As filed with the Securities and Exchange Commission on May 28, 1999 Registration No. 333- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- MISSION CRITICAL SOFTWARE, INC. (Exact name of Registrant as specified in its charter) ---------------- Delaware 7372 76-0509513 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction of Classification Code Number) Identification Number) incorporation or organization) Mission Critical Software, Inc. 720 North Post Oak Road, Suite 505 Houston, Texas 77024 (713) 548-1700 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Stephen E. Odom Chief Financial Officer Mission Critical Software, Inc. 720 North Post Oak Road, Suite 505 Houston, Texas 77024 (713) 548-1700 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: Robert P. Latta John S. Watson Paul R. Tobias Brian M. Moss Julia Reigel Vinson & Elkins L.L.P. Matthew J. Esber First City Tower Wilson Sonsini Goodrich & Rosati Suite 2300 Professional Corporation 1001 Fannin Street 8911 Capital of Texas Highway North Houston, Texas 77022-6760 Suite 3110 (713) 758-2222 Austin, Texas 78759 (512) 338-5400 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement ---------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 145 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- <TABLE> <CAPTION> Proposed Maximum Aggregate Title of Each Class of Offering Amount of Securities to be Registered Price(1) Registration Fee -------------------------------------------------------------------------------- <S> <C> <C> Common stock, $0.001 par value............... $60,375,000 $16,785 -------------------------------------------------------------------------------- </TABLE> -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this preliminary prospectus is not complete and may be + +changed. We may not sell these securities until the registration statement + +filed with the Securities and Exchange Commission is effective. This + +preliminary prospectus is not an offer to sell these securities, and it is + +not soliciting an offer to buy these securities in any jurisdiction where the + +offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MAY 28, 1999 PROSPECTUS Shares [LOGO OF MISSION CRITICAL SOFTWARE APPEARS HERE] Common Stock This is an initial public offering of common stock by Mission Critical Software, Inc. Of the shares of common stock being sold in this offering, shares are being sold by Mission Critical Software and shares are being sold by the selling stockholders. Mission Critical Software will not receive any of the proceeds from the sale of shares by the selling stockholders. We estimate that the initial public offering price will be between $ and $ per share. ------------ Prior to this offering, there has been no public market for our common stock. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol MCSW. ------------ <TABLE> <CAPTION> Per Share Total ----------- ----------- <S> <C> <C> Initial public offering price......................... $ $ Underwriting discounts and commissions................ $ $ Proceeds to Mission Critical Software, before expenses............................................. $ $ Proceeds to selling stockholders, before expenses..... $ $ </TABLE> Mission Critical Software has granted the underwriters an option for a period of 30 days to purchase up to additional shares of Common Stock. The underwriters are severally underwriting the shares being offered. The underwriters expect to deliver the shares in New York, New York on , 1999. ------------ Investing in the common stock involves a high degree of risk. See "Risk Factors" beginning on page 8. ------------ The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. HAMBRECHT & QUIST BANCBOSTON ROBERTSON STEPHENS SOUNDVIEW TECHNOLOGY GROUP , 1999.

[Graphical depiction of the extended enterprise. Textual summary description of our eManagement software solutions and our strategy.] 2

TABLE OF CONTENTS <TABLE> <CAPTION> Page ---- <S> <C> Prospectus Summary....................................................... 4 Risk Factors............................................................. 8 Forward-Looking Statements............................................... 19 Use of Proceeds.......................................................... 20 Dividend Policy.......................................................... 20 Capitalization........................................................... 21 Dilution................................................................. 22 Selected Financial Data.................................................. 23 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 24 Business................................................................. 36 Management............................................................... 49 Certain Transactions..................................................... 60 Principal and Selling Stockholders....................................... 63 Description of Capital Stock............................................. 65 Shares Eligible for Future Sale.......................................... 68 Underwriting............................................................. 70 Legal Matters............................................................ 72 Experts.................................................................. 72 Additional Information................................................... 72 Index to Financial Statements............................................ F-1 </TABLE> ---------------- Mission Critical Software was incorporated in Delaware in July 1996, and we began operations in September 1996. References in this prospectus to "Mission Critical Software," "we," "our" and "us" refer to Mission Critical Software, Inc., a Delaware corporation. We maintain a web site at www.missioncritical.com. Information contained on our web site does not constitute part of this prospectus. We use the following trademarks: . Active Administration . OnePoint Administrator . OnePoint Exchange . Active Knowledge . OnePoint Directory Administrator . Channel One Administrator . OnePoint File . MCS . OnePoint Domain Administrator . Mission Critical Administrator . OnePoint Resource Software . OnePoint Event Administrator . Mission Critical Administrator . OnePoint logo Software logo . OnePoint Event Manager . SeNTry--the Enterprise Event Manager Each trademark, trade name or service mark of any other company appearing in this prospectus belongs to its holder. Except as otherwise noted, all information in this prospectus assumes the conversion of all outstanding shares of preferred stock and no exercise of the underwriters' over-allotment option. 3

PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including our financial statements and the risks of investing in our common stock discussed under "Risk Factors" before making an investment decision. MISSION CRITICAL SOFTWARE, INC. We are a leading provider of systems administration and operations management software products for corporate and Internet-based Windows NT networks. Our OnePoint product suite is designed to improve the reliability, performance and security of even the most complex computing environments by simplifying and automating key systems management functions. Our products can be deployed quickly, are based on an open and extensible architecture and are easy to use. In today's corporate networks, organizations are installing Windows NT servers in greater quantities and are using these servers to address a broadening scope of business needs. For example, Windows NT servers are increasingly being used to run web sites and web server farms--Internet-based networks composed of hundreds of thousands of tiered Windows NT servers--and to support e-business and application hosting initiatives. In a survey of Fortune 1000 information technology managers, Forrester Research found that, on average, those managers expected 60% of their servers to run on Windows NT by the year 2000. The growing complexity of corporate and Internet-based Windows NT networks has placed increasing pressure on systems managers to maintain reliable network operations. To improve both the efficiency and effectiveness of such networks, businesses are increasingly using systems management software solutions. International Data Corporation projects that the market for products that manage 32-bit Windows platforms will grow from $1.8 billion in 1998 to $8.1 billion by 2003. Our OnePoint product suite is designed to facilitate eManagement--the centralized management of critical systems infrastructure and applications for the extended enterprise. Customers can use our products to monitor, manage, administer and secure a wide range of resources in the Windows NT environment including web server farms, e-commerce and corporate servers, firewalls, workstations and applications. OnePoint enables companies to automate labor- intensive tasks, such as security monitoring and administration, and to minimize the need for customization by embedding industry best practices. OnePoint is also designed to ease the transition from other operating system platforms, such as Novell Netware, to Windows NT by providing systems administrators with the ability to test implementations and convert systems incrementally. Our primary strategic objective is to maintain and strengthen our position as a leading provider of systems management software for corporate and Internet- based Windows NT networks. Our product strategy focuses on expanding our OnePoint suite and facilitating migration to and management of the Windows 2000 platform. In addition, we intend to expand our operations management capabilities and to increase our product's ability to administer and monitor other platforms. Our sales strategy focuses on selling new and existing products to existing customers, large corporations and international organizations. We intend to build on these selling efforts by targeting mid- sized companies as well as e-businesses, Internet service providers, commerce service providers and other companies for which Windows NT and Windows 2000 systems management products are a growing operational necessity. To support these strategic efforts, we intend to leverage and expand our Microsoft relationship. We currently have an extensive relationship with Microsoft that includes the sharing of technology, joint marketing and sales efforts and Microsoft's use of our OnePoint Event Manager product for its global Internet and corporate datacenters. We believe we 4

are well positioned to anticipate Microsoft's evolving product strategy and to capitalize on joint sales and marketing programs. As of March 31, 1999, our products had been installed by over 600 customers, including more than 40 of the 1999 Fortune 100 companies and some of the largest Internet data centers in the world. We market and sell our products worldwide through a network of sales offices and distribution partners. Our products have been adopted in a wide variety of industries, including banking and finance, energy, healthcare, insurance and pharmaceuticals. Representative customers include Compaq Computer Corporation, DuPont, Johnson & Johnson, Lockheed Martin, Merck & Co., Inc., Prudential Insurance Company of America, Shell Services International, Sprint Corporation and Wells Fargo & Company. Our principal executive offices are located at 720 North Post Oak Road, Suite 505, Houston, Texas 77024, and our telephone number is (713) 548-1700. 5

The Offering <TABLE> <S> <C> Common Stock offered by Mission Critical Software..................................... shares Common Stock offered by the selling stockholders................................. shares Common Stock to be outstanding after this offering..................................... shares Use of proceeds............................... For general corporate purposes, principally working capital and capital expenditures. Nasdaq National Market symbol................. MCSW (application pending) </TABLE> The number of shares of common stock outstanding after this offering is based on 9,914,270 shares outstanding as of March 31, 1999. This number excludes 3,935,084 shares of common stock issuable upon exercise of stock options and 433,333 shares of common stock issuable upon exercise of warrants outstanding as of March 31, 1999 with weighted average exercise prices of $1.99 and $1.38 respectively. This number also excludes 4,355,648 shares of common stock available for future issuance under our 1997 Stock Option Plan, 250,000 shares reserved for issuance under our 1999 Director Option Plan and 600,000 shares reserved for sale under our 1999 Employee Stock Purchase Plan. 6

Summary Financial Information The following table sets forth summary financial data for our company. Our total operating loss reflects amortization of stock option compensation of $236,000 and abandoned lease costs of $1.0 million for the nine months ended March 31, 1999 and a write-off of acquired in-process research and development of $1.5 million in the period ended June 30, 1997. The information under "As Adjusted" reflects the application of the net proceeds from the sale by us of the shares of common stock in this offering at an assumed initial public offering price of $ and the deduction of the underwriting discount and estimated offering expenses. <TABLE> <CAPTION> July 19, 1996 Year Ended Nine Months (inception) June 30, Ended March 31, to June 30, ---------- ---------------- 1997 1998 1998 1999 ------------- ---------- ------- ------- (in thousands, except per share data) <S> <C> <C> <C> <C> Statement of Operations Data: Revenue........................... $ 4,267 $14,376 $ 9,234 $16,901 Operating loss.................... (3,500) (2,379) (2,396) (428) Net loss.......................... $(3,323) $(2,316) $(2,334) $ (222) Basic and diluted net loss per share............................ $ (1.44) $ (2.47) $ (2.37) $ (0.40) Pro forma basic and diluted net loss per share................... $ (0.53) $ (0.02) </TABLE> <TABLE> <CAPTION> March 31, 1999 -------------------- Actual As Adjusted ------- ----------- (in thousands) <S> <C> <C> Balance Sheet Data: Cash and cash equivalents................................ $ 9,458 $ Working capital.......................................... 3,542 Total assets............................................. 15,056 Long-term debt, less current maturities.................. 148 Redeemable convertible preferred stock................... 13,179 Total stockholders' equity (deficit)..................... (8,265) </TABLE> 7

RISK FACTORS Any investment in our common stock involves a high degree of risk. You should consider the risks described below carefully and all of the information contained in this prospectus before deciding whether to purchase our common stock. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations would suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. Our business and prospects are difficult to evaluate because we have a limited operating history Our company was founded in July 1996. We have a limited operating history. An investor in our common stock must consider the risks and difficulties we may encounter as an early stage company in a new and rapidly evolving market. These risks and difficulties include our: . ability to develop competitive products; . need to expand our sales and support organizations; . reliance on our strategic relationship with Microsoft; . competition; . need to manage changing operations; . dependence upon key personnel; and . general economic conditions. We cannot be certain that our business strategy will be successful or that we will successfully manage these risks. If we fail to address adequately any of these risks or difficulties, our business would likely suffer. We have a history of losses and may experience losses in the future Since our inception, we have incurred significant net losses and as of March 31, 1999 had an accumulated deficit of $8.8 million. We expect to continue to incur significant sales and marketing, product development and administrative expenses. As a result, we will need to generate significant revenue to maintain profitability. We cannot be certain that we will achieve, sustain or increase profitability on a quarterly or annual basis in the future. We anticipate that our expenses will increase substantially in the foreseeable future as we: . increase our direct sales and marketing activities, by expanding our North American and international direct sales forces and extending our telesales efforts; . develop our technology, expand our OnePoint product suite and create and market products that operate with the commercial release version of Windows 2000; . expand our indirect distribution channels; and . pursue strategic relationships and acquisitions. Any failure to significantly increase our revenue as we implement our product and distribution strategies would materially adversely affect our business, quarterly and annual operating results and financial condition. Although our revenue has grown rapidly in recent years, we do not believe that we will maintain this rate of revenue growth. In addition, we may not experience any revenue growth in the future, and our revenue could in fact decline. Our efforts to expand our software product suites, sales and marketing 8

activities, direct and indirect distribution channels and maintenance and support functions and to pursue strategic relationships or acquisitions may not succeed or may prove more expensive than we currently anticipate. As a result, we cannot predict our future operating results with any degree of certainty. There are many factors, including some beyond our control, that may cause fluctuations in our quarterly operating results and our stock price Our quarterly operating results may vary significantly from quarter to quarter depending upon a number of factors described elsewhere in this prospectus, including many that are beyond our control. Our ability to accurately forecast our quarterly sales is limited, which makes it difficult to predict the quarterly revenue that we recognize. As a result, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful, and investors should not rely on them as an indication of our future performance. Historically, a majority of our revenue has been attributable to the licenses of software products. Changes in the mix of our revenue, including the mix between higher margin software products and somewhat lower margin maintenance, could adversely affect our operating results for future quarters. As a result of our limited operating history, we cannot forecast operating expenses based on historical results. If we have a shortfall in revenue in relation to our expenses, we may be unable to reduce our expenses quickly enough to avoid lower quarterly operating results. Many of our costs are fixed in the short-term. For example, we have signed a five year lease for 70,000 square feet of new office space in Houston, Texas that will commence in August 1999. We do not know whether our business will grow rapidly enough to absorb the costs of this facility. In either case, lower quarterly results could adversely affect the market price of our common stock. We have relied and expect to continue to rely on sales of licenses for our OnePoint Administrator products for our revenue and a decline in sales of this product could cause our revenues to fall Historically, we have derived the substantial majority of our license revenue from the sale of our OnePoint Administrator products. During the period from inception to June 30, 1997, the fiscal year ended June 30, 1998 and the nine months ended March 31, 1999, sales of OnePoint Administrator products accounted for approximately 100%, 88% and 83% of our license revenue, respectively. We expect that this product will continue to account for a large portion of our license revenue for the foreseeable future. Our future operating results depend on the continued market acceptance of our OnePoint Administrator products and future enhancements to our OnePoint Administrator products. Any factors adversely affecting the pricing of, demand for or market acceptance of our OnePoint Administrator products, including competition or technological change, could cause our business to suffer. We introduced a new version of our OnePoint Event Manager product in June 1998. To date, this product has accounted for only a limited portion of our revenue. However, our future growth and profitability will depend on our ability to increase sales of our OnePoint Event Manager product. Our revenue could decline substantially if our existing customers do not continue to purchase new licenses from us We rely on sales of additional licenses for our products to our existing customers. In the nine months ended March 31, 1999, additional sales to our existing customers represented 50% of our total revenue. If we fail to sell additional licenses for our products and maintenance to our existing customers, we would experience a material and adverse decline in total revenue. Even if we are successful in selling our products 9

to new customers, the rate of growth of our revenue could be materially and adversely affected if our existing customers do not continue to purchase a substantial number of additional product licenses from us. Risks Related to Microsoft Our business is dependent on the continued adoption of Windows NT and Windows 2000 for corporate and Internet-based networks and a decrease in their rates of adoption could cause our business to suffer For the foreseeable future, we expect that substantially all of our revenue will continue to come from sales of our Windows NT systems management products. As a result, we depend on the growing use of the Windows NT platform for corporate and Internet-based networks. If the role of the Windows NT platform does not increase as we anticipate, or if it in any way decreases, our business would suffer. In addition, if users do not accept Windows 2000, or if there is a wide acceptance of other existing or new platforms that provide enhanced capabilities, our business would likely suffer. Windows 2000 may not gain market acceptance if its launch is delayed beyond its expected release date. In addition, users of previous versions of Windows NT may decide to migrate to another operating system platform due to the delays or to improved functionality of some other vendor's operating system platform. Windows 2000 may address more of the needs of our customers for systems administration and operations management, in which case our customers would not need to purchase our products to perform those functions. In addition, we cannot be sure that we will be able to successfully redevelop our products to work with Windows 2000 at the same or better levels of functionality than our products work with the current version of Windows NT. Even if we successfully develop products for the Windows 2000 platform, our customers may not choose our OnePoint product suite for technical, cost, support or other reasons. If users of large corporate and Internet-based Windows 2000 networks do not widely adopt and purchase our OnePoint product suite, our business, financial condition and results of operations will be materially adversely affected. If our introduction of new OnePoint products for Windows 2000 is not successful, our business would suffer We are currently expanding our OnePoint product suite to support the commercial release version of the Windows 2000 platform, which has been announced by Microsoft but is not currently available. Our OnePoint product suite currently supports the Beta 3 version of Windows 2000 Server. If we do not successfully develop, market and sell products that support the commercial release version of Windows 2000, our business and future operating results would suffer. In addition, we must introduce new versions of our products to support the commercial release version of Windows 2000 shortly after its release by Microsoft. If we fail to introduce our new products within a short time after the commercial release of Windows 2000, the delay may cause customers to forego purchases of our products and purchase those of our competitors. We depend on our relationship with Microsoft and if this relationship suffers, our business would likely be damaged We believe that our success in penetrating our target markets depends in part on our ability to maintain our strategic relationship with Microsoft. We believe our relationship with Microsoft is important in order to validate our technology, facilitate broad market acceptance of our products and enhance our sales, marketing and distribution capabilities. If we are unable to maintain and enhance our existing relationship with Microsoft or develop a similar relationship with another major operating system vendor, we may have difficulty selling our products. We rely heavily on our relationship with Microsoft and attempt to coordinate our product offerings with the future releases of Microsoft's operating systems, particularly the commercial release version of Windows 10

