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The following is an excerpt from a S-1 SEC Filing, filed by LYNUXWORKS INC on 10/25/2000.
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LYNUXWORKS INC - S-1 - 20001025 - CERTAIN_TRANSACTIONS

CERTAIN TRANSACTIONS

The following is a description of transactions since May 1, 1997 to which we have been a party, in which the amount involved in the transaction exceeds $60,000 and in which any director, executive officer or holder of more than 5% of our capital stock had or will have a direct or indirect material interest other than compensation arrangements which are otherwise described under "Management."

We believe that each of the transactions described below was on terms no less favorable than could have been obtained from unaffiliated third parties.

Preferred Stock Issuances to Directors, Executive Officers and 5% Stockholders

In October 1997, we issued convertible promissory notes for an aggregate principal amount of $1,244,000. In June 1998, $1,244,000 of principal and $66,000 of interest under the convertible promissory notes were converted to 857,988 shares of our Series E-1 preferred stock at a price of $1.5103 per share. In June 1998, we sold an aggregate of 6,621,268 shares of our Series E-2 preferred stock at a price of $1.5103 per share. Between March 2000 and May 2000, we sold an aggregate of 8,071,207 of our Series F preferred stock at a price of $4.33 per share. The following officers, directors and 5% stockholders purchased shares in these financings:

                                  Shares of        Shares of       Shares of
Purchaser                      Series E-1 Stock Series E-2 Stock Series F Stock
---------                      ---------------- ---------------- --------------
Executive Officers and
 Directors
Inder M. Singh and affiliated
 entities(1).................      437,073               --          461,894
Entities affiliated with M.
 Yaqub Mirza(2)..............      420,915               --          690,448
Entities affiliated with
 Robert F. Weber, Jr.(3).....          --          6,621,268         230,947
5% Stockholders
Motorola.....................          --          6,621,268         230,947
Intel........................          --                --        1,616,629


(1) All shares held by Inder M. Singh and Raman R. Singh, Trustees of Singh Family Trust--1999 U/i Dtd. July 27, 1999.

(2) Includes 299,496 shares of Series E-1 Preferred Stock held by Humana Charitable Trust, 86,458 shares of Series E-1 Preferred Stock held by Reston Investments, 27,559 shares of Series E-1 Preferred Stock held by SAFA Trust, Inc., 7,402 shares of Series E-1 Preferred Stock held by Tafy Enterprises, Inc. and 690,448 shares of Series F Preferred Stock held by Sterling Lynux Works, LLC. Mr. Mirza disclaims beneficial ownership of the shares held by the Humana Charitable Trust and by SAFA Trust, Inc., except to the extent of his pecuniary interest in these shares.

(3) Includes 6,621,268 shares of Series E-2 Preferred Stock and 230,947 shares of Series F Preferred Stock held by Motorola, Mr. Weber disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in these shares.

Common Stock Issuances, Warrant Issuances and Option Grants to Directors, Executive Officers and 5% Stockholders

In October 2000, in connection with our acquisition of ISDCorp, we issued a total of 5,022,776 shares of our common stock to ISDCorp's shareholders. Of the 5,022,776 shares of our common stock issued to ISDCorp's shareholders, we issued 4,575,658 shares of our

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common stock to Reza Soliman-Noori and his wife, 43,838 shares of our common stock to Arthur Swift and 13,151 shares of our common stock to Daniel Wald.

In addition, we assumed outstanding options of ISDCorp exercisable for 981,757 shares of our common stock, of which options to purchase 380,299 shares were issued to Arthur Swift and options to purchase 162,202 shares were issued to Daniel Wald.

In October 1997, we issued warrants exercisable for common stock at an exercise price of $0.50 per share to the following officers, directors and 5% stockholders:

                                                             Number of Shares
Name                                                      Issuable upon Exercise
----                                                      ----------------------
Inder M. Singh...........................................        188,100
Entities affiliated with M. Yaqub Mirza(1)...............        185,110


(1) In August 2000, an entity affiliated with M. Yaqub Mirza transferred its warrant to purchase 7,500 shares of our common stock to a natural person not affiliated with LynuxWorks.

In August 2000, all warrants described above were exercised to purchase 373,210 shares of common stock for an aggregate exercise price of $186,605.

Since May 1, 1997, we have issued options, including options issued in connection with our acquisition of ISDCorp, exercisable for common stock to the following officers, directors and 5% stockholders:

                                                            Number of Shares
Name                                                     Issuable upon Exercise
----                                                     -----------------------
Inder M. Singh..........................................        1,600,000
Reza Soliman-Noori......................................          150,000
Arthur L. Swift.........................................          480,299
Mitchell P. Bunnell.....................................          452,500
Bhupindarpal Singh......................................          238,000
Luke C. Dion............................................          250,000
George A. (Skip) Forster................................          250,000
Gurjot Singh............................................          305,100
Albert McCabe...........................................          226,200
Robert N. Morris........................................          250,000
William A. Hogan(1).....................................          300,000
Ed McCurtain(2).........................................          350,000
Daniel Wald.............................................          162,202
Phillip E. White........................................          105,000
Steven E. Bochner.......................................           55,000
M. Yaqub Mirza..........................................           55,000
Kapil K. Nanda..........................................           55,000
Robert F. Weber, Jr. ...................................           25,000


(1) Effective August 4, 2000, Mr. Hogan resigned his position as President.

(2) Effective July 25, 2000, Mr. McCurtain resigned his position as Vice President, World Wide Sales.

For further information regarding the grant of stock options to directors and named executive officers, please see "Management--Director Compensation" and "Management--Executive Compensation."

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Indebtedness of Management

In August 1994, we loaned $195,000 to Inder M. Singh, our President, Chief Executive Officer and Chairman of the Board, in two separate transactions ($135,000 and $60,000) to allow him to purchase shares of our common stock. In connection with each of these loans, Mr. Singh delivered full recourse promissory notes to us. These notes are secured by the purchased shares and accrue interest at a rate of 6.93% per annum, compounded annually. These promissory notes become due August 2004. As of September 30, 2000, the outstanding indebtedness on these notes was $293,179.

In April 1998, we loaned $286,000 to Inder M. Singh to allow him to purchase shares of our common stock. In connection with this loan, Mr. Singh delivered a full recourse promissory note to us. This note is secured by the purchased shares and accrues interest at a rate of 5.98% per annum, compounded annually. This promissory note becomes due April 2008. As of September 30, 2000, the outstanding indebtedness on this note was $329,446.

In August 2000, we loaned $550,000 to Inder M. Singh in two separate transactions ($285,888 and $264,112) to allow him to purchase shares of our common stock. In connection with each of these loans, Mr. Singh delivered a full recourse promissory note to us. This note is secured by the purchased shares and accrues interest at a rate of 6.23% per annum, compounded semiannually. This promissory note becomes due August 2010. As of September 30, 2000, the outstanding indebtedness on this note was $555,045.

In August 1994, we loaned $60,000 to Mitchell P. Bunnell, our Chief Technology Officer, to allow him to purchase shares of our common stock. In connection with this loan, Mr. Bunnell delivered a non-recourse promissory note to us. This note is secured by the purchased shares and accrues interest at a rate of 6.93% per annum, compounded semiannually. This promissory note becomes due December 2001. As of September 30, 2000, the outstanding indebtedness on this note was $91,340.

In August 2000, we loaned $49,000 to Bhupindarpal Singh to allow him to purchase shares of our common stock. In connection with this loan, Mr. Singh delivered a full recourse promissory note to us. This note is secured by the purchased shares and accrues interest at a rate of 6.23% per annum, compounded semiannually. This promissory note becomes due August 2010. As of September 30, 2000, the outstanding indebtedness on this note was $49,466.

In August 2000, we loaned $30,000 to Gurjot Singh to allow him to purchase shares of our common stock. In connection with this loan, Mr. Singh delivered a full recourse promissory note to us. This note is secured by the purchased shares and accrues interest at a rate of 6.23% per annum, compounded semiannually. This promissory note becomes due August 2010. As of September 30, 2000, the outstanding indebtedness on this note was $30,275.

In August 2000, we loaned $7,740 to Gurjot Singh to allow him to purchase shares of our common stock. In connection with this loan, Mr. Singh delivered a full recourse promissory note to us. This note is secured by the purchased shares and accrues interest at a rate of 6.23% per annum, compounded semiannually. This promissory note becomes due August 2010. As of September 30, 2000, the outstanding indebtedness on this note was $7,811.

In August 2000, we loaned $24,218 to George A. Forster to allow him to purchase shares of our common stock. In connection with this loan, Mr. Forster delivered a full recourse promissory note to us. This note is secured by the purchased shares and accrues interest at a rate of 6.23% per annum, compounded semiannually. This promissory note becomes due August 2010. As of September 30, 2000, the outstanding indebtedness on this note was $24,449.

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In May 2000, ISDCorp., our wholly owned subsidiary, loaned $40,000 to Arthur L. Swift to allow him to purchase shares of our common stock. In connection with this loan, Mr. Swift delivered a full recourse promissory note to us. This note is secured by the purchased shares and accrues interest at a rate of 6.30% per annum, compounded annually. This promissory note becomes due April 30, 2005. As of September 30, 2000, the outstanding indebtedness on this note was $41,050.

Indebtedness of LynuxWorks

In December 1999, ISDCorp issued two promissory notes to Reza Soliman-Noori for a total of $1,250,000. The notes are to be repaid on or before December 31, 2000, and accrue interest at a rate of 10% per annum, compounded annually. As of October 19, 2000, the total amount outstanding under these loans was $280,000.

Amended and Restated Investors' Rights Agreement

In March 2000, we entered into an Amended and Restated Investors' Rights Agreement with holders of our Series E-2 and Series F preferred stock pursuant to which those stockholders have registration rights with respect to the shares of common stock issuable upon conversion of their shares of preferred stock. For a description of these registration rights, see "Description of Capital Stock--Registration Rights." Upon the completion of this offering, all shares of our outstanding preferred stock will be automatically converted into an equal number of shares of common stock.

Agreements with Motorola

License Agreements

In November 1997, we entered into a License and Distribution Agreement with Motorola which, among other things, granted to Motorola a perpetual, worldwide, non-exclusive, nontransferable, non-assignable (with certain exceptions) license to use, and in the case of certain software products, to reproduce, market, sublicense and distribute some of our software. In addition, this agreement requires that the prices, benefits, warranties and terms granted to Motorola with respect to the products which are the subject of this agreement be comparable to or more favorable than any prices, benefits, warranties and terms that we offer during the term of this agreement for the same products under substantially similar terms and conditions to any supplier of wireless telecommunications products, to companies who have affiliates who are suppliers of wireless telecommunication products or to companies which make, have made or sell products relating to wireless communications. As of July 31, 2000, we had received $690,000 under this agreement. The stated term of this contract is five years, renewable for successive one-year terms by the written consent of LynuxWorks and Motorola.

In February 2000, we entered into a License and Distribution Agreement with Motorola, Inc. which, among other things, granted to Motorola a perpetual, worldwide, non-exclusive right to use, distribute, market, sell or sublicense derivative works of some of our software. As of July 31, 2000, we had received $191,250 under this agreement. The stated term of this contract is three years, renewable for successive two-year terms by the written consent of LynuxWorks and Motorola.

In fiscal year 1998, 1999 and 2000 and for the three months ended July 31, 2000, we recorded sales of $513,294, $1,357,000, $826,000 and $614,284 (unaudited), respectively, from Motorola, including the amounts we received under the License and Distribution Agreements described above.

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We also had amounts receivable from Motorola representing 18%, 6% and 12% (unaudited) of our accounts receivable at April 30, 1999 and 2000 and at July 31, 2000, respectively.

Motorola June 1998 Voting Agreement

In June 1998, we entered into a Voting Agreement with Motorola, Inder M. Singh and Mitchell P. Bunnell. Pursuant to this Agreement Mr. Singh and Mr. Bunnell may not, at any time prior to a qualified public offering, vote their shares in favor of increasing or decreasing the authorized size of our Board of Directors, except if Motorola and the Board members elected by Motorola vote in favor thereof. In addition, Mr. Singh and Mr. Bunnell agreed to vote their shares so as to elect such number of directors nominated by Motorola as shall be proportionate to Motorola's interest in LynuxWorks acquired pursuant to the Series E-2 Preferred Stock Purchase Agreement. Motorola acquired 6,621,268 shares of Series E-2 Preferred Stock which will represent approximately % of our outstanding capital stock immediately after this offering. The current director on our Board of Directors elected by Motorola is Robert F. Weber. Also, pursuant to this Agreement, Mr. Singh and Mr. Bunnell agreed to use their best efforts to cause the Board members elected by them to vote in the same manner as the directors elected by Motorola will vote in respect of resolutions of our board of directors pertaining to:

. the entering into of material joint ventures in which Motorola has not been offered the first opportunity to participate on at least as favorable terms as proposed to any other party; and

. the exclusive licensing by us of any of our key or core technology.

This agreement will terminate on the date upon which Motorola ceases to own at least 75% of the Series E-2 Preferred Stock or common stock issued upon conversion of the Series E-2 Preferred Stock acquired by Motorola pursuant to the Series E-2 Preferred Stock Purchase Agreement.

Motorola June 2000 Voting Agreement

In June 2000, we entered into a Voting Agreement with Motorola pursuant to which we are entitled to exercise certain voting rights with respect to 42.64% of the Series E-2 and all of the Series F Preferred Stock (or common stock issued upon conversion of the Series E-2 and F Preferred Stock) held by Motorola and vote these shares in any matter other than the election of directors, in proportion to the manner in which all holders of our shares other than Motorola vote on the relevant matter. This agreement will terminate at such time as Motorola is no longer the beneficial and/or record owner of any LynuxWorks capital stock, including common stock issued upon conversion of preferred stock, held by Motorola as of the date of that Agreement.

Motorola June 1998 Purchase Agreement

In June 1998, we entered into a Series E-2 Preferred Stock Purchase Agreement with Motorola pursuant to which we agreed to provide Motorola or any of its designated affiliates pricing with respect to our products which is no less favorable than the pricing offered to any of our other customers. This clause stays effective until the disposition by Motorola of at least 90% of its interest in LynuxWorks, whether acquired pursuant to the Series E-2 Stock Purchase Agreement or after the Series E preferred stock financing.

In addition, this Agreement provides that so long as Motorola owns at least 75% of the outstanding Series E-2 Preferred Stock acquired by Motorola pursuant to the Series E-2 Preferred Stock Purchase Agreement, we will not enter into material joint ventures or separate

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legal entities in which Motorola has not been offered the first opportunity to participate on at least as favorable terms and conditions as proposed to any other party and has declined to participate in such transaction, unless two- thirds of the members of our board of directors and the members elected by the holders of Series E-2 Preferred Stock (the only holder of which is Motorola) assent.

In addition, this Agreement provides that, if we propose to grant an exclusive license of any of our key or core technology, we need the approval of at least two-thirds of the members of our board of directors and two-thirds of the members elected by the holders of Series E-2 Preferred Stock (the only holder of which is Motorola).

Indemnification and Other Agreements; Other Matters

We plan to enter into an indemnification agreement with each of our current and future executive officers and directors. For a description of the terms of these agreements, see "Limitation of Liability and Indemnification Matters."

See the description of certain change of control agreements entered into with some of our officers described above under "Management--Employment Agreements and Change of Control Arrangements."

We have paid and will continue to pay legal fees to our counsel, Wilson Sonsini Goodrich & Rosati, of which Steven E. Bochner is a member. Mr. Bochner is a director of LynuxWorks. See "Common Stock Issuances, Warrant Issuances and Option Grants to Directors, Executive Officers and 5% Stockholders" for information relating to stock options granted to Mr. Bochner.

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PRINCIPAL STOCKHOLDERS

The following table sets forth as of October 19, 2000 and as adjusted to reflect the sale of the shares of common stock offered by this prospectus, information with respect to the beneficial ownership of our common stock by:

. each person known by us to own beneficially more than 5% of the outstanding shares of our common stock;

. each of the named executive officers;

. each of our directors; and

. all of our directors and executive officers as a group.

Except as otherwise indicated, and subject to applicable community property laws, the persons named below have sole voting and investment power with respect to all shares of common stock held by them.

Applicable percentage ownership in the table is based on 32,181,769 shares of common stock outstanding as of October 19, 2000. The number of shares outstanding before this offering has been calculated by assuming the automatic conversion of our outstanding preferred stock into common stock and includes the shares of common stock issued in connection with our acquisition of ISDCorp. Beneficial ownership is determined in accordance with the rules of the SEC. Shares of common stock subject to options that were exercisable on or within 60 days of October 19, 2000 are deemed outstanding for the purpose of computing the percentage ownership of the person or entity holding options, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or entity.

Unless otherwise indicated below, each person or entity named below has an address in care of LynuxWorks' principal executive offices at 2239 Samaritan Drive, San Jose, California, 95124.

                                                    Percentage of Shares
                                                     Beneficially Owned
                                                    ------------------------
                                  Number of Shares    Before        After
Name of Beneficial Owner         Beneficially Owned  Offering      Offering
------------------------         ------------------ ----------    ----------
Inder M. Singh and affiliated
 entities(1)...................       7,398,984             22.2%             %
Motorola(2)....................       6,852,215             21.3
Reza Soliman-Noori(3)..........       4,725,658             14.6
M. Yaqub Mirza(4)..............       4,213,587             13.1
Intel(5).......................       1,616,629              5.0
William A. Hogan(6)............         535,416              1.6
Gurjot Singh(7)................         366,745              1.1
Bhupindarpal Singh(8)..........         359,957              1.1
Ed McCurtain(9)................         152,083                *
Steven E. Bochner(10)..........         115,833                *
Kapil K. Nanda.................         144,412                *
Robert F. Weber, Jr.(2)........       6,877,215             21.4
Phillip E. White...............         108,542                *
All directors and officers as a
 group (16 persons)(11)........      24,993,354             68.8


* Less than 1% of the outstanding shares of common stock.

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(1) Includes 438,100 shares held by Inder M. Singh, 250,000 of which are subject to our right of repurchase as of October 19, 2000, 3,707,970 shares held by Inder M. Singh and Raman R. Singh, Trustees of Singh Family Trust--1999 U/i Dtd. July 27, 1999, 60,000 shares held by Inder M. Singh as Custodian for Gurtej Singh, 60,000 shares held by Inder M. Singh as Custodian for Harliv Singh, 60,000 shares held by Inder M. Singh as Custodian for Simran Singh, and 1,866,664 shares held as co-trustee with M. Yaqub Mirza and Raman R. Singh of The Singh Family Heritage Trust U/i Dtd. October 13, 1998, The Gurtej Singh Trust--1998 U/i Dtd. October 13, 1998, The Harliv Singh Trust--1998 U/i Dtd. October 13, 1998 and The Simran K. Trust--1998, U/i Dtd. October 13, 1998 which shares are also listed as beneficially owned by M. Yaqub Mirza, one of our directors, 108,333 of which are subject to our right of repurchase as of October 19, 2000. Also includes 1,206,250 shares issuable upon exercise of immediately exercisable options within 60 days of October 19, 2000. 1,000,000 of the shares underlying these options would be subject to our right of repurchase as of October 19, 2000 had those options been exercised as of October 19, 2000.

(2) Principal address is 1303 E. Algonquin Road, Schaumberg, IL, 60196-8890.
Robert F. Weber, Jr. one of our directors, is the Corporate Vice President and Director of Finance for the Integrated Electronic Systems sector of Motorola, and as such may be deemed to share voting and investment power with respect to such shares. Mr. Weber disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares.

(3) Includes 4,356,465 shares held by Reza Soliman-Noori and 219,193 shares held by Binesh Sahel, Mr. Soliman-Noori's wife; all 219,193 shares owned by Binesh Sahel are subject to our right of repurchase as of October 19, 2000. Also includes 150,000 shares issuable upon exercise of immediately exercisable options within 60 days of October 19, 2000. All of the shares underlying these options would be subject to our right of repurchase as of October 19, 2000 had those options been exercised as of October 19, 2000.

(4) Includes 830,830 shares held by Humana Charitable Trust, 690,448 shares held by Sterling LynuxWorks, LLC, 365,669 shares held by SAFA Trust, Inc., 157,000 shares held by Mena Investments, Inc., 86,458 shares held by Reston Investments, Inc., 70,000 shares held by Mirza Family Trust, 60,735 shares held by Tafy Enterprises, Inc., 22,500 shares held by Mar-Jac Investments, Inc., as well as 1,866,664 shares held as co-trustee with Inder M. Singh and Raman R. Singh of The Singh Family Heritage Trust U/i Dtd. October 13, 1998, The Gurtej Singh Trust--1998 U/i Dtd. October 13, 1998, The Harliv Singh Trust--1998 U/i Dtd. October 13, 1998 and The Simran K. Trust--1998, U/i Dtd. October 13, 1998 which shares are also listed as beneficially owned by Inder M. Singh, our President, Chief Executive Officer and Chairman, 108,333 of which are subject to our right of repurchase as of October 19, 2000. Mr. Mirza disclaims beneficial ownership of the shares held by these trusts except to the extent of his pecuniary interest in these shares. Also includes 63,283 shares issuable to Mr. Mirza upon exercise of immediately exercisable options within 60 days of October 19, 2000.

(5) Principal address is 2200 Mission College Blvd., Santa Clara, CA, 95052.

(6) Includes 10,000 shares held by William A. Hogan and 525,416 shares issuable upon exercise of immediately exercisable options. Mr. Hogan resigned his position as President effective August 4, 2000 and may exercise his option until November 4, 2000.

(7) Includes 30,870 shares held by Gurjot Singh, 18,870 of which are subject to our right of repurchase as of October 19, 2000, and 335,875 shares issuable upon exercise of immediately exercisable options within 60 days of October 19, 2000. 56,130 of the shares underlying these options would be subject to our right of repurchase as of October 19, 2000 had those options been exercised as of October 19, 2000.

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(8) Includes 36,500 shares held by Bhupindarpal Singh, 24,500 of which are subject to our right of repurchase as of October 19, 2000, and 323,457 shares issuable upon exercise of immediately exercisable options within 60 days of October 19, 2000. 75,500 of the shares underlying these options would be subject to our right of repurchase as of October 19, 2000 had those options been exercised as of October 19, 2000.

(9) Includes 152,083 shares issuable upon exercise of immediately exercisable options within 60 days of October 19, 2000. Mr. McCurtain resigned his position as Vice President, World Wide Sales effective July 25, 2000.

(10) Includes 99,666 shares held by Steven E. Bochner, 4,500 shares held by WS Investment Company 93C and 11,667 shares issuable upon exercise of immediately exercisable options within 60 days of October 19, 2000.

(11) Includes 20,849,293 shares held by current directors and executive officers, of which 470,801 shares are subject to our right of repurchase, and 4,144,061 shares issuable upon exercise of immediately exercisable options within 60 days of October 19, 2000. 2,446,107 of the shares underlying these options would be subject to our right of repurchase as of October 19, 2000 had those options been exercised as of October 19, 2000. Does not include shares held by William A. Hogan and Ed McCurtain who were named executive officers in fiscal 2000 but who are not our current executive officers. The 1,866,664 shares beneficially owned by both Inder M. Singh and M. Yaqub Mirza, who both serve as trustee together with Raman R. Singh to the Singh Family Heritage Trust U/i Dtd. October 13, 1998, The Gurtej Singh Trust--1998 U/i Dtd. October 13, 1998, The Harliv Singh Trust--1998 U/i Dtd. October 13, 1998 and The Simran K. Trust--1998, U/i Dtd. October 13, 1998, are counted once in this calculation only.

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DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, our authorized capital stock will consist of 250,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.001 par value per share.

The following summary does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of our amended and restated certificate of incorporation, our amended and restated bylaws and our Amended and Restated Investor Rights Agreement, all of which are included as exhibits to the registration statement of which this prospectus is a part, and by the provisions of applicable law. This summary assumes the effectiveness of our amended and restated charter and amended and restated bylaws, which is expected to occur upon completion of this offering.

Common Stock

Based on shares outstanding as of October 19, 2000 and assuming the conversion of all outstanding shares of preferred stock into common stock as of October 19, 2000, there were 32,181,769 shares of common stock outstanding held of record by 283 stockholders.

The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of common stock have no preemptive rights or rights to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable.

In addition, we entered into voting agreements with Motorola, which increase Motorola's influence with respect to the election of our directors but also entitle us to exercise certain voting rights with respect to a portion of the shares held by Motorola. See "Certain Transactions--Agreements with Motorola."

Preferred Stock

Pursuant to our amended and restated certificate of incorporation that will be filed upon completion of this offering, our board of directors will have the authority, without further action by the stockholders, to designate and issue up to 10,000,000 shares of preferred stock in one or more series. Our board of directors may also designate the powers, preferences, privileges and relative participating, optional or other rights and the qualifications, limitations or restrictions of each series of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. Our board, without stockholder approval, can issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of common stock. Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in control of LynuxWorks or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the common stock. Upon the closing of this offering, there will be no shares of preferred stock outstanding and we have no present plans to issue any of the preferred stock.

Registration Rights

Assuming the conversion of all outstanding preferred stock into common stock upon completion of this offering, the holders of 14,692,475 shares of common stock or their

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transferees are entitled to registration rights with respect to these shares under the Securities Act. These rights are provided under the terms of an Amended and Restated Investors' Rights Agreement between LynuxWorks and the holders of these securities. Subject to limitations in the agreement, these registration rights include the following:

. The holders of at least 40% of these securities then outstanding may require, on two occasions, that we use our best efforts to register these securities for public resale, provided that the anticipated aggregate offering price of that public resale would exceed $10,000,000.

. If we register any of our common stock either for our own account or for the account of other security holders, the holders of these securities are entitled to include their shares of common stock in that registration, subject to the ability of the underwriters to limit the number of shares included in the offering, provided that after this offering these holders may not be reduced below 25% of the total number of shares included in the offering.

. The holders of these securities may also require us, not more than twice in any 12 month period, to register all or a portion of these securities on Form S-3 when use of that form becomes available to us, provided, among other limitations, that the proposed aggregate offering price is at least $1,000,000.

We will be responsible for paying all registration expenses other than underwriting discounts and commissions and other than for registrations withdrawn by such holders, and the holders selling their shares will be responsible for paying all selling expenses.

Anti-Takeover Effects of Provisions of Our Certificate of Incorporation, Bylaws and of Delaware Law

Charter Documents

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which will take effect upon completion of this offering, may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. These provisions are expected to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of LynuxWorks to first negotiate with us. These provisions could limit the price investors might be willing to pay in the future for our common stock. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited acquisition proposal outweigh the disadvantages of discouraging these proposals. These provisions include:

. division of the board of directors into three separate classes serving staggered three-year terms;

. elimination of cumulative voting in the election of directors;

. prohibitions on our stockholders from acting by written consent and calling special meetings;

. procedures for advance notification of stockholder nominations and proposals; and

. the ability of the board of directors to alter our bylaws without stockholder approval.

As described above, our board of directors will have the authority to issue up to 10,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges

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and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The issuance of preferred stock, while providing flexibility in connection with possible financings or acquisitions or other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock.

These and other provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws could have the effect of delaying or preventing a change in control of LynuxWorks.

Delaware Law

We are also subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date the person became an interested stockholder, unless:

. prior to the date of the transaction, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; or

. upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

. on or following the date of the transaction, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two- thirds of the outstanding voting stock that is not owned by the interested stockholder.

Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's outstanding voting securities.

We expect the existence of this provision to have an anti-takeover effect with respect to transactions that our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage takeover attempts that might result in payment of a premium over the market price for the shares of common stock held by stockholders. A Delaware corporation may opt out of Section 203 with an express provision in its original certificate of incorporation or an express provision in its certification of incorporation or bylaws resulting from amendments approved by the holders of at least a majority of the corporation's outstanding voting shares. We have not opted out of
Section 203.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Chase Mellon Shareholder Services.

86

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock and any sale of substantial amounts of common stock in the open market, or the perception that these sales may occur, may adversely affect the market price of our common stock. Furthermore, since only a limited number of shares, in addition to the shares sold in this offering, will be available for public sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of our common stock in the public market after the restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future.

Based on shares outstanding as of October 19, 2000, we will have shares of common stock outstanding upon completion of this offering, assuming no exercise of the underwriters' over-allotment option and no exercise of options after October 19, 2000 but including the shares of common stock we issued in the ISDCorp acquisition. Of these shares, the shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act, except for shares acquired by our "affiliates," as that term is defined in Rule 144 of the Securities Act. In addition, the 5,022,776 shares of common stock issued to stockholders of ISDCorp in connection with the acquisition of ISDCorp will be freely tradeable without restrictions, except for shares subject to lock-up agreements, shares acquired by "affiliates" of ISDCorp or shares acquired by our "affiliates," which shares would be subject to limitations and restrictions on resale that are described below.

The remaining 27,158,993 shares of common stock held by existing stockholders were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. Of 32,181,769 shares held by existing stockholders as of October 19, 2000, 31,437,038 shares will be subject to lock- up agreements described below. On the effective date of the registration statement of which this prospectus forms a part, 744,731 shares not subject to the lock-up agreements described below will be eligible for sale pursuant to Rule 144(k) or as a result of our acquisition of ISDCorp. Upon expiration of the 180-day lock-up agreements, 30,758,349 shares will become eligible for sale pursuant to Rule 701, Rule 145 or Rule 144, subject in some cases to the limitations of Rule 144.

Number of Shares
  Eligible for
      Sale       Date Eligible for Sale
---------------- ----------------------

      744,731    On the effective date of the registration statement of
                 which this prospectus forms a part

   30,758,349    181st day after the date of this prospectus

      678,689    Various dates after the date of this prospectus

Lock-Up Agreements

Each of our officers and directors and the holders of substantially all of the outstanding shares of our capital stock have agreed, subject to limited exceptions, not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this prospectus without the prior written consent of Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. may in its sole discretion, at any time and without notice, release all or any portion of the shares subject to these lock-up agreements.

Stock Options

In addition, as of October 19, 2000, we had 1,130,666 shares of our common stock available for future grant pursuant to our prior stock option plans and 8,132,425 shares subject to outstanding options, including options we issued in the ISDCorp acquisition.

87

Upon closing of this offering, a total of 5,500,000 additional shares of common stock, plus annual increases and increases resulting from options that are or will become available for issuance under the 1997 Stock Option Plan, will be available for issuance under our 2000 Stock Option Plan and 2000 Employee Stock Purchase Plan. All of the shares issuable upon exercise of the outstanding options are subject to a 180-day lock-up pursuant to the lock-up agreements described above or pursuant to the prior stock options plans and 3,927,962 shares subject to vested options will be available for immediate sale after the expiration of the 180-day lock-up assuming those options are exercised.

We intend to register, prior to the expiration of the lock-ups, all of the shares of common stock reserved for issuance under our stock option plans and under our employee stock purchase plan. This registration will permit the resale of vested shares by non-affiliates in the public market without restriction beginning on expiration of the lock-up.

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the registration statement, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:

. 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or

. the average weekly trading volume of our common stock on the Nasdaq National Market System during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 are also subject to other requirements regarding the manner of sale, notice filing and the availability of current public information about us.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been our "affiliate" at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell these shares without regard to the Rule 144 volume limitations described above. Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately upon the completion of this offering.

Rule 145

In general, under Rule 145 as currently in effect, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who was issued shares of our common stock in connection with the acquisition of another company in reliance on Section 3(a)(10) of the Securities Act ("3(a)(10) Shares"), and who was an "affiliate" of the acquired or the acquiring company before the transaction or is an "affiliate" of the acquiring company after the transaction, would be entitled to sell these shares according to all of the requirements of Rule 144 described above except the one-year holding period requirement. If the person receiving the 3(a)(10) Shares was not an "affiliate" of the acquiring or acquired company before the transaction and is not an "affiliate" of the acquiring company after the transaction, that person may sell their 3(a)(10) Shares immediately upon the completion of this offering.

Rule 701

In general, any employee, director, officer, consultant or advisor who purchases shares from us in connection with a compensatory stock or option plan or other written agreement

88

before the effective date of the registration statement is entitled to resell these shares beginning 90 days after the effective date of the registration statement in reliance on Rule 701, without having to comply with certain restrictions, including the holding period, contained in Rule 144.

The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of these options, including exercises after the effective date of the registration statement of which this prospectus is a part. Securities issued in reliance on Rule 701 are restricted securities and, subject to any lock-up agreements described above, beginning 90 days after the effective date of the registration statement, may be sold by persons other than our "affiliates" subject only to the manner of sale restrictions of Rule 144 and by our "affiliates" under Rule 144 without compliance with its one-year minimum holding requirement.

89

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement, the underwriters named below, through their representatives Deutsche Bank Securities Inc., Prudential Securities Incorporated, Dain Rauscher Incorporated and ABN AMRO Rothschild LLC, have severally agreed to purchase from us the numbers of shares of common stock appearing opposite their names in the following table at the initial public offering price less the underwriting discounts and commissions specified on the cover page of this prospectus:

                                                                       Number
                                                                         of
Underwriter                                                            Shares
-----------                                                            ------
Deutsche Bank Securities Inc. ........................................
Prudential Securities Incorporated....................................
Dain Rauscher Incorporated............................................
ABN AMRO Rothschild LLC...............................................
                                                                        ----
Total.................................................................
                                                                        ====

The underwriting agreement provides that the obligations of the underwriters are subject to specified conditions and that the underwriters will purchase all of the shares of common stock offered by this prospectus, other than those covered by the over-allotment option described below, if any of the shares are purchased.

We have been advised by the representatives of the underwriters that the underwriters propose to offer the shares of common stock to the public at the initial public offering price specified on the cover page of this prospectus and to selected dealers at a price that represents a concession not in excess of $ per share below the initial public offering price. The underwriters may allow, and those dealers may re-allow, a concession of not more than $ per share to other dealers. After the initial public offering, the representatives of the underwriters may change the offering price and other selling terms.

We have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to additional shares of common stock at the public offering price less the underwriting discounts and commissions specified on the cover page of this prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the common stock offered by this prospectus. To the extent that the underwriters exercise this option, each underwriter will become obligated, subject to conditions, to purchase approximately the same percentage of these additional shares of common stock as the number of shares of common stock to be purchased by that underwriter as specified in the above table bears to the total number of shares of common stock offered by this prospectus. We will be obligated, pursuant to the option, to sell those additional shares of common stock to the underwriters to the extent the option is exercised. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

90

The underwriting discounts and commissions per share are equal to the initial public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting discounts and commissions are % of the initial public offering price. We have agreed to pay the underwriters the following discounts and commissions, assuming either no exercise or full exercise by the underwriters of the underwriters' over- allotment option:

                         Discounts        Total Discounts and Commissions
                            and     -------------------------------------------
                        Commissions  Without Exercise of  With Full Exercise of
                         Per Share  Over-Allotment Option Over-Allotment Option
                        ----------- --------------------- ---------------------
Discounts and
 Commissions paid by
 LynuxWorks............   $                $                     $

In addition, we estimate that the total expenses of this offering, all of which are payable by us, excluding underwriting discounts and commissions will be approximately $ .

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to any payments the underwriters may be required to make in respect of these liabilities.

Each of our officers and directors and the holders of substantially all of the outstanding shares of our capital stock have agreed not to offer, sell, contract to sell or otherwise dispose of any shares of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock, other than shares of common stock purchased in open market transactions after the pricing of this offering or pursuant to the directed share program referred to below, for a period of 180 days after the date of this prospectus without the prior written consent of Deutsche Bank Securities Inc. This consent may be given at any time without public notice.
Notwithstanding these agreements, our officers and directors and these holders will be permitted to make transfers:

. by gift, will or intestacy,

. to any trust for their benefit or for the benefit of family members, and

. in the case of partnerships and corporations, to their partners and subsidiaries,

in each case so long as the transferee agrees in writing that it is subject to the lock-up agreement. We have entered into a similar agreement with the representatives of the underwriters, except that we may grant options and issue shares under our stock option plans and our employee stock purchase plan, and also may issue shares of common stock upon the exercise of outstanding options, without the consent of Deutsche Bank Securities Inc.

The representatives of the underwriters have advised us that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority.

In order to facilitate the offering of our common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the market price of our common stock. Specifically, the underwriters may over-allot shares of our common stock in connection with this offering, thus creating a short position in our common stock for their own account. A short position results when an underwriter sells more shares of common stock than that underwriter is committed to purchase. A short position may involve either "covered" short sales or "naked" short sales. Covered short sales are sales of shares made in an amount not greater than the underwriters' over-allotment option to purchase additional shares in the offering. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares in the open market. In determining the source of shares to close out any covered short position, the underwriters may consider, among other

91

things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over- allotment option. Naked short sales are sales in excess of the over-allotment option. The underwriters will have to close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

Accordingly, to cover these short positions or to stabilize the market price of our common stock, the underwriters may bid for, and purchase, shares of our common stock in the open market. These transactions may be effected on the Nasdaq National Market or otherwise. Additionally, the representatives, on behalf of the underwriters, may reclaim selling concessions allowed to an underwriter or dealer if the underwriting syndicate repurchases shares distributed by that underwriter or dealer. Similar to other purchase transactions, any purchases by the underwriters to cover any syndicate short position or to stabilize the market price of our common stock may have the effect of raising or maintaining the market price of our common stock or preventing or mitigating a decline in the market price of our common stock. As a result, the price of the shares of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters are not required to engage in these activities and, if commenced, may end any of these activities at any time.

At our request, the underwriters have reserved for sale, at the public offering price, up to shares of the common stock being sold in this offering for sale to our vendors, employees, family members of employees, customers and other third parties through a directed share program. The number of shares of our common stock available for sale to the general public in this offering will be reduced to the extent these reserved shares are purchased. Any reserved shares not purchased by these persons will be offered by the underwriters to the general public on the same basis as the other shares in this offering.

Prudential Securities Incorporated facilitates the marketing of new issues online through its PrudentialSecurities.com division. Clients of Prudential Advisor SM, a full service brokerage firm program, may view offering terms and a prospectus online and place orders through their financial advisors.

Other than the prospectus in electronic format, the information on any underwriter's web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which the prospectus forms a part.

Pricing of this Offering

Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for our common stock will be determined by negotiation between us and the representatives of the underwriters. Among the primary factors to be considered in determining the initial public offering price will be:

. prevailing market conditions;

. our results of operations in recent periods;

. the present stage of our development;

. the market capitalizations and stages of development of other companies that we and the representatives of the underwriters believe to be comparable to us; and

. estimates of our business potential.

The estimated initial public offering price range appearing on the cover of this preliminary prospectus is subject to change as a result of market conditions and other factors.

92

LEGAL MATTERS

Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California, will pass upon the validity of the common stock offered hereby for LynuxWorks. Steven E. Bochner, a member at Wilson Sonsini Goodrich & Rosati, serves as Secretary and a director of LynuxWorks. As of October 19, 2000, certain investment partnerships composed of current and former members of and persons associated with Wilson Sonsini Goodrich & Rosati, Professional Corporation, as well as certain individual attorneys in this firm, beneficially owned an aggregate of 115,833 shares of common stock of LynuxWorks. Brown & Wood llp, San Francisco, California, will act as counsel for the underwriters.

EXPERTS

The financial statements of LynuxWorks, Incorporated (formerly Lynx Real-Time Systems, Incorporated) as of April 30, 2000 and 1999 and for each of the three years in the period ended April 30, 2000 included in this prospectus and registration statement have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Integrated Software & Devices Corporation as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 included in this prospectus and registration statement have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION AVAILABLE TO YOU

We have filed with the SEC a registration statement on Form S-1, including exhibits, schedules and amendments, with respect to the shares of our common stock to be sold in this offering. Prior to the offering we were not required to file reports with the SEC. This prospectus does not contain all the information included in the registration statement. For further information about us and the shares of our common stock to be sold in the offering, please refer to the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document filed as an exhibit to the registration statement are summaries of the terms of that contract, agreement or document and are not necessarily complete.

The registration statement and exhibits may be inspected, without charge, and copies may be obtained at prescribed rates, at the SEC's Public Reference facility at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The registration statement and other information filed with the SEC is available at the web site maintained by the SEC on the worldwide web at http://www.sec.gov.

93

INDEX TO FINANCIAL STATEMENTS

                                                                          Page
                                                                          ----
LYNUXWORKS, INCORPORATED

Report of Independent Accountants........................................  F-2
Consolidated Balance Sheets..............................................  F-3
Consolidated Statements of Operations....................................  F-4
Consolidated Statements of Mandatorily Redeemable Convertible Preferred
 Stock and Stockholders' Deficit.........................................  F-5
Consolidated Statements of Cash Flows....................................  F-6
Notes to Consolidated Financial Statements...............................  F-7

INTEGRATED SOFTWARE & DEVICES CORPORATION

Report of Independent Accountants........................................ F-23
Balance Sheets........................................................... F-24
Statements of Operations................................................. F-25
Statements of Shareholders' Equity (Deficit)............................. F-26
Statements of Cash Flows................................................. F-27
Notes to Financial Statements............................................ F-28

LYNUXWORKS, INCORPORATED

Unaudited Pro Forma Combined Financial Information....................... F-36
Unaudited Pro Forma Combined Balance Sheet, as of July 31, 2000.......... F-37
Unaudited Pro Forma Combined Statement of Operations, for the year ended
 April 30, 2000.......................................................... F-38
Unaudited Pro Forma Combined Statement of Operations, for the three
 months ended July 31, 2000.............................................. F-39
Notes to Unaudited Pro Forma Combined Financial Information.............. F-40

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of LynuxWorks, Incorporated

(formerly--Lynx Real-Time Systems, Incorporated)

The reincorporation of LynuxWorks, Incorporated in the State of Delaware, described in Note 9 to the financial statements, has not been consummated at October 24, 2000. When it has been consummated, we will be in a position to furnish the following report:

"In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of mandatorily redeemable convertible preferred stock and stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of LynuxWorks, Incorporated (formerly Lynx Real-Time Systems, Incorporated) and its subsidiaries at April 30, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2000, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion."

/s/ PricewaterhouseCoopers LLP

San Jose, California
May 30, 2000

F-2

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

                                                                     Pro Forma
                                    As of April 30,       As of        as of
                                    -----------------   July 31,     July 31,
                                     1999      2000       2000     2000 (note 1)
                                    -------  --------  ----------- -------------
                                                       (unaudited)  (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents.......  $ 1,946  $ 18,519   $ 31,411
  Short-term investments..........    4,890       --         --
  Accounts receivable, less
   allowance for doubtful accounts
   of $111 in 1999, $117 in 2000
   and $137 (unaudited) at July
   31, 2000.......................    4,928     3,452      3,434
  Prepaid expenses and other
   current assets.................      532     1,116      1,696
                                    -------  --------   --------
   Total current assets...........   12,296    23,087     36,541
Property and equipment, net.......      796     1,300      1,583
Capitalized software costs, net...      120        41         30
Other assets......................      251       159        165
                                    -------  --------   --------
   Total assets...................  $13,463  $ 24,587   $ 38,319
                                    =======  ========   ========

LIABILITIES, MANDATORILY
 REDEEMABLE CONVERTIBLE PREFERRED
 STOCK AND STOCKHOLDERS' DEFICIT

Current liabilities:
  Accounts payable and accrued
   liabilities....................  $ 3,006  $  2,680   $  3,680
  Deferred revenue................    2,886     3,224      3,467
  Bank notes payable..............       60       --         --
  Current portion of long-term
   obligations....................       19        12         12
                                    -------  --------   --------
   Total current liabilities......    5,971     5,916      7,159
Long-term obligations, less
 current portion..................        7        25         21
                                    -------  --------   --------
   Total liabilities..............    5,978     5,941      7,180
                                    -------  --------   --------

Commitments (Note 3)

Mandatorily redeemable convertible
 preferred stock, $0.001 par
 value:
  Authorized: 22,000,000 shares
  Issued and outstanding:
   12,105,254 shares at April 30,
   1999, 16,500,951 shares at
   April 30, 2000 and 20,176,461
   (unaudited) shares at July 31,
   2000...........................   16,514    37,520     55,101
                                    -------  --------   --------
  (Liquidation value at July 31,
   2000: $51,132 (unaudited))
Stockholders' equity (deficit):
 Common stock, $0.001 par value:
  Authorized: 48,000,000 shares;
  Issued and outstanding:
   5,859,214 shares at April 30,
   1999, 6,087,577 shares at April
   30, 2000 and 6,229,514
   (unaudited) shares at July 31,
   2000; pro forma at July 31,
   2000: 26,779,185 (unaudited)
   shares.........................        6         6          6     $     27
Additional paid-in capital........    1,262     1,321      5,646       60,913
Deferred stock-based
 compensation.....................     (149)   (1,404)    (6,451)      (6,451)
Notes receivable from
 stockholders.....................     (649)     (694)      (705)        (705)
Accumulated deficit...............   (9,499)  (18,103)   (22,458)     (22,458)
                                    -------  --------   --------     --------
   Total stockholders' equity
    (deficit).....................   (9,029)  (18,874)   (23,962)    $ 31,326
                                    -------  --------   --------     ========
   Total liabilities, mandatorily
    redeemable convertible
    preferred stock and
    stockholders' deficit.........  $13,463  $ 24,587   $ 38,319
                                    =======  ========   ========

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

F-3

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

                                                                Three Months
                                     Year Ended April 30,      Ended July 31,
                                   --------------------------  ----------------
                                    1998     1999      2000     1999     2000
                                   -------  -------  --------  -------  -------
                                                                 (unaudited)
Revenues:
 Product license.................  $ 7,943  $ 9,145  $ 11,541  $ 3,051  $ 3,245
 Service.........................    3,187    5,715     5,655    1,290    1,863
                                   -------  -------  --------  -------  -------
   Total revenues................   11,130   14,860    17,196    4,341    5,108
                                   -------  -------  --------  -------  -------
Cost of revenues:
 Product license.................    1,249    1,305     1,221      252      367
 Service ........................    1,674    2,974     3,170      684    1,334
 Amortization of deferred stock-
  based compensation related to
  the service organization.......      --       --        113      --       126
                                   -------  -------  --------  -------  -------
   Total cost of revenues........    2,923    4,279     4,504      936    1,827
                                   -------  -------  --------  -------  -------
Gross profit.....................    8,207   10,581    12,692    3,405    3,281
                                   -------  -------  --------  -------  -------
Operating expenses:
 Research and development
  (exclusive of amortization of
  deferred stock-based
  compensation of $71 in the
  year ended April 30, 2000, and
  $76 (unaudited) in the three
  months ended July 31, 2000
  reported below)................    3,530    4,584     7,061    1,564    1,892
 Sales and marketing (exclusive
  of amortization of deferred
  stock-based compensation of
  $138 in the year ended April
  30, 2000, and $148 (unaudited)
  in the three months ended July
  31, 2000 reported below).......    4,646    7,624    11,422    2,293    4,703
 General and administrative
  (exclusive of amortization of
  deferred stock-based
  compensation of $46 and $389
  in the years ended April 30,
  1999 and 2000, respectively,
  and $96 (unaudited) and $518
  (unaudited) in the three
  months ended July 31, 1999 and
  2000, respectively, reported
  below).........................    1,566    1,727     2,343      563      761
 Amortization of deferred stock-
  based compensation.............      --        46       598       96      742
                                   -------  -------  --------  -------  -------
   Total operating expenses......    9,742   13,981    21,424    4,516    8,098
                                   -------  -------  --------  -------  -------
Operating loss...................   (1,535)  (3,400)   (8,732)  (1,111)  (4,817)
                                   -------  -------  --------  -------  -------
Other income, net................       25      428       375      102      492
Interest expense.................     (241)     (32)       (5)      (2)      (1)
                                   -------  -------  --------  -------  -------
Loss before provision for income
 taxes...........................   (1,751)  (3,004)   (8,362)  (1,011)  (4,326)
Provision for income taxes.......       98       91       242       19       29
                                   -------  -------  --------  -------  -------
Net loss.........................   (1,849)  (3,095)   (8,604)  (1,030)  (4,355)
Dividend associated with
 beneficial conversion feature of
 Series F preferred stock........      --       --     (1,994)     --    (1,667)
                                   -------  -------  --------  -------  -------
Net loss attributable to common
 stockholders....................  $(1,849) $(3,095) $(10,598) $(1,030) $(6,022)
                                   =======  =======  ========  =======  =======
Net loss attributable to common
 stockholders per share--basic
 and diluted.....................  $ (0.38) $ (0.54) $  (1.78) $ (0.17) $ (0.97)
                                   =======  =======  ========  =======  =======
Shares used in computing net loss
 attributable to common
 stockholders per share--basic
 and diluted.....................    4,906    5,781     5,959    5,886    6,207
                                   =======  =======  ========  =======  =======
Pro forma net loss attributable
 to common stockholders per share
 (Note 1)--basic and diluted
 (unaudited).....................                    $  (0.56)          $ (0.23)
                                                     ========           =======
Shares used in computing pro
 forma net loss attributable to
 common stockholders per share--
 (Note 1) basic and diluted
 (unaudited).....................                      18,822            26,310
                                                     ========           =======

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

F-4

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
(in thousands, except share data)

                         Mandatorily
                          Redeemable
                         Convertible                                   Deferred      Notes
                       Preferred Stock     Common Stock   Additional    Stock-     Receivable                  Total
                      ------------------ ----------------  Paid-In      Based         from     Accumulated Stockholders'
                        Shares   Amount   Shares   Amount  Capital   Compensation Stockholders   Deficit      Deficit
                      ---------- ------- --------- ------ ---------- ------------ ------------ ----------- -------------
Balances, April 30,
1997................   4,625,998 $ 5,204 4,832,883  $ 5    $   598     $   --        $(305)     $ (4,555)    $ (4,257)
Issuance of common
stock upon exercise
of stock options for
cash and notes
receivable..........         --      --    775,916    1        305         --         (286)          --            20
Exercise of
warrants............         --      --     36,667   --         11         --          --            --            11
Warrants issued in
connection with
related party
convertible
promissory notes....         --      --        --    --         92         --          --            --            92
Interest receivable
from stockholders...         --      --        --    --        --          --          (21)          --           (21)
Net loss............         --      --        --    --        --          --          --         (1,849)      (1,849)
                      ---------- ------- ---------  ---    -------     -------       -----      --------     --------
Balances, April 30,
1998................   4,625,998   5,204 5,645,466    6      1,006         --         (612)       (6,404)      (6,004)
Issuance of Series
E-2 preferred
stock...............   6,621,268  10,000       --    --        --          --          --            --           --
Conversion of
related party
convertible
promissory notes
payable and accrued
interest to Series
E-1 preferred
stock...............     857,988   1,310       --    --        --          --          --            --           --
Issuance of common
stock upon exercise
of stock options for
cash................         --      --    213,748   --         61         --          --            --            61
Deferred stock-based
compensation related
to stock options
granted.............         --      --        --    --        195        (195)        --            --           --
Amortization of
deferred stock-based
compensation........         --      --        --    --        --           46         --            --            46
Interest receivable
from stockholders...         --      --        --    --        --          --          (37)          --           (37)
Net loss............         --      --        --    --        --          --          --         (3,095)      (3,095)
                      ---------- ------- ---------  ---    -------     -------       -----      --------     --------
Balances, April 30,
1999................  12,105,254  16,514 5,859,214    6      1,262        (149)       (649)       (9,499)      (9,029)
Issuance of Series F
preferred stock, net
of issuance costs...   4,395,697  19,012       --    --        --          --          --            --           --
Issuance of common
stock upon exercise
of stock options for
cash................         --      --    228,363   --         87         --          --            --            87
Deferred stock-based
compensation related
to stock options
granted.............         --      --        --    --      1,966      (1,966)        --            --           --
Amortization of
deferred stock-based
compensation........         --      --        --    --        --          711         --            --           711
Allocation of
discount on Series F
preferred stock.....         --    1,994       --    --        --          --          --            --           --
Dividend association
with beneficial
conversion feature
of Series F
preferred stock.....         --      --        --    --     (1,994)        --          --            --        (1,994)
Interest receivable
from stockholders...         --      --        --    --        --          --          (45)          --           (45)
Net loss............         --      --        --    --        --          --          --         (8,604)      (8,604)
                      ---------- ------- ---------  ---    -------     -------       -----      --------     --------
Balances, April 30,
2000................  16,500,951  37,520 6,087,577    6      1,321      (1,404)       (694)      (18,103)     (18,874)
Issuance of Series F
preferred stock.....   3,675,510  15,914       --    --        --          --          --            --           --
Issuance of common
stock upon exercise
of stock options for
cash................         --      --    141,937   --         77         --          --            --            77
Allocation of
discount on
preferred stock.....         --      --        --    --      5,915      (5,915)        --            --           --
Amortization of
deferred stock-based
compensation........         --      --        --    --        --          868         --            --           868
Allocation of
discount on
preferred stock.....         --    1,667       --    --        --          --          --            --           --
Dividend associated
with beneficial
conversion feature
of Series F
preferred stock.....         --      --        --    --     (1,667)        --          --            --        (1,667)
Interest receivable
from stockholders...         --      --        --    --        --          --          (11)          --           (11)
Net loss............         --      --        --    --        --          --          --         (4,355)      (4,355)
                      ---------- ------- ---------  ---    -------     -------       -----      --------     --------
Balances, July 31,
2000 (unaudited)....  20,176,461 $55,101 6,229,514  $ 6    $ 5,646     $(6,451)      $(705)     $(22,458)    $(23,962)
                      ========== ======= =========  ===    =======     =======       =====      ========     ========

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

F-5

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

                                                               Three Months
                                    Year Ended April 30,      Ended July 31,
                                  --------------------------  ----------------
                                   1998      1999     2000     1999     2000
                                  -------  --------  -------  -------  -------
                                                                (unaudited)
Cash flows from operating
 activities:
 Net loss........................ $(1,849) $ (3,095) $(8,604) $(1,030) $(4,355)
 Adjustments to reconcile net
  loss to net cash used in
  operating activities:
 Depreciation and amortization...     602       675      641      103      184
 Provision for (reduction in)
  allowance for doubtful
  accounts.......................     (19)       30        6        8       20
 Amortization of deferred stock-
  based compensation.............      --        46      711       96      868
 Accrued interest on related
  party convertible promissory
  notes payable..................      --        66       --       --       --
 Interest on notes receivable
  from stockholders..............     (21)      (37)     (45)      (9)     (11)
 Amortization of discount
  related to warrants issued in
  connection with related party
  convertible promissory note
  payable........................      92        --       --       --       --
 Changes in assets and
  liabilities:
 Accounts receivable.............  (1,112)   (1,322)   1,470    1,922       (2)
 Prepaid expenses and other
  current assets.................     130      (204)    (584)    (147)    (580)
 Other assets....................     (74)      (98)      92      137       (6)
 Accounts payable and accrued
  liabilities....................     421     1,346     (326)    (773)   1,000
 Deferred revenue................     984       393      338     (405)     243
                                  -------  --------  -------  -------  -------
   Net cash flows used in
    operating activities.........    (846)   (2,200)  (6,301)     (98)  (2,639)
                                  -------  --------  -------  -------  -------
Cash flows from investing
 activities:
 Purchases of property and
  equipment......................    (126)     (777)  (1,001)    (223)    (456)
 Capitalized software development
  costs..........................    (175)      (53)     (34)      (1)      --
 Purchase of short term
  investments....................      --   (52,891)      --       --       --
 Proceeds from sales and
  maturities of short-term
  investments....................      --    48,001    4,890    4,890       --
                                  -------  --------  -------  -------  -------
   Net cash flows provided by
    (used in) investing
    activities...................    (301)   (5,720)   3,855    4,666     (456)
                                  -------  --------  -------  -------  -------
Cash flows from financing
 activities:
 Borrowings on bank lines of
  credit.........................   1,286        --       --       --       --
 Payments on bank lines of
  credit.........................  (1,080)     (459)     (60)     (60)      --
 Payments of capital lease
  obligations....................     (72)     (102)     (20)      (5)      (4)
 Proceeds from issuance of
  related party convertible
  promissory notes payable.......   1,244        --       --       --       --
 Proceeds from issuance of
  preferred stock, net of
  issuance costs.................      --    10,000   19,012       --   15,914
 Proceeds from issuance of common
  stock..........................      31        61       87       13       77
                                  -------  --------  -------  -------  -------
   Net cash flows provided by
    (used in) financing
    activities...................   1,409     9,500   19,019      (52)  15,987
                                  -------  --------  -------  -------  -------
Net increase in cash and cash
 equivalents.....................     262     1,580   16,573    4,516   12,892
Cash and cash equivalents at
 beginning of period.............     104       366    1,946    1,946   18,519
                                  -------  --------  -------  -------  -------
Cash and cash equivalents at end
 of period....................... $   366  $  1,946  $18,519  $ 6,462  $31,411
                                  =======  ========  =======  =======  =======
Supplemental disclosure of cash
 flow information:
 Cash paid during the period for
  interest....................... $    82  $     18  $     2  $     1  $     1

Supplemental disclosure of non-
 cash investing and financing
 activities:
 Equipment acquired under capital
  lease obligation............... $   107  $     --  $    31  $    --  $    --
 Common stock issued in exchange
  for notes receivable from
  stockholder.................... $   286  $     --  $    --  $    --  $    --
 Conversion of related party
  convertible promissory notes
  payable and accrued interest to
  Series E-1 preferred stock..... $    --  $  1,310  $    --  $    --  $    --
 Deferred stock-based
  compensation................... $    --  $    195  $ 1,966  $   503  $ 5,915

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

F-6

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of business

LynuxWorks, Incorporated, formerly Lynx Real-Time Systems, Incorporated (the "Company") develops and markets software operating systems and related products and services designed for the embedded systems market. The Company's operating system and development tools enable its customers to develop embedded systems based on open standards that are compatible with Linux products. The Company markets and sells its products and services to distributors and original equipment manufacturers primarily in North America, Europe and Asia.

