company Option, whether or not vested or exercisable as of immediately prior to, or as
of, the Effective Time, shall be assumed by Parent. Each Company Option so assumed by Parent under
this Agreement shall generally continue to have, and be subject to, the same terms and conditions
set forth in the applicable Company Option (including any applicable stock option agreement, the
Company Option Plan and other document evidencing such Company Option) immediately prior to the
Effective Time (including any repurchase rights or vesting provisions), except that each Company
Option so assumed by Parent shall thereupon become exercisable (or shall become exercisable in
accordance with its terms) for (x)&nbsp;that number of shares of Parent Common Stock (rounded down to
the nearest whole share) equal to (1)&nbsp;the number of shares of
Company Common Stock
subject to such Company Option immediately prior to the Effective Time, multiplied by (2)&nbsp;the
Option Exchange Ratio, at (y)&nbsp;an exercise price per share of Parent Common Stock equal to (1)&nbsp;the
per


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<P align="left" style="font-size: 10pt">share exercise price for the shares of Company Common Stock otherwise purchasable pursuant to
such Company Option immediately prior to the Effective Time, divided by (2)&nbsp;the Option Exchange
Ratio, <I>provided </I>that such exercise price shall be rounded up to the nearest whole cent.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Prior to the Effective Time, the Company shall take all action necessary to effect the
transactions anticipated by this <B>Section&nbsp;2.</B><B>6(d)</B> under the Company Option Plan, all Company Option
agreements and any other plan or arrangement of the Company, including by giving any required
notice and obtaining any required consent contemplated thereby. Notice to holders of Company
Options that are being assumed by Parent pursuant to <B>Section&nbsp;2.</B><B>6(d)(i)</B> shall set forth such Company
Optionholders&#146; rights pursuant to the applicable Company Option Plan(s) and that the agreements
evidencing the grants of such options shall continue in effect on the same terms and conditions
(subject to the adjustments required by <B>Section&nbsp;2.</B><B>6(d)(i)</B> at the Effective Time).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Escrow Amount</U>. Notwithstanding anything to the contrary set forth in this
Agreement, at the Effective Time, Parent shall withhold the Escrow Amount from the Merger
Consideration otherwise payable pursuant to this Agreement to the Company Stockholders. At the
Closing, Parent shall cause the Escrow Amount to be deposited with the Escrow Agent. Each Company
Stockholder shall be deemed to have contributed such holder&#146;s Pro Rata Share of the Escrow Amount,
to be held by the Escrow Agent pursuant hereto. If at the Effective Time a Company Stockholder
holds shares of Unvested Company Common Stock, then the cash to be paid upon conversion hereunder
of the shares of Company Common Stock held by such Company Stockholder at the Effective Time which
are not shares of Unvested Company Common Stock (the &#147;<B>Vested Cash</B>&#148;) shall be withheld and placed in
escrow first and, thereafter, the Unvested Cash shall be withheld and placed in escrow (with the
understanding that any Unvested Cash so placed in escrow shall vest prior to any such Unvested Cash
not placed in escrow) to the extent necessary to satisfy such Company Stockholder&#146;s escrow
contribution as set forth in the second sentence of this <B>Section&nbsp;2.6(e)</B>. The Escrow Amount shall
be held in and distributed in accordance with the provisions of <B>Article&nbsp;VIII</B>. The Escrow Agent
shall hold the Escrow Amount as security for the indemnification obligations of the Indemnifying
Parties hereunder in accordance with the terms and conditions set forth herein.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Unvested Company Capital Stock.</U> The payout of the Stock Consideration and the
Cash Consideration pursuant to <B>Section&nbsp;2.6(b) </B>in exchange for shares of Company Common Stock that
constitute unvested restricted stock or are otherwise subject to a right of repurchase or
redemption by the Company (the &#147;<B>Unvested Company Common Stock</B>&#148;) issued and outstanding immediately
prior to the Effective Time shall be subject to the same restrictions and vesting arrangements that
were applicable to such shares of Unvested Company Common Stock immediately prior to or at the
Effective Time, subject to the terms of the applicable agreement governing such shares. Therefore,
(i)&nbsp;Stock Consideration otherwise issuable pursuant to <B>Section&nbsp;2.6(b)</B>



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<P align="left" style="font-size: 10pt">in exchange for shares of
Unvested Company Common Stock shall not automatically be issued by Parent or Exchange Agent to such
holder at the Effective Time, and shall instead be issued by Parent or Exchange Agent on the date
that such shares of Unvested Company Common Stock would have become vested (if at all) under the
vesting schedule in place for such shares immediately prior to or at the Effective Time (subject to
the restrictions and other terms of such vesting schedule) and (ii)&nbsp;Cash Consideration
otherwise payable pursuant to <B>Section&nbsp;2.6(b) </B>in exchange for shares of Unvested Company Common
Stock issued and outstanding immediately prior to the Effective Time (the &#147;<B>Unvested Cash</B>&#148;) shall
not automatically be paid by Parent or Exchange Agent to such holder at the Effective Time, and
shall instead be paid out by Parent or Exchange Agent to such holder on the date that such shares
of Unvested Company Common Stock would have become vested under the vesting schedule in place for
such shares immediately prior to or at the Effective Time (subject to the restrictions and other
terms of such vesting schedule), less the amount of such newly Vested Cash which vests in escrow in
accordance with <B>Section&nbsp;2.6(e)</B>; <I>provided, however</I>, that Parent may in its discretion make all such
required payments to holders of Unvested Cash on the last business day of each calendar month
during which vesting occurs for administrative convenience. All amounts payable pursuant to this
<B>Section&nbsp;2.6(f) </B>shall be subject to any required withholding of Taxes and shall be paid without
interest. A portion of such newly Vested Cash so distributed will be treated as imputed interest
to the extent required under the Code and the regulations promulgated thereunder. All outstanding
rights to repurchase shares of Unvested Company Common Stock that the Company may hold or similar
restrictions in the Company&#146;s favor immediately prior to the Effective Time (all such rights, the
&#147;<B>Repurchase Rights</B>&#148;) shall be assigned to Parent in the Merger and shall thereafter be exercisable
by Parent upon the same terms and subject to the same conditions that were in effect immediately
prior to the Effective Time, subject to the terms of the applicable agreement, except that
Repurchase Rights may be exercised by Parent retaining the Unvested Cash and Unvested Parent Common
Stock into which such shares of the Company Unvested Common Stock have been converted and paying to
the former holder thereof the repurchase price in effect for each such share subject to that
Repurchase Right immediately prior to the Effective Time. Following the Effective Time, no
Unvested Cash or shares of Unvested Parent Common Stock, or right thereto, may be pledged,
encumbered, sold, assigned or transferred (including any transfer by operation of law), by any
Person, other than Parent, or be taken or reached by any legal or equitable process in satisfaction
of any debt or other liability of such Person, prior to the distribution to such Person of such
Unvested Cash and shares of Unvested Parent Common Stock in accordance with this Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Withholding Taxes</U>. Parent, the Company, the Surviving Corporation and the
Exchange Agent shall be entitled to deduct and withhold from any Merger Consideration otherwise
payable or issuable pursuant to this Agreement to any holder or former holder of Company Capital
Stock such amounts as may be required to be deducted or withheld therefrom under any applicable
provision of federal, local or foreign Tax law or under any applicable legal requirement. Any such
deduction shall be withheld first from the Cash Consideration payable pursuant to this Agreement
and, to



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<P align="left" style="font-size: 10pt">the extent that such cash amounts are insufficient, from the Stock Consideration issuable
pursuant to this Agreement, it being understood and hereby agreed that the number of shares of
Parent Common Stock to be so deducted from the Stock Consideration shall be determined by dividing
the amount required to be so deducted or withheld by the closing price of one share of Parent
Common Stock on The Nasdaq National Market on the last
full trading day prior to the Closing. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as having been paid
to the Person to whom such amounts would otherwise have been paid.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <U>No Fractional Shares</U>. No fraction of a share of Parent Common Stock shall be
issued by virtue of the Merger, but in lieu thereof each Company Stockholder and each Company
Optionholder who would otherwise be entitled to a fraction of a share of Parent Common Stock
(determined after aggregating all fractional shares of Parent Common Stock that would otherwise be
receivable by such Company Stockholder or Company Optionholder pursuant to the Merger in respect of
all shares of Company Capital Stock held by such Company Stockholder or issuable upon exercise of
Company Options by a Company Optionholder) shall, upon surrender of such holder&#146;s Company Stock
Certificates or exercise of such Company Optionholder&#146;s Company Option, be entitled to receive from
Parent an amount of cash (rounded to the nearest whole cent), without interest, equal to the
product obtained by multiplying (x)&nbsp;such fraction by (y)&nbsp;the Parent Trading Price.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7 <U>Dissenting Shares for Holders of Company Capital Stock</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Notwithstanding anything to contrary set forth in this Agreement, any shares of Company
Capital Stock that are held by a holder who has not effectively withdrawn or lost such holder&#146;s
appraisal, dissenters&#146; or similar rights for such shares under Delaware Law or California Law
(&#147;<B>Dissenting Shares</B>&#148;) shall not be converted into or represent a right to receive the Merger
Consideration payable and issuable in respect of such shares of Company Capital Stock pursuant to
this Agreement, but the holder thereof shall only be entitled to such rights as are granted by
Delaware Law and/or California Law, as applicable.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Notwithstanding the provisions of <B>Section&nbsp;2.7(a)</B>, if any holder of Dissenting Shares shall
effectively withdraw or lose (through failure to perfect or otherwise) his, her or its appraisal or
dissenter&#146;s rights, then, as of the later of the Effective Time and the occurrence of such event,
such holder&#146;s Dissenting Shares shall then cease to be Dissenting Shares and shall automatically be
converted into and represent only the right to receive the Merger Consideration payable or issuable
in respect of such shares of Company Capital Stock pursuant to this Agreement, without interest
thereon, upon surrender of the certificate representing such shares.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Company shall give Parent (i)&nbsp;prompt notice of any written demand for dissenters&#146;
rights received by the Company pursuant to the applicable provisions of Delaware Law and/or
California Law, as applicable, and (ii)&nbsp;the opportunity



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<P align="left" style="font-size: 10pt">to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with the prior written
consent of Parent or if directed to do so by a court order or judgment, voluntarily make any
payment with respect to any such
demands or offer to settle or settle any such demands. Notwithstanding the foregoing, to the
extent that Parent or the Company (i)&nbsp;shall make any payment or payments in respect of any
Dissenting Shares in excess of the Merger Consideration that otherwise would have been payable or
issuable in respect of such shares under this Agreement, or (ii)&nbsp;incurs any other costs or expenses
in respect of any Dissenting Shares (excluding payments for such shares) (together &#147;<B>Dissenting
Share Payments</B>&#148;), Parent shall be entitled to indemnification in respect of such Dissenting Share
Payments pursuant to <B>Article&nbsp;VIII</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8 <U>Surrender of Certificates</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Exchange Agent</U>. Parent&#146;s transfer agent, or another bank or trust company
selected by Parent, shall serve as the exchange agent (the &#147;<B>Exchange Agent</B>&#148;) for the Merger.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Parent to Provide Cash and Parent Common Stock</U>. At the Closing, (i)&nbsp;Parent shall
make available to the Exchange Agent for exchange in accordance with this Agreement: (A)&nbsp;an amount
of cash equal to the Cash Consideration (less the Escrow Amount), and (B)&nbsp;a number of shares of
Parent Common Stock equal to the Stock Consideration (together, such Cash Consideration and Stock
Consideration, the &#147;<B>Exchange Fund</B>&#148;), and (ii)&nbsp;Parent shall deposit with the Escrow Agent the Escrow
Amount.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Exchange Procedures</U>. At the Closing, Parent shall mail a letter of transmittal
(the &#147;<B>Letter of Transmittal</B>&#148;), in such form and having such provisions as Parent may reasonably
determine (including (i)&nbsp;that the delivery shall be effected, and risk of loss and title to the
shares of Company Capital Stock shall pass, only upon proper delivery of the Company Stock
Certificates to the Exchange Agent, and (ii)&nbsp;that each Company Stockholder shall acknowledge (A)
such stockholder&#146;s indemnification obligations under this Agreement, (B)&nbsp;the deposit of such
stockholder&#146;s Pro Rata Portion of the Escrow Amount into the Escrow Fund as security for such
indemnification obligations, and (C)&nbsp;the appointment of the Stockholder Representative under this
Agreement, to act for and on behalf of such Company Stockholder as set forth herein), a Market
Standoff Agreement in the form attached hereto as <U><B>Exhibit&nbsp;C</B></U> collectively, the &#147;<B>Market
Standoff Agreements</B>&#148;) and instructions for use in effecting the surrender of the Company Stock
Certificates and delivery of executed copies of the Market Standoff Agreement in exchange for (and
as a condition precedent to) receipt of the cash payable and certificates representing shares of
Parent Common Stock issuable pursuant to this Agreement by each Company Stockholder at the address
set forth opposite each such Company Stockholder&#146;s name on the Spreadsheet (or, upon written
instruction from a Company Stockholder so directing the Exchange Agent and accompanied by payment
for any associated fees and expenses delivered to Exchange Agent at the time of delivery of



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<P align="left" style="font-size: 10pt">the
stock certificates, delivery of such shares
of Parent Common Stock electronically to such requesting Company Stockholder&#146;s brokerage
account in accordance with the Exchange Agent&#146;s customary policies and procedures). Subject to the
terms of this Agreement, upon the surrender of a Company Stock Certificate for cancellation to the
Exchange Agent, together with such Letter of Transmittal and Market Standoff Agreement, duly
completed and validly executed in accordance with the instructions thereto, the holder of such
Company Stock Certificate shall be entitled to receive from the Exchange Agent as promptly as
practicable (and in any event no later than ten (10)&nbsp;business days) following the date all required
documentation has been delivered to the Exchange Agent in exchange therefor, (i)&nbsp;cash in an amount
equal to the portion of the Cash Consideration to which such holder is entitled pursuant to this
Agreement (without interest), less such holder&#146;s Pro Rata Portion of Escrow Amount, and (ii)&nbsp;a
certificate representing the portion of the Stock Consideration to which such holder is entitled
pursuant to this Agreement, (iii)&nbsp;cash in lieu of any fractional shares to which such holder is
entitled pursuant to this Agreement, and (iv)&nbsp;any dividends or other distributions to which such
holder is entitled pursuant to this Agreement, and the Company Stock Certificate so surrendered
shall be canceled. Until so surrendered, each Company Stock Certificate outstanding after the
Effective Time will be deemed, from and after the Effective Time and for all corporate purposes, to
evidence only the right to receive the foregoing Merger Consideration, fractional shares and
dividends and other distributions.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Distributions With Respect to Unexchanged Shares</U>. No dividends or other
distributions declared or made after the Effective Time with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of any unsurrendered Company Stock
Certificate with respect to the shares of Parent Common Stock represented thereby until the holder
of record of such Company Stock Certificate shall surrender such Company Stock Certificate as
provided above. Subject to applicable law, following surrender of any such Company Stock
Certificate, there shall be paid to the record holder of the certificates representing whole shares
of Parent Common Stock issued in exchange therefor along with cash and payment in lieu of
fractional shares payable pursuant to this Agreement at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Transfers of Ownership</U>. If any certificate for shares of Parent Common Stock are
to be issued pursuant to this Agreement to a Person other than the Person whose name is reflected
on the Company Stock Certificate surrendered in exchange therefor, it will be a condition of the
issuance or delivery thereof that the certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the Person requesting such exchange will have paid
to Parent or any agent designated by it any transfer or other Taxes required under applicable law
by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than
that of the registered holder of the certificate surrendered, or established to the satisfaction of
Parent or any agent designated by it that such Tax has been paid or is not payable.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>No Liability</U>. Notwithstanding anything to the contrary in this Agreement, neither
the Exchange Agent, the Surviving Corporation, nor any party hereto shall be liable to a holder of
shares of Company Capital Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Adjustments to Exchange Ratios</U>. The Cash Exchange Ratio, the Stock Exchange Ratio
and the Option Exchange Ratio shall be equitably adjusted to reflect appropriately the effect of
any stock split, reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock), reorganization, recapitalization,
reclassification or other like change with respect to Parent Common Stock occurring on or after the
date hereof and prior to the Effective Time.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <U>Investment of Exchange Fund</U>. The Exchange Agent shall invest the cash in the
Exchange Fund as directed by Parent on a daily basis; <I>provided </I>that no such investment or loss
thereon shall affect the amounts payable to the Company Stockholders pursuant to this Agreement.
Any interest and other income resulting from such investment shall become a part of the Exchange
Fund, and any amounts in excess of the amounts payable to the Company Stockholders pursuant to this
Agreement shall promptly be paid to Parent. Any loss or other reduction resulting from such
investment shall be reimbursed by Parent such that the total cash in the Exchange Fund shall at all
times be an amount equal to or greater than the Cash Consideration payable at Closing less amounts
previously paid to holders of Company Stock Certificates pursuant to this Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Exchange Agent to Return Cash Consideration</U>. At any time following the six (6)
month anniversary of the Closing Date, Parent shall be entitled to require the Exchange Agent to
deliver to Parent or its designated successor or assign all cash amounts and shares of Parent
Common Stock that have been deposited with the Exchange Agent pursuant to this Agreement, and any
and all interest thereon or other income or proceeds thereof, not disbursed to the holders of
Company Stock Certificates pursuant to this Agreement, and thereafter the holders of Company Stock
Certificates shall be entitled to look only to Parent only as general creditors thereof with
respect to any and all cash amounts and shares of Parent Common Stock that may be payable or
issuable to such holders of Company Stock Certificates pursuant to this Agreement upon the due
surrender of such Company Stock Certificates and duly executed letters of transmittal and related
documents (if any) in the manner set forth in this Agreement. No interest shall be payable for the
cash amounts delivered to Parent pursuant to the provisions of this <B>Section&nbsp;2.8(i) </B>and that are
subsequently delivered to the holders of Company Stock Certificates.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.9 <U>No Further Ownership Rights in Company Capital Stock</U>. The cash and shares of Parent Common Stock issued in respect of the surrender for exchange
of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to be in


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<P align="left" style="font-size: 10pt">full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall
be no further registration of transfers on the records of the Surviving Corporation of shares of
Company Capital Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates representing Company Capital Stock are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in this Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10 <U>Lost, Stolen or Destroyed Certificates</U>. In the event that any Company Stock
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed certificates, upon (i)&nbsp;the making of an affidavit of that fact
by the holder thereof, (ii)&nbsp;the execution of an indemnification agreement in customary form and
substance reasonably satisfactory to Parent, and (iii)&nbsp;if required by the transfer agent for Parent
Common Stock in accordance with its customary policies, the payment of a bond in an amount to be
determined by such transfer agent in accordance with its customary policies, against any claim that
may be made against Parent or the Exchange Agent with respect to the certificates alleged to have
been lost, stolen or destroyed, the amount of cash and certificates representing the shares of
Parent Common Stock into which the shares of Company Common Stock represented by such Certificates
were converted pursuant to this Agreement, cash for fractional shares, if any, as may be required
pursuant to this Agreement and any dividends or distributions payable pursuant to this Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11 <U>Taking of Necessary Action; Further Action</U>. If at any time after the Effective
Time, any further action is necessary or desirable to carry out the purposes of this Agreement and
to vest the Surviving Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company, Parent, the Surviving Corporation and the
officers and directors of Parent and the Surviving Corporation are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such lawful and necessary
action.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.12 <U>Tax Consequences</U>. (i)&nbsp;The Merger is intended to qualify as a reorganization
within the meaning of the provisions of Section 368(a) of the Code; (ii)&nbsp;the parties hereto hereby
adopt this Agreement as a &#147;plan of reorganization&#148; within the meaning of Section&nbsp;1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations; and (iii)&nbsp;each of the Company, Merger Sub and
Parent shall report the Merger as a reorganization within the meaning of Section 368(a) of the
Code. However, Parent makes no representations or warranties to the Company or to any
securityholder of the Company regarding the tax treatment of the
Merger, or any of the Tax consequences to the Company or any securityholder of the Company
relating to the Merger, this Agreement, or any of the other transactions or agreements contemplated
hereby. The Company acknowledges that it and its securityholders are relying solely on their own
Tax advisors in connection with the Merger, this Agreement and the other transactions and
agreements contemplated hereby.


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<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;III</U>



<P align="center" style="font-size: 10pt"><U>REPRESENTATIONS AND WARRANTIES OF</U>


<DIV align="center" style="font-size: 10pt"><U>THE COMPANY </U></DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to any exceptions that are specifically disclosed in the disclosure schedule delivered
by the Company to Parent concurrently with the execution of this Agreement, dated as of the date
hereof (the &#147;<B>Company Disclosure Schedule</B>&#148;), the Company hereby represents and warrants to Parent
and Merger Sub as follows (it being understood and hereby agreed that (i)&nbsp;the information set forth
in the Company Disclosure Schedule shall be disclosed under separate section and subsection
references that correspond to the sections and subsections of this <B>Article&nbsp;III </B>to which such
information relates, and (ii)&nbsp;the information set forth in each section and subsection of the
Company Disclosure Schedule shall qualify (A)&nbsp;the representations and warranties set forth in the
corresponding section or subsections of this <B>Article&nbsp;III</B>, and (B)&nbsp;any other representations and
warranties set forth in this <B>Article&nbsp;III </B>if and solely to the extent that it is reasonably apparent
on the face of such disclosure (without reference to the documents referenced therein) that it
applies to such other representations and warranties):


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 <U>Incorporation, Standing and Power</U>. The Company and each of its Subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company and its Subsidiaries have the requisite corporate power
and authority to own, lease and operate their respective assets and properties and to carry on
their respective businesses as they are now being conducted. The Company and its Subsidiaries are
duly qualified or licensed as foreign corporations to do business, and in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by them or the nature
of their activities makes such qualification or licensing necessary, except where the failure to be
so qualified, licensed or in good standing has not been, and would not reasonably be expected to
be, either individually or in the aggregate, material to the Company. The Company has delivered a
true and correct copy of its certificate of incorporation and bylaws and equivalent organizational
documents of each of its Subsidiaries, each as amended to date and in full force and effect on the
date hereof, to Parent or its advisors. <B>Section&nbsp;3.1 </B>of the Company Disclosure Schedule lists the
directors and officers of the Company and each of its Subsidiaries. The operations now being
conducted by the Company are not now and have never been conducted by the Company under any trade
name, other than &#147;Decru&#148;.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 <U>Company Capital Structure</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The authorized capital stock of the Company consists of 75,000,000 shares of Company
Common Stock, $0.001 par value per share, of which 17,605,430 shares are issued and outstanding as
of the date hereof, and 40,000,000 shares of Company Preferred Stock, $0.001 par value per share,
of which (i)&nbsp;15,300,000 are designated Company Series&nbsp;A Preferred Stock, all of which are issued
and outstanding as



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<P align="left" style="font-size: 10pt">of the date hereof, and (ii)&nbsp;21,400,000 shares are designated Company Series&nbsp;B
Preferred Stock, 20,017,358 of which are issued and outstanding as of the date hereof. As of the
date hereof, the Company Capital Stock is held by the persons with the domicile addresses and in
the amounts set forth in <B>Section&nbsp;3.2(a) </B>of the Company Disclosure Schedule. All outstanding shares
of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, the certificate of incorporation or bylaws of the
Company, or any agreement to which the Company is a party or by which it is bound, and have been
issued in compliance with applicable federal, state and foreign securities laws. <B>Section&nbsp;3.2(a) </B>of
the Company Disclosure Schedule sets forth all outstanding shares of Unvested Company Common Stock,
indicating the name of the applicable Company Stockholder, the vesting schedule (including any
acceleration provisions with respect thereto), and the repurchase price payable by the Company.
There are no declared or accrued but unpaid dividends with respect to any shares of Company Capital
Stock. As of the date of this Agreement, the Company has no other capital stock authorized, issued
or outstanding other than as set forth in <B>Section&nbsp;3.2 </B>of the Company Disclosure Schedule.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Except for the Company Option Plan, the Company has never adopted or maintained any other
Company stock option plan or other plan providing for equity compensation of any Person. The
Company has not granted any options or other compensation rights to purchase or acquire Company
Capital Stock other than pursuant to the Company Option Plan. The Company has reserved 7,388,157
shares of Company Common Stock for issuance to employees and directors of, and consultants to, the
Company upon the exercise of options granted and the grant of restricted stock awards under the
Company Option Plan, of which (i)&nbsp;2,677,117 shares are issuable, as of the date hereof, upon the
exercise of outstanding, unexercised options (whether vested or unvested) granted under the Company
Option Plan, (ii)&nbsp;3,720,087 shares (net of Company repurchases) have been issued, as of the date
hereof, upon the exercise of options granted under the Company Option Plan and (iii)&nbsp;53,000 shares
(net of Company repurchases) of Company Common Stock (some of which shares constitute Unvested
Company Common Stock on the date hereof) have been issued pursuant to restricted stock agreements
under the Company Option Plan and are issued and outstanding on the date hereof and are included in
the Company Common Stock outstanding as reflected in 3.2(a) above. <B>Section&nbsp;3.2(b)(i) </B>of the
Company Disclosure Schedule sets forth for each outstanding Company Option, the name of the holder
of such option, the domicile address of such holder, the number of shares of Company Capital Stock
issuable upon the
exercise of such option, the exercise price of such option, the vesting schedule for such
option, including the extent vested to date, and whether such option is intended to qualify as an
incentive stock option as defined in Section&nbsp;422 of the Code. All Company Options have been issued
in compliance with all applicable federal, state and foreign securities laws. Except for the
Company Options set forth in <B>Section&nbsp;3.2(b)(i) </B>of the Company Disclosure Schedule, as of the date
of this Agreement, there are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem (except for repurchase rights in favor of the
Company provided