2000. Microsoft may not notify us of feature enhancements prior to new releases of its operating systems in the future. In that case, we may not be able to introduce products on a timely basis that capitalize on new operating system releases and feature enhancements. Risks Related to Our Sales Efforts If we experience any changes in our sales cycle, our quarterly operating results could fluctuate To date, our customers have taken an average of three months to evaluate our products. Our customers tend to deploy our products by purchasing licenses for one product at a time and for a small number of servers and clients. We anticipate that the sales cycle for other OnePoint products will be similar to the sales cycle we previously experienced for OnePoint Administrator products and OnePoint Event Manager. If customers begin to evaluate our products for an enterprise-wide initial deployment, our sales cycle could lengthen and our license revenue and operating results might vary significantly from period to period. In addition, enterprise-wide initial deployments could also erode per- user license fees even though our average sales price might increase. If we are unable to expand our sales and support organizations, we may not be able to expand our business In order to increase market awareness and sales of our products, we will need to substantially expand our direct and indirect sales operations, both domestically and internationally. To date, we have relied primarily on our direct sales force to sell our products. Our products and maintenance require a sophisticated sales effort targeted at several people within our prospective customers' information technology departments. We have recently expanded our direct sales force and plan to hire additional sales personnel. Competition for qualified sales people is intense, and we might not be able to hire the kind and number of sales people we are targeting. To date, we have not licensed our products to, nor partnered with, systems integrators to sell our software products. We intend to explore relationships with systems integrators but have little or no experience negotiating agreements with systems integrators, engaging in joint selling activities with systems integrators or providing support to such systems integrators' end-user customers. Our business and sales may suffer if we fail to enter into agreements with systems integrators or if we fail to successfully and profitably perform our obligations under such agreements. In addition, our revenue could be adversely affected if selling our products through systems integrators results in lower margins and those sales replace a substantial portion or our direct sales. Similarly, the complexity of distributed computing systems requires highly trained customer service and support personnel to assist the customer with installation and deployment. We currently have a small customer service and support organization and will need to increase our staff to support new customers and the expanding needs of existing customers. Hiring customer service and support personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of the Windows NT and Windows 2000 operating environments. Our expansion to international markets could reduce our operating margins During the period from inception to June 30, 1997, the fiscal year ended June 30, 1998 and the nine months ended March 31, 1999, we derived 15%, 18% and 20% of our total revenue, respectively, from sales outside of North America. We only recently hired direct sales staff outside of North America. We have historically generated substantially all of our total revenue outside of North America through distributors. We believe that our future success is dependent upon establishing successful relationships with a variety of distribution partners. To date, we have entered into agreements with only a small number of distribution partners. We are expanding our indirect distribution channels outside of North America. We cannot be certain that we will be able to attract distributors that market our products effectively or provide timely and cost- effective customer support and service. We cannot be certain that any distributor will continue to represent our products or that our distributors will devote a sufficient amount of effort and resources to selling our products in their territories. 11

If we are unable to generate increased international sales through an indirect distribution model, we will incur higher personnel costs by hiring direct sales staff. We may not realize corresponding increases in revenue from such direct international sales staff, and our operating margins may decline. If we elect to establish more direct sales staff outside the United States, varying employment policies and regulations among countries may reduce our flexibility in managing headcount and, in turn, managing personnel-related expenses. Even if we are able to successfully expand our direct and indirect international selling efforts, we cannot be certain that we will be able to create or increase international market demand for our products. We also expect that if we increase our sales in Europe substantially, our operating results may be lower in our quarters ending September 30 due to the summer slowdown in Europe. Our business and prospects are difficult to evaluate, because we have historically experienced seasonality In the quarter ended September 30, 1998, our revenue and operating results were lower relative to the prior quarter. We believe this decline resulted from the substantial number of transactions our sales staff closed in the prior quarter, our fourth fiscal quarter, and because there were fewer selling opportunities in the summer months. If this seasonality were to continue in the future, our quarter-to-quarter operating results could be affected. Our revenues may suffer if customers demand extensive consulting or other support services with our software products Our products are designed to require little or no support from us to be implemented quickly and effectively by our customers. Many of our competitors offer extensive consulting services in addition to software products. If we introduced a product that required extensive consulting services for implementation or if our customers wanted to purchase from a single vendor a menu of items that includes extensive consulting services, we would be required to change our business model. We would be required to hire and train consultants, outsource the consulting services or enter into a joint venture with another company that could provide those services. If such events were to occur, our revenues would likely suffer because customers would choose another vendor or we would incur the added expense of hiring and retaining consulting personnel. Our industry is highly competitive, and we face competition from Microsoft We face competition from different sources. Existing Competition. Currently, we compete principally with: . internal systems management departments; . providers of point solutions for Windows NT directory administration, domain consolidation and migration and event management such as Master Design & Development, Inc., Micromuse, Inc., Fastlane Technologies, Inc., Entevo Corporation, NetIQ Corporation, Systems Options, Ltd. and Aelita Software Group; . providers of security and audit products for Windows NT such as BindView Development Corporation and Netwise Systems Limited; and . providers of broad systems management suites and/or frameworks such as Computer Associates, Inc., Hewlett-Packard Company, Tivoli Systems, Inc. and BMC Software, Inc. In addition, certain features included in our products compete with the native tools from Microsoft. 12

We expect competition in the systems management software market to increase significantly as new companies enter the market and current competitors expand their product lines and services. Many of these potential competitors are likely to enjoy substantial competitive advantages, including: . greater resources that can be devoted to the development, promotion and sale of their products; . more established sales channels; . greater software development experience; and . greater name recognition. Future Competition. We also believe that Microsoft, or systems management software vendors, each of which are also currently competing with us, could enhance their products to include the functionality that we currently provide in our products. If these vendors include such functionality as standard features of their products, our software solutions could become obsolete. Even if the functionality of the standard features of these products is more limited than ours, we face a substantial risk that a significant number of customers would elect to keep this limited functionality rather than purchase additional software. We may face competition in the future from established companies who have not previously entered the Windows NT systems management software market or from emerging software companies. Barriers to entry in the software market are relatively low. Increased competition may materially adversely affect our business and future quarterly and annual operating results due to price reductions, higher selling expenses and a reduction in our market share. Microsoft and systems management software vendors may not only develop their own systems management solutions, but they may also acquire or establish cooperative relationships with our current competitors, including smaller private companies. Because Microsoft and these vendors have significant financial and organizational resources available, they may be able to quickly penetrate the Windows NT systems management software market by leveraging the technology and expertise of smaller companies and utilizing their extensive distribution channels. We expect that the software industry, in general, and providers of systems management solutions, in particular, will continue to consolidate. It is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Bundling or Compatibility Risks. Our ability to sell our products also depends, in part, on the compatibility of our products with other vendors' software and hardware products, particularly those provided by Microsoft. Developers of these products may change their products so that they will no longer be compatible with our products. These other vendors may also decide to bundle their products with other systems management products for promotional purposes. If that were to happen, our business and future operating results may be materially adversely affected as we may be priced out of the market or no longer be able to offer commercially viable products. To be competitive, we must respond promptly and effectively to the challenges of technological change, evolving standards and our competitors' innovations by continuing to enhance our products and sales channels. Any pricing pressures or loss of market share resulting from our failure to compete effectively could materially adversely affect our business. We may not succeed in developing and marketing new products for our OnePoint suite We are planning the release of additional products for our OnePoint suite that function with Windows NT and the commercial release version of Windows 2000. Developing these capabilities and other required features for the release of new products will require significant additional expenses and development resources. For example, we cannot be certain that our entry into the file administration segment of the systems management software market with our OnePoint File Administrator product will be successful or that our customers will widely accept and adopt this product. Our products are subject to rapid technological change and could be rendered obsolete by new technologies The systems management software market is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer demands and 13

evolving industry standards. Our products could be rendered obsolete if products based on new technologies are introduced or new industry standards emerge. Client/server computing environments are inherently complex. As a result, we cannot accurately estimate the life cycles of our software products. New products and product enhancements can require long development and testing periods, which depend significantly on our ability to hire and retain increasingly scarce and technically competent personnel. Significant delays in new product releases or significant problems in installing or implementing new product releases could seriously damage our business. We have, on occasion, experienced delays in the scheduled introduction of new and enhanced products and cannot be certain that we will avoid such delays in the future. Our future success depends upon our ability to enhance existing products, develop and introduce new products, satisfy customer requirements and achieve market acceptance. We cannot be certain that we will successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner. Any failure by us to protect our intellectual property could harm our competitive position Our success and ability to compete are substantially dependent upon our internally developed technology, which we protect through a combination of copyright, trade secret and trademark law. We have not, however, registered any of our trademarks under applicable law. We generally enter into confidentiality or license agreements with our employees, consultants and corporate partners, and generally control access to and distribution of our software, documentation and other proprietary information. However, we believe that such measures afford only limited protection. Others may develop technologies that are similar or superior to our technology or design around the copyrights and trade secrets owned by us. We license our software products primarily under shrink wrap licenses (i.e., licenses included as part of the product packaging). Shrink wrap licenses are not negotiated with or signed by individual licensees, and purport to take effect upon the opening of the product package. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Policing unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as those in the United States. Our means of protecting our proprietary rights may be inadequate. We may infringe the proprietary rights of others and be liable for significant damages. Substantial litigation regarding intellectual property rights exists in the software industry. We expect that software products may be increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products in different industry segments overlaps. We are not aware that we are infringing any proprietary rights of third parties. However, third parties may claim that we infringe their intellectual property rights. Any claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert our management's attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. A successful claim of product infringement against us or our failure or inability to license the infringed or similar technology could adversely affect our business. We have experienced significant growth and change in our business and our failure to manage this growth and any future growth could harm our business We continue to increase the scope of our operations domestically and internationally and have grown our headcount substantially. At June 30, 1998, we had a total of 92 full-time employees, and at March 31, 1999 we had a total of 136 full-time employees. Our productivity and the quality of our products may be 14

materially adversely affected if we do not integrate and train our new employees quickly and effectively. We also cannot be sure that our revenues will continue to grow at a sufficient rate to absorb the costs associated with a larger overall headcount, as well as recruiting-related expenses. We face risks from our international operations We have no experience in developing foreign language translations of our products and little experience marketing and distributing our products internationally. In addition, our international operations are subject to other inherent risks, including: . the impact of recessions in economies outside the United States; . greater difficulty in accounts receivable collection and longer collection periods; . unexpected changes in regulatory requirements; . difficulties and costs of staffing and managing foreign operations; . reduced protection for intellectual property rights in some countries; . potentially adverse tax consequences; and . political and economic instability. Our international sales are generally denominated in the United States dollar. We do not currently engage in currency hedging activities. Although exposure to currency fluctuations to date has been insignificant, future fluctuations in currency exchange rates may adversely affect our future revenue from international sales. We may also be less competitive than a vendor whose products are sold in the local currency during times of exchange rate instability. We expect that if our international sales operations increase substantially, we will be required to price our products and pay our expenses in foreign currencies and may be subject to currency exchange risk. Potential year 2000 problems with our products or our internal systems could adversely affect our business Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. As a result, software that records only the last two digits of the calendar year may not be able to determine whether "00" means 1900 or 2000. This may result in software failures or the creation of erroneous results. We are in the early stages of assessing our Year 2000 readiness. We have only conducted a preliminary investigation and performed limited testing to determine whether each component of our OnePoint product suite and our products in development are Year 2000 compliant. Our software products operate in complex system environments and directly and indirectly interact with a number of other hardware and software systems. Despite preliminary investigation and testing by us and our partners, our software products and the underlying systems and protocols running our products may contain errors or defects associated with Year 2000 date functions. We are unable to predict to what extent our business may be affected if our software or the systems that operate in conjunction with our software experience a material Year 2000 failure. Known or unknown errors or defects that affect the operation of our software could result in delay or loss of revenue, cancellation of customer contracts, diversion of development resources, damage to our reputation, increased maintenance and warranty costs, and litigation costs, any of which could adversely affect our business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." If we are unable to attract and retain key personnel, our business would be harmed We intend to hire a significant number of additional sales, support, marketing and research and development personnel in calendar 1999 and 2000. Competition for these individuals is intense, and we may 15

not be able to attract, assimilate or retain additional highly qualified personnel in the future. Our future success also depends upon the continued service of our executive officers and other key sales, marketing and support personnel. In addition, our products and technologies are complex and we are substantially dependent upon the continued service of our existing engineering personnel, and especially Thomas P. Bernhardt, one of our founders and our Chief Technology Officer. The loss of any of our key employees could adversely affect our business and slow our product development processes particularly since neither our Chief Executive Officer nor our Chief Financial Officer is bound by a noncompetition or nonsolicitation agreement. We do not have key person life insurance policies covering any of our employees. To achieve our business objectives, we may recruit and employ skilled technical professionals from other countries to work in the United States. Limitations imposed by federal immigration laws and the availability of visas could materially adversely affect our ability to attract necessary qualified personnel. This may have a material adverse effect on our business and future operating results. Errors in our products or the failure of our products to conform to specifications could result in our customers demanding refunds from us or asserting claims for damages against us Because our software products are complex, they could contain errors or bugs that can be detected at any point in a product's life cycle. While we continually test our products for errors and work with customers through our customer support services to identify and correct bugs in our software, we expect that errors in our products will continue to be found in the future. Although many of these errors may prove to be immaterial, certain of these errors could be significant. Detection of any significant errors may result in, among other things, the loss of or delay in market acceptance and sales of our products, diversion of development resources, injury to our reputation, or increased maintenance and warranty costs. These problems could materially adversely affect our business and future operating results. In the past we have discovered errors in certain of our products and have experienced delays in the shipment of our products during the period required to correct these errors. These delays have principally related to new version and product update releases. To date none of these delays has materially affected our business. However, product errors or delays in the future, including any product errors or delays associated with the introduction of our new products or the versions of our products that support Windows 2000 could be material. In addition, in certain cases we have warranted that our products will operate in accordance with specified customer requirements. If our products fail to conform to such specifications, customers could demand a refund for the software license fee paid to us or assert claims for damages. Moreover, because our products administer critical distributed computing systems services, we may receive significant liability claims if our products do not work properly. Our agreements with customers typically contain provisions intended to limit our exposure to liability claims. These limitations may not, however, preclude all potential claims. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. As a result, any such claims, whether or not successful, could seriously damage our reputation and our business. We will face risks if we undertake acquisitions We may make investments in complementary companies, products or technologies. If we buy a company, we could have difficulty in assimilating that company's personnel and operations. In addition, the key personnel of the acquired company may decide not to work for us. If we make other types of acquisitions, we could have difficulty in assimilating the acquired technology or products into our operations. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. We also expect that we would incur substantial expenses if we acquired another business or technologies. Furthermore, we may use the proceeds of this offering, incur debt or issue equity securities to pay for any future acquisitions. The issuance of additional equity securities could be dilutive to our stockholders. 16

Risks Related to this Offering Our stock will likely be subject to substantial price and volume fluctuations due to a number of factors, certain of which will be beyond our control The securities markets have experienced significant price and volume fluctuations and the market prices of the securities of software companies have been especially volatile. This market volatility, as well as general economic, market or political conditions could adversely affect the market price of our common stock without regard to our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors. If this were to occur, the market price of our common stock could decrease significantly. Investors may be unable to resell their shares of our common stock at or above the offering price. In the past, companies that have experienced volatility in the market price of their stock have been the object of securities class action litigation. If we were the object of securities class action litigation, it could result in substantial costs and a diversion of management's attention and resources. We have broad discretion in how we use the proceeds of this offering, and we may not use such proceeds effectively Our management could spend most of the proceeds from this offering in ways with which our stockholders may not agree. We cannot predict that the proceeds will be invested to yield a favorable return. Our primary purpose in undertaking this offering is to create a public market for our common stock. As of the date of this prospectus, we do not plan to use the proceeds from this offering other than for working capital and general corporate purposes. We may also use the proceeds in future strategic acquisitions. Until the need arises to use the proceeds, we plan to invest the net proceeds in investment grade, interest-bearing securities. Our officers and affiliates of certain of our directors influence our business and hold a substantial portion of our stock We anticipate that our directors, officers and entities affiliated with certain of our directors will, in the aggregate, beneficially own approximately % of our outstanding common stock following the completion of this offering. These stockholders, if acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combinations. Certain provisions of our charter documents may inhibit potential acquisition bids; this may adversely affect the market price of our common stock and the voting rights of the holders of common stock Upon completion of the offering, our board of directors will have the authority to issue up to 5,000,000 shares of preferred stock in one or more series. The board of directors can fix the price, rights, preferences, privileges and restrictions of such preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change in control transaction without further action by our stockholders. As a result, the market price of our common stock and the voting and other rights of the holders of our common stock may be adversely affected. The issuance of preferred stock may result in the loss of voting control to others. We have no current plans to issue any shares of preferred stock. Our charter documents specify certain procedures for electing only one of the three classes of directors each year, limiting the ability of the stockholders to remove directors without cause, eliminating the right of stockholders to act by written consent, eliminating the right of stockholders to call a special meeting of stockholders and requiring advance notice to nominate directors or submit proposals for consideration at stockholder meetings. These provisions could discourage potential acquisition proposals and could delay or 17

prevent a change in control transaction, and they could have the effect of discouraging others from making tender offers for our common stock. As a result, these provisions may prevent the market price of our common stock from reflecting the effects of actual or rumored takeover attempts. These provisions may also prevent changes in our management. Delaware law may inhibit potential acquisition bids; this may adversely affect the market price of our common stock and prevent changes in our management Certain provisions of Delaware law may inhibit potential acquisition bids for our company. Upon completion of this offering, we will be subject to the antitakeover provisions of the Delaware General Corporation Law, which regulates corporate acquisitions. Delaware law will prevent us from engaging, under certain circumstances, in a "business combination" with any "interested stockholder" for three years following the date that such stockholder became an interested stockholder unless our board of directors or a supermajority of our uninterested stockholders agree. For purposes of Delaware law, a "business combination" includes, among other things, a merger or consolidation involving us and the interested stockholder and the sale of more than 10% of our assets. In general, Delaware law defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of a corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Under Delaware law, a corporation may "opt out" of the foregoing antitakeover provisions. We do not intend to "opt out" of these antitakeover provisions of Delaware Law. The substantial number of shares that will be eligible for sale in the near future may adversely affect the market price for our common stock. Sales of a substantial number of shares of our common stock (including shares issued upon the exercise of outstanding options and warrants) in the public market following this offering could adversely affect the market price of the common stock. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Upon completion of this offering, we will have outstanding shares of common stock based upon shares outstanding as of March 31, 1999. All of the shares sold in this offering will be freely tradable unless held by our affiliates. The remaining shares of common stock outstanding after this offering will be restricted as a result of securities laws or lock-up agreements signed by the holder and will be available for sale in the public market as follows: <TABLE> <CAPTION> Number of Date of Availability for Sale Shares ----------------------------- --------- <S> <C> At various times between March 31, 1999 and January 27, 2000... 343,136 January 28, 2000............................................... 8,071,134 </TABLE> At March 31, 1999, options to purchase 3,935,084 shares of our common stock were outstanding of which options approximately 778,508 shares were then vested and exercisable. Warrants to purchase 433,333 shares of common stock that were immediately exercisable were also outstanding. Beginning January 28, 2000, approximately 1,630,443 shares issuable upon the exercise of vested stock options and 433,333 shares issuable upon the exercise of warrants will become eligible for sale in the public market, if such options and warrants are exercised. The issuance of our common stock pursuant to these options and warrants could adversely affect the market price of our common stock. Hambrecht & Quist LLC may, in its sole discretion and at any time without prior notice, release all or any portion of the common stock subject to lock-up agreements. We do not intend to pay dividends. We have never declared or paid any cash dividends on our capital stock. In July 1997, we repurchased 950,000 shares of our Series A Preferred Stock from one holder for which the excess of the redemption price over the carrying value of the related Series A Preferred Stock is classified as a dividend for financial reporting purposes. We currently intend to retain any future earnings for funding growth and, therefore, do not expect to pay any dividends in the foreseeable future. 18