Basis of presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The subsidiaries are located both domestically and internationally and are intended to be sales offices. All significant intercompany balances and transactions have been eliminated.

Unaudited interim results

The accompanying interim consolidated financial statements at July 31, 2000 and for the three months ended July 31, 1999 and 2000 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects the Company's consolidated financial position at July 31, 2000 and consolidated results of operations and its cash flows for the three months ended July 31, 1999 and 2000. The consolidated financial data and other information disclosed in these notes to the consolidated financial statements related to these periods are unaudited.

Foreign currency translation

The currency of the primary economic environment in which the operation of the Company and its subsidiaries are conducted is the U.S. dollar. Transactions and balances denominated in dollars are presented at their original amounts. Remeasurement gains and losses which have been insignificant are included in the statements of operations.

Cash and cash equivalents

Cash and cash equivalents is comprised of highly liquid investments with original or remaining maturities of three months or less at the date of purchase. Management has classified all short-term investments as available for sale. These investments are comprised of commercial paper and United States government agency obligations with maturities of 30 to 150 days. Realized gains and losses are calculated using the specific identification method. Realized gains and losses in fiscal years 1999 and 2000 and unrealized holding gains and losses at April 30, 1999 were not significant.

F-7

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Concentrations

At April 30, 1999, 2000 and July 31, 2000, substantially all of the Company's cash and cash equivalents and short-term investments were invested with one financial institution. At April 30, 2000, the Company had $103,000 of restricted cash.

The Company sells its software applications to high technology equipment manufacturers and distributors located in North America, Europe and Asia. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company records an allowance for doubtful accounts for credit losses at the end of each period based on analysis of individual aged accounts receivable balances. As a result of this analysis, the Company believes its allowances for doubtful accounts is adequate but not excessive at April 30, 1999, 2000 and at July 31, 2000.

At April 30, 1999, three customers accounted for 20%, 19% and 18% of accounts receivable and at April 30, 2000 two other customers accounted for 20% and 10% of accounts receivable. At July 31, 2000, one customer accounted for 12% (unaudited) of accounts receivable. The following table sets forth customers comprising 10% or more of the revenue for each of the periods reported:

                                                              Three Months
                                               Year Ended         Ended
                                               April 30,        July 31,
                                             ---------------- ---------------
                                             1998  1999  2000  1999     2000
                                             ----  ----  ---- ------   ------
                                                               (unaudited)
A...........................................  19%   17%   --      --       --
B...........................................  14%   --    --      --       --
C...........................................  --    13%   --      13%      11%
D...........................................  --    --    --      --       12%
E...........................................  --    --    --      13%      --

Advertising

The Company expenses advertising costs as they are incurred. Advertising expense for fiscal year 1998, 1999, 2000 and the three months ended July 31, 1999 and 2000 was $191,000, $196,000, $875,000, $60,000 (unaudited), and $527,000 (unaudited), respectively.

Fair value of financial instruments

The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities (see Note 2).

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Computer equipment and furniture and fixtures are depreciated on a straight-line basis over estimated useful lives of three years. Leasehold improvements and equipment leased under capital lease obligations are amortized over the lesser of the useful life of the asset or the period of the lease. When assets are sold or retired, the cost and related

F-8

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

accumulated depreciation is removed from the accounts and the resulting gains or losses are included in the statement of operations. Gains and losses from the disposal of property and equipment are taken into income in the year of disposition. Repairs and maintenance costs are expensed as incurred.

Research and development costs

Costs related to research, design and development of products are charged to research and development expenses as incurred. Software development costs are capitalized beginning when a product's technological feasibility has been established, generally using the working model approach to date, and ending when a product is available for general release to customers. Amortization of capitalized software begins when the product is available for general release to customers and is amortized using the greater of the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or on a straight-line basis over two years. Capitalized software development costs are reported at the lower of unamortized cost or net realizable value. The Company evaluates the estimated net realizable value of each software product at each balance sheet date and records write-downs to net realizable value for any products for which the net book value is in excess of net realizable value. Net realizable value for each software product is the estimated future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product.

For the fiscal years 1998, 1999, 2000 and the three months ended July 31, 1999 and 2000, the Company amortized $330,000, $316,000, $114,000, $29,000 (unaudited) and $11,000 (unaudited) of capitalized software development costs, respectively, which are included in cost of revenue in the accompanying consolidated statements of operations. Total accumulated amortization of capitalized software development costs was $847,000, $961,000 and $972,000 (unaudited) at April 30, 1999 and 2000 and at July 31, 2000, respectively.

Income taxes

Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Use of estimates

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

Revenue recognition

The Company's revenue is derived from primarily two sources, across many industries: (i) product licenses revenue, derived primarily from sales of licenses to distributors and original

F-9

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

equipment manufacturers, and (ii) service revenue, derived primarily from software development, engineering and consulting contracts, software maintenance and support contracts and customer training.

The Company adopted the provisions of Statement of Position 97-2, or SOP 97- 2, effective May 1, 1998. SOP 97-2 supersedes Statement of Position 91-1, Software Revenue Recognition, and delineates the accounting for software product and maintenance revenues. Under SOP 97-2, the Company recognizes product license revenue, including prepaid royalties, upon shipment if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable and product returns are reasonably estimable. Revenues from software licenses sold through distributors are recognized under the same SOP 97-2 criteria because distributors typically only purchase products to fulfill specific customer orders and do not hold inventory of the Company's products. The adoption of SOP 97-2 did not have any material impact on the Company's results of operations or financial position.

The Company recognizes revenue from software development and engineering and consulting contracts as the services are performed or, when collection of the fee is subject to final acceptance by the customers on the completed contract method.

The Company recognizes fees for ongoing customer support and upgrades and enhancements ratably over the period of the contract. Payments for maintenance fees are generally made in advance and are non-refundable. Education and consulting service revenues are recognized as the related services are performed.

For contracts with multiple obligations (e.g. deliverable and undeliverable products, maintenance and other services), the Company determines revenue from each component of the contract based on Vendor Specific Objective Evidence of its fair value. The Company recognizes revenue allocated to undelivered products when the criteria for product revenue set forth above are met.

Stock-based compensation

The Company uses the intrinsic value method which requires that deferred stock-based compensation be recorded for the difference between an option's exercise price and fair value of the underlying common stock on the date both the number of shares and exercise price of the option grant are known. The resulting deferred stock-based compensation is amortized in the statement of operations over the vesting period of the option, generally four years, using the multiple option approach. Disclosures are made in the accompanying notes to consolidated financial statements as required by Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." Under SFAS 123, disclosures are required, assuming all options granted since January 1, 1996 were valued using the minimum value method and the resulting deferred stock-based compensation is amortized in the statement of operations over the vesting period of the option.

Comprehensive income

The Company has adopted Statement of Financial Accounting Standards No. 130 or SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting

F-10

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and display of comprehensive income and its components in a full set of general-purpose financial statements. There was no material difference between the Company's net loss and its total comprehensive loss for all reported periods.

Historical net loss per share

The Company computes net loss per share in accordance with SFAS 128, "Earnings per Share." and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Dilutive net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common and common equivalent shares outstanding during the period, if dilutive. Common share equivalents consisting of options, warrants, and mandatorily redeemable convertible preferred stock were not included in the computation of dilutive net loss per share because their effect would be antidilutive.

Antidilutive securities not included in net loss per share calculation:

                                                          Three Months Ended
                              Year Ended April 30,             July 31,
                         ------------------------------- ---------------------
                           1998       1999       2000       1999       2000
                         --------- ---------- ---------- ---------- ----------
                                                              (unaudited)
Mandatorily redeemable
 convertible preferred
 stock.................. 4,625,998 12,105,254 16,500,951 12,105,284 20,176,461
Common stock options.... 3,949,108  3,801,982  4,465,987  4,448,300  5,830,603
Warrants................   373,210    373,210    373,210    373,210    373,210
                         --------- ---------- ---------- ---------- ----------
Total................... 8,948,316 16,280,446 21,340,148 16,926,794 26,380,274
                         ========= ========== ========== ========== ==========

Pro forma at July 31, 2000 (unaudited)

As contemplated upon closing of the Company's initial public offering, the outstanding shares of Series A, Series B, Series C, Series D, Series E-1, Series E-2, and Series F mandatorily redeemable convertible preferred stock will convert into 20,176,461 shares of common stock. Warrants to purchase 373,210 shares of the Company's common stock will expire if not exercised prior to the closing of the Company's initial public offering. The pro forma at July 31, 2000 gives effect to the conversion of the mandatorily redeemable convertible preferred stock into common stock and the exercise of the warrants.

F-11

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Pro forma net loss per share

Pro forma net loss per share is computed using the weighted average number of common shares outstanding, including the pro forma effects of the conversion of the Company's preferred stock into shares of the Company's common stock effective upon the closing of the Company's initial public offering as if such conversion occurred on date of original issuance and the pro forma effect of the exercise of the warrants to purchase 373,210 shares of common stock at an exercise price of $0.50 per share as if such exercise occurred on the date of original issue as follows (in thousands, except per share data):

                                                                   Three Months
                                                        Year Ended    Ended
                                                        April 30,    July 31,
                                                           2000        2000
                                                        ---------- ------------
                                                                   (unaudited)

Historical net loss attributable to common
 stockholders..........................................  $(10,598)   $(6,022)
                                                         ========    =======

  Shares used in computing net loss per share--basic
   and diluted.........................................     5,959      6,207
                                                         --------    -------
  Pro forma adjustment to reflect weighted effect of
   assumed conversion of mandatorily redeemable
   convertible preferred stock:
  Series A mandatorily redeemable convertible preferred
   stock...............................................     1,300      1,300
  Series B mandatorily redeemable convertible preferred
   stock...............................................     1,281      1,281
  Series C mandatorily redeemable convertible preferred
   stock...............................................       545        545
  Series D mandatorily redeemable convertible preferred
   stock...............................................     1,500      1,500
  Series E-1 mandatorily redeemable convertible
   preferred stock.....................................       858        858
  Series E-2 mandatorily redeemable convertible
   preferred stock.....................................     6,621      6,621
  Series F mandatorily redeemable convertible preferred
   stock...............................................       385      7,625
                                                         --------    -------
                                                           12,490     19,730
                                                         --------    -------
  Exercise of warrants.................................       373        373
                                                         --------    -------
Weighted average shares used in computing pro forma
 basic and diluted loss per share......................    18,822     26,310
                                                         ========    =======
Pro forma net loss per share, basic and diluted........  $  (0.56)   $ (0.23)
                                                         ========    =======

Recent accounting pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133") that requires companies to record derivative financial instruments on their balance sheets as assets or liabilities measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be recorded depending on the use of the derivative instrument and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. In June 1999, the FASB issued Statement of Financial Accounting Standard No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," ("SFAS 137") that amends SFAS 133 to be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, the Financial Accounting Standards Board issued SFAS No. 138,

F-12

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

"Accounting for Derivative Instruments and Hedging Activities--An Amendment of FASB No. 133" ("SFAS 138"). SFAS 138 amends the accounting and reporting standards for certain derivatives and hedging activities such as net settlement contracts, foreign currency translations and intercompany derivatives. The Company will adopt SFAS 133 in its quarter ending October 31, 2000. To date, the Company has not engaged in derivatives or hedging activities.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 101 ("SAB 101"), which summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective December 2000. The Company has analyzed the impact of SAB 101 and believes that the adoption of SAB 101 will not have a material effect on its financial position, results of operations or cash flows.

In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions involving Stock Compensation," an interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of certain of the provisions of FIN 44 prior to March 31, 2000 did not have a material impact on the consolidated financial statements. Management does not expect that the adoption of the remaining provisions will have a material effect on the consolidated financial statements.

NOTE 2--BALANCE SHEET DETAIL (in thousands):

Cash, cash equivalents and short-term investments:

                                    As of April 30,
                          ------------------------------------
                                                                 As of July 31,
                                1999               2000               2000
                          ----------------- ------------------ ------------------
                           Cost  Fair Value  Cost   Fair Value  Cost   Fair Value
                          ------ ---------- ------- ---------- ------- ----------
                                                                  (unaudited)
Cash and cash
 equivalents:
  Cash..................  $  303   $  303   $   915  $   915   $   994  $   994
  Commercial paper......   1,145    1,145    17,604   17,604    30,417   30,417
  Federal Home Loan Bank
   Obligations..........     498      498        --       --        --       --
                          ------   ------   -------  -------   -------  -------
                          $1,946   $1,946   $18,519  $18,519   $31,411  $31,411
                          ======   ======   =======  =======   =======  =======
Short-term investments:
  Commercial paper......  $1,963   $1,963   $    --  $    --   $    --  $    --
  Federal Home Loan Bank
   Obligations..........   2,927    2,927        --       --        --       --
                          ------   ------   -------  -------   -------  -------
                          $4,890   $4,890   $    --  $    --   $    --  $    --
                          ======   ======   =======  =======   =======  =======

F-13

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Property and equipment, net:

                                                 As of April 30,       As of
                                                 -----------------   July 31,
                                                  1999      2000       2000
                                                 -------  --------  -----------
                                                                    (unaudited)
   Computer equipment..........................  $ 1,463  $  2,127    $ 2,570
   Furniture and fixtures......................      253       337        347
   Leasehold improvements......................       64       109        112
                                                 -------  --------    -------
                                                   1,780     2,573      3,029
   Less: Accumulated depreciation and
    amortization...............................     (984)   (1,273)    (1,446)
                                                 -------  --------    -------
                                                 $   796  $  1,300    $ 1,583
                                                 =======  ========    =======

  Depreciation and amortization expense for fiscal years 1998, 1999, 2000 and
for the three months ended July 31, 2000 was $272,000, $359,000, $528,000 and
$173,000 (unaudited), respectively.

  Equipment acquired under capital lease obligations included in property and
equipment comprised:

                                                 As of April 30,       As of
                                                 -----------------   July 31,
                                                  1999      2000       2000
                                                 -------  --------  -----------
                                                                    (unaudited)
   Equipment...................................  $    94  $     91    $    91
   Less: Accumulated depreciation and
    amortization...............................      (72)      (58)       (62)
                                                 -------  --------    -------
                                                    $ 22  $     33    $    29
                                                 =======  ========    =======

  Accounts payable and accrued liabilities:

                                                 As of April 30,       As of
                                                 -----------------   July 31,
                                                  1999      2000       2000
                                                 -------  --------  -----------
                                                                    (unaudited)
   Accounts payable............................  $   623  $    419    $ 1,040
   Accrued payroll and related expenses........    1,180       509        972
   Accrued vacation............................      335       607        543
   Other accrued expenses......................      868     1,145      1,125
                                                 -------  --------    -------
                                                  $3,006  $  2,680    $ 3,680
                                                 =======  ========    =======

NOTE 3--COMMITMENTS:

Capital leases

The Company leases equipment under capital leases expiring in fiscal year 2001 through fiscal year 2005.

F-14

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Minimum future lease payments at April 30, 2000 under capital leases are as follows (in thousands):

                                                                      As of
                                                                    April 30,
Fiscal Year:                                                          2000
------------                                                        ---------
2001...............................................................   $ 16
2002...............................................................      8
2003...............................................................      8
2004...............................................................      8
2005...............................................................      7
                                                                      ----
Total minimum lease payments.......................................     47
Less: Amounts representing interest................................    (10)
                                                                      ----
Present value of future minimum lease payments.....................     37
Less: Current portion..............................................    (12)
                                                                      ----
Long-term obligations..............................................   $ 25
                                                                      ====

Operating leases

The Company leases its facilities under noncancelable operating leases which expire between May 2000 and March 2005. The Company is responsible for maintenance, insurance and taxes.

Minimum lease payments at April 30, 2000 for these noncancelable operating leases are as follows (in thousands):

                                                                      As of
                                                                    April 30,
Fiscal Year:                                                          2000
------------                                                        ---------
2001...............................................................  $  906
2002...............................................................     855
2003...............................................................     854
2004...............................................................     865
2005...............................................................     758
                                                                     ------
                                                                     $4,238
                                                                     ======

Rent expense for fiscal years 1998, 1999, 2000 and the three months ended July 31, 1999 and 2000 was $317,000, $378,000, $556,000, $107,000 (unaudited) and $244,000 (unaudited), respectively.

NOTE 4--RELATED PARTIES:

Related party convertible promissory notes payable

In October 1997, the Company issued convertible promissory notes payable to certain stockholders for a total principal amount of $1,244,000 and issued warrants to purchase up to an aggregate of 373,210 shares of the Company's common stock (See Note 5--"Warrants"). The fair value of the warrants was estimated at $92,000 using the Black-Scholes model and the

F-15

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

following assumptions; dividend yield of 0%, volatility of 60%, risk free interest rate of 5.97% and a term of five years.

In June 1998, $1,244,000 of principal and $66,000 of interest under the convertible promissory notes were converted to 857,988 shares of Series E-1 preferred stock at a conversion price of $1.5103 per share based on the terms defined in the original notes agreement.

In fiscal years 1998, 1999 and 2000 and for the three months ended July 31, 2000, the Company recorded sales of $513,294, $1,357,000, $826,000 and $614,000 (unaudited), respectively, from one major stockholder.

The Company had amounts receivable from the same stockholder representing 18%, 6% and 12% (unaudited) of accounts receivable at April 30, 1999 and 2000 and at July 31, 2000, respectively.

NOTE 5--PREFERRED AND COMMON STOCK:

Mandatorily Redeemable Convertible Preferred Stock

At July 31, 2000, the amounts, terms and liquidation values of Series A, Series B, Series C, Series D, Series E-1, Series E-2 and Series F preferred stock are as follows (unaudited):

                                                        Common
                                                        Shares
                                                       Reserved
                                          Issued and     for     Liquidation
Series                 Amount  Authorized Outstanding Conversion    Value
------                 ------- ---------- ----------- ---------- -----------
                                 (in thousands, except share data)
A..................... $   650  1,300,000  1,300,000   1,300,000   $   650
B.....................   1,449  1,281,000  1,281,000   1,281,000     1,089
C.....................   1,612    544,998    544,998     544,998     1,635
D.....................   1,493  1,500,000  1,500,000   1,500,000     1,500
E-1...................   1,310    857,988    857,988     857,988     1,310
E-2...................  10,000  6,621,268  6,621,268   6,621,268    10,000
F.....................  38,587  8,071,207  8,071,207   8,071,207    34,948
Undesignated..........     --   1,823,539        --          --        --
                       ------- ---------- ----------  ----------   -------
                       $55,101 22,000,000 20,176,461  20,176,461   $51,132
                       ======= ========== ==========  ==========   =======

Each share of preferred stock is convertible into common stock on a one-for- one basis subject to adjustment for certain changes in capitalization and certain dilutive issuances. Each series of preferred stock automatically converts into common stock, as to each series, upon (1) the consent of the holders of at least 66 2/3% of the shares of such series of or (2) upon the closing of a public offering in which the public offering price is equal to or greater than $8.00 per share of the Company's common stock and aggregate gross proceeds of at least $20,000,000.

The holders of preferred stock may receive noncumulative dividends of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103 and $4.33 per share per annum for Series A, Series B, Series C, Series D, Series E-1, Series E-2, and Series F preferred stock, respectively, when and if declared by the

F-16

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Board of Directors. No cash dividends may be paid to holders of common stock during any fiscal year until dividends of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103 and $4.33 per share for Series A, Series B, Series C, Series D, Series E-1, Series E-2, and Series F preferred stock, respectively, have been paid in that fiscal year. No dividends have been declared to date.

In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of preferred stock have preference over the holders of common stock in liquidation to the extent of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103 and $4.33 per share for Series A, Series B, Series C, Series D, Series E-1, Series E-2, and Series F preferred stock, respectively, plus all declared but unpaid dividends. The holders of common stock are then entitled to receive the amount of $0.05 per share after which the holders of preferred stock and common stock share ratably in any further distribution of assets.

The holders of each series of preferred stock, with the exception of the voting rights of 2,823,176 shares of Series E-2 preferred stock and 98,472 shares of Series F preferred stock, are entitled to the number of votes equal the number of shares of common stock into which shares of such series convert. The holders of 2,823,176 shares of Series E-2 and 98,472 shares of Series F shall vote in proportion to the manner in which all holders of the company's capital stock vote on all matters except the election of directors.

Stock Option Plans

The Company has adopted the 1988 Stock Option Plan, the 1992 Stock Option Plan and the 1997 Stock Option Plan (collectively the "Plans"), under which a total of 9,832,968 shares of the Company's common stock were reserved for issuance to employees, directors and consultants. The Board of Directors approved the termination of the 1988 Stock Option Plan effective December 31, 1991.

The Company's 1992 and 1997 Stock Option Plans provide for the grants of options to purchase the Company's common stock at exercise prices of no less than 100% and 85% of the fair market value of the Company's common stock at the date of grant, as determined by the Board of Directors, for incentive and nonqualified stock options, respectively. The Board of Directors determines vesting terms on option grants, but in no case can the vesting rate be less than 20% per year over five years from the option grant date. Options generally vest over four years, at a rate of 25% one year from the date of grant and monthly thereafter over three years. Unexercised options under the 1992 Plan and 1997 Stock Option Plans expire three months after termination of employment with the Company and have a term of ten years.

F-17

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Activity under the Plans is as follows (in thousands, except share and per share amounts):

                                          Outstanding Shares
                                     -----------------------------
                                                                    Weighted
                                                                    Average
                                                                    Exercise
                           Shares                                    Price
                         Available   Number of   Price Per            Per
                         for Grant    Shares       Share    Total    Share
                         ----------  ---------  ----------- ------  --------
Balances, April 30,
 1997...................  1,102,507  3,194,317  $0.05-$0.40 $  988   $0.31
  Shares reserved.......  1,719,500         --  $        --     --   $  --
  Options granted....... (1,999,850) 1,999,850  $0.40-$0.60  1,115   $0.56
  Options exercised.....         --   (775,916) $0.05-$0.44   (306)  $0.40
  Options canceled......    469,143   (469,143) $0.05-$0.50    (97)  $0.21
                         ----------  ---------              ------
Balances, April 30,
 1998...................  1,291,300  3,949,108  $0.05-$0.60  1,700   $0.43
  Options granted.......   (409,875)   409,875  $0.60-$1.00    341   $0.83
  Options exercised.....         --   (213,748) $0.05-$0.60    (61)  $0.29
  Options canceled......    343,253   (343,253) $0.05-$0.60   (151)  $0.44
                         ----------  ---------              ------
Balances, April 30,
 1999...................  1,224,678  3,801,982  $0.05-$1.00  1,829   $0.48
  Shares reserved.......  2,004,782         --  $        --     --   $  --
  Options granted....... (1,235,050) 1,235,050  $1.00-$1.50  1,689   $1.37
  Options exercised.....         --   (228,363) $0.10-$1.25    (87)  $0.38
  Options canceled......    342,682   (342,682) $0.30-$1.50   (330)  $0.96
                         ----------  ---------              ------
Balances, April 30,
 2000...................  2,337,092  4,465,987  $0.10-$1.50  3,101   $0.69
  Options granted....... (1,568,800) 1,568,800  $2.00-$2.20  3,246   $2.07
  Options exercised.....         --   (141,930) $0.30-$1.50    (77)  $0.47
  Options canceled......     62,254    (62,254) $0.40-$2.00    (92)  $1.48
                         ----------  ---------              ------
Balances, July 31, 2000
 (unaudited)............    830,546  5,830,603  $0.15-$2.20 $6,178   $1.06
                         ==========  =========              ======

The options outstanding and exercisable for the Plans by exercise price at April 30, 2000 are as follows:

              Options Outstanding                     Options Exercisable
---------------------------------------------------  -----------------------
                             Weighted     Weighted                 Weighted
                              Average     Average                  Average
                             Remaining    Exercise                 Exercise
 Range of                   Contractual    Price                    Price
 Exercise       Number         Life         Per        Number        Per
   Price      Outstanding     (Years)      Share     Exercisable    Share
 --------     -----------   -----------   --------   -----------   --------
$0.10-$0.40    1,473,126       5.43        $0.34      1,302,710     $0.34
$0.50-$0.66    1,775,530       7.88        $0.57      1,110,377     $0.57
$1.00-$1.50    1,217,331       9.16        $1.35         73,708     $1.14
               ---------                              ---------
$0.10-$1.50    4,465,987       7.42        $0.69      2,486,795     $0.47
               =========                              =========

Options to purchase 2,030,040 shares of common stock were exercisable under the Plans at April 30, 1999, with a weighted average exercise price of $0.42 per share.

F-18

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Pro forma stock-based compensation

The Company has adopted the disclosure-only provisions of SFAS 123. Had compensation expense for the Plans been determined based on the fair value at the grant date for options granted for the four month period ended April 30, 1996 and in fiscal years 1997, 1998, 1999 and 2000 consistent with the provisions of SFAS 123, the pro forma net loss would have been as follows (in thousands):

                                                  Year Ended April 30,
                                                --------------------------
                                                 1998     1999      2000
                                                -------  -------  --------
Net loss attributable to common stockholders--
 as reported................................... $(1,849) $(3,095) $(10,598)
Net loss attributable to common stockholders--
 pro forma..................................... $(1,904) $(3,201) $(10,676)
Basic and diluted net loss attributable to
 common stockholders per share................. $ (0.38) $ (0.54) $  (1.78)
Basic and diluted net loss attributable to
 common stockholders per share--pro forma...... $ (0.39) $ (0.55) $  (1.79)

The fair value of each option grant is estimated on the date of grant using the minimum value method assuming an expected life of four years and a weighted average risk-free interest rate of 5.91%, 5.91% and 6.12% for fiscal years 1998, 1999 and 2000, respectively. The weighted average expected life was calculated based on the vesting period and the exercise behavior of each option granted. The risk-free interest rate was calculated in accordance with the grant date and expected life calculated for each option granted.

The weighted average fair value of stock options granted in fiscal years 1998, 1999 and 2000 was $0.13, $0.16 and $0.40 per share, respectively.

Warrants

In connection with the issuance of the related party convertible promissory notes (see Note 4), the Company issued to an officer of the Company and to a member of the Board of Directors immediately exercisable warrants to purchase 373,210 shares of the Company's common stock which have an exercise price $0.50 per share and expire on the earlier of November 14, 2001 or the closing of the Company's initial public offering. At April 30, 2000 none of these warrants had been exercised.

Deferred stock-based compensation

During fiscal years 1999 and 2000 and the three months ended July 31, 2000 (unaudited), the Company issued options to purchase 409,875, 1,235,050 and 1,568,800 shares of its common stock to certain employees and consultants under its 1997 Stock Option Plan with exercise prices below the deemed fair market value of the Company's common stock at the date of grant. At April 30, 1999 and 2000 and July 31, 2000, the Company had recorded deferred stock-based compensation related to these options in an amount of $195,000, $1,966,000 and $5,915,000 (unaudited), of which $46,000, $711,000 and $868,000 (unaudited) had been amortized to expense during fiscal years 1999, 2000 and the three months ended July 31, 2000, respectively.

F-19

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 6--INCOME TAXES:

The components of the net deferred tax asset comprise (in thousands):

                                                            As of April 30,
                                                            ----------------
                                                             1999     2000
                                                            -------  -------
Accrued liabilities........................................ $   191  $   185
Allowances for doubtful accounts...........................      41       45
Deferred revenue...........................................      17      179
Other......................................................     155      144
Net operating loss carryforward............................   2,804    5,385
Research and development credit carryforwards..............   1,544    2,002
Foreign tax credit carryforward............................     432      764
Valuation allowance........................................  (5,184)  (8,704)
                                                            -------  -------
                                                            $   --   $   --
                                                            =======  =======

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that deferred tax assets are realizable, the valuation allowance will be reduced.

The valuation allowance increased by $1,098,000, $1,582,000 and $3,520,000 in fiscal years 1998, 1999 and 2000, respectively.

The provision for income taxes is current and is composed of the following (in thousands):

                                                                    Three
                                                                   Months
                                                    Year ended      Ended
                                                    April 30,     July 31,
                                                  -------------- ------------
                                                  1998 1999 2000 1999   2000
                                                  ---- ---- ---- -----  -----
                                                                 (unaudited)
State............................................ $-   $-   $ 48 $   4  $   2
Foreign..........................................  98   91   194    15     27
                                                  ---  ---  ---- -----  -----
                                                  $98  $91  $242 $  19  $  29
                                                  ===  ===  ==== =====  =====

F-20

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's effective tax rate differs from the statutory federal income tax rate as follows:

                                                              Three
                                                             Months
                                        Year ended            Ended
                                        April 30,           July 31,
                                      ------------------   --------------
                                      1998   1999   2000   1999     2000
                                      ----   ----   ----   -----    -----
                                                           (unaudited)
Income tax benefit at statutory
 rate................................ (34)%  (34)%  (34)%    (34)%    (34)%
Net operating loss and deferred tax
 assets .............................  34     34     34       34       34
Foreign technology transfer taxes....   6      4      3        3        1
Other................................  --     --     --       --       --
                                      ---    ---    ---    -----    -----
                                        6 %    4 %    3 %      3%       1 %
                                      ===    ===    ===    =====    =====

At April 30, 2000, the following net operating loss and credit carryforwards were available to the Company to reduce future taxable income:

                                                              Federal State
                                                              ------- ------
                                                              (in thousands)
Regular and alternative maximum tax reporting................ $15,300 $4,103
General business and foreign tax credits.....................   2,146    959

The carryforwards and credits expire between 2000 and 2020 for both federal and state purposes, if not used before such time to offset future taxable income or tax liabilities.

For federal and state tax purposes, a portion of the Company's net operating loss and tax credit carryforwards may be subject to certain limitations on annual utilization due to an "Ownership Change," as defined by federal and state tax law.

NOTE 7--PROFIT-SHARING PLAN:

The Company's 401(k) Profit-Sharing Plan provides for tax deferred automatic salary deductions. Under the terms of the plan, eligible employees and the Company are permitted to make contributions to the plan as determined by the Board of Directors. No Company contributions were made in fiscal years 1999 or 2000.

F-21

LYNUXWORKS, INCORPORATED
(FORMERLY LYNX REAL-TIME SYSTEMS, INCORPORATED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 8--GEOGRAPHIC REVENUE REPORTING:

The Company operates in one industry segment. The Company's geographic sales data based on customer destination is defined by region: North America, Europe and Asia. Revenue by geographic region was as follows (in thousands):

                                                          Three Months Ended
                                   Year Ended April 30,        July 31,
                                  ----------------------- -------------------
                                   1998    1999    2000     1999      2000
                                  ------- ------- ------- --------- ---------
                                                              (unaudited)
North America.................... $ 6,755 $10,621 $11,647 $   3,156 $   3,598
Europe...........................   2,842   2,647   3,618       832       984
Asia.............................   1,533   1,592   1,931       353       526
                                  ------- ------- ------- --------- ---------
                                  $11,130 $14,860 $17,196 $   4,341 $   5,108
                                  ======= ======= ======= ========= =========

NOTE 9--SUBSEQUENT EVENTS: (unaudited)

Acquisition of Integrated Software & Devices Corporation ("ISDCorp")

In October 2000, pending tax clearance from the California Franchise Tax Board, the Company acquired all the common stock of Integrated Software & Devices Corporation ("ISDCorp") for 5,022,776 shares of LynuxWorks common stock and 981,757 options to acquire LynuxWorks common stock. The acquisition will be accounted for using the purchase method of accounting. The excess of the purchase price over the fair value of the net identifiable assets of approximately $30.6 million represents goodwill and other intangible assets and will be amortized on a straight-line basis over two to three years. Approximately $610,000 was allocated to purchased in-process research and development and will be expensed at the date of acquisition.

Initial public offering

In October 2000, the Company's Board of Directors authorized management of the Company to file a registration statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock to the public. If the initial public offering is closed under the terms presently anticipated, all of the convertible preferred stock outstanding will convert into shares of common stock, subject to the approval of the holders of preferred stock. Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion of the preferred stock and exercise of warrants, is set forth on the balance sheets.

Following the initial public offering, the Company will be authorized to issue 250,000,000 shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock. The board of directors will have the authority to issue the undesignated preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof.

Reincorporation

In May 2000, the board of directors authorized the reincorporation of the Company in the State of Delaware. The reincorporation will be effective prior to the closing of the Company's initial public offering.

F-22

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Integrated Software & Devices Corporation

In our opinion, the accompanying balance sheets and the related statements of operations, of shareholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Integrated Software & Devices Corporation at December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California
July 27, 2000,

F-23

INTEGRATED SOFTWARE & DEVICES CORPORATION

BALANCE SHEETS
(in thousands, except share data)

                                                         As of
                                                     December 31,      As of
                                                     -------------   June 30,
                                                      1998   1999      2000
                                                     ------ ------  -----------
                                                                    (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents......................... $  925 $  892    $   260
  Accounts receivable...............................    524    221        557
  Prepaid expenses and other current assets.........     48    230        149
                                                     ------ ------    -------
    Total current assets............................  1,497  1,343        966
Property and equipment, net.........................    360    381        397
Other assets........................................     28     28         28
                                                     ------ ------    -------
    Total assets.................................... $1,885 $1,752    $ 1,391
                                                     ====== ======    =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.................................. $   36 $   24    $    87
  Cash overdrafts...................................    128     --         --
  Line of credit....................................     --     --        285
  Accrued liabilities...............................    290    338        787
  Deferred revenue..................................    853    563        520
  Related party notes payable.......................     --  1,250        300
                                                     ------ ------    -------
    Total current liabilities.......................  1,307  2,175      1,979
Convertible note payable............................     --     --      1,000
                                                     ------ ------    -------
    Total liabilities...............................  1,307  2,175      2,979
                                                     ------ ------    -------
Commitments (Note 3)
Shareholders' equity (deficit):
Common stock, no par value:
  Authorized: 35,000,000 shares;
  Issued and outstanding: 20,000,000 shares at
   December 31, 1998 and 1999 and 21,860,000
   (unaudited) shares at June 30, 2000..............      5      5      3,416
  Deferred stock-based compensation.................     --     --     (1,519)
  Notes receivable from shareholders................     --     --       (256)
  Retained earnings (accumulated deficit)...........    573   (428)    (3,229)
                                                     ------ ------    -------
    Total shareholders' equity (deficit)............    578   (423)    (1,588)
                                                     ------ ------    -------
    Total liabilities and shareholders' equity
     (deficit)...................................... $1,885 $1,752    $ 1,391
                                                     ====== ======    =======

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

F-24

INTEGRATED SOFTWARE & DEVICES CORPORATION

STATEMENTS OF OPERATIONS
(in thousands, except per share data)

                                        Year Ended December       Six Months
                                                31,             Ended June 30,
                                        ----------------------  ---------------
                                         1997    1998    1999    1999    2000
                                        ------  ------  ------  ------  -------
                                                                 (unaudited)
Revenues..............................  $2,116  $2,903  $4,594  $3,048  $ 1,880
Cost of revenues......................   1,149   1,619   2,296   1,375    1,525
Amortization of deferred stock-based
 compensation related to the service
 organization.........................      --      --      --      --      607
                                        ------  ------  ------  ------  -------
Gross profit (loss)...................     967   1,284   2,298   1,673     (252)
                                        ------  ------  ------  ------  -------
Operating expenses:
  Research and development (exclusive
   of amortization of deferred stock-
   based compensation of $154 in the
   six months ended June 30, 2000
   (unaudited), reported below).......      50     109     527     116      387
  Sales and marketing (exclusive of
   amortization of deferred stock-
   based compensation of $239 in the
   six months ended June 30, 2000
   (unaudited), reported below).......     147     296     534     237      602
  General and administrative
   (exclusive of amortization of
   deferred stock-based compensation
   of $376 in the six months ended
   June 30, 2000 (unaudited), reported
   below).............................     433     725     922     395      945
  Amortization of deferred stock-based
   compensation.......................      --      --      --      --      769
  Interest associated with beneficial
   conversion feature on convertible
   note payable.......................      --      --      --      --      200
                                        ------  ------  ------  ------  -------
    Total operating expenses..........     630   1,130   1,983     748    2,903
                                        ------  ------  ------  ------  -------
Operating income (loss)...............     337     154     315     925   (3,155)
Other income (expense), net...........      10       9      36      27      (69)
                                        ------  ------  ------  ------  -------
Income before provision for income
 taxes................................     347     163     351     952   (3,224)
Provision for income taxes............      (2)     (2)    (14)     (2)      (5)
                                        ------  ------  ------  ------  -------
Net income (loss).....................  $  345  $  161  $  337  $  950  $(3,229)
                                        ======  ======  ======  ======  =======
Net income (loss) per share--basic and
 diluted..............................  $ 0.02  $ 0.01  $ 0.02  $ 0.05  $ (0.16)
                                        ======  ======  ======  ======  =======
Shares used in computing net income
 (loss) per share--basic and diluted..  20,000  20,000  20,000  20,000   20,619
                                        ======  ======  ======  ======  =======

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

F-25

INTEGRATED SOFTWARE & DEVICES CORPORATION

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)

                                                         Notes       Retained       Total
                          Common Stock     Deferred    Receivable    Earnings   Shareholders'
                          -------------  Stock-Based      from     (Accumulated    Equity
                          Shares Amount  Compensation Shareholders   Deficit)     (Deficit)
                          ------ ------  ------------ ------------ ------------ -------------
Balances, December 31,
 1996...................  20,000 $    5    $   --        $ --        $   304       $   309
Dividends distribution..     --     --         --          --           (152)         (152)
Net income..............     --     --         --          --            345           345
                          ------ ------    -------       -----       -------       -------
Balances, December 31,
 1997...................  20,000      5        --          --            497           502
Dividends distribution..     --     --         --          --            (85)          (85)
Net income..............     --     --         --          --            161           161
                          ------ ------    -------       -----       -------       -------
Balances, December 31,
 1998...................  20,000      5        --          --            573           578
Dividends distribution..     --     --         --          --         (1,338)       (1,338)
Net income..............     --     --         --          --            337           337
                          ------ ------    -------       -----       -------       -------
Balances, December 31,
 1999...................  20,000      5        --          --           (428)         (423)
Conversion from S-corp
 status to C-corp.......     --    (428)       --          --            428           --
Issuance of common stock
 upon exercise of stock
 options for cash and
 notes receivable.......   1,860    744        --         (256)          --            488
Deferred stock-based
 compensation...........     --   2,895     (2,895)        --            --            --
Amortization of deferred
 stock-based
 compensation...........     --     --       1,376         --            --          1,376
Interest associated with
 beneficial conversion
 feature on convertible
 note payable...........     --     200        --          --            --            200
Net loss................     --     --         --          --         (3,229)       (3,229)
                          ------ ------    -------       -----       -------       -------
Balances, June 30, 2000
 (unaudited)............  21,860 $3,416    $(1,519)      $(256)      $(3,229)      $(1,588)
                          ====== ======    =======       =====       =======       =======

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

F-26

INTEGRATED SOFTWARE & DEVICES CORPORATION

STATEMENTS OF CASH FLOWS
(in thousands)

                                          Year Ended         Six Months Ended
                                         December 31,            June 30,
                                     ----------------------  ------------------
                                     1997    1998    1999     1999      2000
                                     -----  ------  -------  -------- ---------
                                                                (unaudited)
Cash flows from operating
 activities:
 Net income (loss).................  $ 345  $  161  $   337  $   950  $  (3,229)
 Adjustments to reconcile net
  income (loss) to net cash
  provided by (used in) operating
  activities:
  Interest associated with
   beneficial conversion feature on
   convertible note payable........    --      --       --       --         200
  Depreciation.....................     43      64      103       55         62
  Amortization of deferred stock-
   based compensation..............    --      --       --       --       1,376
 Changes in assets and liabilities:
  Accounts receivable..............   (127)   (157)     303     (130)      (336)
  Prepaid expenses and other
   current assets..................    --      (48)    (182)       6         81
  Other assets.....................    --      (24)     --       --         --
  Accounts payable.................    (11)     36      (12)      16         63
  Accrued expenses.................     32     181       48      (47)       449
  Deferred revenue.................    --      853     (290)    (770)       (43)
                                     -----  ------  -------  -------  ---------
   Net cash flows provided by (used
    in) operating activities.......    282   1,066      307       80     (1,377)
                                     -----  ------  -------  -------  ---------
Cash flows from investing
 activities:
 Purchases of property and
  equipment........................    (77)   (316)    (124)     (76)       (78)
                                     -----  ------  -------  -------  ---------
Cash flows from financing
 activities:
 Proceeds from exercise of stock
  options..........................    --      --       --       --         488
 Cash overdraft....................    --      128     (128)    (128)       --
 Dividends distribution............   (152)    (85)  (1,338)     (37)       --
 Proceeds from borrowings on line
  of credit .......................    --      --       --       --         285
 Proceeds from issuance of
  promissory notes.................    --      --       --       --       1,000
 Proceeds from issuance of related
  party note payable...............    --      --     1,250      --         --
 Payments on related party note
  payable..........................    --      --       --       --        (950)
                                     -----  ------  -------  -------  ---------
   Net cash flows (used in)
    provided by financing
    activities.....................   (152)     43     (216)    (165)       823
                                     -----  ------  -------  -------  ---------
Net increase (decrease) in cash and
 cash equivalents..................     53     793      (33)    (161)      (632)
Cash and cash equivalents,
 beginning of period...............     79     132      925      925        892
                                     -----  ------  -------  -------  ---------
Cash and cash equivalents, end of
 period............................  $ 132  $  925  $   892  $   764  $     260
                                     =====  ======  =======  =======  =========
Supplemental disclosure of cash
 flow information:
 Cash paid during the year for
  interest.........................  $ --   $    9  $   --   $   --   $       1
Supplemental disclosure of non-cash
 information:
 Deferred stock-based
  compensation.....................  $ --   $  --   $   --   $   --   $   2,895
 Issuance of notes receivable upon
  exercise of stock options........  $ --   $  --   $   --   $   --   $     256

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

F-27

INTEGRATED SOFTWARE & DEVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of business

Integrated Software & Devices Corporation (the "Company") provides services and software for the embedded computing market, including embedded Linux applications. The Company specializes in adapting operating systems to specific microprocessors, developing software devices drivers and providing embedded systems integration.

Stock split

On December 9, 1999, the Company effected a 1,000-for-one common stock split. All common stock data in the accompanying financial statements has been retroactively adjusted to reflect the stock split.

Unaudited interim financial information

The accompanying financial statements as of June 30, 2000 and for the six month periods ended June 30, 1999 and 2000, together with the related notes, are unaudited but include all adjustments, consisting only of recurring adjustments which, in the opinion of management, are necessary for a fair presentation, in all material respects, of the operating results and cash flows for the period presented.

Cash and cash equivalents

The Company considers all investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents.

Concentrations

At December 31, 1998 and 1999, substantially all of the Company's cash and cash equivalents were invested with two financial institutions.

The Company performs ongoing credit evaluations of its customers' financial conditions and generally requires no collateral from its customers. The Company records an allowance for doubtful accounts at the end of each period based on an analysis of individual aged accounts receivable balances. As a result of this analysis, the Company has determined that no allowance for doubtful accounts was necessary at December 31, 1998, 1999, and at June 30, 2000 (unaudited).

At December 31, 1998, three customers accounted for 16%, 22% and 47% of accounts receivable and at December 31, 1999 three different customers accounted for 11%, 12% and 71% of accounts receivable. At June 30, 2000 (unaudited), three customers accounted for 12%, 24%, and 37% of accounts receivable.

F-28

INTEGRATED SOFTWARE & DEVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following table sets forth customers comprising 10% or more of the revenue for each of the periods reported:

                                                                 Six Months
                                                 Year Ended         Ended
                                                December 31,      June 30,
                                               ----------------  -------------
Customer                                       1997  1998  1999  1999    2000
--------                                       ----  ----  ----  -----   -----
                                                                 (unaudited)
  A...........................................  70%   40%   15%     19%     52%
  B...........................................  --    24%   54%     61%     11%
  C...........................................  --    --    --      --      19%
  D...........................................  --    --    --      14%     --

Fair value of financial instruments

The carrying amounts of certain of the Company's financial instruments, including cash, cash equivalents, trade accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of its long-term debt approximates fair value.

Advertising

The Company expenses advertising costs as they are incurred. Advertising expense for the years ended December 31, 1997, 1998 and 1999 and the six months ended June 30, 1999 and 2000 was $4,000, $9,000, $74,000, $18,000 (unaudited) and $64,000 (unaudited), respectively.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Computer and equipment and furniture and fixtures are depreciated on a straight-line basis over estimated useful lives of three years. When assets are sold or retired, the cost and related accumulated depreciation is removed from the accounts and the resulting gains or losses are included in the statement of operations. Gains and losses from the disposal of property and equipment are taken into income in the period of disposition. Repairs and maintenance costs are expensed as incurred.

Research and development costs

Costs related to research and development are charged to expenses as incurred.

Use of estimates

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

Revenue recognition

The Company's revenue is derived primarily from providing software consulting services to original equipment manufacturers.

F-29

INTEGRATED SOFTWARE & DEVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

The Company performs services under two types of contracts, fixed fee contracts and time and materials contracts. For fixed fee contracts, the Company recognizes revenue using the completed contract method of accounting. The completed contact method has been used, as the collection of the fee is subject to final acceptance by the customer. Revenue is recognized under the completed contact method when final acceptance is obtained by the customer. Direct and indirect costs are deferred until revenue is recognized. For time and material contracts where no customer acceptance is required, the Company recognizes revenue as services are performed.

Comprehensive income

The Company has adopted Statement of Financial Accounting Standards No. 130 or SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. There was no difference between the Company's net income (loss) and its total comprehensive income (loss) for the years ended 1997, 1998 and 1999 and the six months ended June 30, 1999 and 2000 (unaudited).

Stock-based compensation

Pursuant to SFAS 123, "Accounting for Stock-Based Compensation," the Company accounts for employee stock options under Accounting Principles Board Opinion ("APB") No. 25 and follows the disclosure-only provisions of SFAS 123. Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the estimated fair value of the Company's shares and the exercise price of options to purchase that stock.

Income taxes

The Company elected to be taxed under the "S" corporation provisions of the Internal Revenue Code. Under "S" corporation status, the current annual taxable income or losses of the Company are reported by the shareholders on their individual federal and state tax returns. Therefore, no Federal income tax provision or liability related to the Company is reflected in the accompanying combined financial statements for the years ended December 31, 1997, 1998 and 1999. California has imposed a 1.5% surtax on the corporate profits of an "S" Corporation. In February 2000 (unaudited), the Company converted from an "S" corporation to a C corporation, effective as of January 1, 2000. Accordingly, the Company will be subject to regular federal and state income taxes commencing January 1, 2000.