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<P align="left" style="font-size: 10pt">under restricted stock agreements for the acquisition of Unvested Company Common
Stock, all of which agreements have been provided to Parent), or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Company or obligating the
Company to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. The forms of agreement
pursuant to which such Company Options and shares of Unvested Company Common Stock have been issued
have been provided to Parent or its advisors. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or other similar rights with respect to the
Company. Except as contemplated by the Voting Agreements, there are no voting trusts, proxies, or
other agreements or understandings with respect to the voting stock of the Company. All holders of
Company Options and shares of Unvested Company Common Stock are current employees of the Company.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <B>Section&nbsp;3.2(b) </B>of the Company Disclosure Schedule sets forth the outstanding principal,
accrued interest and applicable rate of interest on all loans outstanding on the date hereof from
any Company Stockholder to the Company.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3 <U>Subsidiaries</U>. The Company does not have, and has never had, any Subsidiaries and
does not otherwise own, and has never otherwise owned, any shares of capital stock or any interest
in, or control, directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity or have any ongoing obligation to purchase any shares of capital
stock or other ownership interests with respect thereto.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4 <U>Authority; Enforceability</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Company has all requisite corporate power and authority to enter into this Agreement
and, subject to obtaining the Requisite Stockholder Approval, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary corporate action on the
part of the Company, and no further action is required on the part of the Company to authorize this
Agreement and the
transactions contemplated hereby, subject only to the affirmative approval of the Merger, this
Agreement and the transactions contemplated hereby by (i)&nbsp;the holders of a majority of the
outstanding shares of Company Common Stock and Company Preferred Stock, voting together as a single
class, (ii)&nbsp;the holders of a majority of the outstanding shares of Company Common Stock, voting
together as a single class, (iii)&nbsp;the holders of a majority of the outstanding shares of Company
Preferred Stock, voting together as a single class (the &#147;<B>Requisite Stockholder Approval</B>&#148;). The
Requisite Stockholder Approval is the only approval of the Company Stockholders that is necessary
to approve and adopt this Agreement and the transactions contemplated hereby under applicable law,
the Company&#146;s certificate of incorporation and bylaws and any Contract to which the Company is a
party. As of the date of this Agreement, the board of directors of the Company has unanimously
(acting without the participation of David Strohm)



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<P align="left" style="font-size: 10pt">(i)&nbsp;determined that this Agreement and the
Merger are fair to, and in the best interests of, the Company and the Company Stockholders, (ii)
declared advisable this Agreement and approved this Agreement and the transactions contemplated
hereby, and (iii)&nbsp;determined to recommend that the Company Stockholders adopt this Agreement and
approve the Merger.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;This Agreement and the agreements contemplated hereby to which the Company is or will be a
party have been or will be duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto, constitutes, or will
constitute, the valid and binding obligations of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be subject to the laws of general
application relating to bankruptcy, insolvency, and the relief of debtors and rules of law
governing specific performance, injunctive relief, or other equitable remedies.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5 <U>No Conflict</U>. The execution and delivery by the Company of this Agreement does
not, and the consummation by the Company of the transactions contemplated hereby will not conflict
with or result in any violation of or default under (with or without notice or lapse of time, or
both) or give rise to a right of termination, cancellation, modification or acceleration of any
obligation or loss of any benefit under (any such event, a &#147;<B>Conflict</B>&#148;) (i)&nbsp;any provision of the
certificate of incorporation or bylaws of the Company, (ii)&nbsp;any material Contract to which the
Company or its Subsidiaries is a party or by which the Company or its Subsidiaries or any of their
respective properties or assets (whether tangible or intangible) is subject, or (iii)&nbsp;any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its
Subsidiaries or any of their respective properties (whether tangible or intangible) or assets.
Following the Effective Time, the Surviving Corporation, will (assuming that the Surviving
Corporation performs its obligations under such Contracts in a manner consistent with the Company&#146;s
past practices) be permitted to exercise all of the Company&#146;s and its Subsidiaries&#146; rights under
the Contracts without the payment of any additional amounts or consideration other than ongoing
fees, royalties or payments that the Company or its Subsidiaries would
otherwise be required to pay pursuant to the terms of such Contracts had the transactions
contemplated by this Agreement not occurred. The Company and its Subsidiaries are not required to
obtain any consent, notice, waiver or approval from any party to any such material Contract (so as
to avoid a Conflict) in connection with the execution and delivery by the Company of this Agreement
and the consummation of the transactions contemplated hereby.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6 <U>Governmental Consents</U>. No consent, waiver, approval, order, permit or
authorization of, or registration, declaration or filing with any Governmental Authority
(disregarding for purposes of this <B>Section&nbsp;3.6 </B>any reference to those Contracts with Governmental
Authorities that are not required to be listed in <B>Section&nbsp;3.5 </B>of the Company Disclosure Schedule)
is required by or with respect to the Company or its Subsidiaries in connection with the execution
and delivery of this Agreement or the consummation of the transactions contemplated hereby, except
for (i)&nbsp;the applicable


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<P align="left" style="font-size: 10pt">requirements, if any, of the Securities Act, the Exchange Act and state
securities laws (&#147;<B>Blue Sky Laws</B>&#148;), (ii)&nbsp;if applicable, the rules and regulations of The Nasdaq
Stock Market, Inc., (iii)&nbsp;the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, and (iv)&nbsp;the issuance by the California Commissioner of Corporations (the
&#147;<B>California Commissioner</B>&#148;) of the permit (the &#147;<B>Permit</B>&#148;) under Section&nbsp;25121 of the California
Corporate Securities Law of 1968, as amended, and the rules and regulations promulgated thereunder
(&#147;<B>California Securities Law</B>&#148;) for the qualification of the offer and sale of the Merger
Consideration in exchange for the Company Capital Stock and Company Options, (v)&nbsp;such consents,
waivers, approvals, orders, authorizations, registrations, declarations and filings as may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the &#147;<B>HSR Act</B>&#148;)
and other similar anti-trust requirements of foreign Governmental Authorities and (vi)&nbsp;such
consents, waivers, approvals, orders, authorizations, registrations, declarations and filings
which, if not obtained or made, would not, individually or in the aggregate, have an effect on the
legality, validity or enforceability of this Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7 <U>Company Financial Statements</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <B>Section&nbsp;3.7 </B>of the Company Disclosure Schedule sets forth (i)&nbsp;the Company&#146;s balance sheets
as of April&nbsp;30, 2004 and 2003, and the related statements of income and cash flows and Company
Stockholders&#146; equity for the twelve month periods then ended, and (ii)&nbsp;a balance sheet as of April
30, 2005 and the related unaudited statements of income and cash flows and Company Stockholders&#146;
equity for the twelve month period then ended (the &#147;<B>Unaudited Company Financial Statements&#148; </B>and,
together with audited financial statements referred to above, the &#147;<B>Company Financial Statements</B>&#148;).
The Company Financial Statements have been prepared in accordance with GAAP consistently applied on
a basis
consistent throughout the periods indicated and consistent with each other (except that the
Unaudited Company Financial Statements do not contain footnotes and other presentation items that
may be required by GAAP). The Company Financial Statements present fairly in all material respects
the Company&#146;s financial condition and operating results as of the dates and during the periods
indicated therein, subject in the case of Unaudited Company Financial Statements to (i)&nbsp;the absence
of footnotes and (ii)&nbsp;normal year-end adjustments which would not be material in amount or
significance in any individual case or in the aggregate. The Company&#146;s unaudited balance sheet as
of April&nbsp;30, 2005 is referred to herein as the &#147;<B>Current Balance Sheet</B>.&#148;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company has established and maintains a system of internal accounting controls
sufficient to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP, including policies and procedures that
(i)&nbsp;require the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the Company, (ii)&nbsp;provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with GAAP, and that receipts and expenditures of the Company are being made only in accordance with
appropriate authorizations of management and the board of directors of the Company and



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<P align="left" style="font-size: 10pt">(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the assets of the Company that could have a material effect on the Company&#146;s
financial statements. The Company has no Knowledge of, and the Company&#146;s independent auditors have
not identified to the Company, (i)&nbsp;any significant deficiency or material weakness in the system of
internal accounting controls used by the Company which are reasonably likely to adversely affect
the Company&#146;s ability to record, process, summarize and report financial information, (ii)&nbsp;any
fraud, whether or not material, that involves the Company&#146;s management or other current or former
employees, consultants or directors of the Company who have a role in the preparation of financial
statements or the internal accounting controls utilized by the Company, or (iii)&nbsp;any claim or
allegation regarding any of the foregoing.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.8 <U>No Undisclosed Liabilities</U>. The Company and its Subsidiaries do not have any
liabilities or obligations (whether fixed or accrued, absolute or contingent, matured or unmatured,
determined or determinable, known or unknown) of a nature required to be reflected on or reserved
against in financial statements that are prepared in accordance with GAAP, except for (i)
liabilities and other obligations that are reflected on or reserved against the Current Balance
Sheet, (ii)&nbsp;liabilities and other obligations that have arisen in the ordinary course of business
consistent with past practices since the date of the Current Balance Sheet and prior to the date
hereof, which are not material in amount or significance, (iii)&nbsp;liabilities and other obligations
that arise subsequent to the date hereof in the ordinary course of business consistent with past
practice, (iv)&nbsp;liabilities and other obligations under executory Contracts by which the Company or
its Subsidiaries is bound, and (v)&nbsp;liabilities
and other obligations incurred pursuant to or in connection with the execution, delivery or
performance of this Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9 <U>No Changes</U>. Between the date of the Current Balance Sheet and the date of this
Agreement, there has not been, occurred or arisen any:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;material transaction by the Company or its Subsidiaries, except in the ordinary course of
business as conducted on that date and consistent with past practices;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;amendments or changes to the certificate of incorporation or bylaws of the Company or any
of its Subsidiaries, except as expressly contemplated by this Agreement;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;capital expenditure or commitment by the Company or its Subsidiaries exceeding $5,000
individually or $25,000 in the aggregate;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;payment, discharge or satisfaction, in any amount in excess of $5,000 in any one case, or
$25,000 in the aggregate, of any claim, liability or obligation (whether fixed or accrued, absolute
or contingent, matured or unmatured, determined or determinable or otherwise), other than payment,
discharge or satisfaction in the ordinary



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<P align="left" style="font-size: 10pt">course of business of liabilities reflected on or
reserved against in the Current Balance Sheet and current liabilities incurred since the Current
Balance Sheet;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;change in accounting policies or procedures (including any change in reserves for excess
or obsolete inventory, doubtful accounts or other reserves, or depreciation or amortization
policies or rates) by the Company or its Subsidiaries other than as required by GAAP;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;change in any material election in respect of Taxes, adoption or change in any accounting
method in respect of Taxes, agreement or settlement of any claim or assessment in respect of Taxes,
or extension or waiver of the limitation period applicable to any claim or assessment in respect of
Taxes;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;revaluation by the Company or its Subsidiaries of any of its assets (whether tangible or
intangible);



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;declaration, setting aside or payment of a dividend or other distribution (whether in
cash, stock or property) in respect of any Company Capital Stock, or any split, combination or
reclassification in respect of any shares of Company Capital Stock, or any issuance or
authorization of any issuance of any other securities in respect of, in lieu of or in substitution
for shares of Company Capital Stock, or any direct or indirect repurchase, redemption, or other
acquisition by the Company of any shares of Company Capital Stock (or options, warrants or other
rights convertible into, exercisable
or exchangeable therefor), except in accordance with the agreements evidencing Company Options
or the issuance of Unvested Company Common Stock;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;material increase in the salary or other compensation payable or to become payable by the
Company or its Subsidiaries to any of their officers, directors or Employees or the declaration,
payment or commitment or obligation of any kind for the payment by the Company or its Subsidiaries
of a severance payment, termination payment, bonus or other additional salary or compensation to
any such Person (except pursuant to the Company&#146;s pre-existing bonus plans and amounts earned
thereunder as previously disclosed to Parent);



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;any termination or extension, or any amendment, waiver or modification of the terms, of
any Contract required to be disclosed in <B>Section&nbsp;3.14 </B>of the Company Disclosure Schedule (other
than terminations in connection with the scheduled end of the term of such Contract);



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;except in the ordinary course of business consistent with past practices, sale, lease,
sublease, license or other disposition of any of the material assets (whether tangible or
intangible) or properties of the Company or its Subsidiaries, including the sale of any accounts
receivable of the Company or its Subsidiaries, or any creation of any Lien (other than Permitted
Liens) in such assets or properties;



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;loan by the Company or its Subsidiaries to any Person (except for advances to employees
for travel and business expenses in the ordinary course of business consistent with past
practices), incurring by the Company or its Subsidiaries of any indebtedness for money borrowed,
guaranteeing by the Company or its Subsidiaries of any indebtedness for money borrowed, issuance or
sale of any debt securities of the Company or its Subsidiaries or guaranteeing of any debt
securities of others, except for trade payables and advances to employees for travel and business
expenses, in each case in the ordinary course of business consistent with past practices;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;waiver or release of any material right or claim, including any write-off, discount or
other compromise of any account receivable of the Company or its Subsidiaries, other than
write-offs of accounts receivable in the ordinary course of business consistent with past
practices;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)&nbsp;the commencement, settlement, notice or, to the Knowledge of the Company, threat of any
lawsuit or proceeding or other investigation against the Company or its Subsidiaries;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o)&nbsp;notice of any claim or potential claim of ownership by any Person other than the Company
or its Subsidiaries of the Company Intellectual Property owned by or developed or created by the
Company or its Subsidiaries or of infringement by the Company or its Subsidiaries of any other
Person&#146;s Intellectual Property Rights;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) (i)&nbsp;sale or license of any Company Intellectual Property or execution of any agreement
with respect to the Company Intellectual Property with any Person, other than in the ordinary
course of business, or (ii)&nbsp;purchase or license of any Intellectual Property Rights or execution of
any agreement with respect to the Intellectual Property Rights of any Person (other than the
Company), other than ordinary course shrink wrap software agreements for internal operations, (iii)
agreement with respect to the development of any Intellectual Property Rights with a third party,
or (iv)&nbsp;change in pricing or royalties set or charged by the Company to its customers or licensees
or in pricing or royalties set or charged by persons who have licensed Intellectual Property Rights
to the Company;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q)&nbsp;circumstance, change, event or effect of any character that is or is reasonably likely to
be material and adversely affect the Company; or



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r)&nbsp;written or oral agreement by the Company or its Subsidiaries, or any officer or employee
on behalf of the Company or its Subsidiaries, to do any of the things described in the preceding
clauses (a)&nbsp;through (q), inclusive, of this <B>Section&nbsp;3.9 </B>(other than negotiations with Parent and
its representatives regarding the transactions contemplated by this Agreement).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.10 <U>Tax Matters</U>.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Company or its Subsidiaries have prepared and timely filed all federal, state, local
and foreign returns, estimates, information statements and reports (&#147;<B>Returns</B>&#148;) required to be filed
by them and relating to any and all Taxes concerning or attributable to the Company or its
Subsidiaries or their respective operations, and such Returns are, in all material respects, true
and correct and have been completed in accordance with applicable law.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company and its Subsidiaries have paid all Taxes required to be paid and has withheld
or paid with respect to their respective Employees (and timely paid over to the appropriate Taxing
authority) all federal, state and foreign income taxes and social security charges and similar
fees, Federal Insurance Contribution Act, Federal Unemployment Tax Act and other Taxes required to
be withheld or paid by them.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Company and its Subsidiaries have not been delinquent in the payment of any Tax, nor
is there any Tax deficiency outstanding, assessed or proposed against the Company or its
Subsidiaries, nor has the Company or its Subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any Tax.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;No audit or other examination of any Return of the Company or its Subsidiaries is
presently in progress, nor has the Company or its Subsidiaries been notified of any request for
such an audit or other examination.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;To the Knowledge of the Company, no claim has ever been made by a taxing authority in a
jurisdiction where the Company or its Subsidiaries does not file Returns that it is or may be
subject to taxation by that jurisdiction.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;As of the date of the Current Balance Sheet, neither the Company nor its Subsidiaries has
any liabilities for unpaid Taxes that were not accrued or reserved on the Current Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and the Company has not incurred any
liability for Taxes since the date of the Current Balance Sheet other than in the ordinary course
of business.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;The Company has delivered to Parent copies of all Tax Returns for the Company filed for
all periods since its inception.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;There are (and immediately following the Effective Time there will be) no liens, pledges,
charges, claims, restrictions on transfer, mortgages, security interests or other encumbrances of
any sort (collectively, &#147;<B>Liens</B>&#148;) on the assets of the Company or its Subsidiaries relating to or
attributable to Taxes other than Permitted Liens.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;None of the Company&#146;s assets is treated as &#147;tax-exempt use property,&#148; within the meaning
of Section 168(h) of the Code.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;The Company (a)&nbsp;has never been a member of an affiliated group (within the meaning of Code
&#167;1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of
which was Company), (b)&nbsp;has never been a party to any tax sharing, indemnification or allocation
agreement, (c)&nbsp;has no liability for the Taxes of any Person (other than Company or any of its
Subsidiaries) under Treas. Reg. &#167; 1.1502-6 (or any similar provision of state, local or foreign
law, including any arrangement for group Tax relief within a jurisdiction or similar arrangement),
as a transferee or successor, by contract or agreement, or otherwise, and (d)&nbsp;has never been a
party to any joint venture, partnership or other arrangement that is reasonably likely to be
treated as a partnership for Tax purposes.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;The Company has never been, at any time, a &#147;United States Real Property Holding
Corporation&#148; within the meaning of Section&nbsp;897(c)(2) of the Code.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;No adjustment relating to any Return filed by the Company has been proposed formally or,
to the Knowledge of the Company, informally by any tax authority to the Company or any
representative thereof.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;The Company has not constituted either a &#147;distributing corporation&#148; or a &#147;controlled
corporation&#148; in a distribution of stock intended to qualify for tax-free treatment under Section
355 of the Code.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)&nbsp;The Company does not, and has never had, a permanent establishment in any foreign country,
as defined in any applicable Tax treaty or convention between the United States and such foreign
country.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o)&nbsp;None of the outstanding indebtedness of the Company constitutes indebtedness with respect
to which any interest deductions may be disallowed under Sections&nbsp;163(i), 163(l) or 279 of the Code
or under any other provision of applicable law.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p)&nbsp;The Company has not engaged in a transaction that is the same as or substantially similar
to one of the types of transactions that the Internal Revenue Service has determined to be a tax
avoidance transaction and identified by notice, regulation, or other form of published guidance as
a listed transaction, as set forth in Treas. Reg. &#167; 1.6011-4(b)(2).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q)&nbsp;The Company will not be required to include any material income or gain or exclude any
material deduction or loss from Taxable income as a result of (i)&nbsp;any change in method of
accounting made prior to the Closing under Section 481(c) of the Code or (ii)&nbsp;closing agreement
under Section&nbsp;7121 of the Code executed prior to the Closing.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r)&nbsp;No Company Stockholder holds shares of Company Common Stock that are non-transferable and
subject to a substantial risk of forfeiture within



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<P align="left" style="font-size: 10pt">the meaning of Section&nbsp;83 of the Code with
respect to which a valid election under Section 83(b) of the Code has not been made.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s)&nbsp;There is no Contract to which the Company or is a party, including the provisions of this
Agreement, covering any employee or former employee of the Company that, individually or in the
aggregate, could give rise to the payment of any amount that would not be deductible pursuant to
Sections&nbsp;280G, 404 or 162(m) of the Code.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.11 <U>Restrictions on Business Activities</U>. There is no Contract, judgment, injunction,
order or decree to which the Company or its Subsidiaries is a party or otherwise binding upon the
Company and its Subsidiaries that has, or may reasonably be expected to have, the effect of
prohibiting or impairing any material business practice of the Company or its Subsidiaries, any
acquisition of property (tangible or intangible) by the Company or its Subsidiaries, or otherwise
limit the Company&#146;s or its Subsidiaries&#146; ability to engage in any line of business or compete with
or hire any Person. Without limiting the generality of the
foregoing, neither the Company nor its Subsidiaries has entered into any agreement under which
the Company or its Subsidiaries is restricted from selling, licensing or otherwise distributing any
technology or products or from providing services to customers or potential customers or any class
of customers, in any geographic area, during any period of time, or in any segment of any market.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12 <U>Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Company and its Subsidiaries do not own any real property, nor has the Company or its
Subsidiaries ever owned any real property. <B>Section&nbsp;3.12(a) </B>of the Company Disclosure Schedule sets
forth a list of all real property currently leased by the Company and its Subsidiaries or otherwise
used or occupied by the Company and its Subsidiaries for the operation of its businesses (the
&#147;<B>Leased Real Property</B>&#148;), the name of the lessor, the date of the lease and each amendment thereto
and, with respect to any current lease, the square footage of the premises leased thereunder and
the aggregate annual rental payable under any such lease.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company and its Subsidiaries have provided Parent true, correct and complete copies of
all leases, lease guaranties, subleases, agreements for the leasing, use or occupancy of, or
otherwise granting a right in or relating to the Leased Real Property, including all amendments,
terminations and modifications thereof (the &#147;<B>Lease Agreements</B>&#148;); and there are no other Lease
Agreements for real property, affecting any Leased Real Property or to which Company or its
Subsidiaries is bound. Each Lease Agreement constitutes the entire agreement of the landlord and
the tenant thereunder, and no term or condition thereof has been modified, amended or waived except
as shown in the copies of the Lease Agreements that have previously been delivered by the Company
to Parent. Neither the Company nor its Subsidiaries has



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<P align="left" style="font-size: 10pt">transferred or assigned any interest in
any such Lease Agreement, nor has the Company or its Subsidiaries subleased or otherwise granted
rights of use or occupancy of any of the premises described therein to any other Person. All Lease
Agreements are valid and enforceable (subject to (i)&nbsp;laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii)&nbsp;rules of law governing specific
performance, injunctive relief and other equitable remedies). The Company and its Subsidiaries are
not in default of any Lease Agreement, no rentals are past due, and no circumstance exists, which,
with notice, the passage of time or both, could constitute a default of any material term under any
Lease Agreement. Neither the Company nor its Subsidiaries has received any notice in writing of a
default, alleged failure to perform, or any offset or counterclaim with respect to any Lease
Agreement, which has not been fully remedied and withdrawn. The consummation of the transactions
contemplated hereby will not affect the enforceability against any Person of any Lease Agreement or
the rights of the Company, its Subsidiaries or the Surviving Corporation to the continued use and
possession of the Leased Real Property for the conduct of business as presently conducted.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Each Leased Real Property and all of its operating systems is suitable for the conduct of
the business as presently conducted. No law, ordinance, regulation or restriction is, or as of the
Closing Date will be, violated by the continued occupancy, maintenance, operation or use of any
Leased Real Property in its present manner. No Lease Agreement will require the Company or its
Subsidiaries to incur costs or expenses in excess of $50,000 for restoration of the premises
subject to such Lease Agreement upon termination of such Lease Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;The Company and its Subsidiaries have good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of the personal properties and tangible
assets, used, held for use in the conduct of the business of the Company and its Subsidiaries as
currently conducted, free and clear of any Liens, except (i)&nbsp;as reflected in the Current Balance
Sheet and Liens securing debt that is reflected on the Current Balance Sheet, (ii)&nbsp;Liens for Taxes
not yet due and payable or that are being contested in good faith, (iii)&nbsp;such imperfections of
title and encumbrances, if any, that do not detract from the value or interfere with the present
use of the property subject thereto or affected thereby, and (iv)&nbsp;Permitted Liens.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;All material items of equipment (collectively the &#147;<B>Equipment</B>&#148;) owned or leased by the
Company and its Subsidiaries are (i)&nbsp;adequate for the conduct of the business of the Company and
its Subsidiaries as currently conducted and as proposed to be conducted, and (ii)&nbsp;in good operating
condition, regularly and properly maintained, subject to normal wear and tear.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.13 <U>Intellectual Property</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <B>Section&nbsp;3.13(a) </B>of the Company Disclosure Schedule contains a complete and accurate list
(by name and version number) of all products, software or service offerings that have been sold,
distributed, made commercially available, provided