FORWARD-LOOKING STATEMENTS This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. Such risks and other factors include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform such statements to actual results. 19

USE OF PROCEEDS We estimate that the net proceeds from the sale of the shares of common stock that we are selling in this offering will be approximately $ ($ if the underwriters exercise their over-allotment option in full) based on an assumed public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses payable by us. We will not receive any proceeds from the sale of the shares being sold by the selling stockholders. The principal purpose of this offering is to create a public market for our common stock. We expect to use the net proceeds from this offering for working capital and general corporate purposes. We may use a portion of the net proceeds to acquire complementary products, technologies or businesses when the opportunity arises; however, we currently have no commitments or agreements and are not involved in any negotiations with respect to any such transactions. Pending such uses, we intend to invest the net proceeds in interest-bearing, investment-grade securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DIVIDEND POLICY We have never declared or paid any dividends on our capital stock. In July 1997, we repurchased 950,000 shares of our Series A Preferred Stock from one holder for which the excess of the redemption price over the carrying value of the related Series A Preferred Stock is classified as a dividend for financial reporting purposes. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. 20

CAPITALIZATION The following table sets forth our capitalization as of March 31, 1999. The as adjusted information reflects the sale and issuance of shares of our common stock by us in this offering at an assumed public offering price of $ per share. The information under "As Adjusted" reflects the applications of the net proceeds from the sale by us of the shares of common stock in this offering at an assumed initial public offering price of $ and the deduction of the underwriting discount and estimated offering expenses. You should read the information presented below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the related notes appearing elsewhere in this prospectus. The outstanding share information includes shares issued under restricted stock agreements that are subject to our right to repurchase the shares as of March 31, 1999. The outstanding share information excludes 8,290,732 shares of common stock reserved for issuance under our 1997 stock option plan, of which 3,935,084 shares were subject to outstanding options as of March 31, 1999 at a weighted average exercise price of $1.99 and 433,333 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $1.38. In addition, in connection with this offering, our board of directors and stockholders have approved: . an increase of 4,000,000 shares in the number of shares reserved under our 1997 Stock Option Plan; . a reserve of 250,000 shares for our 1999 Director Option Plan; and . a reserve of 600,000 shares for our 1999 Employee Stock Purchase Plan. <TABLE> <CAPTION> March 31, 1999 ------------------------------ Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands) <S> <C> <C> <C> Long-term debt, less current portion........... $ 148 $ 148 $148 Redeemable convertible preferred stock, Series A; $0.001 par value; 868,650 shares authorized, issued and outstanding--actual; no shares authorized, issued or outstanding--pro forma and as adjusted...... 179 -- -- Redeemable convertible preferred stock, Series B; $0.001 par value; 2,650,000 shares authorized, issued and outstanding--actual; no shares authorized, issued or outstanding--pro forma and as adjusted...... 2,650 -- -- Redeemable convertible preferred stock, Series C; $0.001 par value; 3,450,000 shares authorized, issued and outstanding--actual; no shares authorized, issued or outstanding--pro forma and as adjusted...... 10,350 -- -- Stockholders' equity (deficit): Preferred stock, $0.001 par value; no shares authorized, issued and outstanding--actual; 5,000,000 shares authorized, no shares issued or outstanding--pro forma and as adjusted.................................... -- -- -- Common stock, $0.001 par value; 13,083,333 shares authorized, 2,945,620 issued and outstanding--actual; 50,000,000 shares authorized, 9,914,270; shares issued and outstanding--pro forma; 50,000,000 shares authorized, shares issued and outstanding as adjusted..................... 3 10 Additional paid-in capital................... 1,651 14,823 Deferred stock compensation.................. (1,153) (1,153) Accumulated deficit.......................... (8,766) (8,766) ------- ------- ---- Total stockholders' equity (deficit)....... (8,265) 4,914 ------- ------- ---- Total capitalization..................... $ 5,062 $ 5,062 $ ======= ======= ==== </TABLE> 21

DILUTION Our net tangible book value as of March 31, 1999 was $9.2 million or approximately $0.93 per share. Net tangible book value per share represents the amount of our total tangible assets reduced by our total liabilities, divided by the number of shares of common stock outstanding, assuming conversion of all of our outstanding preferred stock. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to the receipt of the estimated proceeds from our sale of the shares of common stock at an assumed public offering price of $ per share, our net tangible book value at March 31, 1999 would have been $ million or approximately $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution: <TABLE> <S> <C> <C> Assumed public offering price per share........................... $ Net tangible book value per share as of March 31, 1999.......... $0.93 Increase per share attributable to new investors................ ----- Net tangible book value per share after the offering.............. ----- Dilution per share to new investors............................... $ ===== </TABLE> The following table sets forth, as of March 31, 1999, the differences between the amounts paid by existing holders of common stock and the new investors, with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by new investors before deducting the underwriting discount and estimated offering expenses payable by us, at an assumed public offering price of $ per share. <TABLE> <CAPTION> Average Shares Purchased Total Consideration Price -------------------- ---------------------- Per Number Percentage Amount Percentage Share --------- ---------- ----------- ---------- ------- <S> <C> <C> <C> <C> <C> Existing stockholders... 9,914,270 % $13,444,000 % $1.36 New investors........... --------- --- ----------- --- Total................... % $ % ========= === =========== === </TABLE> Sales by the selling stockholders in this offering will reduce the number of shares of common stock held by existing stockholders to or approximately % (approximately %, if the underwriters' over-allotment option is exercised in full) of the total number of shares of common stock outstanding upon the closing of this offering, and the number of shares held by new public investors will be or approximately % ( shares, or approximately %, if the underwriters' over-allotment option is exercised in full) of the total number of shares of common stock outstanding after this offering. See "Principal and Selling Stockholders." The above tables excludes 9,140,732 shares of common stock reserved for issuance under our stock option and stock purchase plans, of which 3,935,084 shares were subject to outstanding options as of March 31, 1999, and 433,333 shares of common stock were issuable upon exercise of outstanding warrants. To the extent any additional shares of our common stock are issued upon the exercise of options, that additional options are granted or reserved for issuance under our stock plans, new investors will experience further dilution. 22

SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the notes thereto included elsewhere in this prospectus. The statement of operations data set forth below for the period from July 19, 1996 (inception) to June 30, 1997, the fiscal year ended June 30, 1998 and the nine months ended March 31, 1999 have been derived from our audited financial statements included elsewhere in this prospectus. The statement of operations data for the nine months ended March 31, 1998 are derived from unaudited financial statements included elsewhere in this prospectus. Such unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, contain all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position. The historical results are not necessarily indicative of results to be expected for any future period. <TABLE> <CAPTION> Year Ended Nine Months Ended July 19, 1996 June 30, ------------------- (inception) to March 31, March 31, June 30, 1997 1998 1998 1999 -------------- ---------- --------- --------- (in thousands, except per share data) <S> <C> <C> <C> <C> Statement of Operations Data: Revenue: License...................... $ 4,087 $12,767 $ 8,159 $14,441 Maintenance.................. 180 1,609 1,075 2,460 ------- ------- ------- ------- Total revenue.............. 4,267 14,376 9,234 16,901 Cost of revenue: Cost of license.............. 206 392 294 291 Cost of maintenance.......... 142 933 680 681 ------- ------- ------- ------- Total cost of revenue...... 348 1,325 974 972 ------- ------- ------- ------- Gross margin................... 3,919 13,051 8,260 15,929 Operating expenses: Sales and marketing.......... 3,554 9,590 6,591 8,952 Research and development..... 1,317 3,612 2,470 4,274 General and administrative... 973 2,228 1,595 1,861 Amortization of deferred stock compensation.......... -- -- -- 236 Abandoned lease costs........ -- -- -- 1,034 Acquired in-process research and development............. 1,575 -- -- -- ------- ------- ------- ------- Total operating expenses... 7,419 15,430 10,656 16,357 ------- ------- ------- ------- Operating loss................. (3,500) (2,379) (2,396) (428) Other income, net.............. 2 63 62 206 ------- ------- ------- ------- Loss before income taxes....... (3,498) (2,316) (2,334) (222) Income tax benefit............. 175 -- -- -- ------- ------- ------- ------- Net loss....................... (3,323) (2,316) (2,334) (222) Excess of consideration paid to redeem preferred stock and dividends in arrears.......... (181) (3,714) (3,446) (791) ------- ------- ------- ------- Net loss applicable to common stockholders.................. $(3,504) $(6,030) $(5,780) $(1,013) ======= ======= ======= ======= Basic and diluted net loss per share......................... $ (1.44) $ (2.47) $ (2.37) $ (0.40) ======= ======= ======= ======= Pro forma basic and diluted net loss per share (unaudited).... $ (0.53) $ (0.02) ======= ======= </TABLE> <TABLE> <CAPTION> June 30, March 31, ---------------- --------- 1997 1998 1999 ------- ------- --------- Balance Sheet Data: (in thousands) <S> <C> <C> <C> Cash and cash equivalents......................... $ 299 $ 4,575 $ 9,458 Working capital (deficit)......................... (2,523) 3,241 3,542 Total assets...................................... 4,595 10,958 15,056 Long-term debt, less current maturities........... 33 352 148 Redeemable convertible preferred stock............ 3,189 13,179 13,179 Total stockholders' deficit....................... (3,520) (8,516) (8,265) </TABLE> 23

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with the our financial statements and the notes thereto beginning on page F-1 of this prospectus and the Selected Financial Data above. Except for historical information, the discussion in this prospectus contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes" and similar language. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, the risks discussed in the section titled "Risk Factors" in this prospectus. Overview We are a leading provider systems administration and operations management software products for corporate and Internet-based Windows NT networks. Our OnePoint product suite is designed to improve the reliability, performance and security of even the most complex computing environments by simplifying and automating key systems management functions. Our products can be deployed quickly, are based on an open and extensible architecture and are easy to use. We derive our revenue from the sale of software product licenses and maintenance. Currently, all of our product license revenue is derived from our OnePoint suite and principally our OnePoint Administrator products. In the periods from July 19, 1996, our inception, to June 30, 1997 ("fiscal 1997"), the fiscal year ended June 30, 1998 ("fiscal 1998") and the nine months ended March 31, 1999, sales of OnePoint Administrator products accounted for approximately 100%, 88% and 83% of our license revenue, respectively. We expect that these products will continue to account for a large portion of our license revenue for the foreseeable future. We recognize product license revenue when persuasive evidence of an agreement exists, customer acceptance periods, if any, have been completed, the product and the permanent license key have been delivered, we have no remaining significant obligations, the license fee is fixed or determinable and collection of the fee is probable. Customization or extensive on-site implementation services are generally not required for our customers to install and use our products. Sales transactions generally include one year of maintenance. Our customers typically purchase maintenance agreements annually, and we price maintenance agreements based on a percentage of the product license fee. Customers purchasing maintenance agreements receive unspecified product upgrades and electronic, Internet-based technical support and telephone support. We recognize revenue from maintenance agreements ratably over the term of the agreement, typically one year. We record cash receipts from customers for renewal maintenance agreements as deferred revenue. The timing and amount of cash receipts from customers can vary significantly depending on specific contract terms and can therefore have a significant impact on the amount of deferred revenue in any given period. Any factors adversely affecting the pricing of, demand for or market acceptance of our OnePoint product suite, such as competition or technological change, could materially adversely affect our business, operating results and financial condition. Of particular importance is the continued acceptance of Windows NT as a server operating platform in corporate and Internet-based networks. We believe that Windows NT and Windows 2000 Server, once released, will continue to be an integral part of the corporate and Internet-based client/server environments. Cost of revenue consists of the following: . amortization of acquired technology; . costs to manufacture, package and distribute our products and related documentation; . personnel; and . other expenses related to providing maintenance. 24

Since our inception in 1996, we have incurred substantial costs to develop our technology and products, to recruit and train personnel for our engineering, sales and marketing and technical support departments, and to establish an administrative organization. As a result, we incurred net losses in fiscal 1997, fiscal 1998 and the nine months ended March 31, 1999. As of March 31, 1999, we had an accumulated deficit of $8.8 million. We anticipate that our operating expenses will increase substantially in the future as we increase our sales and marketing operations, develop new distribution channels, fund greater levels of research and development, broaden our technical support and improve our operational and financial systems. Accordingly, we will need to generate significant quarterly revenues to achieve and maintain profitability. In addition, our limited operating history makes it difficult for us to predict future operating results and, accordingly, there can be no assurance in future quarters that we will achieve or sustain revenue growth or profitability. We apply Statement of Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" to software technologies developed internally. We include internal development costs in research and development, and those costs are expensed as incurred. SFAS 86 requires the capitalization of certain internal development costs once technological feasiblity is established, which, based upon our development process, generally occurs upon the completion of a working model. As the time period between the completion of a working model and the general availability of our products has not been significant, we have not capitalized any software development costs to date. We have grown rapidly, and our total revenue has increased from $4.3 million in fiscal 1997 to $14.4 million in fiscal 1998 and $16.9 million in the nine months ended March 31, 1999. Historically, our revenue has been attributable primarily to sales in North America. In fiscal 1997, fiscal 1998 and the nine months ended March 31, 1999, revenue attributable to sales outside of North America accounted for approximately 15%, 18% and 20% of our total revenue, respectively. We plan to expand our international operations significantly as we believe international markets represent a significant growth opportunity. Consequently, we anticipate that international revenue will increase as a percentage of total revenue in the future. Our expansion of our international operations will be subject to a variety of risks that could materially adversely affect our business, operating results and financial condition. Our sales are generally denominated in United States dollars and as a result our current exposure to foreign exchange fluctuations is minimal. As our international sales and operations expand, we anticipate that our exposure to foreign currency fluctuations will increase. In view of the rapidly changing nature of our business and our limited operating history, we believe that period to period comparisons of our revenue and operating results are not necessarily meaningful and should not be relied upon as indications of our future performance. Additionally, despite our revenue growth for all but one quarter since inception, we do not believe that historical growth rates are necessarily sustainable or indicative of future growth. In June 1997, we acquired in-process research and development from our United Kingdom distributor, Serverware, Ltd. The total consideration paid in connection with the acquisition was $2.6 million. We capitalized $1.1 million as acquired technology and recorded a one time charge of $1.5 million for the write-off of in-process research and development. Since the beginning of fiscal 1998, we have amortized $52,500 of the acquired technology per quarter as a cost of revenue. The remaining $630,000 will be amortized quarterly until 2002. During the nine months ended March 31, 1999, we recorded deferred stock compensation of $1.4 million in connection with certain stock option grants. We amortize deferred stock compensation over the 48 month vesting period of the related award. We record this amortization as a noncash expense in accordance with Accounting Principles Board Opinion No. 25. We had 136 full-time employees at March 31, 1999, a substantial increase from 92 and 50 at June 30, 1998 and 1997, respectively. This rapid growth has placed significant demands on our management and 25

operational resources. In order to manage our growth effectively, we must implement and improve our operational systems, procedures and controls on a timely basis. In addition, we expect that future expansion will continue to challenge our ability to hire, train, motivate and manage our employees. Competition is intense for highly qualified technical, sales and marketing and management personnel. If our total revenue does not increase relative to our operating expenses, our management systems do not expand to meet increasing demands, we fail to attract, assimilate and retain qualified personnel, or our management otherwise fails to manage our expansion effectively, there would be a material adverse effect on our business, financial condition and operating results. Historical Results of Operations The following table sets forth the results of our operations expressed as a percentage of total revenues. Our historical operating results are not necessarily indicative of the results for any future period. <TABLE> <CAPTION> Percentage of Revenue ------------------------------------ July 19, 1996 Nine Months (inception) Ended to Year Ended March 31, June 30, June 30, ------------- 1997 1998 1998 1999 ----------- ---------- ----- ----- <S> <C> <C> <C> <C> Revenue: License............................... 95.8% 88.8% 88.4% 85.4% Maintenance........................... 4.2 11.2 11.6 14.6 ----- ----- ----- ----- Total revenue..................... 100.0 100.0 100.0 100.0 Cost of revenue: Cost of license....................... 4.8 2.7 3.2 1.7 Cost of maintenance................... 3.3 6.5 7.3 4.0 ----- ----- ----- ----- Total cost of revenue............. 8.1 9.2 10.5 5.7 ----- ----- ----- ----- Gross margin.......................... 91.9 90.8 89.5 94.3 Operating expenses: Sales and marketing................... 83.3 66.7 71.4 53.0 Research and development.............. 30.9 25.1 26.7 25.3 General and administrative............ 22.8 15.5 17.3 11.0 Amortization of deferred stock compensation......................... -- -- -- 1.4 Abandoned lease costs................. -- -- -- 6.1 Acquired in-process research and development.......................... 36.9 -- -- -- ----- ----- ----- ----- Total operating expenses.......... 173.9 107.3 115.4 96.8 ----- ----- ----- ----- Operating loss.......................... (82.0) (16.5) (25.9) (2.5) Other income, net....................... -- 0.4 0.6 1.2 ----- ----- ----- ----- Loss before income taxes................ (82.0) (16.1) (25.3) (1.3) Income tax benefits..................... (4.1) -- -- -- ----- ----- ----- ----- Net loss................................ (77.9)% (16.1)% (25.3)% (1.3)% ===== ===== ===== ===== </TABLE> Comparison of Nine Months Ended March 31, 1998 and 1999 Revenue Total revenue increased 83% from $9.2 million for the nine months ended March 31, 1998 to $16.9 million for the nine months ended March 31, 1999. This increase was attributable to an increase in our customer base resulting in substantial growth in product license and maintenance revenue. No single customer accounted for more than 10% of total revenue during the nine months ended March 31, 1998 or 1999. 26