Upon termination of "S" corporation status, the accumulated deficit has been reclassified to common stock.

Historical net income (loss) per share

The Company computes historical net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share." Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by including stock options in the weighted average number of common shares outstanding for a period, if dilutive. Common

F-30

INTEGRATED SOFTWARE & DEVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

share equivalents consisting of 2,643,500 options (unaudited) at June 30, 2000 were not included in the computation of dilutive net loss per share because their effect would be antidilutive.

Recent accounting pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," that requires companies to record derivative financial instruments on their balance sheets as assets or liabilities measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative instrument and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. In June 1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," that amends SFAS 133 to be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, the Financial Accounting Standards Board issued SFAS 138, "Accounting for Derivative Instruments and Hedging Activities--An Amendment of FASB No. 133." SFAS 138 amends the accounting and reporting standards for certain derivatives and hedging activities such as net settlement contracts, foreign currency translations and intercompany derivatives. The Company will adopt SFAS 133 in its quarter ending September 30, 2000. To date, the Company has not engaged in derivatives or hedging activities.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 101, or SAB 101, which summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective December 2000. The Company has analyzed SAB 101 and its current interpretation and believes its adoption will not have a material effect on its financial position, results of operations or cash flow.

In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44 ("FIN44") "Accounting for Certain Transactions involving Stock Compensation," an interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. The adoption of certain of the provisions of FIN 44 prior to March 31, 2000 did not have a material impact on the consolidated financial statements. Management does not expect that the adoption of the remaining provisions will have a material effect on the consolidated financial statements.

F-31

INTEGRATED SOFTWARE & DEVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

NOTE 2--BALANCE SHEET DETAIL (in thousands):

Property and equipment, net:

                                                           As of
                                                         December
                                                            31,         As of
                                                         ----------   June 30,
                                                         1998  1999     2000
                                                         ----  ----  -----------
                                                                     (unaudited)
Computer equipment...................................... $290  $377     $452
Furniture and fixtures..................................  206   243      246
                                                         ----  ----     ----
                                                          496   620      698
Less: Accumulated depreciation.......................... (136) (239)    (301)
                                                         ----  ----     ----
                                                         $360  $381     $397
                                                         ====  ====     ====

Accrued liabilities:

                                                             As of
                                                           December
                                                              31,       As of
                                                           ---------  June 30,
                                                           1998 1999    2000
                                                           ---- ---- -----------
                                                                     (unaudited)
Accrued payroll and related expenses...................... $150 $189    $393
Accrued vacation..........................................   64  104     298
Other accrued expenses....................................   76   45      96
                                                           ---- ----    ----
                                                           $290 $338    $787
                                                           ==== ====    ====

NOTE 3--COMMITMENTS:

Operating leases

The Company leases its facilities and certain equipment under noncancelable operating leases expiring in fiscal year 2001 through fiscal year 2003. The Company is responsible for maintenance, insurance and taxes.

Minimum lease payments as of December 31, 1999 for these noncancelable operating leases are as follows (in thousands):

Fiscal Year
-----------
2000.................................................................... $370
2001....................................................................  382
2002....................................................................  111
2003....................................................................    7
                                                                         ----
                                                                         $870
                                                                         ====

Rent expense for the years ended December 31, 1997, 1998 and 1999 and the six months ended June 30, 1999 and 2000 was $44,000, $249,000, $324,000, $156,000 (unaudited) and $162,000 (unaudited) respectively.

F-32

INTEGRATED SOFTWARE & DEVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

NOTE 4--DEBTS:

Related party notes payable

In 1999, the Company issued two promissory notes to an officer of the Company, who is also a related party, for a total of $1,250,000. The notes are to be repaid on or before December 31, 2000, and accrue interest at a rate of 10% per annum, compounded annually. In April 2000 (unaudited), two repayments were made for a total of $950,000.

Line of credit

The Company has had a line of credit with a financial institution since April 1998. The credit limits were $300,000 and $500,000 as of December 31, 1998 and 1999, respectively. The line of credit is collateralized by substantially all of the assets of the Company. There was no outstanding balance under the line of credit at December 31, 1998 and 1999, respectively. The line of credit expires in September 2000 and bears interest at the bank reference rate plus 3% (11.5% at December 31, 1999).

Convertible Note Payable

In March 2000, the Company issued a convertible note payable in the amount of $1,000,000, which bears interest at 6% per annum, and is convertible into common stock at the option of the holder, and is automatically convertible into common stock upon: (1) closing of another round of financing by the Company (2) a definitive merger agreement. In the event of a merger, any unpaid accrued interest shall be forgiven by the lender.

In connection with the issuance of the convertible note payable, the Company incurred a non-cash charge (interest associated with beneficial conversion feature) of $421,000 (unaudited) in the six months ended June 30, 2000.

NOTE 5--INCOME TAXES:

                                                                  As of
                                                              June 30, 2000
                                                              -------------
                                                               (unaudited)
Net operating loss carryforwards.............................     $ 381
Research and development credit and other credits
 carryforwards...............................................        22
Accrual to cash basis adjustment.............................       363
                                                                  -----
Total deferred tax assets....................................       766
Less: Valuation allowance....................................      (766)
                                                                  -----
Net deferred tax asset.......................................     $ --
                                                                  =====

The Company has established a valuation allowance against its deferred tax asset as it is more likely than not that this asset will not be realized.

At June 30, 2000 (unaudited), the Company had available net operating loss carryforwards of approximately $956,000 to offset future federal and state taxable income. If unused, these carryforwards will expire in 2020. The Company also has federal and state research and development credit carryforwards of approximately $14,000 (unaudited), at June 30, 2000. These carryforwards expire in the year 2020 if not utilized.

F-33

INTEGRATED SOFTWARE & DEVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. If the Company should have an ownership change, as defined, utilization of the carryforwards could be restricted.

NOTE 6--CAPITAL STOCK:

In January 2000 the Company has adopted the 2000 Equity Incentive Plan and the 2000 Executive Equity Incentive Plan (collectively the "Plans"), under which a total of 8,571,428 shares of the Company's common stock were reserved for issuance to employees, directors and consultants.

The Company's Plans provide for the grants of options to purchase the Company's common stock at exercise prices of no less than 100% and 85% of the fair market value of the Company's common stock at the date of grant, as determined by the Board of Directors, for incentive and nonqualified stock options, respectively. The Board of Directors determines vesting terms on option grants, but in no case can the vesting rate be less than 20% per year over five years from the option grant date. Options generally vest over four years.

Activity under the Plans is as follows (in thousands, except share and per share data) (unaudited):

                                                                    Weighted
                                             Outstanding Shares     Average
                                           -----------------------  Exercise
                                 Shares                Price         Price
                               Available   Number of    per           per
                               for Grant     Shares    Share Total   Share
                               ----------  ----------  ----- -----  --------
Balances, January 1, 2000
Shares reserved...............  8,571,428
Options granted............... (4,578,500)  4,578,500  $0.40 1,831   $0.40
Options exercised.............        --   (1,860,000) $0.40  (744)  $0.40
Options cancelled.............     75,000     (75,000) $0.40   (30)  $0.40
                               ----------  ----------        -----
Balances, June 30, 2000.......  4,067,928   2,643,500  $0.40 1,057   $0.40
                               ==========  ==========        =====

The options outstanding and exercisable for the Plans by exercise price at June 30, 2000 are as follows (unaudited):

                 Options Outstanding                    Options Exercisable
----------------------------------------------------------------------------
                                  Weighted
                                   Average
                                  Remaining  Weighted              Weighted
                                 Contractual  Average               Average
                       Number       Life     Exercise    Number    Exercise
Exercise Price       Outstanding   (Years)   per Share Exercisable per Share
--------------       ----------- ----------- --------- ----------- ---------
$0.40...............  2,643,500     9.60       $0.40     970,271     $0.40
                      =========     ====       =====     =======     =====

During the six months ended June 30, 2000, the Company issued options to purchase 4,578,500 (unaudited) shares of its common stock under its Plans with exercise prices below the deemed fair market value of the Company's common stock at the date of grant. At June 30, 2000, the Company had recorded deferred stock-based compensation related to these options in the amount of $2,895,000 (unaudited), of which $1,376,000 had been amortized during the period ended June 30, 2000.

F-34

INTEGRATED SOFTWARE & DEVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Pro forma stock-based compensation

The Company has adopted the disclosure-only provision of SFAS 123. Had compensation expense for the Plans been recorded based on the fair value at the grant date for options granted during the six months ended June 30, 2000 consistent with the provisions of SFAS 123, the pro forma net loss would have been reported as follows (in thousands):

                                                              Period ended
                                                              June 30, 2000
                                                              -------------
                                                               (unaudited)
Net loss attributable to common shareholders--as reported....    $(3,229)
Net loss attributable to common shareholders--pro forma......    $(3,346)
Basic and diluted net loss per share.........................    $ (0.15)
Basic and diluted net loss per share--pro forma..............    $ (0.16)

The fair value of each option grant is estimated on the date of grant using the Black Scholes model assuming an expected life of four years and a risk-free interest rate of 5.93%-6.29%. The weighted expected life was calculated based on the vesting period. The risk-free interest rate was calculated in accordance with the grant date and expected life.

The weighted average fair value of stock options granted for the period ended June 30, 2000, (unaudited) was $0.92.

NOTE 7--SUBSEQUENT EVENTS:

Acquisition of the Company (unaudited)

In October 2000, pending tax clearance from the California Franchise Tax Board, the Company was acquired by LynuxWorks, Incorporated for a total of 5,022,776 shares of LynuxWorks, Incorporated's common stock and options to purchase 981,757 shares of LynuxWorks, Incorporated's common stock to replace the Company's outstanding stock options.

Conversion of Note Payable (unaudited)

On July 31, 2000, the principal under the convertible promissory note was converted to 1,057,868 shares of common stock at a conversion price of $0.95 per share and the accrued interest has been forgiven based on the terms of the original note agreement.

F-35

LYNUXWORKS, INCORPORATED

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following unaudited pro forma combined financial statements give effect to the acquisition of Integrated Software & Devices Corporation ("ISDCorp") by LynuxWorks, Incorporated ("LynuxWorks") using the purchase method of accounting and include pro forma adjustments described in the accompanying notes.

The unaudited pro forma combined balance sheet as of July 31, 2000 reflects the combination of the consolidated balance sheet of LynuxWorks as of July 31, 2000 with the balance sheet of ISDCorp as of June 30, 2000. The unaudited pro forma combined statement of operations for the three months ended July 31, 2000 reflects the combination of the consolidated statement of operations of LynuxWorks for the three months ended July 31, 2000 with the statement of operations of ISDCorp for the three months ended June 30, 2000. The unaudited pro forma combined statement of operations for the year ended April 30, 2000 reflects the combination of the consolidated statement of operations of LynuxWorks for the year ended April 30, 2000 with the statement of operations of ISDCorp for the year ended March 31, 2000.

The unaudited pro forma combined financial information does not give effect to the conversion of LynuxWork's preferred stock into common stock upon completion of the offering contemplated by this prospectus.

The accompanying unaudited pro forma combined financial statements have been presented in accordance with Article 11 of Regulation S-X.

The unaudited pro forma combined financial information is subject to a number of estimates, assumptions and uncertainties. This financial information does not purport to reflect the results of operations or financial condition which would have occurred had the acquisition taken place on the dates assumed for the purposes of this financial information, nor do they purport to be indicative of LynuxWorks' results of operations or financial condition for any future period. The unaudited pro forma combined financial information should be read in conjunction with the historical financial statements of LynuxWorks and ISDCorp and related notes included elsewhere in this prospectus.

F-36

LYNUXWORKS, INCORPORATED

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of July 31, 2000
(in thousands)

                                                                         Pro
                                                            Pro Forma   Forma
                                       LynuxWorks ISDCorp  Adjustments Combined
                                       ---------- -------  ----------- --------
ASSETS
Current assets:
  Cash and cash equivalents..........   $ 31,411  $   260    $    --   $ 31,671
  Accounts receivable, net...........      3,434      557         --      3,991
  Prepaid expenses and other current
   assets............................      1,696      149         --      1,845
                                        --------  -------    -------   --------
    Total current assets.............     36,541      966         --     37,507

Property and equipment, net..........      1,583      397         --      1,980
Other assets.........................        195       28         --        223
Goodwill and other intangible
 assets..............................         --       --     30,563     30,563
                                        --------  -------    -------   --------
    Total assets.....................   $ 38,319  $ 1,391    $30,563   $ 70,273
                                        ========  =======    =======   ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable and accrued
   liabilities.......................   $  3,680  $   874    $   500   $  5,054
  Line of credit.....................         --      285         --        285
  Deferred revenue...................      3,467      520        (52)     3,935
  Current portion of long-term
   obligations.......................         12      300         --        312
                                        --------  -------    -------   --------
    Total current liabilities........      7,159    1,979        448      9,586

Long-term obligations, net of current
 portion.............................         21    1,000     (1,000)        21
                                        --------  -------    -------   --------
    Total liabilities................      7,180    2,979       (552)     9,607
                                        --------  -------    -------   --------
Mandatorily redeemable convertible
 preferred stock.....................     55,101       --         --     55,101
                                        --------  -------    -------   --------


Stockholders' equity (deficit):
  Stock and additional paid-in
   capital...........................      5,652    3,416     32,860     41,928
  Deferred stock-based compensation..     (6,451)  (1,519)    (4,620)   (12,590)
  Notes receivable from
   stockholders......................       (705)    (256)       256       (705)
  Accumulated deficit................    (22,458)  (3,229)     2,619    (23,068)
                                        --------  -------    -------   --------
    Total stockholders' equity
     (deficit).......................    (23,962)  (1,588)    31,115      5,565
                                        --------  -------    -------   --------
      Total liabilities, mandatorily
       redeemable convertible
       preferred stock and
       stockholders' equity
       (deficit).....................   $ 38,319  $ 1,391    $30,563   $ 70,273
                                        ========  =======    =======   ========

See accompanying notes to the pro forma financial information.

F-37

LYNUXWORKS, INCORPORATED

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year Ended April 30, 2000
(in thousands, except per share data)

                                                           Pro Forma  Pro Forma
                                       LynuxWorks ISDCorp  Adjustment Combined
                                       ---------- -------  ---------- ---------
Revenues:
  Product license.....................  $ 11,541  $    --   $     --  $ 11,541
  Service.............................     5,655    3,613         --     9,268
                                        --------  -------   --------  --------
    Total revenues....................    17,196    3,613         --    20,809
                                        --------  -------   --------  --------
Cost of revenues:
  Product license.....................     1,221       --         --     1,221
  Service.............................     3,170    2,218         --     5,388
  Amortization of deferred stock-based
   compensation related to the service
   organization.......................       113      673         --       786
                                        --------  -------   --------  --------
    Total cost of revenues............     4,504    2,891         --     7,395
                                        --------  -------   --------  --------
Gross profit..........................    12,692      722         --    13,414
Operating expenses:
  Research and development............     7,061      691         --     7,752
  Sales and marketing.................    11,422      676         --    12,098
  General and administrative..........     2,343    1,236         --     3,579
  Amortization of goodwill and other
   intangible assets..................        --       --     10,479    10,479
  Amortization of deferred stock-based
   compensation.......................       598      341      2,046     2,985
                                        --------  -------   --------  --------
    Total operating expenses..........    21,424    2,944     12,525    36,893
                                        --------  -------   --------  --------
Operating loss........................    (8,732)  (2,222)   (12,525)  (23,479)
Other income (expense), net...........       370       (2)        --       368
                                        --------  -------   --------  --------
Loss before provision for income
 taxes................................    (8,362)  (2,224)   (12,525)  (23,111)
Provision for income taxes............       242       14         --       256
                                        --------  -------   --------  --------
Net loss..............................    (8,604)  (2,238)   (12,525)  (23,367)
Dividend associated with beneficial
 conversion feature of Series F
 preferred stock......................    (1,994)      --         --    (1,994)
                                        --------  -------   --------  --------
Net loss attributable to common
 stockholders.........................  $(10,598) $(2,238)  $(12,525) $(25,361)
                                        ========  =======   ========  ========
Net loss attributable to common
 stockholders per share--basic and
 diluted .............................  $  (1.78) $ (0.11)            $  (2.31)
                                        ========  =======             ========
Shares used in computing net loss
 attributable to common stockholders
 per share--basic and diluted.........     5,959   20,000               10,982
                                        ========  =======             ========

See accompanying notes to the pro forma financial information.

F-38

LYNUXWORKS, INCORPORATED

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Three Months Ended July 31, 2000
(in thousands, except per share data)

                                                           Pro Forma  Pro Forma
                                       LynuxWorks ISDCorp  Adjustment Combined
                                       ---------- -------  ---------- ---------
Revenues:
  Product license.....................  $ 3,245   $    --   $    --   $  3,245
  Service.............................    1,863     1,175        --      3,038
                                        -------   -------   -------   --------
    Total revenues....................    5,108     1,175        --      6,283
                                        -------   -------   -------   --------
Cost of revenues:
  Product license.....................      367        --        --        367
  Service.............................    1,334       950        --      2,284
  Amortization of deferred stock-based
   compensation related to the service
   organization.......................      126       118        --        244
                                        -------   -------   -------   --------
    Total cost of revenues............    1,827     1,068        --      2,895
                                        -------   -------   -------   --------
Gross profit..........................    3,281       107        --      3,388

Operating expenses:
  Research and development............    1,892       168        --      2,060
  Sales and marketing.................    4,703       354        --      5,057
  General and administrative..........      761       546        --      1,307
  Amortization of goodwill and other
   intangible assets..................       --        --     2,620      2,620
  Amortization of deferred stock-based
   compensation.......................      742       244       512      1,498
  Deemed dividend on convertible note
   payable............................       --       200        --        200
                                        -------   -------   -------   --------
    Total operating expenses..........    8,098     1,512     3,132     12,742
                                        -------   -------   -------   --------
Operating loss........................   (4,817)   (1,405)   (3,132)    (9,354)
Other income (expense), net...........      491       (42)       --        449
                                        -------   -------   -------   --------
Loss before provision for income
 taxes................................   (4,326)   (1,447)   (3,132)    (8,905)
Provision for income taxes............       29         5        --         34
                                        -------   -------   -------   --------
Net loss..............................   (4,355)   (1,452)   (3,132)    (8,939)
Dividend associated with beneficial
 conversion feature of Series F
 preferred stock......................   (1,667)       --        --     (1,667)
                                        -------   -------   -------   --------
Net loss attributable to common
 stockholders.........................  $(6,022)  $(1,452)  $(3,132)  $(10,606)
                                        =======   =======   =======   ========
Net loss attributable to common
 stockholders per share--basic and
 diluted..............................  $ (0.97)  $ (0.07)            $  (0.94)
                                        =======   =======             ========
Shares used in computing net loss
 attributable to common stockholders
 per share--basic and diluted.........    6,207    21,640               11,230
                                        =======   =======             ========

See accompanying notes to the pro forma financial information.

F-39

LYNUXWORKS, INCORPORATED

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

NOTE 1--PRO FORMA BASIS OF PRESENTATION:

The unaudited pro forma combined balance sheet as of July 31, 2000 reflects the balance sheet of LynuxWorks as of July 31, 2000 and balance sheet of ISDCorp as of June 30, 2000 as if the acquisition had taken place on July 31, 2000. The unaudited pro forma combined statements of operations for the three month period ended July 31, 2000 and for the year ended April 30, 2000 reflect the combined results of operations of LynuxWorks and ISDCorp as if the acquisition had taken place on May 1, 2000 and May 1, 1999, respectively.

These unaudited pro forma combined financial statements reflect the issuance of 5,022,776 shares of LynuxWorks common stock in exchange for 22,914,868 shares of ISDCorp common stock (outstanding at October 19, 2000) in connection with the acquisition, based on the exchange ratio of approximately 0.21919 shares of LynuxWorks common stock for each outstanding share of ISDCorp common stock as set forth in the following table:

ISDCorp common stock outstanding as of October 19, 2000......... 22,914,868
Exchange ratio..................................................    0.21919
Number of shares of LynuxWorks common stock exchanged...........  5,022,776
Number of shares of LynuxWorks common stock outstanding at July
 31, 2000....................................................... 26,405,975
                                                                 ----------
Number of shares of LynuxWorks common stock outstanding after
 the completion of the acquisition.............................. 31,428,751
                                                                 ==========

The actual number of shares of LynuxWorks common stock to be issued will be determined at the effective time of the acquisition based on the number of shares of ISDCorp common stock outstanding at that date.

The total estimated purchase price of ISDCorp has been calculated as follows (in thousands):

Value of securities issued.......................................... $30,137
Assumption of ISDCorp stock options.................................   6,139
                                                                     -------
                                                                      36,276
Estimated transaction costs and expenses............................     500
                                                                     -------
  Total estimated purchase price.................................... $36,776
                                                                     =======

The preliminary purchase price allocation is as follows (in thousands):

                                        Annual    Three Months    Useful
                            Amount   Amortization Amortization Lives (years)
                            -------  ------------ ------------ -------------
Tangible net liabilities..  $  (536)       N/A*         N/A*        N/A*
In-process research and
 development..............      610        N/A*         N/A*        N/A*
Options assumed...........    6,139      2,046          512           3
Intangible asset related
 to workforce.............    1,750        875          219           2
Goodwill and other
 intangible assets........   28,813      9,604        2,401           3
                            -------    -------       ------
                            $36,776    $12,525       $3,132
                            =======    =======       ======


* N/A means not applicable

F-40

LYNUXWORKS, INCORPORATED

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)

NOTE 2--PRO FORMA ADJUSTMENTS:

The unaudited pro forma combined financial information gives effect to the allocation of the total purchase price to the assets and liabilities of ISDCorp based on their estimated fair values and the related amortization over the estimated useful lives of amounts allocated to intangible assets, including goodwill. The unaudited pro forma combined balance sheet reflects the write off of in-process research and development and the conversion of the convertible note payable into shares of ISDCorp's common stock at July 31, 2000.

F-41

EDGAR DESCRIPTION OF INSIDE BACK COVER ARTWORK:

This page is divided lengthwise into two even halves. At the top of the left half is the heading "Orchestrating Embedded Linux Solutions." Below this heading is the LynxOS logo. Below this is the BlueCat logo.

At the top of the right half of the page is the Lynuxworks logo. Below this is a list of bullet-pointed text broken up into eight categories by headings. The first heading is "Communications"; below this heading are five bullet points reading: "Cellular infrastructure equipment"; "Wireless base stations and central office switches"; "Multimedia exchanges and DSL"; "Internet infrastructure equipment"; and "Hot swap and high-availability systems." The second heading is "Aerospace and Defense"; below this heading are five bullet points reading: "Aircraft"; "Satellites, GPS"; "Military equipment"; "Field command tools"; and "Avionics". The third heading is "Consumer and Business Electronics"; below this heading are four bullet points reading: "Printers"; "Copiers"; "Entertainment systems"; and "Video systems".

The fourth heading is "Industrial Control Systems"; below this heading are three bullet points reading: "Manufacturing Equipment"; "Process control"; and "Robotics." The fifth heading is "Internet Infrastructure"; below this heading are four bullet points reading: "Routers"; "Switches"; "Voice-over IP"; and "Gateways." The sixth heading is "Automotive/Transportation"; below this heading are three bullet points reading: "Automotive systems"; "Radar controls"; and "Sonar systems". The seventh heading is "Medical Devices"; below this heading are two bullet points reading: "Monitors"; and "Diagnostic equipment." The eighth heading is "Retail"; below this heading are two bullet points reading: "POS scanners"; and "Credit card readers."


You should rely only on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only for the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

TABLE OF CONTENTS

                                                                          Page
                                                                          ----
Prospectus Summary.......................................................   1
Risk Factors.............................................................   6
Special Note Regarding
 Forward-Looking Statements..............................................  21
Use of Proceeds..........................................................  22
Dividend Policy..........................................................  22
Capitalization...........................................................  23
Dilution.................................................................  25
Selected Consolidated Financial Data.....................................  27
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  30
Business.................................................................  45
Management...............................................................  60
Certain Transactions.....................................................  75
Principal Stockholders...................................................  81
Description of Capital Stock.............................................  84
Shares Eligible For Future Sale..........................................  87
Underwriting.............................................................  90
Legal Matters............................................................  93
Experts..................................................................  93
Additional Information Available to You..................................  93
Index to Consolidated Financial Statements............................... F-1

Until , 2001, 25 days after the date of this prospectus, all dealers that buy, sell or trade in these securities, whether or not participating in this offering, may be required to deliver a prospectus. Dealers are also obligated to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
[LynuxWorks LOGO]

Shares

Common Stock

Deutsche Banc Alex. Brown

Prudential Volpe Technology
a unit of Prudential Securities

Dain Rauscher Wessels

ABN AMRO Rothschild LLC

Prospectus

, 2001


PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. All amounts are estimates except the registration fee, the NASD filing fee and the Nasdaq National Market listing fee.

                                                                     Amount
                                                                   To Be Paid
                                                                   ----------
Securities and Exchange Commission Registration fee...............  $18,480
NASD filing fee...................................................    7,500
Nasdaq National Market listing fee................................       *
Blue sky fees and expenses........................................       *
Legal fees and expenses...........................................       *
Accounting fees and expenses......................................       *
Printing and engraving expenses...................................       *
Transfer agent and registrar fees.................................       *
Miscellaneous.....................................................       *
                                                                    -------
  Total...........................................................  $    *
                                                                    =======


* To be filed by amendment

Item 14. Indemnification of Directors and Officers

As permitted by Section 145 of the Delaware General Corporation Law, our Amended and Restated Certificate of Incorporation includes a provision that eliminates the personal liability of our directors for monetary damages for breach of their fiduciary duty as a director to the fullest extent permitted under Delaware General Corporation Law. In addition, as permitted by Section 145 of the Delaware General Corporation Law, our Amended and Restated Bylaws provide that: (1) we are required to indemnify our directors and executive officers and persons serving in these capacities in other business enterprises (including, for example, our subsidiaries) at our request, to the fullest extent permitted by Delaware General Corporation Law, including in those circumstances in which indemnification would otherwise be discretionary; (2) we may, in our discretion, indemnify our employees and agents in those circumstances where indemnification is not required by law; (3) the rights conferred in the Amended and Restated Bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, executive officers and employees; and (4) we may not retroactively amend these provisions in the Amended and Restated Bylaws in a way that is adverse to the directors, executive officers and employees who benefit from these protections.

Our policy is to enter into indemnification agreements with each of its directors and executive officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and the Amended and Restated Bylaws, as well as certain additional procedural protections. In addition, these indemnity agreements provide that parties to the indemnification agreements will be indemnified to the fullest possible extent not prohibited by law against any and all expenses (including any federal, state, local or foreign taxes imposed on the indemnitee as a result of the actual or deemed receipt of any payments under the indemnification agreement), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by us, which approval shall not be unreasonably withheld), actually and reasonably incurred in relation to the Indemnitee's position as a director, officer, employee, agent or fiduciary of the

II-1


Registrant, or any subsidiary of the Registrant, or in relation to the Indemnitee's service at the request of the Registrant as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise or in relation to Indemnitee's action or inaction while serving in such a capacity. LynuxWorks will not be obligated pursuant to the indemnity agreements to indemnify or advance expenses to an indemnified party with respect to proceedings or claims initiated by the indemnified party and not by way of defense, counterclaim or crossclaim, except with respect to proceedings specifically authorized by the Registrants' Board of Directors or brought to enforce a right to indemnification under the indemnity agreement, the Registrant's Amended and Restated Bylaws or any statute or law. Under the agreements, the Registrant is not obligated to indemnify the indemnified party (1) for any expenses incurred by the indemnified party with respect to any proceeding instituted by the indemnified party to enforce or interpret the agreement, if a court of competent jurisdiction determines that each of the material assertions made by the indemnified party in such proceeding was not made in good faith or was frivolous; (2) for any amounts paid in settlement of a proceeding unless the Registrant consents to such settlement; (3) with respect to any proceeding brought by the Registrant against the indemnified party for willful misconduct, unless a court determines that each of such claims was not made in good faith or was frivolous; (4) on account of any suit in which judgment is rendered against the indemnified party for an accounting of profits made from the purchase or sale by the indemnified party of securities of the Registrant pursuant to the provisions of (S) 16(b) of the Securities Exchange Act of 1934 and related laws; (5) on account of the indemnified party's conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest, or to constitute willful misconduct or a knowing violation of the law; (6) on account of any conduct from which the indemnified party derived an improper personal benefit; (7) on account of conduct the indemnified party believed to be contrary to the best interests of the Registrant or its stockholders; (8) on account of conduct that constituted a breach of the indemnified party's duty of loyalty to the Registrant or its stockholders; or (9) if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful.

The indemnification provision in the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and the indemnification agreements entered into between us and our directors and executive officers, may be sufficiently broad to permit indemnification of the our officers and directors for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act")

Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:

                                                                        Exhibit
                               Document                                 Number
                               --------                                 -------
Form of Underwriting Agreement........................................    1.1
Seventh Amended and Restated Articles of Incorporation of LynuxWorks,
 Incorporated, as currently in effect.................................    3.1
Certificate of Incorporation of LynuxWorks, Incorporated, in
 connection with our reincorporation in Delaware......................    3.2
Form of Amended and Restated Certificate of Incorporation of
 LynuxWorks, Incorporated, to be filed upon the closing of the
 offering made under this Registration Statement......................    3.3
Amended and Restated Bylaws of LynuxWorks, Incorporated, as currently
 in effect............................................................    3.4
Bylaws of LynuxWorks, Incorporated, in connection with our
 reincorporation in Delaware..........................................    3.5
Form of Amended and Restated Bylaws of LynuxWorks, Incorporated, to be
 in effect upon the closing of the offering made under this
 Registration Statement...............................................    3.6
Form of Indemnification Agreement to be entered into by LynuxWorks,
 Incorporated with each of its directors and executive officers.......   10.1

II-2


Item 15. Recent Sales of Unregistered Securities

During the past three years, the Registrant has issued and sold the following securities:

(a) During the past three years, the Registrant has granted an aggregate of 6,708,975 options (consisting of 0 options from 1988 Stock Plan, 310,000 options from 1992 Stock Plan and 6,398,975 options from 1997 Stock Plan) to purchase shares of common stock to directors, officers, employees, former employees and consultants at exercise prices ranging from $.50 to $3.30 per share. These shares were sold pursuant to the exercise of options granted by the Board of Directors. As to each director, officer, employee and consultant of the Registrant who was issued these securities, the Registrant relied upon Rule 701 of the Securities Act. Each such person was granted such options pursuant to a written contract between such person and the Registrant. In addition, the Registrant met the conditions imposed under Rule 701(b) as transactions pursuant to compensatory benefit plans and contracts related to compensation.

(b) On November 14, 1997, the Registrant issued warrants to purchase an aggregate of 373,210 shares of unregistered common stock to 6 investors at an exercise price of $0.50 per share. The Registrant relied upon Section 4(2) of the Securities Act in connection with the issuance of these warrants as transactions by an issuer not involving a public offering.

(c) On June 9, 1998, the Registrant sold 857,988 shares of unregistered Series E-1 preferred stock to 5 investors for an aggregate consideration of $1,295,819. The Registrant relied upon Section 4(2) of the Securities Act in connection with the sale of these shares as transactions by an issuer not involving a public offering.

(d) On June 9, 1998, the Registrant sold 6,621,268 shares of unregistered Series E-2 preferred stock to 1 investor for an aggregate consideration of $10,000,101. The Registrant relied upon Section 4(2) of the Securities Act in connection with the sale of these shares as transactions by an issuer not involving a public offering.

(e) Between March 9, 2000 and May 30, 2000, the Registrant sold 8,071,207 shares of unregistered Series F preferred stock to 66 investors for aggregate cash consideration of $34,948,326. The Registrant relied upon Section 4(2) of the Securities Act in connection with the sale of these shares as transactions by an issuer not involving a public offering.

Appropriate legends were affixed to the share certificates issued in the transactions described above. All recipients had adequate access, through their relationships with the Registrant, to adequate information about the Registrant.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

Number                               Description
------ -----------------------------------------------------------------------
 1.1*  Form of Underwriting Agreement.

 2.1   Agreement and Plan of Reorganization, dated July 21, 2000, by and among
       LynuxWorks, Incorporated, Lworks, Inc., Integrated Software & Devices
       Corporation and, with respect to Articles VII and X only, Reza Soliman-
       Noori as Shareholder Representative.

 3.1   Seventh Amended and Restated Articles of Incorporation of LynuxWorks,
       Incorporated, as currently in effect.

II-3


Number                               Description
------ -----------------------------------------------------------------------

 3.2   Certificate of Incorporation of LynuxWorks, Incorporated, in connection
       with our reincorporation in Delaware.

 3.3   Form of Amended and Restated Certificate of Incorporation of
       LynuxWorks, Incorporated, to be filed upon the closing of the offering
       made under this Registration Statement.

 3.4   Amended and Restated Bylaws of LynuxWorks, Incorporated, as currently
       in effect.

 3.5   Bylaws of LynuxWorks, Incorporated, in connection with our
       reincorporation in Delaware.

 3.6   Form of Amended and Restated Bylaws of LynuxWorks, Incorporated, to be
       in effect upon the closing of the offering made under this Registration
       Statement.

 4.1*  Form of LynuxWorks, Incorporated common stock certificate.

 4.2   Amended and Restated Investors' Rights Agreement, dated March 9, 2000,
       among LynuxWorks, Incorporated and the parties named therein.

 5.1*  Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.

10.1   Form of Indemnification Agreement to be entered into by LynuxWorks,
       Incorporated with each of its directors and executive officers.

10.2   1988 Stock Option Plan and related agreements.

10.3   1992 Stock Plan and related agreements.

10.4   1997 Stock Plan and related agreements.

10.5   ISDCorp 2000 Equity Incentive Plan and related agreements.

10.6   ISDCorp 2000 Executive Equity Incentive Plan and related agreements.

10.7   Form of 2000 Employee Stock Purchase Plan and related agreements.

10.8   Form of 2000 Stock Option Plan and related agreements.

10.9   Form of Change of Control Severance Agreement between LynuxWorks,
       Incorporated and each of Inder M. Singh, Reza Soliman-Noori, Arthur
       Swift, Mitchell P. Bunnell, Bhupindarpal Singh, Luke C. Dion, George A.
       (Skip) Forster, Albert J. McCabe, Gurjot Singh, Robert N. Morris and
       Daniel Wald.

10.10  Lease Agreement, dated January 31, 1995, as amended on July 30, 1999,
       by and between LynuxWorks, Incorporated and Mission West Properties,
       L.P. II.

10.11  Lease, dated October 2, 2000, by and between LynuxWorks, Incorporated
       and Mission West Properties, L.P.

10.12+ Software Licensing Agreement, dated June 8, 1999, by and between
       LynuxWorks, Incorporated and Rockwell Collins, Inc.

10.13+ Software Development Agreement, dated May 25, 2000, by and between
       LynuxWorks, Incorporated and Hewlett-Packard Company.

10.14+ License and Distribution Agreement, dated February 2000 by and between
       LynuxWorks, Incorporated and Motorola, Inc.

10.15+ OEM Software Licensing Agreement, dated April 30, 1999, by and between
       LynuxWorks, Incorporated and Xerox Corporation.

10.16+ International Distributor Agreement, dated November 20, 1991, as
       amended on March 24, 1994, by and between LynuxWorks, Incorporated and
       Nissin Software Corporation.

10.17+ Software License Agreement, dated December 4, 1998, by and between
       LynuxWorks, Incorporated and Hewlett-Packard Company.

II-4


Number                              Description
------ ---------------------------------------------------------------------

11.1   Statement of computation of net loss per share and pro forma net loss
       per share (see Note 1 of Notes to Financial Statements).

21.1   Subsidiaries of LynuxWorks, Incorporated.

23.1   Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
       (included in Exhibit 5.1).

23.2   Consent of PricewaterhouseCoopers LLC, Independent Accountants.

24.1   Power of Attorney (see page II-6).

27.1   Financial Data Schedule.


* To be supplied by amendment.
+ Confidential treatment requested.

(b) Financial Statement Schedules

Schedule I--Report of Independent Accountants

Schedule II--Valuation and Qualifying Accounts

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17. Undertakings

The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5


SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on this 25th day of October, 2000.

LYNUXWORKS, INCORPORATED

By:     /s/ Inder M. Singh
   ----------------------------------
             Inder M. Singh
     President and Chief Executive
                Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature to this Registration Statement appears below constitutes and appoints Inder M. Singh and Bhupindarpal Singh, or any one or more of them, as such person's true and lawful attorney-in-fact and agents, each with full power of substitution, for such person and in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and any registration statement related to the offering contemplated by this registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done or by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature                          Title                                 Date
---------                          -----                                 ----

       /s/ Inder M. Singh          President, Chief Executive Officer    October 25, 2000
_________________________________   and Chairman of the Board
          Inder M. Singh            (Principal Executive Officer)

     /s/ Bhupindarpal Singh        Vice President of Finance and Chief   October 25, 2000
_________________________________   Financial Officer (Principal
        Bhupindarpal Singh          Financial and Accounting Officer)

     /s/ Reza Soliman-Noori        Vice Chairman of the Board            October 25, 2000
_________________________________
        Reza Soliman-Noori

      /s/ Phillip E. White         Director                              October 25, 2000
_________________________________
         Phillip E. White

II-6


Signature                          Title                                 Date
---------                          -----                                 ----

      /s/ Steven E. Bochner        Director                              October 25, 2000
_________________________________
        Steven E. Bochner

         /s/ Kapil Nanda           Director                              October 25, 2000
_________________________________
           Kapil Nanda

       /s/ M. Yaqub Mirza          Director                              October 25, 2000
_________________________________
          M. Yaqub Mirza

    /s/ Robert F. Weber, Jr.       Director                              October 25, 2000
_________________________________
       Robert F. Weber, Jr.

II-7


SCHEDULE I

REPORT OF INDEPENDENT ACCOUNTS

In connection with our audits of the consolidated financial statements of LynuxWorks, Incorporated (formerly Lynx Real-Time Systems, Incorporated) and its subsidiaries as of April 30, 1999 and 2000 and for each of the three years in the period ended April 30, 2000, which consolidated financial statements are included in the Registration Statement, we have also audited the financial statement schedule listed in Item 16 herein.

In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.

/s/ PricewaterhouseCoopers LLP

San Jose, California
May 30, 2000

S-1

SCHEDULE II

LynuxWorks, Incorporated

VALUATION AND QUALIFYING ACCOUNTS
Years Ended April 30, 1998, 1999 and 2000
(in thousands)

Allowance for Doubtful Accounts Receivable

                                              Additions-
                                  Balance at   Charged                Balance at
                                  Beginning    to Costs   Deductions-   End of
Year Ended April 30,              of Period  and Expenses  Write-off    Period
--------------------              ---------- ------------ ----------- ----------
1998.............................    $100         --          $19        $81
1999.............................      81         30           --        111
2000.............................     111          6           --        117

S-2

EXHIBIT INDEX

Number                               Description
------ -----------------------------------------------------------------------
 1.1*  Form of Underwriting Agreement.

 2.1   Agreement and Plan of Reorganization, dated July 21, 2000, by and among
       LynuxWorks, Incorporated, Lworks, Inc., Integrated Software & Devices
       Corporation and, with respect to Articles VII and X only, Reza Soliman-
       Noori as Shareholder Representative.

 3.1   Seventh Amended and Restated Articles of Incorporation of LynuxWorks,
       Incorporated, as currently in effect.

 3.2   Certificate of Incorporation of LynuxWorks, Incorporated, in connection
       with our reincorporation in Delaware.

 3.3   Form of Amended and Restated Certificate of Incorporation of
       LynuxWorks, Incorporated, to be filed upon the closing of the offering
       made under this Registration Statement.

 3.4   Amended and Restated Bylaws of LynuxWorks, Incorporated, as currently
       in effect.

 3.5   Bylaws of LynuxWorks, Incorporated, in connection with our
       reincorporation in Delaware.

 3.6   Form of Amended and Restated Bylaws of LynuxWorks, Incorporated, to be
       in effect upon the closing of the offering made under this Registration
       Statement.

 4.1*  Form of LynuxWorks, Incorporated common stock certificate.

 4.2   Amended and Restated Investors' Rights Agreement, dated March 9, 2000,
       among LynuxWorks, Incorporated and the parties named therein.

 5.1*  Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.

10.1   Form of Indemnification Agreement to be entered into by LynuxWorks,
       Incorporated with each of its directors and executive officers.

10.2   1988 Stock Option Plan and related agreements.

10.3   1992 Stock Plan and related agreements.

10.4   1997 Stock Plan and related agreements.

10.5   ISDCorp 2000 Equity Incentive Plan and related agreements.

10.6   ISDCorp 2000 Executive Equity Incentive Plan and related agreements.

10.7   Form of 2000 Employee Stock Purchase Plan and related agreements.

10.8   Form of 2000 Stock Option Plan and related agreements.

10.9   Form of Change of Control Severance Agreement between LynuxWorks,
       Incorporated and each of Inder M. Singh, Reza Soliman-Noori, Arthur
       Swift, Mitchell P. Bunnell, Bhupindarpal Singh, Luke C. Dion, George A.
       (Skip) Forster, Albert J. McCabe, Gurjot Singh, Robert N. Morris and
       Daniel Wald.

10.10  Lease Agreement, dated January 31, 1995, as amended on July 30, 1999,
       by and between LynuxWorks, Incorporated and Mission West Properties,
       L.P. II.

10.11  Lease, dated October 2, 2000, by and between LynuxWorks, Incorporated
       and Mission West Properties, L.P.

10.12+ Software Licensing Agreement, dated June 8, 1999, by and between
       LynuxWorks, Incorporated and Rockwell Collins, Inc.

10.13+ Software Development Agreement, dated May 25, 2000, by and between
       LynuxWorks, Incorporated and Hewlett-Packard Company.


Number                               Description
------ ----------------------------------------------------------------------
10.14+ License and Distribution Agreement, dated February 2000 by and between
       LynuxWorks, Incorporated and Motorola, Inc.

10.15+ OEM Software Licensing Agreement, dated April 30, 1999, by and between
       LynuxWorks, Incorporated and Xerox Corporation.

10.16+ International Distributor Agreement, dated November 20, 1991, as
       amended on March 24, 1994, by and between LynuxWorks, Incorporated and
       Nissin Software Corporation.

10.17+ Software License Agreement, dated December 4, 1998, by and between
       LynuxWorks, Incorporated and Hewlett-Packard Company.

11.1   Statement of computation of net loss per share and pro forma net loss
       per share (see Note 1 of Notes to Financial Statements).

21.1   Subsidiaries of LynuxWorks, Incorporated.

23.1   Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
       (included in Exhibit 5.1).

23.2   Consent of PricewaterhouseCoopers LLC, Independent Accountants.

24.1   Power of Attorney (see page II-6).

27.1   Financial Data Schedule.


* To be supplied by amendment.

+ Confidential treatment requested.


EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

LYNUXWORKS, INC.

LWORKS, INC.

INTEGRATED SOFTWARE & DEVICES CORPORATION

AND WITH RESPECT TO ARTICLES VII AND X ONLY

REZA SOLIMAN-NOORI

AS SHAREHOLDER REPRESENTATIVE

AND

FIRSTAR BANK, N.A.

AS ESCROW AGENT

Dated as of July 21, 2000


TABLE OF CONTENTS

                                                                                               Page
                                                                                               ----
ARTICLE I THE MERGER......................................................................        1

     1.1   The Merger.....................................................................        1
           ----------
     1.2   Effective Time.................................................................        2
           --------------
     1.3   Effect of the Merger...........................................................        2
           --------------------
     1.4   Articles of Incorporation; Bylaws..............................................        2
           ---------------------------------
     1.5   Directors and Officers.........................................................        2
           ----------------------
     1.6   Effect of Merger on Capital Stock of the Constituent Corporations..............        3
           -----------------------------------------------------------------
     1.7   Dissenting Shares..............................................................        4
           -----------------
     1.8   Surrender of Certificates......................................................        5
           -------------------------
     1.9   No Further Ownership Rights in Company Capital Stock...........................        5
           ----------------------------------------------------
     1.10  Lost, Stolen or Destroyed Certificates.........................................        6
           --------------------------------------
     1.11  Tax and Accounting Treatment...................................................        6
           ----------------------------
     1.12  Taking of Necessary Action; Further Action.....................................        6
           ------------------------------------------


ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................        6

     2.1   Organization and Authority of the Company......................................        6
           -----------------------------------------
     2.2   Company Capital Structure......................................................        7
           -------------------------
     2.3   Subsidiaries...................................................................        8
           ------------
     2.4   Authority......................................................................        8
           ---------
     2.5   No Conflict....................................................................        9
           -----------
     2.6   Consents.......................................................................        9
           --------
     2.7   Company Financial Statements...................................................        9
           ----------------------------
     2.8   Accounts Receivable............................................................       10
           -------------------
     2.9   Inventory......................................................................       10
           ---------
     2.10  No Undisclosed Liabilities.....................................................       10
           --------------------------
     2.11  No Changes.....................................................................       10
           ----------
     2.12  Tax and Other Returns and Reports..............................................       12
           ---------------------------------
     2.13  Restrictions on Business Activities............................................       14
           -----------------------------------
     2.14  Title of Properties; Absence of Liens and Encumbrances; Condition of
           --------------------------------------------------------------------
           Equipment......................................................................       14
           ---------
     2.15  Intellectual Property..........................................................       15
           ---------------------
     2.16  Agreements, Contracts and Commitments..........................................       16
           -------------------------------------
     2.17  Interested Party Transactions..................................................       18
           -----------------------------
     2.18  Litigation.....................................................................       18
           ----------
     2.19  Environmental Matters..........................................................       18
           ---------------------
     2.20  Brokers' and Finders' Fees; Third Party Expenses...............................       19
           ------------------------------------------------
     2.21  Employee Matters and Benefit Plans.............................................       20
           ----------------------------------
     2.22  Compliance with Legal Requirements.............................................       23
           ----------------------------------
     2.23  Insurance......................................................................       23
           ---------

-i-

TABLE OF CONTENTS
(continued)

                                                                                               Page
                                                                                               ----
     2.24  Employees......................................................................       23
           ---------
     2.25  Product Warranty...............................................................       23
           ----------------
     2.26  Product Liability; Product Recalls, etc........................................       24
           ---------------------------------------
     2.27  Books and Records..............................................................       24
           -----------------
     2.28  Customers and Suppliers........................................................       24
           -----------------------
     2.29  Complete Copies of Materials...................................................       24
           ----------------------------
     2.30  Representations Complete.......................................................       24
           ------------------------


ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
     MERGER SUB...........................................................................       25

     3.1   Organization, Standing and Power...............................................       25
           --------------------------------
     3.2   Capital Structure..............................................................       25
           -----------------
     3.3   Capital Resources..............................................................       26
           -----------------
     3.4   Authority......................................................................       26
           ---------
     3.5   No Conflict....................................................................       26
           -----------
     3.6   Consents.......................................................................       27
           --------
     3.7   Absence of Certain Changes or Events...........................................       27
           ------------------------------------
     3.8   Absence of Liens and Encumbrances..............................................       27
           ---------------------------------
     3.9   Parent Financial Statements....................................................       27
           ---------------------------
     3.10  Minute Books...................................................................       28
           ------------
     3.11  No Undisclosed Liabilities.....................................................       28
           --------------------------
     3.12  Tax and Other Returns and Reports..............................................       28
           ---------------------------------
     3.13  Restrictions on Business Activities............................................       30
           -----------------------------------
     3.14  Intellectual Property..........................................................       30
           ---------------------
     3.15  Agreements, Contracts and Commitments..........................................       30
           -------------------------------------
     3.16  Interested Party Transactions..................................................       32
           -----------------------------
     3.17  Litigation.....................................................................       32
           ----------
     3.18  Compliance With Laws...........................................................       33
           --------------------
     3.19  Environmental Matters..........................................................       33
           ---------------------
     3.20  Brokers' and Finders' Fees; Third Party Expenses...............................       34
           ------------------------------------------------
     3.21  Employee Matters and Benefit Plans.............................................       34
           ----------------------------------
     3.22  Compliance with Legal Requirements.............................................       37
           ----------------------------------
     3.23  Insurance......................................................................       37
           ---------
     3.24  Product Warranty...............................................................       38
           ----------------
     3.25  Product Liability; Product Recalls, etc........................................       38
           ---------------------------------------
     3.26  Books and Records..............................................................       38
           -----------------
     3.27  Customers and Suppliers........................................................       38
           -----------------------
     3.28  Complete Copies of Materials...................................................       38
           ----------------------------
     3.29  Representations Complete.......................................................       38
           ------------------------


ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................       39

     4.1   Conduct of Business of the Company.............................................       39
           ----------------------------------

-ii-

TABLE OF CONTENTS
(continued)

                                                                                               Page
                                                                                               ----
     4.2   Conduct of Business of the Parent..............................................       41
           ---------------------------------
     4.3   No Solicitation................................................................       43
           ---------------


ARTICLE V ADDITIONAL AGREEMENTS...........................................................       44

     5.1   Preparation of Permit Application, Hearing Request, Hearing Notice and
           ----------------------------------------------------------------------
           Information Statement..........................................................       44
           ---------------------
     5.2   Shareholder Approval...........................................................       44
           --------------------
     5.3   Access to Information..........................................................       44
           ---------------------
     5.4   Confidentiality................................................................       45
           ---------------
     5.5   Expenses.......................................................................       45
           --------
     5.6   Public Disclosure..............................................................       45
           -----------------
     5.7   Consents.......................................................................       45
           --------
     5.8   Reasonable Efforts.............................................................       45
           ------------------
     5.9   Securities Laws Compliance.....................................................       45
           --------------------------
     5.10  Notification of Certain Matters; Financial Statements..........................       46
           -----------------------------------------------------
     5.11  Additional Documents and Further Assurances....................................       46
           -------------------------------------------
     5.12  Notice to Holders of Company Options and Company Warrants......................       47
           ---------------------------------------------------------
     5.13  Employee Plans and Benefit Arrangements........................................       47
           ---------------------------------------
     5.14  Reorganization under Section 368(a) of the Code................................       47
           -----------------------------------------------
     5.15  Period of Employment...........................................................       47
           --------------------
     5.16  Shareholder Loans..............................................................       47
           -----------------
     5.17  Registration on Form S-8.......................................................       47
           ------------------------
     5.18  Offer Letters..................................................................       48
           -------------
     5.19  Visa Applications..............................................................       48
           -----------------
     5.20  "Market Stand-Off" Agreement...................................................       48
           ----------------------------


ARTICLE VI CONDITIONS TO THE MERGER.......................................................       48

     6.1   Conditions to Obligations of Each Party to Effect the Merger...................       48
           ------------------------------------------------------------
     6.2   Additional Conditions to Obligations of Company................................       49
           -----------------------------------------------
     6.3   Additional Conditions to the Obligations of Parent and Merger Sub..............       49
           -----------------------------------------------------------------


ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW............................       51

     7.1   Survival of Representations, Warranties and Covenants..........................       51
           -----------------------------------------------------
     7.2   Escrow Arrangements............................................................       51
           -------------------
     7.3   Shareholder Representative.....................................................       54
           --------------------------
     7.4   Escrow Agent...................................................................       55
           ------------
     7.5   Shareholder Claims Against Parent..............................................       58
           ---------------------------------

-iii-

TABLE OF CONTENTS
(continued)

                                                                                               Page
                                                                                               ----
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................................       59

     8.1   Termination....................................................................       59
           -----------
     8.2   Effect of Termination..........................................................       60
           ---------------------
     8.3   Amendment......................................................................       60
           ---------
     8.4   Extension; Waiver..............................................................       60
           -----------------


ARTICLE IX DEFINITIONS....................................................................       61

     9.1   Defined Terms..................................................................       61
           -------------


ARTICLE X GENERAL PROVISIONS..............................................................       67

     10.1  Notices........................................................................       67
           -------
     10.2  Interpretation.................................................................       68
           --------------
     10.3  Counterparts...................................................................       69
           ------------
     10.4  Entire Agreement; Assignment...................................................       69
           ----------------------------
     10.5  Severability...................................................................       69
           ------------
     10.6  Other Remedies.................................................................       69
           --------------
     10.7  Governing Law..................................................................       69
           -------------
     10.8  Rules of Construction..........................................................       69
           ---------------------
     10.9  No Third Party Beneficiary.....................................................       70
           --------------------------

-iv-

Exhibit 2.1

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of July 21, 2000 by and among Integrated Software & Devices Corporation, a California corporation (the "Company"), LynuxWorks, Inc., a California corporation ("Parent"), LWorks, Inc., a California corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and, with respect to the matters set forth in Articles VII and X hereof only, Reza Soliman-Noori as the Shareholder Representative and Firstar Bank, N.A. as Escrow Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in Article IX hereof.