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<P align="left" style="font-size: 10pt">or otherwise disposed of by or for the Company
or its Subsidiaries to third parties since the Company&#146;s inception or which the Company or its
Subsidiaries, as of the date hereof, plans to sell, distribute, make commercially available,
provide or otherwise dispose of in the next twelve (12)&nbsp;months, including any products or service
offerings under development (collectively, &#147;<B>Company Products</B>&#148;).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <B>Section&nbsp;3.13(b) </B>of the Company Disclosure Schedule lists all Registered Intellectual
Property Rights owned by, filed in the name of, or applied for, by the Company and its Subsidiaries
as of the date hereof (the &#147;<B>Company Registered Intellectual Property Rights</B>&#148;) and lists any
proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the &#147;<B>PTO</B>&#148;) or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property Rights or Company Intellectual
Property which proceedings or actions are pending as of the date hereof.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;All necessary documents and certificates in connection with Company Registered
Intellectual Property Rights have been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions, as the case may be, as required
under applicable law for the purposes of maintaining such Registered Intellectual Property Rights.
There are no actions that must be taken by the Company or its Subsidiaries within one hundred
twenty (120)&nbsp;days following the date hereof, including the payment of any registration, maintenance
or renewal fees or the filing of any responses to PTO office actions, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any
Registered Intellectual Property Rights. The Company and its Subsidiaries have not claimed &#147;small
business status&#148; in the application for or registration of any Registered Intellectual Property
Rights.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;In each case in which the Company or its Subsidiaries has acquired or purported to acquire
ownership of any Technology or Intellectual Property Right that is material to the conduct of the
Company&#146;s or its Subsidiaries&#146; business from any Person, the Company and its Subsidiaries have
obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights in such
Technology and the associated Intellectual Property Rights (including the right to seek past and
future damages with respect thereto) to the Company (or its Subsidiaries). To the maximum extent
provided for by, and in accordance with, applicable laws and regulations, the Company and its
Subsidiaries have recorded each such assignment of a Registered Intellectual Property Right
assigned to the Company or its Subsidiaries with the relevant Governmental Authority.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;The Company has no Knowledge of any facts or circumstances that would render any Company
Registered Intellectual Property Rights invalid or unenforceable.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;All Company Intellectual Property that is material to the conduct of the business of the
Company and its Subsidiaries presently conducted or currently contemplated to be conducted as of
the date hereof is, and, as of immediately following the Effective Time will be, fully
transferable, alienable or licensable by Surviving Corporation and/or Parent without restriction
and without payment of any kind to any third party, exclusive of any encumbrances created by
Surviving Corporation and/or Parent.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Each item of Company Intellectual Property that is material to the conduct of the business
of the Company and its Subsidiaries as presently conducted or currently contemplated to be
conducted is free and clear of any Liens except for
(i)&nbsp;non-exclusive licenses to use Company Products granted to end-user customers in the
ordinary course of business and consistent with past practices, (ii)&nbsp;any rights or licenses granted
pursuant to any of the Contracts listed in <B>Section&nbsp;3.13(o) </B>of the Company Disclosure Schedule and
(iii)&nbsp;Permitted Liens. The Company and its Subsidiaries are the exclusive owner or exclusive
licensee of all Company Intellectual Property Rights. Without limiting the generality of the
foregoing, (i)&nbsp;the Company and its Subsidiaries are the exclusive owners of all Trademark
registrations that are included within Company Registered Intellectual Property Rights and (ii)&nbsp;the
Company and its Subsidiaries own exclusively, and have good title to, all copyrighted works that
the Company and its Subsidiaries purport to own.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;The Company and its Subsidiaries have not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any exclusive rights to use or
joint ownership of, any material Technology or material Intellectual Property Right that is or was
Company Intellectual Property, to any other Person. The Company and its Subsidiaries have not
allowed the Company&#146;s rights in material Technology or material Intellectual Property Right that is
or was Company Intellectual Property to lapse or enter the public domain.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;All Company Intellectual Property used by the Company and its Subsidiaries in the conduct
of business of the Company and its Subsidiaries as such is presently conducted was written,
invented, developed and created solely by either (i)&nbsp;employees of the Company and its Subsidiaries
acting within the scope of their employment or (ii)&nbsp;by third parties who have assigned all of their
rights, including Intellectual Property Rights therein, to the Company or its Subsidiaries, and no
third party owns or has any rights to any such Company Intellectual Property.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;The Company Intellectual Property and all other Intellectual Property Rights licensed by
the Company and its Subsidiaries under Inbound License Agreements and set forth in <B>Section&nbsp;3.13(n)</B>
of the Company Disclosure Schedule constitutes all the Technology and Intellectual Property Rights
used in the conduct of the business of the Company and its Subsidiaries as they currently are
conducted and as presently proposed to be conducted, including the design, development,
manufacture, use, import, sale, distribution and provision of Company Products.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;No Person who has licensed to the Company and its Subsidiaries any Technology or
Intellectual Property Rights has ownership rights or license rights to improvements or
modifications made by the Company and its Subsidiaries in or to such Technology or Intellectual
Property Rights.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;The operation of the business of the Company and its Subsidiaries as they are currently
conducted and, to the Knowledge of the Company, as currently proposed to be conducted, including
the design, development, use, import, branding, advertising, promotion, marketing, manufacture,
sale, distribution and provision of Company Products, does not (and will not when conducted by
Parent and/or
Surviving Corporation in substantially the same manner following the Closing exclusive of any
changes made to the operation of the business by Parent and/or Surviving Corporation) infringe or
misappropriate any Intellectual Property Right of any Person or constitute unfair competition or
trade practices under the laws of any jurisdiction, and the Company has not received written notice
from any Person claiming that such operation or any Company Product infringes or misappropriates
any Intellectual Property Right of any Person or constitutes unfair competition or trade practices
under the laws of any jurisdiction (nor does the Company have Knowledge of any basis therefor).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;Except for pending patent or trademark applications, neither the Company nor its
Subsidiaries is subject to any proceeding or outstanding decree, order, judgment or settlement
agreement or stipulation that restricts in any manner the use, transfer, provision, sale or
licensing of any of the Company Intellectual Property or Company Products by the Company or its
Subsidiaries or may affect the validity, use or enforceability of such Company Intellectual
Property or Company Products.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <B>Section&nbsp;3.13(n) </B>of the Company Disclosure Schedule lists all material contracts, licenses
and agreements (except for third party Software having an acquisition cost of less than $1,000 per
copy that is generally commercially available and only used internally by the Company) to which the
Company or its Subsidiaries is a party that grant the Company and its Subsidiaries license or other
rights in or to any Technology or Intellectual Property Rights owned by a third party, (including
agreements to provide or receive services related to Software or other Technology) (collectively,
&#147;<B>Inbound License Agreements</B>&#148;). Neither the Company nor its Subsidiaries is in material breach of
any Inbound License Agreement and, to the Knowledge of the Company, no other party to any such
Inbound License Agreement is in material breach thereof or has failed to perform thereunder. The
consummation of the transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, termination or suspension of (or give the other party thereto the right
to cause) any Inbound License Agreements and, following the Closing Date, both the Parent and the
Surviving Corporation will be permitted to exercise all of the Company&#146;s and its Subsidiaries&#146;
rights and receive all of the Company&#146;s and its Subsidiaries&#146; benefits (including payments) under
such Inbound License Agreements in accordance with their terms to the same extent the Company and
its Subsidiaries would have been able to had the transactions contemplated by this Agreement not
occurred and without the payment



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<P align="left" style="font-size: 10pt">of any additional amounts or consideration other than the ongoing
fees, royalties or other payments that the Company and its Subsidiaries would otherwise have been
required to pay to had the transactions contemplated by this Agreement not occurred.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o)&nbsp;Except for such provisions contained in end user agreements entered into by the Company
and its Subsidiaries in the ordinary course of business, <B>Section&nbsp;3.13(o) </B>of the Company Disclosure
Schedule lists all unexpired contracts, licenses and agreements between the Company and its
Subsidiaries on the one hand and any other Person on the other hand wherein or whereby the Company
or its Subsidiaries
has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold
harmless, guaranty or otherwise assume or incur any obligation or liability with respect to the
infringement or misappropriation by the Company or its Subsidiaries or such other Person of the
Intellectual Property Rights of any Person other than the Company and its Subsidiaries.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p)&nbsp;There are no Contracts between the Company and its Subsidiaries on the one hand and any
other Person on the other hand with respect to the Company Intellectual Property under which
Company or its Subsidiaries has provided or received written notice of any dispute regarding the
scope of such agreement or performance under such agreement, including with respect to any payments
to be made or received by the Company or its Subsidiaries thereunder.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q)&nbsp;To the Knowledge of the Company, no Person is infringing or misappropriating any Company
Intellectual Property Rights.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r)&nbsp;The Company and its Subsidiaries have taken steps that are reasonably required to protect
the confidential information and trade secrets of the Company and its Subsidiaries and Company&#146;s
and its Subsidiaries&#146; rights therein that are material to the conduct of the business of the
Company and its Subsidiaries as presently conducted or currently contemplated to be conducted and
to protect the confidential information and trade secrets provided by any other Person to the
Company and its Subsidiaries pursuant to a contract requiring such protection. All employees of
the Company and its Subsidiaries who have created or modified any of the Company Intellectual
Property have signed the Company&#146;s standard form of Employee Proprietary Information and Invention
Agreement, which is attached to <B>Section&nbsp;3.13(r) </B>of the Company Disclosure Schedule, pursuant to
which all Technology and Intellectual Property Rights comprising Company Intellectual Property
developed by such employees within the scope of their employment are assigned to Company.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s)&nbsp;Neither this Agreement nor the transactions contemplated by this Agreement, including the
assignment to Parent or Surviving Corporation, by operation of law or otherwise, of any contracts
or agreements entered into prior to the Closing Date to which the Company or its Subsidiaries is a
party, will result subsequently in (i)&nbsp;either Parent&#146;s or the Surviving Corporation&#146;s granting to
any third party any right to or with respect to any Technology or Intellectual Property Right owned
by, or licensed to, either



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<P align="left" style="font-size: 10pt">of them, (ii)&nbsp;either the Parent&#146;s or the Surviving Corporation&#146;s being
bound by, or subject to, any non-compete or other restriction on the operation or scope of their
respective businesses, or (iii)&nbsp;either the Parent&#146;s or the Surviving Corporation&#146;s being obligated
to pay any royalties or other amounts to any third party in excess of those payable by Parent or
Surviving Corporation, respectively, prior to the Closing.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t) <B>Section&nbsp;3.13(t) </B>of the Company Disclosure Schedule lists all software or other material
that is distributed as &#147;free software&#148;, &#147;open source software&#148; or under a similar licensing or
distribution model (including but not limited to the GNU
General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License
(MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source
License (SCSL)&nbsp;the Sun Industry Standards License (SISL)&nbsp;and the Apache License) (collectively,
&#147;<B>Open Source Materials</B>&#148;) that is integrated by the Company or its Subsidiaries in any of the
Company Products, and describes generally the manner in which such Open Source Materials were used
(such description shall include, whether the Open Source Materials were modified by the Company or
any Subsidiary). The Company&#146;s and its Subsidiaries&#146; use of Open Source Materials will not require
that any software included with Company Products (other than such Open Source Materials themselves)
must be (x)&nbsp;disclosed or distributed in source code form, (y)&nbsp;be licensed for the purpose of making
derivative works, or (z)&nbsp;be redistributable at no charge or with any restriction on the
consideration charged therefor.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u)&nbsp;The Company and its Subsidiaries have no material liability (and, to the Knowledge of the
Company, there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Company or its Subsidiaries giving
rise to any material liability) for replacement, repair or redelivery of any Company Products sold,
licensed, leased or delivered by the Company or its Subsidiaries to customers on or within two (2)
years prior to the Closing Date or other damages in connection therewith in excess of any reserves
therefor reflected on the Company Financial Statements. Copies of all current and standard form
agreements used within the last two (2)&nbsp;years for the sale or license of Company Products,
including any standard terms of use for Company Products offered through the Company&#146;s Internet
website, are attached to <B>Section&nbsp;3.13(u) </B>of the Company Disclosure Schedule.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;No (i)&nbsp;government funding; or (ii)&nbsp;facilities of a university, college, other educational
institution or research center was used in the development of the Technology and Intellectual
Property Rights owned by the Company or its Subsidiaries. To the Company&#146;s Knowledge, no current
or former employee of the Company or its Subsidiaries, who was involved in, or who contributed to,
the creation or development of any Technology or Intellectual Property Rights purported to be owned
by the Company or its Subsidiaries, has performed services for any government, a university,
college or other educational institution or a research center during a period of time during which
such employee was also performing services for the Company or its Subsidiaries.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(w)&nbsp;The Company and its Subsidiaries have complied in all material respects with all
applicable U.S. and E.U. laws and its internal privacy policies relating to (i)&nbsp;the privacy of
users of the Company Products and all Internet websites owned, maintained or operated by the
Company and its Subsidiaries and (ii)&nbsp;the collection, storage, disclosure and transfer of any
personally identifiable information collected by the Company or its Subsidiaries or by third
parties having authorized access to such information on behalf of the Company or its Subsidiaries.
The execution, delivery and
performance of this Agreement will not result in any violation of any applicable U.S. and E.U.
laws relating to privacy and with the Company&#146;s privacy policies. Copies of all current and prior
privacy policies of the Company, including the privacy policies included in the Company&#146;s Internet
website, are attached to <B>Section&nbsp;3.13(w) </B>of the Company Disclosure Schedule.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;Neither the Company nor its Subsidiaries nor any other Person acting on their behalf has
disclosed, delivered or licensed to any Person, agreed to disclose, deliver or license to any
Person, or permitted the disclosure or delivery to any escrow agent or other Person of, any Company
Source Code. No event has occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time, or both) will, or would reasonably be expected to, result in the
disclosure or delivery by the Company or any Person acting on its behalf to any Person of any
Company Source Code. <B>Section&nbsp;3.13(x) </B>of the Company Disclosure Schedule identifies each contract
pursuant to which the Company or its Subsidiaries has deposited, or is or may be required to
deposit, with an escrow-holder or any other Person, any Company Source Code, and describes whether
the execution of this Agreement or the consummation of the Merger or any of the other transactions
contemplated by this Agreement, in and of itself, would reasonably be expected to result in the
release from escrow of any Company Source Code. As used in this <B>Section&nbsp;3.13(x)</B>, &#147;<B>Company Source
Code</B>&#148; means, collectively, any Software source code or any material proprietary information or
algorithm contained in any Software source code, embodied or incorporated in, or used to provide,
any Company Product.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.14 <U>Agreements, Contracts and Commitments</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;As of the date hereof, neither the Company nor any of its Subsidiaries is a party to, nor
are they bound by:



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;any Employee Agreement in effect as of the date of this Agreement, other than (A)&nbsp;Company
Options and other than standard offer letters that do not contain terms regarding severance, change
in control or similar payments or (B)&nbsp;agreements between the Company or any of its ERISA Affiliates
and any consultant or contractor relating to the performance of services for the Company or any of
its ERISA Affiliates (in either case, the forms of which have previously been provided to Parent);


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;any agreement or plan (including any Company Option Plan, stock appreciation rights plan
or stock purchase plan) any of the benefits of which


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<P align="left" style="font-size: 10pt">could be increased, or the vesting of benefits
of which could be accelerated, by the occurrence of any of the transactions contemplated by this
Agreement (except as required by this Agreement) or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this Agreement;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;any lease of personal property providing for payments in excess of $25,000 individually
or $100,000 in the aggregate;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;any agreement, contract or commitment relating to capital expenditures and involving
future payments after the date hereof in excess of $25,000 individually or $100,000 in the
aggregate;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;any agreement, contract or commitment relating to the disposition or acquisition of assets
or any interest in any business enterprise outside the ordinary course of the Company&#146;s business;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;any mortgages, indentures, guarantees, loans or credit agreements, security agreements or
other agreements or instruments relating to the borrowing of money, extension of credit or security
interest;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;any pending purchase order or contract for the purchase of materials involving in excess
of $25,000 individually or $100,000 in the aggregate;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;any powers of attorney;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;any agreement containing any price protection, &#147;most favored nation&#148; or similar
provisions;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;any partnership, joint venture, strategic alliance or similar agreement;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;any material Contract to which an Interested Party is a party, other than Contracts
relating to the acquisition of equity securities of the Company or relating to an Interested
Party&#146;s employment or service relationship with the Company;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;any dealer, distribution, joint marketing, development agreement, sales representative,
original equipment manufacturer, value added, remarketer, reseller, or independent software vendor,
or other agreement for marketing, sales, provision or distribution of the Company&#146;s products,
technology or services and that is material to the Company&#146;s business; or


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;any other Contract, including any service, operating or management agreement or
arrangement with respect to any of the Company&#146;s properties (whether leased or owned), that
involves in excess of $100,000 and is not cancelable without penalty within thirty (30)&nbsp;days.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company and its Subsidiaries are in compliance in all material respects with, and have
not received notice prior to the date of this Agreement that they have breached, violated or
defaulted under any of, the terms or conditions of any Contract required to be set forth on <B>Section
3.14(a) </B>of the Company Disclosure Schedule, nor has there occurred any event or condition that
could reasonably be
expected to constitute such a breach, violation or default by the Company or its Subsidiaries
with the lapse of time, giving of notice or both. Each Contract required to be set forth on
<B>Section&nbsp;3.14(a) </B>of the Company Disclosure Schedule is in full force and effect (except to the
extent that such Contracts are terminated in a manner permitted under <B>Section&nbsp;5.1(b)(iii)</B>) and, to
the Company&#146;s Knowledge, no third party obligated to the Company or any of its Subsidiaries
pursuant to any such Contract is subject to any default thereunder.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Company has delivered to Parent true, correct and complete copies of all Contracts
listed in <B>Section&nbsp;3.14(a) </B>of the Company Disclosure Schedule, including all amendments,
supplements, exhibits and ancillary agreements thereto.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.15 <U>Interested Party Transactions</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Except for transactions involving salaries, bonuses and other compensation under
employment contracts or employee benefit plans that have been provided to Parent, transactions
involving the acquisition of equity securities from the Company, transactions involving
reimbursement of expenses and other transactions entered into in the ordinary course of business
consistent with past practices and related to such person&#146;s capacity as an officer, director or
employee of the Company, no officer or director of the Company or Company Stockholder holding more
than five percent (5%) of the Company Capital Stock (nor any parent, sibling, descendent or spouse,
of any of such persons, or any trust, partnership or corporation in which any of such persons has
or has had an interest) (an &#147;<B>Interested Party</B>&#148;), has or has had, directly or indirectly, (i)&nbsp;an
interest in any entity which furnished or sold, or furnishes or sells, services, products or
technology that the Company or its Subsidiaries furnish or sell, (ii)&nbsp;any interest in any entity
that purchases from or sells or furnishes to the Company or its Subsidiaries, any goods or services
that are material to the Company&#146;s business, or (iii)&nbsp;a beneficial interest in any Contract to
which the Company or its Subsidiaries is a party; <I>provided</I>, <I>however</I>, that ownership of no more than
five percent (5%) of the outstanding voting stock of a publicly traded corporation or mutual fund
and holdings of an investment fund in which a director is a partner or member shall not be deemed
to be an &#147;interest in any entity&#148; for purposes of this <B>Section&nbsp;3.15</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;All transactions pursuant to which any Interested Party has purchased any services,
products, or technology from, or sold or furnished any services, products or technology to, the
Company, that were either entered into after January&nbsp;1, 2003 or pursuant to which there are
continuing obligations to be performed or benefits to be received by the Company, have been on an
arms&#146;-length basis on terms no less favorable to the Company than would be available from an
unaffiliated party.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.16 <U>Company Authorizations</U>. Each material consent, license, permit, grant or other authorization (i)&nbsp;pursuant to which
the Company and its Subsidiaries currently operate or hold any interest in any of their respective
properties, or (ii)&nbsp;that is required for the operation of the Company&#146;s and its Subsidiaries&#146;
business as currently conducted or the holding of any such interest (collectively, the &#147;<B>Company
Authorizations</B>&#148;) has been issued or granted to the Company and its Subsidiaries. The Company
Authorizations are in full force and effect and constitute all Company Authorizations required to
permit the Company and its Subsidiaries to lawfully operate or conduct their business as currently
conducted or hold any interest in their respective properties or assets.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.17 <U>Litigation</U>. There is no action, suit, claim or proceeding of any nature pending,
or to the Knowledge of the Company, threatened, against the Company or its Subsidiaries, their
respective properties (tangible or intangible) or any of their respective directors or officers (in
their capacities as such) nor, to the Knowledge of the Company, is there any basis therefor. There
is no investigation or other proceeding pending or, to the Knowledge of the Company, threatened,
against the Company or its Subsidiaries, any of their respective properties (tangible or
intangible) or any of their respective directors or officers (in their capacities as such) by or
before any Governmental Authority, nor, to the Knowledge of the Company, is there any basis
therefor.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.18 <U>Accounts Receivable</U>. The Company has delivered to Parent a list of all accounts
receivable of the Company and its Subsidiaries as of April&nbsp;30, 2005, together with a range of days
elapsed since invoice. All of the Company&#146;s and its Subsidiaries&#146; accounts receivable arose in the
ordinary course of business, are carried at values determined in accordance with GAAP consistently
applied, and represent valid obligations arising from sales actually made or services actually
performed. No Person has any Lien (other than Permitted Liens) on any of the Company&#146;s or its
Subsidiaries&#146; accounts receivable and, as of the date of this Agreement, no request or agreement
for deduction or discount has been made with respect to any of the Company&#146;s or its Subsidiaries&#146;
accounts receivable that are reflected in the Current Balance Sheet.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.19 <U>Minute Books</U>. The minutes of the Company and each of its Subsidiaries provided
to Parent contain a materially complete and accurate summary of all meetings and actions by written
consent of the board of directors (or committees thereof) of the Company and its Subsidiaries and
contain accurate summaries of all Company Stockholder meetings and all Company Stockholder actions
by written consent, and those of the Company&#146;s Subsidiaries, since the time of incorporation of the
Company and with respect to any Subsidiary, since the time such Subsidiary became a Subsidiary of
the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20 <U>Environmental Matters</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Company and its Subsidiaries have not (i)&nbsp;operated any underground storage tanks at
any property that the Company or its Subsidiaries has at any time owned, operated, occupied or
leased, or (ii)&nbsp;except in a manner that would not result