License. License revenue increased 77% from $8.2 million for the nine months ended March 31, 1998 to $14.4 million for the nine months ended March 31, 1999, and license revenue represented 88.4% and 85.4% of total revenue in those periods, respectively. The increase in license revenue in absolute dollars was generally attributable to increased unit sales of our products. The decrease of license revenue as a percentage of total revenue stemmed from the growth of maintenance revenues as the number of customers that renewed maintenance agreements increased. Maintenance. Maintenance revenue increased 129% from $1.1 million for the nine months ended March 31, 1998 to $2.5 million for the nine months ended March 31, 1999, and maintenance revenue represented 11.6% and 14.6% of total revenue in those periods, respectively. These increases resulted from the growth in software license revenue, as new software licenses are generally sold with one year of maintenance, and renewals of maintenance agreements by existing customers. Cost of Revenue License. License costs consist of the amortization of acquired technology and of the expenses we incurred to manufacture, package and distribute our products and related documentation. License cost remained relatively constant and was $294,000 for the nine months ended March 31, 1998 and $291,000 for the nine months ended March 31, 1999. License costs as a percentage of license revenue represented 3.6% and 2.0% of license revenue in those periods, respectively. A majority of license costs related to the amortization of acquired technology that is being expensed over periods ranging from three to five years. The decrease as a percentage of license revenue was a result of increased unit sales of our products compared to the amortization of acquired technology which was constant from period to period. We expect license costs to increase in the future in absolute dollar terms due to the expected increase in license revenue. Maintenance. Maintenance costs include salary expense and other related costs for our technical support. Maintenance costs remained relatively constant and were $680,000 and $681,000 for the nine months ended March 31, 1998 and 1999, respectively. The cost of maintenance as a percentage of maintenance revenue represented 63.3% and 27.7% in those periods, respectively. The decreases resulted from increased maintenance revenue and increased utilization of technical support staff. We expect maintenance costs to increase in absolute dollars in the future as we continue to add infrastructure. Operating Expenses Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries, commissions, payroll taxes and employee benefits as well as travel, entertainment and discretionary marketing expenses. Sales and marketing expenses increased 35.8% from $6.6 million for the nine months ended March 31, 1998 to $9.0 million for the nine months ended March 31, 1999, and sales and marketing expenses represented 71.4% and 53.0% of total revenue in those periods, respectively. The increase in absolute dollars was due primarily to our expansion of our direct sales and marketing organization. The decline in sales and marketing expenses as a percentage of total revenue resulted from increased productivity of the sales force. We expect sales and marketing expenses to increase in absolute dollar terms as we continue to hire additional sales and marketing personnel. Research and Development Expenses. Research and development expenses consist primarily of salaries, bonuses, payroll taxes, employee benefits and other costs attributable to research and development activities. Research and development expenses increased 73.0% from $2.5 million for the nine months ended March 31, 1998 to $4.3 million for the nine months ended March 31, 1999, and research and development expenses represented 26.7% and 25.3% of total revenue in those periods, respectively. The absolute dollar increase was attributable to the hiring of additional research and development staff. We expect research and development expenses to increase in absolute dollar terms as we continue to hire additional research and development personnel to develop new OnePoint products and to develop products for Windows 2000 Server. 27

General and Administrative Expenses. General and administrative expenses consist primarily of salaries, bonuses, payroll taxes, employee benefits and certain non-allocable administrative costs. General and administrative expenses increased 16.7% from $1.6 million for the nine months ended March 31, 1998 to $1.9 million for the nine months ended March 31, 1999, and general and administrative expenses represented 17.3% and 11.0% of total revenue in those periods, respectively. The absolute dollar increase was primarily related to costs associated with the expansion of our administrative infrastructure in order to support our increased sales, marketing and maintenance activities. The decline in general and administrative expenses as a percentage of total revenue reflected the absorption of certain fixed costs over a larger revenue base. We expect general and administrative expenses to increase in absolute dollar terms as we expand our infrastructure and incur additional costs as a result of being a public company. Amortization of Deferred Stock Compensation. We amortized approximately $236,000 of deferred stock compensation in the nine-month period ended March 31, 1999. There was no deferred stock compensation amortization in the nine months ended March 31, 1998. We expect to amortize the remaining $1.2 million through fiscal 2002. Other Income, Net Other income, net is generated primarily from the interest earned on cash and cash equivalents. Other income, net increased from $62,000 for the nine month period ended March 31, 1998 to $206,000 for the nine month period ended March 31, 1999. The growth in other income, net was principally the result of increased cash and cash equivalents. Income Taxes We did not record a provision for federal or state income taxes in either the nine months ended March 31, 1998 or 1999, because we generated net operating loss carryforwards of approximately $3.2 million from inception to March 31, 1999. Our net operating loss carryforwards begin to expire in 2012. In the future, our utilization of the net operating loss carryforwards may be subject to substantial annual limitations due to the ownership change regulations contained in the Internal Revenue Code of 1986 and similar state provisions. These annual limitations may result in the expiration of the net operating loss carryforwards and other tax credits before we are able to use them. As of March 31, 1998 and 1999, we recorded a full valuation allowance for the deferred tax assets related to the future benefits, if any, of these net operating loss carryforwards. Comparison of Fiscal Years Ended June 30, 1997 and 1998 Revenue Our total revenue increased 237% from $4.3 million for fiscal 1997 to $14.4 million for fiscal 1998. This increase was attributable to an increase in our customer base resulting in substantial growth in product license and maintenance unit sales. No one customer accounted for greater than 10% of total revenue during fiscal 1998. In fiscal 1997, one customer accounted for approximately 11% of total revenue. Licenses. License revenue increased 212% from $4.1 million for fiscal 1997 to $12.8 million for fiscal 1998, and license revenue represented 95.8% and 88.8% of total revenue in those periods, respectively. The decrease of license revenue as a percentage of total revenue was due to an increase in the number of customers that renewed maintenance agreements increased. Maintenance. Maintenance revenue increased 794% from $180,000 for fiscal 1997 to $1.6 million for fiscal 1998, and maintenance revenue represented 4.2% and 11.2% of total revenue in those periods, respectively. These increases resulted from the growth in software license revenue, as new licenses are generally sold with one year of maintenance, and renewals of maintenance agreements by existing customers. 28

Cost of Revenue License. License costs increased 90.3% from $206,000 for fiscal 1997 to $392,000 for fiscal 1998, and license costs represented 5.0% and 3.0% of license revenue in those periods, respectively. A majority of license costs related to the amortization of acquired technology. The increase in the absolute dollar amount was attributable to additional amortization of newly acquired technology. Acquired technology is amortized over three to five years. The decrease as a percentage of revenue was a result of increased growth of revenues relative to the growth in amortization expense for acquired technology. Maintenance. Maintenance costs increased 557% from $142,000 for fiscal 1997 to $933,000 for fiscal 1998, and maintenance costs represented 78.9% and 58.0% of maintenance revenue in those periods, respectively. The increase in the absolute dollar amount was attributable to the increase in our technical support department headcount. The decline in maintenance costs as a percentage of maintenance revenue related to improved productivity of our technical support staff. Operating Expenses Sales and Marketing Expenses. Sales and marketing expenses increased 168% from $3.6 million for fiscal 1997 to $9.6 million for fiscal 1998, and sales and marketing expenses represented 83.3% and 66.7% of total revenue in those periods, respectively. The increase in the absolute dollar level of sales and marketing expenses was due primarily to the expansion of our direct sales and marketing organizations. The decrease in sales and marketing expenses as a percentage of total revenue reflected the increased productivity of our sales force. Research and Development Expenses. Research and development expenses increased 174% from $1.3 million for fiscal 1997 to $3.6 million for fiscal 1998, and research and development expenses represented 30.9% and 25.1% of total revenue in those periods, respectively. The increase in the absolute dollar level of research and development expenses was attributable to the hiring of additional research and development staff. The decline in research and development expense as a percentage of total revenue reflected the increase of revenue at a faster rate relative to the increase in research and development expenses. General and Administrative Expenses. General and administrative expenses increased 129% from $973,000 for fiscal 1997 to $2.2 million for fiscal 1998, and general and administrative expenses represented 22.8% and 15.5% of total revenue in those periods, respectively. The increase in the absolute dollar level of general and administrative expenses was primarily related to costs associated with the expansion of our administrative infrastructure in order to support our increased activities. The decrease in general and administrative expenses as a percentage of total revenue reflected increased absorption of fixed costs over a larger revenue base. Other Income, Net Other income, net increased from $2,000 for fiscal 1997 to $63,000 for fiscal 1998. The growth in other income net was principally the result of increased cash and cash equivalent balances. Income Taxes In fiscal 1997, we recorded an income tax benefit of $175,000 related to the purchase of our OnePoint Administrator product line. No tax provision or benefit was recorded for fiscal 1998, as we recognized a net loss for income tax purposes. As of June 30, 1997 and 1998, we recorded a full valuation allowance for the deferred tax assets related to the future benefits, if any, of these net operating loss carryforwards. 29

Write-off of Acquired In-Process Research and Development. In June 1997, we acquired from Serverware, Ltd. certain in-process research and development for $2.7 million consisting of cash of $100,000, a $2.5 million note payable, a warrant to purchase 333,333 shares of our common stock at an exercise price of $1.50 per share and $75,000 of direct costs incurred. No value was allocated to the warrant as such amount was not significant. We intended to utilize the acquired in-process research and development to develop a shrinkwrap event management product for Windows NT that we did not possess at the time. In order to capitalize on the event management market, our intention was to complete the in-process research and development as quickly as possible and sell and market that product (under the name SeNTry). From the date of acquisition to June 30, 1998, we expended approximately 80 person months, or approximately $800,000, to complete and enhance the in-process research and development. In June 1998 we completed SeNTry, which represented the first completed and enhanced version of the acquired technology. We then began internal development of an entirely new event management product (OnePoint Event Manager) the design of which was to be more consistent with our long-term product strategy. A significant amount of uncertainty existed surrounding the successful development and completion of the research and development acquired, which was estimated to be 70% complete at the date of the acquisition. This was our first attempt to develop event management technology. We were uncertain of our ability to complete the development of a new product within a timeframe acceptable to the market and ahead of competitors. The in-process research and development effort, at the time of purchase, had not reached technological feasibility as it lacked many key elements including: standardized implementation capabilities, a scalable and extensible architecture, enhanced user interfaces, broad functionality and extensive reporting capabilities. We assigned a value to the in-process research and development of $1.5 million and to the core technology of $1.1 million based on a discounted cash flow model. We based the cash flow projections for revenue on the projected incremental increase in revenue that we expected to receive from the completed acquired in-process research and development. Revenue derived from the completed in-process research and development was expected to commence after completion of the SeNTry product. We expected revenue from the in-process research and development to continue until the release of OnePoint Event Manager, which was expected to be released in fiscal 2000. We deducted estimated operating expenses and income taxes from estimated revenue to arrive at estimated after-tax cash flows. Projected operating expenses included: cost of revenue and general and administrative, customer support and sales and marketing expenses. We estimated operating expenses as a percentage of revenue and based such estimates primarily on projections we prepared. The cash flow projections attributable to the core technology included 50% of the net income before tax expense anticipated to be generated from the completed in-process technology and 15% from the net income before tax expense anticipated to be generated from OnePoint Event Manager, an entirely new and internally developed product. Revenue derived from OnePoint Event Manager was estimated through 2004. We deducted estimated operating expenses and income taxes from estimated revenue to arrive at estimated after-tax cash flows. Projected operating expenses included: cost of revenue and general and administrative, customer support and sales and marketing expenses. We estimated operating expenses as a percentage of revenue and based such estimates primarily on projections we prepared. The rate used to discount the net cash flows to present value was based on the weighted average cost of capital ("WACC"). We used a discount rate of 35% for valuing the in-process research and development and 25% for the core technology. These discount rates are higher than the implied WACC due to the inherent uncertainties surrounding the successful development of the acquired in-process research and development, the useful life of such in-process research and development, the profitability levels of such in-process research and development, and the uncertainty of technological advances that were unknown at the time. 30

Quarterly Results of Operations The following table presents our operating results for each of the seven quarters in the period ending March 31, 1999. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited financial statements appearing elsewhere in this prospectus. In the opinion of management, all necessary adjustments consisting only of normal recurring adjustments have been included to present fairly the unaudited quarterly results when read in conjunction with our audited financial statements and the notes thereto appearing elsewhere in this prospectus. These operating results are not necessarily indicative of the results of any future period. <TABLE> <CAPTION> Quarter Ended ---------------------------------------------------------------- Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, 1997 1997 1998 1998 1998 1998 1999 --------- -------- -------- -------- --------- -------- -------- (in thousands) <S> <C> <C> <C> <C> <C> <C> <C> Revenue: License................ $2,040 $2,795 $3,324 $4,608 $4,052 $4,744 $5,645 Maintenance............ 235 339 501 534 613 760 1,087 ------ ------ ------ ------ ------ ------ ------ Total revenue.......... 2,275 3,134 3,825 5,142 4,665 5,504 6,732 Cost of revenue: Cost of license........ 98 98 98 98 96 96 99 Cost of maintenance.... 155 280 245 253 226 215 240 ------ ------ ------ ------ ------ ------ ------ Total cost of revenue.. 253 378 343 351 322 311 339 ------ ------ ------ ------ ------ ------ ------ Gross margin........... 2,022 2,756 3,482 4,791 4,343 5,193 6,393 Operating expenses: Sales and marketing.... 2,015 2,282 2,294 2,999 2,479 2,912 3,561 Research and development........... 822 932 716 1,142 1,223 1,418 1,633 General and administrative........ 598 504 493 633 576 621 664 Amortization of deferred stock compensation.......... -- -- -- -- 32 46 158 Abandoned lease costs.. -- -- -- -- -- -- 1,034 ------ ------ ------ ------ ------ ------ ------ Total operating expenses.............. 3,435 3,718 3,503 4,774 4,310 4,997 7,050 ------ ------ ------ ------ ------ ------ ------ Operating income (loss)................. (1,413) (962) (21) 17 33 196 (657) Other income (expense), net.................... 17 38 7 1 43 80 83 ------ ------ ------ ------ ------ ------ ------ Income (loss) before income taxes........... (1,396) (924) (14) 18 76 276 (574) Provision (benefit) for income taxes........... -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ Net income (loss)....... $1,396 $ (924) $ (14) $ 18 $ 76 $ 276 $ (574) ====== ====== ====== ====== ====== ====== ====== </TABLE> Revenue has grown in each quarter, except the quarter ended September 30, 1998, as demand for our products increased. The increases in each quarter were due to the increased unit sales of licenses for our products. Revenue declined in the quarter ended September 30, 1998 because our sales staff closed a substantial number of transactions in the prior quarter, the last quarter of fiscal 1998, and selling opportunities decreased in the summer months. Cost of revenue has increased each quarter in conjunction with our increases in total revenue. Operating expenses have generally increased in absolute dollars each quarter as we have increased staffing in sales and marketing, product development and general and administrative functions. Sales and marketing expenses increased in the quarter ended June 30, 1998 primarily due to the sales staff achieving sales quotas for fiscal 1998, which resulted in sales commissions and incentives being paid in the fourth quarter and increased levels of discretionary marketing expense. Research and development expenses increased during the quarter ended December 31, 1997 due to contract development costs in conjunction with the purchase of in-process research and development in fiscal 1998 and decreased in the quarter ended March 31, 1998 due to a reduction in development activity as we conducted a search for new corporate management. We hired new management during the quarter ended June 30, 1998 and implemented a new business plan. As a result, all costs increased in the quarter ended June 30, 1998 due to increases in headcount and increased sales and marketing expenditures. We recorded total deferred stock compensation of $1.4 million in 31

connection with stock options granted during the nine months ended March 31, 1999. We are amortizing these amounts over the vesting periods of the applicable options, which resulted in amortization expense of $32,000, $46,000 and $158,000 in the quarters ended September 30, 1998, December 31, 1998 and March 31, 1999, respectively. As a result of our limited operating history, we cannot forecast operating expenses based on historical results. Accordingly, we base our expenses in part on future revenue projections. Most of our expenses are fixed in nature, and we may not be able to quickly reduce spending if revenue is lower than we have projected. Our ability to forecast accurately our quarterly sales is limited which makes it difficult to predict the quarterly revenue that we recognize. We would expect our business, operating results and financial condition to be materially adversely affected if revenues do not meet projections and our operating results would then be less than expected. We expect that our revenue and operating results may vary significantly from quarter to quarter, and we anticipate that our expenses will increase substantially in the foreseeable future as we: . increase our direct sales and marketing activities, including expanding our North American and international direct sales forces and extending our telesales efforts; . develop our technology, expand our OnePoint product suite and create and market products that operate with the commercial release version of Windows 2000; . expand our indirect distribution channels; and . pursue strategic relationships and acquisitions. Accordingly, we believe that quarter to quarter comparisons of our operating results are not necessarily meaningful. Investors should not rely on the results of one quarter as an indication of future performance. Liquidity and Capital Resources We have funded our operations primarily from license revenue received from inception to March 31, 1999 and the proceeds of approximately $10.2 million from the sale of common stock, preferred stock and warrants. At March 31, 1999, we had cash and cash equivalents of $9.5 million. As of March 31, 1999, we had an accumulated deficit of $8.8 million and working capital of $7.0 million, net of a short-term component of deferred revenue of $3.5 million. Our operating activities used net cash of $1.7 million in fiscal 1997, $439,000 in fiscal 1998 and provided net cash of $6.0 million in the nine month period ended March 31, 1999. Net cash used by operating activities in fiscal 1997 and fiscal 1998 was due primarily to our investments to create our internal infrastructure and purchase of equipment. Our operations generated net cash in the nine months ended March 31, 1999 primarily due to increased revenue, improved accounts receivable collection efforts and increased deferred revenue. Our investing activities used net cash of $1.2 million, $492,000 and $900,000 in fiscal 1997, fiscal 1998 and the nine months ended March 31, 1999, respectively. Our investing activities consisted primarily of net purchases of property and equipment. Our financing activities provided $3.1 million and $5.2 million in fiscal 1997 and fiscal 1998, respectively. In fiscal 1997 and fiscal 1998, financing activities consisted primarily of sales of redeemable convertible preferred stock partially offset in fiscal 1998 by the repurchase of 950,000 shares of Series A Preferred Stock for $2,850,000 and net repayments on debt facilities. In the nine-month period ended March 31, 1999, we used $238,000 of net cash for financing activities as the repayments on the debt facilities exceeded the generation of cash from the sales of our common stock to employees in connection with the exercise of stock options. 32