RECITALS

A. The Boards of Directors of each of the Company, Parent and Merger Sub believe it is in the best interests of each company and their respective shareholders that Parent acquire the Company through the statutory merger of Merger Sub with and into the Company (the "Merger") and, in furtherance thereof, have approved the Merger.

B. Pursuant to the Merger, among other things, (i) all of the issued and outstanding shares of capital stock of the Company (other than Dissenting Shares) shall be converted into the right to receive consideration from Parent,
(ii) all of the issued and outstanding options to acquire any shares of Company Common shall be assumed by Parent at the Effective Time, and (iii) all of the issued and outstanding warrants and other rights to acquire any shares of capital stock of the Company shall be assumed by Parent at the Effective Time.

C. Concurrent with the execution of this Agreement, as a material inducement to Parent and Merger Sub to enter into this Agreement, certain employees of the Company are entering into employment and non-competition agreements with Parent (the "Employment and Non-Competition Agreements") in the form of Exhibit B attached hereto.

D. The Company, Parent and Merger Sub desire to make certain representations and warranties and other agreements in connection with the Merger.

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the parties agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. Subject to and upon the terms and conditions of this Agreement and the applicable provisions of the California General Corporation Law ("California Law"), Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation and as a wholly-owned

subsidiary of Parent. The surviving corporation after the Merger is sometimes referred to hereinafter as the "Surviving Corporation."

1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than five (5) business days, following satisfaction or waiver of the conditions set forth in Article VI, at the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, unless another place or time is agreed to in writing by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger (or like instrument) and the accompanying officers' certificates, each in the form agreed to by the parties, with the Secretary of State of the State of California (the "Agreement of Merger"), in accordance with the relevant provisions of California Law (the time of acceptance by the Secretary of State of the State of California of such filing being referred to herein as the "Effective Time").

1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of California 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 the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

1.4 Articles of Incorporation; Bylaw

(a) The articles of incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation at the Effective Time until thereafter amended in accordance with California Law and as provided in such articles of incorporation; provided, however, that Article I of the articles of incorporation of the Surviving Corporation shall be amended to read as follows:
"The name of the corporation is Integrated Software & Devices Corporation."

(b) The bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation at the Effective Time until thereafter amended in accordance with California Law and as provided in such bylaws.

1.5 Directors and Officers.

(a) The director(s) of Merger Sub immediately prior to the Effective Time shall be the initial director(s) 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 California Law and the articles of incorporation and bylaws of the Surviving Corporation until his or her successor is duly qualified and elected. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation immediately after the Effective Time, (except that Reza Soliman- Noori, shall, at the Effective Time, become the President

-2-

of the Surviving Corporation) each to hold office in accordance with the by laws of the Surviving Corporation.

(b) As of the Effective Time, Reza Soliman-Noori shall be elected a director of Parent.

1.6 Effect of Merger on Capital Stock of the Constituent Corporations

(a) Company Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the Shareholders, each share of Company Capital Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares) will be cancelled and extinguished and be converted automatically into the right to receive, upon surrender of the certificate representing such share of Company Capital Stock and upon the terms and subject to the conditions set forth below and throughout this Agreement, including without limitation, this Section 1.6,
Section 1.8 hereof and the provisions of Article VII hereof, the number of shares of Parent Common Stock equal to the Exchange Ratio.

(b) Company Options. At the Effective Time, each issued and outstanding Company Option not yet exercised, whether vested or unvested, will be assumed by Parent in connection with the Merger. Each Company Option so assumed by Parent under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the Option Plans and/or as provided in the respective option agreements immediately prior to the Effective Time (including, without limitation, any vesting schedule or repurchase rights), except that (i) each Company Option will be exercisable for that number of whole shares of Parent Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest whole number of shares of Parent Common Stock, and
(ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed Company Option will be equal to the quotient determined by dividing the exercise price per share of Company Capital Stock at which such Company Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. No cash will be paid in lieu of fractional shares which are rounded down pursuant to this
Section 1.6(b). It is the intention of the parties hereto that the Company Options assumed by Parent pursuant to this Section 1.6(b) will, to the extent permitted by applicable law, qualify as incentive stock options as defined in
Section 422 of the Code, to the extent any such Company Options qualified as incentive stock options immediately prior to the Effective Time.

(c) Assumption Agreement. As soon as administratively practicable following the Closing, Parent shall issue to each holder of a Company Option to be assumed by Parent a document evidencing the assumption of such Company Option by Parent, and each former holder of a Company Option so assumed by Parent shall acknowledge the receipt of the same in exchange for the assumption of such holder's Company Option.

(d) Company Warrants. Parent shall assume any Company Warrants in connection with the Merger at the Effective Time.

-3-

(e) Capital Stock of Merger Sub. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub or the Company, each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation, then comprising all of the issued and outstanding capital stock of the Surviving Corporation.

(f) Shareholder Loans. In the event that any Shareholder has outstanding loans from the Company as of the Effective Time, the number of shares of Parent Common Stock issuable pursuant to Section 1.6(a) hereof shall be reduced by an amount equal to the outstanding principal plus accrued interest of such Shareholder loans as of the Effective Time; provided, however, that loans made to Shareholders in connection with the exercise of Company stock options, as disclosed on the Company Schedule, shall be assumed by the Surviving Corporation and not cause a reduction in the number of shares of Parent Common Stock issuable pursuant to Section 1.6(a).

(g) Fractional Shares. No fraction of a share of Parent Common Stock will be issued in the Merger. In lieu thereof, any fractional share resulting from the conversion pursuant to Section 1.6(a) hereof shall be rounded to the nearest whole share of Parent Common Stock (with a fraction greater than .5 being rounded up).

(h) Adjustments to Parent Common Stock. The number of shares of Parent Common Stock issuable pursuant to Section 1.6(a) hereof shall be adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Capital Stock), reorganization, recapitalization or the other like change with respect to Parent Common Stock or Company Capital Stock after the date hereof.

1.7 Dissenting Shares.

(a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock held by a holder who has exercised and perfected dissenters' rights for such shares in accordance with California Law and who, as of the Effective Time, has not effectively withdrawn or lost such dissenters' rights ("Dissenting Shares"), shall not be converted into or represent a right to receive the consideration for Company Capital Stock set forth in Section 1.6(a) hereof, but the holder thereof shall only be entitled to such rights as are provided by California Law.

(b) Notwithstanding the provisions of Section 1.7(a) hereof, if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder's dissenters' rights under California Law, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive the consideration for Company Capital Stock set forth in
Section 1.6(a) hereof, without interest thereon, upon surrender of the certificate representing such shares.

(c) The Company shall give Parent (i) prompt notice of any written demand for appraisal received by the Company pursuant to the applicable provisions of California Law and

-4-

(ii) the opportunity to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to any such demands or offer to settle or settle any such demands. To the extent that Parent or the Company makes any payment or payments in respect of any Dissenting Shares, Parent shall be entitled to recover under the terms of Article VII hereof the aggregate amount by which such payment or payments exceed the aggregate consideration that otherwise would have been payable in respect of such shares pursuant to Section 1.6(a) hereof.

1.8 Surrender of Certificates

(a) Exchange Agent. A designee of Parent shall serve as the exchange agent ("Exchange Agent") for the Merger.

(b) Parent to Provide Common Stock; Escrow Amount. At the Effective Time, Parent shall deposit with the Exchange Agent for exchange in accordance with this Article I, the Merger Consideration issuable pursuant to Section 1.6(a) hereof in exchange for all of the outstanding shares of Company Capital Stock, less 600,459 shares of Parent Common Stock (the "Escrow Amount"), which shall be deducted from the Merger Consideration and shall be available to Parent to set off any Losses in accordance with Article VII.

(c) Exchange Procedures. Promptly after the Effective Time, the Exchange Agent shall cause to be mailed to each holder of record of a certificate or certificates (each a "Certificate" and collectively, the "Certificates") representing shares of Company Capital Stock that were outstanding immediately prior to the Effective Time, (i) a letter of transmittal in such form and having such other provisions as Parent may reasonably request and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor that portion of the Merger Consideration pursuant to Section 1.6(a) hereof represented by such Certificate and the Certificate so surrendered shall be canceled. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Capital Stock, will be deemed from and after the Effective Time to evidence only the right to receive the Merger Consideration in respect of each such share.

(d) Transfers of Ownership. If any Parent Common Stock is to be issued to a person other than the holder in whose name the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered will be properly endorsed and accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid.

1.9 No Further Ownership Rights in Company Capital Stock. The right to receive the Merger Consideration upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to be 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

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immediately prior to the Effective Time. If, after the Effective Time, certificates evidencing shares of Company Capital Stock are presented to the Surviving Corporation for any reason, they shall be cancelled and the right of the holder or holders of such certificates shall be limited to the right to receive that portion of the Merger Consideration represented by such certificate, which portion shall be delivered to the person entitled thereto.

1.10 Lost, Stolen or Destroyed Certificates. In the event any certificates

evidencing shares of Company Capital Stock shall have been lost, stolen or destroyed, Parent shall, in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, issue such Parent Common Stock as may be required pursuant to Section 1.6(a) hereof; provided, however, that Parent may, in its sole discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver an agreement (in form and substance satisfactory to it) to indemnify Parent against any claim that may be made against Parent with respect to the certificates alleged to have been lost, stolen or destroyed.

1.11 Tax and Accounting Treatment. The Merger is intended to constitute a tax-free reorganization within the meaning of Section 368(a)(2)(E) of the Code, and will be treated as a purchase for financial accounting purposes.

1.12 Taking of Necessary Action; Further Action. 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 and Merger Sub, 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 and/or desirable action.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Parent and Merger Sub, subject to such exceptions as are specifically disclosed in the disclosure letter (referencing the appropriate section and paragraph numbers and any other section and/or paragraph number to which it is reasonably apparent on the face of such disclosure that such disclosure relates) supplied by the Company to Parent (the "Company Schedule") and dated as of the date hereof, that on the date hereof (provided, that the representations and warranties made as of a specified date will be true and correct as of such date):

2.1 Organization and Authority of the Company. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all necessary corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its business as it has been and is currently being conducted. The Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified or licensed would have a Company Material Adverse Effect. The term "Material Adverse Effect" when used in connection with an entity means

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any change, event, violation, inaccuracy, circumstance or effect that is, or could reasonably be expected to be, materially adverse to (a) the business, assets (including intangible assets), financial condition or results of operations of such entity, and (b) the ability of such person to perform its obligations under this Agreement and to consummate the transactions provided for hereunder, or (c) the ability of such entity to conduct its business as presently conducted; provided, however, that none of the following shall be deemed by itself or by themselves, either alone or in combination, to constitute a Material Adverse Effect on such person: (a) with respect to the Company, any adverse effect on the bookings, revenues, gross margins or earnings of the Company, or any delay in or reduction or cancellation of orders of the Company's products or services, following execution of this Agreement which is primarily attributable to the announcement of the execution of this Agreement and the transactions contemplated hereby; (b) any change arising out of conditions affecting the economy or industry of such person in general which does not affect such person in a materially disproportionate manner relative to other participants in the economy or industry, respectively; or (c) with respect to the Company, employee attrition which is primarily attributable to (X) the announcement of the execution of this Agreement and the transactions contemplated hereby or (Y) any action directly required of the Company by Parent under Section 4.1 or any omission of the Company directly resulting from Parent's failure to consent to actions requested to be taken by the Company under Section 4.1. "Company Material Adverse Effect" means a Material Adverse Effect with respect to the Company, and "Parent Material Adverse Effect" means a Material Adverse Effect with respect to Parent. All jurisdictions in which the Company conducts its business are set forth on the Company Schedule. The Company has not taken any action that in any respect conflicts with, constitutes a default under or results in a violation of any provision of its Organizational Documents. The Company Schedule sets forth (i) true and correct copies of the Organizational Documents of the Company, each as in effect on the date hereof, and (ii) the directors and officers of the Company. The operations now being conducted by the Company are not now and have never been conducted by the Company under any other name.

2.2 Company Capital Structure

(a) The authorized capital stock of the Company consists of:
35,000,000 shares of Common Stock, 21,860,000 shares of which are issued and outstanding as of the date hereof. The Company has no other capital stock authorized, issued or outstanding. The Company Capital Stock is held by the persons with the domicile addresses and in the amounts set forth on the Company Schedule. The Company Schedule sets forth, as of the date hereof, the total number of shares of Company Common Stock outstanding assuming the conversion, exercise or exchange of all securities convertible into, or exercisable or exchangeable for, shares of Company Common Stock, and the exercise of all Company Options and Company Warrants. 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 Organizational Documents 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 the registration or qualification requirements of applicable securities laws. Except as set forth on the Company Schedule, there are no declared or accrued but unpaid dividends with respect to any shares of Company Capital Stock.

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(b) Except for the Option Plans, the Company has never adopted or maintained any stock option plan or other plan providing for equity compensation of any person. The Company has reserved 4,071,428 shares of Company Common Stock for issuance to employees, directors and consultants of the Company upon the exercise of options granted under the 2000 Plan, under which options to purchase 2,636,700 shares are outstanding and under which no shares have been issued upon the exercise of options. The Company has reserved 4,500,000 shares of Company Common Stock for issuance to employees, directors and consultants of the Company upon the exercise of options granted under the 2000 Executive Plan, under which options to purchase 1,875,000 shares are outstanding and under which 1,860,000 shares have been issued upon the exercise of options. The Company Schedule sets forth for each outstanding Company Option and Company Warrant, the name of the holder of such security, 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 the vesting of such option will be accelerated by the transactions contemplated by this Agreement and whether such option is intended to qualify as an incentive stock option as defined in
Section 422 of the Code. Except for the Company Options and the Company Warrants, 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, 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. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Company. Except as contemplated hereby, there are no voting trusts, proxies, or other agreements or understandings with respect to the voting stock of the Company. As a result of the Merger, and assuming Parent owns all outstanding shares of Merger Sub and all rights to acquire any shares of Merger Sub, Parent will be the sole record and beneficial holder of all issued and outstanding Company Capital Stock and all rights to acquire or receive any shares of Company Capital Stock, whether or not such shares of Company Capital Stock are outstanding.

2.3 Subsidiaries. Except as set forth on the Company Schedule, the Company does not have, and has never had, any subsidiaries or affiliated companies and does not otherwise own, and has not 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.

2.4 Authority. The Company has all requisite power and authority to enter into this Agreement and any Related Agreements (as hereinafter defined in this
Section 2.4) to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and any Related Agreements to which the Company is a party and the consummation of the transactions contemplated hereby and thereby 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 the Agreement and any Related Agreements to which it is a party and the transactions contemplated hereby and thereby, subject only to the approval of this Agreement by the Shareholders. This Agreement and the Merger have been unanimously approved by the Board of Directors of the Company. This Agreement and each of the Related Agreements to which the

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Company is a party has been duly executed and delivered by the Company, and assuming the due authorization, execution and delivery by the other parties hereto and thereto, constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective 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. For all purposes of this Agreement, the term "Related Agreements" shall mean the Agreement of Merger.

2.5 No Conflict. The execution and delivery by the Company of this Agreement and any Related Agreement to which the Company is a party, and the consummation of the transactions contemplated hereby and thereby, 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 "Conflict") (i) any provision of the Organizational Documents of the Company,-(ii) any Contract, or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its properties (tangible and intangible) or assets. The Company is in material compliance with and has not materially breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any Contract, nor is the Company aware of any event that would constitute such a material breach, violation or default with the lapse of time, giving of notice or both. Each Contract is in full force and effect and the Company is not in default thereunder, and to the Company's knowledge, no other party obligated to the Company pursuant to any such Contract in material default thereunder. The Company has obtained, or will obtain prior to the Effective Time, all necessary consents, waivers and approvals of parties to any Contract as are required (i) thereunder in connection with the Merger, (ii) and for any such Contract to remain in full force and effect without limitation, modification or alteration after the Effective Time. After the Effective Time, Parent, and/or the Surviving Corporation, will be permitted to exercise all of the rights under the Contracts that were vested in the Company prior to the Effective Time without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company would otherwise be required to pay pursuant to the terms of such Contracts had the transactions contemplated by this Agreement not occurred.

2.6 Consents. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with any Governmental Entity, is required by or with respect to the Company in connection with the execution and delivery of this Agreement and any Related Agreement to which the Company is a party or the consummation of the transactions contemplated hereby and thereby, except for (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable securities laws;
(ii) the filing of the Agreement of Merger with the Secretary of State of the State of California; and (iii) such other consents, waivers, approvals, orders, authorizations, registrations, declarations and filings that are not material.

2.7 Company Financial Statements. The Company Schedule sets forth the Company's (i) compiled balance sheets as of December 31, 1999 and as of December 31, 1998, and the related compiled statements of income, cash flow and stockholders' equity for the twelve (12) month periods ended December 31, 1999 and December 31, 1998, respectively (collectively, the "Year-End

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Financials"), and (ii) unaudited balance sheet as of March 31, 2000, and the related unaudited statements of income, cash flow and stockholders' equity for the three-month period then ended (the "Interim Financials"). The Year-End Financials have been prepared in accordance with GAAP consistently applied on a basis consistent throughout the periods indicated and consistent with each other. The Year-End Financials and Interim Financials present fairly the financial condition, operating results and cash flows of the Company as of the dates and during the periods indicated therein, subject in the case of the Interim Financials to normal year-end adjustments, which are not material in amount in any individual case or in the aggregate. The Company's unaudited balance sheet as of March 31, 2000 is referred to hereinafter as the "Current Balance Sheet." -------

2.8 Accounts Receivable. The Company Schedule sets forth a list of all accounts receivable of the Company (collectively the "Accounts Receivable") as of May 31, 2000 along with a range of days elapsed since invoice. Except as set forth on the Company Schedule, the Accounts Receivable (net of allowances for doubtful accounts as reflected on the Current Balance Sheet and as determined in accordance with GAAP consistently applied or, for Accounts Receivable arising subsequent to May 31, 2000, as reflected on the books and records of the Company, which are prepared in accordance with GAAP) are or shall be valid Accounts Receivable arising in the ordinary course of business, and, to the Company's knowledge, are or shall be collectible within one hundred fifty (150) days after the day on which each Account Receivable first becomes due and payable, subject to no counterclaims or set-offs. If Accounts Receivable are collected more than 150 days after the day on which they became due and payable but during the Escrow Period, any Loss to Parent shall be limited to an amount equal to the amount of interest on the amount of the Account Receivable not so collected, calculated at a rate of ten (10)% per annum from such 150-day date until the date such amount is collected. No third party has any Lien on the Accounts Receivable or any part thereof, and no agreement for deduction, free goods, discount or other deferred price or quantity adjustment has been made with respect to any of the Accounts Receivable .

2.9 Inventory. Except as set forth on the Company Schedule and subject to any reserve as reflected on the Current Balance Sheet, all inventory (including raw materials, work-in-process, and finished goods) of the Company consists of a quality and quantity usable and salable in the ordinary course of business, and is not excess, obsolete or damaged. The presentation of inventory on the Current Balance Sheet conforms to GAAP and such inventory is stated at the lower of cost (determined using the first-in, first-out method) or net realizable value.

2.10 No Undisclosed Liabilities. The Company does not have any material liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with GAAP), which has not been reflected on the Current Balance Sheet. The Company Schedule sets forth a schedule of all Company indebtedness (including the amounts of Company indebtedness, names of creditors, and a summary of the pertinent terms of such Company indebtedness) as of the date of this Agreement. The parties shall mutually agree upon any changes made to the Company Schedule after the date of this Agreement.

2.11 No Changes. Except as set forth on the Company Schedule, since March 31, 2000, there has not been, occurred or arisen any:

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(a) transaction by the Company except in the ordinary course of business as conducted on that date and consistent with past practices;

(b) capital expenditure or commitment by the Company in excess of USD $50,000 individually or USD $100,000 in the aggregate;

(c) destruction of, damage to or loss of any material assets, business or customer of the Company (whether or not covered by insurance);

(d) claim of wrongful discharge or other unlawful labor practice or action;

(e) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by the Company, except as may be required by GAAP;

(f) amendments or changes to the Organizational Documents of the Company;

(g) revaluation by the Company of any of its assets;

(h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its Company Capital Stock;

(i) acquisition, sale, license or other disposition or transfer of any of the assets or properties of the Company or any creation of any security interest in such assets or properties, except for sales of inventory in the ordinary course of business as conducted on that date and consistent with past practices;

(j) amendment or termination of any material contract, agreement or license to which the Company is a party or by which it or its properties or assets is bound;

(k) loan by the Company to any person or entity, incurring by the Company of any indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale of any debt securities of the Company or guaranteeing of any debt securities of others;

(l) waiver or release of any right or claim of the Company, including any write-off or other compromise of any account receivable of the Company other than in accordance with the Company's allowance for doubtful accounts as reflected on the Current Balance Sheet;

(m) the commencement, settlement, notice or, to the knowledge of the Company threat of, any lawsuit or proceeding by or against the Company or investigation of the Company or its affairs;

(n) notice of any claim (i) of ownership by a third party of any of the Company's Intellectual Property Rights or (ii) of infringement by the Company of any third party's Intellectual Property Rights;

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(o) issuance or sale by the Company of any of its shares of capital stock, or securities exchangeable, convertible or exercisable therefor, or of any other of its securities, or acceleration of vesting of any option or other security of the Company;

(p) sales returns, notice of product deficiency, obsolescence or other indication that any product sold by the Company did not perform as expected or was defective in some manner;

(q) increase in the salary or other compensation payable or to become payable by the Company to any of its officers, directors, shareholders, employees or advisors (other than normal annual raises for non-officers in accordance with past practice), or the declaration, payment or commitment or obligation of any kind for the payment, by the Company, of a bonus or other additional salary or compensation to any such person;

(r) adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company;

(s) 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;

(t) entry into, termination, modification or extension of, or receipt of notice of termination of (i) any license, lease, distributorship, dealer, sales representative, joint venture, credit, customer, supplier or similar agreement of at least USD $50,000, or (ii) any contract or transaction involving a total remaining commitment by or to the Company of at least USD $50,000; or

(u) agreement, whether oral or written, by the Company or any officer or employee thereof to do any of the foregoing (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement) except for agreements with customers in the ordinary course of business.

2.12 Tax and Other Returns and Reports

(a) Tax Returns and Audits. Except as set forth on the Company

Schedule:

(i) As of the Effective Time, the Company will have prepared and timely filed all required federal, state, local and foreign returns, estimates, information statements and reports, including amendments thereto ("Returns") that are required to have been filed before the Effective Time relating to any and all Taxes concerning or attributable to the Company or its operations, including the calculations of net operating losses for purposes of such Returns, and such Returns are true and correct in all material respects and have been completed in accordance with applicable law.

(ii) As of the Effective Time, the Company (A) will have paid all Taxes it is required to pay and will have withheld with respect to its employees, independent contractors and

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other persons (and paid over to the appropriate taxing authority), all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld, and (B) will have accrued on the Current Balance Sheet all Taxes attributable to the periods preceding the Current Balance Sheet and will not have incurred any liability for Taxes for the period commencing after the date of the Current Balance Sheet and ending immediately prior to the Effective Time, other than in the ordinary course of business.

(iii) The Company has not been delinquent in the payment of any Tax, nor is there any Tax deficiency outstanding, assessed or proposed against the Company, nor has the Company executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax which is still outstanding. There are no powers of attorney with respect to Taxes of the Company currently in force. No claim has ever been made by an authority in a jurisdiction where the Company does not file Returns that the Company is or may be subject to taxation by that jurisdiction.

(iv) No audit or other examination of any Return of the Company is presently in progress, nor has the Company been notified of any request for such an audit or other examination.

(v) As of the date of the Current Balance Sheet the Company does not have any material liabilities for unpaid Taxes which have not been 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.

(vi) The Company has made available to Parent or its legal counsel, copies of all foreign, federal, state and local income and all state and local sales and use Returns for the Company filed for all periods since its inception.

(vii) There are (and immediately following the Effective Time there will be) no Liens on the assets of the Company relating to or attributable to Taxes other than Liens for Taxes not yet due and payable.

(viii) The Company has no knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any material Lien on the assets of the Company.

(ix) None of the Company's assets is treated as "tax-exempt use property," within the meaning of Section 168(h) of the Code.

(x) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company.

(xi) The Company is not a party to any Tax sharing, indemnification or allocation agreement nor does the Company owe any amount under any such agreement.

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(xii) The Company's Tax basis in its assets for purposes of determining its future amortization, depreciation and other federal income Tax deductions is accurately reflected on the Company's tax books and records.

(xiii) The Company is not, and has not been at any time, a "United States Real Property Holding Corporation" within the meaning of Section 897(c)(2) of the Code.

(xiv) No adjustment relating to any Return filed by the Company has been proposed formally or, to the Company's knowledge, informally by any taxing authority to the Company or any representative thereof.

(xv) The Company has (a) never been a member of an affiliated group (within the meaning of Code (S)1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of which was Company), (b) no liability for the Taxes of any person (other than Company or any of its Subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise and (c) never been a party to any joint venture, partnership or other agreement that could be treated as a partnership for Tax purposes.

(xvi) The Company has not constituted either a "distributing corporation" or a "controlled corporation" in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in the two years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a "plan" or "Series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.

(b) Executive Compensation Tax. There is no contract, agreement, plan or arrangement to which the Company is a party, including, without limitation, the provisions of this Agreement, covering any employee or former employee of the Company, which, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.

2.13 Restrictions on Business Activities. There is no agreement (non- compete or otherwise), commitment, judgment, injunction, order or decree to which the Company is a party or, to the Company's knowledge, is otherwise binding upon the Company which has or may reasonably be expected to have the effect of prohibiting or impairing any business practice of the Company, any acquisition of property (tangible or intangible) by the Company, the conduct of business by the Company or otherwise limiting the freedom of the Company to engage in any line of business or to compete with any person, other than customary non-disclosure and confidentiality obligations contained in non- disclosure agreements, license agreements or customer agreements entered into in the ordinary course of business, and other than customary license restrictions that may be contained in Contracts entered into in the ordinary course of business and which would not have a Material Adverse Effect on the Company's business as conducted.

2.14 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment

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(a) The Company does not own any real property, nor has it ever owned any real property. The Company Schedule sets forth a list of all real property currently leased by the Company, the name of the lessor, the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental and/or other fees payable under any such lease. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default).

(b) The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets used or held for use in its business, free and clear of any Liens, except as reflected on the Current Balance Sheet and except for Liens for Taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby.

(c) The Company Schedule lists all material items of equipment owned or leased by the Company and such equipment is (i) adequate for the conduct of the business of the Company as currently conducted and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear.

2.15 Intellectual Property.

(a) The Company Schedule lists all of Company's United States and foreign: (i) patents, patent applications (including provisional applications);
(ii) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations related to trademarks; (iii) registered copyrights and applications for copyright registration; (iv) any other Intellectual Property Rights of the Company that is the subject of an application, certificate or registration filed with, issued by, or recorded by, any state, government or other public legal authority (all of the foregoing, the "Registered Intellectual Property").

(b) Each item of Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees in connection with such Registered Intellectual Property have been paid and all necessary documents and certificates in connection with such Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property.

(c) (i) Except for ordinary license grants which are non-exclusive contained in customer Contracts, no third party has any rights to use any of the Company's Intellectual Property Rights; and (ii) the Company has not granted to any third party, nor authorized any third party to retain, any of the Company's Intellectual Property Rights.

(d) (i) The Company owns and has good and exclusive title to each item of Registered Intellectual Property listed on the Company Schedule, free and clear of any Liens; and

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(ii) the Company owns, or has the right, pursuant to a valid Contract to use or operate under, all other Intellectual Property Rights of the Company.

(e) To the Company's knowledge, the operation of the business of the Company as it currently is conducted does not infringe or misappropriate the Intellectual Property Rights of any other third party, violate the rights of any third party (including rights to privacy or publicity), or constitute unfair competition nor has the Company received notice from any third party claiming that such operation constitutes any such infringement, misappropriation, violation or unfair competition.

(f) The Company owns or has the right to all Intellectual Property Rights necessary to the conduct of its business as it currently is conducted.

(g) There are no Contracts between the Company and any other third party with respect to Intellectual Property Rights of the Company under which there is any dispute, to the Company's knowledge, 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 thereunder.

(h) To the Company's knowledge, no third party is infringing or misappropriating any of the Company's Intellectual Property Rights.

(i) No Intellectual Property Right of the Company or product or service of the Company is subject to any outstanding decree, order, judgment, or stipulation restricting in any manner the licensing or use thereof by the Company.

2.16 Agreements, Contracts and Commitments.

(a) Except as set forth on the Company Schedule, or included in the Current Balance Sheet, or footnotes thereto, provided to the Parent, the Company does not have, is not a party to nor is it bound by:

(i) any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or consulting or sales agreement, contract or commitment with a firm or other organization;

(ii) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased by, or the vesting of benefits of which will be accelerated by, or which would require the consent of any party thereto as a result of, the occurrence of any of the transactions contemplated 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;

(iii) any fidelity or surety bond or completion bond;

(iv) any lease of personal property having a value in excess of USD $25,000 individually or USD $50,000 in the aggregate;

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(v) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of USD $25,000 individually or USD $50,000 in the aggregate;

(vi) 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's business;

(vii) any licensing agreement or other contract with respect to Intellectual Property Rights;

(viii) any joint venture, partnership, and other contract involving a sharing of profits, losses, costs, or liabilities by the Company with any third party;

(ix) any contract containing covenants that in any way purport to restrict the business activity of the Company or any affiliate or limit the freedom of the Company or any affiliate of the Company to engage in any line of business or to compete with any third party, other than customary non-disclosure and confidentiality obligations contained in non-disclosure agreements, license agreements or customer agreements entered into in the ordinary course of business, and other than customary license restrictions that may be contained in Contracts entered into in the ordinary course of business and which would not have a Material Adverse Effect on the Company's business as conducted.

(x) any power of attorney or other similar agreement or grant of agency;

(xi) any contract entered into other than in the ordinary course of business that contains or provides for an express undertaking by the Company to be responsible for consequential damages;

(xii) any oral or written warranty, guaranty, and or other similar undertaking with respect to product or contractual performance sold or extended by the Company other than in the ordinary course of business; or

(xiii) any amendment, supplement, and modification (whether oral or written) in respect of any of the foregoing.

(b) All of the Contracts set forth or required to be set forth on the Company Schedule ("Contracts") are valid, binding and enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and other laws of general application effecting enforcement of creditors' rights generally, rules of law governing specific performance, injunctive relief or other equitable remedies, and limitations of public policy, and shall be in full force and effect without penalty in accordance with their terms upon consummation of the transactions contemplated hereby. The Company has performed all material obligations required to be performed by it and is not in default in any material respect under or in breach in any material respect of nor in receipt of any claim of default or breach under any Contract set forth or required to be set forth on the Company Schedule; no event has occurred which,

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with the passage of time or the giving of notice or both, would result in a default, breach or event of noncompliance by the Company in any material respect under any such Contract; the Company does not have any present expectation or intention of not fully performing on a timely basis in all material respects all such obligations required to be performed by the Company under any Contract set forth or required to be set forth on the Company Schedule; no partially-filled or unfilled material customer purchase order or sales order is subject to cancellation or any other material modification by the other party thereto or is subject to any penalty, right of set-off or other charge by the other party thereto for late performance or delivery; and the Company does not have any knowledge of any cancellation or anticipated cancellation or any breach by the other parties to any Contract set forth or required to be set forth on the Company Schedule. The Company is not a party to any Contract the performance of which could reasonably be expected to have a Company Material Adverse Effect.

(c) Parent has been given access to a true and correct copy of each of the written Contracts that are set forth on the Company Schedule, together with all amendments, waivers or other changes thereto.

2.17 Interested Party Transactions. No officer, director or, to the Company's knowledge, shareholder of the Company (nor any ancestor, sibling, descendant 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), has or has had, directly or indirectly, (i) an interest in any entity which furnished or sold, or furnishes or sells, services or products that the Company furnishes or sells, or proposes to furnish or sell, or (ii) any interest in any entity that purchases from or sells or furnishes to the Company, any goods or services, or
(iii) a beneficial interest in any Contract to which the Company is a party; provided, however, that ownership of no more than five percent (5%) of the outstanding voting stock of a publicly traded corporation shall not be deemed to be an "interest in any entity" for purposes of this Section 2.17.

2.18 Litigation. There is no action, suit, investigation, claim, arbitration or proceeding ("Action") of any nature pending, or to the Company's knowledge threatened, against the Company, its properties (tangible or intangible) or any of its officers or directors by or before any third party, nor to the Company's knowledge is there any reasonable basis therefor. No third party has at any time challenged or questioned the legal right of the Company to conduct its operations as previously or presently conducted.

2.19 Environmental Matters.

(a) Condition of Property. As of the Closing, except in compliance with Environmental Laws in a manner that could not reasonably be expected to subject the Company to liability, to the knowledge of the Company after reasonable inquiry, no Hazardous Materials are present on any Business Facility currently owned, operated, occupied, controlled or leased by the Company or were present on any other Business Facility at the time it ceased to be owned, operated, occupied, controlled or leased by the Company. Except as set forth on the Company Schedule, there are no underground storage tanks, asbestos which is friable or likely to become friable or PCBs present on any Business Facility currently owned, operated, occupied, controlled or leased by the Company or as a consequence of the acts of the Company or its agents.

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(b) Hazardous Materials Activities. The Company has conducted all Hazardous Material Activities relating to its business in compliance in all material respects with all applicable Environmental Laws, and the Hazardous Materials Activities of the Company prior to the Closing have not resulted in the exposure of any person to a Hazardous Material in a manner which has caused or could reasonably be expected to cause an adverse health effect to any such person.

(c) Permits. The Company Schedule accurately describes all of the Environmental Permits currently held by the Company and relating to its business and the listed Environmental Permits are all of the Environmental Permits necessary for the continued conduct of any Hazardous Material Activity of the Company relating to its business as such activities are currently being conducted. All such Environmental Permits are valid and in full force and effect. The Company has complied in all material respects with all covenants and conditions of any Environmental Permit which is or has been in force with respect to its Hazardous Materials Activities. No circumstances exist which could cause any Environmental Permit to be revoked, modified, or rendered non- renewable upon payment of the permit fee. All Environmental Permits and all other consents and clearances required by any Environmental Law have been obtained or will be obtained prior to the Closing at no cost to Parent or Merger Sub.

(d) Environmental Litigation. Except as set forth on the Company Schedule, no Action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the best of the Company's knowledge, threatened, concerning or relating to any Environmental Permit or any Hazardous Materials Activity of the Company relating to its business, or any Business Facility.

(e) Offsite Hazardous Material Disposal. The Company has transferred or released Hazardous Materials only to those Disposal Sites set forth on the Company Schedule; and no Action, proceeding, liability or claim exists or is threatened against any Disposal Site or against the Company with respect to any transfer or release of Hazardous Materials relating to the business of the Company to a Disposal Site which could reasonably be expected to subject the Company to liability.

(f) Environmental Liabilities. The Company is not aware of any fact or circumstance, which could reasonably be expected to result in an environmental liability having a Material Adverse Effect on the Company.

(g) Reports and Records: The Company has delivered to Parent or made available for inspection by Parent and its agents, representatives and employees all records in the Company's possession concerning the Hazardous Materials Activities of the Company relating to its business and all environmental audits and environmental assessments of any Business Facility conducted at the request of, or otherwise in the possession of the Company. To its knowledge, the Company has complied with all environmental disclosure obligations imposed by applicable law with respect to this transaction.

2.20 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth on the Company Schedule, the Company has not incurred, nor will it incur, directly or indirectly, any

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liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreement or any transaction contemplated hereby. The Company Schedule sets forth the principal terms and conditions of any agreement, written or oral, with respect to such fees. The Company Schedule sets forth the Company's current reasonable estimate of all Third Party Expenses expected to be incurred by the Company in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby.

2.21 Employee Matters and Benefit Plans.

(a) Schedule. The Company Schedule contains an accurate and complete list of each Company Employee Plan, and each Employment Agreement. The Company does not have any plan or commitment to establish any new Company Employee Plan, International Employee Plan, or Employment Agreement, to modify any Company Employee Plan or Employment Agreement (except to the extent required by law or to conform any such Company Employee Plan or Employment Agreement to the requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to adopt or enter into any Company Employee Plan, International Employee Plan, or Employment Agreement.

(b) Documents. The Company has provided to Parent access to correct and complete copies of: (i) all documents embodying each Company Employee Plan, International Employee Plan, and each Employment 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 Plan; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the three (3) most recent annual reports (Form Series 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) if the Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) 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) all IRS determination, opinion, notification and advisory letters, and all applications and correspondence to or from the IRS or the DOL with respect to any such application or letter; (vii) all communications material to any Company Group Employee or Company Group 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 or vesting schedules or other events which would result in any material liability to the Company; (viii) all correspondence to or from any governmental agency relating to any Company Employee Plan; (ix) all COBRA forms and related notices (or such forms and notices as required under comparable law); and (x) the three (3) most recent plan years discrimination tests for each Company Employee Plan.

(c) Employee Plan Compliance. Except as set forth on the Company Schedule, (i) the Company has performed in all material respects all obligations required to be performed by it under, is not in default or violation of, and has no knowledge of any default or violation by any other party to 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 compliance with all applicable

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laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination, opinion, notification or advisory letter from the IRS with respect to each such Company Employee Plan as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a letter and make any amendments necessary to obtain a favorable determination as to the qualified status of each such Company Employee Plan; (iii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA (or any administrative class exemption issued thereunder), has occurred with respect to any Company Employee Plan; (iv) 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; (v) each Company Employee Plan (other than any stock option plan) can be amended, terminated or otherwise discontinued after the Effective Time, without material liability to the Parent, the Company or any of its Related Parties (other than ordinary administration expenses); (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Company or any Related Parties, threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vii) neither the Company nor any Related Party is subject to any penalty or tax with respect to any Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.

(d) Pension Plan. Neither the Company nor any Related Party has ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.

(e) Collectively Bargained, Multiemployer and Multiple Employer
Plans. At no time has the Company or any Related Party contributed to or been obligated to contribute to any Multiemployer Plan. Neither the Company, nor any Related Party has at any time ever maintained, established, sponsored, participated in, or contributed to any multiple employer plan, or to any plan described in Section 413 of the Code.

(f) No Post-Employment Obligations. Except as set forth on the Company Schedule, no Company Employee Plan provides, or reflects or represents any liability to provide retiree health to any person for any reason, except as may be required by COBRA or other applicable statute, and the Company has never represented, promised or contracted (whether in oral or written form) to any Company Group Employee (either individually or to Company Group Employees as a group) or any other person that such Company Group Employee(s) or other person would be provided with retiree health, except to the extent required by statute.

(g) Health Care Compliance. Neither the Company nor any Related Party 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, the requirements of the Women's Health and Cancer

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Rights Act of 1998, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such act, or any similar provisions of state law applicable to its Company Group Employees.

(h) Effect of Transaction.

(i) Except as set forth on the Company Schedule, 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, Employment 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 Company Group Employee.

(ii) Except as set forth on the Company Schedule, no payment or benefit which will or may be made by the Company or its Related Parties with respect to any Company Group Employee will be characterized as a "parachute payment", within the meaning of Section 280G(b)(2) of the Code.

(i) Employment Matters. The Company: (i) is in compliance in all respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Company Group Employees; (ii) 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 Company Group Employees; (iii) 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) 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 Company Group 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 worker's compensation policy or long-term disability policy.

(j) Labor. No work stoppage or labor strike against the Company is pending, threatened or reasonably anticipated. The Company does not know of any activities or proceedings of any labor union to organize any Company Group Employees. Except as set forth on the Company Schedule, 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 Company Group 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. Neither the Company nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act. Except as set forth on the Company Schedule, 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 Company Group Employees and no collective bargaining agreement is being negotiated by the Company.

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(k) International Employee Plan. The Company does not now, nor has it ever had the obligation to, maintain, establish, sponsor, participate in, or contribute to any International Employee Plan.

(l) No Interference or Conflict. To the Company's knowledge, no shareholder, officer, employee or consultant of the Company is obligated under any contract or agreement subject to any judgment, decree or order of any court or administrative agency that would interfere with such person's efforts to promote the interests of the Company or that would interfere with the Company's business. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business as presently conducted nor any activity of such officers, directors, employees or consultants in connection with the carrying on of the Company's business as presently conducted will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract or agreement under which any of such officers, directors, employees or consultants is now bound.

2.22 Compliance with Legal Requirements. To the best of the Company's knowledge, and after diligent inquiry, the Company has complied in all material respects with, is not in violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation.

2.23 Insurance. The Company Schedule sets forth a list of all insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company or any affiliate. There is no claim by the Company or any affiliate 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). The Company has no knowledge of threatened termination of, or premium increase with respect to, any of such policies.

2.24 Employees. The Company Schedule contains a complete and accurate list of the following information for each employee (including full-time, part-time and contract employees) and director of the Company, including each employee on leave of absence; employer (for contract employees); name; job title; age; gender; current compensation paid or payable and any change in compensation since January 1, 2000; vacation accrued; number of options held (if any); and service credited for purposes of vesting and eligibility to participate under the Company's various benefit plans. To the Company's knowledge, except as set forth on the Company Schedule, no employee of the Company has the immediate intention to terminate his or her employment with the Company.

2.25 Product Warranty. All products and equipment manufactured, sold, leased or delivered by the Company and all services rendered by the Company have been in conformity with all applicable contractual commitments and all express and implied warranties, and the Company does not have any liability for replacement or repair thereof or other damages in connection therewith in excess of any warranty reserve established with respect thereto and included on the Current Balance Sheet. Except as set forth on the Company Schedule, no products or equipment

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manufactured, sold, leased or delivered by the Company and no services rendered by the Company are subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of such sale, lease or service (including as a result of any course of conduct between the Company and any third party or as a result of any statements in any of the Company's product or promotional literature). The Company Schedule includes copies of such standard terms and conditions of sale, lease and service for the Company (containing applicable guaranty, warranty and indemnity provisions). The Company has not been notified in writing of any claims for (and the Company has no knowledge of any threatened claims for) any extraordinary product returns, warranty obligations or product services relating to any of its products or services.

2.26 Product Liability; Product Recalls, etc. To the Company's knowledge, except as set forth on the Company Schedule, the Company does not have any liability arising out of any injury to individuals or property as a result of the ownership, possession or use of any products or equipment manufactured, sold, leased or delivered by the Company or with respect to any services rendered by the Company. Except as set forth on the Company Schedule, there have been no product or equipment recalls, withdrawals or seizures with respect to any products or equipment manufactured, sold, leased or delivered by the Company or with respect to any services rendered by the Company.

2.27 Books and Records. The minute books of the Company contain accurate and complete records of all meetings held of, and material corporate action taken by, the shareholders and the Board of Directors. No material action has been taken by a committee of the Board of Directors of the Company for which minutes have not been prepared and are not contained in such minute books. As of the Closing, no meeting of the Boards of Directors or the shareholders will have been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of the minute books will be in the possession of the Company.

2.28 Customers and Suppliers. The Company Schedule sets forth the names and addresses of the ten (10) most significant customers and suppliers of the Company by dollar volume of sale and purchases, respectively for the fiscal year ended December 31, 1999. Except as set forth on the Company Schedule, the Company has not received any notice that any such customer of the Company has ceased, or will cease, to use the products, equipment, goods or services of the Company, or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time. Except as set forth on the Company Schedule, the Company has not received any notice from any of such suppliers of the Company to the effect that such supplier will stop, materially decrease the rate of, or materially change the terms (whether related to payment, price or otherwise) with respect to, supplying materials, products or services to the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise).

2.29 Complete Copies of Materials. The Company has delivered or made available true and complete copies of each document (or summaries of same) that has been requested by Parent or its counsel.

2.30 Representations Complete. Neither any of the representations or warranties made by the Company (as modified by the Company Schedules) in this Agreement, nor any statements made

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in any exhibit, schedule or certificate furnished by the Company pursuant to this Agreement taken as a whole contains any untrue statement of a material fact, or omits to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. The information regarding the Company furnished in any documents mailed, delivered or otherwise furnished to Shareholders in connection with the solicitation of their consent to this Agreement and the Merger, will not contain, at or prior to the Effective Time, any untrue statement of a material fact and will not omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which made, not misleading with respect to the Company.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub hereby represent and warrant to the Company, subject to such exceptions as are specifically disclosed in the disclosure letter (referencing the appropriate section and paragraph numbers and any other section and/or paragraph number to which it is reasonably apparent on the face of such disclosure that such disclosure relates) supplied by the Parent to Company (the "Parent Schedule") and dated as of the date hereof, that on the date hereof (provided, that the representations and warranties made as of a specified date will be true and correct as of such date):

3.1 Organization, Standing and Power. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Each of Parent and Merger Sub has the corporate power to own its properties and to carry on its business as now being conducted and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the failure to be so qualified or licensed would have a Parent Material Adverse Effect. Parent has not taken any action that in any respect conflicts with, constitutes a default under or results in a violation of any provision of its Organizational Documents. The Parent Schedule sets forth
(i) true and correct copies of the Organizational Documents of Parent, each as in effect on the date hereof, and (ii) the directors and officers of Parent.

3.2 Capital Structure.

(a) The authorized stock of Parent consists of 48,000,000 shares of Common Stock, USD $.001 par value, of which approximately 6,205,559 shares were issued and outstanding as of July 12, 2000, 1,300,000 shares of Series A Preferred Stock, all of which are issued and outstanding as of the date hereof, 1,281,000 shares of Series B Preferred Stock, all of which are issued and outstanding as of the date hereof, 544,998 shares of Series C Preferred Stock, all of which are issued and outstanding as of the date hereof, 1,500,000 shares of Series D Preferred Stock, all of which are issued and outstanding as of the date hereof, 857,988 shares of Series E-1 Preferred Stock, all of which are issued and outstanding as of the date hereof, 6,621,268 shares of Series E-2 Preferred Stock, all of which are issued and outstanding as of the date hereof, and 8,071,207 shares of Series F Preferred Stock, all of which are issued and outstanding as of the date hereof. All such

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shares have been duly authorized, and all such issued and outstanding shares have been validly issued, are fully paid and nonassessable and are free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof. Parent has also reserved 9,872,968 shares of Common Stock for issuance pursuant to its employee and director stock and option plans. Other than warrants to purchase 373,210 shares of Common Stock, there are no other options, warrants, calls, rights, commitments or agreements of any character to which Parent is a party or by which it is bound obligating Parent to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of Parent or obligating Parent to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to Parent.

(b) The shares of Parent Common Stock to be issued pursuant to the Merger will be duly authorized, validly issued, fully paid, non-assessable, free of any liens or encumbrances and not subject to any preemptive rights or rights of first refusal created by statute or the certificate of incorporation or bylaws of Parent or any agreement to which Parent is a party or is bound except as provided in this Agreement.

3.3 Capital Resources. Parent has sufficient capital resources to perform its obligations with respect to the Merger Consideration and to consummate all of the transactions contemplated by the Agreement and the Related Agreements.

3.4 Authority. Each of Parent and Merger Sub has all requisite corporate power and authority to enter into this Agreement and any Related Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and any Related Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement and any Related Agreements to which Parent and Merger Sub are parties have been duly executed and delivered by Parent and Merger Sub and constitute the valid and binding obligations of Parent and Merger Sub, enforceable in accordance with their terms, except as such enforceability may be limited by principles of public policy and merger 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.

3.5 No Conflict. The execution and delivery by the Parent and Merger Sub of this Agreement and any Related Agreement to which the Parent and Merger Sub are a party, and the consummation of the transactions contemplated hereby and thereby, 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 "Conflict") (i) any provision of the Organizational Documents of the Parent or Merger Sub, (ii) any Contract, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Parent or Merger Sub any of its properties (tangible and intangible) or assets. Parent and Merger Sub are in material compliance with and have not materially breached, violated or defaulted under, or received notice that they have breached, violated

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or defaulted under, any of the terms or conditions of any Contract, nor is the Parent or Merger Sub aware of any event that would constitute such a material breach, violation or default with the lapse of time, giving of notice or both. Each Contract is in full force and effect and, to the Parent's knowledge, no other party is obligated to the Parent or Merger Sub pursuant to any such Contract in material default thereunder. The Parent has obtained, or will obtain prior to the Effective Time, all necessary consents, waivers and approvals of parties to any Contract as are required (i) thereunder in connection with the Merger, (ii) and for any such Contract to remain in full force and effect without limitation, modification or alteration after the Effective Time.

3.6 Consents. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, or any third party is required by or with respect to Parent or Merger Sub in connection with the execution and delivery of this Agreement and any Related Agreements to which Parent or Merger Sub is a party or the consummation of the transactions contemplated hereby and thereby, except for (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable securities laws; (ii) the filing of the Agreement of Merger with the Secretary of State of the State of California; and
(iii) such other consents, waivers, approvals, orders, authorizations, registrations, declarations and filings which, if not obtained or made, would not have a Parent Material Adverse Effect.

3.7 Absence of Certain Changes or Events. Since the date of Parent's balance sheet provided to the Company (the "Parent Balance Sheet"), except with respect to the actions contemplated by this Agreement, Parent and its subsidiaries have conducted their businesses only in the ordinary course and in a manner consistent with past practice and, since such date, there has not been
(i) any Parent Material Adverse Effect, or any development that reasonably would be expected to cause a Parent Material Adverse Effect; (ii) any damage, destruction or loss (whether or not covered by insurance) having a Parent Material Adverse Effect; (iii) any material change by Parent in its accounting methods, principles or practices, except as required by concurrent changes in GAAP; or (iv) any material revaluation by Parent of any of its assets including, without limitation, writing down the value of capitalized software or inventory or writing off notes or accounts receivable other than in the ordinary course of business.

3.8 Absence of Liens and Encumbrances. Parent has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its material tangible properties and assets, real, personal and mixed, used in its business, free and clear of any liens or encumbrances except as reflected in Parent's financial statements provided to the Company and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby.

3.9 Parent Financial Statements. The Parent has made available to the Company the Parent's (i) audited balance sheets as of April 30, 1999 and as of April 30, 1998, and the related audited statements of income, cash flow and stockholders' equity for the twelve (12) month periods ended April 30, 1999 and April 30, 1998, respectively (collectively, the "Year-End Financials"), and (ii) unaudited balance sheet as of April 30, 2000, and the related unaudited statements of income,

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cash flow and stockholders' equity for the twelve (12) month period then ended (the "Interim Financials"). The Year-End Financials and the Interim Financials have been prepared in accordance with GAAP consistently applied on a basis consistent throughout the periods indicated and consistent with each other. The Year-End Financials and Interim Financials present fairly the financial condition, operating results and cash flows of the Parent as of the dates and during the periods indicated therein, subject in the case of the Interim Financials to normal year-end adjustments, which are not material in amount in any individual case or in the aggregate. The Parent's unaudited balance sheet as of April 30, 2000 is referred to hereinafter as the "Current Balance Sheet."

3.10 Minute Books. The Parent has made available to the Company, records reflecting the actions taken by Parent's board of directors prior and subsequent to Parent's most recent preferred financing.

3.11 No Undisclosed Liabilities. The Parent does not have any material liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with GAAP), which has not been reflected on the Current Balance Sheet. The Parent Schedule sets forth a schedule of all Parent indebtedness (including the amounts of Parent indebtedness, names of creditors, and a summary of the pertinent terms of such Parent indebtedness) as of the date of this Agreement.