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<P align="left" style="font-size: 10pt">in liability to the Company and its
Subsidiaries, released any amount of any substance that has been designated by any Governmental
Authority or by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos,
petroleum, and urea-formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation and Recovery Act
of 1976, as amended, and the regulations promulgated pursuant to said laws (a &#147;<B>Hazardous
Material</B>&#148;), but excluding office and janitorial supplies properly and safely maintained. No
Hazardous Materials are present in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company or its Subsidiaries have at
any time owned, operated, occupied or leased (other than office and janitorial supplies properly
and safely maintained), except as would not be reasonably likely to result in material liability to
the Company or its Subsidiaries.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company has not transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials in violation of any law or in a manner that
would result in liability to the Company, nor has the Company disposed of, transported, sold,
distributed, recycled or manufactured any product containing a Hazardous Material (any or all of
the foregoing being collectively referred to herein as &#147;<B>Hazardous Materials Activities</B>&#148;).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Company currently holds all material environmental approvals, permits, licenses,
clearances and consents (the &#147;<B>Environmental Permits</B>&#148;) necessary for the conduct of the Company&#146;s
Hazardous Material Activities and other businesses of the Company as such activities and businesses
are currently being conducted.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending, or to the Knowledge of the Company threatened, concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of the Company. The Company has no
Knowledge of any fact or circumstance that could involve the Company in any environmental
litigation or impose upon the Company any environmental liability. The Company has not entered
into any agreement that may require it to guarantee, reimburse, pledge, defend, hold harmless or
indemnify any other party with respect to liabilities arising out of Environmental Laws or the
Hazardous Materials Activities of the Company.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;The Company has delivered to Parent all records in the Company&#146;s possession concerning the
Hazardous Materials Activities (if any) of the Company relating to its business and all
environmental audits and environmental assessments of any Leased Real Property conducted at the
request of, or otherwise in the possession of the Company. The Company has complied with all
environmental disclosure obligations imposed by applicable law with respect to this transaction.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;To the Company&#146;s Knowledge, there are no facts or circumstances likely to prevent or delay
the ability of the Company to comply, when required, with the European Directives 2002/96/EC on
Waste Electrical and Electronic Equipment (&#147;<B>WEEE Directive</B>&#148;) and 2002/95/EC on the Restriction of
the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (&#147;<B>RoHS Directive</B>&#148;).
<B>Section&nbsp;3.20 </B>of the Company Disclosure Schedule lists all Company products and components which are
subject to the RoHS Directive.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.21 <U>Brokers&#146; and Finders&#146; Fees</U>. Neither the Company nor any of its Subsidiaries has
incurred, nor will they incur, directly or indirectly, any liability for brokerage or finders&#146; fees
or agents&#146; commissions or any similar charges in connection with the Agreement or any transaction
contemplated hereby. <B>Section&nbsp;3.21 </B>of the Company Disclosure Schedule sets forth the principal
terms and conditions of all agreements, written or oral, with respect to such fees, if any, and
true and complete copies of each such agreement have been delivered to Parent.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.22 <U>Employee Benefit Plans and Compensation</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <B>Section&nbsp;3.22(a) </B>of the Company Disclosure Schedule contains an accurate and complete list
of each Company Employee Plan and each Employee Agreement (other than agreements between the
Company or any of its ERISA Affiliates and any consultant or contractor relating to the performance
of services for the Company or any of its ERISA Affiliates). Neither the Company nor any ERISA
Affiliate has any plan or commitment to establish, adopt or enter into any new Company Employee
Plan or Employee Agreement, to modify any Company Employee Plan or Employee Agreement (except to
the extent required by law or to conform any such Company Employee Plan or Employee Agreement to
the requirements of any applicable law).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company has delivered to Parent correct and complete copies of: (i)&nbsp;all documents
embodying each Company Employee Plan and each Employee Agreement including (without limitation) all
amendments thereto and all
related trust documents, administrative service agreements, group annuity contracts, group
insurance contracts, and policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Company Employee Plan; (ii)&nbsp;the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii)&nbsp;the three (3)&nbsp;most recent annual reports (Form
Series&nbsp;5500 and all schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each Company Employee Plan; (iv)&nbsp;if the Company Employee Plan
is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v)&nbsp;the
most recent summary plan description together with the summary(ies) of material modifications
thereto, if any, required under ERISA with respect to each Company Employee Plan; (vi)&nbsp;all IRS
determination, opinion, notification and advisory letters; (vii)&nbsp;all material communications to any
Employee or Employees relating to any Company Employee Plan and any proposed Company Employee
Plans, in each case, relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments



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<P align="left" style="font-size: 10pt">or vesting schedules or other events which would
result in any liability to the Company; (viii)&nbsp;all correspondence to or from any governmental
agency relating to any Company Employee Plan (other than routine correspondence that is not
expected to result in liability to the Company); (ix)&nbsp;all standard COBRA forms and related notices
(or such forms and notices as required under comparable law); and (x)&nbsp;the three (3)&nbsp;most recent
plan years discrimination tests for each Company Employee Plan (as applicable).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Company and its ERISA Affiliates have performed in all material respects all
obligations required to be performed by them under each Company Employee Plan, and each Company
Employee Plan has been established and maintained in all material respects in accordance with its
terms and in material compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code. Any Company Employee Plan intended to be qualified
under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the
Code has been determined to be so qualified or exempt by the IRS. For each Company Employee Plan
that is intended to be qualified under Section 401(a) of the Code there has been no event,
condition or circumstance that has adversely affected or is likely to adversely affect such
qualified status. No &#147;prohibited transaction,&#148; within the meaning of Section&nbsp;4975 of the Code or
Section&nbsp;406 of ERISA, and not otherwise exempt under Section&nbsp;408 of ERISA, has occurred with
respect to any Company Employee Plan. There are no actions, suits or claims pending, or, to the
Knowledge of the Company, threatened or reasonably anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any Company Employee Plan.
Each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability to Parent, Company or any of its ERISA
Affiliates (other than ordinary administration expenses). There are no audits, inquiries or
proceedings pending or, to the Knowledge of the Company or any ERISA Affiliates, threatened by the
IRS or DOL, or any other Governmental Authority with respect to any Company Employee Plan. Neither
the Company nor any ERISA Affiliate is subject to any penalty or tax with respect to any Company
Employee Plan under Section 502(i) of ERISA or Sections&nbsp;4975 through 4980 of the Code. The Company
and
each ERISA Affiliate have timely made all contributions and other payments required by and due
under the terms of each Company Employee Plan.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Neither the Company nor any ERISA Affiliate has ever maintained, established, sponsored,
participated in, or contributed to, any (i)&nbsp;Pension Plan which is subject to Title IV of ERISA or
Section&nbsp;412 of the Code, (ii)&nbsp;Multiemployer Plan or (iii) &#147;multiple employer plan&#148; as defined in
ERISA or the Code. No Company Employee Plan provides health benefits that are not fully insured
through an insurance contract and neither the Company nor any ERISA Affiliate maintains a &#147;funded
welfare plan&#148; within the meaning of Section&nbsp;419 of the Code.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;No Company Employee Plan or Employee Agreement provides, or reflects or represents any
liability to provide post-termination or retiree welfare benefits to any Person for any reason,
except as may be required by COBRA or other



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<P align="left" style="font-size: 10pt">applicable statute, and neither the Company nor any
ERISA Affiliate has ever represented, promised or contracted (whether in oral or written form) to
any Employee (either individually or to Employees as a group) or any other Person that such
Employee(s) or other Person would be provided with post-termination or retiree welfare benefits,
except to the extent required by statute.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Neither the Company nor any ERISA Affiliate has, prior to the Effective Time and in any
material respect, violated any of the health care continuation requirements of COBRA, the
requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act
of 1996.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Neither the Company nor any ERISA Affiliate is currently obligated to provide an Employee
with any compensation or benefits pursuant to an agreement (e.g., an acquisition agreement) with a
former employer of such Employee.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;The execution of this Agreement and the consummation of the transactions contemplated
hereby will not (either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with
respect to any Employee. No payment or benefit which has been, will be or may be made by the
Company or its ERISA Affiliates with respect to any Employee will be, or could reasonably be
expected to be, characterized as a &#147;parachute payment,&#148; within the meaning of Section&nbsp;280G(b)(2) of
the Code (&#147;<B>Section&nbsp;280G Payments</B>&#148;). There is no contract, agreement, plan or arrangement to which
the Company or any ERISA Affiliates is a party or by which it is bound to compensate any Employee
for excise taxes paid pursuant to Section&nbsp;4999 of the Code.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;The Company: (i)&nbsp;is in compliance in all material respects with all applicable foreign,
federal, state and local laws, rules and regulations respecting
employment, employment practices and wages and hours, in each case, with respect to Employees;
(ii)&nbsp;has withheld and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees; (iii)&nbsp;is not liable for
any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing;
and (iv)&nbsp;is not liable for any payment to any trust or other fund governed by or maintained by or
on behalf of any governmental authority, with respect to unemployment compensation benefits, social
security or other benefits or obligations for Employees (other than routine payments to be made in
the normal course of business and consistent with past practice). There are no pending, threatened
or reasonably anticipated claims or actions against the Company under any workers&#146; compensation
policy or long-term disability policy. Neither the Company nor any ERISA Affiliate has direct or
indirect liability with respect to any misclassification of any Person as an independent contractor
rather than as an employee, or with respect to



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<P align="left" style="font-size: 10pt">any employee leased from another employer, except as
would not result in material harm to the Company.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;No work stoppage or labor strike against the Company or any ERISA Affiliate is pending,
threatened or reasonably anticipated. To the Knowledge of the Company, there are no activities or
proceedings of any labor union to organize any Employees. There are no actions, suits, claims,
labor disputes or grievances pending, or, to the Knowledge of the Company, threatened or reasonably
anticipated relating to any labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, result in any material
liability to the Company. The Company has not engaged in any unfair labor practices within the
meaning of the National Labor Relations Act. The Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union contract with respect
to Employees and no collective bargaining agreement is being negotiated with respect to Employees.
The Company has not incurred any material liability or material obligation under the Worker
Adjustment and Retraining Notification Act or any similar state or local law that remains
unsatisfied.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;Neither the Company nor any ERISA Affiliate currently, nor has it ever had the obligation
to, maintain, establish, sponsor, participate in, or contribute to any International Employee Plan.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.23 <U>Insurance</U>. <B>Section&nbsp;3.23 </B>of the Company Disclosure Schedule lists all insurance
policies and fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company. There is no claim by the Company pending under
any of such policies or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and the Company and its affiliates are otherwise in material compliance with
the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance coverage). As of the
date of this Agreement, the Company has no Knowledge of threatened termination of, or material
premium increase with respect to, any of such policies.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.24 <U>Compliance with Laws</U>. The Company and its Subsidiaries and all assets and
properties of the Company and its Subsidiaries have complied in all material respects with, are not
in material violation of, and have not received any notices of pending violation with respect to,
any foreign, federal, state or local statute, law or regulation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.25 <U>Warranties; Indemnities</U>. Except for the warranties, indemnities and service
level commitments contained in those Contracts set forth in <B>Section&nbsp;3.</B><B>13(o)</B> of the Company
Disclosure Schedule and warranties implied by law, neither the Company nor its Subsidiaries has
given any warranties, indemnities or service level commitments


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<P align="left" style="font-size: 10pt">relating to products or technology
sold or services rendered by the Company or its Subsidiaries.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.26 <U>Complete Copies of Materials</U>. The Company has delivered true and complete copies
of each document (or summaries of same) that either is referenced in the Company Disclosure
Schedule or that has been requested by Parent or its counsel.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.27 <U>Information Statement</U>. None of the information supplied or to be supplied by the
Company for inclusion in the Information Statement will, at the time of the Hearing with the
California Commissioner and at the time of any stockholder vote on this Agreement and the Merger
(or, if applicable, at the time of any stockholder approval of this Agreement and the Merger
becomes effective in accordance with applicable law), contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Merger Sub which is set forth in any of the foregoing documents.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.28 <U>Inventory</U>. The Company&#146;s and the Subsidiaries&#146; inventory (the &#147;<B>Inventory</B>&#148;) is of
good and merchantable quality in all material respects, and none of which is obsolete, damaged or
defective, except for items which have been written off, or for which adequate reserves have been
provided, in the most recently prepared balance sheet of the Company prior to the date this
representation is provided.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.29 <U>Customers</U>. <B>Section&nbsp;3.29 </B>of the Company Disclosure Schedule lists the customers
who, in the fiscal year ended April&nbsp;30, 2005, were the twenty (20)&nbsp;largest sources of revenues for
the Company and the Subsidiaries, on a consolidated basis (each, a <B><I>&#147;</I></B><B>Significant Customer</B><B><I>&#148;</I></B>). As of
the date of this Agreement, the Company and the Subsidiaries have no outstanding disputes
concerning any material aspect of its products and/or services with any Significant Customer, and,
as of the date of this Agreement, the Company has no Knowledge of any material dissatisfaction on
the part of a Significant Customer with respect to the Company&#146;s products and services nor any
intent on the part of a Significant Customer to (a)&nbsp;terminate any Contract between such Significant
Customer and the Company or its Subsidiaries, (b)&nbsp;refuse to pay any amount due from such
Significant Customer to the Company or its Subsidiaries, (c)&nbsp;return products of the Company or its
Subsidiaries, or (d)&nbsp;seek the exercise of any remedy against the Company or any Subsidiary.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.30 <U>Suppliers</U>. <B>Section&nbsp;3.30 </B>of the Company Disclosure Schedule lists the suppliers
who, in the fiscal year ended April&nbsp;30, 2005, were the ten (10)&nbsp;largest suppliers of goods and
services to the Company and its Subsidiaries, based on amounts paid (each, a <B><I>&#147;</I></B><B>Significant
Supplier</B><B><I>&#148;</I></B>). The Company and the Subsidiaries have no outstanding disputes concerning the products
and/or services provided by any Significant Supplier, and, as of the date of this Agreement,
neither the Company nor any Subsidiary has any


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<P align="left" style="font-size: 10pt">intent of (a)&nbsp;terminating any Contract with any
Significant Supplier, (b)&nbsp;refusing to pay any amount due to any Significant Supplier, (c)&nbsp;returning
any products to any Significant Supplier or (d)&nbsp;seeking to exercise any remedy against any
Significant Supplier. As of the date of this Agreement, the Company has no Knowledge that any
Significant Supplier intends to terminate any Contract between such Significant Supplier and the
Company or any of its Subsidiaries or seek to exercise any remedy against the Company or any of its
Subsidiaries.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.31 <U>Foreign Corrupt Practices Act.</U> Neither the Company nor its Subsidiaries
(including any of its officers, directors and, to the Knowledge of the Company, its
representatives) has taken any action which would cause them to be in violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any rules or regulations thereunder.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.32 <U>Export Control Laws.</U> The Company and its Subsidiaries have at all times
conducted their export transactions in accordance with (i)&nbsp;all applicable U.S. export and re-export
controls, including the United States Export Administration Act and Regulations and Foreign
Assets Control Regulations and (ii)&nbsp;all other applicable import/export controls in other
countries in which the Company conducts business. Without limiting the foregoing:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Company and its Subsidiaries have obtained all export licenses, license exceptions and
other consents, notices, waivers, approvals, orders, authorizations, registrations, declarations
and filings with any Governmental Entity required for (i)&nbsp;the export and re-export of products,
services, software and technologies and (ii)&nbsp;releases of technologies and software to foreign
national employees located in the United States and abroad (&#147;<B>Export Approvals</B>&#148;);



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company and its Subsidiaries are in compliance with the terms of all applicable Export
Approvals; and



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Company has no Knowledge that any of its employees are citizens or legal permanent
residents of any of the following countries: Cuba, Iran, Libya, North Korea, Sudan, and Syria; and



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;No Export Approvals for the transfer of export licenses to Parent or the Surviving
Corporation are required, or such Export Approvals can be obtained expeditiously without material
cost.



<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;IV</U>



<P align="center" style="font-size: 10pt"><U>REPRESENTATIONS AND WARRANTIES OF PARENT</U>


<DIV align="center" style="font-size: 10pt"><U>AND MERGER SUB</U></DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Parent and Merger Sub hereby represent and warrant to the Company as follows:


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 <U>Incorporation, Standing and Power</U>. Each of Parent and Merger Sub is a corporation
duly incorporated, validly existing and in good standing under the laws of the state of Delaware
and has the requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each of Parent and Merger
Sub is duly qualified or licensed as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of the properties owned, leased or operated by it or the
nature of its activities makes such qualification or licensing necessary, except where the failure
to be so qualified, licensed or in good standing has not had, and would not reasonably be expected
to have, either individually or in the aggregate, a Parent Material Adverse Effect.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 <U>Authority; Enforceability</U>. Each of Parent and Merger Sub has all requisite power
and authority to enter into this Agreement and to consummate the transactions contemplated hereby.
The
execution and delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part of Parent or Merger
Sub and no further action is required on the part of Parent or Merger Sub to authorize this
Agreement and the transactions contemplated hereby. This Agreement and the agreements contemplated
hereby to which Parent and Merger Sub are a party, have been duly executed and delivered by the
Parent and Merger Sub, as applicable, and, assuming the due authorization, execution and delivery
by the other parties hereto, constitutes the valid and binding obligations of the Parent and Merger
Sub, enforceable against the Parent and Merger Sub in accordance with their respective terms. No
vote of or other action by the holders of Parent&#146;s Common Stock (or securities convertible into
Parent&#146;s Common Stock) is required (by law, by the Marketplace Rules of The Nasdaq Stock Market or
otherwise) in connection with the execution, delivery or performance of this Agreement or the
consummation by Parent of any of the transactions contemplated hereby.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 <U>Capitalization</U>. As of the date hereof, the authorized capital stock of Parent
consists of (i)&nbsp;885,000,000 shares of Parent Common Stock, $0.001 par value per share (&#147;<B>Parent
Common</B>&#148;), and (ii)&nbsp;5,000,000 shares of Parent Preferred Stock, par value $0.001 per share (&#147;<B>Parent
Preferred</B>&#148;). At the close of business on June&nbsp;14, 2005, (i)&nbsp;369,002,994 shares of Parent Common
were issued and outstanding, all of which are duly authorized, validly issued, fully paid and
non-assessable, (ii)&nbsp;231,985,920 shares of Parent Common Stock were reserved for issuance pursuant
to Parent&#146;s stock option and employee stock purchase plans, and (iii)&nbsp;no shares of Parent Preferred
were outstanding. Except as set forth above, at the close of business on June&nbsp;14, 2005, no shares
of capital stock or other voting securities of Parent were issued, reserved for issuance or
outstanding. Except for certain rights of first refusal, lock-ups and other restrictions in favor
of Parent with respect to sales of the securities issued pursuant to Parent&#146;s stock plans and the
forms of agreements used under such plans, and other than as described above, there are no other
outstanding rights, options, warrants, preemptive rights, redemption rights, rights of first
refusal or similar rights for the purchase or acquisition from Parent of any securities of Parent.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 <U>Parent Common Stock</U>. The Parent Common Stock to be issued pursuant to the Merger
and pursuant to the Company Options assumed by Parent has been duly authorized and will, when
issued in accordance with this Agreement, be validly issued, fully paid and non-assessable and will
be free of any liens, encumbrances, preemptive rights and rights of first refusal.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5 <U>No Conflict</U>. The execution and delivery by Parent and Merger Sub of this
Agreement does not, and the consummation of the transactions contemplated hereby will not, give
rise to a
Conflict under (i)&nbsp;any provision of the certificate of incorporation and bylaws of Parent or
Merger Sub, (ii)&nbsp;any material Contract to which Parent or any of its respective properties or
assets (whether tangible or intangible) are subject or (iii)&nbsp;any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent or Merger Sub or their respective
properties or assets (whether tangible or intangible), except in the case of (ii)&nbsp;or (iii)&nbsp;where
such Conflict would not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect or have an effect on the legality, validity or enforceability of this
Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6 <U>Consents</U>. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority, or any third party including
a party to any agreement with Parent or Merger Sub (so as not to give rise to any Conflict), is
required by or with respect to Parent or Merger Sub in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby, except for (i)&nbsp;the
applicable requirements, if any, of the Securities Act, the Exchange Act and Blue Sky Laws, (ii)&nbsp;if
applicable, the rules and regulations of The Nasdaq Stock Market, Inc., (iii)&nbsp;the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, (iv)&nbsp;the issuance of
the Permit by California Commissioner, (v)&nbsp;such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under the HSR Act and
other similar anti-trust requirements of foreign Governmental Authorities, and (vi)&nbsp;such consents,
waivers, approvals, orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not, individually or in the aggregate, have an effect on the legality,
validity or enforceability of this Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7 <U>Brokers&#146; and Finders&#146; Fees</U>. Neither Parent nor Merger Sub has incurred, or will
incur, directly or indirectly, any liability for brokerage or finders&#146; fees or agent&#146;s commissions
or any similar charges in connection with the Agreement or any transaction contemplated hereby.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.8 <U>SEC Documents; Parent Financial Statements</U>. Parent has made available to the
Company each statement, report, registration statement (with the prospectus in the form filed
pursuant to Rule 424(b) of the Securities Act), definitive proxy statement and other filing filed
with the SEC by Parent since April&nbsp;30, 2004 (collectively, the <B>&#147;Parent SEC Documents&#148;</B>). In
addition, Parent has made available to the Company all exhibits (subject to redaction) to the
Parent SEC Documents filed prior to the date hereof. As of their respective filing dates (or if
amended or supplemented by a


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<P align="left" style="font-size: 10pt">filing, then on the date of such subsequent filing), the Parent SEC
Documents complied in all material respects with the requirements of the Exchange Act and the
Securities Act, and none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances under which
they were made, not misleading. The financial statements of Parent, including the related notes
thereto, included in the Parent SEC Documents (the <B><I>&#147;</I></B><B>Parent Financial Statements</B><B><I>&#148;</I></B>) complied as to
form in all material respects with the published rules and regulations of the SEC with respect
thereto as of their respective dates and were prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated (except as may be indicated in the notes thereto or, in
the case of unaudited statements, as permitted by the SEC on Form 10-Q, 8-K or any successor form
under the Exchange Act). The Parent Financial Statements fairly present in all material respects
the consolidated financial condition and operating results of Parent and its subsidiaries at the
dates and during the periods indicated therein (except that unaudited statements may not contain
footnotes and were or are subject to normal and recurring year-end adjustments).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.9 <U>Information Statement</U>. None of the information supplied or to be supplied by
Parent or Merger Sub for inclusion in the Information/Solicitation Statement will, at the time of
the Hearing with the California Commissioner and at the time of any stockholder vote on this
Agreement and the Merger (or, if applicable, at the time of any stockholder approval of this
Agreement and the Merger becomes effective in accordance with applicable law), contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they
are made, not misleading. Notwithstanding the foregoing, Parent and Merger Sub make no
representation or warranty with respect to any information supplied by the Company which is set
forth in any of the foregoing documents.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.10 <U>Interim Operations of Merger Sub</U>. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other business activities and
has conducted its operations only as contemplated hereby.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.11 <U>No Changes</U>. During the period from the date of the most recent consolidated
balance sheet included in the Parent SEC Documents through the date of this Agreement, there has
not been a Parent Material Adverse Effect.