We anticipate spending at least $1.1 million for office lease payments and approximately $1.5 million for capital expenditures over the next 12 months. From inception, we have made capital expenditures of $4.5 million, less accumulated depreciation and amortization of $1.8 million, to support our research and development, sales and marketing and administrative activities. We expect capital expenditures to increase over the next several years as we expand facilities and acquire equipment to support our planned expansion in sales and marketing. We expect to utilize cash resources to purchase additional equipment over the next 12 months. In January 1998, we obtained a revolving credit facility of $3.0 million from a commercial bank that we renewed in March 1999. The credit facility expires on February 5, 2000. Borrowings under the credit facility bear interest at the bank's prime rate. Under the terms of the loan agreement, all borrowings are collateralized by substantially all of our assets, and we must maintain certain financial ratios and other covenants. At March 31, 1999, we had no borrowings outstanding under the credit facility, and the unused amount of $3.0 million is available for drawdowns through February 5, 2000. We were in compliance with all covenants as of March 31, 1999 but we cannot assure you that we will be able to continue to comply with such covenants in the future. We intend to continue to invest heavily in the development of new products and enhancements to our existing products. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of expansion of product development efforts and the success of these development efforts, the costs and timing of expansion of sales and marketing activities, the extent to which our existing and new products gain market acceptance, market developments, the costs involved in maintaining and enforcing intellectual property rights, the level and timing of license revenue, available borrowings under line of credit arrangements and other factors. We believe that the proceeds from this offering, together with our current cash and investment balances and any cash generated from operations and from available or future debt financing, will be sufficient to meet our operating and capital requirements for at least the next 12 months. However, it is possible that we may require additional financing within this period. We have no current plans, and we are not currently negotiating, to obtain additional financing following the completion of this offering. Our forecast period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary. The factors described in this paragraph will affect our future capital requirements and the adequacy of our available funds. We may be required to raise additional funds through public or private financing, strategic relationships or other arrangements. We cannot assure you that such funding, if needed, will be available to us on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Strategic arrangements, if necessary to raise additional funds, may require us to relinquish our rights to certain of our technologies or products. If we fail to raise capital when needed, our failure could have a material adverse effect on our business, operating results and financial condition. Recent Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants, the AICPA, issued Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Statement of Position No. 98-1 requires entities to capitalize certain costs related to internal use software once certain criteria have been met. We expect that the adoption of Statement of Position No. 98-1 will not have a material impact on our financial position or results of operations. We will be required to implement Statement of Position No. 98-1 for our fiscal year beginning July 1, 2000. In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities." Statement of Position No. 98-5 requires that all start-up costs related to new operations must be expensed as incurred. In addition, all start-up costs that were capitalized in the past must be written off when Statement of Position No. 98-5 is adopted. We expect that the adoption of Statement of Position No. 98-5 will not have a material impact on our financial position or results of operations. We will be required to implement Statement of Position No. 98-5 for our fiscal year beginning July 1, 2000. 33

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging activities." SFAS No. 133 establishes methods for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. Because we do not currently hold any derivative instruments and do not engage in hedging activities, we expect that the adoption of SFAS No. 133 will not have a material impact on our financial position or results of operations. We will be required to implement SFAS No. 133 for the fiscal year beginning July 1, 2001. In December 1998, the AICPA issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." Statement of Position 98-9 amends Statement of Position 98-4, "Deferral of Effective Date of SOP 97-2" to further defer the application of certain passages of Statement of Position 97-2, "Software Revenue Recognition" through fiscal years that begin on or before March 15, 1999. We do not believe that the adoption of Statement of Position 98-9 will have a material effect on our results of operations or financial condition. Qualitative and Quantitative Disclosures About Market Risk We develop products in the United States and sell those products primarily in North America and Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all of our sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the nature of our short-term investments, we have concluded that we do not have material market risk exposure. Our investment policy requires us to invest funds in excess of current operating requirements in: . obligations of the U.S. government and its agencies; . investment grade state and local government obligations; . securities of U.S. corporations rated A1 or P1 by Standard & Poors or the Moody's equivalents; . money market funds, deposits or notes issued or guaranteed by U.S. and non-U.S. commercial banks meeting certain credit rating and net worth requirements with maturities of less than two years. At March 31, 1999, our cash and cash equivalents consisted primarily of demand deposits and money market funds held by large institutions in the U.S., and our short-term investments were invested in corporate debt maturing in less than 60 days. Year 2000 Readiness Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. As a result, software that records only the last two digits of the calendar year may not be able to distinguish whether "00" means 1900 or 2000. This may result in software failures or the creation of erroneous results. We are currently conducting a review of the current versions of our products to determine Year 2000 compliance. We have searched through the software code for each of these applications and believe that we have identified all instances where date specific information is required. We have further investigated whether these date fields contain two or four digits, and have initiated efforts to upgrade our software when date fields that contain only two digits are discovered. Based on our preliminary review and the results of limited testing, we believe that our OnePoint product suite, when configured and used in accordance with their documentation, correctly recognize and function when used with Year 2000 date codes. We further intend to conduct extensive tests on all of our applications during this same time period to identify areas of deficiency and to develop action plans to correct and upgrade our software code. 34

Our software applications run on several hardware platforms and associated operating systems, including those provided by Sun Microsystems, Digital Equipment and Silicon Graphics. In addition, our software operates in accordance with several external Windows NT protocols, such as HTTP and NNTP. Our software is therefore dependent upon the correct processing of dates by these systems and protocols. We have reviewed information made publicly available by our hardware platform partners regarding Year 2000 compliance and researched the date handling capabilities of applicable Windows NT protocols. Based on this research, we do not believe that the underlying systems and protocols that operate in conjunction with its software applications contain material Year 2000 deficiencies. However, we have not conducted our own tests to determine to what extent its software running on any of our hardware platforms and in accordance with any of its supported Windows NT protocols fails to properly recognize Year 2000 dates. We use multiple software systems for internal business purposes, including accounting, email, development, human resources, customer service and support, and sales tracking systems. All of these applications have been purchased within the preceding 18 months. We have made inquiries of vendors of the systems that we believe are critical to our business regarding their Year 2000 readiness. Each of these vendors has indicated to us that it believes its applications are Year 2000 compliant. However, we have not received affirmative documentation in this regard from any of these vendors, and we have not performed any operational tests on its internal systems. We are in the early stages of assessing our Year 2000 readiness. To date, the costs for conducting our assessment have not been material, and we expect total costs incurred in connection with our year 2000 project to be less than $100,000. Despite preliminary investigation and testing by us and our partners, our software applications and the underlying hardware systems and protocols running the software may contain undetected errors or defects associated with Year 2000 date functions. Our software applications operate in complex network environments and directly and indirectly interact with a number of other hardware and software systems. We are unable to predict to what extent our business may be affected if our software or the systems that operate in conjunction with our software experience a material Year 2000 failure. Known or unknown errors or defects that affect the operation of our software could result in delay or loss of revenue, cancellation of customer contracts, diversion of development resources, damage to our reputation, increased service and warranty costs, and litigation costs, any of which could adversely affect our business, financial condition and results of operation. 35

BUSINESS The following business section contains forward looking statements relating to future events or the future financial performance of Mission Critical Software, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward looking statements as a result of certain factors including those set forth in "Risk Factors" and elsewhere in this prospectus. Overview We are a leading provider of systems administration and operations management software products for corporate and Internet-based Windows NT networks. Our OnePoint product suite is designed to improve the reliability, performance and security of even the largest and most complex computing environments by simplifying and automating key systems management functions. Our products can be deployed quickly, are based on an open and extensible architecture and are easy to use. As of March 31, 1999, our products had been installed by over 600 customers, including more than 40 of the 1999 Fortune 100 companies and some of the largest Internet datacenters in the world. We market and sell our products worldwide through a network of sales offices and distribution partners. Our products have been adopted in a wide variety of industries, including banking and finance, energy, healthcare, insurance and pharmaceuticals. Representative customers include Compaq Computer Corporation, DuPont, Johnson & Johnson, Lockheed Martin, Merck & Co., Inc., Prudential Insurance Company of America, Shell Services International Inc., Sprint Corporation and Wells Fargo & Company. Industry Background The evolution of enterprise computing from centralized, mainframe-based computing to distributed, client/server and Internet-based computing has added substantial complexity to the management of computer network infrastructures. Today's information technology environments are characterized by distributed information systems, applications and networks. Many of these environments have been further complicated by the increasing use of the Internet as a medium for connecting businesses with customers, suppliers and employees. In the increasingly competitive business world, effective use of corporate and Internet-based networks has become a necessity, particularly for companies pursuing e-business strategies. For companies such as online retailers or Internet service providers that generate most of their revenue through electronic communication, systems issues such as network scalability, security, availability and performance are critical business considerations. In today's corporate networks, organizations are installing Windows NT servers in greater quantities and are using these Windows NT servers to address a broadening scope of business needs. Adoption of the Windows NT platform has accelerated as Windows NT servers are increasingly being used to run Internet sites and web server farms -- Internet-based networks composed of hundreds or thousands of tiered Windows NT servers -- and to support e-business and application hosting initiatives. In a survey of Fortune 1000 information technology managers, Forrester Research found that, on average, those managers expected 60% of their servers to run on Windows NT by the end of 2000. International Data Corporation projects that the installed base of Windows NT servers will increase from 2.2 million in 1998 to 6.3 million in 2002. The growing complexity of corporate and Internet-based Windows NT networks has placed increasing pressure on systems managers to maintain reliable network operations. These networks must be kept secure and available 24 hours per day, 7 days per week and must be able to support widely distributed global organizations. Failure to ensure these service levels could result in heavy penalties, including a loss of internal productivity and, with the increasing prevalence of e-commerce, corporate revenue. Although Windows NT servers are flexible and powerful operating systems, they require ongoing management support. To keep Windows NT networks running smoothly, companies have employed large departments of skilled systems administrators. This approach has proven costly and ineffective as the scarcity of skilled systems administrators has made these personnel very expensive. To improve both the efficiency and effectiveness of corporate and Internet-based Windows NT networks, businesses are increasingly using systems management 36

software solutions. International Data Corporation projects the size of the market for 32-bit Windows systems management software--the market for software that manages Windows NT and other 32-bit Windows platforms--will grow from $1.8 billion in 1998 to $8.9 billion by 2003. To date, these software solutions have addressed two primary functions: . Systems Administration. The primary function of systems administration is to create and maintain the data that directs and secures the network operating system. Because of the volume, complexity and importance of the data produced by the operating system, its proper management is critical. Another key role of systems administration is to determine appropriate policies, including those that are designed to secure access to the network, data and applications, and to audit adherence to those policies. The automated application of policies benefits corporate and Internet networks by ensuring consistency in outcomes and reducing the systems administrator hours needed to maintain the network. . Operations Management. The primary function of systems operations management is to identify and respond as early as possible to problems such as breaches in security, hardware failures, software crashes and insufficient capacity. These activities are critical to the ongoing operation of corporate and Internet-based networks. For example, security operations management provides mechanisms for notification and response to unauthorized access or policy violations. Another role of systems operation management is to continually monitor the performance, responsiveness and availability of network services so that systems administrators can plan and budget for the frequently needed additions, upgrades and configuration changes. Several systems management software companies have attempted to provide this functionality for Windows NT and other operating system platforms. Their products fall into three general categories: . Utilities. Point applications and utilities focus on a specific systems administration problem and attempt to amplify systems administrator efforts. While these often are helpful in workgroup and small network situations, many of them have not been designed and tested to scale to larger networks. The need to evaluate and procure point applications and utilities one by one is costly. Many of these utilities also require substantial systems administrator time for integration with other systems management tools used on the networks. . Cross-platform point suites. Cross-platform point suites have broader applications than the point product solutions or utilities because of their ability to support multiple platforms (e.g., different operating systems such as Unix, Windows NT and MVS). However, we believe that these cross-platform point suites typically provide a limited depth of functionality due to the demands of functioning on multiple platforms. In addition, these suites are often more difficult to implement and manage than point applications or utilities. . Frameworks. Frameworks attempt to solve most systems management problems on most platforms. Although they offer the promise of a "one-stop-shop" for all enterprise systems management needs, they are complex, require a significant amount of knowledge and training to manage, and require a lengthy implementation. As with cross-platform point solutions, we believe that these framework solutions typically provide limited depth of functionality for Windows NT systems management given their broad scope. We believe that products in these categories have exhibited a variety of shortcomings in addressing Windows NT systems management requirements. They have either proven to be too narrow in scope, limited in terms of Windows NT functionality, overly difficult and costly to implement or some combination of the above. We believe that companies increasingly want software solutions that provide end-to-end integrated functionality for systems administration and operations management, can be rapidly deployed and are easy to use. Such a comprehensive product offering should enable companies to better utilize their skilled systems administrator resources and support the security, availability and performance demands of large distributed corporate and Internet-based networks. The solution should deliver embedded best 37

practice knowledge, particularly that which relates to the increasing complexity of e-business related systems management, but should be customizable to meet specific customer needs. Finally, the solution should fully support and extend the existing capabilities of the Windows NT platform. The Mission Critical Software Solution We are a leading provider of software products that enable scalable systems administration and operations management for corporate and Internet-based Windows NT networks. Our OnePoint product suite is designed to improve the reliability, performance and security of even the most complex computing environments by simplifying and automating many key systems management functions. Our products are based on an open and extensible architecture, can be deployed quickly and are flexible and easy to use and enable quick deployment, flexibility and ease of use. Our software products provide the following features and benefits: Integrated, end-to-end eManagement. OnePoint is designed to facilitate eManagement -- the centralized management of critical systems infrastructure and applications for the extended enterprise. Customers can use OnePoint to monitor, manage, administer and secure a wide range of resources in the Windows NT environment including web server farms, e- commerce and corporate servers, firewalls, workstations, applications and the Windows 2000 Active Directory. OnePoint enables companies to automate labor-intensive tasks, such as security monitoring and administration, and to minimize the need for customization by embedding industry best practices. OnePoint is also designed to ease the transition from other operating system platforms, such as Novell Netware, to Windows NT by providing systems administrators with the ability to test implementations and convert systems incrementally. Designed to manage and enable e-business. Our software solutions enable systems administration and management of Windows NT servers that power e- business applications. OnePoint enables e-businesses to provide continuous, secure systems availability (24 hours, 7 days per week) and high transaction throughput to their customers, thereby increasing the level of overall customer satisfaction. OnePoint permits routine systems administration functions to be conducted without interruption of services and reduces the cost of eManagement by establishing policy-based rules, which automate specific systems management tasks. For example, OnePoint can respond to a hacker attack while the attack is in progress by reconfiguring the impacted web server to deny further communications from the unauthorized intruder. Highly scalable, extensible architecture. Each of our products is designed to operate in complex, enterprise-scale Windows NT environments. OnePoint centrally manages a large number of interlinked Windows NT servers and facilitates the expansion of the number of servers under management without time-consuming implementation. In addition, our products can be deployed rapidly and be implemented incrementally either by product or by department. The modular architecture of our products enables users to customize these products to meet their networks' specific needs. Lower total cost of ownership. We reduce the total cost of ownership by providing a single point of systems administration and operations management, which simplifies systems management processes and limits the skilled systems administrator resources required. We believe that our policy-based approach further reduces the number of required personnel by enabling businesses to automate many systems management tasks. Unlike many other alternatives, our software products enable systems administrators to implement network-wide policy-based rules without extensive programming or customization. Our solutions also reduce total cost of ownership by permitting departmental self administration for routine tasks, such as entering changes in user profile information, and by providing products that facilitate the transition from other operating system platforms without costly consulting services or extensive customization. Rapid and cost-effective self deployment. Our products are designed to be easy to install and use. Their automated implementation capabilities allow them to be installed in minutes, configured in hours and deployed worldwide in days. In addition, our products offer a familiar Windows look and feel that accelerates user adoption and minimizes the need for formal training. As a result, our products can be 38

deployed without the need for extensive professional services or internal implementation support staff, thus increasing the potential return on investment for customers. For example, systems administrators can use our ActiveKnowledge modules to incorporate Windows NT-specific problem solving into their systems administration tools without extensive scripting on- site. We believe our rules-based technology is not only many times more scalable than simplistic script-based approaches but makes our products far easier and faster to deploy. The Mission Critical Software Strategy Our objective is to maintain and strengthen our position as a leading provider of systems management software for corporate and Internet-based Windows server networks. Key elements of our strategy include: Extend our OnePoint product suite. We plan to increase the functionality of our OnePoint product suite through internal development and, potentially, strategic acquisitions. We will continue to extend our existing technology in systems administration and operations management and broaden our platform migration modules. For example, we intend to commercially release a new OnePoint product, File Administrator, in late 1999. We also intend to release products that facilitate migration from Windows NT and Netware to the commercial release version of Windows 2000. We have already released products that enable customers to transition from Windows NT to Windows 2000 (beta 3 version) and from Netware to Windows NT. We will continue to research and develop new products, examine the use of agents for administering and monitoring other operating platforms from a centralized Windows 2000 console and enhance integration of our products with framework solutions. Target companies and service providers conducting e-business. We believe that the growth of the Internet is accelerating demand for Windows NT servers. Our products are designed to support high volume, Internet-based networks and are currently being used to manage web server farms and e- commerce sites. We intend to expand our eManagement business by specifically targeting online retailers, Internet service providers, commerce service providers and other companies for which Windows NT systems management products are an operational necessity. Increase sales to existing customer base. Our variable license fee structure, which is based on the number of users and servers, allows customers to try our products without committing to a full enterprise-wide implementation. To date, a substantial portion of our revenues have come from additional sales of the same products within an existing customer's organization. We believe that there is a large market for selling new licenses for the same products as well as other products to our existing customers. We intend to continue our current incremental selling strategy. We will also pursue enterprise-wide initial sales whenever appropriate. Expand our customer base. Our products have been deployed by many of the largest organizations in the world. While we intend to expand our direct sales efforts to these large organizations, our variable license fee structure makes our solution viable for smaller enterprises as well. Through our ChannelOne partnership program and targeted telesales campaigns, we intend to increase our selling efforts to mid-sized companies that often are aggressive adopters of Windows NT because these smaller organizations often suffer most acutely from the lack of highly skilled systems management personnel. We believe these customers' business and computing needs are growing rapidly due to their adoption of Internet-based applications and other software solutions. Leverage and expand Microsoft relationship. We are currently a leading vendor of Windows NT-based systems management software, both in product sales and technology. We have developed an extensive relationship with Microsoft that includes the sharing of technology, joint marketing and sales efforts, Microsoft's use of our OnePoint Event Manager product for its global Internet and corporate datacenters and support for migration strategies for Windows 2000. We intend to continue to work with Microsoft to provide and jointly market solutions that exploit the full value, flexibility and depth of the Windows NT and Windows 2000 operating environments. Our Vice President of Strategic Alliances works closely with Microsoft at its Redmond campus to help us manage and expand our relationship. In addition, we have sales engineer and developer personnel located on Microsoft's Redmond campus. 39