3.12 Tax and Other Returns and Reports.

(a) Tax Returns and Audits. Except as set forth on the Parent Schedule:

(i) As of the Effective Time, the Parent will have prepared and timely filed all required federal, state, local and foreign returns, estimates, information statements and reports, including amendments thereto ("Returns") that are required to have been filed before the Effective Time relating to any and all Taxes concerning or attributable to the Parent or its operations, including the calculations of net operating losses for purposes of such Returns, and such Returns are true and correct in all material respects and have been completed in accordance with applicable law.

(ii) As of the Effective Time, the Parent (A) will have paid all Taxes it is required to pay and will have withheld with respect to its employees, independent contractors and other persons, all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld, and (B) will have accrued on the Current Balance Sheet all Taxes attributable to the periods preceding the Current Balance Sheet and will not have incurred any liability for Taxes for the period commencing after the date of the Current Balance Sheet and ending immediately prior to the Effective Time, other than in the ordinary course of business.

(iii) The Parent has not been delinquent in the payment of any Tax, nor is there any Tax deficiency outstanding, assessed or proposed against the Parent, nor has the Parent executed any waiver of any statute of limitations on or extending the period for the assessment or

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collection of any Tax which is still outstanding. There are no powers of attorney with respect to Taxes of the Parent currently in force. No claim has ever been made by an authority in a jurisdiction where the Parent does not file Returns that the Parent is or may be subject to taxation by that jurisdiction.

(iv) No audit or other examination of any Return of the Parent is presently in progress, nor has the Parent been notified of any request for such an audit or other examination.

(v) As of the date of the Current Balance Sheet Date, the Parent does not have any material liabilities for unpaid Taxes have not been accrued or reserved on the Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and the Parent has not incurred any liability for Taxes since the date of the Current Balance Sheet other than in the ordinary course of business.

(vi) The Parent has made available to Company or its legal counsel, copies of all foreign, federal, state and local income and all state and local sales and use Returns for the Parent filed for all periods since its inception.

(vii) There are (and immediately following the Effective Time there will be) no Liens on the assets of the Parent relating to or attributable to Taxes other than Liens for Taxes not yet due and payable.

(viii) The Parent has no knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any material Lien on the assets of the Parent.

(ix) The Parent is not a party to any Tax sharing, indemnification or allocation agreement nor does the Parent owe any amount under any such agreement.

(x) The Parent's Tax basis in its assets for purposes of determining its future amortization, depreciation and other federal income Tax deductions is accurately reflected on the Parent 's tax books and records.

(xi) The Parent is not, and has not been at any time, a "United States Real Property Holding Corporation" within the meaning of Section 897(c)(2) of the Code.

(xii) No adjustment relating to any Return filed by the Parent has been proposed formally or, to the Parent's knowledge, informally by any taxing authority to the Parent or any representative thereof.

(b) Executive Compensation Tax. There is no contract, agreement, plan or arrangement to which the Parent is a party, including, without limitation, the provisions of this Agreement, covering any employee or former employee of the Parent, which, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.

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3.13 Restrictions on Business Activities. There is no agreement (non- compete or otherwise), commitment, judgment, injunction, order or decree to which the Parent is a party or, to the Parent's knowledge, is otherwise binding upon the Parent which has or may reasonably be expected to have the effect of prohibiting or impairing any business practice of the Parent , any acquisition of property (tangible or intangible) by the Parent, the conduct of business by the Parent or otherwise limiting the freedom of the Parent to engage in any line of business or to compete with any person, other than customary non-disclosure and confidentiality obligations contained in non-disclosure agreements, license agreements or customer agreements entered into in the ordinary course of business, and other than customary license restrictions that may be contained in Contracts entered into in the ordinary course of business.

3.14 Intellectual Property.

(a) Parent and its subsidiaries own, or have the right to use, sell or license all material intellectual property rights necessary or required for the conduct of their respective businesses as presently conducted (such intellectual property rights are collectively referred to as the "Parent IP Rights");

(b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not constitute a material breach of any instrument or agreement governing any Parent IP Right (the "Parent IP Rights Agreements"), will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any Parent IP Right or materially impair the right of Parent and its subsidiaries or the Surviving Corporation to use, sell or license any Parent IP Right or portion thereof.

(c) Neither the manufacture, marketing, license, sale or intended use of any product currently licensed or sold by Parent or any of its subsidiaries or currently under development by Parent or any of its subsidiaries violates any license or agreement between Parent or any of its subsidiaries and any third party or infringes any intellectual property right of any other party; and there is no pending or, to the best knowledge of Parent, threatened claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Parent IP Right nor, to the best knowledge of Parent, is there any basis for any such claim, nor has Parent received any notice asserting that any Parent IP Right or the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor, to the best knowledge of Parent, is there any basis for any such assertion.

(d) Parent has taken reasonable and practicable steps designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary rights in, all material Parent IP Rights.

3.15 Agreements, Contracts and Commitments.

(a) Except as set forth on the Parent Schedule, the Parent does not have, is not a party to nor is it bound by:

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(i) any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or consulting or sales agreement, contract or commitment with a firm or other organization;

(ii) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased by, or the vesting of benefits of which will be accelerated by, or which would require the consent of any party thereto as a result of, the occurrence of any of the transactions contemplated 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;

(iii) any fidelity or surety bond or completion bond;

(iv) any lease of personal property having a value in excess of USD $50,000 individually or USD $100,000 in the aggregate;

(v) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of USD $100,000 individually or USD $250,000 in the aggregate;

(vi) 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 Parent's business;

(vii) any licensing agreement or other contract with respect to Intellectual Property Rights;

(viii) any joint venture, partnership, and other contract involving a sharing of profits, losses, costs, or liabilities by the Parent with any third party;

(ix) any contract containing covenants that in any way purport to restrict the business activity of the Parent or any affiliate or limit the freedom of the Parent or any affiliate of the Parent to engage in any line of business or to compete with any third party, other than customary non-disclosure and confidentiality obligations contained in non-disclosure agreements entered into in the ordinary course of business, license agreements or customer agreements, and other than customary license restrictions that may be contained in Contracts entered into in the ordinary course of business;

(x) any power of attorney or other similar agreement or grant of agency;

(xi) any contract entered into other than in the ordinary course of business that contains or provides for an express undertaking by the Parent to be responsible for consequential damages;

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(xii) any oral or written warranty, guaranty, and or other similar undertaking with respect to product or contractual performance sold or extended by the Parent other than in the ordinary course of business; or

(xiii) any amendment, supplement, and modification (whether oral or written) in respect of any of the foregoing.

(b) All of the Contracts set forth or required to be set forth on the Parent Schedule ("Contracts") are valid, binding and enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and other laws of general application effecting enforcement of creditors' rights generally, rules of law governing specific performance, injunctive relief or other equitable remedies, and limitations of public policy; and shall be in full force and effect without penalty in accordance with their terms upon consummation of the transactions contemplated hereby. The Parent does not have any present expectation or intention of not fully performing on a timely basis in all material respects all such obligations required to be performed by the Parent under any Contract set forth or required to be set forth on the Parent Schedule; no partially-filled or unfilled material customer purchase order or sales order is subject to cancellation or any other material modification by the other party thereto or is subject to any penalty, right of set-off or other charge by the other party thereto for late performance or delivery; and the Parent does not have any knowledge of any cancellation or anticipated cancellation or any breach by the other parties to any Contract set forth or required to be set forth on the Parent Schedule. The Parent is not a party to any Contract the performance of which could reasonably be expected to have a Parent Material Adverse Effect.

(c) Company has been given access to a true and correct copy of each of the written Contracts that are set forth on the Parent Schedule, together with all amendments, waivers or other changes thereto.

3.16 Interested Party Transactions. No officer, director or, to the Parent's knowledge, shareholder of the Parent (nor any ancestor, sibling, descendant 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), has or has had, directly or indirectly, (i) an interest in any entity which furnished or sold, or furnishes or sells, services or products that the Parent furnishes or sells, or proposes to furnish or sell, or (ii) any interest in any entity that purchases from or sells or furnishes to the Parent , any goods or services, or
(iii) a beneficial interest in any Contract to which the Parent is a party; provided, however, that ownership of no more than five percent (5%) of the outstanding voting stock of a publicly traded corporation shall not be deemed to be an "interest in any entity" for purposes of this Section 3.16.

3.17 Litigation. There is no action, suit, proceeding, claim, arbitration or investigation pending, or as to which Parent or any of its subsidiaries has received any notice of assertion nor, to Parent's best knowledge, is there a threatened action, suit, proceeding, claim, arbitration or investigation against Parent or any of its subsidiaries which reasonably would be expected to be material to Parent, or which in any manner challenges or seeks to prevent, enjoin, alter or delay any of the transactions contemplated by this Agreement or Parent's business.

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3.18 Compliance With Laws. Parent has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except in any such case as reasonably would not be expected to be material to Parent.

3.19 Environmental Matters.

(a) Condition of Property. As of the Closing, except in compliance with Environmental Laws in a manner that could not reasonably be expected to subject the Parent to liability, to the knowledge of the Parent after reasonable inquiry, no Hazardous Materials are present on any Business Facility currently owned, operated, occupied, controlled or leased by the Parent or were present on any other Business Facility at the time it ceased to be owned, operated, occupied, controlled or leased by the Parent. Except as set forth on the Parent Schedule, there are no underground storage tanks, asbestos which is friable or likely to become friable or PCBs present on any Business Facility currently owned, operated, occupied, controlled or leased by the Parent or as a consequence of the acts of the Parent or its agents.

(b) Hazardous Materials Activities. The Parent has conducted all Hazardous Material Activities relating to its business in compliance in all material respects with all applicable Environmental Laws, and the Hazardous Materials Activities of the Parent prior to the Closing have not resulted in the exposure of any person to a Hazardous Material in a manner which has caused or could reasonably be expected to cause an adverse health effect to any such person.

(c) Permits. The Parent Schedule accurately describes all of the Environmental Permits currently held by the Parent and relating to its business and the listed Environmental Permits are all of the Environmental Permits necessary for the continued conduct of any Hazardous Material Activity of the Parent relating to its business as such activities are currently being conducted. All such Environmental Permits are valid and in full force and effect. The Parent has complied in all material respects with all covenants and conditions of any Environmental Permit which is or has been in force with respect to its Hazardous Materials Activities. No circumstances exist which could cause any Environmental Permit to be revoked, modified, or rendered non- renewable upon payment of the permit fee. All Environmental Permits and all other consents and clearances required by any Environmental Law have been obtained or will be obtained prior to the Closing at no cost to Parent or Merger Sub.

(d) Environmental Litigation. Except as set forth on the Parent Schedule, no Action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the best of the Parent's knowledge, threatened, concerning or relating to any Environmental Permit or any Hazardous Materials Activity of the Parent relating to its business, or any Business Facility.

(e) Offsite Hazardous Material Disposal. The Parent has transferred or released Hazardous Materials only to those Disposal Sites set forth on the Parent Schedule; and no Action, proceeding, liability or claim exists or is threatened against any Disposal Site or against the Parent

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with respect to any transfer or release of Hazardous Materials relating to the business of the Parent to a Disposal Site which could reasonably be expected to subject the Parent to liability.

(f) Environmental Liabilities. The Parent is not aware of any fact or circumstance, which could reasonably be expected to result in an environmental liability having a Material Adverse Effect on the Parent.

(g) Reports and Records: The Parent has delivered to Parent or made available for inspection by Parent and its agents, representatives and employees all records in the Parent's possession concerning the Hazardous Materials Activities of the Parent relating to its business and all environmental audits and environmental assessments of any Business Facility conducted at the request of, or otherwise in the possession of the Parent. To its knowledge, the Parent has complied with all environmental disclosure obligations imposed by applicable law with respect to this transaction.

3.20 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth on the Parent Schedule, the Parent has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreement or any transaction contemplated hereby. The Parent Schedule sets forth the principal terms and conditions of any agreement, written or oral, with respect to such fees. The Parent Schedule sets forth the Parent's current reasonable estimate of all Third Party Expenses expected to be incurred by the Parent in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby.

3.21 Employee Matters and Benefit Plans.

(a) Schedule. The Parent Schedule contains an accurate and complete list of each Parent Employee Plan and each Employment Agreement. The Parent does not have any plan or commitment to establish any new Parent Employee Plan, International Employee Plan, or Employment Agreement, to modify any Parent Employee Plan or Employment Agreement (except to the extent required by law or to conform any such Parent Employee Plan or Employment Agreement to the requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to adopt or enter into any Parent Employee Plan, International Employee Plan, or Employment Agreement.

(b) Documents. The Parent has provided to the Company access to correct and complete copies of: (i) all documents embodying each Parent Employee Plan, International Employee Plan, and each Employment 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 Plan; (ii) the most recent annual actuarial valuations, if any, prepared for each Parent Employee Plan; (iii) the three (3) most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Parent Employee Plan; (iv) if the Parent Employee Plan is funded, the most recent annual and periodic accounting of Parent Employee Plan assets; (v) the most recent summary

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plan description together with the summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Parent Employee Plan;
(vi) all IRS determination, opinion, notification and advisory letters, and all applications and correspondence to or from the IRS or the DOL with respect to any such application or letter; (vii) all communications material to any Parent Group Employee or Parent Group Employees relating to any Parent Employee Plan and any proposed Parent Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Parent; (viii) all correspondence to or from any governmental agency relating to any Parent Employee Plan; (ix) all COBRA forms and related notices (or such forms and notices as required under comparable law); and (x) the three (3) most recent plan years discrimination tests for each Parent Employee Plan.

(c) Employee Plan Compliance. Except as set forth on the Parent Schedule, (i) the Parent has performed in all material respects all obligations required to be performed by it under, is not in default or violation of, and has no knowledge of any default or violation by any other party to each Parent Employee Plan, and each Parent Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) each Parent Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination, opinion, notification or advisory letter from the IRS with respect to each such Parent Employee Plan as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a letter and make any amendments necessary to obtain a favorable determination as to the qualified status of each such Parent Employee Plan; (iii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA (or any administrative class exemption issued thereunder), has occurred with respect to any Parent Employee Plan; (iv) there are no actions, suits or claims pending, or, to the knowledge of the Parent, threatened or reasonably anticipated (other than routine claims for benefits) against any Parent Employee Plan or against the assets of any Parent Employee Plan; (v) each Parent Employee Plan (other than any stock option plan) can be amended, terminated or otherwise discontinued after the Effective Time, without material liability to the Parent, the Parent or any of its Related Parties (other than ordinary administration expenses); (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Parent or any Related Parties, threatened by the IRS or DOL with respect to any Parent Employee Plan; and (vii) neither the Parent nor any Related Party is subject to any penalty or tax with respect to any Parent Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.

(d) Pension Plan. Neither the Parent nor any Related Party has ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.

(e) Collectively Bargained, Multiemployer and Multiple Employer
Plans. At no time has the Parent or any Related Party contributed to or been obligated to contribute to any

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Multiemployer Plan. Neither the Parent, nor any Related Party has at any time ever maintained, established, sponsored, participated in, or contributed to any multiple employer plan, or to any plan described in Section 413 of the Code.

(f) No Post-Employment Obligations. Except as set forth on the Parent Schedule, no Parent Employee Plan provides, or reflects or represents any liability to provide retiree health to any person for any reason, except as may be required by COBRA or other applicable statute, and the Parent has never represented, promised or contracted (whether in oral or written form) to any Parent Group Employee (either individually or to Parent Group Employees as a group) or any other person that such Parent Group Employee(s) or other person would be provided with retiree health, except to the extent required by statute.

(g) Health Care Compliance. Neither the Parent nor any Related Party 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, the requirements of the Women's Health and Cancer Rights Act of 1998, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such act, or any similar provisions of state law applicable to its Parent Group Employees.

(h) Effect of Transaction.

(i) Except as set forth on the Parent Schedule, 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 Parent Employee Plan, Employment 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 Parent Group Employee.

(ii) Except as set forth on the Parent Schedule, no payment or benefit which will or may be made by the Parent or its Related Parties with respect to any Parent Group Employee will be characterized as a "parachute payment", within the meaning of Section 280G(b)(2) of the Code.

(i) Employment Matters. The Parent: (i) is in compliance in all respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Parent Group Employees; (ii) 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 Parent Group Employees; (iii) 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) 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 Parent Group Employees (other than routine payments to be made in the normal course of business and

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consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against the Parent under any worker's compensation policy or long-term disability policy.

(j) Labor. No work stoppage or labor strike against the Parent is pending, threatened or reasonably anticipated. The Parent does not know of any activities or proceedings of any labor union to organize any Parent Group Employees. Except as set forth on the Parent Schedule, there are no actions, suits, claims, labor disputes or grievances pending, or, to the knowledge of the Parent, threatened or reasonably anticipated relating to any labor, safety or discrimination matters involving any Parent Group 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 Parent. Neither the Parent nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act. Except as set forth on the Parent Schedule, the Parent 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 Parent Group Employees and no collective bargaining agreement is being negotiated by the Parent.

(k) International Employee Plan. The Parent does not now, nor has it ever had the obligation to, maintain, establish, sponsor, participate in, or contribute to any International Employee Plan.

No Interference or Conflict. To the Parent's knowledge, no shareholder, officer, employee or consultant of the Parent is obligated under any contract or agreement subject to any judgment, decree or order of any court or administrative agency that would interfere with such person's efforts to promote the interests of the Parent or that would interfere with the Parent's business. Neither the execution nor delivery of this Agreement, nor the carrying on of the Parent's business as presently conducted nor any activity of such officers, directors, employees or consultants in connection with the carrying on of the Parent's business as presently conducted will, to the Parent's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract or agreement under which any of such officers, directors, employees or consultants is now bound.

3.22 Compliance with Legal Requirements. The Parent has complied in all material respects with, is not in violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation.

3.23 Insurance. The Parent Schedule sets forth a list of all insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Parent or any affiliate. There is no claim by the Parent or any affiliate 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 Parent 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). The Parent has no knowledge of threatened termination of, or premium increase with respect to, any of such policies.

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3.24 Product Warranty. All products and equipment manufactured, sold, leased or delivered by the Parent and all services rendered by the Parent have been in material conformity with all applicable contractual commitments and all express and implied warranties, and the Parent does not have any liability for replacement or repair thereof or other damages in connection therewith in excess of any warranty reserve established with respect thereto and included on the Current Balance Sheet. Except as set forth on the Parent Schedule, no products or equipment manufactured, sold, leased or delivered by the Parent and no services rendered by the Parent are subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of such sale, lease or service (including as a result of any course of conduct between the Parent and any third party or as a result of any statements in any of the Parent's product or promotional literature). The Parent Schedule includes copies of such standard terms and conditions of sale, lease and service for the Parent (containing applicable guaranty, warranty and indemnity provisions). The Parent has not been notified in writing of any claims for (and the Parent has no knowledge of any threatened claims for) any extraordinary product returns, warranty obligations or product services relating to any of its products or services.

3.25 Product Liability; Product Recalls, etc. To the Parent's knowledge, except as set forth on the Parent Schedule, the Parent does not have any liability arising out of any injury to individuals or property as a result of the ownership, possession or use of any products or equipment manufactured, sold, leased or delivered by the Parent or with respect to any services rendered by the Parent. Except as set forth on the Parent Schedule, there have been no product or equipment recalls, withdrawals or seizures with respect to any products or equipment manufactured, sold, leased or delivered by the Parent or with respect to any services rendered by the Parent.

3.26 Books and Records. The minute books of the Parent contain accurate and complete records of all meetings held of, and material corporate action taken by, the shareholders and the Board of Directors. No material action has been taken by a committee of the Board of Directors of the Parent for which minutes have not been prepared and are not contained in such minute books. As of the Closing, no meeting of the Boards of Directors or the shareholders will have been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of the minute books will be in the possession of the Parent.

3.27 Customers and Suppliers. Except as set forth on the Parent Schedule, the Parent has not received any notice that any of customers of the Parent has ceased, or will cease, to use the products, equipment, goods or services of the Parent, or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time.

3.28 Complete Copies of Materials. The Parent has delivered or made available true and complete copies of each document (or summaries of same) that has been requested by Company or its counsel.

3.29 Representations Complete. Neither any of the representations or warranties made by the Parent (as modified by the Parent Schedule) in this Agreement, nor any statements made in any exhibit, schedule or certificate furnished by the Parent pursuant to this Agreement taken as a whole contains, any untrue statement of a material fact, or omits to state any material fact necessary in

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order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. The information regarding the Parent furnished in any documents mailed, delivered or otherwise furnished to Shareholders in connection with the solicitation of their consent to this Agreement and the Merger, will not contain, at or prior to the Effective Time, any untrue statement of a material fact and will not omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which made, not misleading with respect to the Parent.

ARTICLE IV

CONDUCT PRIOR TO THE EFFECTIVE TIME

4.1 Conduct of Business of the Company. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, the Company agrees, except to the extent that Parent shall otherwise consent in writing, to use all reasonable efforts to carry on the Company's business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay the debts and Taxes of the Company when due, to pay or perform other obligations when due, and, to the extent consistent with such business, use commercially reasonable efforts consistent with past practice and policies to preserve intact the Company's present business organizations, keep available the services of the Company's present officers and key employees and preserve the Company's relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired the Company's goodwill and ongoing business at the Effective Time. The Company shall promptly notify Parent of any event or occurrence or emergency not in the ordinary course of business of the Company and any material event involving the Company. From and after the date hereof, the Company will use commercially reasonable efforts to collect any and all appropriate and necessary reseller certificates on a timely basis from any reseller to whom sales are made. Except as expressly contemplated by this Agreement as set forth on the Company Schedule hereto, the Company shall not without the prior written consent of Parent:

(a) make any expenditures or enter into (i) any purchase commitment exceeding USD $25,000 individually or USD $50,000 in the aggregate or (ii) any other commitment or transaction of the type described in Section 2.11 hereof which is outside the ordinary course of business;

(b) except in the ordinary course of business or as previously disclosed in writing to Parent, (i) sell, license or transfer to any person or entity any rights to any of the Company's Intellectual Property Rights or enter into any agreement with respect to any of the Company's Intellectual Property Rights with any third party or with respect to any Intellectual Property Right of any third party, (ii) buy or license any Intellectual Property Rights or enter into any agreement with respect to the Intellectual Property Rights of any third party, (iii) enter into any agreement with respect to the development of any Intellectual Property Rights with a third party, (iv) or change

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pricing or royalties charged by the Company to its customers or licensees, or the pricing or royalties set or charged by third parties who have licensed Intellectual Property Rights to the Company;

(c) enter into or amend 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, except in the ordinary course of business consistent with past practice;

(d) amend, modify or terminate (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the Contracts;

(e) commence or settle any litigation;

(f) 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 for (i) repurchases of Company Capital Stock upon the termination of service of any service providers of the Company in accordance with the standard terms set forth in the agreements governing such repurchases, all of which agreements have been provided or made available to Parent, and (ii) the exercise of Company Warrants;

(g) 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 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, except for the exercise of stock options or Company Warrants, or accelerate the vesting of any outstanding option or other security; provided, that this restriction shall not apply to stock option grants to new employees and any other stock option grants mutually agreeable to the Parent and the Company;

(h) cause or permit any amendments to the Organizational Documents of the Company;

(i) acquire or agree to acquire by merging or consolidating with, or by purchasing 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, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the Company's business;

(j) sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practices;

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(k) incur any indebtedness or guarantee any indebtedness or issue or sell any debt securities or guarantee any debt securities of others except for borrowings under existing credit facilities;

(l) grant any loans to others or purchase debt securities of others or amend the terms of any outstanding loan agreement;

(m) grant any severance or termination pay to any director or officer, or to any other employee, except for obligations under existing agreements which have been previously delivered to Parent's legal counsel;

(n) adopt or amend any employee benefit plan, or enter into any employment contract, pay or agree to pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates of its employees, provided that this restriction shall not apply to salary adjustments in the ordinary course of business, or as mutually agreed between Parent and the Company;

(o) revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or Accounts Receivable other than in the ordinary course of business;

(p) pay, waive, discharge or satisfy, in an amount in excess of USD $25,000 in any one case, or USD $50,000 in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of liabilities incurred in the ordinary course of business or the repayment of shareholder loans pursuant to Section 5.16;

(q) make or change any material 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;

(r) enter into any strategic alliance or joint marketing arrangement or agreement;

(s) hire any employee, except to replace a terminated employee or except as reasonably necessary consistent with the needs of the business of the Company; not terminate the employment of any employee other than for "cause"; or

(t) take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a) through 4.1(s) hereof, or any other action that would prevent the Company from performing or cause the Company not to perform its covenants hereunder.

4.2 Conduct of Business of the Parent. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, the Parent agrees, except to the extent that Company shall otherwise consent in writing, to use all reasonable efforts to carry on the Parent's business in the usual, regular and ordinary course in

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substantially the same manner as heretofore conducted, to pay the debts and Taxes of the Parent when due, to pay or perform other obligations when due, and, to the extent consistent with such business, use commercially reasonable efforts consistent with past practice and policies to preserve intact the Parent's present business organizations, keep available the services of the Parent's present officers and key employees and preserve the Parent's relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired the Parent's goodwill and ongoing business at the Effective Time. The Parent shall promptly notify Company of any event or occurrence or emergency not in the ordinary course of business of the Parent and any material event involving the Parent. From and after the date hereof, the Parent will use commercially reasonable efforts to collect any and all appropriate and necessary reseller certificates on a timely basis from any reseller to whom sales are made. Except as expressly contemplated by this Agreement as set forth on the Parent Schedule hereto, the Parent shall not without the prior written consent of Company:

(a) declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any Parent Capital Stock, or split, combine or reclassify any Parent Capital Stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for, shares of Parent Capital Stock, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of Parent Capital Stock
(or options, warrants or other rights exercisable therefor) except for (i) repurchases of Parent Capital Stock upon the termination of service of any service providers of the Parent in accordance with the standard terms set forth in the agreements governing such repurchases, all of which agreements have been provided or made available to Company, and (ii) the exercise of warrants;

(b) 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 Parent Capital Stock or 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, except for the exercise of stock options or warrants, or accelerate the vesting of any outstanding option or other security; provided that this restriction shall not apply to stock option grants to new employees;

(c) cause or permit any amendments to the Organizational Documents of the Parent unless appropriately disclosed to the Shareholder Representative;

(d) acquire or agree to acquire by merging or consolidating with, or by purchasing 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, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the Parent's business;

(e) sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practices;

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(f) grant any severance or termination pay to any director or officer, or to any other employee, except for obligations under existing agreements which have been previously made available to Company's legal counsel;

(g) adopt or amend any employee benefit plan, or enter into any employment contract, pay or agree to pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates of its employees provided that this restriction shall not apply to adjustments in salary in the normal course of business;

(h) revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or Accounts Receivable other than in the ordinary course of business;

(i) take, or agree in writing or otherwise to take, any of the actions described in Sections 4.2(a) through 4.2(h) hereof, or any other action that would prevent the Parent from performing or cause the Parent not to perform its covenants hereunder.

4.3 No Solicitation. Until the earlier of (i) the Effective Time, or
(ii) the date of termination of this Agreement pursuant to the provisions of
Section 8.1 hereof, the Company shall not (nor shall the Company permit, as applicable, any of the Company's officers, directors, employees, agents, or representatives to), directly or indirectly, take any of the following actions with any party other than Parent and its designees: (a) solicit, encourage, initiate or participate in any inquiry, negotiations or discussions, or enter into any agreement, with respect to any offer or proposal to acquire all or any material part of the Company's business, properties or technologies, or any material amount of the Company Capital Stock (whether or not outstanding), whether by merger, purchase of assets, tender offer or otherwise, or effect any such transaction, (b) disclose any information not customarily disclosed to any third party concerning the Company's business, technologies or properties, or afford to any person or entity access to its properties, technologies, books or records, not customarily afforded such access, (c) assist or cooperate with any third party to make any proposal to purchase all or any material part of the Company Capital Stock or assets of the Company other than inventory in the ordinary course of business, or (d) enter into any agreement with any third party providing for the acquisition of the Company, whether by merger, purchase of assets, tender offer or otherwise. In the event that the Company or any of the Company's affiliates shall receive, prior to the Effective Time or the termination of this Agreement, any offer, proposal, or request, directly or indirectly, of the type referenced in clause (a) or (c) above, or any request for disclosure or access pursuant to clause (b) above, the Company shall immediately notify Parent thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as Parent may reasonably request. The parties hereto agree that irreparable damage would occur in the event that the provisions of this Section 4.3 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 Section 4.3 and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which Parent may be entitled at law or in equity.

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ARTICLE V

ADDITIONAL AGREEMENTS

5.1 Preparation of Permit Application, Hearing Request, Hearing Notice and
Information Statement. As promptly as practicable after execution of this Agreement, Parent shall prepare and file with the California Commissioner of Corporations the documents required by the California Corporate Securities Law of 1968, as amended (the "CCSL"), including, but not limited to, any required "Permit Application," "Hearing Request," and "Hearing Notice", pursuant to Sections 25121 and 25142 of the CCSL (collectively, the "Notice Materials"), in connection with the Merger, in order to perfect the exemption from registration provided by Section 3(a)(10) of the 1933 Act. Each of Parent and the Company shall use reasonable efforts to have the Permit Application, Hearing Request and Hearing Notice declared effective under the CCSL as promptly as practicable after such filing. In addition, Parent and the Company will prepare and the Company will distribute an information statement or proxy statement (the "Information Statement") along with the Notice Materials, as may be required by California Law, at the earliest practicable date to submit this Agreement, the Merger and related matters for the consideration and approval of the Company's Shareholders, which approval will be recommended by the Board of Directors and management of the Company. Such Information Statement will contain information and will be solicited in compliance with applicable law. Parent and the Company will promptly provide all information relating to their respective business and operations necessary for inclusion in the Notice Materials to satisfy all requirements of applicable state and federal securities laws. Each of Parent and the Company shall be solely responsible for any statement, information or omission in the Notice Materials relating to it or its affiliates based upon written information furnished by it.

5.2 Shareholder Approval. Upon compliance with applicable federal and state securities laws, the Company shall promptly submit this Agreement and the transactions contemplated hereby to the Shareholders for approval and adoption as provided by California Law and the Organizational Documents of the Company. The Company shall use its commercially reasonable efforts to obtain the consent of the Shareholders sufficient to approve the Merger and this Agreement and to enable the Closing to occur as promptly as practicable. The materials to be submitted to the Shareholders in connection with the solicitation of their approval of the Merger and this Agreement shall be subject to review and approval by Parent and shall include information regarding the Company, Parent, the terms of the Merger and this Agreement and the recommendation of the Board of Directors of the Company in favor of the Merger and this Agreement.

5.3 Access to Information. Each party shall afford the other party and its accountants, counsel and other representatives, reasonable access during the period prior to the Effective Time to (i) all of the party's properties, books, contracts, commitments and records, (ii) all other information concerning the business, properties and personnel of the party as the requesting party may reasonably request, and (iii) all employees of the party. Each party agrees to provide to the other party and its accountants, counsel and other representatives copies of internal financial statements (including Returns and supporting documentation) promptly upon request. No information or knowledge obtained in any investigation pursuant to this Section 5.2 shall affect or be deemed to modify any

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representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger in accordance with the terms and provisions hereof.

5.4 Confidentiality. Each of the parties hereto hereby agrees that the information obtained in any investigation pursuant to Section 5.2 hereof, 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 Confidentiality Agreement.

5.5 Expenses. Whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("Third Party Expenses") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. Upon consummation of the Merger, the Surviving Corporation and/or Parent shall promptly pay, on behalf of the Company, any Third Party Expenses of the Company in an amount up to $250,000 that have not been paid before the Effective Time.

5.6 Public Disclosure. Unless otherwise required by law, prior to the Effective Time, no disclosure (whether or not in response to an inquiry) shall be made by any party hereto regarding the subject matter of this Agreement unless approved by the other party hereto prior to release.

5.7 Consents. The Company shall use commercially reasonable efforts to obtain the consents, waivers, assignments and approvals under any of the Contracts as may be required in connection with the Merger so as to preserve all rights of, and benefits to, the Company thereunder.

5.8 Reasonable Efforts. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use commercially reasonable efforts to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals and to effect all necessary registrations and filings 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; provided that Parent shall not be required to agree to any divestiture by Parent or the Company or any of Parent's subsidiaries or affiliates of shares of capital stock or of any business, assets or property of Parent or its subsidiaries or affiliates or of the Company or its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock.

5.9 Securities Laws Compliance. Parent shall take such steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the Merger Consideration and the assumption of stock options and warrants of the Company as contemplated by this Agreement. The Company shall use its reasonable efforts to assist Parent as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the issuance of the Merger Consideration in connection with the

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Merger, including but not limited to using its reasonable efforts to cause each Shareholder to execute and deliver to Parent an investor suitability questionnaire or other form deemed necessary by Parent.

5.10 Notification of Certain Matters; Financial Statements.

(a) The Company shall give prompt notice to Parent of (i) any Action initiated by or against the Company or threatened against the Company, (ii) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Company contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time and (iii) any failure of the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder in each case such that the conditions contained in Section 6.3(a) would not be satisfied; provided, however, that the delivery of any notice pursuant to this
Section 5.10 shall not (x) limit or otherwise affect any remedies available to the party receiving such notice or (y) constitute an acknowledgment or admission of a breach of this Agreement by the Company. No disclosure by the Company pursuant to this Section 5.10, however, shall be deemed to amend or supplement the Company Schedule or prevent or cure any misrepresentations, breach of warranty or breach of covenant.

(b) Parent shall give prompt notice to the Company of (i) any Action initiated by or against the Parent or threatened against the Parent, (ii) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of Parent contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time and
(iii) any failure of Parent to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder in each case such that the conditions contained in Section 6.2(a) would not be satisfied; provided, however, that the delivery of any notice pursuant to this Section 5.10 shall not limit or otherwise affect any remedies available to the party receiving such notice or constitute an acknowledgment or admission of a breach of this Agreement by Parent. No disclosure by Parent pursuant to this Section 5.10, however, shall be deemed to prevent or cure any misrepresentations, breach of warranty or breach of covenant.

(c) Each of the Company and Parent shall deliver to the other party, as soon as practicable but in any event within forty-five (45) calendar days after the end of each monthly accounting period beginning with the month ended April 30, 2000 and ending with the monthly accounting period occurring before the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, an unaudited consolidated balance sheet and a statement of operations for that party, which financial statements shall be prepared in the ordinary course of business, in accordance with the party's books and records and shall fairly present the consolidated financial position of the party as of their respective dates and the results of the party's operations for the periods then ended.

5.11 Additional Documents and Further Assurances. Each party hereto, at the request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby.

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5.12 Notice to Holders of Company Options and Company Warrants. The Company shall give notice of the transactions contemplated hereby to holders of Company Options and Company Warrants in accordance with the terms of such Company Options and Company Warrants or otherwise obtain the written waiver of such notice obligations.

5.13 Employee Plans and Benefit Arrangements. The Company and its Affiliates, as applicable, shall each terminate, effective as of the day immediately preceding the Effective Time: (i) any and all group severance, separation or salary continuation plans, programs, or arrangements, and (ii) any and all 401(k) plans, unless Parent provides notice to the Company that such 401(k) plan(s) shall not be terminated. Parent shall receive from Company evidence that Company's and each Affiliate's, as applicable, plan(s) and/or program(s) have been terminated pursuant to resolutions of each such entity's Board of Directors (the form and substance of such resolutions shall be subject to review and approval of Parent), effective as of the day immediately preceding the Effective Time. In the event that distribution or rollover of assets from the trust of a 401(k) plan which is terminated is reasonably anticipated to trigger liquidation charges, surrender charges, or other fees to be imposed upon the account of any participant or beneficiary of such terminated plan, or upon the Company or plan sponsor, then the Company shall take such actions as are necessary to reasonably estimate the amount of such charges and/or fees and provide such estimate in writing to Parent prior to the Effective Time.

5.14 Reorganization under Section 368(a) of the Code. None of the Company, Parent or Merger Sub, nor any of their affiliates, shall engage in any action that could reasonably be expected to cause the Merger to fail to qualify as a "reorganization" under Section 368(a) of the Code, whether or not otherwise permitted by the provisions of this Agreement.

5.15 Period of Employment. Each Company employee's period of employment with the Company will be fully credited for all purposes, including seniority, benefits and vesting of prior option grants, under any Parent Employee Plan.

5.16 Shareholder Loans. On or before the Closing, the Company may repay principal and accrued interest on loans (up to $900,000 of principal and accrued interest through the Closing Date) previously made by Reza Soliman-Noori to the Company, as disclosed in the Company Schedule. Parent and Surviving Corporation shall assume such obligations and pay the remaining balance of such loans by December 31, 2000.

5.17 Registration on Form S-8. All Company Stock Options that are assumed by Parent will be treated similarly to other LynuxWorks stock options with respect to registration of such shares on Form S-8 (including any Form S-3 resale prospectus included therein). If LynuxWorks becomes a public reporting company, then in connection with the first Form S-8 registration statement that LynuxWorks files, LynuxWorks agrees to include (if allowed by applicable SEC rules and regulations) a Form S-3 resale prospectus registering the public resale of shares acquired by former shareholders of the Company pursuant to the exercise of Company Options, to the same extent as such a Form S-3 resale prospectus is included for LynuxWorks employees.

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5.18 Offer Letters. All of the employees listed on the Company Schedule shall have received employment offer letters from the Parent.

5.19 Visa Applications. Parent will continue to process certain H-1 visa and permanent residency applications for individuals previously agreed upon between the Company and Parent.

5.20 "Market Stand-Off" Agreement. In connection with the initial public offering of Parent, if requested by Parent and the managing underwriter of such offering, and only to the same extent as executive officers and directors of the Parent, the Shareholders agree not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of Parent held by the Shareholders without the prior written consent of Parent or such managing underwriter for such period of time as may be requested by Parent or such managing underwriter (not to exceed one hundred eighty (180) days after the effective date of such registration statement). The Shareholders agree to use their best efforts to cause all employees of the Company who become employees of the Parent to enter into the same Market Stand-Off Agreement to the same extent as employees of the Parent. The employment offer letters contemplated by Section 5.18 will contain 7such a Market Stand-off Agreement.

ARTICLE VI

CONDITIONS TO THE MERGER

6.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of the Company and Parent to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions:

(a) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect; provided, that Parent, Merger Sub and the Company have used reasonable efforts to remove such injunction, order, restraint or prohibition; nor shall any proceeding brought by a Governmental Entity, domestic or foreign, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal.

(b) Permit. The California Commissioner of Corporations shall have issued a permit declaring the Permit Application, Hearing Request, and Hearing Notice effective with respect to the Merger.

(c) Parent and the Company shall each have received written opinions from their counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation, and Fenwick & West LLP, respectively, in form and substance reasonably satisfactory to them, to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code. The parties to this

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Agreement agree to make reasonable representations as requested by such counsel for the purpose of rendering such opinions.

6.2 Additional Conditions to Obligations of Company. The obligations of the Company to consummate and effect this Agreement and 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:

(a) Representations, Warranties and Covenants. (i) The representations and warranties of Parent and Merger Sub in this Agreement shall be true and correct as of the date hereof and shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date, except that, to the extent such representations and warranties address matters only as of a particular date, such representations and warranties shall, to such extent, be true and correct on and as of such particular date as if made on and as of such particular date, and (ii) Parent shall have performed and complied with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it as of the Effective Time.

(b) Certificate of Parent. Company shall have been provided with a certificate executed on behalf of Parent by an authorized officer to the effect that, as of the Effective Time:

(i) All representations and warranties of Parent and Merger Sub in this Agreement (other than the representations and warranties of Parent and Merger Sub as of a specified date, which will be true and correct as of such date) shall be true and correct in all material respects on and as of the Effective Time as though such representations and warranties were made on and as of such time; and

(ii) all covenants, obligations and conditions of this Agreement to be performed by Parent on or before such date have been so performed.

(iii) the condition set forth in Section 6.2(c) has been satisfied.

(c) No Material Adverse Changes. There shall not have occurred any change in the business, assets, prospects, financial condition or results of operations of Parent that would cause a Parent Material Adverse Effect.

(d) Legal Opinion. The Company shall have received a legal opinion from Wilson Sonsini Goodrich & Rosati, legal counsel to Parent, in the form attached as Exhibit D hereto.

6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate and effect this Agreement and 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:

(a) Representations, Warranties and Covenants. (i) The representations and warranties of the Company in this Agreement shall be true and correct as of the date hereof and shall be true and correct in all material respects on and as of the Closing Date as though made on and as of

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the Closing Date, except that, to the extent such representations and warranties address matters only as of a particular date, such representations and warranties shall, to such extent, be true and correct on and as of such particular date as if made on and as of such particular date, and (ii) the Company shall have performed and complied with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it as of the Effective Time.

(b) Certificate of the Company. Parent shall have been provided with a certificate executed on behalf of the Company by its President to the effect that, as of the Effective Time:

(i) All representations and warranties of the Company in this Agreement (other than the representations and warranties of the Company as of a specified date, which will be true and correct as of such date) shall be true and correct in all material respects on and as of the Effective Time as though such representations and warranties were made on and as of such time;

(ii) all covenants, obligations and conditions of this Agreement to be performed by the Company on or before such date have been so performed;

(iii) the conditions set forth in Sections 6.3(b), (d), (e), (f) and (g) have been satisfied.

(c) Employment and Non-Competition Agreements. Each of the persons set forth on Schedule 6.3(c) hereto (collectively, the "Key Employees") shall have executed and delivered to Parent an Employment and Non-Competition Agreement in the form attached as Exhibit C hereto, each such Employment and Non-Competition Agreement shall be in full force and effect, and each of the Key Employees shall be employed by the Company immediately prior to the Effective Time.

(d) Employment Offers. Each Key Employee and eighty percent (80%) of the other employees listed on the Company Schedule who shall have received an offer of employment from Parent shall have accepted such offer of employment from Parent on the terms and subject to the conditions set forth in such offer; and each such person shall be employed by the Company immediately prior to the Effective Time.

(e) Third Party Consents. The consents, waivers, assignments and approvals listed on the Company Schedule hereto shall have been obtained.

(f) Shareholder Approval; Dissenters' Rights. Shareholders holding at least ninety-five percent (95%) of the Company Capital Stock, including not less than the requisite vote of outstanding shares of each series or class of Company Capital Stock necessary to approve this Agreement, the Merger and the transactions contemplated hereby and thereby, shall have approved this Agreement, the Merger and the transactions contemplated hereby and thereby.

(g) No Material Adverse Changes. There shall not have occurred any change in the business, assets, prospects, financial condition or results of operations of the Company that would cause a Company Material Adverse Effect.

(h) Litigation. No Action shall have been initiated by or against the Company.

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(i) Termination of 401(k) Plan. Parent shall be reasonably satisfied that the Company has taken all steps necessary to terminate the Company's 401(k) plan effective as of the day immediately preceding the Closing Date.

(j) Legal Opinion. Parent shall have received a legal opinion from Fenwick & West, LLP legal counsel to the Company, in the form attached as Exhibit E hereto.

ARTICLE VII

SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW

7.1 Survival of Representations, Warranties and Covenants. The representations, warranties and covenants of the Company and of the Parent and Merger Sub in this Agreement or in any instrument delivered pursuant hereto shall terminate on the one (1) year anniversary of the Closing Date (the "Escrow Termination Date").

7.2 Escrow Arrangements

(a) Escrow Fund. As security for the representations and warranties made by the Company in this Agreement at the Effective Time and without any act of the Company, the Company will be deemed to have received and deposited with Firstar Bank, N.A. (the "Escrow Agent") the Escrow Amount issued in the name of the Escrow Agent (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Parent after the Effective Time with respect to the Escrow Amount), such deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein. The portion of the Escrow Amount contributed on behalf of each Shareholder shall be in proportion to the Merger Consideration such Shareholder is otherwise entitled to receive in the Merger by virtue of ownership of shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time. The Escrow Agent may execute this Agreement following the date hereof and prior to the Effective Time, and such latter execution shall not affect the binding nature of this Agreement as of the date hereof among the signatories hereto. The Escrow Fund shall be the sole and exclusive remedy of Parent for all Losses incurred by Parent. Notwithstanding the preceding sentence, nothing herein shall limit the liability of the Company for any breach of any representation, warranty or covenant contained in this Agreement if the Merger does not close. Parent may not receive any shares from the Escrow Fund unless and until one or more Officer's Certificates identifying Losses in excess of One Hundred and Fifty Thousand Dollars (USD $150,000) in the aggregate (the "Basket Amount") has or have been delivered to the Escrow Agent as provided in Section 7.2(d) hereof, in which case Parent shall be entitled to recover all Losses so identified, including without limitation the Basket Amount. If, as of the Escrow Termination Date, no Loss or Losses have been identified which, in the aggregate, exceed the Basket Amount, then the Escrow Fund shall be released in full to the Shareholders.

(b) Escrow Period; Distribution upon Termination of Escrow Period.
Subject to the following requirements, the Escrow Fund shall be in existence immediately following the

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Effective Time and shall terminate at 5:00 p.m. (San Francisco Time) on the Escrow Termination Date (the "Escrow Period"); provided, however, that the Escrow Period shall not terminate with respect to any portion of the Escrow Fund which, in the reasonable judgment of Parent, subject to the objection of the Shareholder Representative, is necessary to satisfy any then pending and unsatisfied claims specified in any Officer's Certificate timely delivered to the Escrow Agent prior to the termination of the Escrow Period with respect to facts and circumstances existing prior to the termination of such Escrow Period. As soon as all such claims have been resolved and all Third Party Expenses have been paid pursuant to Section 5.4 hereof, the Escrow Agent shall deliver to the Shareholders the remaining portion of the Escrow Fund, if any, not required to satisfy such claims and Third Party Expenses. Deliveries of Escrow Amounts to the Shareholders shall be made in proportion to their respective contributions to the Escrow Fund.

(c) Protection of Escrow Fund.

(i) 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 and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof.

(ii) Any shares of Parent Common Stock or other equity securities issued or distributed by Parent (including shares issued upon a stock split) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New Shares issued in respect of shares of Parent Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund but shall be distributed to the record holders thereof. Cash dividends on Parent Common Stock shall not be added to the Escrow Fund but shall be distributed to the record holders thereof.

(iii) Each Shareholder shall have voting rights and the right to distributions of cash dividends with respect to the shares of Parent Common Stock contributed to the Escrow Fund by such Shareholders (and on any voting securities added to the Escrow Fund in respect of such shares of Parent Common Stock). Parent shall show the Parent Common Stock contributed to the Escrow Fund as issued and outstanding on its balance sheet.

(d) Claims Against the Escrow Fund. Upon receipt by the Escrow Agent of an Officer's Certificate at any time on or before the last day of the Escrow Period (but in all events within 60 days after Parent becomes aware that it may have a claim for indemnity), the Escrow Agent shall, subject to the provision of Section 7.2(e) hereof, deliver to Parent out of the Escrow Fund as promptly as possible, shares of Parent Common Stock held in the Escrow Fund in an amount equal to the Losses specified in the Officer's Certificate. For purposes hereof, "Officer's Certificate" shall mean a certificate signed by any officer of Parent: (A) stating that Parent has paid, incurred or properly accrued or reasonably anticipates that it will have to pay, incur or accrue Losses; (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid, incurred or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item

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is related; (C) specifying whether the Losses are subject to the Basket Amount as provided in Section 7.2(a) hereof; and (D) specifying the number of shares of Parent Common Stock to be delivered to Parent. For purposes of determining the number of shares of Parent Common Stock to be delivered to Parent out of the Escrow Fund as indemnity pursuant to Section 7.2(b) hereof and this Section, the shares of Parent Common Stock shall be valued in good faith by the Board of Directors of Parent as of the date of the Officer's Certificate. The Escrow Agent may rely on the valuation of the Parent Common Stock by Parent. Parent and the Company shall use their best efforts to provide monthly notification to the Shareholder Representative of any known claims.

(e) Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate shall be delivered to the Shareholder Representative and for a period of thirty (30) days after such delivery, the Escrow Agent shall make no delivery to Parent of any Escrow Amounts pursuant to Section 7.2(d) unless the Escrow Agent shall have received written authorization from the Shareholder Representative to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of shares of Parent Common Stock from the Escrow Fund in accordance with Section 7.2(d) hereof; provided, however, that no such delivery may be made if the Shareholder Representative shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall contain specific bases upon which such objection is being made and shall have been delivered to the Escrow Agent prior to the expiration of such thirty
(30) day period.

(f) Resolution of Conflicts; Arbitration.

(i) In case the Shareholder Representative shall object in writing to any claim or claims made in any Officer's Certificate, the Shareholder Representative and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Shareholder Representative and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by Parent and the Shareholder Representative and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of Parent Common Stock from the Escrow Fund in accordance with the terms thereof.

(ii) If no such agreement can be reached after good faith negotiation, either Parent or the Shareholder Representative may demand arbitration of the matter unless the amount of the Loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration, and in either such event the matter shall be settled by arbitration conducted by one arbitrator mutually agreeable to Parent and the Shareholder Representative. In the event that within forty-five (45) days after submission of any dispute to arbitration, Parent and the Shareholder Representative cannot mutually agree on one arbitrator, Parent and the Shareholder Representative shall each select one arbitrator who has relevant experience and who is not affiliated with any party hereto, and the two arbitrators so selected shall select a third arbitrator who has relevant experience and who is not affiliated with any party hereto. The arbitrator or arbitrators, as the case may be, shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator or majority of the three arbitrators, as the

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case may be, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrator or a majority of the three arbitrators, as the case may be, shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys' fees and costs, to the same extent as a competent court of law or equity, should the arbitrator or a majority of the three arbitrators, as the case may be, determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of the arbitrator or a majority of the three arbitrators, as the case may be, as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold delivery of shares of Parent Common Stock out of the Escrow Fund in accordance therewith. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrator(s).

(iii) Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction. Any such arbitration shall be held in Santa Clara County, California, USA under the rules then in effect of the American Arbitration Association. The arbitrator(s) shall determine how all expenses relating to the arbitration shall be paid, including without limitation, the respective expenses of each party, the fees of each arbitrator and the administrative fee of the American Arbitration Association.

(g) Third-Party Claims. In the event Parent becomes aware of a third-party claim which Parent reasonably believes may result in a demand against the Escrow Fund, Parent shall promptly notify the Shareholder Representative of such claim, and the Shareholder Representative and the Shareholders of the Company shall be entitled, at their expense, to participate in, but not to determine or conduct, the defense of such claim. Parent shall have the right in its sole discretion to conduct the defense of and settle any such claim; provided, however, that except with the consent of the Shareholder Representative, no settlement of any such claim with third-party claimants shall be determinative of the amount of any claim for Losses relating to such matter. In the event that the Shareholder Representative has consented to any such settlement, neither the Shareholder Representative nor the Shareholders shall have any power or authority to object under any provision of this Article VII to the amount of any claim by Parent against the Escrow Fund with respect to such settlement.

(h) Fractional Shares. Fractional shares of Parent Common Stock will not be issued. Accordingly, each Officer's Certificate shall round up Losses so that an even number of shares can be issued.

7.3 Shareholder Representative

(a) Concurrently with approving this Agreement and the Merger, the Shareholders shall appoint Reza Soliman-Noori as their agent and attorney-in- fact, as the shareholder representative for and on behalf of the Shareholders (the "Shareholder Representative"), to give and receive notices and communications, to object to such retention, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and

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awards of arbitrators with respect to such claims, and to take all other actions that are either (i) necessary or appropriate in the judgment of the Shareholder Representative for the accomplishment of the foregoing or (ii) specifically mandated by the terms of this Agreement. Such agency may be changed by the Shareholders from time to time upon not less than ten (10) days prior written notice to Parent; provided, however, that the Shareholder Representative may not be removed unless holders of a majority interest of the Escrow Fund agree to such removal and to the identity of the substituted agent. The Shareholder Representative may resign at any time upon written notice to Parent and the Shareholders. Any vacancy in the position of Shareholder Representative may be filled by the holders of a simple majority interest of the Escrow Fund. No bond shall be required of the Shareholder Representative, and the Shareholder Representative shall not receive compensation for its services. Notices or communications to or from the Shareholder Representative shall constitute notice to or from the Shareholders.