<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;V</U>



<P align="center" style="font-size: 10pt"><U>CONDUCT PRIOR TO THE EFFECTIVE TIME</U>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the time period from the date hereof until the earlier to occur of (a)&nbsp;the Effective
Time or (b)&nbsp;the termination of this Agreement in accordance with the provisions of <B>Article&nbsp;IX</B>, the
Company covenants and agrees with Parent as follows:


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 <U>Conduct of Business of the Company</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Except as expressly contemplated by this Agreement, as set forth in <B>Section&nbsp;5.1(a) </B>of the
Company Disclosure Schedule, or as Parent shall otherwise consent in writing (which consent shall
not be unreasonably withheld or delayed), the Company shall operate its business in the usual,
regular and ordinary course in substantially the same manner as heretofore conducted, pay its debts
and Taxes when due, pay or perform its other obligations when due, and, to the extent not
inconsistent with such business, shall use its reasonable best efforts to preserve intact its
present business organizations, keep available the services of its present officers and key
employees and preserve its relationships with its material customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Except as expressly contemplated by this Agreement, as set forth in <B>Section&nbsp;5.1(b) </B>of the
Company Disclosure Schedule, or as Parent shall otherwise consent in writing (which consent shall
not be unreasonably withheld or delayed) or to ensure that the Company complies with applicable
laws and regulations and pre-existing contractual obligations, the Company shall not (and shall
cause its Subsidiaries not to):



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;make any capital equipment expenditure or enter into any commitment therefor exceeding
$25,000 individually or $100,000 in the aggregate;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;(A)&nbsp;sell, license or transfer to any Person any rights to any Company Intellectual
Property or enter into any agreement with respect to any Company Intellectual Property with any
Person or with respect to any Intellectual Property Rights of any Person, except in the ordinary
course of business, (B)&nbsp;buy or license any Intellectual Property Rights or enter into any agreement
with respect to the Intellectual Property Rights of any Person, except in the ordinary course of
business, (C)&nbsp;enter into any agreement with respect to the development of any Intellectual Property
Rights with a third party, (D)&nbsp;or change pricing or royalties charged by the Company to its
customers or licensees, or the pricing or royalties set or charged by Persons who have licensed
Intellectual Property Rights to the Company;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;terminate (except in connection with an end of term scheduled as of the date of this
Agreement) or amend, waive or modify the terms of, any Contract disclosed on the Company Disclosure
Schedule (except for amendments, waiver or modifications to Contracts with customers of the Company
in connection with a scheduled end of term or renewal) , or extend any Contract disclosed on the
Company Disclosure Schedule outside of the ordinary course of business, or enter into any Contract
that would have been required to have been disclosed on <B>Section&nbsp;3.11, Section&nbsp;3.12 </B>or <B>Section
3.</B><B>13(a)</B> of the Company Disclosure Schedule had such Contract been entered into prior to the date
hereof (or agree to do any of the foregoing set forth in this <B>Section&nbsp;5.</B><B>1(b)(iii)</B>);


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;engage in or enter into any material transaction or commitment, or relinquish any
material right, outside the ordinary course of the Company&#146;s business consistent with past
practice;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;enter into (except in the ordinary course of business) or materially amend, waive or
modify (except for amendments, waiver or modifications to Contracts with customers of the Company
in connection with a scheduled end of term or renewal) the terms of any Contract pursuant to which
any other party is granted marketing, distribution, development or similar rights of any type or
scope with respect to any products or technology of the Company;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;commence or settle any litigation, other than (A)&nbsp;to enforce its rights under this
Agreement or (B)&nbsp;for the routine collection of bills.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;declare, set aside, or pay any dividends on or make any other distributions (whether in
cash, stock or property) in respect of any Company Capital Stock, or split, combine or reclassify
any Company Capital Stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of Company Capital Stock, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of Company Capital Stock (or options,
warrants or other rights exercisable therefor) except in accordance with the agreements evidencing
Company Options or upon conversion of Company Preferred Stock; <I>provided, however, </I>that the Company
may, in the ordinary course of business and in amounts and with other material terms consistent
with past practice, grant Company Options (A)&nbsp;to Employees hired after the date hereof and (B)&nbsp;in
which the aggregate amount of shares issuable pursuant to such grants of Company Options shall not
exceed 500,000, and (C)&nbsp;repurchase shares of Company Capital Stock in connection with repurchase
rights contained in restricted stock agreements evidencing the issuance of such shares;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or
sale of, or purchase or propose the purchase of, any shares of Company Capital Stock or any
securities convertible into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue or purchase any such shares or
other convertible securities convertible into Company Capital Stock, other than issuances of
Company Common Stock pursuant to exercises of Company Options in accordance with their terms or the
conversion of Company Preferred Stock and repurchases of Company Capital Stock in connection with
repurchase rights existing on the date hereof or granted following the date hereof in connection
with the issuance of Company Options permitted by clause (vii)&nbsp;above;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;cause or permit any amendments to its certificate of incorporation, bylaws or other
organizational documents of the Company or any of its Subsidiaries;


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;acquire or agree to acquire by merging or consolidating with, or by purchasing (outside of
the ordinary course of business consistent with past practice) any assets or equity securities of,
or by any other manner, any business or any corporation, partnership, association or other business
organization or division thereof;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;sell, lease, license or otherwise dispose of any of its properties or assets, including
the sale of any accounts receivable of the Company, except properties or assets (whether tangible
or intangible) that are not Company Intellectual Property and only in the ordinary course of
business and consistent with past practices (it being understood that such activities are governed
by clause (ii)&nbsp;above); or grant or otherwise create or consent to the creation of any easement,
covenant, restriction, assessment or charge (other than Permitted Liens) affecting any material
owned tangible property or material leased tangible or real property or any part thereof; convey,
assign, sublease, license or otherwise transfer all or any portion of any owned material tangible
property or any leased material tangible or material real property or any interest or rights
therein;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;incur any Indebtedness or issue or sell any debt securities or guarantee any debt
securities or other obligations of others;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;grant any loans to others (other than advances to employees for travel and business
expenses in the ordinary course of business consistent with past practices) or purchase debt
securities of others or amend the terms of any outstanding loan agreement;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;grant any severance or termination pay (in cash or otherwise) to any Employee, including
any officer, except payments made pursuant to written agreements outstanding on the date hereof and
disclosed in the Company Disclosure Schedule;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv)&nbsp;adopt or amend any Company Employee Plan, enter into any Employee Agreement (other than
(A)&nbsp;customary &#147;offer letters&#148; for new hires that are &#147;at will&#148; employment arrangements and (B)
agreements with consultants or contractors that are not in the aggregate material to the Company),
pay or agree to pay any special bonus or special remuneration to any Employee, or increase or agree
to increase the salaries, wage rates, or other compensation or benefits of its Employees, except
payments made pursuant to written agreements outstanding on the date hereof and disclosed in the
Company Disclosure Schedule;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi)&nbsp;accelerate (either partially or fully) the vesting or exercisability of any Company
Options<B><I>; </I></B>except as provided for under the terms of existing Company Options and related agreements
providing for such acceleration;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvii)&nbsp;revalue any of its assets (whether tangible or intangible), including, without
limitation, writing off notes or accounts receivable, settle, discount or


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<P align="left" style="font-size: 10pt">compromise any accounts receivable, or reverse any reserves other than in the ordinary course
of business and consistent with past practice;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xviii)&nbsp;pay, discharge or satisfy, in an amount in excess of $100,000 in the aggregate, any
claim, liability, loan or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise) or enter into a commitment or transaction to do any of the same, in each case other than
the payment, discharge or satisfaction of liabilities (or the entering into a commitment or
transaction to do any of the same) incurred in the ordinary course of business or reflected or
reserved against in the Current Balance Sheet;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xix)&nbsp;make or change any election in respect of Taxes, adopt or change any accounting method
in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of
Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xx)&nbsp;enter into any licensing or distribution Contract or arrangement outside of the ordinary
course of business or enter into any joint venture, strategic alliance or joint marketing or any
similar Contract or arrangement;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxi)&nbsp;hire, offer to hire or terminate any employees, or encourage any employees to resign
from the Company, in each case, other than hires as contemplated in <B>Exhibit&nbsp;D</B>, attached hereto;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxii)&nbsp;change the Company&#146;s accounting policies or procedures, including with respect to
reserves for doubtful accounts, or payment or collection policies or practices;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiii)&nbsp;waive or release any material right or claim, including any write-off, discount or
other compromise of any account receivable of the Company, other than write-offs of accounts
receivable in the ordinary course of business consistent with past practices; or


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiv)&nbsp;take, or agree in writing or otherwise to take, any of the actions described in <B>Section
5.</B><B>1(b)(i)</B> through <B>Section&nbsp;5.</B><B>1(b)(xxiii)</B>, inclusive, or any other action that would (A)&nbsp;prevent the
Company from performing its covenants hereunder in any material respect, or (B)&nbsp;cause or result in
any of its representations and warranties set forth herein being untrue or incorrect in any
material respect.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Notwithstanding the provisions of this <B>Section&nbsp;5.1</B>, the Company shall be expressly
permitted to purchase up to a six-year pre-paid &#147;tail&#148; extension of its existing directors&#146; and
officers&#146; and fiduciary liability insurance policy providing for coverage limits and other terms
and conditions that are no more favorable to the beneficiaries thereof, in the aggregate, than the
existing coverage limits and other terms and conditions as the Company&#146;s existing directors&#146; and
officers&#146; and fiduciary liability



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<P align="left" style="font-size: 10pt">insurance policy and covering periods prior to the Effective Time but only with respect to
claims arising from facts or events which occurred at or before the Effective Time.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 <U>No Solicitation</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Subject to <B>Sections&nbsp;5.2(d) </B>and <B>6.2(b)</B>, neither the Company nor any of its Subsidiaries
will, nor will any of them authorize or permit any of their respective officers, directors,
affiliates, or Employees or any investment banker, agent or other representative retained by any of
them (all of the foregoing collectively being the &#147;<B>Company Representatives</B>&#148;) to, directly or
indirectly, (i)&nbsp;solicit, initiate, seek, entertain, encourage, facilitate, support or induce (or
assist in or cooperate with any Person in) the making, submission or announcement of any inquiry,
expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead
to, an Acquisition Proposal (as hereinafter defined), (ii)&nbsp;enter into, participate in, maintain or
continue any communications (except solely to communicate the existence of these provisions) or
negotiations regarding any inquiry, expression of interest, proposal or offer that constitutes, or
would reasonably be expected to lead to, an Acquisition Proposal, (iii)&nbsp;agree to, accept, approve,
endorse or recommend (or publicly propose or announce any intention or desire to agree to, accept,
approve, endorse or recommend) any Acquisition Proposal, (iv)&nbsp;enter into any letter of intent or
any other Contract contemplating or otherwise relating to any Acquisition Proposal, (v)&nbsp;submit any
Acquisition Proposal to the vote of any securityholders of Company or any Subsidiary, (vi)
consummate or otherwise effect a transaction providing for any acquisition of the Company as
contemplated in Section&nbsp;5.2(b) or (vii)&nbsp;disclose or make available any information not customarily
disclosed to any Person concerning the Company&#146;s businesses, properties, assets or technologies, or
afford to any Person access to its properties, technologies, books or records in a manner that
could reasonably be expected to lead to an Acquisition Proposal. Each of the Company and its
Subsidiaries will immediately cease and cause to be terminated any and all existing activities,
discussions or negotiations with any Persons conducted prior to or on the date of this Agreement
with respect to any Acquisition Proposal.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) &#147;<B>Acquisition Proposal</B>&#148; shall mean, with respect to the Company, any agreement, offer,
proposal or indication of interest (other than this Agreement or any other offer, proposal or
indication of interest by Parent), or any public announcement of intention to enter into any such
agreement or of (or intention to make) any offer, proposal or bona fide indication of interest
(including any request for information from the Company or the Company Representatives that could
reasonably be expected to lead to an Acquisition Proposal), relating to, or involving the
acquisition of all or a significant portion of the Company&#146;s businesses, properties, assets or
technologies, or any amount of the Company Capital Stock (whether or not outstanding), whether by
merger, reorganization, purchase of assets, tender offer, license or otherwise
(other than issuances of Company Capital Stock pursuant to the exercise of outstanding Company
Options or conversion of Company Preferred Stock).



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Company shall promptly notify Parent orally and in writing after any director or
officer of the Company becomes aware of receipt by the Company and/or any Company Representatives
of (i)&nbsp;any Acquisition Proposal, (ii)&nbsp;any inquiry, proposal or offer that constitutes, or would
reasonably be expected to lead to, an Acquisition Proposal, or (iii)&nbsp;any request for information by
any Person or Persons (other than Parent) not customarily disclosed to any Person concerning the
Company&#146;s businesses, properties, assets or technologies that could reasonably be expected to lead
to an Acquisition Proposal. Such notice shall describe (1)&nbsp;the terms and conditions of such
Acquisition Proposal, inquiry, proposal, offer, notice or request, and (2)&nbsp;the identity of the
Person or Group (as defined in Section 13(d) of the Exchange Act) making any such Acquisition
Proposal, inquiry, proposal, offer, notice or request. The Company shall keep Parent fully
informed of the status and details of, and any modification to, any such Acquisition Proposal,
inquiry, proposal or offer and any correspondence or communications related thereto and shall
provide to Parent a true, correct and complete copy of such Acquisition Proposal, inquiry, proposal
or offer and any amendments, correspondence and communications related thereto, if it is in
writing, or a reasonable written summary thereof, if it is not in writing. The Company shall
provide Parent with 24 hours prior notice (or such lesser prior notice as is provided to the
members of the Board of Directors of the Company) of any meeting of the Board of Directors of the
Company at which the Board of Directors of the Company is reasonably expected to discuss any
Acquisition Proposal.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;In the event that any Person submits to the Company (and does not withdraw) a Superior
Proposal (as defined in <B>Section&nbsp;6.2(b)</B>) or an unsolicited, written, bona fide Acquisition Proposal
that the Company Board determines in good faith (after consultation with its outside legal counsel)
is, or would reasonably be expected to become, a Superior Proposal, then notwithstanding <B>Section
5.2(a)</B>, the Company may, so long as the Requisite Stockholder Approval of the Merger and the Merger
Agreement has not yet been obtained, (i)&nbsp;enter into discussions with such Person regarding such
Acquisition Proposal, and (ii)&nbsp;deliver or make available to such Person nonpublic information
regarding the Company and its Subsidiaries; <I>provided</I>, in every case, that the Company, its
Subsidiaries and the Company Representatives comply with each of the following: (1)&nbsp;neither the
Company, any of its Subsidiaries nor any Company Representative shall have violated any of the
restrictions set forth in this <B>Section&nbsp;5.2</B>, (2)&nbsp;the Company&#146;s Board of Directors first shall have
determined in good faith, after consultation with its outside counsel, that taking such action is
required in order to comply with its fiduciary obligations to the Company Stockholders under
Delaware Law and California Law, as applicable, (3)&nbsp;the Company first shall have provided Parent
with written notice of the identity of such Person and all of the material terms and conditions of
such Acquisition Proposal and of the Company&#146;s intention to take such actions, (4)&nbsp;the Company
first shall have received from such Person an executed confidentiality agreement containing terms
at least as restrictive with regard to Company&#146;s confidential
information as the Non-Disclosure Agreement (as defined in <B>Section&nbsp;10.3</B>), it being understood
that such confidentiality agreement shall not include any provision calling for any exclusive right
to negotiate with such Person or having the purported effect of



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<P align="left" style="font-size: 10pt">restricting it from satisfying its
obligations under this Agreement, (5)&nbsp;the Company first shall have given Parent at least 24 hours
advance notice of its intent to take such actions, and (6)&nbsp;prior to or contemporaneously with
delivering or making available any such nonpublic information to such Person, the Company shall
deliver such nonpublic information to Parent (to the extent such nonpublic information has not been
previously delivered by the Company to Parent).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;The Company shall be deemed to have breached the terms of this <B>Section&nbsp;5.2 </B>if any Company
Representatives (other than consultants and contractors for so long as the Company has not breached
the provisions of <B>Section&nbsp;5.2(a)</B>) shall take any action, whether in his or her capacity as such or
in any other capacity, that is prohibited by this <B>Section&nbsp;5.2. </B>The parties hereto agree that
irreparable damage would occur in the event that the provisions of this <B>Section&nbsp;5.2 </B>were not
performed in accordance with their specific terms or were otherwise breached. It is accordingly
agreed by the parties hereto that Parent shall be entitled to seek an injunction or injunctions to
prevent breaches of the provisions of this <B>Section&nbsp;5.2 </B>and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which Parent may be entitled at
law or in equity.



<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;VI</U>



<P align="center" style="font-size: 10pt"><U>ADDITIONAL AGREEMENTS</U>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 <U>Information Statement; Fairness Hearing and Permit</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;As soon as reasonably practicable after the execution of this Agreement, (i)&nbsp;Parent shall
prepare, with the cooperation of the Company, the application for permit (the <B><I>&#147;</I></B><B>Permit Application</B><B><I>&#148;</I></B>)
in connection with the Hearing (as defined below) and the notice sent to the Company Stockholders
pursuant to, and meeting the requirements of Article&nbsp;2 of Subchapter 1 of the California
Administrative Code, Title 10, Chapter&nbsp;3, Subchapter 2, as amended (the <B><I>&#147;</I></B><B>Hearing Notice</B><B><I>&#148;</I></B>),
concerning the hearing (the <B><I>&#147;</I></B><B>Hearing</B><B><I>&#148;</I></B>) held by the California Commissioner to consider the terms
and conditions of this Agreement and the Merger and the fairness of such terms and conditions
pursuant to California Securities Law, and (ii)&nbsp;the Company shall prepare, with the cooperation of
Parent, an information statement relating to this Agreement and the transactions contemplated
hereby (the <B><I>&#147;</I></B><B>Information Statement</B><B><I>&#148;</I></B>). The Company shall prepare the Information Statement based on
a form prepared by Parent. Each of the Company and Parent shall use its reasonable best efforts to
cause the Permit Application, the Hearing Notice and the Information Statement to comply with all
requirements of applicable federal and state securities laws. Each of the Company and Parent shall
provide promptly to the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the receiving party or its counsel,
may be required or appropriate for inclusion in the Permit Application, the Hearing Notice or
the Information Statement, or in any amendments or supplements thereto, and to cause its counsel
and auditors to cooperate with the other&#146;s counsel and auditors in the



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<P align="left" style="font-size: 10pt">preparation of the Permit
Application, the Hearing Notice and the Information Statement. The Information Statement shall
constitute a disclosure document for the offer and issuance of the shares of Parent Common Stock to
be received by the Company Stockholders and/or Company Optionholders in the Merger and an
information statement for solicitation of stockholder consent with respect to the adoption of the
Merger Agreement and the approval of the Merger. Whenever any event occurs that is required to be
set forth in an amendment or supplement to the Permit Application or Information Statement, the
Company and Parent shall cooperate in delivering any such amendment or supplement to all Company
Stockholders and/or Company Optionholders and/or filing any such amendment or supplement with the
California Commissioner or its staff and/or any other government officials. Subject to the
provisions of <B>Section&nbsp;6.2(b)</B>, the Information Statement shall include the unqualified
recommendation of the Board of Directors of the Company in favor of adoption of this Agreement and
approval of the Merger and the conclusion of the Board of Directors of the Company that the terms
and conditions of the Merger and this Agreement are fair, advisable and in the best interests of
the Company and its securityholders. Anything to the contrary contained herein notwithstanding,
the Company shall not include in the Information Statement any information with respect to Parent
or its affiliates or associates, the form and content of which information shall not have been
approved by Parent prior to such inclusion; <I>provided, however</I>, that Parent shall not withhold
approval of any information reasonably required to be included by federal or state law or the
California Commissioner.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Each of Parent and the Company shall use its reasonable best efforts (i)&nbsp;to cause to be
filed with the California Commissioner, as soon as reasonably practicable following the execution
of this Agreement, and in any event within ten (10)&nbsp;business days after the date hereof, the Permit
Application and the Hearing Notice and (ii)&nbsp;to obtain, as soon as practicable following the
execution of this Agreement, the Permit such that the issuance of the Parent Common Stock in
connection with the Merger shall be exempt pursuant to Section&nbsp;3(a)(10) of the Securities Act from
the registration requirements of Section&nbsp;5 of the Securities Act. The Company and Parent shall
notify each other promptly of the receipt of any comments from the California Commissioner or its
staff and of any request by the California Commissioner or its staff or any other government
officials for amendments or supplements to any of the documents filed therewith or any other filing
or for additional information and shall provide each other with copies of all correspondence
between such party or any of its representatives, on the one hand, and the California Commissioner,
or its staff or any other government officials, on the other hand, with respect to the filing.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;As soon as permitted by the California Commissioner, the Company shall deliver by personal
delivery or reputable overnight courier the Hearing Notice and Information Statement to all Company
Stockholders and Company Optionholders entitled to receive such notice under California Securities
Law. Except
for the delivery of the Hearing Notice and the Information Statement in accordance with the
terms hereof, the Company shall not, and shall cause each Subsidiary not to, directly



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<P align="left" style="font-size: 10pt">or
indirectly, solicit the vote of any Company Stockholder in connection with the Merger in violation
of any applicable federal or state securities laws.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Each of the Company and Parent shall use its reasonable best efforts to cause the
information relating to the Company and Parent included in the Hearing Notice, the Permit
Application and the Information Statement to not, at the time the Hearing Notice and Information
Statement are delivered to Company Stockholders and Company Optionholders and at all times
subsequent thereto (through and including the Effective Time), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which they were made, not
misleading. The Company shall promptly advise Parent, and Parent shall promptly advise the
Company, in writing if at any time prior to the Effective Time either the Company or Parent shall
obtain Knowledge of any facts that might make it necessary or appropriate to amend or supplement
the Hearing Notice, the Permit Application, and/or the Information Statement, in order to make the
statements contained or incorporated by reference therein not misleading or to comply with
applicable law. The Company and Parent shall cooperate in delivering any such amendment or
supplement to all Company Stockholders and/or Company Optionholders and/or filing any such
amendment or supplement with the California Commissioner or its staff and/or any other government
officials.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;In the event that the California Commissioner notifies Parent or the Company of the
California Commissioner&#146;s determination not to grant the Hearing, not to permit the mailing of the
Notice of Hearing and/Information Statement and/or not to issue the Permit (or that any of the
foregoing will be conditioned upon a material alteration to the terms of this Agreement, any
exhibit or schedule hereto or the transactions contemplated hereby or thereby), then Parent shall
promptly file a registration statement on Form S-4 (or any similar successor form thereto) with the
SEC in connection with the issuance of shares of Parent Common Stock in the Merger, together with a
proxy statement/prospectus to be filed with the SEC as part of the registration statement on Form
S-4. Each of the Company and Parent will provide each other with any information which may be
required in connection with the preparation and filing of the proxy statement/prospectus and the
registration statement on Form S-4. Each of the Company and Parent will respond to any comments of
the SEC, will use its respective reasonable best efforts to have the registration statement on Form
S-4 declared effective under the Securities Act as promptly as practicable after such filing and
the Company and Parent will cause the proxy statement/prospectus to be mailed to the Company
Stockholders at the earliest practicable time after the registration statement on Form S-4 is
declared effective by the SEC. Each of the Company and Parent will notify the other promptly (i)
upon the occurrence of any event which is required to be set forth in an amendment or supplement to
the proxy statement/prospectus or the registration statement on Form S-4 or (ii)&nbsp;upon the receipt
of any comments from the SEC or its staff or any request by the SEC or its staff for amendments or
supplements to proxy
statement/prospectus or the registration statement on Form S-4 or for additional information
and will supply the other with copies of all correspondence between such



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<P align="left" style="font-size: 10pt">party or any of its
representatives, on the one hand, and the SEC or its staff on the other hand, with respect to the
proxy statement/prospectus or the registration statement on Form S-4.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 <U>Approval of the Company Stockholders</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;As soon as practicable after the date the California Commissioner issues the Permit or, in
the event that Parent files the registration statement on Form S-4 pursuant to <B>Section&nbsp;6.1(e)</B>, as
soon as practicable after the declaration of effectiveness of the registration statement on Form
S-4 (and in any event, to the extent permissible under applicable law, within ten (10)&nbsp;days), the
Company shall take all action necessary in accordance with this Agreement, Delaware Law, (and
California Law, if applicable) and the Certificate of Incorporation and Bylaws of the Company to
obtain the Requisite Stockholder Approval for the adoption of this Agreement and approval of the
Merger and the other transactions contemplated by this Agreement. The Company&#146;s obligation to
obtain the Requisite Stockholder Approval shall not be limited to or otherwise affected by the
commencement, disclosure, announcement or submission to the Company of any Acquisition Proposal or
any subsequent action by the Company&#146;s Board of Directors.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) (i)&nbsp;The Company&#146;s Board of Directors shall unanimously recommend (acting without the
participation of David Strohm) that the Company Stockholders vote in favor of the approval of the
Merger and adoption of this Agreement; (ii)&nbsp;subject to the provisions of the second sentence of
this <B>Section&nbsp;6.2(b)</B>, any information statement or other disclosure document distributed to the
Company Stockholders in connection with this transaction shall include a statement to the effect
that the Company&#146;s Board of Directors has unanimously recommended (acting without the participation
of David Strohm) that the Company Stockholders vote in favor of and approve and adopt this
Agreement and approve the Merger; and (iii)&nbsp;subject to the provisions of the second sentence of
this <B>Section&nbsp;6.2(b), </B>neither the Company&#146;s Board of Directors nor any committee thereof shall
withhold, withdraw, amend or modify, or propose or resolve to withhold, withdraw, amend or modify
in a manner adverse to Parent, the unanimous (acting without the participation of David Strohm)
recommendation of the Company&#146;s Board of Directors that the Company Stockholders vote in favor of
the approval of the Merger and adoption of this Agreement. Notwithstanding the foregoing, prior to
receipt by the Company of the Requisite Stockholder Approval approving the Merger and adopting this
Agreement, the Company&#146;s Board of Directors may withhold, withdraw, amend or modify its
recommendation to the Company Stockholders if (i)&nbsp;it receives an unsolicited written Acquisition
Proposal and reasonably concludes in good faith that such Acquisition Proposal, if accepted, is
reasonably likely to be consummated (taking into account all legal, financial and regulatory
aspects of the proposal, the likelihood of the proposal being financed and the Person making the
proposal), and would, if consummated, result
in a transaction more favorable to the Company Stockholders from a financial point of view
than the Merger and (ii)&nbsp;it reasonably concludes in good faith (following the receipt