Expand global distribution channels. We believe that the international marketplace provides a significant growth opportunity as organizations worldwide adopt the Windows NT and Windows 2000 platforms. To date, we have sold our products domestically through our direct sales force and internationally through a limited number of distributors. We believe that the ease of deployment and use of our products and our pricing model make our products well suited for resale through indirect channels such as international distributors and strategic partners. We intend to expand indirect selling of our products through strategic partner arrangements and to engage international distributors with substantial market penetration in the enterprise systems software segment. In addition, we intend to expand our direct sales presence in key international markets. Products and Technology Our OnePoint product suite provides scalable systems administration and operations management for even the largest and most complex computing environments in a manner that is quick to deploy, flexible and easy to use. OnePoint currently consists of the following products: . Directory & Resource Administrator . Domain & Migration Administrator . Exchange Administrator . Event Manager . Framework Integration The OnePoint product suite's open and extensible architecture is designed to provide stability, high performance and scalability. The OnePoint suite is modular and allows organizations to add functionality as their corporate or Internet-based Windows NT networks expand. Each generation of OnePoint products has introduced additional functionality, such as our May 1999 Release 5.0 that added a migration tool for Windows 2000 (beta 3 version). Our OnePoint product suite provides rich systems administration, operations management and security functionality along with a reduction in the total cost of network operations by: . Providing an out-of-the-box solution that does not require extensive customization; . Automating systems management functions by using policy-based rules to reduce the number of expensive systems manager hours needed to manage Windows NT systems; . Applying centrally determined rules to Windows NT systems throughout the enterprise to increase system reliability and security; . Delegating systems management tasks to business department personnel to improve response time and limit systems administrator hours required; and . Facilitating more rapid security audits through monitoring and logging capabilities. 40

The major components of the OnePoint suite are illustrated and summarized below. [Graphic showing components of OnePoint suite including Functions--Systems Administration, Security, Operations Management; Products--Directory & Resource Administrator, Domain & Migration Administrator, Exchange Administrator, Event Manager, Framework Integration; Infrastructure--Active Knowledge Library, Active Administration & Operations Engine] 41

OnePoint Suite--Products Products Features and Benefits -------------------------------------------------------------------------------- OnePoint Directory & Resource Administrator . Central definition of security Provides unified, policy-based policies and rules administration of directory content . Secure distribution of and non-directory resources for administrative tasks to line of increased security, data integrity business departments to increase and reduced administrative effort. service levels and reduce systems administrator workload . Monitoring and logging facilities for comprehensive security audit -------------------------------------------------------------------------------- OnePoint Domain & Migration Administrator . Domain consolidation and Simplifies networks by reducing the reconfiguration to simplify number of domains and platforms systems administration, reduce required. systems administrator workload and reduce the amount of hardware required to run a Windows NT- based network . Design, modeling, testing and implementation of Windows 2000 (currently in beta) Active Directory structures to enable flexible, efficient responses to organizational change . Simplified and rapid migration from Windows NT 4.0 to Windows 2000 (currently in beta) . Simplified and rapid migration from Novell Netware to Windows NT 4.0 and Windows 2000 (currently in beta) -------------------------------------------------------------------------------- OnePoint Exchange Administrator . Unified administration of the Enables secure, distributed and Exchange and Windows NT synchronized administration of directories to insure data Microsoft Exchange mailboxes and consistency and integrity distribution lists. . Central definition of security policies and rules for mailbox administration . Distribution of mailbox administration tasks to line of business departments to increase service levels and reduce systems administrator workload . Comprehensive security audit through monitoring and logging 42

Products Features and Benefits -------------------------------------------------------------------------------- OnePoint Event Manager . Real-time system availability and performance monitoring Enables operations management and . Comprehensive security monitoring monitoring of a wide range of and intrusion detection network components by providing . Comprehensive monitoring of real-time event and problem operation, performance and security detection and automated problem for web farms resolution. . Automated problem resolution via execution of ActiveKnowledge modules and integration with OnePoint administration products . Real-time console, pager and email alerts . High performance, low overhead, data collection and filtering . Continuous monitoring of tens of thousands of servers and applications -------------------------------------------------------------------------------- OnePoint Framework Integration . Continuous monitoring of a OnePoint-managed network through the Tivoli management console Enables OnePoint to integrate with existing frameworks and systems management environments. OnePoint Suite--Infrastructure Components Component Features and Benefits -------------------------------------------------------------------------------- ActiveKnowledge Library . Designed to eliminate the need for service intensive implementations Library of pre-built rules based on . Pre-defined event filters, Windows NT systems management best performance counters, alerts and practices that enables out-of-the automated responses for a wide box automation of systems range of events and problem administration and operations conditions management tasks. . Over 25 modules for most Windows NT components and applications such as Windows NT Security Logs and Microsoft Internet Information Server . Customizable and extensible modules -------------------------------------------------------------------------------- Active Administration & Operations . High performance and scalability Engine due to three-tier client-server architecture Provides common infrastructure . Complete extensibility and services for all OnePoint modules. customization of OnePoint products through scripting engine . Integration with third party products . Comprehensive support for Microsoft's Active Directory Services Interface OnePoint Architecture OnePoint is based on a three tier client-server architecture as illustrated below. OnePoint exploits Microsoft's Distributed interNet Application ("DNA") architecture technologies to provide increased security, simplicity and performance in the system management arena. These technologies enable simplified component level programming, multi-part transactions, support for 3- tier and n-tier distributed components, extended security and integration with the Internet and the web. We believe that DNA technologies are important in the area of securing and managing complex systems infrastructure components and their data and that they provide a point of differentiation between our products and those of other vendors. 43

[Graphic description of tools, system and application services and the three layers that includes the presentation layer, the business logic layer and the data layer] Presentation Layer--provides the interfaces that systems administrators and managers use to perform systems management functions. Multiple interfaces are provided to meet the unique needs of specific types of users: . Microsoft Management Console--OnePoint products are provided as snap-ins that integrate into the Microsoft Management Console and are designed for use by professional systems managers to provide rich functionality. . Web client--A task-oriented thin web client, requiring no workstation installation, provides a simple and effective tool for non systems professionals, such as a line of business department assistant, to perform administrative activities efficiently, securely and safely. . Application programming and scripting interfaces--These interfaces enable professional administrators to customize or extend the functionality of OnePoint products to meet the unique needs of a specific organization. Business Logic Layer--provides a layer of common services that manages the communication between the data and presentation layers. The business logic layer ensures that administrative and operational policies are enforced, that transactions across multiple data stores are managed and that the integrity of data store content is maintained. Data Layer--dynamically manages the collection and update of data from a wide range of Windows NT and Windows 2000 data sources including the Windows NT 4.0 Security Access Manager, Windows 2000 ActiveDirectory, Exchange, application event logs, Windows NT system services and the Windows Registry. 44

Customers Our products have been sold to over 600 corporations, governmental agencies and other organizations worldwide including more than 40 of the 1999 Fortune 100 companies. The following table lists our customers that each accounted for more than $100,000 in total revenue from July 19, 1996 to March 31, 1999. ABN Amro Securities Dow Chemical Ontario Hydro Services (UK) Ltd. DTO Maasland N.V. Company Advanced Micro Devices DuPont Pacific Gas & Electric ALCOA, Inc. Eastman Chemical Company Pharmacia & Upjohn, Allied Signal Equitable Life Insurance Inc. Allstate Insurance Federal Deposit Insurance Philip Morris EFTA Company Corporation Anheuser-Busch F. Hoffman-LaRoche Ltd. Procter & Gamble Applied Materials First Union National Bank Company ASZ N.V. Glaxo Wellcome PricewaterhouseCoopers Banque Paribas Hennepin County LLP Bayerisch Landesbank Honeywell The Prudential Insurance Bechtel Houston Independent School Company of America BellSouth Cellular District Public Service Electric British Aerospace Johnson & Johnson & Gas Co. British Nuclear Fuels Kadena AFB, Japan Raychem Corporation British Petroleum Kaiser Foundation Health Republic Industries, Carlson Companies Lehman Brothers Inc. Carnival Cruise Lines LM Ericsson AB Rogers Cable TV The Chubb Corporation Lockheed Martin Schering-Plough Citigroup Marathon Oil Company Corporation CNF Service Company MCI Systemhouse Shell Services Coca Cola Company Merck & Co., Inc. International Inc. Columbia Healthcare Merrill Lynch, Pierce, SHL Computer Innovation Compaq Computer Fenner & Smith SHL System House--Amoco Corporation Microsoft Corporation Division Computacenter Ltd Ministerie van Landbouw Social Security Countrywide Home Loan Morgan Stanley & Co., Inc. Administration Cox Communications Motorola, Inc. Sonnenschein Nath & Credit Suisse NationsBank Rosenthal CSC Computer Sciences Nationwide Building Society Sprint Corporation Cummins Engine Co. Nike Sutter Health Defense Intelligence Nortel Swisscom AG Agency Norwest Banks Texas Department of Dell Computer Novartis Argentina SA Transportation Corporation Trellis Network Department of Foreign Services, Inc. Affairs TRW Inc. Detroit Edison U.K. Ministry of Deutsche Morgan Grenfell Defence Digital Equipment Union Bank of Corporation Switzerland USAA Washington State Department of Corrections Wells Fargo & Company Western Wireless Weyerhauser Company Customers often buy for a single location, department or division, and then, based upon the initial success of the products in that location, department or division, later expand their use of our products into other parts of the organization. We believe we can sell our existing products more deeply within our existing customer sites and sell new products as we expand our product line. We will continue to pursue enterprise wide sales as appropriate. In fiscal 1997, fiscal 1998 and the nine months ended March 31, 1999, no single customer comprised more than 10% of our revenue. Microsoft Relationship Currently Microsoft is a supplier, partner and customer. 45

Supplier. Our products are focused on the Windows NT marketplace. We have relationships with Microsoft's Developer Relations Group and Windows 2000 Product Management Group. We believe that these relationships enable us to anticipate Microsoft's evolving product strategy in advance of the market and to create products designed to increase the value of Microsoft's operating systems. In addition, we believe that the relationship enables us to have early access to technologies and/or influence the development of special requirements. Partner. We are a member of numerous Microsoft program partnerships. We participate as partners in the Microsoft Certified Solution Provider, ADSI Partner and Security Partner programs. We also participate in Microsoft's BackOffice program, whereby Microsoft tests and certifies our products as BackOffice compatible. We have been chosen as one of the vendors whom Microsoft promotes through both its internal and external marketing programs. The objectives of these programs are to increase Windows NT server sales by informing both Microsoft field personnel as well as potential customers about the added value of our solutions. We also participate in numerous Microsoft sponsored events such as COMDEX, Windows 2000 Rapid Deployment Conferences and TechEd. At some of the tradeshows we attend, we demonstrate and/or present as a member of the Microsoft Partner Pavilion. In addition to the above, we participate in extensive joint field work with Microsoft account representatives, systems engineers and consultants through a concerted program of awareness, joint presentations, briefings and sales calls. Customer. Microsoft's Information Technology Group became our customer in June 1998 when Microsoft licensed our OnePoint Event Manager product. Microsoft selected OnePoint Event Manager to perform strategic event management of its global Internet and corporate data centers. Microsoft has five primary datacenters, including three Internet datacenters (in Redmond, Washington, the United Kingdom and Japan) and two main corporate data centers (in Redmond and Ireland). The Microsoft Information Technology Group uses the OnePoint Event Manager product to centrally monitor and provide alert notification for proactively managing the health status of more than 3,000 critical business systems. Sales and Marketing We sell our products primarily through our direct sales force and distributors. Historically our sales efforts have focused on companies with more than 3,000 employees. We intend to continue these efforts and to expand our sales efforts to middle-market companies. We have relied on systems integrators and consulting service providers for only a limited number of sales, but we intend to explore opportunities to work with systems integrators and consulting service providers in the future. Direct Sales. We sell our products primarily through a direct sales force using a team approach. We believe this approach allows us to achieve control of the sales process and respond rapidly to customer needs. Each sales team consists of three persons: a sales manager, an inside sales person and a sales engineer. The sales manager is responsible for coordinating the efforts of the sales team and for finalizing customer requirements and closing the sale. The inside sales person is responsible for maintaining contact with existing customers as well as prospecting for and qualifying potential new customers. The sales engineer is a highly skilled technical employee responsible for supporting products sales, including all technical aspects related to sales of our products. Our typical sales cycle has averaged three months. As of March 31, 1999, we had 43 persons in our direct sales organization worldwide. The direct sales force for North America is distributed throughout the United States and Toronto, Canada and accounts for substantially all of our North American revenues. During 1999, we established direct sales activities in Germany and France. We also have sales representatives based in London, England. We have increased the size of our direct sales organization from 29 to 43 individuals over the past year and expect to continue hiring sales personnel over the next 12 months, primarily in North America. Distributors and Resellers. In addition to our direct sales strategy, we have established indirect sales channels through distributors and other resellers. Outside North America, we have historically relied heavily on our indirect sales channel. We have established a network of resellers and distributors in Europe, Australia and Brazil, with the concentration of such distributors being located in Europe. 46

Our international distributors and other resellers typically perform marketing, sales and technical support functions in their country or region. Each one may distribute direct to the customer, via other resellers or through a mixture of both channels. We actively train our international distributors in both product and sales methodology. Systems Integrators and Service Providers. To date, we have yet to significantly utilize systems integrators or service providers in our selling efforts. We are currently evaluating opportunities for and plan to expand joint sales with systems integrators and consulting service providers, particularly with respect to the implementation of Windows 2000. Marketing Programs. To support our growing sales organization and channel, we have devoted significant resources in the past year to building and launching a series of marketing campaigns. Our marketing efforts have included a number of programs, such as seminars, industry trade shows, mailings, analyst and press tours, advertising and public relations. We believe these marketing programs have resulted in a number of sales leads. Customer Service and Support We believe that a high level of customer service and support is critical to the successful marketing and sale of our products. We are developing a comprehensive service and support organization to manage customer accounts and expect to provide an increasing level of support as our products are deployed across a range of customers. We provide support for our products and services primarily from our Houston, Texas location. We plan to establish additional service and support sites internationally commensurate with customer needs. Our products are designed to be implemented quickly and effectively by our customers and to require minimal support from us. We provide technical support to our customers through maintenance and support agreements. This support includes assistance with product installation, configuration and initial set- up, run-time support and support during extended hours. We generally provide our support via e-mail, the Internet, facsimile and telephone. We make software upgrades available to customers with maintenance agreements as the upgrades are released. Research and Development We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing additional applications and increasing the competitiveness of our product offerings. We have invested significant time and resources in creating a structured process for undertaking all product development projects. This process involves all functional groups within our company and is designed to provide a framework for defining and addressing the steps, tasks and activities required to bring product concepts and development projects to market successfully. In addition, we have actively recruited key computer engineers and software developers with expertise and degrees in computer science. Our product development strategy emphasizes rapid innovation and product releases. As of March 31, 1999, our research and development staff consisted of 52 full-time employees. To date, none of our development staff has left our company since inception. We are currently preparing our OnePoint product suite to support the commercial release version of Windows 2000. Our research and development expenses totaled $1.3 million for fiscal 1997, $3.6 million for fiscal 1998 and $4.3 million for the nine months ended March 31, 1999. Competition We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing. We face competition primarily from systems management software vendors that provide solutions for distributed computing systems. We have experienced and expect to continue to experience increased competition from 47

current and potential competitors, many of which have significantly greater financial, technical, marketing and other resources. Companies offering competitive products vary in scope and breadth of the products and services offered and include: . internal systems management departments; . providers of point solutions for Windows NT directory administration, domain consolidation migration and event management, such as Master, Design & Development, Micromuse, Fastlane, Entevo, NetIQ, System Options and Aelita Software Group; . providers of security and audit products for Windows NT such as BindView and Netwise; and . providers of systems management suites and/or frameworks such as Computer Associates, Hewlett-Packard, Tivoli and BMC Software. We believe the principal factors that will draw end-users to a systems management software product include depth of product functionality, ability to work natively with Windows NT, scalability, product quality and performance, conformance to industry standards, competitive price and customer support. Proprietary Rights We rely primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary rights. However, we believe that such measures afford only limited protection. We license our software products primarily under shrink wrap licenses (i.e., licenses included as part of the product packaging). Shrink wrap licenses are not negotiated with or signed by individual licensees, and purport to take effect upon the opening of the product package. We believe, however, that these measures afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult and we are unable to determine the extent to which piracy of our software products exists. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. We are not aware that we are infringing any proprietary rights of third parties. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management's attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. Employees As of March 31, 1999, we had 136 full-time employees, 52 of whom were engaged in research and development, 53 in sales and marketing, 10 in customer support, and 21 in finance, administration and operations. None of our employees is represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. Facilities We lease approximately 32,000 square feet in a single office building located in Houston, Texas pursuant to a lease that expires in August 2003. We have signed a five-year lease for approximately 70,000 square feet of office space in Houston, Texas. We also lease space in Lakewood, California; Atlanta, Georgia; Austin, Texas; McLean, Virginia; and London, England. The term of any one of these leases is not more than 12 months. 48