(b) The Shareholder Representative shall not be liable for any act done or omitted hereunder as the Shareholder Representative while acting in good faith and in the exercise of reasonable judgment. The Shareholders on whose behalf the Escrow Amount is contributed to the Escrow Fund shall indemnify the Shareholder Representative and hold the Shareholder Representative harmless against any loss, liability or expense incurred without negligence or bad faith on the part of the Shareholder Representative and arising out of or in connection with the acceptance or administration of the Shareholder Representative's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Shareholder Representative.

(c) A decision, act, consent or instruction of the Shareholder Representative, including but not limited to an amendment, extension or waiver of this Agreement pursuant to Section 8.3 and Section 8.4 hereof, shall constitute a decision of the Shareholders and shall be final, binding and conclusive upon the Shareholders; and Parent may rely upon any such decision, act, consent or instruction of the Shareholder Representative as being the decision, act, consent or instruction of the Shareholders. The Parent is 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 Shareholder Representative.

(d) Subject to Parent's prior claims for indemnification against the Escrow Fund, the Shareholder Representative shall be entitled to receive payment for its reasonable and documented expenses therefrom, prior to any payments to the Shareholders.

7.4 Escrow Agent.

(a) Escrow Agent's Duties.

(i) 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 which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of Parent and the Shareholder 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 charged with

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any knowledge of any agreements referred to herein, including this Agreement, except for Articles VII and X hereof. 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.

(ii) 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 process of courts of law, and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, 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.

(iii) 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.

(iv) 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.

(v) In performing any duties under this Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) 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's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by the Escrow Agent 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.

(vi) 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 Amount and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Escrow Agent'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

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documents and the Escrow Amounts held in escrow, 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 fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement.

(vii) The parties and their respective successors and assigns agree jointly and severally to indemnify and hold the 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 the Escrow Agent in connection with the execution and delivery of, and 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 negligence or willful misconduct of the Escrow Agent.

(viii) The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to the Parent and the Shareholder Representative; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: Parent and the Shareholder Representative shall use their best efforts to mutually agree on a successor escrow agent within thirty
(30) 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. Upon appointment of a successor escrow agent, the Escrow Agent shall be discharged from any further duties and liability under this Agreement.

(b) Fees. 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 for such extraordinary services and reimbursed for all costs, attorney's fees, including allocated costs of in-house counsel, and expenses occasioned by such default, delay, controversy or litigation.

(c) Consequential Damages. In no event shall the Escrow Agent be liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.

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(d) Successor Escrow Agents. 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 its individual capacity may be transferred, shall be the Escrow Agent under the escrow agreement without further act.

7.5 Shareholder Claims Against Parent.

(a) With respect to Shareholder Claims against Parent arising out of any breach of representation, warranty, or covenant of Parent or Merger Sub in this Agreement or in any instrument delivered pursuant hereto, the Shareholder Representative must deliver a Shareholders' Certificate promptly (but in all events within 60 days) after the Shareholder Representative becomes aware that the Shareholders may have a claim for indemnity; provided that, any such Shareholder Certificate must be delivered no later than the later of the Escrow Termination Date or the distribution of the Escrow Fund under Section 7.2(b). The Parent shall compensate the Shareholders as promptly as possible for an amount equal to the Losses specified in a timely Shareholders' Certificate. For purposes hereof, "Shareholders's Certificate" shall mean a certificate signed by the Shareholder Representative: (A) stating that the Shareholders has paid, incurred or properly accrued or reasonably anticipates that it will have to pay, incur or accrue Losses; (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid, incurred or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related; (C) specifying whether the Losses are subject to the Shareholder Basket Amount (as defined below). Shareholder may not receive any compensation for Losses unless and until one or more Shareholder Certificates identifying Losses in excess of One Hundred and Fifty Thousand Dollars (USD $150,000) in the aggregate (the "Shareholder Basket Amount") has or have been delivered to Parent, in which case the Shareholders shall be entitled to recover all Losses so identified, including without limitation the Shareholder Basket Amount. The Shareholders may not recover for Losses exceeding $600,000. The Parent may compensate the Shareholders for Losses either in cash or shares of the Parent Common Stock valued at the then-current fair market value of such stock.

(b) Resolution of Conflicts; Arbitration.

(i) In case the Parent shall object in writing to any claim or claims made in a Shareholder Certificate by the Shareholder Representative, the Shareholder Representative and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims.

(ii) If no such agreement can be reached after good faith negotiation, either Parent or the Shareholder Representative may demand arbitration of the matter unless the amount of the Loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration, and in either such event the matter shall be settled by arbitration conducted by one arbitrator mutually agreeable to Parent and the Shareholder Representative. In the event that within forty-five (45) days after

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submission of any dispute to arbitration, Parent and the Shareholder Representative cannot mutually agree on one arbitrator, Parent and the Shareholder Representative shall each select one arbitrator, who has relevant experience and who is not affiliated with any party hereto, and the two arbitrators so selected shall select a third arbitrator, who has relevant experience and who is not affiliated with any party hereto. The arbitrator or arbitrators, as the case may be, shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator or majority of the three arbitrators, as the case may be, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrator or a majority of the three arbitrators, as the case may be, shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys' fees and costs, to the same extent as a competent court of law or equity, should the arbitrator or a majority of the three arbitrators, as the case may be, determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of the arbitrator or a majority of the three arbitrators, as the case may be, as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement.

(iii) Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction. Any such arbitration shall be held in Santa Clara County, California, USA under the rules then in effect of the American Arbitration Association. The arbitrator(s) shall determine how all expenses relating to the arbitration shall be paid, including without limitation, the respective expenses of each party, the fees of each arbitrator and the administrative fee of the American Arbitration Association.

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

8.1 Termination. Except as provided in Section 8.2 below, this Agreement may be terminated and the Merger abandoned at any time prior to the Closing:

(a) by mutual agreement of the Company and Parent;

(b) by the Company or Parent if: (i) the Closing has not occurred by October 31, 2000; provided, however, that the right to terminate this Agreement under this Section 8.1(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; (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity that would make consummation of the Merger illegal;

(c) 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

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Entity, which would: (i) prohibit Parent's ownership or operation of all or a portion of the business of the Company or (ii) compel Parent or the Company to dispose of or hold separate all or a portion of the business or assets of the Company or Parent as a result of the Merger;

(d) by Parent if it is not in material breach of its obligations under this Agreement and there has been a material breach of any material provision contained in this Agreement on the part of the Company and such breach has not been cured within thirty (30) business days after written notice to the Company; provided, however, no cure period shall be required for such a breach which by its nature cannot be cured; and that a failure of a representation or warranty of the Company to be true shall not be deemed a material breach under this Section 8.1(d) and (e) if such failure would give rise to a Loss less than 20% of the Escrow Amount; or

(e) by the Company if it is not in material breach of its obligations under this Agreement and there has been a material breach of any material provision contained in this Agreement on the part of Parent or Merger Sub and such breach has not been cured within thirty (30) business days after written notice to Parent, provided, however, no cure period shall be required for such a breach which by its nature cannot be cured.

Where action is taken to terminate this Agreement pursuant to this Section 8.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action.

8.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Sub or the Company, or their respective officers, directors or shareholders; provided, however, each party shall remain liable for any breaches of this Agreement prior to its termination; and provided further, however, that, the provisions of Sections 5.3, 5.4 and 5.5, Articles IX and X hereof and this Section 8.2 shall remain in full force and effect and survive any termination of this Agreement pursuant to the terms of this Article VIII.

8.3 Amendment. This Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. For purposes of this Section 8.3, the Shareholders agree that any amendment of this Agreement signed by the Shareholder Representative shall be binding upon and effective against the Shareholders whether or not they have signed such amendment.

8.4 Extension; Waiver. At any time prior to the Closing, Parent, on the one hand, and the Company and the Shareholder Representative, on the other hand, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained 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. For purposes of this Section 8.4, the Shareholders agree that any

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extension or waiver signed by the Shareholder Representative shall be binding upon and effective against all Shareholders whether or not they have signed such extension or waiver.

ARTICLE IX

DEFINITIONS

9.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

"1933 Act" shall mean the Securities Act of 1933, as amended.

"2000 Plan" shall mean the Company's 2000 Equity Incentive Plan.

"2000 Executive Plan" shall mean the Company's 2000 Executive Equity Incentive Plan.

"Accounts Receivable" shall have the meaning set forth in Section 2.8 of this Agreement.

"Action" shall have the meaning set forth in Section 2.18 of this Agreement.

"Agreement" shall mean this Agreement and Plan of Reorganization, dated as of July ___, 2000, among the Company, Parent, Merger Sub, and, with respect to the matters set forth in Articles VII and X only, the Shareholder Representative and the Escrow Agent (including the Exhibits and Schedules hereto) and all amendments hereto made in accordance with the provisions of Section 8.3 hereof.

"Basket Amount" shall have the meaning set forth in Section 7.2 of this Agreement.

"Business Facility" shall mean any property including the land, the improvements thereon, the groundwater thereunder and the surface water thereon, that is or at any time has been owned, operated, occupied, controlled or leased by the Company in connection with the operation of its business.

"California Law" shall have the meaning set forth in Section 1.1 of this

Agreement.

     "CCSL" shall have the meaning set forth in Section 5.1 of this Agreement.
      ----

     "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
      -----

1985, as amended.

"Certificate" shall have the meaning set forth in Section 1.8 of this Agreement.

"Closing" shall have the meaning set forth in Section 1.2 of this Agreement.

"Closing Date" shall have the meaning set forth in Section 1.2 of this Agreement.

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"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Company" shall have the meaning set forth in the first paragraph of this Agreement.

"Company Capital Stock" shall mean shares of Company Common, and shares of any other capital stock of the Company, including any shares of capital stock of the Company issuable upon exercise or conversion of any Company Convertible Indebtedness outstanding immediately prior to the Effective Time.

"Company Common" shall mean shares of Common Stock of the Company.

"Company Employee Plan" shall mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, 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 "employee benefit plan", within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Related Party for the benefit of any Company Group Employee, or with respect to which the Company or any Related Party has or may have any liability or obligation.

"Company Group Employee" shall mean any current or former or retired employee, consultant or director of the Company or any Related Party.

"Company Material Adverse Effect" shall have the meaning set forth in Section 2.1 of this Agreement.

"Company Option" shall mean each issued and outstanding option granted under the Option Plans to purchase or otherwise acquire Company Capital Stock.

"Company Schedule" shall have the meaning set forth in the introductory paragraph of Article II.

"Company Warrant" shall mean each issued and outstanding right to purchase or otherwise acquire Company Capital Stock, excluding Company Options.

"Confidentiality Agreement" shall mean the Confidentiality Agreement dated as of May 19, 2000 and entered into by and between the Company and Parent.

"Conflict" shall have the meaning set forth in Section 2.5 of this Agreement.

"Contract" shall have the meaning set forth in Section 2.16(b) of this Agreement.

"Current Balance Sheet" shall have the meaning set forth in Section 2.7 of this Agreement.

"DOL" shall mean the Department of Labor.

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"Disposal Site" shall mean a landfill, disposal agent, waste hauler or recycler of Hazardous Materials.

"Dissenting Shares" shall have the meaning set forth in Section 1.7 of this Agreement.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

"Employment Agreement" shall mean each management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or other agreement, contract or understanding between the Company or any Related Party and any Company Group Employee or between the Parent or any Related Party and any Parent Group Employee.

"Employment and Non-Competition Agreements" shall have the meaning set forth in the recitals of this Agreement.

"Environmental Laws" shall mean all applicable laws, rules, regulations, orders, treaties, statutes, and codes promulgated by any Governmental Entity which prohibit, regulate or control any Hazardous Material or any Hazardous Material Activity, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource Recovery and Conservation Act of 1976, the Federal Water Pollution Control Act, the Clean Air Act, the Hazardous Materials Transportation Act, the Clean Water Act, comparable laws, rules, regulations, ordinances, orders, treaties, statutes, and codes of other Governmental Entities, the regulations promulgated pursuant to any of the foregoing, and all amendments and modifications of any of the foregoing, all as amended to date.

"Environmental Permit" shall mean any approval, permit, license, clearance or consent required to be obtained from any private person or any Governmental Entity with respect to a Hazardous Materials Activity which is or was conducted by the Company or by the Parent.

"Escrow Agent" shall have the meaning set forth in Section 7.2 of this Agreement.

"Escrow Amount" shall have the meaning set forth in Section 1.8 of this Agreement.

"Escrow Fund" shall have the meaning set forth in Section 7.2 of this Agreement.

"Escrow Period" shall have the meaning set forth in Section 7.2 of this Agreement.

"Escrow Termination Date" shall have the meaning set forth in Section 7.1 of this Agreement.

"Exchange Agent" shall have the meaning set forth in Section 1.8 of this Agreement.

"Exchange Ratio" shall mean the number determined by dividing (i) the Merger Consideration by (ii) the Total Outstanding Shares.

"FICA" shall mean the Federal Insurance Contribution Act.

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"FUTA" shall mean the Federal Unemployment Tax Act.
 ----

"FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
 ----

"GAAP" shall mean U.S. generally accepted accounting principles.
 ----

"Governmental Entity" shall mean any local, state, provincial, federal, or international governmental authority or agency which has had or now has jurisdiction over any portion of the subject matter of this Agreement, any Business Facility or the Company.

"Hazardous Material" shall mean any material or substance that is prohibited or regulated by any Environmental Law or that has been designated by any Governmental Entity to be radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment.

"Hazardous Materials Activity" shall mean the transportation, transfer, recycling, storage, use, treatment, manufacture, removal, remediation, release, exposure of others to, sale, or distribution of any Hazardous Material or any product containing a Hazardous Material.

"Hearing Notice" shall have the meaning set forth in Section 5.1 of this Agreement.

"Hearing Request" shall have the meaning set forth in Section 5.1 of this

Agreement.

     "Holder" shall mean (i) a Shareholder, (ii) the Escrow Agent, or (iii) a
      ------
transferee.

"IRS" shall mean the Internal Revenue Service.

"Information Statement" shall have the meaning set forth in Section 5.1 of this Agreement.

"Intellectual Property Rights" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, logos, common law trademarks and service marks; trademark and service mark registrations and applications therefor throughout the world; (vi) all databases and data collections and all rights therein throughout the world; and (vii) all computer software including all source code, object code, firmware, development tools, files, records and data, all media on which any of the foregoing is recorded, and all documentation related to any of the foregoing throughout the world.

"International Employee Plan" shall mean each Company or Parent Employee Plan that has been adopted or maintained by the Company, the Parent, or any Related Party, whether informally or formally, or with respect to which the Company, the Parent, or any Related Party will or may have

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any liability, for the benefit of Company Group Employees or Parent Group Employees who perform services outside the United States.

"Interim Financials" shall have the meaning set forth in Section 2.7 of this Agreement.

"Key Employees" shall have the meaning set forth in Section 6.3 hereof.

"Lien" means any security interest, pledge, mortgage, lien (including,

without limitation, environmental and tax liens), charge, encumbrance, adverse claim, preferential arrangement or restriction of any kind, including, without limitation, any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership.

"Loss" shall mean any losses, liabilities, damages, deficiencies, costs and

expenses, including reasonable attorneys' fees and expenses of investigation and defense incurred by the Parent or by the Company directly or indirectly as a result of: (i) any inaccuracy or breach of a representation or warranty contained in this Agreement; (ii) any failure to perform or comply with any covenant contained in this Agreement.

"Market Stand-Off Agreement" shall have the meaning set forth in Section 5.20 of this Agreement.

"Material Adverse Effect" shall have the meaning set forth in Section 2.1 of this Agreement.

"Merger" shall have the meaning set forth in the recitals of this Agreement.

"Merger Consideration" shall mean 6,004,594 shares of Parent Common Stock, including options to purchase shares of Parent Common Stock as contemplated by
Section 1.6(b).

"Merger Sub" shall have the meaning set forth in the first paragraph of this Agreement.

"Multiemployer Plan" shall mean any Pension Plan which is a "multiemployer plan", as defined in Section 3(37) of ERISA.

"NASD" shall mean the National Association of Securities Dealers, Inc.

"New Shares" shall have the meaning set forth in Section 7.2 of this Agreement.

"Notice Materials" shall have the meaning set forth in Section 5.1 of this Agreement.

"Officer's Certificate" shall have the meaning set forth in Section 7.2 of this Agreement.

"Option Plans" shall mean the Company's 2000 Plan and 2000 Executive Plan.

"Organizational Documents" shall mean the Company's Articles of Incorporation and Bylaws, each as amended to date.

"Parent" shall have the meaning set forth in the first paragraph of this Agreement.

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"Parent Balance Sheet" shall have the meaning set forth in Section 3.6 of this Agreement.

"Parent Common Stock" shall mean shares of common stock of Parent.

"Parent Employee Plan" shall mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, 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 "employee benefit plan", within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Parent or any Related Party for the benefit of any Parent Group Employee, or with respect to which the Parent or any Related Party has or may have any liability or obligation.

"Parent Group Employee" shall mean any current or former or retired employee, consultant or director of the Parent or any Related Party.

"Parent IP Rights" shall have the meaning set forth in Section 3.8 of this Agreement.

"Parent IP Rights Agreement" shall have the meaning set forth in Section 3.8 of this Agreement.

"Parent Material Adverse Effect" shall have the meaning set forth in Section 2.1 of this Agreement.

"Pension Plan" shall mean each Company Employee Plan which is an "employee pension benefit plan", within the meaning of Section 3(2) of ERISA.

"Registered Intellectual Property" shall have the meaning set forth in Section 2.15 of this Agreement.

"Registrable Securities" shall mean for each Holder the number of shares of Parent Common Stock issued to such Holder pursuant to the terms hereof.

"Related Agreement" shall have the meaning set forth in Section 2.4 of this Agreement.

"Related Party" shall mean any other person or entity under common control with the Company or Parent, as applicable, within the meaning of Section 414(b),
(c), (m) or (o) of the Code and the regulations issued thereunder.

"Returns" shall have the meaning set forth in Section 2.12 of this Agreement.

"SEC" shall mean the Securities and Exchange Commission.

"Shareholder" shall mean each holder of any Company Capital Stock issued and outstanding immediately prior to the Effective Time.

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"Shareholder Representative" shall have the meaning set forth in Section 7.3 of this Agreement.

"Surviving Corporation" shall have the meaning set forth in Section 1.1 of this Agreement.

"Taxes" shall mean (i) 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, together with all interest, penalties and additions imposed with respect to such amounts;
(ii) any liability for the payment of any amounts of the type described in clause (i) of this definition as a result of being a member of an affiliated, consolidated, combined or unitary group for any period; and (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) of this definition as a result of any express or implied obligation to indemnify any other person or as a result of any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.

"Third Party Expenses" shall have the meaning set forth in Section 5.4 of this Agreement.

"Total Outstanding Shares" shall mean the aggregate number of shares of Company Common Stock outstanding immediately prior to the Effective Time plus the aggregate number of shares of Company Common Stock issuable, with or without the passage of time or satisfaction of other conditions, upon exercise or conversion of all options, warrants and other rights to acquire or receive shares of Company Common Stock outstanding immediately prior to the Effective Time.

"Year-End Financials" shall have the meaning set forth in Section 2.7 of this Agreement.

ARTICLE X

GENERAL PROVISIONS

10.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgement 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):

(a) if to Parent or Merger Sub, to:

LynuxWorks, Inc.
2239 Samaritan Drive
San Jose, CA 95124
Attention: Inder Singh Facsimile No.: (408) 879-3920

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with a copy to:

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road
Palo Alto, California 94304-1050

Attention: Steven E. Bochner Facsimile No.: (650) 461-5375

(b) if to the Company, to:

Integrated Software & Devices Corporation 2160 Lundy Avenue, Suite 110 San Jose, California 95131 Attention: Arthur L. Swift Facsimile No.: (408) 383-9809

with a copy to:

Fenwick & West LLP

Two Palo Alto Square
Palo Alto, CA 94306
Attention: Kevin Kelso
Facsimile No.: (650) 494-1417

(c) if to the Shareholder Representative, to:

Reza Soliman-Noori
2160 Lundy Avenue, Suite 110 San Jose, CA 95131
Facsimile No.: (408) 383-9809

(d) if to the Escrow Agent, to:

Firstar Bank, N.A.

Corporate Trust Dept.
101 East Fifth Street
St. Paul, Minnesota 55101

Attention: Frank Leslie
Facsimile No.: (651) 229-6415

10.2 Interpretation. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

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10.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart.

10.4 Entire Agreement; Assignment. This Agreement (including the recitals), the Exhibits hereto, the Company Schedules and the documents and instruments and other agreements among the parties hereto referenced herein: (a) 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;
(b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided in this Agreement; provided, however, that Parent may assign all, but not less than all of its rights and obligations under this Agreement, either before or after the Effective Time, to its parent or to any subsidiary or affiliate provided that the assignee agrees to be bound by the provisions of this Agreement to the same extent as Parent is bound prior to the assignment.

10.5 Severability. 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.

10.6 Other Remedies. Except as otherwise provided herein, 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.

10.7 Governing Law. 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. 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.

10.8 Rules of Construction. The parties hereto agree that they have been represented by 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 will be construed against the party drafting such agreement or document.

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10.9 No Third Party Beneficiary. This Agreement is for the sole benefit of the parties and their permitted successors and assigns and nothing herein expressed or implied shall give or be construed to give any third party, other than the parties hereto and such permitted successors and assigns, any legal or equitable rights hereunder.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Shareholder Representative and the Escrow Agent have caused this Agreement and Plan of Reorganization to be duly signed, all as of the date first written above.

LYNUXWORKS, INC.                    INTEGRATED SOFTWARE & DEVICES CORPORATION


By: /s/ [ILLEGIBLE]^^               By: /s/ Reza Joliman-Noori
    -------------------------           ---------------------------------
Name:________________________       Name: Reza Joliman-Noori
                                          -------------------------------
Title: CEO                           Title: Chairman & CEO
      -----------------------               -----------------------------


LWORKS, INC.                        SHAREHOLDER REPRESENTATIVE*


Print:  Inder Singh                 Print: Reza Joliman-Noori
      -----------------------             -------------------------------
Name: Inder Singh                   Signature: /s/ Reza Joliman-Noori
      -----------------------                   -------------------------
Title: CEO
       ----------------------

                                    ESCROW AGENT*

                                    FIRSTAR BANK, N.A.

                                    Print:_______________________________

                                    Name:________________________________

                                    Title:_______________________________

* With respect to the matters set forth in Articles VII and X hereof only.

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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Shareholder Representative and the Escrow Agent have caused this Agreement and Plan of Reorganization to be duly signed, all as of the date first written above.

LYNUXWORKS, INC.                    INTEGRATED SOFTWARE & DEVICES CORPORATION


By: _________________________       By: _______________________________

Name:________________________       Name: _____________________________

Title:_______________________       Title: ____________________________


LWORKS, INC.                        SHAREHOLDER REPRESENTATIVE*


Print:_______________________       Print:_____________________________

Name: _______________________       Signature:_________________________

Title:_______________________

ESCROW AGENT*

FIRSTAR BANK, N.A.

Print: Frank P. Leslie. III

                                    Signature: /s/ [ILLEGIBLE]^^
                                               ------------------------

Title:_______________________

ESCROW AGENT*

FIRSTAR BANK, N.A.

Title:Vice President

* With respect to the matters set forth in Articles VII and X hereof only

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INDEX OF EXHIBITS

Exhibit        Description
-------        -----------

Exhibit A      Company Schedule
---------

Exhibit B      Parent Schedule
---------

Exhibit C      Form of Employment and Non-Competition Agreement
---------

Exhibit D      Form of Legal Opinion of Wilson Sonsini Goodrich & Rosati
---------

Exhibit E      Form of Legal Opinion of Fenwick & West LLP


---------


Exhibit 3.1

State of California
[SEAL]
[STAMP]

SECRETARY OF STATE

I, BILL JONES, Secretary of State of the State of California, hereby certify:

That the attached transcript of 19 page(s) has been compared with the record on file in this office, of which it purports to be a copy, and that it is full, true and correct.

IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this day of

                                                         /s/ Bill Jones
[SEAL]                                         _________________________________
                                                            Bill Jones

Secretary of State


EXHIBIT 3.1

SEVENTH AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
LYNUXWORKS, INCORPORATED

Inder Singh and Bhupi Singh hereby certify that:

FIRST: They are the Chief Executive Officer and Chief Financial Officer, respectively, of LYNUXWORKS, INCORPORATED (the "Corporation").

SECOND: The Amended and Restated Articles of Incorporation of the Corporation shall be amended and restated to read in full as follows:

"I.

The name of this corporation is LYNUXWORKS, INCORPORATED.

II.

The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.

III.

The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code (the "California Code")) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents in excess of the indemnification otherwise permitted by such Section 317 of the California Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Code. A repeal or modification of the foregoing provisions of this Article III by the shareholders of this corporation shall not adversely affect any right or protection of an agent of this corporation existing at the time of such repeal or modification.

IV.

This Corporation is authorized to issue two (2) classes of shares to be designated, respectively, Preferred Stock ("Preferred Stock") and Common Stock ("Common Stock"). The total number of shares of capital stock that this Corporation shall have authority to issue is Seventy Million (70,000,000). The total number of shares of Preferred Stock this Corporation shall have authority to issue is Twenty-Two Million (22,000,000). The total number of shares of


Common Stock this Corporation shall have authority to issue is Forty-Eight Million (48,000,000).

The Preferred Stock shall be divided into series. The first series shall consist of 1,300,000 shares and is designated "Series A Preferred Stock." The second series shall consist of 1,281,000 shares and is designated "Series B Preferred Stock." The third series shall consist of 544,998 shares and is designated "Series C Preferred Stock." The fourth series shall consist of 1,500,000 shares and is designated "Series D Preferred Stock." The fifth series shall consist of 857,988 shares and is designated "Series E-1 Preferred Stock." The sixth series shall consist of 6,621,268 shares and is designated "Series E-2 Preferred Stock." The seventh series shall consist of 8,071,207 shares and is designated "Series F Preferred Stock."

The powers, preferences, rights, restrictions, and other matters relating to the Series A, B, C, D, E-1, E-2, and F Preferred Stock are as follows:

1. Dividends.

1.1. The holders of the Series A, B, C, D, E-1, E-2, and F Preferred Stock shall be entitled to receive dividends at the rate of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103, and $4.33 per share, respectively (as adjusted for any stock dividends, combinations or splits with respect to such shares), per annum, respectively, payable out of funds legally available therefor. Such dividends shall be payable only when, as, and if declared by the Board of Directors and shall be noncumulative.

1.2. No dividends (other than those payable solely in the Common Stock of the Corporation) shall be paid on any Common Stock of the Corporation during any fiscal year of the Corporation until dividends in the total amount of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103, and $4.33 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) on the Series A, B, C, D, E-1, E-2 and F Preferred Stock, respectively, shall have been paid or declared and set apart during that fiscal year and any prior year in which dividends accumulated but remain unpaid, and no dividends shall be paid on any share of Common Stock unless a dividend (including the amount of any dividends paid pursuant to the above provisions of this Section 1.2) is paid with respect to all outstanding shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock in an amount for each such share of Series A, B, C, D, E-1, E-2 and F Preferred Stock equal to or greater than the aggregate amount of such dividends for all shares of Common Stock into which each such share of Series A, B, C, D, E-1, E-2 and F Preferred Stock could then be converted.

1.3. Other than with respect to dividends paid on the Series A, B, C, D, E-1, E-2 and F Preferred Stock which represent payment of declared but unpaid dividends thereon from prior years, no dividend shall be paid on or declared and set apart for the shares of any series of Preferred Stock for any dividend period unless at the same time a like proportionate dividend for the same dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid on or declared and set apart for the shares of all other such series of Preferred Stock.

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1.4. No right shall accrue to holders of shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior year, nor shall any undeclared or unpaid dividend bear or accrue any interest.

1.5. In the event the Corporation shall declare a distribution (other than any distribution described in Section 1.2 or 1.3) payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock were the holders of the number of shares of Common Stock of the Corporation into which their respective shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

2. Liquidation Preference.

2.1. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, the amount of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103 and $4.33 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), respectively, plus all declared but unpaid dividends on such share for each share of Series A, B, C, D, E-1, E-2 and F Preferred Stock then held by them. The Series A, B, C, D, E-1, E-2 and F Preferred Stock shall rank pari passu as to the receipt of the respective preferential amounts for each such series upon the occurrence of such event. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

2.2. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary and subject to the prior payment in full of the liquidation preferences with respect to the Series A, B, C, D, E-1, E-2 and F Preferred Stock as provided in Section 2.1, the holders of the Common Stock shall be entitled to receive, prior and in preference to any further distribution of any of the assets or surplus funds of the Corporation to the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock by reason of their ownership thereof, the amount of $0.05 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) for each share of Common Stock then held by them and no more. Subject to the prior payment in full of the liquidation preferences with respect to the Series A, B, C, D, E-1, E-2 and F Preferred Stock as provided in subparagraph 2.1 of this
Section 2, if upon the occurrence of such event, the assets and funds thus distributed among the holders of the Common Stock shall be insufficient to permit the payment to such Common Stock holders of the full aforesaid preferential amount, then the entire remaining assets

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and funds of the Corporation legally available for distribution shall be distributed among the holders of the Common Stock in proportion to the shares of Common Stock then held by them.

2.3. After payment to the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock and the Common Stock of the amounts set forth in Sections 2.1 and 2.2 above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Common Stock and the Series A, B, C, D, E-1, E-2 and F Preferred Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock then held by them.

2.4. For purposes of this Section 2, (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction) or (ii) a sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation and shall entitle the holders of Series A, B, C, D, E-1, E-2 and F Preferred Stock and Common Stock to receive at the closing in cash, securities or other property (valued as provided in Section 2.5 below) amounts as specified in Sections 2.1 through 2.3 above.

2.5. Whenever the distribution provided for in this Section 2 shall be payable in securities or property other than cash, the value of such distribution shall be the fair market value of such securities or other property as determined in good faith by the Board of Directors.

3. Voting Rights; Directors.

3.1. Each holder of shares of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one half being rounded upward). Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held.

3.2. The Board of Directors shall consist of seven (7) members. The holders of Series A, voting together as a class, shall be entitled to elect two
(2) members of the Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors. The holders of Series B, C, D, E-1 and F Preferred Stock, voting together as a class, shall be entitled to elect two (2) members of the Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors. The holders of Series E -2 Preferred Stock, voting together as a class, shall be entitled to elect one (1) member of the Board of Directors at each meeting or pursuant to each consent of the

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Corporation's shareholders for the election of directors. The holders of the Common Stock, voting together as a class, shall be entitled to elect two (2) members of the Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors.

3.3. In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the Series A Preferred Stock pursuant to Section 3.2 hereof, the election of the new director shall be by vote of the holders of the Series A Preferred Stock. In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the Series B, Series C, Series D, E-1 and Series F Preferred Stock, voting as a class, pursuant to Section 3.2 hereof, the election of the new director shall be by vote of the holders of the Series B, Series C, Series D, E-1 and Series F Preferred Stock, voting as a class. In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the Series E- 2 Preferred Stock pursuant to Section 3.2 hereof, the election of the new director shall be by vote of the holders of the Series E-2 Preferred Stock. In the case of any vacancy in the office of a director occurring among the directors elected by the holders of Common Stock pursuant to Section 3.2 hereof, the election of the new director shall be by vote of the holders of Common Stock. Any director who shall have been elected by the holders of the Series A, B, C, D, E-1, E-2, and F Preferred Stock or Common Stock or any director so elected as provided in the preceding sentence hereof, may be removed during the aforesaid term of office, whether with or without cause, only by the affirmative vote of the holders of a majority of the Series A, B, C, D, E-1, E-2, and F Preferred Stock or Common Stock, as the case may be.

4. Conversion. The holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):

4.1. Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing fifty cents ($0.50) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series A Preferred Stock (the "Series A Conversion Price") shall initially be fifty cents ($0.50) per share of Common Stock. Such initial Series A Conversion Price shall be adjusted as hereinafter provided.

Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing Eighty-Five cents ($0.85) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series B Preferred Stock (the "Series B Conversion Price") shall initially be ($0.85) per share of Common Stock. Such initial Series B Conversion Price shall be adjusted as hereinafter provided.

Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any

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transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing three dollars ($3.00) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series C Preferred Stock (the "Series C Conversion Price") shall initially be three dollars ($3.00) per share of Common Stock. Such initial Series C Conversion Price shall be adjusted as hereinafter provided.

Each share of Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing one dollar ($1.00) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series D Preferred Stock (the "Series D Conversion Price") shall initially be one dollar ($1.00) per share of Common Stock. Such initial Series D Conversion Price shall be adjusted as hereinafter provided.

Each share of Series E-1 Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing one dollar fifty-one cents ($1.51) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series E-1 Preferred Stock (the "Series E-1 Conversion Price") shall initially be one dollar fifty-one cents ($1.51) per share of Common Stock. Such initial Series E-1 Conversion Price shall be adjusted as hereinafter provided.

Each share of Series E-2 Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing one dollar fifty-one cents ($1.51) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series E-2 Preferred Stock (the "Series E-2 Conversion Price") shall initially be one dollar fifty-one cents ($1.51) per share of Common Stock. Such initial Series E-2 Conversion Price shall be adjusted as hereinafter provided.

Each share of Series F Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing four dollars and thirty-seven cents ($4.33) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series F Preferred Stock (the "Series F Conversion Price") shall initially be four dollars and thirty-seven cents ($4.33) per share of Common Stock. Such initial Series F Conversion Price shall be adjusted as hereinafter provided.

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4.2. Automatic Conversion. Each share of Series A, B, C, D, E-1, E-2 and F Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price, Series E-1 Conversion Price, Series E-2 Conversion Price, or Series F Conversion Price respectively, upon the earlier, as to each Series, of (i) the date specified by vote or written consent or agreement of holders of at least two-thirds (2/3) of the shares of such series then outstanding, or (ii) immediately upon the closing of the sale of the Corporation's Common Stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended (the "Securities Act"), other than a registration relating solely to a transaction under Rule 145 under such Act (or any successor thereto) or to an employee benefit plan of the Corporation, at a public offering price (prior to underwriters' discounts and expenses) equal to or exceeding $8.00 per share of Common Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) and the aggregate proceeds to the Corporation and/or any selling stockholders of which exceed Twenty Million Dollars ($20,000,000) (a "Qualified Public Offering").

4.3. Mechanics of Conversion.

4.3.1. Before any holder of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A, B, C, D, E- 1, E-2 or F Preferred Stock, respectively, to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

4.3.2. If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion may, at the option of any holder tendering shares of Series A, B, C, D, E-1, E-2 or F Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series A, B, C, D, E-1, E-2 or F Preferred Stock shall not be deemed to have converted such Series A, B, C, D, E-1, E-2 or F Preferred Stock until immediately prior to the closing of such sale of securities.

4.4. Adjustments to Series E-1 Conversion Price, Series E-2 Conversion Price, and Series F Conversion Price for Certain Diluting Issues.

4.4.1. Special Definitions. For purposes of this Section 4.4, the following definitions apply:

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4.4.1.1. "Options" shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below).

4.4.1.2. "Original Issue Date" shall mean, for each series of Preferred Stock, the respective date on which a share of Series E- 1, E-2, or a share of Series F Preferred Stock was first issued.

4.4.1.3. "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock and Preferred Stock) or other securities convertible into or exchangeable for Common Stock.

4.4.1.4. "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 4.4.3, deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable:

(A) upon conversion of shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock;

(B) to officers, directors or employees of, or consultants to, the Corporation pursuant to stock option or stock purchase plans or agreements on terms approved by the Board of Directors, but not exceeding fifteen percent (15%) of the outstanding capital stock as of the Original Issue Date (net of any repurchases of such shares or cancellations or expirations of options), subject to adjustment for all subdivisions and combinations; provided, however, that such number may be increased with the approval of five (5) out of seven (7) members of the Corporation's Board of Directors.

(C) as a dividend or distribution on Series E-2 or Series F Preferred Stock;

(D) upon exercise of 373,210 warrants to purchase Common Stock;

(E) for which adjustment of the Series E-2 Conversion Price or the Series F Conversion Price is made pursuant to
Section 4.4.4; or

4.4.2. No Adjustment of Conversion Price. Any provision herein to the contrary notwithstanding, no adjustment in the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall be made pursuant to Section 4.4.4 below and no adjustment in the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 4.4.5 hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Series E- 1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price, respectively, as the case may be, in effect on the date of, and immediately prior to, such issue.

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4.4.3. Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued:

4.4.3.1. no further adjustments in the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

4.4.3.2. if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or decrease or increase in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price, computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall affect Common Stock previously issued upon conversion of the Series E-1, E-2, or F Preferred Stock);

4.4.3.3. upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

(A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the

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Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange and

(B) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section 4.4) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;

4.4.3.4. no readjustment pursuant to clause 4.4.3.2 or 4.4.3.3 above shall have the effect of increasing the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price to an amount which exceeds the lower of (a) the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price on the original adjustment date, or (b) the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date;

4.4.3.5. in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause 4.4.3.3 above.

4.4.4. Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event this Corporation at any time after the Original Issue Date shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4.3) without consideration or for a consideration per share less than the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price in effect on the date of and immediately prior to such issue, then and in such event the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price as the case may be, shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Series E- 1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; and provided further that, for the

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purposes of this 4.4.4, all shares of Common Stock issuable upon conversion of outstanding Options, Convertible Securities, and Preferred Stock shall be deemed to be outstanding.

4.4.5. Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

4.4.5.1. Cash and Property. Such consideration shall:

(A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;

(B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

(C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors.

4.4.5.2. Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4.3 relating to Options and Convertible Securities shall be determined by dividing:

(A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

(B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities.

4.5. Adjustments to Conversion Prices for Stock Dividends and for
Combinations or Subdivisions of Common Stock. In the event that this Corporation at any time or from time to time after the Original Issue Date shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or

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otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Conversion Price for any series of Preferred Stock in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. In the event that this Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock.

4.6. Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section 4.5 above or a merger or other reorganization referred to in Section 2.4 above), the Series A, B, C, D, E-1, E-2 and F Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series A, B, C, D, E-1, E-2 and F Preferred Stock immediately before that change.

4.7. No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock against impairment.

4.8. Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of any Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, a certificate executed by the Corporation's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A, B, C, D, E-1, E- 2 or F Preferred Stock, respectively, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price for such series of Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively.

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4.9. Issue Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

4.10. Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A, B, C, D, E-1, E-2 and F Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A, B, C, D, E-1, E-2 and F Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A, B, C, D, E-1, E-2 and F Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate.

4.11. Fractional Shares. No fractional share shall be issued upon the conversion of any share or shares of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors).

4.12. Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, shall be deemed given if deposited in the United States mail, postage prepaid, or if sent by facsimile or delivered personally by hand or nationally recognized courier and addressed to each holder of record at such holder's address or facsimile number appearing in the records of the Corporation.

5. Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; then, in connection with each such event, the Corporation shall send to the holders of Series A, Series B, Series C, Series D, Series E-1, Series E-2 and Series F Preferred Stock:

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5.1. at least twenty (20) days prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and

5.2. in the case of the matters referred to in (iii) and (iv) above, at least twenty (20) days prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event).

6. Restrictions and Limitations.

6.1. So long as any shares of Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series A, B, C, D, and E-1 Preferred Stock, voting as a class, the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series E-2 Preferred Stock, voting together as a class, and the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series F Preferred Stock, voting together as a class:

6.1.1. Redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock otherwise than by conversion in accordance with Section 4 hereof;

6.1.2. Redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any of the Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost plus interest at a rate not to exceed nine percent (9%) per annum upon the occurrence of certain events, such as the termination of employment, provided further, however, that the total amount applied to the repurchase of shares of Common Stock shall not exceed $100,000 during any twelve (12) month period;

6.1.3. Authorize or issue, or obligate itself to issue, any other equity security (including any security convertible into or exercisable for any equity security) senior to or on a parity with the Preferred Stock as to dividend rights or redemption rights or liquidation preferences;

6.1.4. Effect any sale, lease, assignment, transfer, or other conveyance of all or substantially all of the assets of the Corporation or any of its subsidiaries, or any consolidation or merger involving the Corporation or any of its subsidiaries, or any reclassification or other change of any stock, or any recapitalization of the Corporation;

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6.1.5. Permit any subsidiary to issue or sell, or obligate itself to issue or sell, except to the Corporation or any wholly owned subsidiary, any stock of such subsidiary;

6.1.6. Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Preferred Stock;

6.1.7. Change, amend, or otherwise alter any provision of the Bylaws of the Corporation; or

6.1.8. Change, amend, or otherwise alter the number of members of the Board of Directors of the Corporation.

6.2. Except as provided in Section 6.3 below, the Corporation shall not amend its Articles of Incorporation or Bylaws without the approval, by vote or written consent, of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series A, B, C, D and E-1 and F Preferred Stock, voting together as a class, the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series E-2 Preferred Stock, voting together as a class, if such amendment would change any of the rights, preferences or privileges provided for herein for the benefit of any shares of that series of Preferred Stock. Without limiting the generality of the preceding sentence, the Corporation will not amend its Articles of Incorporation or Bylaws without the approval of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series A, B, C, D, E-1 and F Preferred Stock, voting together as a class, the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series E-2 Preferred Stock, voting together as a class, if such amendment would:

6.2.1. Reduce the dividend rates on that series of Preferred Stock provided for herein, or defer the date from which dividends will accrue, or cancel accrued and unpaid dividends, or change the relative seniority rights of the holders of that series of Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Corporation;

6.2.2. Reduce the amount payable to the holders of that series of Preferred Stock upon the voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, or change the relative seniority of the liquidation preferences of the holders of that series of Preferred Stock to the rights upon liquidation of the holders of any other capital stock of the Corporation;

6.2.3. Make the Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, redeemable at the option of the Corporation; or

6.2.4. Cancel or modify the Conversion Rights of that series provided for in Section 4 hereof.

6.3. The consent of the holders of sixty-six and two-thirds percent (66 2/3%) of the Series E-2 Preferred Stock shall be required for any action which: (i) alters or changes the rights, preferences or privileges of the Series E-2 Preferred Stock or (ii) amends or decreases the authorized number of shares of Series E-2 Preferred Stock. The consent of the holders of sixty-

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six and two-thirds percent (66 2/3%) of the Series F Preferred Stock shall be required for any action which: (i) alters or changes the rights, preferences or privileges of the Series F Preferred Stock or (ii) amends or decreases the authorized number of shares of Series F Preferred Stock.

6.4. Right of First Refusal. The following rights shall terminate upon the occurrence of a Qualified Public Offering:

6.4.1. Except as set forth in Section 6.4.4 below, if, at any time after the Original Issue Date, the Corporation shall propose to sell to any persons in a transaction not registered under the Securities Act any Equity Securities (as hereinafter defined), it shall give the holders of Series E-2 and Series F Preferred Stock, or transferees who acquired their shares from such holders, the right to purchase all such Equity Securities and each holder may purchase his or its pro rata share (which proportion is to be determined by dividing the number of shares of Common Stock issued or issuable upon conversion of the Series E-2 and Series F Preferred Stock held by such holder of Series E-2 and Series F Preferred Stock by all of the Corporation's Common Stock then outstanding or issuable upon conversion of Series E-2 and Series F Preferred Stock) of such privately offered Equity Securities on the same terms and conditions as the Corporation is offering such Equity Securities to such other persons. Prior to any sale or issuance by the Corporation of any Equity Securities subject to this right of first refusal, the Corporation shall notify the holders of Series E-2 and Series F Preferred Stock, in writing, of its intention to sell and issue such Equity Securities, setting forth the terms under which it proposes to make such sale. Within thirty (30) business days after receipt of such notice, the holders of Series E-2 and Series F Preferred Stock shall notify the Corporation as to whether they desire to purchase any or all of their pro rata share of such Equity Securities for the price and on the general terms specified in the notice. In the event any holder of Series E-2 and Series F Preferred Stock elects not to purchase such holder's pro rata share of such Equity Securities, the Corporation shall provide five (5) days notice to the remaining holders of Preferred Stock who shall have the right to purchase their pro rata share of such available shares on the terms described above. Within five (5) business days following receipt of such notice, the remaining holders of Series E-2 and Series F Preferred Stock shall notify the Corporation of the number of such additional Equity Securities it chooses to purchase. (In the event that such shares are over subscribed, each holder of Series E-2 and Series F Preferred Stock shall be entitled to purchase on a pro-rata basis.)

6.4.2. If, following the expiration of the notice periods set forth above, the holders of Series E-2 and Series F Preferred Stock have not notified the Corporation that they desire to purchase all of the Equity Securities described in such notice upon the terms and conditions set forth in such notice, the Corporation may, during a period of ninety (90) days following the end of such notice periods, sell and issue such Equity Securities which the holders of Series E-2 and Series F Preferred Stock have not elected to purchase at a price and upon terms and conditions no more favorable than those set forth in such notice.

6.4.3. If the holders of Series E-2 and Series F Preferred Stock elect to purchase all of the Equity Securities offered by the Corporation, the holders of Series E-2 and Series F Preferred Stock shall pay for them by immediately available funds against

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delivery of the securities at the executive offices of the Corporation at the time of the scheduled closing therefor. The Corporation shall take all such action (except registration under the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as may be reasonably required by any regulatory authority in connection with the exercise by the holders of Series E-2 and Series F Preferred Stock of the right to purchase Equity Securities as set forth herein.

6.4.4. "Equity Securities" shall mean (i) shares of Common Stock of the Corporation and (ii) any security convertible into or exchangeable for shares of Common Stock of the Corporation; provided, however, that Equity Securities shall not include the shares of Common Stock or Preferred Stock issued on or prior to the date hereof and, provided, further, that Equity Securities shall not include securities: (A) issued or reserved for issuance to employees, consultants, directors or officers of the Company pursuant to stock grant, stock purchase and/or stock option plans or any other stock incentive program, agreement or arrangement approved by the Board of Directors, but not exceeding fifteen percent (15%) of the outstanding capital stock of the Corporation as of the Original Issue Date; provided, however, that such number may be increased with the approval of five (5) out of seven (7) members of the Company's Board of Directors, (B) issued upon conversion of the Preferred Stock, (C) pursuant to equipment financing or leasing arrangements, pursuant to lending arrangements with a bank or other lender approved by two-thirds (2/3) of the Board of Directors or (D) issued in connection with any stock split, stock dividend, recapitalization or similar event.

6.4.5. The rights set forth in this Section 6 shall terminate immediately prior to, and shall not apply to, the closing of the Corporation's initial Qualified Public Offering.

7. No Reissuance of Series A, B, C, D, E-1, E-2 or F Preferred Stock,
respectively.

No share or shares of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue.

8. Repurchase of Certain Stock. Each holder of any outstanding shares of Series A, Series B, Series C, Series D, Series E-1, Series E-2 or Series F Preferred Stock shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of the California Code, to distributions made by the Corporation in connection with the repurchase of shares of Common Stock issued to or held by employees, officers or directors of or consultants to the Corporation (or any of its subsidiaries) when such repurchase is in accordance with the terms of payment in Section 7.

THIRD: The foregoing amendment and restatement has been approved by the Board of Directors of the Corporation.

FOURTH: The amendments herein set forth have been duly approved by the required vote of the shareholders in accordance with Sections 902 and 903 of the California Code. The

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Corporation has two (2) classes of shares outstanding. The number of outstanding shares of Common Stock voting in favor of the amendments equaled or exceeded the vote required and the number of outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E-1 Preferred Stock, voting together as a class in favor of the amendments equaled or exceeded the vote required, the number of outstanding shares of Series E-2 Preferred Stock, voting separately as a class in favor of the amendments equaled or exceeded the vote required, and the number of outstanding shares of Series F Preferred Stock, voting separately as a class in favor of the amendments equaled or exceeded the vote required. The percentage vote required for the approval of the amendments herein set forth are at least sixty-six and two-thirds percent (66 2/3%) of the Common Stock, at least sixty- six and two-thirds percent (66 2/3%) of the Series A, B, C, D, and E-1 Preferred Stock, at least sixty-six and two-thirds percent (66 2/3%) of the Series E-2 Preferred Stock, and at least sixty-six and two-thirds percent (66 2/3%) of the Series F Preferred Stock. There are 6,205,559 shares of Common Stock outstanding, 1,300,000 shares of Series A Preferred Stock outstanding, 1,281,000 shares of Series B Preferred Stock outstanding, 544,998 shares of Series C Preferred Stock outstanding, 1,500,000 shares of Series D Preferred Stock outstanding, 857,988 shares of Series E-1 Preferred Stock outstanding, and 6,621,268 shares of Series E-2 Preferred Stock outstanding, and 8,071,207 shares of Series F Preferred Stock outstanding.

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I further declare under penalty of perjury under the laws of the State of California that the matters set forth in these Seventh Amended and Restated Articles of Incorporation are true of my own knowledge.

Executed at San Jose, California this 30/th/ day of June, 2000.

   /s/ Inder Singh
------------------------------
Inder Singh
Chief Executive Officer


   /s/ Bhupi Singh
------------------------------
Bhupi Singh
Vice President & Chief Financial Officer

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Exhibit 3.2

State of Delaware PAGE 1

Office of the Secretary of State


I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "LYNUXWORKS, INCORPORATED", FILED IN THIS OFFICE ON THE TWENTY- FIRST DAY OF JULY, A.D. 2000, AT 4 O'CLOCK P.M.

A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE

COUNTY RECORDER OF DEEDS.

                            /s/ Edward J. Freel
SEAL                 ---------------------------------------
                         Edward J. Freel, Secretary of State

                    AUTHENTICATION:      0574163

                             DATE:      07-21-00


CERTIFICATE OF INCORPORATION

OF

LYNUXWORKS, INCORPORATED
(a Delaware corporation)

ARTICLE I

The name of the Corporation is LynuxWorks, Incorporated (the "Corporation").

ARTICLE II

The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE III

The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

ARTICLE IV

This Corporation is authorized to issue two (2) classes of shares to be designated, respectively, Preferred Stock, par value $0.001 per share ("Preferred Stock") and Common Stock, par value $0.001 per share ("Common Stock"). The total number of shares of capital stock that this Corporation shall have authority to issue is Seventy Million (70,000,000). The total number of shares of Preferred Stock this Corporation shall have authority to issue is Twenty-Two Million (22,000,000). The total number of shares of Common Stock this Corporation shall have authority to issue is Forty-Eight Million (48,000,000).

The Preferred Stock shall be divided into series. The first series shall consist of 1,300,000 shares and is designated "Series A Preferred Stock." The second series shall consist of 1,281,000 shares and is designated "Series B Preferred Stock." The third series shall consist of 544,998 shares and is designated "Series C Preferred Stock." The fourth series shall consist of 1,500,000 shares and is designated "Series D Preferred Stock." The fifth series shall consist of 857,988 shares and is designated "Series E-1 Preferred Stock." The sixth series shall consist of 6,621,268 shares and is designated "Series E-2 Preferred Stock." The seventh series shall consist of 8,071,207 shares and is designated "Series F Preferred Stock."

The powers, preferences, rights, restrictions, and other matters relating to the Series A, B, C, D, E-1, E-2, and F Preferred Stock are as follows:


1. Dividends.

1.1. The holders of the Series A, B, C, D, E-1, E-2, and F Preferred Stock shall be entitled to receive dividends at the rate of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103, and $4.33 per share, respectively (as adjusted for any stock dividends, combinations or splits with respect to such shares), per annum, respectively, payable out of funds legally available therefor. Such dividends shall be payable only when, as, and if declared by the Board of Directors and shall be noncumulative.

1.2. No dividends (other than those payable solely in the Common Stock of the Corporation) shall be paid on any Common Stock of the Corporation during any fiscal year of the Corporation until dividends in the total amount of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103, and $4.33 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) on the Series A, B, C, D, E-1, E-2 and F Preferred Stock, respectively, shall have been paid or declared and set apart during that fiscal year and any prior year in which dividends accumulated but remain unpaid, and no dividends shall be paid on any share of Common Stock unless a dividend (including the amount of any dividends paid pursuant to the above provisions of this Section 1.2) is paid with respect to all outstanding shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock in an amount for each such share of Series A, B, C, D, E-1, E-2 and F Preferred Stock equal to or greater than the aggregate amount of such dividends for all shares of Common Stock into which each such share of Series A, B, C, D, E-1, E-2 and F Preferred Stock could then be converted.