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<P align="left" style="font-size: 10pt">of advice
from outside counsel) that modification or withdrawal of its recommendation is required in order to
comply with its fiduciary obligations to the Company Stockholders under Delaware Law and California
Law, as applicable (a &#147;<B>Superior Proposal</B>&#148;).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 <U>Reasonable Best Efforts; Third Party Consents</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Subject to the terms and conditions set forth in this Agreement, each of the parties
hereto shall use reasonable best efforts to take promptly, or cause to be taken promptly, all
actions, and to do promptly, or cause to be done promptly, all things necessary, proper or
advisable under applicable laws and regulations to satisfy the conditions set forth in <B>Article&nbsp;VII</B>
and to remove any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;In furtherance and not in limitation of <B>Section&nbsp;6.3(a)</B>, the Company shall use commercially
reasonable efforts to obtain all necessary consents, waivers and approvals of any parties to any
Contracts to which the Company is a party (including all consents, waivers and approvals set forth
in the Company Disclosure Schedule) as are required thereunder in connection with the Merger in
order to ensure that all such Contracts remain in full force and effect from and after the
Effective Time in accordance with their respective terms and to preserve all rights of, and
benefits to, Parent and the Surviving Corporation under such Contracts from and after the Effective
Time. All such consents, waivers and approvals shall be in a form and substance reasonably
acceptable to Parent. In the event that the other parties to any such Contract, including any
lessor or licensor of any Leased Real Property, conditions its grant of a consent, waiver or
approval (including by threatening to exercise a &#147;recapture&#148; or other termination right) upon the
payment of a consent fee, &#147;profit sharing&#148; payment or other consideration, including increased rent
payments or other payments under the Contract, (i)&nbsp;the Company shall not make or commit to make any
such payment or provide any such consideration without Parent&#146;s prior written consent, and (ii)&nbsp;any
such payment shall be deemed to be a Transaction Expense for all purposes of and under this
Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.4 <U>Regulatory Approvals</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;In furtherance and not in limitation of the foregoing, each of the Company and Parent
shall promptly execute and file, or join in the execution and filing of, any application,
notification or other document that may be necessary in order to obtain the authorization, approval
or consent of any Governmental Authority, whether
federal, state, local or foreign, that may be reasonably required, or that Parent may
reasonably request, in connection with the consummation of the transactions contemplated hereby.
Each of the Company and Parent shall use reasonable best efforts to obtain all such authorizations,
approvals and consents. Each of the Company and Parent shall promptly inform the other of any
material communication between the Company or Parent (as applicable) and any Governmental Authority
regarding the



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<P align="left" style="font-size: 10pt">transactions contemplated hereby. If the Company or Parent or any affiliate thereof
shall receive any formal or informal request for supplemental information or documentary material
from any Governmental Authority with respect to the transactions contemplated hereby, then the
Company or Parent (as applicable) shall make, or cause to be made, as soon as reasonably
practicable, a response in compliance with such request. Each of the Company and Parent shall
direct, in its sole discretion, the making of such response, but shall consider in good faith the
views of the other.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Without limiting the generality or effect of <B>Section&nbsp;6.4(a)</B>, each of the Company and
Parent shall, as soon as practicable, and in any event no later than ten (10)&nbsp;business days after
the date hereof, make any initial filings required under the HSR Act. The parties hereto shall
consult and cooperate with one another, and consider in good faith the views of one another, in
connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other federal or state antitrust or fair trade law. Each
of the Company and Parent shall use its reasonable best efforts to resolve such objections, if any,
as may be asserted by any Governmental Authority with respect to the transactions contemplated by
this Agreement under the Antitrust Laws. In connection therewith, if any administrative or
judicial action or proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust Law, each of the Company
and Parent shall cooperate and use its reasonable best efforts to contest and resist any such
action or proceeding and to have vacated, lifted, reversed, or overturned any decree, judgment,
injunction or other order, whether temporary, preliminary or permanent (each an <B><I>&#147;</I></B><B>Order</B><B><I>&#148;</I></B>), that is
in effect and that prohibits, prevents, or restricts consummation of the Merger or any such other
transactions, unless the Company and Parent shall agree in writing that litigation is not in their
respective best interests. Notwithstanding the provisions of the immediately preceding sentence,
it is expressly understood and agreed that neither the Company nor Parent shall have any obligation
to litigate any administrative or judicial action or proceeding or any Order beyond the earlier of
(i)&nbsp;sixty (60)&nbsp;days after the date hereof and (ii)&nbsp;the date of a ruling preliminarily enjoining the
Merger issued by a court of competent jurisdiction. Each of the Company and Parent shall use its
reasonable best efforts to take such actions as may be required to cause the expiration of the
notice periods under the HSR Act or other Antitrust Laws with respect to such transactions as
promptly as possible after the execution of this Agreement. The Company and Parent shall take any
and all of the following actions to the extent necessary to obtain the approval of any Governmental
Authority with jurisdiction over the enforcement of any Applicable Laws regarding the transactions
contemplated hereby: (i)&nbsp;entering into negotiations;
(ii)&nbsp;providing information required by law or governmental regulation; and (iii)&nbsp;substantially
complying with any second request for information pursuant to the Antitrust Laws.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Notwithstanding anything to the contrary set forth herein, Parent shall not be required to
(i)&nbsp;agree to any license, sale or other disposition or holding



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<P align="left" style="font-size: 10pt">separate (through the establishment
of a trust or otherwise), of shares of capital stock or of any business, assets or property of
Parent, or of the Company or its affiliates, or the imposition of any limitation on the ability of
any of them to conduct their businesses or to own or exercise control of such assets, properties
and stock, or (ii)&nbsp;take any action under this <B>Section&nbsp;6.4, Section&nbsp;6.3 </B>or any other provision of
this Agreement if any Governmental Authority that has the authority to enforce any Antitrust Law
seeks, or authorizes its staff to seek, a preliminary injunction or restraining order to enjoin
consummation of the Merger.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.5 <U>Notification of Certain Matters</U>. The Company shall give prompt notice to Parent
of (a)&nbsp;the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which
would reasonably be expected to cause any representation or warranty of the Company set forth in
this Agreement to be untrue or inaccurate at or prior to the Effective Time, and (b)&nbsp;any failure of
the Company to comply with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. Parent shall give prompt notice to the Company of (x)&nbsp;the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which would cause any
representation or warranty of Parent or Merger Sub set forth in this Agreement to be untrue or
inaccurate at or prior to the Effective Time, and (y)&nbsp;any failure of Parent or Merger Sub to comply
with or satisfy any covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this <B>Section&nbsp;6.5 </B>shall not (i)&nbsp;limit or
otherwise affect any remedies otherwise available to Parent or the Company, as applicable, or (ii)
constitute an acknowledgment or admission of a breach of this Agreement. No disclosure by the
Company pursuant to this <B>Section&nbsp;6.5 </B>shall affect or be deemed to modify, amend or supplement any
representation or warranty set forth herein, the Company Disclosure Schedule or the conditions to
the obligations of the parties to consummate the transactions contemplated hereby in accordance
with the terms and conditions hereof, or limit any right to indemnification provided herein.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.6 <U>Access to Information</U>. During the period from the date hereof and prior to the
earlier of the Effective time or the termination of this Agreement, the Company shall afford Parent
and its accountants, counsel and other representatives, reasonable access during Company&#146;s normal
business hours to (i)&nbsp;all of the Company&#146;s properties, books, Contracts, commitments and records,
(ii)&nbsp;all other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as
Parent may reasonably request, and (iii)&nbsp;all employees of the Company as identified by Parent.
The Company shall provide to Parent and its accountants, counsel and other representatives copies
of internal financial statements (including Tax Returns and supporting documentation) promptly upon
request. No information or knowledge obtained in any investigation pursuant to this <B>Section&nbsp;6.6</B>
shall affect or be deemed to modify, amend or supplement any representation or warranty set forth
herein, the Company Disclosure Schedule or the conditions to the obligations of the parties to
consummate the transactions contemplated hereby in accordance with the terms and conditions hereof,
or limit any right to indemnification provided herein.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.7 <U>Spreadsheet</U>. The Company shall prepare a spreadsheet in form reasonably
acceptable to Parent, which spreadsheet shall be certified as complete and correct by the Chief
Executive Officer and the Chief Financial Officer of the Company for and on behalf of the Company
as of the Closing and shall list, as of the Closing, all Company Stockholders and Company
Optionholders and their respective addresses, the number and class or series of shares of Company
Capital Stock and Company Options held by such persons, the Merger Consideration to be issued to
each holder, the amount of cash to be deposited into the Escrow Fund on behalf of each Company
Stockholder, and such other information relevant thereto or which Parent or the Exchange Agent may
reasonably request (the &#147;<B>Spreadsheet</B>&#148;). The Company shall deliver the Spreadsheet to Parent at
least three (3)&nbsp;business days prior to the Closing Date. In the event that any information in the
Spreadsheet becomes inaccurate as a result of the exercise, after delivery of the Spreadsheet to
Parent and prior to the Effective Time, of Company Options issued and outstanding as of the date
hereof or the conversion of Company Preferred Stock, the Company shall deliver an updated
Spreadsheet and certification consistent with the first sentence of this <B>Section&nbsp;6.7 </B>and such
spreadsheet shall be deemed the &#147;Spreadsheet&#148; for all purposes hereunder.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.8 <U>Transaction Expenses</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Whether or not the Merger is consummated, all Transaction Expenses shall be the obligation
of the respective party incurring such fees and expenses. Parent shall bear and pay the filing fee
for the pre-merger notification report under the HSR Act and all fees and expenses incurred with
respect to any other pre-merger notification forms required by the Antitrust Laws under <B>Section
6.4(b)</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;At least three (3)&nbsp;business days prior to the Closing Date, the Company shall provide
Parent with a statement of its estimated Transaction Expenses as of the Closing Date, such
statement showing detail of both the previously paid and currently unpaid Transaction Expenses of
the Company incurred in connection with this Agreement and the transactions contemplated hereby, as
well as the Transaction
Expenses that have been incurred or are expected to be incurred by the Company in connection
with this Agreement and the transactions contemplated hereby, all in form reasonably satisfactory
to Parent and certified as true and correct by the Company&#146;s Chief Financial Officer.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.9 <U>Employment Arrangements</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;At the discretion of Parent, certain persons who are employees of the Company immediately
prior to the Closing Date may be offered &#147;at-will&#148; employment by Parent and/or the Surviving
Corporation (which at-will employment may be for a transitional period), to be effective as of the
Closing Date, upon proof of citizenship or appropriate employment authorization from the U.S.
Immigration and Naturalization Service or the U.S. Department of State evidencing a right to work
in the United States and upon execution of an Employment, Proprietary Information and



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<P align="left" style="font-size: 10pt">Inventions
Assignment Agreement in Parent&#146;s standard form; <I>provided, however</I>, that Parent shall assume and pay
any severance and related costs (if any) associated with terminating any employees of the Company
who are not offered employment with Parent and/or the Surviving Corporation. Such &#147;at-will&#148;
employment arrangements will (i)&nbsp;be set forth in offer letters (each, an &#147;<B>Offer Letter</B>&#148;), (ii)&nbsp;have
terms, including the position, salary and responsibilities of such employee, to be determined by
Parent in its sole discretion, and (iii)&nbsp;supersede any prior employment agreements and other
arrangements with such employee in effect prior to the Closing Date. Each employee of the Company
who becomes an employee of Parent or the Surviving Corporation as of the Closing Date shall be
referred to hereafter as a &#147;<B>Continuing Employee</B>.&#148; Continuing Employees shall be eligible to
receive benefits consistent with Parent&#146;s applicable human resources policies.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Effective no later than the day immediately preceding the Closing Date, the Company and
its affiliates, as applicable, shall each terminate any and all group severance, separation or
salary continuation plans, programs or arrangements and any and all plans intended to include a
Code Section 401(k) arrangement (unless Parent provides written notice to the Company that such
401(k) plans shall not be terminated) (collectively, &#147;<B>Terminated Company Employee Plans</B>&#148;). Unless
Parent provides such written notice to the Company, no later than five business days prior to the
Closing Date, the Company shall provide Parent with evidence that such Terminated Company Employee
Plan(s) have been terminated (effective no later than the day immediately terminated preceding the
Closing Date) pursuant to resolutions of the Company&#146;s board of directors. The form and substance
of such resolutions shall be subject to review and approval of Parent. The Company also shall take
such other actions in furtherance of terminating such Terminated Company Employee Plan(s) as Parent
may reasonably require.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.10 <U>Parent Common Stock Listing</U>. If required by applicable rules of The Nasdaq Stock Market, Parent shall use its reasonable
best efforts to cause the shares of Parent Common Stock issuable, and those required to be reserved
for issuance, in connection with the Merger to be authorized for listing on the Nasdaq National
Market at or prior to the Closing Date.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.11 <U>Form&nbsp;S-8</U>. Within five (5)&nbsp;business days after the Closing Date, Parent shall
file with the SEC a registration statement on Form S-8, if available for use by Parent, registering
that number of shares of Parent Common Stock equal to the number of shares of Parent Common Stock
issuable upon the exercise of all Company Options assumed by Parent pursuant to this Agreement that
are eligible to be registered on Form S-8.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.12 <U>Employee Benefit Matters</U>. As promptly as reasonably practicable after the
Effective Time, Parent shall permit the Continuing Employees and their eligible dependents to
participate in Parent&#146;s employee benefit plans for which such individuals are eligible (the &#147;<B>Parent
Plans</B>&#148;) on terms no less favorable than those provided to


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">similarly situated employees of Parent or
its subsidiaries. Parent shall recognize the prior service with the Company (or predecessor
employers to the extent the Company provides past service credit) of each of the Continuing
Employees for purposes of eligibility to participate and vesting (but not benefit accruals or stock
related vesting) under the Parent Plans and for levels of benefits under Parent&#146;s vacation and
severance policies, if any. Parent shall use reasonable best efforts to cause to be waived any
waiting periods, evidence of insurability requirements, or the application of any pre-existing
condition limitations under the Parent Plans. This <B>Section&nbsp;6.12 </B>shall not operate to (a)&nbsp;duplicate
any benefit provided to any Continuing Employee or to fund any such benefit, (b)&nbsp;require Parent to
continue to maintain any severance plan or other employee benefit plan in effect following the
Effective Time for Parent&#146;s employees, including the Continuing Employees, or (c)&nbsp;be construed to
mean the employment of the Continuing Employees is not terminable by Parent at will at any time,
with or without cause, for any reason or no reason.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.13 <U>Section&nbsp;280G Payments</U>. If and to the extent necessary, as soon as reasonably
practicable after the execution of this Agreement, the Company shall submit to the Company
Stockholders for approval (in a manner satisfactory to Parent), by such number of Company
Stockholders as is required by the terms of Section&nbsp;280G(b)(5)(B) of the Code, any Section&nbsp;280G
Payments (which initial determination shall be made by the Company and shall be subject to review
and approval by Parent), such that such Section&nbsp;280G Payments shall not be deemed to be Section
280G Payments, and prior to the Effective Time the Company shall deliver to Parent evidence
satisfactory to Parent that (a)&nbsp;a Company Stockholder vote was solicited in conformance with
Section&nbsp;280G of the Code and the regulations promulgated thereunder and the requisite Company
Stockholder approval was
obtained with respect to any Section&nbsp;280G Payments that were subject to the Company
Stockholder vote, or (b)&nbsp;that the Company Stockholder approval of Section&nbsp;280G Payments was not
obtained and as a consequence, that such payments and/or benefits shall not be made or provided to
the extent they would cause any amounts to constitute Section&nbsp;280G Payments, pursuant to the
waivers of those payments and/or benefits, which were executed by the affected individuals prior to
the Company Stockholder vote.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.14 <U>Rule&nbsp;145 Affiliates</U>. <B>Section&nbsp;6.14 </B>of the Company Disclosure Schedule sets forth
those Persons who, in the Company&#146;s reasonable judgment, are or may be &#147;affiliates&#148; of the Company
within the meaning of Rule&nbsp;145 promulgated under the Securities Act (each such Person, a &#147;<B>Rule&nbsp;145
Affiliate</B>&#148;). The Company shall provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company shall use its reasonable best
efforts to deliver or cause to be delivered to Parent, as promptly as practicable on or following
the date hereof, from each Rule&nbsp;145 Affiliate who has not delivered a Rule&nbsp;145 Affiliate Agreement
on or prior to the date hereof, an executed Rule&nbsp;145 Affiliate Agreement in the form attached
hereto as <B>Exhibit&nbsp;E</B>. Parent and Merger Sub will be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by a Rule&nbsp;145 Affiliate pursuant to
the terms of this Agreement, and to issue appropriate stop transfer


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<P align="left" style="font-size: 10pt">instructions to the transfer
agent for Parent Common Stock, consistent with the terms of each Rule&nbsp;145 Affiliate Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.15 <U>Further Assurances</U>. Each party hereto, at the request of another party hereto,
shall execute and deliver such other certificates, instruments, agreements and other documents, and
do and perform such other acts and things, as may be reasonably necessary or desirable for purposes
of effecting completely the consummation of Merger and the other transactions contemplated hereby.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.16 <U>Reorganization Matters</U>. Each of Parent, Merger Sub and the Company agrees that
it will not engage in any action, or fail to take any action, and will cause its respective
subsidiaries not to engage in any action, or fail to take any action, which action or failure to
take action would reasonably be expected to cause the Merger to fail to qualify as a
&#147;reorganization&#148; under Section 368(a) of the Code.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.17 <U>Indemnification</U>. Parent will, or will cause the Surviving Corporation to,
fulfill and honor in all respects the obligations of the Company pursuant to (i)&nbsp;each
indemnification agreement in effect between the Company and each person who is a director or
officer of the Company or any of its Subsidiaries at the Effective Time and (ii)&nbsp;any
indemnification provision under the certificate of incorporation or bylaws or equivalent
organizational documents of the Company or any of its Subsidiaries as in effect on the date of this
Agreement (each of the persons to be indemnified pursuant to
the agreements and provisions referred to in clauses (i)&nbsp;and (ii)&nbsp;of this <B>Section&nbsp;6.17 </B>shall
be referred to as a &#147;<B>Company Indemnified Party</B>&#148;). The certificate of incorporation and bylaws of
the Surviving Corporation shall contain provisions with respect to indemnification and exculpation
from liability substantially similar to those set forth in the certificate of incorporation or
bylaws or equivalent organizational documents of the Company or any of its Subsidiaries as in
effect on the date of this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six (6)&nbsp;years after the Effective Time in any manner that would materially
adversely affect the rights thereunder of any Company Indemnified Party.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.18 <U>Alternative Structure</U>. Notwithstanding anything in this Agreement to the
contrary, in the event that all of the closing conditions have been satisfied other than the
receipt of one or more of the consents, waivers, approvals or assignments listed on <B>Schedule
7.</B><B>2(e)</B><B>, </B>Parent and the Company may mutually agree to merge Merger Sub with and into the Company
rather than effecting the Merger as described in <B>Section&nbsp;2.1 </B>hereof. If Parent and the Company so
mutually agree (i)&nbsp;the term &#147;<B>Merger</B>&#148; as used in the Agreement shall refer to the merger of Merger
Sub with and into the Company; and (ii)&nbsp;the term &#147;<B>Surviving Corporation</B>&#148; shall refer to the Company
as the surviving entity after the merger of Merger Sub with and into the Company. If, as result of
the change in structure described in this <B>Section&nbsp;6.18</B>, counsel to Parent and the Company are
unable to deliver the tax opinions described in <B>Section&nbsp;7.</B><B>2(l)</B> and <B>Section&nbsp;7.3(f)</B>, the amount of
Cash Consideration shall be reduced and the aggregate number of shares of Parent Common Stock shall
be correspondingly increased (by reference to the Parent Trading


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<P align="left" style="font-size: 10pt">Price) to the minimum extent
necessary in order to enable the tax opinions described in <B>Section&nbsp;7.2(l) </B>and <B>Section&nbsp;7.3(f) </B>to be
rendered.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.19 <U>Additional Option Grants</U>. Company shall, within three (3)&nbsp;business days prior to
Closing or such later time as directed by Parent, grant additional Company Options in amounts and
to Employees out of the Company Plan as directed by Parent.


<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;VII</U>



<P align="center" style="font-size: 10pt"><U>CONDITIONS TO THE MERGERS</U>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1 <U>Conditions to Obligations of Each Party</U>. The respective obligations of the
Company and Parent to consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>No Orders</U>. No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in effect and which has the effect of
making the Merger or any other transaction
contemplated hereby illegal or otherwise prohibiting the consummation of the Merger or any
other transaction contemplated hereby.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>No Injunctions</U>. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other similar legal
restraint shall be in effect that has the effect of prohibiting the consummation of the Merger.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>No Governmental Actions</U>. There shall be no action, suit, claim, or proceeding
pending against Parent, Merger Sub or the Company, any of their respective properties or any of
their respective directors or officers (in their capacities as such) brought by a Governmental
Authority that seeks to prohibit the consummation of the Merger or any other transaction
contemplated hereby.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Governmental Approvals</U>. Parent and the Company shall have obtained all consents
and approvals from any Governmental Authority that are necessary to consummate the Merger and the
other transactions contemplated hereby. Without limiting the generality of the foregoing, (i)&nbsp;all
applicable waiting periods under the HSR Act shall have expired or been terminated, and (ii)&nbsp;either
(A)&nbsp;the Permit shall have been issued by the California Commissioner and no stop order suspending
the effectiveness of the Permit or any part thereof shall have been issued and no proceeding for
that purpose or other similar proceeding in respect of the Permit shall have been initiated or
threatened by the Department of Corporations of the State of California or (B)&nbsp;the SEC shall have
declared the registration statement on Form S-4 effective, and no stop order suspending the
effectiveness of the registration statement or any part thereof shall have been issued



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<P align="left" style="font-size: 10pt">and no
proceeding for that purpose, and no similar proceeding in respect of the proxy
statement/prospectus, shall have been initiated or threatened in writing by the SEC.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Requisite Stockholder Approval</U>. The Company shall have obtained the Requisite
Stockholder Approval.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Nasdaq Quotation</U>. If required by applicable rules of the Nasdaq Stock Market, the
shares of Parent Common Stock to be issued in connection with the Merger shall be approved for
quotation on the Nasdaq National Market.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2 <U>Conditions to the Obligations of Parent and Merger Sub</U>. The obligations of Parent
and Merger Sub to consummate the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Representations and Warranties</U>. Each of the representations and warranties of the
Company set forth in this Agreement (other than any such representations and warranties made only
as of a specified date (including the date of this
Agreement), which shall have been true and correct in all material respects only as of such
particular date) (i)&nbsp;shall have been true and correct as of the date of this Agreement, and (ii)
shall be true and correct on and as of the Closing Date with the same force and effect as if made
on and as of the Closing Date, except in the case of the foregoing clauses (i)&nbsp;and (ii)&nbsp;where the
failure of any such representations and warranties to be so true and correct, individually or in
the aggregate, has not materially and adversely affected the Company and its Subsidiaries, taken as
a whole, and is not reasonably likely to materially and adversely affect Parent and its
Subsidiaries (including the Company and its Subsidiaries), taken as a whole, from and after the
Effective Time, whether or not such failure constitutes a Company Material Adverse Effect (it
being understood that, for purposes of determining the accuracy of such representations and
warranties under clauses (i)&nbsp;and (ii)&nbsp;above, all qualifications based on the word &#147;material&#148; or
similar phrases, including &#147;Company Material Adverse Effect,&#148; set forth in such representations and
warranties shall be disregarded).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Covenants</U>. The Company shall have performed and complied in all material respects
with all covenants and obligations under this Agreement required to be performed and complied with
by the Company prior to or as of the Closing.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>No Material Adverse Effect</U>. There shall not have occurred any Company Material
Adverse Effect.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>No Litigation</U>. There shall be no Governmental or other third party action, suit,
claim or proceeding of any nature pending, or overtly threatened, against Parent or Merger Sub, the
Company, any of their respective properties or any of their respective directors or officers (in
their capacities as such) arising out of, or in any way connected with, the Merger or any other
transaction contemplated hereby or that



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<P align="left" style="font-size: 10pt">could reasonably be expected to cause a Company Material
Adverse Effect or Parent Material Adverse Effect.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Third Party Consents</U>. Parent shall have received all consents, waivers, approvals
and assignments listed on <B>Schedule&nbsp;7.2(e)</B>.