MANAGEMENT Executive Officers And Directors The following table sets forth certain information with respect to our executive officers and directors of and their ages as of March 31, 1999. <TABLE> <CAPTION> Name Age Position ---- --- -------- <S> <C> <C> Michael S. Bennett...... 47 Chairman of the Board, President and Chief Executive Officer Thomas P. Bernhardt..... 46 Chief Technology Officer and Director Stephen E. Odom......... 47 Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary Brian J. McGrath........ 60 Vice President of Sales Richard J. Pleczko...... 41 Vice President of Marketing and Product Management Stephen Kangas.......... 46 Vice President of Strategic Alliances Olivier J. Thierry...... 43 Vice President of Marketing Communications Michael Rovner.......... 29 Director of Business Development Douglas L. Ayer(2)...... 62 Director Michael J. Maples....... 56 Director John J. Moores(1)....... 54 Director Scott D. Sandell(2)..... 34 Director John D. Thornton(1)..... 34 Director </TABLE> --------------------- (1) Member of audit committee (2)Member of compensation committee Michael S. Bennett has served as President, Chief Executive Officer, and as a member of the board of directors of our company since May 1998. He was appointed Chairman of the Board in February 1999. From August 1996 until April 1998, he served as President and Chief Executive Officer of Learmonth & Burchett Management Systems plc ("LBMS"), a provider of process management tools for software development. Prior to joining LBMS in August 1996, Mr. Bennett served as President and Chief Executive Officer of Summagraphics from June 1993 to July 1996, until its acquisition by Lockheed Martin's CalComp subsidiary. Prior to that time, Mr. Bennett served as a senior executive with Dell Computer Corporation and as chief executive officer of several high technology organizations. Thomas P. Bernhardt is a founder of our company and has served as a director since July 1996. Mr. Bernhardt was a consultant to our company from September 1996 to January 1997, when he joined us on a full time basis as its Chief Technology Officer, which is his current role. From February 1998 to May 1998, he also served as our interim President and Chief Executive Officer. From January 1989 to December 1996, Mr. Bernhardt was a consultant with RCG International, an information technology consulting services company. Mr. Bernhardt holds a B.S. degree in Experimental Psychology from the University of Notre Dame. Stephen E. Odom has served as our Chief Financial Officer, Treasurer and Secretary since May 1998. In January 1999, Mr. Odom was also appointed our Chief Operating Officer. From April 1995 until April 1998, he served as Chief Financial Officer, Senior Vice President Finance, and Secretary of LBMS. From July 1988 to April 1995, Mr. Odom was a Partner with PricewaterhouseCoopers LLP. Mr. Odom holds a B.B.A. degree in Accounting from Georgia State University. Brian J. McGrath joined our company as a consultant in January 1997 and has served as our Vice President of Sales since January 1998. From June 1980 until present, Mr. McGrath also served as a principal of McGrath & Associates, a contract software selling firm. Richard Pleczko has served as our Vice President of Marketing and Product Management since December 1998. From May 1998 to December 1998, Mr. Pleczko served as Senior Vice President of World 49

Wide Marketing at PLATINUM technology, inc., a software company. From April 1985 until May 1998, Mr. Pleczko served in various managerial positions with LBMS, the most recent of which was Senior Vice President--Marketing and Product Development. Stephen Kangas has served as our Vice President of Strategic Alliances since February 1999. From May 1998 to February 1999, Mr. Kangas was the President, Chief Executive Officer, and a founder at SendDocs.com, an Internet-based services company. From August 1996 to May 1998, Mr. Kangas served as the President, Chief Operating Officer, and a founder of Exodus Technologies, Inc., a software company. From December 1995 to August 1996, Mr. Kangas served as the Vice President of Marketing for Intertech Imaging, Inc., a software company. From January 1994 to December 1995, Mr. Kangas served as the General Manager of Wall Data, Inc., a software company. Olivier J. Thierry has served as our Vice President of Marketing Communications since February 1998. Mr. Thierry also served as our Vice President of Product Management from February 1998 to December 1998. From December 1993 until joining our company, Mr. Thierry was Vice President of Antares Alliance Group, a provider of enterprise development tools jointly owned by Amdahl Corporation and EDS. Michael Rovner has served as our Director of Business Development since March 1999. From June 1998 to February 1999, Mr. Rovner served as the Director of Product Management at ClearCommerce Corporation, an e-commerce software company. From July 1997 to June 1998, Mr. Rovner served as a consultant to Federal Express Corporation specializing in global logistics and e-commerce strategies. From November 1995 to June 1997, Mr. Rovner served as Product Manager for Data Warehousing and Online Analytical Processing at Informix Software, Inc., a database software company. From June 1993 to November 1995, Mr. Rovner served as a product manager for Empart, Inc., a software company. Mr. Rovner holds B.A. degrees in English and Political Science from the University of California at Los Angeles. Douglas L. Ayer has served as a director of our company since September 1996. Mr. Ayer has served as President and Managing Partner of International Capital Partners, Inc., a venture capital firm, since 1989. Prior to joining International Capital Partners, Mr. Ayer was the Chief Executive Officer of Cametrics, Inc., a manufacturer of engineered metal components. Mr. Ayer also serves as a member of the boards of directors of Biopool, Inc., a medical diagnostic test kit company, and Coffee People, Inc., a coffee retailer and franchise company. Mr. Ayer holds a B.S.E. degree in Aeronautical Engineering from Princeton University and an M.B.A. degree from Harvard University. Michael J. Maples has served as a director of our company since April 1999. Mr. Maples manages private investments. From April 1988 to July 1995, Mr. Maples held various management positions at Microsoft Corporation, the most recent of which was Executive Vice President of the Worldwide Products Group and a member of the office of the president. Prior to that, he served as a Director of Software Strategy for IBM. He also serves as a director of J.D. Edwards & Company, an enterprise software company, Lexmark International, Inc., a laser and inkjet printer company, and PSW Technologies, a software company. Mr. Maples is also a member of the Board of Visitors for the Engineering School at the University of Oklahoma and the College of Engineering Foundation Advisory Counsel at the University of Texas at Austin. Mr. Maples holds a B.S. degree in electrical engineering from the University of Oklahoma and an M.B.A. degree from Oklahoma City University. John J. Moores has served as a director of our company since June 1997. Mr. Moores has served as owner and Chairman of the Board of the San Diego Padres Baseball Club, L.P. since December 1994, and since September 1991 as Chairman of the Board of JMI Services, Inc., a private investment company. In 1980, Mr. Moores founded BMC Software, Inc., a vendor of system software utilities, and served as its president and Chief Executive Officer until 1986 and as its Chairman of the Board until 1992. Mr. Moores also serves as Chairman of the Board of Peregrine Systems, Inc., an infrastructure management software company and of Neon Systems, Inc., an enterprise middleware and systems management software company, as well as numerous privately held companies. Mr. Moores serves as a director of BindView Development 50

Corporation, a systems management software company. Mr. Moores is a member of the Board of Regents of The University of California, The Carter Center of Emory University and of Scripps Research, Inc. Mr. Moores holds a B.S. degree in Economics and a J.D. degree from University of Houston. Scott D. Sandell has served as a director of our company since September 1996. Mr. Sandell has served as a partner of New Enterprise Associates, a venture capital firm, and in other capacities at such firm since January 1996. Prior to joining New Enterprise Associates, Mr. Sandell was the President of Yankee Pacific Company, a marketing and business strategy consulting firm from March 1994 to December 1995. He is also a member of the boards of directors of several privately held companies. Mr. Sandell holds a B.S. degree in Engineering Sciences from Dartmouth College and a M.B.A. degree from the Stanford Graduate School of Business. John D. Thornton has served as a director of our company since June 1997. Mr. Thornton has served as a general partner of Austin Ventures, a venture capital firm, where he has been employed since 1991. Prior to joining Austin Ventures, Mr. Thornton was a consultant with McKinsey & Co., an international consulting firm. Mr. Thornton also serves on the board of directors of Vignette Corporation, an Internet relationship management software company, and is also a member of the boards of directors of several privately held companies. Mr. Thornton holds a B.A. degree in Economics from Trinity University and an M.B.A. degree from the Stanford Graduate School of Business. Prior to the closing of this offering, our board of directors will be divided into three classes, as nearly equal in number as possible, with each director serving a three-year term and one class being elected at each year's annual meeting of stockholders. Messrs. Bennett, Sandell and Thornton will be in the class of directors whose term expires at the 1999 annual meeting of stockholders. Mr. Moores will be in the class of directors whose term expires at the 2000 annual meeting of the stockholders. Messrs. Ayer, Bernhardt and Maples will be in the class of directors whose term expires at the 2001 annual meeting of stockholders. Our board of directors currently consists of seven members. At each annual meeting of stockholders, the successors to each class of directors will be elected to serve for three year terms from the time of election and qualification until the next annual meeting at which such director's class stands for election. Our bylaws provide that the authorized number of directors may be changed only by resolution of the board of directors. Executive officers are elected by the board of directors on an annual basis and serve until their successors have been duly elected and qualified. Mr. Sandell is Mr. Ayer's son-in-law. There are no other family relationships among any of our directors, officers or key employees. Board Committees We have established an audit committee and a compensation committee. The audit committee reviews our internal accounting procedures and consults with and reviews the services provided by our independent accountants. The compensation committee reviews and recommends to the board of directors the compensation and benefits of all of our officers and establishes and reviews general policies relating to compensation and benefits of employees. Compensation Committee Interlocks and Insider Participation Our board of directors established its compensation committee in December 1997. Prior to establishing the compensation committee, the board of directors as a whole performed the functions delegated to the compensation committee. No interlocking relationship exists between any member of our compensation committee and any member of any other company's board of directors or compensation committee. 51

Director Compensation Directors do not currently receive any cash compensation our company for their service as members of our board of directors, although they are reimbursed for certain expenses in connection with attendance at board and committee meetings. Under our 1997 Stock Plan, nonemployee directors are eligible to receive stock option grants at the discretion of the board of directors, and, after this offering is completed, all nonemployee directors will receive stock options pursuant to the automatic option grant program in effect under the Director Plan. See "--Incentive Stock Plans." Executive Compensation Summary Compensation Table. The following table sets forth the compensation earned for services rendered to us in all capacities by our Chief Executive Officer and our four next most highly compensated executive officers who earned more than $100,000 (collectively, the "Named Executive Officers") for the nine months ended March 31, 1999: <TABLE> <CAPTION> Long-Term Annual Compensation Compensation Awards ------------------ ------------ Securities Underlying All Other Name and Principal Positions Salary($) Bonus($) Options(#) Compensation(1) ---------------------------- --------- -------- ------------ -------------- <S> <C> <C> <C> <C> Michael S. Bennett President and Chief Executive Officer...................... $150,012 $ 99,167 -- $ 326 Thomas P. Bernhardt Chief Technology Officer..... 129,167 20,000 160,000 326 Stephen E. Odom Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary...... 150,005 8,000 -- 326 Brian McGrath Vice President of Sales(2)... 150,012 305,235 -- 1,316 Olivier J. Thierry Vice President of Marketing Communications............... 131,262 36,667 -- 80,197 </TABLE> --------------------- (1) Represents excess compensation associated with premiums for life insurance with respect to $326 for each of Messrs. Bennett, Bernhardt, Odom and Thierry and $1,316 for Mr. McGrath. $79,871 represents moving expenses paid in connection with Mr. Thierry's relocation agreement. See "Certain Transactions." (2) Bonus represents sales commissions paid to Mr. McGrath. See "Employment Agreements and Change in Control Agreements." 52

Option Grants in Current Fiscal Year. The following table sets forth certain information with respect to stock options granted to each of the Named Executive Officers during the nine months ended March 31, 1999. <TABLE> <CAPTION> Potential Realizable Value at Assumed Number of Annual Rates of Stock Securities Percent of Total Appreciation for Underlying Options Granted Option Term(3) Name and Principal Options to Employees Exercise Price Expiration --------------------- Position Granted(#)(1) During Period(2) ($/share) Date 5% 10% ------------------ ------------- ---------------- -------------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> Michael S. Bennett President and Chief Executive Officer..... -- -- -- -- -- -- Thomas P. Bernhardt Chief Technology Officer............... 160,000 14.4 2.75(4) 08/27/03 149,600 339,456 Stephen E. Odom Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary............. -- -- -- -- -- -- Brian McGrath Vice President of Sales................ -- -- -- -- -- -- Olivier J. Thierry Vice President of Marketing Communications........ -- -- -- -- -- -- </TABLE> --------------------- (1) 25% of the shares subject to the option vest one year after the date of grant and the remaining 75% of the shares subject to the option vest monthly over the next three years. (2) We granted options to purchase an aggregate of 1,091,660 shares during the nine months ended March 31, 1999 to employees of and consultants. (3) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock prices. (4) The exercise price per share of the option was equal to 110% the fair market value of the common stock on the date of grant as determined by the board of directors. 53

Option Exercises in Current Fiscal Year and Most Recent Quarter-End Option Values. The following table sets forth information with respect to the Named Executive Officers concerning option exercises for the nine months ended March 31, 1999 and exercisable and unexercisable options held as of March 31, 1999: <TABLE> <CAPTION> Number of Securities Shares Underlying Unexercised Value of Unexercised Acquired Options at In-the-Money Options at on Value March 31, 1999 (#) March 31, 1999 ($)(2) Name and Principal Exercise Realized ------------------------- ------------------------- Positions (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable ------------------ -------- -------- ----------- ------------- ----------- ------------- <S> <C> <C> <C> <C> <C> <C> Michael S. Bennett President and Chief Executive Officer..... -- -- 275,979 660,669 3,311,748 7,928,028 Thomas P. Bernhardt Chief Technology Officer............... -- -- 15,000 175,000 180,000 2,100,000 Stephen E. Odom Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary............. -- -- 46,002 154,734 552,024 1,856,808 Brian McGrath Vice President of Sales................ 70,625 67,500 11,250 98,125 135,000 1,177,500 Olivier J. Thierry Vice President of Marketing Communications........ 60,000 180,000 15,000 105,000 45,000 1,260,000 </TABLE> --------------------- (1) "Value realized" is calculated on the basis of the fair market value of the common stock on the date of exercise minus the exercise price. It does not necessarily indicate that the optionee sold such stock for such amount. (2) The value of "in-the-money" options represents the positive spread between the exercise price of the stock options and the fair market value of the common stock on the date of exercise as determined by our board of directors. The per share fair market value of the common stock was $12.50 per share as of March 31, 1999. Incentive Stock Plans The following summaries assume we have obtained stockholder approval of the amendments to our 1997 Stock Option Plan and the adoption of our 1999 Employee Stock Purchase Plan and 1999 Director Option Plan. We expect to obtain such approval in June 1999. 1997 Stock Option Plan. The 1997 Stock Plan was adopted by our board of directors in March 1997 and approved by our stockholders in July 1997. The 1997 Plan was amended in May 1999. A total of 8,795,000 shares of common stock has been reserved for issuance under the 1997 Plan, together with an annual increase in the number of shares reserved thereunder beginning on the first day of our fiscal year (commencing July 1, 2000) in an amount equal to the lesser of (i) 750,000 shares, (ii) five percent of our outstanding shares of common stock on the last day of the prior fiscal year or (iii) such amount as determined by our board of directors. The 1997 Plan provides for grants of incentive stock options to our employees (including officers and employee directors) and nonstatutory stock options to our consultants (including nonemployee directors). The purposes of the 1997 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our employees and consultants and to promote the success of our business. At the request of the board of directors, the compensation committee administers the 1997 Plan and determines the optionees and the terms of options granted, including the exercise price, number of shares subject to the option and the exercisability thereof. The term of options granted under the 1997 Plan is stated in the option agreement. However, the term of an incentive stock option may not exceed ten years and, in the case of an incentive or nonstatutory 54

stock option granted to an optionee who, at the time of grant, owns stock representing more than 10 percent of our outstanding capital stock, the term of such option may not exceed five years. Options granted under the 1997 Plan vest and become exercisable as set forth in each option agreement. With respect to any optionee who owns stock possessing more than 10 percent of the voting rights of our outstanding capital stock, the exercise price of any stock option granted must equal at least 110% of the fair market value on the grant date. No incentive stock options may be granted to an optionee, which, when aggregated with all other incentive stock options granted to such person, would have an aggregate fair market value in excess of $100,000 becoming exercisable in any calendar year. No employee may be granted, in any fiscal year of our company, options to purchase more than 500,000 shares (or 1,000,000 shares in the case of an employee's initial employment). The 1997 Plan will terminate in March 2007, unless the board of directors terminates it sooner. As of March 31, 1999, 504,268 shares of common stock had been issued upon the exercise of options granted under the 1997 Plan, options to purchase 3,935,084 shares of common stock at a weighted average exercise price of $1.99 per share were outstanding and 4,355,648 shares remain available for future option grants under the 1997 Plan. 1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan was adopted by our board of directors in May 1999 in contemplation of, and to become effective upon, the closing of this offering. A total of 600,000 shares of common stock have been reserved for issuance under the Purchase Plan, together with an annual increase in the number of shares reserved thereunder beginning on the first day of our fiscal year (commencing July 1, 2000) in an amount equal to the lesser of (i) 500,000 shares, (ii) four percent (4%) of the outstanding shares of our common stock on the last day of the prior fiscal year or (iii) such amount determined by the board of directors. The Purchase Plan, which is intended to qualify under Section 423 of the Code is administered by the board of directors. Our employees (including our officers and employee directors, but excluding our five percent stockholders) are eligible to participate if they are customarily employed for at least 20 hours per week and for more than five months in any calendar year. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed the lesser of 15% of an employee's compensation, where compensation is defined on Form W-2, or $25,000. The Purchase Plan will be implemented in a series of overlapping offering periods, each to be of approximately 24 months duration. The initial offering period under the Purchase Plan will begin on the effective date of this offering and subsequent offering periods will begin on the first trading day on or after February 1 and August 1 of each year. Each participant will be granted an option on the first day of the offering period and such option will be automatically exercised on the last date of each semi-annual period throughout the offering period. If the fair market value of our common stock on any purchase date is lower than such fair market value on the start date of that offering period, then all participants in that offering period will be automatically withdrawn from such offering period and re-enrolled in the immediately following offering period. The purchase price of our common stock under the Purchase Plan will be equal to 85 percent of the lesser of the fair market value per share of common stock on the start date of the offering period or at the end of the purchase period. Employees may end their participation in an offering period at any time during that period, and participation ends automatically on termination of employment with our company. The Purchase Plan will terminate in May 2009, unless sooner terminated by our board of directors. 55