1.3. Other than with respect to dividends paid on the Series A, B, C, D, E-1, E-2 and F Preferred Stock which represent payment of declared but unpaid dividends thereon from prior years, no dividend shall be paid on or declared and set apart for the shares of any series of Preferred Stock for any dividend period unless at the same time a like proportionate dividend for the same dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid on or declared and set apart for the shares of all other such series of Preferred Stock.

1.4. No right shall accrue to holders of shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior year, nor shall any undeclared or unpaid dividend bear or accrue any interest.

1.5. In the event the Corporation shall declare a distribution (other than any distribution described in Section 1.2 or 1.3) payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock were the holders of the number of shares of Common Stock of the Corporation into which their respective shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

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2. Liquidation Preference.

2.1. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, the amount of $0.50, $0.85, $3.00, $1.00, $1.5103, $1.5103 and $4.33 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), respectively, plus all declared but unpaid dividends on such share for each share of Series A, B, C, D, E-1, E-2 and F Preferred Stock then held by them. The Series A, B, C, D, E-1, E-2 and F Preferred Stock shall rank pari passu as to the receipt of the respective preferential amounts for each such series upon the occurrence of such event. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

2.2. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary and subject to the prior payment in full of the liquidation preferences with respect to the Series A, B, C, D, E-1, E-2 and F Preferred Stock as provided in Section 2.1, the holders of the Common Stock shall be entitled to receive, prior and in preference to any further distribution of any of the assets or surplus funds of the Corporation to the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock by reason of their ownership thereof, the amount of $0.05 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) for each share of Common Stock then held by them and no more. Subject to the prior payment in full of the liquidation preferences with respect to the Series A, B, C, D, E-1, E-2 and F Preferred Stock as provided in subparagraph 2.1 of this
Section 2, if upon the occurrence of such event, the assets and funds thus distributed among the holders of the Common Stock shall be insufficient to permit the payment to such Common Stock holders of the full aforesaid preferential amount, then the entire remaining assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Common Stock in proportion to the shares of Common Stock then held by them.

2.3. After payment to the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock and the Common Stock of the amounts set forth in Sections 2.1 and 2.2 above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Common Stock and the Series A, B, C, D, E-1, E-2 and F Preferred Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock then held by them.

2.4. For purposes of this Section 2, (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction) or (ii) a sale of all or

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substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation and shall entitle the holders of Series A, B, C, D, E-1, E-2 and F Preferred Stock and Common Stock to receive at the closing in cash, securities or other property (valued as provided in Section 2.5 below) amounts as specified in Sections 2.1 through 2.3 above.

2.5. Whenever the distribution provided for in this Section 2 shall be payable in securities or property other than cash, the value of such distribution shall be the fair market value of such securities or other property as determined in good faith by the Board of Directors.

3. Voting Rights; Directors.

3.1. Each holder of shares of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one half being rounded upward). Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held.

3.2. The Board of Directors shall consist of seven (7) members. The holders of Series A, voting together as a class, shall be entitled to elect two
(2) members of the Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors. The holders of Series B, C, D, E-1 and F Preferred Stock, voting together as a class, shall be entitled to elect two (2) members of the Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors. The holders of Series E -2 Preferred Stock, voting together as a class, shall be entitled to elect one (1) member of the Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors. The holders of the Common Stock, voting together as a class, shall be entitled to elect two (2) members of the Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors.

3.3. In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the Series A Preferred Stock pursuant to Section 3.2 hereof, the election of the new director shall be by vote of the holders of the Series A Preferred Stock. In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the Series B, Series C, Series D, E-1 and Series F Preferred Stock, voting as a class, pursuant to Section 3.2 hereof, the election of the new director shall be by vote of the holders of the Series B, Series C, Series D, E-1 and Series F Preferred Stock, voting as a class. In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the Series E- 2 Preferred Stock pursuant to Section 3.2 hereof, the election of the new director shall be by vote of the holders of the Series E-2 Preferred Stock. In the case of any vacancy in the office of a director occurring among the directors elected by the holders of Common Stock pursuant to Section 3.2

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hereof, the election of the new director shall be by vote of the holders of Common Stock. Any director who shall have been elected by the holders of the Series A, B, C, D, E-1, E-2, and F Preferred Stock or Common Stock or any director so elected as provided in the preceding sentence hereof, may be removed during the aforesaid term of office, whether with or without cause, only by the affirmative vote of the holders of a majority of the Series A, B, C, D, E-1, E- 2, and F Preferred Stock or Common Stock, as the case may be.

4. Conversion. The holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):

4.1. Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing fifty cents ($0.50) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series A Preferred Stock (the "Series A Conversion Price") shall initially be fifty cents ($0.50) per share of Common Stock. Such initial Series A Conversion Price shall be adjusted as hereinafter provided.

Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing Eighty-Five cents ($0.85) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series B Preferred Stock (the "Series B Conversion Price") shall initially be ($0.85) per share of Common Stock. Such initial Series B Conversion Price shall be adjusted as hereinafter provided.

Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing three dollars ($3.00) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series C Preferred Stock (the "Series C Conversion Price") shall initially be three dollars ($3.00) per share of Common Stock. Such initial Series C Conversion Price shall be adjusted as hereinafter provided.

Each share of Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing one dollar ($1.00) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of

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shares of the Series D Preferred Stock (the "Series D Conversion Price") shall initially be one dollar ($1.00) per share of Common Stock. Such initial Series D Conversion Price shall be adjusted as hereinafter provided.

Each share of Series E-1 Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing one dollar fifty-one cents ($1.51) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series E-1 Preferred Stock (the "Series E-1 Conversion Price") shall initially be one dollar fifty-one cents ($1.51) per share of Common Stock. Such initial Series E-1 Conversion Price shall be adjusted as hereinafter provided.

Each share of Series E-2 Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing one dollar fifty-one cents ($1.51) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series E-2 Preferred Stock (the "Series E-2 Conversion Price") shall initially be one dollar fifty-one cents ($1.51) per share of Common Stock. Such initial Series E-2 Conversion Price shall be adjusted as hereinafter provided.

Each share of Series F Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing four dollars and thirty-seven cents ($4.33) by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series F Preferred Stock (the "Series F Conversion Price") shall initially be four dollars and thirty-seven cents ($4.33) per share of Common Stock. Such initial Series F Conversion Price shall be adjusted as hereinafter provided.

4.2. Automatic Conversion. Each share of Series A, B, C, D, E-1, E-2 and F Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price, Series E-1 Conversion Price, Series E-2 Conversion Price, or Series F Conversion Price respectively, upon the earlier, as to each Series, of (i) the date specified by vote or written consent or agreement of holders of at least two-thirds (2/3) of the shares of such series then outstanding, or (ii) immediately upon the closing of the sale of the Corporation's Common Stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended (the "Securities Act"), other than a registration relating solely to a transaction under Rule 145 under such Act (or any successor thereto) or to an employee benefit plan of the Corporation, at a public offering price (prior to underwriters' discounts and expenses) equal to or exceeding $8.00 per share of Common Stock (as adjusted for any stock dividends, combinations or splits with respect to

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such shares) and the aggregate proceeds to the Corporation and/or any selling stockholders of which exceed Twenty Million Dollars ($20,000,000) (a "Qualified Public Offering").

4.3. Mechanics of Conversion.

4.3.1. Before any holder of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A, B, C, D, E- 1, E-2 or F Preferred Stock, respectively, to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

4.3.2. If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion may, at the option of any holder tendering shares of Series A, B, C, D, E-1, E-2 or F Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series A, B, C, D, E-1, E-2 or F Preferred Stock shall not be deemed to have converted such Series A, B, C, D, E-1, E-2 or F Preferred Stock until immediately prior to the closing of such sale of securities.

4.4. Adjustments to Series E-1 Conversion Price, Series E-2
Conversion Price, and Series F Conversion Price for Certain Diluting Issues.

4.4.1. Special Definitions. For purposes of this Section 4.4, the following definitions apply:

4.4.1.1. "Options" shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below).

4.4.1.2. "Original Issue Date" shall mean, for each series of Preferred Stock, the respective date on which a share of Series E-1, E-2, or a share of Series F Preferred Stock was first issued.

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4.4.1.3. "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock and Preferred Stock) or other securities convertible into or exchangeable for Common Stock.

4.4.1.4. "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 4.4.3, deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable:

(A) upon conversion of shares of Series A, B, C, D, E-1, E-2 and F Preferred Stock;

(B) to officers, directors or employees of, or consultants to, the Corporation pursuant to stock option or stock purchase plans or agreements on terms approved by the Board of Directors, but not exceeding fifteen percent (15%) of the outstanding capital stock as of the Original Issue Date (net of any repurchases of such shares or cancellations or expirations of options), subject to adjustment for all subdivisions and combinations; provided, however, that such number may be increased with the approval of five (5) out of seven (7) members of the Corporation's Board of Directors.

(C) as a dividend or distribution on Series E- 2 or Series F Preferred Stock;

(D) upon exercise of 373,210 warrants to purchase Common Stock;

(E) for which adjustment of the Series E-2 Conversion Price or the Series F Conversion Price is made pursuant to
Section 4.4.4; or

4.4.2. No Adjustment of Conversion Price. Any provision herein to the contrary notwithstanding, no adjustment in the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall be made pursuant to Section 4.4.4 below and no adjustment in the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 4.4.5 hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Series E- 1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price, respectively, as the case may be, in effect on the date of, and immediately prior to, such issue.

4.4.3. Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common

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Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued:

4.4.3.1. no further adjustments in the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

4.4.3.2. if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or decrease or increase in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price, computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall affect Common Stock previously issued upon conversion of the Series E-1, E-2, or F Preferred Stock);

4.4.3.3. upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

(A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange and

(B) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the

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Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section 4.4) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;

4.4.3.4. no readjustment pursuant to clause 4.4.3.2 or 4.4.3.3 above shall have the effect of increasing the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price to an amount which exceeds the lower of (a) the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price on the original adjustment date, or (b) the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date;

4.4.3.5. in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause 4.4.3.3 above.

4.4.4. Adjustment of Conversion Price Upon Issuance of

Additional Shares of Common Stock. In the event this Corporation at any

time after the Original Issue Date shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4.3) without consideration or for a consideration per share less than the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price in effect on the date of and immediately prior to such issue, then and in such event the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price as the case may be, shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Series E-1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Series E- 1 Conversion Price, the Series E-2 Conversion Price, or the Series F Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; and provided further that, for the purposes of this 4.4.4, all shares of Common Stock issuable upon conversion of outstanding Options, Convertible Securities, and Preferred Stock shall be deemed to be outstanding.

4.4.5. Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

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4.4.5.1. Cash and Property. Such consideration shall:

(A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;

(B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

(C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors.

4.4.5.2. Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4.3 relating to Options and Convertible Securities shall be determined by dividing:

(A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

(B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities.

4.5. Adjustments to Conversion Prices for Stock Dividends and for
Combinations or Subdivisions of Common Stock. In the event that this Corporation at any time or from time to time after the Original Issue Date shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Conversion Price for any series of Preferred Stock in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. In the event that this

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Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock.

4.6. Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section 4.5 above or a merger or other reorganization referred to in Section 2.4 above), the Series A, B, C, D, E-1, E-2 and F Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series A, B, C, D, E-1, E-2 and F Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series A, B, C, D, E-1, E-2 and F Preferred Stock immediately before that change.

4.7. No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A, B, C, D, E-1, E-2 and F Preferred Stock against impairment.

4.8. Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of any Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, a certificate executed by the Corporation's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price for such series of Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively.

4.9. Issue Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

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4.10. Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A, B, C, D, E-1, E-2 and F Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A, B, C, D, E-1, E-2 and F Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A, B, C, D, E-1, E-2 and F Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate.

4.11. Fractional Shares. No fractional share shall be issued upon the conversion of any share or shares of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors).

4.12. Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, shall be deemed given if deposited in the United States mail, postage prepaid, or if sent by facsimile or delivered personally by hand or nationally recognized courier and addressed to each holder of record at such holder's address or facsimile number appearing in the records of the Corporation.

5. Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; then, in connection with each such event, the Corporation shall send to the holders of Series A, Series B, Series C, Series D, Series E-1, Series E-2 and Series F Preferred Stock:

5.1. at least twenty (20) days prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and

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5.2. in the case of the matters referred to in (iii) and (iv) above, at least twenty (20) days prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event).

6. Restrictions and Limitations.

6.1. So long as any shares of Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series A, B, C, D, and E-1 Preferred Stock, voting as a class, the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series E-2 Preferred Stock, voting together as a class, and the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series F Preferred Stock, voting together as a class:

6.1.1. Redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock otherwise than by conversion in accordance with Section 4 hereof;

6.1.2. Redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any of the Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost plus interest at a rate not to exceed nine percent (9%) per annum upon the occurrence of certain events, such as the termination of employment, provided further, however, that the total amount applied to the repurchase of shares of Common Stock shall not exceed $100,000 during any twelve (12) month period;

6.1.3. Authorize or issue, or obligate itself to issue, any other equity security (including any security convertible into or exercisable for any equity security) senior to or on a parity with the Preferred Stock as to dividend rights or redemption rights or liquidation preferences;

6.1.4. Effect any sale, lease, assignment, transfer, or other conveyance of all or substantially all of the assets of the Corporation or any of its subsidiaries, or any consolidation or merger involving the Corporation or any of its subsidiaries, or any reclassification or other change of any stock, or any recapitalization of the Corporation;

6.1.5. Permit any subsidiary to issue or sell, or obligate itself to issue or sell, except to the Corporation or any wholly owned subsidiary, any stock of such subsidiary;

6.1.6. Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Preferred Stock;

6.1.7. Change, amend, or otherwise alter any provision of the Bylaws of the Corporation; or

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6.1.8. Change, amend, or otherwise alter the number of members of the Board of Directors of the Corporation.

6.2. Except as provided in Section 6.3 below, the Corporation shall not amend its Articles of Incorporation or Bylaws without the approval, by vote or written consent, of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series A, B, C, D and E-1 and F Preferred Stock, voting together as a class, the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series E-2 Preferred Stock, voting together as a class, if such amendment would change any of the rights, preferences or privileges provided for herein for the benefit of any shares of that series of Preferred Stock. Without limiting the generality of the preceding sentence, the Corporation will not amend its Articles of Incorporation or Bylaws without the approval of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series A, B, C, D, E-1 and F Preferred Stock, voting together as a class, the vote or written consent by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of the Series E-2 Preferred Stock, voting together as a class, if such amendment would:

6.2.1. Reduce the dividend rates on that series of Preferred Stock provided for herein, or defer the date from which dividends will accrue, or cancel accrued and unpaid dividends, or change the relative seniority rights of the holders of that series of Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Corporation;

6.2.2. Reduce the amount payable to the holders of that series of Preferred Stock upon the voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, or change the relative seniority of the liquidation preferences of the holders of that series of Preferred Stock to the rights upon liquidation of the holders of any other capital stock of the Corporation;

6.2.3. Make the Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, redeemable at the option of the Corporation;

6.2.4. Cancel or modify the Conversion Rights of that series provided for in Section 4 hereof.

6.3. The consent of the holders of sixty-six and two-thirds percent (66 2/3%) of the Series E-2 Preferred Stock shall be required for any action which: (i) alters or changes the rights, preferences or privileges of the Series E-2 Preferred Stock or (ii) amends or decreases the authorized number of shares of Series E-2 Preferred Stock. The consent of the holders of sixty-six and two-thirds percent (66 2/3%) of the Series F Preferred Stock shall be required for any action which: (i) alters or changes the rights, preferences or privileges of the Series F Preferred Stock or (ii) amends or decreases the authorized number of shares of Series F Preferred Stock.

6.4. Right of First Refusal. The following rights shall terminate upon the occurrence of a Qualified Public Offering:

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6.4.1. Except as set forth in Section 6.4.4 below, if, at any time after the Original Issue Date, the Corporation shall propose to sell to any persons in a transaction not registered under the Securities Act any Equity Securities (as hereinafter defined), it shall give the holders of Series E-2 and Series F Preferred Stock, or transferees who acquired their shares from such holders, the right to purchase all such Equity Securities and each holder may purchase his or its pro rata share (which proportion is to be determined by dividing the number of shares of Common Stock issued or issuable upon conversion of the Series E-2 and Series F Preferred Stock held by such holder of Series E-2 and Series F Preferred Stock by all of the Corporation's Common Stock then outstanding or issuable upon conversion of Series E-2 and Series F Preferred Stock) of such privately offered Equity Securities on the same terms and conditions as the Corporation is offering such Equity Securities to such other persons. Prior to any sale or issuance by the Corporation of any Equity Securities subject to this right of first refusal, the Corporation shall notify the holders of Series E-2 and Series F Preferred Stock, in writing, of its intention to sell and issue such Equity Securities, setting forth the terms under which it proposes to make such sale. Within thirty (30) business days after receipt of such notice, the holders of Series E-2 and Series F Preferred Stock shall notify the Corporation as to whether they desire to purchase any or all of their pro rata share of such Equity Securities for the price and on the general terms specified in the notice. In the event any holder of Series E-2 and Series F Preferred Stock elects not to purchase such holder's pro rata share of such Equity Securities, the Corporation shall provide five (5) days notice to the remaining holders of Preferred Stock who shall have the right to purchase their pro rata share of such available shares on the terms described above. Within five (5) business days following receipt of such notice, the remaining holders of Series E-2 and Series F Preferred Stock shall notify the Corporation of the number of such additional Equity Securities it chooses to purchase. (In the event that such shares are over subscribed, each holder of Series E-2 and Series F Preferred Stock shall be entitled to purchase on a pro-rata basis.)

6.4.2. If, following the expiration of the notice periods set forth above, the holders of Series E-2 and Series F Preferred Stock have not notified the Corporation that they desire to purchase all of the Equity Securities described in such notice upon the terms and conditions set forth in such notice, the Corporation may, during a period of ninety (90) days following the end of such notice periods, sell and issue such Equity Securities which the holders of Series E-2 and Series F Preferred Stock have not elected to purchase at a price and upon terms and conditions no more favorable than those set forth in such notice.

6.4.3. If the holders of Series E-2 and Series F Preferred Stock elect to purchase all of the Equity Securities offered by the Corporation, the holders of Series E-2 and Series F Preferred Stock shall pay for them by immediately available funds against delivery of the securities at the executive offices of the Corporation at the time of the scheduled closing therefor. The Corporation shall take all such action (except registration under the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as may be reasonably required by any regulatory authority in connection with the exercise by the holders of Series E-2 and Series F Preferred Stock of the right to purchase Equity Securities as set forth herein.

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6.4.4. "Equity Securities" shall mean (i) shares of Common Stock of the Corporation and (ii) any security convertible into or exchangeable for shares of Common Stock of the Corporation; provided, however, that Equity Securities shall not include the shares of Common Stock or Preferred Stock issued on or prior to the date hereof and, provided, further, that Equity Securities shall not include securities: (A) issued or reserved for issuance to employees, consultants, directors or officers of the Company pursuant to stock grant, stock purchase and/or stock option plans or any other stock incentive program, agreement or arrangement approved by the Board of Directors, but not exceeding fifteen percent (15%) of the outstanding capital stock of the Corporation as of the Original Issue Date; provided, however, that such number may be increased with the approval of five (5) out of seven (7) members of the Company's Board of Directors, (B) issued upon conversion of the Preferred Stock, (C) pursuant to equipment financing or leasing arrangements, pursuant to lending arrangements with a bank or other lender approved by two-thirds (2/3) of the Board of Directors or (D) issued in connection with any stock split, stock dividend, recapitalization or similar event.

6.4.5. The rights set forth in this Section 6 shall terminate immediately prior to, and shall not apply to, the closing of the Corporation's initial Qualified Public Offering.

7. No Reissuance of Series A, B, C, D, E-1, E-2 or F Preferred Stock,
respectively.

No share or shares of Series A, B, C, D, E-1, E-2 or F Preferred Stock, respectively, acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue.

8. Repurchase of Certain Stock. Each holder of any outstanding shares of Series A, Series B, Series C, Series D, Series E-1, Series E-2 or Series F Preferred Stock shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of the California Code, to distributions made by the Corporation in connection with the repurchase of shares of Common Stock issued to or held by employees, officers or directors of or consultants to the Corporation (or any of its subsidiaries) when such repurchase is in accordance with the terms of payment in Section 7.

ARTICLE V

The name and mailing address for the incorporator is as follows:

Christine S. Wong, Esq.

c/o Wilson Sonsini Goodrich & Rosati, P.C.
975 Page Mill Road
Palo Alto, CA 94304-1050

ARTICLE VI

The Corporation is to have perpetual existence.

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ARTICLE VII

The management of the business and the conduct of the affairs of the Corporation shall be vested in the Board of Directors. Except as set forth herein, the number of directors which shall constitute the whole Board of Directors shall be fixed in the manner designated in the Bylaws of the Corporation.

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.

Elections of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins or unless the Bylaws of the Corporation shall so provide.

ARTICLE VIII

To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor to the Corporation.

Neither any amendment nor repeal of this Article VIII, nor the adoption of any provision of this Corporation's Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ARTICLE IX

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

ARTICLE X

Except as set forth herein, vacancies created by newly created directorships, created in accordance with the Bylaws of this Corporation, may be filled by the vote of a majority, although less than a quorum, of the directors then in office, or by a sole remaining director.

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ARTICLE XI

At any time following the closing of the first sale of Common Stock of the Corporation pursuant to a registration statement declared effective by the Securities and Exchange Corporation under the Securities Act of 1933, as amended ("Initial Public Offering"), stockholders of the Corporation may not take any action by written consent in lieu of a meeting and any action contemplated by stockholders after such time must be taken at a duly called annual or special meeting of stockholders.

Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation.

ARTICLE XII

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purposes of forming a Corporation pursuant to the Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying, under penalties of perjury, that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand on July 21, 2000.

/s/ Christine S. Wong
---------------------


Christine S. Wong


EXHIBIT 3.3

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

LYNUXWORKS, INCORPORATED

LynuxWorks, Incorporated, a corporation organized and existing under the laws of the State of Delaware, does hereby certify:

1. The name of the corporation is LynuxWorks, Incorporated. LynuxWorks, Incorporated was originally incorporated under the same name, and the original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 21, 2000.

2. Pursuant to Sections 242 and 228 of the General Corporation Law of the State of Delaware, the amendments and restatement herein set forth have been duly approved by the Board of Directors and stockholders of LynuxWorks, Incorporated.

3. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Section 245 of the General Corporation Law of the State of Delaware and restates, integrates and amends the provisions of the Amended and Restated Certificate of Incorporation of the corporation.

4. The text of the original Certificate of Incorporation is hereby restated and amended to read in its entirety as follows:

ARTICLE I

The name of the Corporation is LynuxWorks, Incorporated (the "Corporation").

ARTICLE II

The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE III

The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended.


ARTICLE IV

The Corporation is authorized to issue two classes of stock to be designated, respectively, Common Stock, par value $0.001 per share ("Common Stock") and Preferred Stock, par value $0.001 per share ("Preferred Stock"). The total number of shares of stock that the Corporation shall have authority to issue is 260,000,000 shares, of which 10,000,000 shares shall constitute Preferred Stock and 250,000,000 shares shall constitute Common Stock. The Preferred Stock may be issued from time to time in one or more series.

The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized number of shares of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of all outstanding Preferred Stock.

The Board of Directors is hereby authorized, subject to limitations prescribed by law and the provisions of this Article IV, by resolution to provide for the issuance of the shares of Preferred Stock in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, priviliges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof.

The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:

A. The number of shares constituting that series (including an increase or decrease in the number of shares of any such series (but not below the number of shares in any such series then outstanding)) and the distinctive designation of that series;

B. The dividend rate, if any, on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;

C. Whether that series shall have the voting rights (including multiple or fractional votes per share) in addition to the voting rights provided by law, and, if so, the terms of such voting rights;

D. Whether that series shall have conversion privileges, and, if so, the terms and conditions of such privileges, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;

E. Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption rates;

F. Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and the amount of such sinking funds;

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G. The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and

H. Any other relative rights, preferences and limitations of that series.

No holders of shares of the Corporation of any class or series, now or hereafter authorized, shall have any preferential or preemptive rights to subscribe for, purchase or receive any shares of the Corporation of any class or series, now or hereafter authorized, or any options or warrants for such shares, or any rights to subscribe for, purchase or receive any securities convertible to or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation, except in the case of any shares of Preferred Stock to which such rights are specifically granted by any resolution or resolutions of the Board of Directors adopted pursuant to this Article IV.

ARTICLE V

Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, dissolution or winding up, special meetings of stockholders of the Corporation for any purpose or purposes may be called only by the Board of Directors or by the Chairman of the Board of Directors of the Corporation and any power of stockholders to call a special meeting is specifically denied. No business other than that stated in the notice shall be transacted at any special meeting.

ARTICLE VI

The Corporation is to have perpetual existence.

ARTICLE VII

For the management of the business and for the conduct of affairs of the Corporation, and in further definition, limitation and regulation of powers of the Corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:

A. The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors of this Corporation shall be fixed and may be changed from time to time by resolution of the Board of Directors.

B. The Directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, one class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2001, another class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2002, and another

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class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2003, with each class to hold office until its successor is duly elected and qualified. At each succeeding annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election.

C. Notwithstanding the foregoing provisions of this Article VII, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

D. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders and except as otherwise provided by law, be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors and not by the stockholders.

E. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.

F. The directors of the Corporation need not be elected by written ballot unless the Bylaws of the Corporation so provide.

G. Advance notice of stockholder nomination for the election of directors and of any other business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

ARTICLE VIII

A. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

B. The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor to the Corporation.

C. Neither any amendment nor repeal of this Article VIII, nor the adoption of any provision of this Corporation's Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

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ARTICLE IX

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the laws of the State of Delaware)
outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

ARTICLE X

Except as provided in Article VIII above, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the state of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") then outstanding, voting together as a single class shall be required to alter, amend, adopt any provision inconsistent with or repeal Article V or VII or this sentence.

IN WITNESS WHEREOF, LynuxWorks, Incorporated has caused this Amended and Restated Certificate of Incorporation to be executed by Steven E. Bochner, its Secretary this _________, 2000.


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LYNUXWORKS, INCORPORATED

INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is effective as of _____ 2000 by and between LynuxWorks, Incorporated, a Delaware corporation (the "Company"), and the indemnitee listed on the signature page hereto ("Indemnitee").

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities;

WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law;

WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;

WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

WHEREAS, the Company and Indemnitee desire to continue to have in place the additional protection provided by an indemnification agreement and to provide indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by Delaware law; and

WHEREAS, in view of the considerations set forth above, the Company and Indemnitee desire to amend and restate the Prior Agreement as set forth herein;

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

1. Certain Definitions.

(a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined


in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets.

(b) "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other.

(c) References to the "Company" shall include, in addition to LynuxWorks, Incorporated, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which LynuxWorks, Incorporated (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(d) "Covered Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity.

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(e) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), actually and reasonably incurred, of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement.

(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim.

(g) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

(h) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.

(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in accordance with applicable law to review the Company's obligations hereunder and under applicable law, which may include a member or members of the Company's Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification.

(j) "Section" refers to a section of this Agreement unless otherwise indicated.

(k) "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors.

2. Indemnification.

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(a) Indemnification of Expenses. Subject to the provisions of Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses.

(b) Review of Indemnification Obligations. Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid in indemnifying Indemnitee; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon.

(c) Indemnitee Rights on Unfavorable Determination; Binding Effect.
If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee.

(d) Selection of Reviewing Party; Change in Control. If there has not been a Change in Control, any Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under

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applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees.

(e) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith.

3. Expense Advances.

(a) Obligation to Make Expense Advances. Upon receipt of a written undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefor by the Company, the Company shall make Expense Advances to Indemnitee.

(b) Form of Undertaking. Any written undertaking by the Indemnitee to repay any Expense Advances hereunder shall be unsecured and no interest shall be charged thereon.

(c) Determination of Reasonable Expense Advances. The parties agree that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable.

4. Procedures for Indemnification and Expense Advances.

(a) Timing of Payments. All payments of Expenses (including without limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than forty-five (45) business days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be made no later than twenty (20) business days after such written demand by Indemnitee is presented to the Company.

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(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified or Indemnitee's right to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.

(c) No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement or applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

(d) Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies.

(e) Selection of Counsel. In the event the Company shall be obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by

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Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder.

5. Additional Indemnification Rights; Nonexclusivity.

(a) Scope. The Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 10(a) hereof.

(b) Nonexclusivity. The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity.

6. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Certificate of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.

7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

8. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indem-

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nifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee.

9. Liability Insurance. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary.

10. Exceptions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Excluded Action or Omissions. To indemnify Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law; provided, however, that notwithstanding any limitation set forth in this Section 10(a) regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has engaged in acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law.

(b) Claims Initiated by Indemnitee. To indemnify or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be.

(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that

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each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous.

(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute; provided, however, that notwithstanding any limitation set forth in this Section 10(d) regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has violated said statute.

11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request.

13. Expenses Incurred in Action Relating to Enforcement or Interpretation.
In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys' fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action a

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court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action.

14. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

15. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim.

16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

17. Choice of Law. This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws.

18. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

19. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

-10-

20. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

21. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities.

-11-

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.

LYNUXWORKS, INCORPORATED

By:_______________________________

Name:_____________________________

Title:____________________________

Address: LynuxWorks, Incorporated

AGREED TO AND ACCEPTED


(Signature)


(Print Name)

-12-

LYNUXWORKS, INCORPORATED

2000 EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the 2000 Employee Stock Purchase Plan of LynuxWorks, Incorporated.

1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423.

2. Definitions.

(a) "Administrator" shall mean the Board or any Committee designated by the Board to administer the plan pursuant to Section 14.

(b) "Board" shall mean the Board of Directors of the Company.

(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(d) "Common Stock" shall mean the common stock of the Company.

(e) "Company" shall mean LynuxWorks, Incorporated, a Delaware corporation.

(f) "Compensation" shall mean all base straight time gross earnings, bonuses and commissions, but exclusive of all other payments, including but not limited to, overtime, shift premium, and incentive compensation.

(g) "Designated Subsidiary" shall mean any Subsidiary selected by the Administrator whose employees are eligible to participate in the Plan.

(h) "Eligible Employee" shall mean any individual who is a common law employee of the Company or any Designated Subsidiary and whose customary employment with the Company or Subsidiary is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave.

(i) "Enrollment Date" shall mean the first Trading Day of each Offering Period.

(j) "Exercise Date" shall mean the last Trading Day of each Purchase Period.

(k) "Fair Market Value" shall mean, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator; or

(iv) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement").

(l) "Offering Periods" shall mean the periods of approximately twenty-four (24) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after June 15/th/ and December 15/th/ of each year and terminating on the last Trading Day in the periods ending twenty-four months later; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the earlier of (i) the last Trading Day on or before December 15, 2002, or (ii) the date twenty-seven months later. If a new Offering Period is established in accordance with Section 24, the new Offering Period shall commence on the last Exercise Date of the immediately preceding Offering Period following the exercise of options on such Exercise Date. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan.

(m) "Plan" shall mean this 2000 Employee Stock Purchase Plan, as

amended from time to time.

(n) "Purchase Period" shall mean the approximately six month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date. Except as provided in Sections 2(l) and 24, the first Purchase Period under the Plan shall end on June 14, 2001 and the second purchase period under the Plan shall begin on June 15, 2001.

(o) "Purchase Price" shall mean 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be adjusted by the Administrator pursuant to Section 20.

(p) "Reserves" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option.

(q) "Subsidiary" shall mean a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code.

(r) "Trading Day" shall mean a day on which national stock exchanges and the Nasdaq System are open for trading.

3. Eligibility.

(a) Any Eligible Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan.

(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time.

4. Offering Periods. The Plan shall be implemented by consecutive, overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after June 15/th/ and December 15/th/ each year, or on such other date as the Administrator shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the earlier of (i) the last Trading Day on or before December 15, 2002, or (ii) the date twenty- seven months later. If a new Offering Period is established in accordance with
Section 24, the new Offering Period shall commence on the last Exercise Date of the immediately preceding Offering Period following the exercise of options on such Exercise Date. The Administrator shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter.

5. Participation.

(a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date.

(b) Payroll deductions for a participant shall commence on the first payday following the Enrollment Date and shall end on the last payday in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof.

6. Payroll Deductions.

(a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding fifteen (15%) of the Compensation which he or she receives on each pay day during the Offering Period. In no event may a participant contribute more than fifteen (15%) of the Compensation which he or she receives on each pay day to the Plan. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.

(b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account.

(c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions twice during each Purchase Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Administrator may, in its discretion, change the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly.

(d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof.

(e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any


withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee.

7. Grant of Option. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated on or prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be granted an option to purchase during each Purchase Period more than 10,000 shares of the Company's Common Stock (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. The Eligible Employee may accept the grant of such option by turning in a completed and signed Subscription Agreement (Attached hereto as Exhibit A) to the Company on or prior to the first day of the Offering Period. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company's Common Stock an Employee may purchase during each Purchase Period of such Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period.

8. Exercise of Option.

(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other funds left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her.

(b) If the Administrator determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect


pursuant to Section 20 hereof. The Company may make pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company's shareholders subsequent to such Enrollment Date.

9. Delivery. As soon as reasonably practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, the shares purchased upon exercise of his or her option in a form determined by the Administrator.

10. Withdrawal.

(a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.

(b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws.

11. Termination of Employment.

In the event a participant ceases to be an Employee of the Company or any Designated Subsidiary, as applicable, his or her option shall remain exercisable for a period of three (3) months from the Optionee's termination. Upon the expiration of such three (3) month period or a date prior to the expiration of such three (3) month period if requested by the participant, any payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice.

12. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan.

13. Stock.

(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 1,500,000 shares plus an annual


increase to be added each year, beginning on January 1, 2002, equal to the lesser of (i) 1,000,000 shares, (ii) 1.5% of the outstanding shares on such date or (iii) a lesser amount determined by the Administrator.

(b) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse.

(c) Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a participant shall only have the rights of an unsecured creditor with respect to such Shares, and no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to such Shares.

14. Administration. The Administrator shall administer the Plan, and shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Administrator shall, to the full extent permitted by law, be final and binding upon all parties.

15. Designation of Beneficiary.

(a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.

(b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

(c) All beneficiary designations shall be in such form and manner as the Company may designate from time to time.

16. Transferability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.

17. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

18. Reports. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.

19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.

(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan (pursuant to
Section 13), the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other change in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. The Administrator shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.

(c) Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date") and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least

ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.

20. Amendment or Termination.

(a) The Administrator may at any time and for any reason terminate or amend the Plan. Except as otherwise provided in the Plan, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Administrator determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its shareholders. Except as provided in
Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required.

(b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Administrator (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Administrator (or its committee) determines in its sole discretion advisable which are consistent with the Plan.

(c) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:

(i) increasing the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;

(ii) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and

(iii) allocating shares.

Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants.

21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form

and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.

23. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect until terminated under
Section 20 hereof.

24. Automatic Transfer to Low Price Offering Period. To the extent permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof.

EXHIBIT A

LYNUXWORKS, INCORPORATED

2000 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

_____ Original Application Enrollment Date:___________ _____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)

1. ____________________ hereby elects to participate in the LynuxWorks, Incorporated Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan.

2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (from 1 to _____%) during the Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)

3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option.

4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to shareholder approval of the Employee Stock Purchase Plan.

5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only).

6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I

hereby agree to notify the Company in writing within 30 days after the date
of any disposition of my shares and I will make adequate provision for
Federal, state or other tax withholding obligations, if any, which arise
upon the

disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.

7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan.

8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan:

NAME: (Please print)_____________________________________________________

(First) (Middle) (Last)

_________________________________
Relationship

_________________________________      _________________________________________
Percentage of Benefit                  (Address)

NAME: (Please print)____________________________________________________________

(First) (Middle) (Last)

_________________________________
Relationship

_________________________________    _________________________________________
Percentage of Benefit                (Address)


     Employee's Social
     Security Number:            ___________________________________________

     Employee's Address:         ___________________________________________

                                 ___________________________________________

                                 ___________________________________________

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:_________________________   _____________________________________________
                                  Signature of Employee


                                  _____________________________________________
                                  Spouse's Signature (If beneficiary other than
                                  spouse)


EXHIBIT B

LYNUXWORKS, INCORPORATED

2000 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned participant in the Offering Period of the LynuxWorks, Incorporated Employee Stock Purchase Plan which began on ____________, ______ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.

Name and Address of Participant:




Signature:


Date:_____________________________


EXHIBIT 3.4

CERTIFICATE OF ADOPTION

OF

AMENDED AND RESTATED BYLAWS

OF

LYNX REAL-TIME SYSTEMS, INCORPORATED

Certificate by Secretary of Adoption
by Board of Directors and by Stockholders' Vote

The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of Lynx Real-Time Systems, Incorporated and that the foregoing Amended and Restated Bylaws, comprising twenty-one (21) pages, were adopted as the Bylaws of the corporation by the Board of Directors on May 29, 1998 and were ratified by the vote of stockholders entitled to exercise the majority of the voting power of the corporation on June 1, 1998.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 1st day of June 1998.

/s/ Steven E. Bochner
----------------------------------
Steven E. Bochner, Secretary


AMENDED AND RESTATED BYLAWS
OF
LYNX REAL-TIME SYSTEMS, INCORPORATED
A California Corporation

ARTICLE I.
OFFICES

Section 1. PRINCIPAL OFFICES. The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside California and the corporation has one or more business offices in California, the board of directors shall fix and designate a principal business office in the State of California.

Section 2. OTHER OFFICES. The board of directors may, at any time, establish branch or subordinate offices at any place or places where the corporation is qualified to do business.

ARTICLE II.
MEETINGS OF SHAREHOLDERS

Section 1. PLACE OF MEETING. Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation.

Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. The date so designated shall be within five (5) months after the end of the fiscal year of the corporation and within fifteen (15) months after the last annual meeting.

Section 3. SPECIAL MEETING. A special meeting of the shareholders may be called at any time by the board of directors, the chairman of the board, the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting; or if less than a majority of directors in office have been elected by shareholders, by one or more shareholders entitled to cast not less than five (5%) percent of the votes for those directors.

If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing specifying the time of such meeting and the general nature of the business proposed to be transacted and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested


by the person or persons calling the meeting not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held.

Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election.

If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) an amendment of the articles of incorporation, pursuant to Section 902 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of that Code, or (v) a distribution in dissolution Other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code, the notice shall also state the general nature of that proposal.

Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first- class mail or telegraphic or other written communication to the corporation's principal executive office or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication.

If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice.

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An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice and shall be filed and maintained in the minute book of the corporation.

Section 6. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business.

Section 7. ADJOURNED MEETING -- NOTICE. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at the meeting, either in person or by proxy; but in the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 6 of this Article II.

When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at a meeting at which the adjournment is taken; unless after the adjournment a new record date for the adjourned meeting is fixed or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case notice of such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. If the adjournment is for more than forty-five (45):days, the board of directors shall set a new record date. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.

Section 8. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provisions of Section 702 to 704, inclusive, of the California Corporations Code (relating to voting shares held by a fiduciary, etc., in the name of a corporation or in joint ownership).

The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun.

On any matter other than elections of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote.

The affirmative vote of the majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders unless the vote of a greater number or voting by classes is required by the California Corporations Code or by the articles of

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incorporation. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

At a shareholders' meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) unless the candidate's name has been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to the commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected.

Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of shareholders, either annual or special, however called, noticed and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present, either in person or by proxy, and if, either before or after the meeting, each person entitled to vote who was not present in person or by proxy signs a written waiver of notice or a consent to a holding of the meeting or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting.

Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided that, except for a vacancy created by removal of a director, a director may be elected at any time to fill a vacancy on the board of directors that has

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not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving written consent, the shareholder's proxy holders, a transferee of the shares, a personal representative of a shareholder or their respective proxy holders may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary.

If the consents of all shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such shareholders shall not have been received, notice of the corporate action approved by the shareholders without a meeting shall be given (a) at least ten
(10) days before the consummation of any action authorized by that approval, in the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) indemnification of agents of the corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code; and (b) promptly in the case of any other approval. This notice shall be given in the manner specified in
Section 5 of this Article II.

Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS. For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting and, in this event, only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date except as otherwise provided by agreement or in the California General Corporation Law.

If the board of directors does not so fix a record date:

(a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

(b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting (i), when no prior action by the board has been taken, shall be the day on which the first written consent is given or (ii), when prior action of the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action or the sixtieth (60th) day before the date of that action, whichever is later.

Section 12. PROXIES. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a

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written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, by a subsequent proxy executed by the person executing the proxy and presented to the meeting, or by attendance at the meeting and voting in person by the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the California Corporations Code.

Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders, the board of directors may appoint any persons, other than nominees for office, to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, or if any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may and on the request of any shareholder or a shareholder's proxy shall appoint inspectors of election, or persons to replace those who so fail or refuse, at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed.

These inspectors shall (by act of the majority if there are three (3) inspectors):

(a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies;

(b) Receive votes, ballots or consents;

(c) Hear and determine all challenges and questions in any way arising in connection with the right to vote;

(d) Count and tabulate all votes or consents;

(e) Determine when the polls shall close;

(f) Determine the result; and

(g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.

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ARTICLE III.
DIRECTORS

Section 1. POWERS. Subject to the provisions of the California General Corporation Law and any limitations in the Articles of Incorporation and these Amended and Restated By-laws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors; provided, however, that for so long as seventy-five percent (75%) or more of the shares of Series E-2 Preferred Stock originally issued to Motorola, Inc., or the shares of Common Stock issuable upon the conversion thereof, continue to be held by Motorola, Inc., the following actions shall require the approval of not less than two-thirds of the board of directors and those members elected by the holders of Series E-2 Preferred Stock, if any:

(a) material changes to the Corporation's Articles of Incorporation;

(b) grant of additional options to Inder Singh or Mitchell Bunnell;

(c) the sale of all or substantially all of the assets of the corporation, or other significant events affecting a change of control of the corporation such as mergers, reorganizations, consolidations, combinations, etc., the result of which is that the shareholders of the corporation prior to such event do not own or control more than 50% of the surviving entity (a "Change of Control Transaction"). Notwithstanding the foregoing, if (i) the corporation first offers to effect any such Change of Control transaction solely with Motorola and Motorola declines to participate in such transaction within forty-five (45) days of such offer and (ii) the corporation's shareholders would receive cash or publicly-

traded securities in such transaction, such Change of Control Transaction shall not be subject to the requirement that two-thirds (2/3) of the Board of Directors and those members elected by the holders or Series E-2 Preferred Stock approve; provided, however, that the corporation shall not be permitted to effect any such Change of Control transaction on terms more favorable (to a third party acquirer) than the terms first offered to Motorola without first offering to effect such revised transaction with Motorola.

(d) the entering into material joint ventures or separate legal entities in which the holder of Series E-2 Preferred Stock has not been offered the first opportunity to participate on at least as favorable terms and conditions as proposed to any other party and has declined to participate in such transaction within sixty (60) days of such offer;

(e) increase to the corporation's approved stock option, ESOP or comparable compensation plans such that additional common share equivalents are granted which would exceed fifteen percent (15%) of the outstanding capital stock as of the closing of the Series E-2 financing;

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(f) any filing for protection of the corporation under bankruptcy, moratorium or similar laws, or the admission to creditors of the corporation's inability to pay debts as they mature;

(g) the declaration of any dividend;

(h) the exclusive licensing by the corporation of any of the key or core technology of the Company (where for purposes hereof, the Company's key or core technology shall be determined in good faith by the Board of Directors of the Company); and

(i) enter into any agreement with a third party which would result in such third party owning more than 20% of the capital stock of the corporation (on a fully diluted basis) or which would enable such third party, through contract or otherwise elect themselves to the board.

Clauses (a), (b), (c), (e), (f), (g) and (i) of this Section 1 shall not survive the closing of an initial public offering of the corporation's common stock and clauses (d) and (h) of this Section 1 shall survive such an initial public offering and any conversion of the Series E-2 Preferred Stock into Common Stock.

Without prejudice to the aforesaid general powers but subject to the same limitations, the board of directors shall have the power to:

(a) Select and remove all officers, agents and employees of the corporation; prescribe any powers and duties for them that are consistent with law, with the Articles of Incorporation and with these By-laws; fix their compensation and require from them security for faithful service.

(b) Change the principal executive office or the principal business office in the State of California from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency or country; conduct business within or without the State of California and designate any place within or without the State of California for the holding of any shareholders' meeting or meetings including annual meetings.

(c) Adopt, make and use a corporate seal; prescribe the forms of certificates of stock and alter the form of the seal and certificates.

(d) Authorize the issuance of shares of stock of the corporation on any lawful terms in consideration of money paid, labor done, services actually rendered, debts or securities canceled or tangible or intangible property actually received.

(e) Borrow money and incur indebtedness on behalf of the corporation and cause to be executed and delivered for the corporation's purposes, in the corporate name,

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promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations and other evidences of debt and securities.

(f) Establish reasonable compensation for directors for services to the corporation as director, officer or otherwise.

(g) Approve alone, without further approval of the shareholders, any loan of money or property to, or guarantee of the obligation of, any of the directors or officers of the corporation or of its parent, or an employee benefit plan authorizing such a loan or guarantee; provided that (1) the corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the California Corporations Code) on the date of such approval, the board determines that such loan, guaranty or plan may reasonably be expected to benefit the corporation, and any interested director does not vote, or (2) such loan or guarantee is otherwise permissible under the California Corporations Code.

Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of directors of the corporation shall be as set forth in the Articles of Incorporation of the corporation.

Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Except as otherwise provided by the Articles of Incorporation of the corporation, directors, other than the first directors and directors elected to fill a vacancy, shall be elected at the annual meeting of shareholders, to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, except as otherwise provided by the Articles of Incorporation of the corporation, these By-laws or by law.

Section 4. REMOVAL OF DIRECTOR WITHOUT CAUSE.

(a) Except as otherwise provided by the Articles of Incorporation of the corporation, any or all of the directors may be removed without cause if such removal is approved by the outstanding shares, subject to the following:

(1) No director may be removed (unless the entire board is removed) when the votes cast against removal or not consenting in writing to such removal would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the directors' most recent election were then being elected; and

(2) When by the provisions of the articles the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series.

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(b) Any reduction of the authorized number of directors does not remove any director prior to the expiration of such director's term of office.

Section 5. VACANCIES. Except as otherwise provided by the Articles of Incorporation of the corporation, vacancies in the board of directors may be filled by approval at a meeting duly held or by written consent of a majority of shares entitled to vote, by approval of the board, or if the number of directors then in office is less than a quorum, by (a) the unanimous written consent of the directors then in office, (b) affirmative vote of a majority of remaining directors at a meeting held pursuant to due notice or waiver, or (c) by a sole remaining director; except that a vacancy created by the removal of a director may be filled only by the Board, by a vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of all the outstanding shares entitled to vote.

Except as otherwise provided by the Articles of Incorporation of the corporation, a vacancy or vacancies in the board of directors shall be deemed to exist in the event of the death, resignation or removal of any director or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony or if the authorized number of directors is increased or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting.

Except as otherwise provided by the Articles of Incorporation of the corporation, the shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, by vote of the majority of shares entitled to vote represented at a duly held meeting at which a quorum is present or by written consent of holders of the majority of shares entitled to vote; except that such election by shareholders to fill a vacancy created by removal of a director by written consent shall require the consent of all the outstanding shares entitled to vote.

Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the vacancy may be filled as provided in this Section 5, to be effective when the resignation becomes effective.

No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires.

Section 6. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held

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by conference telephone or similar communication equipment so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting.

Section 7. ANNUAL MEETING. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, any desired election of officers and the transaction of other business. Notice of this meeting shall not be required.

Section 8. OTHER REGULAR MEETINGS. Other regular meetings of the board of directors may be held without notice at such time as shall from time to time be fixed by the board of directors.

Section 9. SPECIAL MEETINGS AND NOTICE. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, or the president, or the secretary, or any two directors.

Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally or by telephone or telegram, it shall be delivered in the manner set forth in section 118 of the California Corporations Code, personally or by telephone or to the telegraph company at least forty eight (48) hours before the time of the holding of the meeting. The notice need not specify the purpose of the meeting, nor the place if the meeting is to be held at the principal executive office of the corporation.

Section 10. QUORUM. A majority of the number of directors then in office shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 12 of this Article III. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Corporations Code of California (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of that Code (as to appointment of committees) and Section 317(e) of that Code (as to indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

Section 11. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting need not

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be given to any director who attends the meeting without protesting before or at its commencement, the lack of notice to that director.

Section 12. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty four (24) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting in the manner specified in
Section 9 of this Article III to the directors who were not present at the time of the adjournment.

Section 14. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting if all members of the board shall, individually or collectively, consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent or consents shall be filed with the minutes of the proceedings of the board.

Section 15. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 15 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.

ARTICLE IV.
COMMITTEES

Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees each consisting of two or more directors to serve at the pleasure of the board. The board may, by vote of a majority of the authorized number of directors, designate members of any committee, and one or more directors as alternate members who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board except with respect to:

(a) The approval of any action which, under the General Corporation Law of California, also requires shareholders' approval or approval of the outstanding shares;

(b) The filling of vacancies on the board of directors or in any committee;

(c) The fixing of compensation of the directors for serving on the board or on any committee;

(d) The amendment or repeal of By-laws or the adoption of new By- laws;

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(e) The amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable;

(f) A distribution to the shareholders of the corporation except at a rate or in a periodic amount or within a price range determined by the board of directors; or

(g) The appointment of any other committees of the board of directors or the members of these committees.

Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of committees shall be governed by and held and taken in accordance with the provisions of Article III of these By-laws, Sections 6 (place of meetings), 8 (regular meetings), 9 (special meetings and notice), 10 (quorum), 11 (waiver of notice), 12 (adjournment), 13 (notice of adjournment) and 14 (action without meeting) with such changes as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the board of directors of the committee; and notice of special meetings of committees shall also be given to all alternate members who shall have the right to attend meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these By-laws.

ARTICLE V.
OFFICERS

Section 1. OFFICERS. The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, a treasurer, one or more executive vice presidents, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of offices may be held by the same person.

Section 2. ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the board of directors and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment.

Section 3. SUBORDINATE OFFICERS. The board of directors may appoint and may empower the president to appoint such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-laws or as the board of directors may from time to time determine.

Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or,

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except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.

Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these By-laws for regular appointments to that office.

Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the shareholders and the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to such chairman by the board of directors or prescribed by the By-laws. If there is no president, the chairman of the board shall, in addition, be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V.

Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. The president shall preside, in the absence of the chairman of the board or if there is none, at all meetings of the shareholders and the board of directors. The president shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or the By-laws.

Section 8. VICE PRESIDENTS. Each vice president shall have such powers and perform such duties as from time to time may be prescribed for such vice president by the board of directors or the By-laws and the president or the chairman of the board. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors shall perform all the duties of the president and, when so acting, shall have all the powers of and be subject to all the restrictions upon the president.

Section 9. SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board of directors may direct, a book of minutes of all meetings and actions of the directors, committees of directors, and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given and the names of those present at a directors' meeting or committee meetings, the number of shares present or represented at a shareholders' meeting, and the proceedings.

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The secretary shall keep or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register or a duplicate share register showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation.

The secretary may give or cause to be given notice of meetings of the shareholders and of the board of directors required by the By-laws or by law to be given.

The secretary shall keep the seal of the corporation, if one be adopted, in safe custody. The secretary or an assistant secretary, or any other officer so authorized by the board of directors, may affix, and attest by his or her signature the affixing of, the seal of the corporation to any instrument.

The secretary shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the By-laws.

Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain or cause to be kept and maintained adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director.

The chief financial officer shall deposit all monies and other valuables in the name of and to the credit of the corporation with such depositaries as may be designated by the board of directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of the chief financial officer's transactions as chief financial officer and of the financial condition of the corporation and shall have such other powers and perform such other duties as may be prescribed by the board of directors or the By-laws.