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Conversion of Company Preferred Stock</U>. All outstanding shares of Company
Preferred Stock shall have been converted into shares of Company Common Stock in accordance with
the terms of the Company&#146;s Certificate of Incorporation as in effect as of the date of this
Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Non-Compete Agreements</U>. Each of the Non-Compete Agreements executed and delivered
concurrently with the execution of this Agreement shall be in full force and effect, and no such
individual shall have notified (whether formally or informally) Parent or the Company of such
Stockholder&#146;s intention of leaving the employ of Parent or the Surviving Corporation following the
Effective Time.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <U>Appraisal Rights</U>. This Agreement and the Merger shall have been approved and
adopted by Company Stockholders holding not less than ninety percent (90%) of the outstanding
shares of the Company Capital Stock entitled to vote on the matters contemplated hereby, voting
together as a single class on an as converted to Company Common Stock basis. Additionally, holders
of no more than five percent (5%) of the outstanding shares of the Company Capital Stock entitled
to vote on the matters contemplated hereby, voting as a single class on an as-converted to Company
Common Stock basis, shall have exercised statutory rights of appraisal or shall have dissented
under applicable law.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Section&nbsp;280G Payments</U>. With respect to any Section&nbsp;280G Payment, the Company
Stockholders shall have approved, pursuant to the method provided for in the regulations
promulgated under Section&nbsp;280G of the Code, any such Section&nbsp;280G Payments or shall have
disapproved such payments, and, as a consequence, no Section&nbsp;280G Payments shall be paid or
provided for in any manner and Parent and its Subsidiaries shall not have any liabilities (or lose
any available deductions) with respect to any Section&nbsp;280G Payments.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <U>Termination of Code Section 401(k) Plans</U>. Unless Parent has explicitly instructed
otherwise pursuant to <B>Section&nbsp;6.9(b) </B>hereof, Parent shall have received from the Company evidence
reasonably satisfactory to Parent that all Code Section 401(k) Plans have been terminated pursuant
to resolution of the Board of Directors of the Company, each of its Subsidiaries or the ERISA
Affiliate, as the case may be (the form and substance of which shall have been subject to review
and approval of Parent), effective as of no later than the day immediately preceding the Closing
Date, and Parent shall have received from the Company evidence of the taking of any and all further
actions as provided in <B>Section&nbsp;6.9(b) </B>hereof.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <U>Legal Opinion</U>. Parent shall have received a legal opinion from legal counsel to
the Company, substantially in the form attached hereto as <B>Exhibit&nbsp;F</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <U>Tax Opinion of Parent&#146;s Legal Counsel</U>. Parent shall have received a written
opinion from Wilson Sonsini Goodrich &#038; Rosati, P.C., legal counsel to Parent, in form and substance
reasonably satisfactory to Parent to the effect that the Merger will constitute a &#147;reorganization&#148;
within the meaning of Section 368(a) of the Code, it being understood that in rendering such
opinion, counsel shall be entitled to rely upon, among other things, reasonable assumptions and
written representations of Parent and the Company, which such parties agree to provide to counsel.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <U>Company Certificate</U>. Parent shall have received a certificate, validly executed
by the Chief Executive Officer of the Company for and on behalf of the Company, certifying as to
the matters set forth in <B>Sections&nbsp;7.2(a), 7.2(b) and 7.2(c)</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <U>Certificate of Secretary of Company</U>. Parent shall have received a certificate,
validly executed by the Secretary of the Company for and on behalf of the
Company, certifying as to (i)&nbsp;the terms and effectiveness of the certificate of incorporation
and the bylaws of the Company, and (ii)&nbsp;the valid adoption of resolutions of the board of directors
of the Company and the Company Stockholders approving and adopting this Agreement, the Merger and
the consummation of the transactions contemplated hereby.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) <U>Certificate of Good Standing</U>. Parent shall have received a certificate of good
standing for the Company from the Secretary of State of the State of Delaware, dated within a
reasonable period prior to Closing.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) <U>Certificates of Status of Foreign Corporation</U>. Parent shall have received a
Certificate of Status of Foreign Corporation of the Company issued by the Secretary of State of the
State of California, dated within a reasonable period prior to the Closing.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) <U>FIRPTA Certificate</U>. Parent shall have received from the Company a properly
executed statement, in a form and substance reasonably acceptable to Parent, for purposes of
satisfying Parent&#146;s obligations under Treasury Regulation&nbsp;Section&nbsp;1.1445-2(c)(3).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) <U>Audited Financial Statements</U>. Parent shall have received copies of the Company&#146;s
audited financial statements as of and for the fiscal year ending April&nbsp;30, 2005.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3 <U>Conditions to Obligations of the Company</U>. The obligations of the Company to
consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to
the Effective Time of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Representations and Warranties</U>. Each of the representations and warranties of
Parent set forth in this Agreement (other than any such representations and warranties made only as
of a specified date (including the date of this Agreement), which shall have been true and correct
in all material respects only as of such particular date) (i)&nbsp;shall have been true and correct as
of the date of this Agreement, and (ii)&nbsp;shall be true and correct on and as of the Closing Date
with the same force and effect as if made on and as of the Closing Date, except in the case of the
foregoing clauses (i)&nbsp;and (ii)&nbsp;where the failure of any such representations and warranties to be
so true and correct, individually or in the aggregate, has not materially and adversely affected
Parent and its Subsidiaries, taken as a whole, and is not reasonably likely to materially and
adversely affect Parent and its Subsidiaries, taken as a whole, from and after the Effective Time,
whether or not such failure constitutes a Parent Material Adverse Effect (it being understood
that, for purposes of determining the accuracy of such representations and warranties under clauses
(i)&nbsp;and (ii)&nbsp;above, all qualifications based on the word &#147;material&#148; or similar
phrases, including &#147;Parent Material Adverse Effect,&#148; set forth in such representations and
warranties shall be disregarded).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Covenants</U>. Parent and Merger Sub shall have performed and complied in all
material respects with all covenants and obligations under this Agreement required to be performed
and complied with by Parent or Merger Sub prior to or as of the Closing.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>No Material Adverse Effect</U>. There shall not have occurred any Parent Material
Adverse Effect.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Parent Certificate</U>. The Company shall have received a certificate, validly
executed by an authorized officer of Parent for and on behalf of Parent, certifying as to the
matters set forth in <B>Sections&nbsp;7.3(a), 7.3(b) and 7.3(c)</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Legal Opinion</U>. Parent shall have received a legal opinion from legal counsel to
Parent, substantially in the form attached hereto as <B>Exhibit&nbsp;G</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Tax Opinion of Company&#146;s Legal Counsel</U>. The Company shall have received a written
opinion from Cooley Godward, LLP, legal counsel to the Company, in form and substance reasonably
satisfactory to the Company to the effect that the Merger will constitute a &#147;reorganization&#148; within
the meaning of Section 368(a) of the Code; it being understood that in rendering such opinion,
counsel shall be entitled to rely upon, among other things, reasonable assumptions and written
representations of Parent and the Company, which such parties agree to provide to counsel.



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<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;VIII</U>



<P align="center" style="font-size: 10pt"><U>SURVIVAL; INDEMNIFICATION; ESCROW FUND; </U>


<DIV align="center" style="font-size: 10pt"><U>ESCROW AGENT; STOCKHOLDER REPRESENTATIVE</U></DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1 <U>Survival</U>. The representations and warranties of the Company set forth in this
Agreement, or in any certificate or other instrument delivered pursuant to this Agreement, shall
survive until 11:59&nbsp;p.m. (California time) on the date that is eighteen (18)&nbsp;months following the
Closing Date (the &#147;<B>Survival Date</B>&#148;); <I>provided, however, </I>that in the case of any fraud or any willful
or intentional breach of a representation, warranty or covenant, the representations, warranties
and/or covenants that are the subject of such fraud or willful or intentional breach shall survive
until 11:59&nbsp;p.m. (California time) on the day of expiration of the applicable statute of
limitations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2 <U>Indemnification</U>. The Company Stockholders (the &#147;<B>Indemnifying Parties</B>&#148;) shall jointly and severally indemnify
and hold Parent and its officers, directors and affiliates, including the Surviving Corporation
(collectively, the &#147;<B>Indemnified Parties</B>&#148;), harmless against any and all claims, losses, costs,
damages, deficiencies, diminution in value, liabilities and expenses, including reasonable
attorneys&#146; fees, and expenses of investigation and defense (hereinafter individually a &#147;<B>Loss</B>&#148; and
collectively &#147;<B>Losses</B>&#148;) paid, sustained or incurred by the Indemnified Parties, or any of them,
directly or indirectly, arising out of, in connection with or as a result of (i)&nbsp;the inaccuracy or
breach of any representation or warranty of the Company set forth in this Agreement (as qualified
by the Company Disclosure Schedule) or in any certificate delivered by the Company pursuant to this
Agreement, (ii)&nbsp;any failure by the Company to perform or comply with any covenant required to be
performed by it prior to the Effective Time and contained in this Agreement, (iii)&nbsp;any failure of
the Spreadsheet to be true and correct in any respect, (iv)&nbsp;any inaccuracy in the Company&#146;s
calculation of the Cash Balance, Net Working Capital, Long Term Debt or Transaction Expenses solely
if (and to the extent that) any such inaccuracy would have reduced the Merger Consideration
issuable or payable in the Merger pursuant to this Agreement, and (v)&nbsp;any Dissenting Share
Payments. For the purpose of this <B>Article&nbsp;VIII </B>only, when determining the amount of Losses
suffered as a result of any breach or inaccuracy of any representation or warranty of the Company,
but not for determining whether any such breach or inaccuracy has occurred, any representation or
warranty given or made by the Company that is qualified in scope as to materiality or Material
Adverse Effect or Knowledge shall be deemed to be made or given without such qualification. The
Indemnifying Parties shall not have any right of contribution from, and may not seek
indemnification or advancement of expenses from, the Company, Parent, or the Surviving Corporation
with respect to any Loss claimed by an Indemnified Party.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3 <U>Limitations on Indemnification</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Subject to <B>Section&nbsp;8.3(e) </B>and <B>8.3(f) </B>below, if the transactions contemplated hereby are
consummated, the indemnification provisions set forth in



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<P align="left" style="font-size: 10pt"><B>Section&nbsp;8.2 </B>shall be the sole and
exclusive remedy under this Agreement for the matters set forth therein.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Subject to <B>Section&nbsp;8.3(e) </B>and <B>8.3(f) </B>below, if the transactions contemplated hereby are
consummated, the Escrow Amount shall be held as the Indemnified Parties&#146; security for the
Indemnifying Parties&#146; indemnification obligations under <B>Section&nbsp;8.2</B>. Subject to <B>Section&nbsp;8.3(e) </B>and
<B>8.3(f) </B>below, if the transactions contemplated hereby are consummated, the Escrow Amount shall be
the Indemnified Parties&#146; sole and exclusive security for indemnification claims under <B>Section&nbsp;8.2</B>
and recovery against the Escrow Amount shall be the Indemnified Parties&#146; sole and exclusive remedy
under this Agreement for indemnification claims under <B>Section&nbsp;8.2</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Subject to <B>Section&nbsp;8.3(e) </B>and <B>8.3(f) </B>below, if the transactions contemplated hereby are
consummated, the maximum amount that the Indemnified Parties may recover from each of the
Indemnifying Parties pursuant to the indemnity set forth in <B>Section&nbsp;8.2 </B>shall be an amount equal to
each such Indemnifying Party&#146;s Pro Rata Portion of the Escrow Amount.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Subject to <B>Section&nbsp;8.3(e) </B>and <B>8.3(f) </B>below, if the transactions contemplated hereby are
consummated, the Indemnified Parties may not recover pursuant to the indemnity set forth in <B>Section
8.2(i) </B>unless and until one or more Officer&#146;s Certificates identifying Losses in excess of the
product of (1)&nbsp;the Escrow Amount multiplied by (2)&nbsp;0.01, in the aggregate (the &#147;<B>Threshold</B>&#148;) has or
have been delivered to the Stockholder Representative in accordance with this Agreement, in which
case Parent shall be entitled to recover pursuant to the indemnity set forth in <B>Section&nbsp;8.2(i) </B>all
such Losses (including the amount of the Threshold); <I>provided, however</I>, that the foregoing
limitation shall not apply to indemnification claims under <B>Sections&nbsp;8.2(ii)-(v).</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Nothing in this Agreement shall limit any rights or remedies an Indemnified Party may have
under applicable law, whether pursuant to a proceeding at law or equity, against any Person arising
out of fraud.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;It is understood that nothing in this Agreement shall eliminate the ability of any party
hereto to apply for equitable remedies to enforce the other parties&#146; obligations under this
Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Notwithstanding anything to the contrary in this Agreement, the parties hereto agree and
acknowledge that any Indemnified Party may bring a claim for indemnification for any Loss under
this <B>Article&nbsp;VIII </B>notwithstanding the fact that any Indemnified Party had knowledge of the breach,
event or circumstance giving rise to such Loss prior to the Closing or waived any condition to the
Closing related thereto.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4 <U>Indemnification Claims</U>.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Parent shall give notice of any claim for indemnification under <B>Section&nbsp;8.2 </B>by delivering
an Officer&#146;s Certificate (as defined below) to the Stockholder Representative, with a copy to the
Escrow Agent, for any claim for indemnification, at any time prior to the last day of the Escrow
Period. For all purposes of and under this Agreement, the term &#147;<B>Officer&#146;s Certificate</B>&#148; shall mean
a certificate signed by any officer of Parent: (i)&nbsp;stating that an Indemnified Party has paid,
sustained or incurred Losses, or reasonably anticipates that it will pay, sustain or incur Losses,
(ii)&nbsp;specifying in reasonable detail the individual items of Loss included in the amount so stated
(and the method of computation of each such item of Loss, if applicable), the date each such item
of Loss was paid, sustained or incurred, or the basis for such reasonably anticipated
Loss(es), (iii)&nbsp;a brief description in reasonable detail (to the extent available to Parent)
of the facts, circumstances or events giving rise to each item of Loss based on Parent&#146;s good faith
belief thereof, including the identity and address of any third-party claimant and copies of any
formal demand or complaint relating thereto, and (iv)&nbsp;the basis for indemnification under <B>Section
8.2 </B>to which such item of Loss is related (including, if applicable, the specific nature of the
misrepresentation, or the breach of warranty or covenant).



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;If the Stockholder Representative shall not object in writing pursuant to <B>Section&nbsp;8.4(d)</B>
to any individual items of Loss set forth in an Officer&#146;s Certificate delivered by Parent pursuant
to <B>Section&nbsp;8.4(a) </B>within thirty (30)&nbsp;calendar days after the Stockholder Representative&#146;s receipt
of such Officer&#146;s Certificate, the Stockholder Representative shall be conclusively deemed to have
acknowledged and irrevocably consented, for and on behalf of the Indemnifying Parties, (i)&nbsp;to the
Indemnified Party recovery of the full amount of all such items of Loss set forth in such Officer&#146;s
Certificate solely to the extent that such Losses do not exceed the Escrow Amount at such time, and
(ii)&nbsp;if and to the extent necessary, and without further notice, to have stipulated to the entry of
a final judgment for damages against the Indemnifying Parties for such items of Loss in any court
having competent jurisdiction over the matter. Upon receipt of any Officer&#146;s Certificate, the
Escrow Agent shall not release any portion of the Escrow Amount to Parent or any other Indemnified
Party or Parties pursuant to this Agreement unless and until (i)&nbsp;the Escrow Agent shall have
received written authorization from the Stockholder Representative to release any portion of the
Escrow Amount, or (ii)&nbsp;the Stockholder Representative shall have failed to object in writing
pursuant to <B>Section&nbsp;8.4(d) </B>to any individual items of Loss set forth in such Officer&#146;s Certificate
within thirty (30)&nbsp;calendar days after the Stockholder Representative&#146;s receipt of such Officer&#146;s
Certificate.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;In the event that the Escrow Agent shall receive written authorization from the
Stockholder Representative to release to Parent or any other Indemnified Party or Parties any
portion of the Escrow Amount pursuant to <B>Section&nbsp;8.4(b)</B>, the Escrow Agent shall release such
portion of the Escrow Amount in accordance with such written instructions. In the event that the
Stockholder Representative shall have failed to object in writing pursuant to <B>Section&nbsp;8.4(d) </B>to any
individual items of Loss set forth in an Officer&#146;s Certificate relating to a claim for
indemnification pursuant to



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<P align="left" style="font-size: 10pt"><B>Section&nbsp;8.2 </B>within thirty (30)&nbsp;calendar days after the Stockholder
Representative&#146;s receipt of such Officer&#146;s Certificate, the Escrow Agent shall promptly release to
Parent or any other Indemnified Party or Parties (as instructed by Parent in writing) an amount of
cash equal to the amount of all such items of Loss specified in such Officer&#146;s Certificate with
respect to which the Stockholder Representative has not objected in writing pursuant to <B>Section
8.4(d)</B>. Any cash released to Parent or any other Indemnified Party or Parties pursuant to the
preceding sentence shall be deemed to reduce each Indemnifying Party&#146;s interest in the Escrow Fund
in accordance with his, her or its Pro Rata Portion of the Escrow Fund.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;In the event that the Stockholder Representative shall seek to contest any individual
items of Loss set forth in an Officer&#146;s Certificate received from Parent pursuant to <B>Section
8.4(b)</B>, the Stockholder Representative shall notify Parent in writing, within thirty (30)&nbsp;calendar
days after receipt of such Officer&#146;s Certificate, of the Stockholder&#146;s Representative&#146;s objection,
which notice shall set forth a brief description in reasonable detail of the Stockholder
Representative&#146;s basis for objecting to each item of Loss based on the Stockholder Representative&#146;s
good faith belief thereof. Upon Parent&#146;s receipt of a written notice of objection from the
Stockholder Representative pursuant to the preceding sentence, Parent and the Stockholder
Representative shall attempt in good faith to agree upon the rights of the respective parties with
respect to the disputed items of Loss. If the Stockholder Representative and Parent should so
agree, a memorandum setting forth the agreement reached by the parties with respect to such
disputed items of Loss shall be prepared and signed by both parties and, in the case of a claim
against the Escrow Fund, shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and make distributions from the Escrow Fund in accordance
with the instructions set forth in any such memorandum.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;If within sixty (60)&nbsp;days after the Stockholder Representative&#146;s receipt of such Officer&#146;s
Certificate, and after good faith negotiations, the parties are unable to agree on the rights of
the respective parties with respect to any disputed items of Loss set forth in an Officer&#146;s
Certificate, either Parent or the Stockholder Representative may bring suit in the courts of the
State of California and the Federal courts of the United States of America, in each case, located
within the county of Santa Clara in the State of California to resolve the matter. The decision of
the trial court as to the validity and amount of any claim in such Officer&#146;s Certificate shall be
nonappealable, binding and conclusive upon the parties to this Agreement and the Escrow Agent shall
be entitled to act in accordance with such decision and the Escrow Agent shall distribute the
Escrow Amount in accordance therewith. Judgment upon any award rendered by the trial court may be
entered in any court having jurisdiction.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Third-Party Claims</U>. In the event Parent becomes aware of a third-party claim
which Parent reasonably believes may result in a demand against the Escrow Fund or for other
indemnification pursuant to this <B>Article&nbsp;VIII</B>, Parent shall notify the Stockholder Representative
of such claim, and the Stockholder Representative shall be entitled on behalf of the Indemnifying
Parties, at its sole option and expense, to



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<P align="left" style="font-size: 10pt">participate in, but not to determine or conduct, the
defense of such claim. If there is a third party claim that, if adversely determined would give
rise to a right of recovery for Losses hereunder, then any amounts incurred by the Indemnified
Parties in defense of such third-party claim, regardless of the outcome of such claim, shall be
deemed Losses hereunder. Parent shall have the right in its sole discretion to conduct the defense
of, and to settle, any such claim; <I>provided, however</I>, that except with the consent of the
Stockholder Representative, no settlement of any such claim with third-party claimants shall be
determinative of the amount of Losses relating to such matter or whether the Indemnified Parties
are entitled
to indemnification hereunder with respect thereto. In the event that the Stockholder
Representative has consented to any such settlement, the Indemnifying Parties shall have no power
or authority to object under any provision of this <B>Article&nbsp;VIII </B>to the amount of any claim by
Parent against the Escrow Fund with respect to such settlement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5 <U>Escrow Arrangements</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Escrow Fund</U>. The Escrow Amount shall constitute an escrow fund (the &#147;<B>Escrow
Fund</B>&#148;) to be governed by the terms set forth herein. The Escrow Fund shall be available to
compensate the Indemnified Parties for any indemnification claims arising under <B>Sections&nbsp;8.2</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Escrow Periods; Distribution of Escrow Funds upon Termination of Escrow Period</U>.
Subject to the following requirements, the Escrow Fund shall be in existence immediately following
the Effective Time. An amount equal to fifty percent of the Escrow Amount (less any amount which,
in the reasonable judgment of Parent, is necessary to satisfy any unresolved claims specified in
any Officer&#146;s Certificate that is delivered to the Escrow Agent prior to the First Escrow Release
with respect to facts and circumstances existing on or prior to the First Escrow Release) shall be
released from the Escrow Fund as promptly as practicable after (and in any event no later than at
5:00 p.m. Pacific time on the fifth (5<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>) business day following) the one year
anniversary of the Effective Time (the &#147;<B>First Escrow Release</B>&#148;). Any and all amounts remaining in
the Escrow Fund (less any amount which, in the reasonable judgment of Parent, is necessary to
satisfy any unresolved claims specified in any Officer&#146;s Certificate that is delivered to the
Escrow Agent prior to the Survival Date with respect to facts and circumstances existing on or
prior to the Survival Date) shall be released from the Escrow Fund as promptly as practicable after
(and in any event no later than at 5:00 p.m., Pacific time on the fifth (5<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>) business
day after) the Survival Date (such eighteen-month period, the &#147;<B>Escrow Period</B>&#148;). Following the
termination of the Escrow Period, the Escrow Agent shall deliver to each of the Indemnifying
Parties such Person&#146;s Pro Rata Portion (if any) of the remaining portion of the Escrow Fund not
required to satisfy any then pending claims against the Escrow Fund, and shall deliver to each of
the Indemnifying Parties such Person&#146;s Pro Rata Portion (if any) of the remaining portion of the
Escrow Fund, if any, following resolution of all such claims.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Protection of Escrow Fund; Interest in Escrow Fund</U>.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;The Escrow Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall
treat such fund as a trust fund in accordance with the terms of this Agreement and not as the
property of Parent (except as otherwise provided in <B>Section&nbsp;8.</B><B>6(c)(ii)</B>) and shall hold and dispose
of the Escrow Fund only in accordance with the terms of this <B>Article&nbsp;VIII</B>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;The Escrow Fund shall be invested in U.S. Treasury bills with maturities of not more than
thirty (30)&nbsp;days and any interest paid on such cash portion of the Escrow Fund shall be added to
the Escrow Fund and become a part thereof and available for satisfaction of claims and, if not
delivered to Parent in satisfaction of claims for Losses, shall be distributed to the Indemnifying
Parties in accordance with such Person&#146; Pro Rata Portion of the Escrow Fund in accordance with
Section&nbsp;8.5(b). For any period of time before such U.S. Treasury bills can be purchased by the
Escrow Agent or after such bills mature, the Escrow Fund shall be invested in an interest-bearing
U.S. Bank money market account of the Escrow Agent and any interest paid on such Escrow Fund shall
be added to the Escrow Fund and become a part thereof and available for satisfaction of claims and,
if not delivered to Parent in satisfaction of claims for Losses, shall be distributed to the
Indemnifying Parties in accordance with such Person&#146; Pro Rata Portion of the Escrow Fund in
accordance with Section&nbsp;8.5(b). The parties hereto agree that Parent is the owner of any cash in
the Escrow Fund, and that all interest on or other taxable income, if any, earned from the
investment of such cash pursuant to this Agreement shall be treated for tax purposes as earned by
Parent, and that Parent shall be entitled to a distribution from the Escrow Fund in an amount equal
to 5% of such income, which shall be remitted to the Parent by Escrow Agent on a quarterly basis.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Escrow Agent</U>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;The Escrow Agent shall be obligated only for the performance of such duties as are
specifically set forth herein, and as set forth in any additional written escrow instructions that
the Escrow Agent may receive after the date of this Agreement that are signed by an officer of
Parent and the Stockholder Representative, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and to have been signed
or presented by the proper party or parties. The Escrow Agent shall not be liable for any act done
or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of legal counsel shall be conclusive
evidence of such good faith.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;The Escrow Agent is hereby expressly authorized to disregard any and all warnings given
by any of the parties hereto or by any other Person, excepting only orders or processes of courts
of law or the arbitrator or arbitrators selected and authorized to act pursuant to <B>Section&nbsp;8.4(e)</B>,
and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any
court or the arbitrator or arbitrators selected and authorized to act pursuant to <B>Section&nbsp;8.4(e)</B>.
In the event that the Escrow Agent shall obey or comply with any such order, judgment or decree of
any court