ARTICLE VI.
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS

Section 1. INDEMNIFICATION. The corporation shall, to the maximum extent permitted by Section 317 of the Code, indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor for breach of duty to the corporation and its shareholders) arising by reason of any such person's being or having been an agent of the corporation. The corporation shall, to the maximum extent permitted by Section 204(a)(11) of the Code, indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding by or in the right of the corporation to procure a judgment in its favor for breach of duty to the corporation and its shareholders arising by reason

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of any such person's being or having been an agent of the corporation. For purposes of this Section, an "agent" of the corporation shall include any person who is an officer, employee or other agent of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or was a director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation, or of another enterprise at the request of such predecessor corporation.

Section 2. REQUIRED APPROVAL. Except as provided in Section 317(d) or 204(a)(112) of the Code, any indemnification under these By-laws shall be made by the corporation only if authorized in the specific case based on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in
Section 317(b) of the Code, by:

(a) A majority vote of a quorum consisting of Directors who are not parties to the proceeding;

(b) If such a quorum of Directors is not obtainable, by independent legal counsel in a written opinion;

(c) Approval by the affirmative vote of a majority of the shares of the corporation entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of the holders of a majority of the outstanding shares entitled to vote, excluding, in either case, from the outstanding shares and the shares entitled to vote the shares owned by the person to be indemnified; or

(d) The court in which the proceeding is or was pending, on application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense of the corporation's agent, whether or not such application by the agent, attorney or other person is opposed by the corporation.

Section 3. ADVANCE OF EXPENSES. Expenses incurred in defending any proceeding arising by reason of any person's being or having been an agent of the corporation may be advanced by the corporation before the final disposition of the proceeding on receipt of any undertaking by or on behalf of the agent to repay the amount of the advance if it shall be determined ultimately that the agent is not entitled to be indemnified as authorized in these By-laws, subject to Section 317 (h) of the Code.

Section 4. INSURANCE. The corporation shall have the power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such, whether or not the corporation would have the power to indemnify the agent against that liability under other provisions of these By-laws.

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ARTICLE VII.
RECORDS AND REPORTS

Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar if either be appointed, a record of its shareholders giving the names and addresses of all shareholders and the number and class of shares held by each shareholder. Such record shall be kept in written form or in any other form capable of being converted to written form. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of California.

A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation (1% after such time as the corporation has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors) may (i) inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours on five (5) business days prior written demand on the corporation and (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the shareholders' names and addresses who are entitled to vote for the election of directors and their shareholdings as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. This list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) business days after the demand is received or the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection and copying on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand.

Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in this state the original or a copy of the By-laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in this state, the secretary will, upon the written request of any shareholder, furnish to that shareholder a copy of the By-laws as amended to date.

Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the shareholders

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and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary corporation of the corporation.

Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.

Section 5. ANNUAL REPORT TO SHAREHOLDERS. The requirement for the annual report to shareholders referred to in Section 1501(a) of the California Corporations Code is expressly waived while the corporation has less than 100 shareholders (determined as provided in Section 605 Of the Code), but nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the shareholders of the corporation as the board considers appropriate.

Section 6. FINANCIAL STATEMENTS. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three month, six month or nine month period of the then current fiscal year ended more than thirty (30) days before the date of the request and a balance sheet of the corporation as of the end of that period, the chief financial officer shall cause the requested statement to be prepared, if not already prepared, and shall deliver personally or mail if not already delivered or mailed, that statement to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report containing an income statement, year end balance sheet and statement of changes in financial position for the last fiscal year, this report shall likewise be delivered or mailed to any shareholder or shareholders within thirty (30) days after receipt of a written request made more than 120 days after the close of the fiscal year.

The statements and reports referred to in this Section shall be accompanied by the report; if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation.

Copies of statements and reports referred to in this section shall be kept on file in the principal executive office of the corporation for twelve (12) months and each such statement and

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report shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or report, or a copy shall be mailed to any such shareholder.

Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation shall, during the applicable filing period each year, file with the Secretary of State of the State of California, on the prescribed form, a statement setting forth the names and complete business or residence addresses of all incumbent directors, the names and complete business or residence addresses of the chief executive officer, secretary and chief financial officer, the street address of its principal executive office or principal business office in this state and the general type of business constituting the principal business activity of the corporation, together with a designation of the agent of the corporation for the purpose of service of process, all in compliance with Section 1502 of the Corporations Code of California.

ARTICLE VIII.
GENERAL CORPORATE MATTERS

Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any right or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date which shall not be more than sixty (60) days before any such action and, in that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided by agreement or in the California Corporations Code.

If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later.

Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness issued in the name of or payable by the corporation shall be signed or endorsed by such person or persons and in such manner as from time to time shall be determined by resolution of the board of directors.

Section 3. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED. The board of directors, except as otherwise provided in these By-laws, may authorize any officer or officers, agent or agents to enter into any contract or execute any instrument in the name of and on behalf of the corporation. This authority may be general or confined to specific instances and, unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

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Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid and the board of directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid. All certificates shall be signed in the name of the corporation by the chairman of the board, vice chairman of the board, president or vice president and by the chief financial officer, an assistant treasurer, the secretary or any assistant secretary certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. If the shares of the corporation are classified or if any class of shares has two or more series, there shall appear on the certificate either (a) a statement of the rights, preferences, privileges and restrictions granted to or imposed upon each class or series of shares authorized to be issued and upon the holders thereof; or (b) a summary of such rights, preferences, privileges and restrictions with reference to the provisions of the articles and any certificates of determination establishing the same; or (c) a statement setting forth the office or agency of the corporation from which shareholders may obtain, upon request and without charge, a copy of the statement referred to in item (a) heretofore. Every certificate shall have noted thereon any information required to be set forth by Section 418 of the California Corporations Code and such other information as shall be required by law or contract.

Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and canceled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.

Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. Only such officers authorized by resolution of the board of directors shall be authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to these officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers.

Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction and definitions in the California General Corporation Law shall govern the construction of these By- laws. Without limiting the generality

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of this provision, the singular number includes the plural, the plural number includes the singular and the term "person" includes both a corporation and a natural person.

ARTICLE IX.
AMENDMENTS

Section 1. AMENDMENT BY SHAREHOLDERS. Subject to the provisions of the Articles of Incorporation of the corporation regarding the amending of the bylaws, new by-laws may be adopted or these by-laws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors (see Article III, Section 2) to a number less than five (5) may not be adopted if the votes cast against the amendment at a meeting or the shares not consenting in the case of action by written consent equal more than 16 2/3 percent of the outstanding shares entitled to vote, and provided further that if the Articles of Incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the Articles of Incorporation.

Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 1 of this Article IX, By-laws other than a by law or an amendment of a by law changing the authorized number of directors may be adopted, amended or repealed by the board of directors.

Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new by law is adopted, it shall be copied in the book of By-laws with the original By-laws in the appropriate place. If any by law is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted and a written assent was filed shall be stated in said book.

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EXHIBIT 3.5

BYLAWS

OF

LYNUXWORKS, INCORPORATED


                                                         TABLE OF CONTENTS


                                                                                                                       Page
                                                                                                                       ----
ARTICLE I CORPORATE OFFICES...........................................................................................    1

         1.1      Registered Office...................................................................................    1
         1.2      Other Offices.......................................................................................    1

ARTICLE II MEETINGS OF STOCKHOLDERS...................................................................................    1

         2.1      Place of Meetings...................................................................................    1
         2.2      Annual Meeting......................................................................................    1
         2.3      Special Meeting.....................................................................................    3
         2.4      Organization........................................................................................    3
         2.5      Notice of Stockholders' Meetings....................................................................    3
         2.6      Manner of Giving Notice; Affidavit of Notice........................................................    4
         2.7      Quorum..............................................................................................    4
         2.8      Adjourned Meeting; Notice...........................................................................    5
         2.9      Voting..............................................................................................    5
         2.10     Validation of Meetings; Waiver of Notice; Consent...................................................    5
         2.11     No Stockholder Action by Written Consent............................................................    6
         2.12     Record Date for Stockholder Notice; Voting; Giving Consents.........................................    6
         2.13     Proxies.............................................................................................    6
         2.14     Inspectors of Election..............................................................................    7

ARTICLE III DIRECTORS.................................................................................................    7

         3.1      Powers..............................................................................................    7
         3.2      Number..............................................................................................    8
         3.3      Election and Term of Office of Directors............................................................    8
         3.4      Resignation and Vacancies...........................................................................    8
         3.5      Removal.............................................................................................    9
         3.6      Place of Meetings; Meetings by Telephone............................................................    9
         3.7      Regular Meetings....................................................................................    9
         3.8      Special Meetings; Notice............................................................................    9
         3.9      Quorum..............................................................................................   10
         3.10     Waiver of Notice....................................................................................   10
         3.11     Adjournment.........................................................................................   10
         3.12     Notice of Adjournment...............................................................................   10
         3.13     Board Action by Written Consent Without a Meeting...................................................   11
         3.14     Organization........................................................................................   11
         3.15     Fees and Compensation of Directors..................................................................   11

ARTICLE IV COMMITTEES.................................................................................................   11

         4.1      Committees of Directors.............................................................................   11
         4.2      Meetings and Action of Committees...................................................................   11
         4.3      Committee Minutes...................................................................................   12
         4.4      Executive Committee.................................................................................   12

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                                                         TABLE OF CONTENTS
                                                            (Continued)

ARTICLE V OFFICERS...................................................................................................    12

         5.1      Officers...........................................................................................    12
         5.2      Appointment of Officers............................................................................    12
         5.3      Terms of Office and Compensation...................................................................    13
         5.4      Removal; Resignation of Officers and Vacancies.....................................................    13
         5.5      Chairman of the Board..............................................................................    13
         5.6      Vice Chairman of the Board.........................................................................    13
         5.7      Chairman of Executive Committee....................................................................    13
         5.8      Chief Executive Officer:...........................................................................    13
         5.9      President..........................................................................................    14
         5.10     Vice Presidents....................................................................................    14
         5.11     Secretary..........................................................................................    14
         5.12     Chief Financial Officer............................................................................    15

ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS........................................    16

         6.1      Indemnification of Directors and Officers..........................................................    16
         6.2      Indemnification of Others..........................................................................    16
         6.3      Insurance..........................................................................................    17
         6.4      Expenses...........................................................................................    17
         6.5      Non-Exclusivity of Rights..........................................................................    17
         6.6      Survival of Rights.................................................................................    18
         6.7      Amendments.........................................................................................    18

ARTICLE VII RECORDS AND REPORTS......................................................................................    18

         7.1      Maintenance and Inspection of Records..............................................................    18
         7.2      Inspection by Director.............................................................................    18
         7.3      Representation of Shares of Other Corporations.....................................................    18

ARTICLE VIII GENERAL MATTERS.........................................................................................    19

         8.1      Record Date for Purposes Other than Notice and Voting..............................................    19
         8.2      Checks; Drafts; Evidences of Indebtedness..........................................................    19
         8.3      Corporate Contracts and Instruments; How Executed..................................................    19
         8.4      Fiscal Year........................................................................................    19
         8.5      Stock Certificates.................................................................................    19
         8.6      Special Designation on Certificates................................................................    20
         8.7      Lost Certificates..................................................................................    20
         8.8      Construction; Definitions..........................................................................    20
         8.9      Provisions Additional to Provisions of Law.........................................................    20
         8.10     Provisions Contrary to Provisions of Law...........................................................    20
         8.11     Notices............................................................................................    21

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                                                         TABLE OF CONTENTS
                                                            (Continued)

ARTICLE IX AMENDMENTS................................................................................................    21

-iii-

BYLAWS

OF

LYNUXWORKS, INCORPORATED

ARTICLE I

CORPORATE OFFICES

1.1 Registered Office. The registered office of the corporation shall be fixed in the Certificate of Incorporation of the corporation.

1.2 Other Offices. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1 Place of Meetings. Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation.

2.2 Annual Meeting.

(a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected, and any other proper business may be transacted.

(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (B) otherwise properly brought before the meeting by or at the direction of the board of directors, or (C) otherwise properly brought before the meeting by a stockholder. For nominations or other business to be properly brought before a stockholders meeting by a stockholder pursuant to clause (C) of the preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not less


than one hundred twenty (120) calendar days in advance of the first anniversary of the preceding year's annual meeting; provided, however, that in the event that (i) no annual meeting was held in the previous year or (ii) the date of the annual meeting has been changed by more than thirty (30) days from the date of the previous year's meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the later of: (i) the day one hundred twenty (120) calendar days in advance of such meeting or (ii) the day ten (10) calendar days following the day on which public announcement of the date of the meeting is first made. For purposes of determining whether a stockholder's notice shall have been delivered in a timely manner for the first annual meeting of stockholders following fiscal year 2001, the first anniversary of the previous year's meeting shall be deemed to be September 30, 2001. In no event shall the public announcement of an adjournment of a stockholders meeting commence a new time period for the giving of a stockholder's notice as described above. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are owned beneficially by such stockholder, (d) any material interest of the stockholder in such business, and (e) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act") (or any successor thereto) in such stockholder's capacity as a proponent of a stockholder proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.

(c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (or any successor thereto) (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving


as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section
2.2. At the request of the board of directors, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.

2.3 Special Meeting. A special meeting of the stockholders may be called at any time by the board of directors or the chairman of the board or, so long as the corporation is subject to the provisions of Section 2115 of the California General Corporation Law, by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting.

2.4 Organization. Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his or her absence by the vice chairman of the board, if any, or in his or her absence, or in the absence of the foregoing persons by a chairman of the meeting, which chairman must be an officer or director of the Company, designated by the board of directors. The secretary or in his or her absence an assistant secretary or in the absence of the secretary and all assistant secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof.

The board of directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the board of directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot. Unless and to the extent determined by the board of directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

2.5 Notice of Stockholders' Meetings. All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date,

and hour of the meeting and (i) in the case of a special meeting, the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders (but any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election.

2.6 Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of stockholders shall be given either personally or by mail, telecopy, telegram or other electronic or wireless means. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or at the time of transmission when sent by telecopy, telegram or other electronic or wireless means.

An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice or report.

2.7 Quorum. The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders by the vote of the holders of a majority of the stock, present in person or represented by proxy shall have power to adjourn the meeting in accordance with Section 2.8 of these Bylaws.

When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the Certificate of Incorporation or these Bylaws, a vote of a greater number or voting by classes is required, in which case such express provision shall govern and control the decision of the question.

If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders initially constituting the quorum.


2.8 Adjourned Meeting; Notice. Any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the voting power of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.7 of these Bylaws.

When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than thirty (30) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.5 and 2.6 of these Bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.

2.9 Voting. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners, and to voting trusts and other voting agreements).

Except as may be otherwise provided in the Certificate of Incorporation, by these Bylaws or required by law, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. Notwithstanding the foregoing, so long as the corporation is subject to the provisions of Section 2115 of the California General Corporation Law, the stockholders shall be permitted to cumulate their votes in the election of directors of this corporation.

Any stockholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder's approving vote is with respect to all shares which the stockholder is entitled to vote.

2.10 Validation of Meetings; Waiver of Notice; Consent. The transactions of any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy.

Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereto, signed by the person entitled to notice, whether before or after the time stated therein, will be deemed equivalent to notice. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by law to be included in the notice of the meeting but not so included, if that objection is expressly made at the


meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.

2.11 No Stockholder Action by Written Consent. Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders.

2.12 Record Date for Stockholder Notice; Voting; Giving Consents. For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Certificate of Incorporation, by these Bylaws, by agreement or by applicable law.

If the board of directors does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting.

The record date for any other purpose shall be as provided in Section 8.1 of these Bylaws.

2.13 Proxies. Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy filed with the secretary of the corporation. A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person. No such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the secretary of the corporation.

A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.


2.14 Inspectors of Election. Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one
(1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any stockholder or a stockholder's proxy shall, appoint a person to fill that vacancy.

Such inspectors shall:

(a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;

(b) receive votes, ballots or consents;

(c) hear and determine all challenges and questions in any way arising in connection with the right to vote;

(d) count and tabulate all votes or consents;

(e) determine when the polls shall close;

(f) determine the result; and

(g) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

ARTICLE III

DIRECTORS

3.1 Powers. Subject to the provisions of the General Corporation Law of Delaware and to any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.

3.2 Number. The authorized number of directors shall be fixed and may be changed from time to time by resolution of the Board of Directors.

No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.

3.3 Election and Term of Office of Directors. Except as provided in the Certificate of Incorporation or Section 3.4 of these Bylaws, directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, one class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2001, another class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2002, and another class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2003, with each class to hold office until its successor is duly elected and qualified. At each succeeding annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until such person's successor shall have been elected and qualified or until such person's earlier resignation or removal. Each director, including a director elected or appointed to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal.

Directors need not be stockholders unless so required by the Certificate of Incorporation or by these Bylaws; wherein other qualifications for directors may be prescribed.

Election of directors need not be by written ballot unless so required by the Certificate of Incorporation or by these Bylaws; wherein other qualifications for directors may be prescribed.

3.4 Resignation and Vacancies. Any director may resign effective on giving written notice to the chairman of the board, the chief executive officer, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.

Unless otherwise provided in the Certificate of Incorporation or these Bylaws:
(i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Each director so elected shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until a successor has been elected and qualified.


(ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders solely for he purpose of electing directors in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the then outstanding shares having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.

3.5 Removal. Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire board of directors may be removed from office only for cause by the holders of a majority of the shares then entitled to vote at an election of directors.

3.6 Place of Meetings; Meetings by Telephone. Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board of directors. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation.

Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting.

3.7 Regular Meetings. Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors.

3.8 Special Meetings; Notice. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the vice chairman of the board,

the chief executive officer, the president, the chairman of the executive committee, any vice president or the secretary or by any two (2) or more of the directors.

Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by mail, telecopy, telegram or other electronic or wireless means, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation or if the address is not readily ascertainable, notice shall be addressed to the director at the city or place in which the meetings of directors are regularly held. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, telecopy, telegram or other electronic or wireless means, it shall be delivered personally or by telephone or other electronic or wireless means or to the telegraph company at least twenty-four (24) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. If the meeting is to be held at the principal executive office of the corporation, the notice need not specify the place of the meeting. Moreover, a notice of special meeting need not state the purpose of such meeting, and, unless indicated in the notice thereof, any and all business may be transacted at a special meeting.

3.9 Quorum. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to fill vacancies in the board of directors as provided in Section 3.4 and to adjourn as provided in
Section 3.11 of these Bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of the Certificate of Incorporation and applicable law.

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

3.10 Waiver of Notice. Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. The transactions of any meeting of the board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice. All such waivers shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors.

3.11 Adjournment. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

3.12 Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given if announced unless the meeting is adjourned for more than twenty-four

(24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.8 of these Bylaws, to the directors who were not present at the time of the adjournment.

3.13 Board Action by Written Consent Without a Meeting. Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board of directors individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board.

3.14 Organization. Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his or her absence by the vice chairman of the board, if any, or in his or her absence by the chairman of the executive committee, if any, or in his or her absence by the chief executive officer, if any, or in his or her absence by the president, if any, or in his or her absence by the executive vice president. In the absence of all such directors, a president pro tem chosen by a majority of the directors present shall preside at the meeting. The secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

3.15 Fees and Compensation of Directors. Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.15 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.

ARTICLE IV

COMMITTEES

4.1 Committees of Directors. The board of directors may designate one
(1) or more committees, each consisting of one or more directors, to serve at the pleasure of the board of directors. The board of directors may designate one
(1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, but no such committee shall have the power or authority to (i) approve or adopt or recommend to the stockholders any action or matter that requires the approval of the stockholders or (ii) adopt, amend or repeal any Bylaw of the corporation.

4.2 Meetings and Action of Committees. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.6 (place of meetings),
Section 3.7 (regular meetings), Section 3.8 (special meetings and

notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section 3.13 (action without meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

4.3 Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.

4.4 Executive Committee. In the event that the board of directors appoints an executive committee, such executive committee, in all cases in which specific directions to the contrary shall not have been given by the board of directors, shall have and may exercise, during the intervals between the meetings of the board of directors, all the powers and authority of the board of directors in the management of the business and affairs of the corporation (except as provided in Section 4.1 hereof) in such manner as the executive committee may deem in the best interests of the corporation.

ARTICLE V

OFFICERS

5.1 Officers. The officers of this corporation shall consist of a chief executive officer, a president, one or more vice presidents, a secretary and a chief financial officer who shall be chosen by the Board of Directors and such other officers, including but not limited to a chairman of the board, a vice chairman of the board, a chairman of the executive committee and a treasurer as the board of directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the board of directors may prescribe. Any two or more of such offices may be held by the same person. The board of directors may designate one or more vice presidents as executive vice presidents or senior vice presidents. Either the chairman of the board, the vice chairman of the board, the chairman of the executive committee, or the president, as the board of directors may designate from time to time, shall be the chief executive officer of the corporation. The board of directors may from time to time designate the president or any executive vice president as the chief operating officer of the corporation. Any vice president, treasurer or assistant treasurer, or assistant secretary respectively may exercise any of the powers of the president, the chief financial officer, or the secretary, respectively, as directed by the board of directors and shall perform such other duties as are imposed upon such officer by the Bylaws or the board of directors.

5.2 Appointment of Officers. In addition to officers elected by the board of directors in accordance with Sections 5.1 and 5.3, the corporation may have one or more appointed vice

presidents. Such vice presidents may be appointed by the chairman of the board, the chief executive officer or the president and shall have such duties as may be established by the chairman, the chief executive officer or the president. Vice presidents appointed pursuant to this Section 5.2 may be removed in accordance with Section 5.4.

5.3 Terms of Office and Compensation. The term of office and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the board of directors and may be altered by said board from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment.

5.4 Removal; Resignation of Officers and Vacancies. Any officer of the corporation may be removed at the pleasure of the board of directors at any meeting or, except in the case of an officer chosen by the board of directors, at the pleasure of any officer who may be granted such power by a resolution of the board of directors. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. If any vacancy occurs in any office of the corporation, the board of directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor is duly chosen and qualified.

5.5 Chairman of the Board. The chairman of the board, if such an officer be elected, shall have general supervision, direction and control of the corporation's business and its officers, and, if present, preside at meetings of the stockholders and the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these Bylaws. The chairman of the board shall report to the board of directors.

5.6 Vice Chairman of the Board. The vice chairman of the board of directors, if there shall be one, shall, in the case of the absence, disability or death of the chairman, exercise all the powers and perform all the duties of the chairman of the board. The vice chairman shall have such other powers and perform such other duties as may be granted or prescribed by the board of directors.

5.7 Chairman of Executive Committee. The chairman of the executive committee, if there be one, shall have the power to call meetings of the board of directors to be held subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the chairman of the executive committee shall deem proper. The chairman of the executive committee shall have such other powers and be subject to such other duties as the board of directors may from time to time prescribe.

5.8 Chief Executive Officer: The powers and duties of the chief executive officer are:

(a) To call meetings of the board of directors to be held, subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the chief executive officer shall deem proper.


(b) To affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the board of directors or which, in the judgment of the chief executive officer, should be executed on behalf of the corporation, and to sign certificates for shares of stock of the corporation.

(c) To have such other powers and be subject to such other duties as the board of directors may from time to time prescribe.

5.9 President. The powers and duties of the president are:

(a) To call meetings of the board of directors to be held, subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the president shall deem proper.

(b) To affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the board of directors or which, in the judgment of the president, should be executed on behalf of the corporation, and to sign certificates for shares of stock of the corporation.

(c) To have such other powers and be subject to such other duties as the board of directors may from time to time prescribe.

5.10 Vice Presidents. In case of the absence, disability or death of the chief executive officer and the president, the elected vice president, or one of the elected vice presidents, shall exercise all the powers and perform all the duties of the chief executive officer and president. If there is more than one elected vice president, the order in which the elected vice presidents shall succeed to the powers and duties of the chief executive officer or the president shall be as fixed by the board of directors. The elected vice president or elected vice presidents shall have such other powers and perform such other duties as may be granted or prescribed by the board of directors.

Vice presidents appointed pursuant to Section 5.2 shall have such powers and duties as may be fixed by the chairman, chief executive officer or president, except that such appointed vice presidents may not exercise the powers and duties of the chief executive officer or president.

5.11 Secretary. The powers and duties of the secretary are:

(a) To keep a book of minutes at the principal office of the corporation, or such other place as the board of directors may order, of all meetings of its directors and stockholders with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof.

(b) To keep the seal of the corporation and affix the same to all instruments which may require it.


(c) To keep or cause to be kept at the principal office of the corporation, or at the office of the transfer agent or agents, a share register, or duplicate share registers, showing the names of the stockholders and their addresses, the number of and classes of shares, and the number and date of cancellation of every certificate surrendered for cancellation.

(d) To keep a supply of certificates for shares of the corporation, to fill in all certificates issued, and to make a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents.

(e) To transfer upon the share books of the corporation any and all shares of the corporation; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents, and the method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to which the certificate is presented for transfer, and also, if the corporation then has one or more duly appointed and acting registrars, to the reasonable regulations of the registrar to which the new certificate is presented for registration; and provided, further that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 8.5 hereof.

(f) To make service and publication of all notices that may be necessary or proper, and without command or direction from anyone. In case of the absence, disability, refusal, or neglect of the secretary to make service or publication of any notices, then such notices may be served and/or published by the chief executive officer, president or a vice president, or by any person thereunto authorized by either of them or by the board of directors or by the holders of a majority of the outstanding shares of the corporation.

(g) Generally to do and perform all such duties as pertain to the office of secretary and as may be required by the board of directors.

5.12 Chief Financial Officer. The powers and duties of the chief financial officer are:

(a) To supervise the corporate-wide treasury functions and financial reporting to external bodies.

(b) To have the custody of all funds, securities, evidence of indebtedness and other valuable documents of the corporation and, at the chief financial officer's discretion, to cause any or all thereof to be deposited for account of the corporation at such depositary as may be designated from time to time by the board of directors.

(c) To receive or cause to be received, and to give or cause to be given, receipts and acquittances for monies paid in for the account of the corporation.


(d) To disburse, or cause to be disbursed, all funds of the corporation as may be directed by the board of directors, taking proper vouchers for such disbursements.

(e) To render to the chief executive officer or president and to the board of directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation.

(f) Generally to do and perform all such duties as pertain to the office of chief financial officer and as may be required by the board of directors.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS

6.1 Indemnification of Directors and Officers. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized in advance by the board of directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the General Corporation Law of Delaware or (iv) such indemnification is required to be made pursuant to an individual contract. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

6.2 Indemnification of Others. The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee

or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

6.3 Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.

6.4 Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding, upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise; provided, however, that the corporation shall not be required to advance expenses to any director or officer in connection with any proceeding (or part thereof) initiated by such person unless the proceeding was authorized in advance by the board of directors of the corporation.

Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.

6.5 Non-Exclusivity of Rights. The rights conferred on any person by this Article VI shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances to the fullest extent not prohibited by the General Corporation Law of

Delaware.

6.6 Survival of Rights. The rights conferred on any person by this Article VI shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

6.7 Amendments. Any repeal or modification of this Article VI shall only be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.

ARTICLE VII

RECORDS AND REPORTS

7.1 Maintenance and Inspection of Records. The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.

7.2 Inspection by Director. Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

7.3 Representation of Shares of Other Corporations. The chief execuitve officer or president or any other officer of this corporation authorized by the board of directors is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein

granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

ARTICLE VIII

GENERAL MATTERS

8.1 Record Date for Purposes Other than Notice and Voting. For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Certificate of Incorporation, by these Bylaws, by agreement or by law.

If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later.

8.2 Checks; Drafts; Evidences of Indebtedness. From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.

8.3 Corporate Contracts and Instruments; How Executed. The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

8.4 Fiscal Year. The fiscal year of this corporation shall begin on the first day of May of each year and end on the last day of April of the following year.

8.5 Stock Certificates. There shall be issued to each holder of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares. Every holder of shares of the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice chairman of the board of directors, or the chief executive officer, or the

president or a vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

8.6 Special Designation on Certificates. If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

8.7 Lost Certificates. The corporation may issue a new share certificate or new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner's legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. The board of directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate.

8.8 Construction; Definitions. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.

8.9 Provisions Additional to Provisions of Law. All restrictions, limitations, requirements and other provisions of these Bylaws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal.

8.10 Provisions Contrary to Provisions of Law. Any article, section, subsection, subdivision, sentence, clause or phrase of these Bylaws which upon being construed in the manner

provided in Section 8.9 hereof, shall be contrary to or inconsistent with any applicable provisions of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these Bylaws, it being hereby declared that these Bylaws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal.

8.11 Notices. Any reference in these Bylaws to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.

ARTICLE IX

AMENDMENTS

Subject to Section 6.7 hereof, these Bylaws may be amended or repealed (1) at any annual or special meeting of stockholders, by the affirmative vote of the holders of a majority of the voting power of the stock issued and outstanding and entitled to vote thereat, provided, however, that any proposed alteration or repeal of, or the adoption of any provision inconsistent with Sections 2.2, 2.3, 2.5 or 2.11 of Article II of the Bylaws or with Sections 3.2, 3.3, 3.4 or 3.5 of Article III of the Bylaws or this sentence, by the stockholders shall require
(a) the affirmative vote of the holders of at least 66.6% of the voting power of all stock then outstanding, voting together as a single class, so long as the corporation is subject to the provisions of Section 2115 of the California General Corporation Law or (b) the affirmative vote of the holders of at least 80% of the voting power of all stock then outstanding, voting together as a single class, so long as the corporation is not subject to the provisions of
Section 2115 of the California General Corporation Law; and, provided, further, however, that in the case of any such stockholder action at a special meeting of stockholders, notice of the proposed alteration, repeal or adoption of the new Bylaws or portion thereof must be contained in the notice of such special meeting, or (2) by the affirmative vote of a majority of the board of directors. The fact that the power to amend these Bylaws has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.

Whenever an amendment or new bylaw is adopted, it shall be copied in the book of Bylaws with these Bylaws, in the appropriate place. If any provision of these Bylaws is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or the filing of the operative written consent(s)

shall be stated in said book.


Exhibit 3.6

AMENDED AND RESTATED BYLAWS

OF

LYNUXWORKS, INCORPORATED


TABLE OF CONTENTS

                                                                                               Page
                                                                                               ----
ARTICLE I CORPORATE OFFICES..................................................................     1

     1.1   Registered Office.................................................................     1
     1.2   Other Offices.....................................................................     1

ARTICLE II MEETINGS OF STOCKHOLDERS..........................................................     1

     2.1   Place of Meetings.................................................................     1
     2.2   Annual Meeting....................................................................     1
     2.3   Special Meeting...................................................................     3
     2.4   Organization......................................................................     3
     2.5   Notice of Stockholders' Meetings..................................................     3
     2.6   Manner of Giving Notice; Affidavit of Notice......................................     4
     2.7   Quorum............................................................................     4
     2.8   Adjourned Meeting; Notice.........................................................     4
     2.9   Voting............................................................................     5
     2.10  Validation of Meetings; Waiver of Notice; Consent.................................     5
     2.11  No Stockholder Action by Written Consent..........................................     5
     2.12  Record Date for Stockholder Notice; Voting; Giving Consents.......................     5
     2.13  Proxies...........................................................................     6
     2.14  Inspectors of Election............................................................     6

ARTICLE III DIRECTORS........................................................................     7

     3.1   Powers............................................................................     7
     3.2   Number............................................................................     7
     3.3   Election and Term of Office of Directors..........................................     8
     3.4   Resignation and Vacancies.........................................................     8
     3.5   Removal...........................................................................     9
     3.6   Place of Meetings; Meetings by Telephone..........................................     9
     3.7   Regular Meetings..................................................................     9
     3.8   Special Meetings; Notice..........................................................     9
     3.9   Quorum............................................................................    10
     3.10  Waiver of Notice..................................................................    10
     3.11  Adjournment.......................................................................    10
     3.12  Notice of Adjournment.............................................................    10
     3.13  Board Action by Written Consent Without a Meeting.................................    10
     3.14  Organization......................................................................    11
     3.15  Fees and Compensation of Directors................................................    11

ARTICLE IV COMMITTEES........................................................................    11

     4.1   Committees of Directors...........................................................    11
     4.2   Meetings and Action of Committees.................................................    11
     4.3   Committee Minutes.................................................................    12
     4.4   Executive Committee...............................................................    12

-i-

TABLE OF CONTENTS
(continued)

                                                                                               Page
                                                                                               ----
ARTICLE V OFFICERS........................................................................       12

     5.1   Officers.......................................................................       12
     5.2   Appointment of Officers........................................................       12
     5.3   Terms of Office and Compensation...............................................       12
     5.4   Removal; Resignation of Officers and Vacancies.................................       13
     5.5   Chairman of the Board..........................................................       13
     5.6   Vice Chairman of the Board.....................................................       13
     5.7   Chairman of Executive Committee................................................       13
     5.8   Chief Executive Officer........................................................       13
     5.9   President......................................................................       14
     5.10  Vice Presidents................................................................       14
     5.11  Secretary......................................................................       14
     5.12  Chief Financial Officer........................................................       15

ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
     OTHER AGENTS.........................................................................       16

     6.1   Indemnification of Directors and Officers......................................       16
     6.2   Indemnification of Others......................................................       16
     6.3   Insurance......................................................................       17
     6.4   Expenses.......................................................................       17
     6.5   Non-Exclusivity of Rights......................................................       17
     6.6   Survival of Rights.............................................................       18
     6.7   Amendments.....................................................................       18

ARTICLE VII RECORDS AND REPORTS...........................................................       18

     7.1   Maintenance and Inspection of Records..........................................       18
     7.2   Inspection by Director.........................................................       18
     7.3   Representation of Shares of Other Corporations.................................       18

ARTICLE VIII GENERAL MATTERS..............................................................       19

     8.1   Record Date for Purposes Other than Notice and Voting..........................       19
     8.2   Checks; Drafts; Evidences of Indebtedness......................................       19
     8.3   Corporate Contracts and Instruments; How Executed..............................       19
     8.4   Fiscal Year....................................................................       19
     8.5   Stock Certificates.............................................................       19
     8.6   Special Designation on Certificates............................................       20
     8.7   Lost Certificates..............................................................       20
     8.8   Construction; Definitions......................................................       20
     8.9   Provisions Additional to Provisions of Law.....................................       20
     8.10  Provisions Contrary to Provisions of Law.......................................       20
     8.11  Notices........................................................................       21

-ii-

TABLE OF CONTENTS
(continued)

                                                                                               Page
                                                                                               ----
ARTICLE IX AMENDMENTS.....................................................................       21

-iii-

AMENDED AND RESTATED BYLAWS

OF

LYNUXWORKS, INCORPORATED

ARTICLE I

CORPORATE OFFICES

1.1 Registered Office. The registered office of the corporation shall be fixed in the Certificate of Incorporation of the corporation.

1.2 Other Offices. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1 Place of Meetings. Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation.

2.2 Annual Meeting.

(a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected, and any other proper business may be transacted.

(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (B) otherwise properly brought before the meeting by or at the direction of the board of directors, or (C) otherwise properly brought before the meeting by a stockholder. For nominations or other business to be properly brought before a stockholders meeting by a stockholder pursuant to clause (C) of the preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the


corporation not less than one hundred twenty (120) calendar days in advance of the first anniversary of the preceding year's annual meeting; provided, however, that in the event that (i) no annual meeting was held in the previous year or
(ii) the date of the annual meeting has been changed by more than thirty (30) days from the date of the previous year's meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the later of: (i) the day one hundred twenty (120) calendar days in advance of such meeting or (ii) the day ten (10) calendar days following the day on which public announcement of the date of the meeting is first made. For purposes of determining whether a stockholder's notice shall have been delivered in a timely manner for the first annual meeting of stockholders following fiscal year 2001, the first anniversary of the previous year's meeting shall be deemed to be September 30, 2001. In no event shall the public announcement of an adjournment of a stockholders meeting commence a new time period for the giving of a stockholder's notice as described above. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are owned beneficially by such stockholder, (d) any material interest of the stockholder in such business, and
(e) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act") (or any successor thereto) in such stockholder's capacity as a proponent of a stockholder proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.

(c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (or any successor thereto) (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving

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as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section
2.2. At the request of the board of directors, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.

2.3 Special Meeting. A special meeting of the stockholders may be called at any time by the board of directors or the chairman of the board. Special meetings of the stockholders may not be called by any other person or persons. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting.

2.4 Organization. Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his or her absence by the vice chairman of the board, if any, or in his or her absence, or in the absence of the foregoing persons by a chairman of the meeting, which chairman must be an officer or director of the Company, designated by the board of directors. The secretary or in his or her absence an assistant secretary or in the absence of the secretary and all assistant secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof.

The board of directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the board of directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot. Unless and to the extent determined by the board of directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

2.5 Notice of Stockholders' Meetings. All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date, and hour of the meeting and (i) in the case of a special meeting, the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted) or (ii) in

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the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders (but any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election.

2.6 Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of stockholders shall be given either personally or by mail, telecopy, telegram or other electronic or wireless means. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or at the time of transmission when sent by telecopy, telegram or other electronic or wireless means.

An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice or report.

2.7 Quorum. The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders by the vote of the holders of a majority of the stock, present in person or represented by proxy shall have power to adjourn the meeting in accordance with Section 2.8 of these Bylaws.

When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the Certificate of Incorporation or these Bylaws, a vote of a greater number or voting by classes is required, in which case such express provision shall govern and control the decision of the question.

If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders initially constituting the quorum.

2.8 Adjourned Meeting; Notice. Any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the voting power of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.7 of these Bylaws.

When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the

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meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than thirty (30) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.5 and 2.6 of these Bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.

2.9 Voting. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners, and to voting trusts and other voting agreements).

Except as may be otherwise provided in the Certificate of Incorporation, by these Bylaws or required by law, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

Any stockholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder's approving vote is with respect to all shares which the stockholder is entitled to vote.

2.10 Validation of Meetings; Waiver of Notice; Consent. The transactions of any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy.

Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereto, signed by the person entitled to notice, whether before or after the time stated therein, will be deemed equivalent to notice. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by law to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.

2.11 No Stockholder Action by Written Consent. Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders.

2.12 Record Date for Stockholder Notice; Voting; Giving Consents. For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of

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directors may fix, in advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days before the date of any such meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Certificate of Incorporation, by these Bylaws, by agreement or by applicable law.

If the board of directors does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting.

The record date for any other purpose shall be as provided in Section 8.1 of these Bylaws.

2.13 Proxies. Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy filed with the secretary of the corporation. A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person. No such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the secretary of the corporation.

A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.

2.14 Inspectors of Election. Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any stockholder or a stockholder's proxy shall, appoint a person to fill that vacancy.

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Such inspectors shall:

(a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;

(b) receive votes, ballots or consents;

(c) hear and determine all challenges and questions in any way arising in connection with the right to vote;

(d) count and tabulate all votes or consents;

(e) determine when the polls shall close;

(f) determine the result; and

(g) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

ARTICLE III

DIRECTORS

3.1 Powers. Subject to the provisions of the General Corporation Law of Delaware and to any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.

3.2 Number. The authorized number of directors shall be fixed and may be changed from time to time by resolution of the Board of Directors.

No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.

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3.3 Election and Term of Office of Directors. Except as provided in the Certificate of Incorporation or Section 3.4 of these Bylaws, directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, one class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2001, another class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2002, and another class to be originally elected for a term expiring at the first annual meeting of stockholders following fiscal year 2003, with each class to hold office until its successor is duly elected and qualified. At each succeeding annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until such person's successor shall have been elected and qualified or until such person's earlier resignation or removal. Each director, including a director elected or appointed to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal.

Directors need not be stockholders unless so required by the Certificate of Incorporation or by these Bylaws; wherein other qualifications for directors may be prescribed.

Election of directors need not be by written ballot unless so required by the Certificate of Incorporation or by these Bylaws; wherein other qualifications for directors may be prescribed.

3.4 Resignation and Vacancies. Any director may resign effective on giving written notice to the chairman of the board, the chief executive officer, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.

Unless otherwise provided in the Certificate of Incorporation or these Bylaws:

(i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Each director so elected shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until a successor has been elected and qualified.

(ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate

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of a stockholder, may call a special meeting of stockholders solely for he purpose of electing directors in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the then outstanding shares having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.

3.5 Removal. Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire board of directors may be removed from office only for cause by the holders of a majority of the shares then entitled to vote at an election of directors.

3.6 Place of Meetings; Meetings by Telephone. Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board of directors. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation.

Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting.

3.7 Regular Meetings. Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors.

3.8 Special Meetings; Notice. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the vice chairman of the board, the chief executive officer, the president, the chairman of the executive committee, any vice president or the secretary or by any two (2) or more of the directors.

Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by mail, telecopy, telegram or other electronic or wireless means, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation or if the address is not readily ascertainable, notice shall be addressed to the director at the city or place in which the meetings of directors are regularly held. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, telecopy, telegram or other electronic

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or wireless means, it shall be delivered personally or by telephone or other electronic or wireless means or to the telegraph company at least twenty-four
(24) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. If the meeting is to be held at the principal executive office of the corporation, the notice need not specify the place of the meeting. Moreover, a notice of special meeting need not state the purpose of such meeting, and, unless indicated in the notice thereof, any and all business may be transacted at a special meeting.

3.9 Quorum. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to fill vacancies in the board of directors as provided in Section 3.4 and to adjourn as provided in
Section 3.11 of these Bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of the Certificate of Incorporation and applicable law.

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

3.10 Waiver of Notice. Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. The transactions of any meeting of the board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice. All such waivers shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors.

3.11 Adjournment. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

3.12 Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given if announced unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.8 of these Bylaws, to the directors who were not present at the time of the adjournment.

3.13 Board Action by Written Consent Without a Meeting. Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board of directors individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of

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directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board.

3.14 Organization. Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his or her absence by the vice chairman of the board, if any, or in his or her absence by the chairman of the executive committee, if any, or in his or her absence by the chief executive officer, if any, or in his or her absence by the president, if any, or in his or her absence by the executive vice president. In the absence of all such directors, a president pro tem chosen by a majority of the directors present shall preside at the meeting. The secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

3.15 Fees and Compensation of Directors. Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.15 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.

ARTICLE IV

COMMITTEES

4.1 Committees of Directors. The board of directors may designate one (1) or more committees, each consisting of one or more directors, to serve at the pleasure of the board of directors. The board of directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, but no such committee shall have the power or authority to (i) approve or adopt or recommend to the stockholders any action or matter that requires the approval of the stockholders or (ii) adopt, amend or repeal any Bylaw of the corporation.

4.2 Meetings and Action of Committees. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.6 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment), Section
3.12 (notice of adjournment), and Section 3.13 (action without meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors

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may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

4.3 Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.

4.4 Executive Committee. In the event that the board of directors appoints an executive committee, such executive committee, in all cases in which specific directions to the contrary shall not have been given by the board of directors, shall have and may exercise, during the intervals between the meetings of the board of directors, all the powers and authority of the board of directors in the management of the business and affairs of the corporation (except as provided in Section 4.1 hereof) in such manner as the executive committee may deem in the best interests of the corporation.

ARTICLE V

OFFICERS

5.1 Officers. The officers of this corporation shall consist of a chief executive officer, a president, one or more vice presidents, a secretary and a chief financial officer who shall be chosen by the Board of Directors and such other officers, including but not limited to a chairman of the board, a vice chairman of the board, a chairman of the executive committee and a treasurer as the board of directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the board of directors may prescribe. Any two or more of such offices may be held by the same person. The board of directors may designate one or more vice presidents as executive vice presidents or senior vice presidents. Either the chairman of the board, the vice chairman of the board, the chairman of the executive committee, or the president, as the board of directors may designate from time to time, shall be the chief executive officer of the corporation. The board of directors may from time to time designate the president or any executive vice president as the chief operating officer of the corporation. Any vice president, treasurer or assistant treasurer, or assistant secretary respectively may exercise any of the powers of the president, the chief financial officer, or the secretary, respectively, as directed by the board of directors and shall perform such other duties as are imposed upon such officer by the Bylaws or the board of directors.

5.2 Appointment of Officers. In addition to officers elected by the board of directors in accordance with Sections 5.1 and 5.3, the corporation may have one or more appointed vice presidents. Such vice presidents may be appointed by the chairman of the board, the chief executive officer or the president and shall have such duties as may be established by the chairman, the chief executive officer or the president. Vice presidents appointed pursuant to this
Section 5.2 may be removed in accordance with Section 5.4.

5.3 Terms of Office and Compensation. The term of office and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by

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the board of directors and may be altered by said board from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment.

5.4 Removal; Resignation of Officers and Vacancies. Any officer of the corporation may be removed at the pleasure of the board of directors at any meeting or, except in the case of an officer chosen by the board of directors, at the pleasure of any officer who may be granted such power by a resolution of the board of directors. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. If any vacancy occurs in any office of the corporation, the board of directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor is duly chosen and qualified.

5.5 Chairman of the Board. The chairman of the board, if such an officer be elected, shall have general supervision, direction and control of the corporation's business and its officers, and, if present, preside at meetings of the stockholders and the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these Bylaws. The chairman of the board shall report to the board of directors.

5.6 Vice Chairman of the Board. The vice chairman of the board of directors, if there shall be one, shall, in the case of the absence, disability or death of the chairman, exercise all the powers and perform all the duties of the chairman of the board. The vice chairman shall have such other powers and perform such other duties as may be granted or prescribed by the board of directors.

5.7 Chairman of Executive Committee. The chairman of the executive committee, if there be one, shall have the power to call meetings of the board of directors to be held subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the chairman of the executive committee shall deem proper. The chairman of the executive committee shall have such other powers and be subject to such other duties as the board of directors may from time to time prescribe.

5.8 Chief Executive Officer: The powers and duties of the chief executive officer are:

(a) To call meetings of the board of directors to be held, subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the chief executive officer shall deem proper.

(b) To affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the board of directors or which, in the judgment of the chief executive officer, should be executed on behalf of the corporation, and to sign certificates for shares of stock of the corporation.

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(c) To have such other powers and be subject to such other duties as the board of directors may from time to time prescribe.

5.9 President. The powers and duties of the president are:

(a) To call meetings of the board of directors to be held, subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the president shall deem proper.

(b) To affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the board of directors or which, in the judgment of the president, should be executed on behalf of the corporation, and to sign certificates for shares of stock of the corporation.

(c) To have such other powers and be subject to such other duties as the board of directors may from time to time prescribe.

5.10 Vice Presidents. In case of the absence, disability or death of the chief executive officer and the president, the elected vice president, or one of the elected vice presidents, shall exercise all the powers and perform all the duties of the chief executive officer and president. If there is more than one elected vice president, the order in which the elected vice presidents shall succeed to the powers and duties of the chief executive officer or the president shall be as fixed by the board of directors. The elected vice president or elected vice presidents shall have such other powers and perform such other duties as may be granted or prescribed by the board of directors.

Vice presidents appointed pursuant to Section 5.2 shall have such powers and duties as may be fixed by the chairman, chief executive officer or president, except that such appointed vice presidents may not exercise the powers and duties of the chief executive officer or president.

5.11 Secretary. The powers and duties of the secretary are:

(a) To keep a book of minutes at the principal office of the corporation, or such other place as the board of directors may order, of all meetings of its directors and stockholders with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof.

(b) To keep the seal of the corporation and affix the same to all instruments which may require it.

(c) To keep or cause to be kept at the principal office of the corporation, or at the office of the transfer agent or agents, a share register, or duplicate share registers, showing the names of the stockholders and their addresses, the number of and classes of shares, and the number and date of cancellation of every certificate surrendered for cancellation.

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(d) To keep a supply of certificates for shares of the corporation, to fill in all certificates issued, and to make a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents.

(e) To transfer upon the share books of the corporation any and all shares of the corporation; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents, and the method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to which the certificate is presented for transfer, and also, if the corporation then has one or more duly appointed and acting registrars, to the reasonable regulations of the registrar to which the new certificate is presented for registration; and provided, further that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 8.5 hereof.

(f) To make service and publication of all notices that may be necessary or proper, and without command or direction from anyone. In case of the absence, disability, refusal, or neglect of the secretary to make service or publication of any notices, then such notices may be served and/or published by the chief executive officer, president or a vice president, or by any person thereunto authorized by either of them or by the board of directors or by the holders of a majority of the outstanding shares of the corporation.

(g) Generally to do and perform all such duties as pertain to the office of secretary and as may be required by the board of directors.

5.12 Chief Financial Officer. The powers and duties of the chief financial officer are:

(a) To supervise the corporate-wide treasury functions and financial reporting to external bodies.

(b) To have the custody of all funds, securities, evidence of indebtedness and other valuable documents of the corporation and, at the chief financial officer's discretion, to cause any or all thereof to be deposited for account of the corporation at such depositary as may be designated from time to time by the board of directors.

(c) To receive or cause to be received, and to give or cause to be given, receipts and acquittances for monies paid in for the account of the corporation.

(d) To disburse, or cause to be disbursed, all funds of the corporation as may be directed by the board of directors, taking proper vouchers for such disbursements.

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(e) To render to the chief executive officer or president and to the board of directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation.

(f) Generally to do and perform all such duties as pertain to the office of chief financial officer and as may be required by the board of directors.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS

6.1 Indemnification of Directors and Officers. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized in advance by the board of directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the General Corporation Law of Delaware or (iv) such indemnification is required to be made pursuant to an individual contract. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

6.2 Indemnification of Others. The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

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6.3 Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.

6.4 Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding, upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise; provided, however, that the corporation shall not be required to advance expenses to any director or officer in connection with any proceeding (or part thereof) initiated by such person unless the proceeding was authorized in advance by the board of directors of the corporation.

Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.

6.5 Non-Exclusivity of Rights. The rights conferred on any person by this Article VI shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances to the fullest extent not prohibited by the General Corporation Law of Delaware.

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6.6 Survival of Rights. The rights conferred on any person by this Article VI shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

6.7 Amendments. Any repeal or modification of this Article VI shall only be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.

ARTICLE VII

RECORDS AND REPORTS

7.1 Maintenance and Inspection of Records. The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.

7.2 Inspection by Director. Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

7.3 Representation of Shares of Other Corporations. The chief execuitve officer or president or any other officer of this corporation authorized by the board of directors is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

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ARTICLE VIII

GENERAL MATTERS

8.1 Record Date for Purposes Other than Notice and Voting. For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Certificate of Incorporation, by these Bylaws, by agreement or by law.

If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later.

8.2 Checks; Drafts; Evidences of Indebtedness. From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.

8.3 Corporate Contracts and Instruments; How Executed. The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

8.4 Fiscal Year. The fiscal year of this corporation shall begin on the first day of May of each year and end on the last day of April of the following year.

8.5 Stock Certificates. There shall be issued to each holder of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares. Every holder of shares of the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice chairman of the board of directors, or the chief executive officer, or the president or a vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has

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ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

8.6 Special Designation on Certificates. If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

8.7 Lost Certificates. The corporation may issue a new share certificate or new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner's legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. The board of directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate.

8.8 Construction; Definitions. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.

8.9 Provisions Additional to Provisions of Law. All restrictions, limitations, requirements and other provisions of these Bylaws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal.

8.10 Provisions Contrary to Provisions of Law. Any article, section, subsection, subdivision, sentence, clause or phrase of these Bylaws which upon being construed in the manner provided in Section 8.9 hereof, shall be contrary to or inconsistent with any applicable provisions of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these Bylaws, it being hereby declared that these Bylaws would have been adopted and each article, section, subsection, subdivision,

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sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal.

8.11 Notices. Any reference in these Bylaws to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.

ARTICLE IX

AMENDMENTS

Subject to Section 6.7 hereof, these Bylaws may be amended or repealed (1) at any annual or special meeting of stockholders, by the affirmative vote of the holders of a majority of the voting power of the stock issued and outstanding and entitled to vote thereat, provided, however, that any proposed alteration or repeal of, or the adoption of any provision inconsistent with Sections 2.2, 2.3, 2.5 or 2.11 of Article II of the Bylaws or with Sections 3.2, 3.3, 3.4 or 3.5 of Article III of the Bylaws or this sentence, by the stockholders shall require the affirmative vote of the holders of at least 80% of the voting power of all stock then outstanding, voting together as a single class; and, provided, further, however, that in the case of any such stockholder action at a special me