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<P align="left" style="font-size: 10pt">or the arbitrator or arbitrators selected and authorized to act pursuant to
<B>Section&nbsp;8.4(e)</B>, the Escrow Agent shall not be liable to any of the parties hereto or to any other
Person by reason of such compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;The Escrow Agent shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to execute or deliver this
Agreement or any documents or papers deposited or called for hereunder.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;The Escrow Agent shall not be liable for the expiration of any rights under any statute
of limitations with respect to this Agreement or any documents deposited with the Escrow Agent.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;In performing any duties under this Agreement, the Escrow Agent shall not be liable to any
party for damages, losses or expenses, except for gross negligence or willful misconduct on the
part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A)&nbsp;any act or
failure to act made or omitted in good faith, or (B)&nbsp;any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in this Agreement that
the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or
responsible for forgeries, fraud, impersonations, or determining the scope of any representative
authority. In addition, the Escrow Agent may consult with legal counsel in connection with
performing the Escrow Agent&#146;s duties under this Agreement and shall be fully protected in any act
taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel.
The Escrow Agent is not responsible for determining and verifying the authority of any Person
acting or purporting to act on behalf of any party to this Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;If any controversy arises between the parties to this Agreement, or with any other party,
concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not
be required to determine the controversy or to take any action regarding it. The Escrow Agent may
hold all documents and the Escrow Fund and may wait for settlement of any such controversy by final
appropriate legal proceedings or other means as, in the Escrow Agent&#146;s discretion, may be required,
despite what may be set forth elsewhere in this Agreement. In such event, the Escrow Agent will
not be liable for damages. Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights among themselves.
The Escrow Agent is authorized to deposit with the clerk of the court all documents and the
Escrowed Amount and Subject Dispute Escrowed Cash held in escrow at any time, except all costs,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating such action, the
Escrow Agent shall be


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<P align="left" style="font-size: 10pt">fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;The parties and their respective successors and assigns agree jointly and severally to
indemnify and hold Escrow Agent harmless against any and all losses, claims, damages, liabilities
and expenses, including reasonable costs of investigation, counsel fees, including allocated costs
of in-house counsel and
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of its duties under this Agreement, including but not limited to any
litigation arising from this Agreement or involving its subject matter, other than those arising
out of the gross negligence or willful misconduct of the Escrow Agent.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;The Escrow Agent may resign at any time upon giving at least thirty (30)&nbsp;days written
notice to the Parent and the Stockholder Representative; <I>provided, however</I>, that no such
resignation shall become effective until the appointment of a successor escrow agent which shall be
accomplished as follows: Parent and the Stockholder Representative shall use their reasonable best
efforts to mutually agree on a successor escrow agent within thirty (30)&nbsp;days after receiving such
notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow
Agent shall have the right to appoint a successor escrow agent authorized to do business in the
State of California. The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the estates, properties,
rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent
hereunder. Upon appointment of a successor escrow agent, the Escrow Agent shall be discharged from
any further duties and liability under this Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Escrow Agent Fees</U>. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent in accordance with the standard fee schedule of the Escrow Agent.
It is understood that the fees and usual charges agreed upon for services of the Escrow Agent
shall be considered compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties request a substantial
modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to,
or intervenes in, any litigation pertaining to the Escrow Fund or its subject matter, the Escrow
Agent shall be reasonably compensated by Parent for such extraordinary services and reimbursed for
all costs, attorney&#146;s fees, including allocated costs of in-house counsel, and expenses occasioned
by such default, delay, controversy or litigation.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Successor Escrow Agents</U>. Any corporation into which the Escrow Agent in its
individual capacity may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the Escrow Agent in its
individual capacity shall be a party, or any corporation to which substantially all the corporate
trust business of the Escrow Agent in



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<P align="left" style="font-size: 10pt">its individual capacity may be transferred, shall be the
Escrow Agent under this Escrow Agreement without further act.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6 <U>Stockholder Representative</U>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;In the event that this Agreement is adopted by the Company Stockholders, effective upon
such vote, and without any further action of any Indemnifying Party, Dan Avida shall be appointed
as the Indemnifying Parties&#146; agent and attorney-in-fact as the Stockholder Representative for and
on behalf of to give and receive notices and communications, to authorize payment to Parent from
the Escrow Fund in satisfaction of claims by Parent, to object to such payments, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims, and to take all other actions that
are either (i)&nbsp;necessary or appropriate in the judgment of either of the Stockholder Representative
for the accomplishment of the foregoing or (ii)&nbsp;specifically mandated by the terms of this
Agreement. Such agency may be changed by the Indemnifying Parties from time to time upon not less
than fifteen (15)&nbsp;days prior written notice to Parent; <I>provided, however</I>, that the Stockholder
Representative may not be removed unless holders of at least a majority of the interest of the
Escrow Fund agree to such removal and to the identity of the substituted agent. A vacancy in the
position of Stockholder Representative may be filled by the holders of a majority in interest of
the Escrow Fund. No bond shall be required of the Stockholder Representative. Notices or
communications to or from the Stockholder Representative shall constitute notice to or from the
Indemnifying Parties. The Indemnifying Parties shall, based on their Pro Rata Portions of the
Escrow Fund, be responsible for the payment of all fees and expenses reasonably incurred by the
Stockholder Representative in performing its duties under this Agreement, and the Stockholder
Representative shall have the right to have any such fees and expenses reimbursed from the Escrow
Fund prior to any distribution to the Indemnified Parties of any amounts in the Escrow Fund, to the
extent available.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Stockholder Representative shall not be liable for any act done or omitted hereunder
as Stockholder Representative while acting in good faith, and any act done or omitted to be done
pursuant to the advice of legal counsel shall be conclusive evidence of such good faith. The
Indemnifying Parties on whose behalf the Escrow Amount was contributed to the Escrow Fund shall
indemnify the Stockholder Representative and hold the Stockholder Representative harmless against
any loss, liability or expense incurred without gross negligence, bad faith or willful misconduct
on the part of the Stockholder Representative and arising out of or in connection with the
acceptance or administration of the Stockholder Representative&#146;s duties hereunder, including the
reasonable fees and expenses of any legal counsel retained by the Stockholder Representative.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;A decision, act, consent or instruction of the Stockholder Representative shall constitute
a decision of the Indemnifying Parties and shall be final, binding and conclusive upon the
Indemnifying Parties; and the Escrow Agent and Parent



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<P align="left" style="font-size: 10pt">may rely upon any such decision, act, consent
or instruction of the Stockholder Representative as being the decision, act, consent or instruction
of the Indemnifying Parties. The Escrow Agent and Parent are hereby relieved from any liability to
any Person for any acts done by them in accordance with such decision, act, consent or instruction
of the Stockholder Representative.



<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;IX</U>



<P align="center" style="font-size: 10pt"><U>TERMINATION, AMENDMENT AND WAIVER</U>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1 <U>Termination</U>. Except as provided in <B>Section&nbsp;9.2</B>, this Agreement may be terminated
and the transactions contemplated hereby abandoned at any time prior to the Closing:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;by mutual written agreement of the Company and Parent;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;by either Parent or the Company if the Closing Date shall not have occurred by December
31, 2005 (the &#147;<B>Outside Date</B>&#148;); <I>provided</I>, <I>however</I>, that the right to terminate this Agreement under
this <B>Section&nbsp;9.1(b) </B>shall not be available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;by either Parent or the Company, if the Requisite Stockholder Approval has not been
obtained at a meeting of the Company&#146;s stockholders duly called and held in accordance with the
Company&#146;s Certificate of Incorporation and bylaws, or any postponement or adjournment thereof or
pursuant to an action by written consent executed by the Company Stockholders; <I>provided</I>, <I>however</I>,
that the right to terminate this Agreement under this <B>Section&nbsp;9.1(b) </B>shall not be available to any
party whose action or failure to act has been a principal cause of or resulted in the failure to
obtain the Requisite Stockholder Approval at a meeting of the Company Stockholders or pursuant to
an action by written consent of the Company Stockholders and such action or failure to act
constitutes a breach of this Agreement;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;by either Parent or the Company if: (i)&nbsp;there shall be a final non-appealable order of a
federal or state court in effect preventing consummation of the Merger, or (ii)&nbsp;there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Authority that would make consummation of the Merger illegal;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;by Parent if there shall be any action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Authority,
that would: (i)&nbsp;prohibit Parent&#146;s ownership or operation of any portion of the business of the
Company or (ii)&nbsp;compel Parent or the Company to



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<P align="left" style="font-size: 10pt">dispose of or hold separate all or any portion of
the business or assets of the Company or Parent as a result of the Merger;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;by Parent if (i)&nbsp;it is not in material breach of its representations, warranties,
covenants or agreements under this Agreement and (ii)&nbsp;there has been a breach of any
representation, warranty, covenant or agreement of the Company set forth
in this Agreement such that if not cured on or prior to the Closing Date the conditions set
forth in <B>Section&nbsp;7.2(a) </B>or <B>Section&nbsp;7.2(b) </B>would not be satisfied and such breach has not been cured
within thirty (30)&nbsp;calendar days after written notice thereof to the Company; <I>provided</I>, <I>however</I>,
that no cure period shall be required for a breach which by its nature cannot be cured;



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;by the Company (i)&nbsp;it is not in material breach of its representations, warranties,
covenants or agreements under this Agreement and (ii)&nbsp;if there has been a breach of any
representation, warranty, covenant or agreement of Parent or Merger Sub set forth in this Agreement
such that if not cured on or prior to the Closing Date the conditions set forth in <B>Section&nbsp;7.3(a)</B>
or <B>Section&nbsp;7.3(a) </B>would not be satisfied and such breach has not been cured within thirty (30)
calendar days after written notice thereof to Parent; <I>provided</I>, <I>however</I>, that no cure period shall
be required for a breach which by its nature cannot be cured; or



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;by Parent, if a Company Material Adverse Effect has occurred after the date of this
Agreement such that if not cured on or prior to the Closing Date the conditions set forth in
<B>Section&nbsp;7.2(c) </B>would not be satisfied and such breach has not been cured within thirty (30)
calendar days after written notice thereof to Company; <I>provided</I>, <I>however</I>, that no cure period shall
be required for a breach which by its nature cannot be cured.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2 <U>Effect of Termination</U>. In the event of termination of this Agreement as provided
in <B>Section&nbsp;9.1</B>, this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Merger Sub, the Company or their respective officers, directors
or stockholders, if applicable; <I>provided</I>, <I>however</I>, that each party hereto shall remain liable for
fraud or any willful or intentional breaches of this Agreement prior to its termination; and
<I>provided further</I>, <I>however</I>, that, the provisions of <B>Section&nbsp;6.</B><B>8(a)</B> (Transaction Expenses), this
<B>Section&nbsp;9.2 </B>and <B>Article&nbsp;X </B>shall remain in full force and effect and survive any termination of this
Agreement pursuant to the terms of this <B>Article&nbsp;IX</B>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3 <U>Amendment</U>. This Agreement may be amended by the parties hereto at any time by
execution of an instrument in writing signed on behalf of Parent and the Company; <I>provided </I>that
after the adoption of this Agreement by the Company&#146;s stockholders, no amendment that reduces the
Merger Consideration or that would materially adversely affect the Company&#146;s stockholders may be
made without the further approval of the Company&#146;s stockholders.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4 <U>Extension; Waiver</U>. At any time prior to the Closing, Parent, on the one hand, and the Company, on the other
hand, may, to the extent legally allowed, (i)&nbsp;extend the time for the performance of any of the
obligations of the other party hereto, (ii)&nbsp;waive any inaccuracies in the representations and
warranties made to such party set forth herein or in any document delivered pursuant hereto, and
(iii)&nbsp;waive compliance with any of the agreements or conditions for the benefit of such party set
forth herein. Any agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such party.


<P align="center" style="font-size: 10pt"><U>ARTICLE&nbsp;X</U>



<P align="center" style="font-size: 10pt"><U>GENERAL PROVISIONS</U>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.1 <U>Notices</U>. All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial messenger or courier service, or
mailed by registered or certified mail (return receipt requested) or sent via facsimile (with
acknowledgment of complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice); <I>provided</I>, <I>however</I>, that notices
sent by mail will not be deemed given until received:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;if to Parent or the Company (following the Closing), to:


<P align="left" style="font-size: 10pt; margin-left: 6%">Network Appliance, Inc.<BR>
495 East Java Drive<BR>
Sunnyvale, California 94089<BR>
Attention: General Counsel


<DIV align="left" style="font-size: 10pt; margin-left: 6%">Telephone No.: (408)&nbsp;822-6000<BR>
Facsimile No.: (408)&nbsp;822-4501</DIV>

<P align="left" style="font-size: 10pt; margin-left: 6%">with a copy to:

<P align="left" style="font-size: 10pt; margin-left: 6%">Wilson Sonsini Goodrich &#038; Rosati<BR>
Professional Corporation<BR>
650 Page Mill Road<BR>
Palo Alto, California 94304<BR>
Attention: Steven E. Bochner, Esq.<BR>
Telephone No.: (650)&nbsp;493-9300<BR>
Facsimile No.: (650)&nbsp;493-6811

<P align="left" style="font-size: 10pt; margin-left: 6%">and


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<P align="left" style="font-size: 10pt; margin-left: 6%">Wilson Sonsini Goodrich &#038; Rosati<BR>
Professional Corporation<BR>
One Market, Spear Street Tower<BR>
Suite&nbsp;3300<BR>
San Francisco, California 94105<BR>
Attention: Michael S. Ringler, Esq.

<DIV align="left" style="font-size: 10pt; margin-left: 6%">Telephone No.: (415)&nbsp;947-2000<BR>
Facsimile No.: (415)&nbsp;947-2099</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;if to the Company (prior to the Closing) to:


<P align="left" style="font-size: 10pt; margin-left: 6%">Decru, Inc.<BR>
275 Shoreline Drive, Suite&nbsp;450<BR>
Redwood City, California 94065<BR>
Attention: General Counsel<BR>
Telephone No.: (650)&nbsp;413-6700<BR>
Facsimile No.: (650)&nbsp;413-6790

<P align="left" style="font-size: 10pt; margin-left: 6%">with a copy to:

<P align="left" style="font-size: 10pt; margin-left: 6%">Cooley Godward, LLP<BR>
3175 Hanover Street<BR>
Palo Alto, California 94304-1130<BR>
Attention: Mark Tanoury, Esq.<BR>
Telephone No.: (650)&nbsp;843-5000<BR>
Facsimile No.: (650)&nbsp;849-7400


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;If to the Stockholder Representative, to:


<P align="left" style="font-size: 10pt; margin-left: 6%">Dan Avida<BR>
c/o Alex Balkanski<BR>
Benchmark Capital<BR>
2480 Sand Hill Road<BR>
Suite&nbsp;200<BR>
Menlo Park, California 94025<BR>
Telephone No.: (650)&nbsp;854-8180<BR>
Facsimile No.: (650)&nbsp;854-8183


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;If to the Escrow Agent, to:


<P align="left" style="font-size: 10pt; margin-left: 6%">U.S. Bank, National Association<BR>
One California Street, Suite&nbsp;2100<BR>
San Francisco, California 94111<BR>
Attention: Sheila K. Soares<BR>
Telephone No.: (415)273-4532<BR>
Facsimile No.: (415)&nbsp;273-4590


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2 <U>Public Disclosure</U>. No party shall issue any statement or communication to any
third party (other than to their respective agents) regarding the subject matter of this Agreement
or the transactions contemplated hereby, without the consent of the other party, which consent
shall not be unreasonably withheld, except that this restriction shall be subject to Parent&#146;s
obligation to comply with applicable securities laws and the rules and regulations of The Nasdaq
National Market; <I>provided </I>that Parent shall first use its reasonable best efforts to consult with
the Company about the form and substance of such disclosure.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.3 <U>Confidentiality</U>. Each of the parties hereto hereby agrees that the information
obtained in any investigation pursuant to <B>Section&nbsp;6.6</B>, or pursuant to the negotiation and execution
of this Agreement or the effectuation of the transactions contemplated hereby, shall be governed by
the terms of the Mutual Non-Disclosure Agreement effective as of April&nbsp;1, 2005 (the &#147;<B>Non-Disclosure
Agreement</B>&#148;) between the Company and Parent.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.4 <U>Entire Agreement</U>. This Agreement, the Exhibits and Schedules hereto, the Company
Disclosure Schedule, the Non-Disclosure Agreement, and the documents and instruments and other
agreements among the parties hereto referenced herein constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the subject matter hereof.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.5 <U>No Third Party Beneficiaries</U>. Except for the provisions of <B>Article&nbsp;II </B>and
<B>Section&nbsp;6.17</B>, this Agreement, the Exhibits and Schedules hereto, the Company Disclosure Schedule,
the Non-Disclosure Agreement, and the documents and instruments and other agreements among the
parties hereto referenced herein are not intended to confer upon any other Person any rights or
remedies hereunder.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.6 <U>Assignment</U>. This Agreement, the Exhibits and Schedules hereto, the Company Disclosure Schedule, the
Non-Disclosure Agreement, and the documents and instruments and other agreements among the parties
hereto referenced herein shall not be assigned by any of the parties hereto, by operation of law or
otherwise, without the prior written consent of the other parties hereto, except that Parent may
assign its rights and delegate its obligations hereunder to its affiliates as long as Parent
remains ultimately liable for all of Parent&#146;s obligations hereunder.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.7 <U>Severability</U>. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction to be illegal,
void or unenforceable, the remainder of this Agreement will continue in full force and effect and
the application of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of such void or
unenforceable provision.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.8 <U>Other Remedies</U>. Any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.9 <U>Governing Law</U>. This Agreement shall be governed by and construed in accordance
with the laws of the State of California, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof, except to the extent that Delaware Law shall
require that Delaware Law be applied to the Merger.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.10 <U>Choice of Jurisdiction and Venue</U>. Each of the parties hereto irrevocably
consents to the exclusive jurisdiction and venue of any court within Santa Clara County, State of
California in connection with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner authorized by the
laws of the State of California for such persons and waives and covenants not to assert or plead
any objection which they might otherwise have to such jurisdiction, venue and such process. Each
party agrees not to commence any legal proceedings related hereto except in such courts.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.11 <U>WAIVER OF JURY TRIAL</U>. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AND ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT HEREOF.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Escrow Agent and the Stockholder
Representative have caused this Agreement to be signed, all as of the date first written above.


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><B>NETWORK APPLIANCE, INC.</B><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>

<TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/
Daniel Warmenhoven</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top" colspan="4">Name:&nbsp;Daniel Warmenhoven</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top" colspan="4">Title:&nbsp;Chief Executive Officer</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><B>DOLPHIN ACQUISITION CORP.</B><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>

<TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/
Andy Kryder&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top" colspan="4">Name:&nbsp;Andy Kryder</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top" colspan="4">Title:&nbsp;Secretary and Director</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><B>DECRU, INC.</B><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>

<TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/
Dan Avida&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top" colspan="4">Name:&nbsp;Dan Avida</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top" colspan="4">Title:&nbsp;President and Chief
Executive Officer</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><B>STOCKHOLDER REPRESENTATIVE</B><BR>
/s/ Dan Avida&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">Dan Avida</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><B>U.S. BANK, NATIONAL ASSOCIATION</B><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>

<TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/
Sheila Soares&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top" colspan="4">Name:&nbsp;Sheila Soares</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top" colspan="4">Title: Vice President</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><B>AGREEMENT AND PLAN OF MERGER AND REORGANIZATION</B>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT A-1</B></U>



<P align="center" style="font-size: 10pt"><B>SIGNATORIES TO VOTING AGREEMENTS</B>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT A-2</B></U>



<P align="center" style="font-size: 10pt"><B>FORM OF VOTING AGREEMENT</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT B-1</B></U>



<P align="center" style="font-size: 10pt"><B>SIGNATORIES TO NON-COMPETE AGREEMENT</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT B-2</B></U>



<P align="center" style="font-size: 10pt"><B>FORM OF NON-COMPETE AGREEMENT</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT C</B></U>



<P align="center" style="font-size: 10pt"><B>FORM OF MARKET STANDOFF AGREEMENT</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT D</B></U>



<P align="center" style="font-size: 10pt"><B>INTERIM COMPANY HIRING PLAN</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT E</B></U>



<P align="center" style="font-size: 10pt"><B>RULE 145 AFFILIATE AGREEMENT</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT F</B></U>



<P align="center" style="font-size: 10pt"><B>FORM OF LEGAL OPINION OF COUNSEL TO THE COMPANY</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><U><B>EXHIBIT G</B></U>



<P align="center" style="font-size: 10pt"><B>FORM OF LEGAL OPINION OF COUNSEL TO THE PARENT</B>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>f10502exv31w1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO SECTION 302(a)<BR>
OF THE SARBANES-OXLEY ACT OF 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">I, Daniel J. Warmenhoven, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this quarterly report on Form 10-Q of Network Appliance, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13(a)-15(f) and 15(d)-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such
internal control
over financial
reporting, or
caused such
internal control
over financial
reporting to be
designed under our
supervision, 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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the
effectiveness of
the registrant&#146;s
disclosure controls
and procedures and
presented in this
report our
conclusions about
the effectiveness
of the disclosure
controls and
procedures as of
the end of the
period covered by
this report based
on such evaluation;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this
report any change
in the registrant&#146;s
internal control
over financial
reporting that
occurred during the
registrant&#146;s most
recent fiscal
quarter that has
materially
affected, or is
reasonably likely
to materially
affect, the
registrant&#146;s
internal control
over financial
reporting;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s)
and I have disclosed, based on our most
recent evaluation of internal control over
financial reporting, to the registrant&#146;s
auditors and the audit committee of the
registrant&#146;s board of directors (or persons
performing the equivalent functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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&#146;s
ability to record,
process, summarize
and report
financial
information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether
or not material,
that involves
management or other
employees who have
a significant role
in the registrant&#146;s
internal control
over financial
reporting.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>

</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;/s/ DANIEL J. WARMENHOVEN</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Daniel J. Warmenhoven<BR>
<I>Chief Executive Officer</I></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date:&nbsp;September&nbsp;2,&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>4
<FILENAME>f10502exv31w2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO SECTION 302(a)<BR>
OF THE SARBANES-OXLEY ACT OF 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">I, Steven J. Gomo, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this quarterly report on Form 10-Q of Network Appliance, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13(a)-15(f) and 15(d)-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such
internal control
over financial
reporting, or
caused such
internal control
over financial
reporting to be
designed under our
supervision, 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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the
effectiveness of
the registrant&#146;s
disclosure controls
and procedures and
presented in this
report our
conclusions about
the effectiveness
of the disclosure
controls and
procedures as of
the end of the
period covered by
this report based
on such evaluation;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this
report any change
in the registrant&#146;s
internal control
over financial
reporting that
occurred during the
registrant&#146;s most
recent fiscal
quarter that has
materially
affected, or is
reasonably likely
to materially
affect, the
registrant&#146;s
internal control
over financial
reporting;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s)
and I have disclosed, based on our most
recent evaluation of internal control over
financial reporting, to the registrant&#146;s
auditors and the audit committee of the
registrant&#146;s board of directors (or persons
performing the equivalent functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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&#146;s
ability to record,
process, summarize
and report
financial
information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether
or not material,
that involves
management or other
employees who have
a significant role
in the registrant&#146;s
internal control
over financial
reporting.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>

</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;/s/ STEVEN J. GOMO</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Steven J. Gomo<BR>
Executive <I>Vice President of Finance<BR>
and Chief Financial Officer</I></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: September&nbsp;2, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>5
<FILENAME>f10502exv32w1.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION OF CHIEF EXECUTIVE OFFICER<BR>
PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I, Daniel J. Warmenhoven, certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted
pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Network
Appliance, Inc., on Form 10-Q for the quarterly period ended July&nbsp;29, 2005 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that
information contained in such Quarterly Report on Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of Network Appliance, Inc.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>

</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;/s/ DANIEL J. WARMENHOVEN</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Daniel J. Warmenhoven<BR>
<I>Chief Executive Officer</I></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: September&nbsp;2, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>6
<FILENAME>f10502exv32w2.htm
<DESCRIPTION>EXHIBIT 32.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION OF CHIEF FINANCIAL OFFICER<BR>
PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I, Steven J. Gomo, certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted
pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Network
Appliance, Inc., on Form 10-Q for the quarterly period ended July&nbsp;29, 2005 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that
information contained in such Quarterly Report on Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of Network Appliance, Inc.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>

</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;/s/ STEVEN J. GOMO</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Steven J. Gomo<BR>
<I>Executive Vice President of Finance<BR>
and Chief Financial Officer</I></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: September&nbsp;2, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SUBMISSION>