1999 Director Option Plan. Our 1999 Director Option Plan that will become effective upon the closing of this offering was adopted by the board of directors. A total of 250,000 shares of common stock has been reserved for issuance under the Director Plan, together with an annual increase in the number of shares reserved thereunder beginning on the first day of our fiscal year (commencing July 1, 2000) in an amount equal to the lesser of (i) 250,000 shares, (ii) two percent of the outstanding shares of our common stock on the last day of the prior fiscal year or (iii) such amount determined by the board of directors. The option grants under the Director Plan are automatic and non- discretionary, and the exercise price of the options is 100% of the fair market value of the common stock on the grant date. The Director Plan provides for an initial grant to a nonemployee director of an option to purchase 37,500 shares on the date on which a nonemployee director becomes a member of the board of directors following the effective date of the Director Plan. Subsequently, each nonemployee director shall automatically be granted an additional option to purchase 12,500 shares of common stock at the next meeting of the board of directors following the annual meeting of stockholders in each year beginning with the 1999 annual meeting of stockholders, if on such date, such director has served on the board of directors for at least six months. The term of such options is ten years, provided that such options shall terminate three months following the termination of the optionee's status as a director (or twelve months if the termination is due to death or disability). The initial 37,500 share grants shall become exercisable at a rate of one-third of the shares subject to the option on the first anniversary of the date of grant and at a rate of 1/36th of the shares subject to the option per month thereafter. The subsequent 12,500 share grants shall become exercisable at the rate of one-half of the shares subject to the option on the first anniversary of the date of grant and at a rate of 1/24th of the shares subject to the option per month thereafter. 401(k) Plan. In September 1996, we adopted a Retirement Savings and Investment Plan, the 401(k) Plan, covering our full-time employees located in the United States. The 401(k) Plan is intended to qualify under Section 401(k) of the Internal Revenue Code, so that contributions to the 401(k) Plan by employees or by us, and the investment earnings thereon, are not taxable to employees until withdrawn from the 401(k) Plan. If the 401(k) Plan qualifies under Section 401(k) of the Internal Revenue Code, contributions by us, if any, will be deductible by us when made. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit ($10,000 in 1999) and to have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require, additional matching contributions to the 401(k) Plan by us on behalf of all participants in the 401(k) Plan. To date, we have not made any contributions to the 401(k) Plan. Employment Agreements and Change in Control Arrangements Michael S. Bennett, our Chairman of the Board, Chief Executive Officer and President, is entitled to acceleration of 100% of his then unvested option grants if after the first anniversary of his employment and prior to the fourth such anniversary, we are acquired by another company and he is (1) terminated, (2) assigned a position of lesser responsibility or compensation in the resulting organization or (3) required to relocate. Mr. Bennett will have twelve months following his separation from our company or its successor, regardless of whether his termination is voluntary or involuntary, to exercise his vested options. Mr. Bennett is also entitled to severance payments of $200,000 in the event that he is terminated other than for cause. Stephen E. Odom, our Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary, is entitled to acceleration of 100% of his then unvested options if after the first anniversary of his employment 56

and prior to the fourth such anniversary, we are acquired by another company and he is (1) terminated or (2) assigned a position of lesser responsibility or compensation in the resulting organization, Mr. Odom will have twelve months following his separation from our company or our successor regardless of whether his termination is voluntary or involuntary, to exercise his vested options. Mr. Odom also entitled to severance payments of six months of his then-current salary in the event that he is terminated other than for cause. Thomas P. Bernhardt, our Chief Technology Officer, is entitled to severance equal to six months salary in the event he is terminated without cause by us. Mr. Bernhardt has agreed that for a period of one year after his separation from our company, regardless of the reason, he will not (1) engage in direct competition with us, (2) conduct a business of the type or character engaged in by us at the time of his separation or (3) develop, market, sell and/or distribute products or services directly competitive with ours. Mr. Bernhardt has also agreed to not employ any of our employees or induce or attempt to influence any of our employees to voluntarily terminate his or her employment with us other than those employees not directly involved in the development, marketing, sales and or distribution of our products or services during Mr. Bernhardt's employment. Brian J. McGrath, our Vice President of Sales, entered into an employment agreement dated August 6, 1997 with us. Mr. McGrath entered into a letter agreement dated January 13, 1999 with us intended to clarify the terms of his employment agreement. The January 1999 letter agreement provides that from the date of the agreement until June 30, 1999, Mr. McGrath is entitled to salary of $16,667 per month, a two percent commission on all license fees, a one percent commission on all initial maintenance fees (other than from those customers listed in the agreement) and a 15% commission on revenue generated by customers as specified in the agreement as "Named Accounts." Mr. McGrath's commission on revenue from Named Accounts may be reduced, but such reduction shall not exceed six percent of the related commission revenue, by payments of commissions to other account managers assigned to such Named Accounts. Effective July 1, 1999, Mr. McGrath's compensation will consist of a base salary of $200,000 and additional $200,000 contingent upon meeting specified operating targets. The January 1999 letter agreement also provides that if Mr. McGrath were to voluntarily terminate his employment without "good reason" prior to July 1, 1999, the exercise price of a warrant to purchase 100,000 shares of common stock granted to him on January 1, 1998 would increase to $2.00 per share from $1.00 per share. "Good reason" is defined in the letter agreement as an assignment to duties inconsistent with his prior position, status or responsibilities, a material change in his reporting responsibilities, the failure to reappoint Mr. McGrath to his office (except in the event of an acquisition of our company with respect to any of the foregoing), a reduction by us in Mr. McGrath's total compensation package as defined in the letter agreement, a requirement that Mr. McGrath relocate to anywhere other than Texas or our failure to secure an agreement by its successor in interest, if any, to perform our obligations set forth in the letter agreement. We have agreed with Mr. McGrath that for a six month period after his separation from our company, he shall not compete with us and shall not solicit a list of customers set forth in the January 1999 agreement as amended by us from time to time. Mr. McGrath agreed that for a period one year not to employ any of our employees or induce or attempt to influence any of our employees to voluntarily terminate his or her employment with our company. In the event Mr. McGrath is terminated without cause, his warrant to purchase shares of our common stock shall continue to vest during the notice period and severance periods set forth in the August 6, 1997 agreement. 57

Olivier J. Thierry, our Vice President--Marketing Communications, is entitled to severance equal to six months salary upon his termination by us, other than for cause. Mr. Thierry has agreed that for a period of one year after his separation from our company, regardless of the reason, he will not (1) engage in direct competition with us or (2) develop, market, sell and/or distribute products or services directly competitive with ours. Mr. Thierry has also agreed for a period of two years not to employ any of our employees or induce or attempt to influence any of our employees to voluntarily terminate his or her employment with us. In connection with his employment with us, Mr. Thierry also received a relocation loan that we are required to forgive in certain circumstances. See "--Certain Transactions." Richard Pleczko, our Vice President of Marketing and Product Management, is entitled to an advance equal to $31,250, which will be forgiven over his first twelve months of employment with our company, if his quarterly bonus from PLATINUM technologies inc. is not paid to him due to Mr. Pleczko's start date with our company. Mr. Pleczko is also entitled to (1) severance payments of six months of his then current salary in the event he is terminated without cause and (2) acceleration of 25% of his then unvested options in the event he is terminated without cause during his first twelve months employment with our company. Mr. Pleczko has agreed that for a period of two years, in the event of any voluntary or involuntary termination or resignation, he shall not directly or indirectly compete with us. Mr. Pleczko also agreed for a period of two years not to employ any of our employees or induce or influence any of our employees to voluntarily terminate his or her employment with us. Stephen Kangas, our Vice President of Strategic Alliances, is entitled to acceleration of options to purchase 25% of his then unvested options to purchase shares of our common stock in the event that Mr. Kangas is terminated without cause as a result of a merger or acquisition of our company prior to the first anniversary of his employment with our company. Mr. Kangas also entitled to severance payments of six months of his then-current salary in the event that he is terminated other than for cause. Mr. Kangas has agreed that for a period of two years, in the event of any voluntary or involuntary termination or resignation, he shall not directly or indirectly compete with us. Mr. Kangas has also agreed for a period of two years not to employ any of our employees or induce or influence any of our employees to voluntarily terminate his or her employment with us. Leslie D. Willard, our Vice President--Finance, is entitled to acceleration of 100% of his then unvested options if after the first anniversary of his employment, our company is acquired by another company and he is (1) terminated or (2) assigned to a position of lesser responsibility or compensation in the resulting corporation. Michael Rovner, our Director of Business Development, is entitled to (1) acceleration of 25% of his then unvested options and (2) severance payments of six months of his then current salary, in the event he is terminated without cause as a result of a merger or acquisition of our company during the first twelve months of his employment. Mr. Rovner has agreed that for a period of two years, in the event of any voluntary or involuntary termination or resignation, he shall not directly or indirectly compete with us. Mr. Rovner has also agreed for a period of two years not to employ any of our employees or induce or influence any of our employees to voluntarily terminate his or her employment with us. Limitations On Directors' Liability And Indemnification Our certificate of incorporation limits the liability of our directors and executive officers to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for (i) any breach of their duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful payments of dividends or unlawful stock repurchases or redemptions or (iv) any transaction from which the director derived an improper personal benefit. Such limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. 58

Our certificate of incorporation together with the bylaws provide that we must indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws would permit indemnification. We expect to enter into agreements prior to the effective time of this offering to indemnify our directors and executive officers, in addition to indemnification provided for in our bylaws. These agreements, among other things, provide for indemnification our directors and executive officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of our company, arising out of such person's services as a director or executive officer of our company, one of our subsidiaries or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as our directors and executive officers. 59

CERTAIN TRANSACTIONS In September 1996, we issued 2,431,350 shares of common stock to six individuals for aggregate proceeds of $3,000. Of such shares, we issued 1,045,480 shares to Thomas P. Bernhardt and 1,045,480 shares to Louis R. Woodhill. We acquired our OnePoint Administrator software product from Mission Critical Software I, Inc., an entity held by James R. Woodhill, in September 1996 in exchange for 1,697,082 shares of its Series A Preferred Stock. We also issued 121,568 shares of Series A Preferred Stock to E. Alexander Goldstein for aggregate proceeds of $25,000. In September 1996, we issued 2,650,000 shares of Series B Preferred Stock for aggregate proceeds of $2,650,000. We redeemed 950,000 shares of the Series A Preferred Stock issued to Mission Critical Software I, Inc. in July 1997 for an aggregate of $2,850,000. In July 1997, we issued 3,450,000 shares of Series C Preferred Stock for aggregate proceeds of $10,350,000. Upon effectiveness of this offering, all shares of outstanding preferred stock will be automatically converted into shares of common stock. Listed below are those persons who participated in such financings who are our executive officers, directors or stockholders who beneficially own five percent or more of our securities. <TABLE> <CAPTION> Aggregate Common Series A Series B Series C Consideration Stockholder Stock Preferred Preferred Preferred Paid ----------- --------- --------- --------- --------- ------------- <S> <C> <C> <C> <C> <C> Austin Ventures Entities(1)............ -- -- -- 1,250,000 $3,750,000 Thomas P. Bernhardt..... 1,045,480 -- -- -- 1,045 E. Alexander Goldstein.. -- 121,568 -- 30,000 90,000 International Capital Partners, Inc. (2)..... -- -- 62,500 27,333 144,499 JMI Equity Fund III, L.P.................... -- -- -- 666,667 2,000,001 Brian J. McGrath........ 70,625 -- 50,000 20,000 145,313 Mission Critical Soft- ware I, Inc. (James R. Woodhill).............. 97,254 1,697,082 -- -- 349,187 New Enterprise Associ- ates Entities (3)........... -- -- 1,250,000 683,333 3,299,999 Louis R. Woodhill....... 1,045,480 -- -- -- 1,045 Zesiger Capital (4)..... -- -- 1,140,000 656,000 3,764,000 </TABLE> --------------------- (1) Includes Austin Venture Partners V, L.P. and Austin Ventures V Affiliates Fund, L.P. Mr. Thornton, a director of our company, is a general partner of each of the entities. Mr. Thornton disclaims beneficial ownership of the shares held by each entity, except to the extent of his pecuniary interest therein. (2) Mr. Ayer, a director of our company, is a managing partner of International Capital Partners, Inc. Mr. Ayer disclaims beneficial ownership of the shares held by such entity, except to the extent of his pecuniary interest therein. (3) Includes New Enterprise Associates VII Ltd. Partnership NEA President's Fund and NEA Ventures 1996. Mr. Sandell, a director of our company, is a partner of each of the entities. Mr. Sandell disclaims beneficial ownership of the shares held by each entity, except to the extent of his pecuniary interest therein. (4) Includes 1,796,000 shares over which Zesiger Capital has voting and dispositive power. Employment Agreement with Louis R. Woodhill. On September 4, 1996, we entered into an employment agreement with Louis R. Woodhill, then its Chief Executive Officer and President. Pursuant to the September 4, 1996 agreement, Mr. Woodhill was entitled to severance payments equal to six months of his salary in the event he was terminated without cause. 60

Mr. Woodhill agreed that for a period of one year after his separation from our company, regardless of the reason, he will not (1) engage in direct competition with us, (2) conduct a business of the type or character engaged in by us at the time Mr. Woodhill's employment ceased or (3) develop, market, sell and/or distribute products or services directly competitive with ours. Mr. Woodhill also agreed that for a period of two years not to employ any of our employees or induce or attempt to influence any of our employees to voluntarily terminate his or her employment with us other than those employees not directly involved in the development, marketing, sales and or distribution of our products or services during Mr. Woodhill's employment. Mr. Woodhill agreed that for a two year period after his separation from our company he would not solicit, divert or take away or attempt to divert or take away the business or patronage of any clients, customers or accounts, or prospective clients, customers or accounts that were contacted, solicited or served by Mr. Woodhill during his employment by us in connection with the products or services that were developed or under active development, consideration for development, marketed, sold and/or distributed by us. On May 21, 1998, we entered into an amended and restated employment agreement with Mr. Woodhill. The May 1998 employment agreement provided for a term of employment of six months and required Mr. Woodhill to serve in the position of Chairman of the Board of Directors of our company during that six month period. Mr. Woodhill was entitled to salary payments of $13,750.00 per month during the six month period plus benefits customary benefits and an office rental allowance of $1,000 per month. In connection with the May 1998 agreement, Mr. Woodhill was also entitled to receive a lump-sum severance payment of six months salary plus accrued and unused vacation time and unreimbursed travel expenses upon termination of his employment. In connection with the May 1998 employment agreement, Mr. Woodhill received gross salary payments of $82,500, health and dental benefits of $534 and a lump-sum severance payment of $82,500. We also agreed to grant Mr. Woodhill an option to purchase 15,000 shares of our common stock at an exercise price of $0.50 per share. One-fourth of the shares subject to such option will vest on November 28, 1999 and the remaining shares vest as to 1/48th per month thereafter. Mr. Woodhill is also bound by noncompetition, nonsolicitation and nonhiring provisions similar to those set forth in the September 1996 agreement. Employment Agreement with James R. Woodhill. On September 4, 1996, we entered into an employment agreement with James R. Woodhill, then our Vice President-- Marketing. Pursuant to the September 4, 1996 agreement, Mr. Woodhill was entitled to severance payments equal to six months of his salary in the event he was terminated without cause. Mr. Woodhill agreed that for a period of one year after his separation from our company, regardless of the reason, he would not (1) engage in direct competition with us, (2) conduct a business of the type or character engaged in by us at the time Mr. Woodhill's employment ceased or (3) develop, market, sell and/or distribute products or services directly competitive with ours. Mr. Woodhill also agreed for a period of two years not to employ any of our employees or induce or attempt to influence any of our employees to voluntarily terminate his or her employment with us other than those employees not directly involved in the development, marketing, sales and or distribution of our products or services during Mr. Woodhill's employment. Mr. Woodhill agreed that for a two year period after his separation from our company, he would not solicit, divert or take away or attempt to divert or take away the business or patronage of any clients, customers or accounts, or prospective clients, customers or accounts that were contacted, solicited or served by Mr. Woodhill during his employment with us in connection with the products or services that were developed or under active development, consideration for development, marketed, sold and/or distributed by us. 61

We terminated Mr. Woodhill on May 15, 1998 and paid him severance and related payments of $50,000. Employment Agreement with Paul F. Koffend, Jr. On September 4, 1996, we entered into an employment agreement with Paul F. Koffend, Jr., then our Chief Financial Officer. Mr. Koffend agreed that for a period of one year after his separation from our company, regardless of the reason, he would not (1) engage in direct competition with us, (2) conduct a business of the type or character engaged in by us at the time Mr. Koffend's employment ceased or (3) develop, market, sell and/or distribute products or services directly competitive with ours. Mr. Koffend also agreed not a period of two years not to employ any of our employees or induce or attempt to influence any of our employees to voluntarily terminate his or her employment with us other than those employees not directly involved in the development, marketing, sales and or distribution of our products or services during Mr. Koffend's employment. Mr. Koffend agreed that for a two year period after his separation from our company, he would not solicit, divert or take away or attempt to divert or take away the business or patronage of any clients, customers or accounts, or prospective clients, customers or accounts that were contacted, solicited or served by Mr. Koffend during his employment by us in connection with the products or services that were developed or under active development, consideration for development, marketed, sold and/or distributed by us. Mr. Koffend was terminated by us effective June 30, 1998 and received severance and related payments of $60,000. Relocation Loan Forgiveness to Olivier J. Thierry. On February 23, 1998, we entered into an employment agreement with Olivier J. Thierry, our Vice President--Marketing Communications, pursuant to which we agreed to grant Mr. Thierry a relocation loan of $80,000. The noninterest bearing relocation loan is due and payable in February 2002. We agreed to forgive the principal and interest due on the relocation loan in the amount of 1/48th per month for each month Mr. Thierry remains an employee. In addition, we also agreed to provide additional payments to make Mr. Thierry whole for any taxes payable upon the income realized from the loan forgiveness net of any deductions Mr. Thierry is entitled to claim for moving expenses. In the nine months ended March 31, 1999, we paid $79,871 to Mr. Thierry for loan forgiveness and tax gross-up. We also agreed to forgive the balance of the relocation loan in the event that (1) Mr. Thierry is terminated other than for cause or he voluntarily leaves us, (2) we are acquired by another entity and Mr. Thierry's position is eliminated, downgraded, modified or geographically transferred or (3) new senior management replaces Mr. Thierry with another individual in the same position other than for cause. Effective April 16, 1999, May 21, 1999 and May 21, 1999, Paul F. Koffend, Jr., Louis R. Woodhill and E. Alexander Goldstein resigned as directors of our company and entered into a form of consulting agreement pursuant to which they would provide continued services to us for a period of two years, one year and one year, respectively. During the term of the consulting agreements, each individual's stock options shall continue to vest in accordance with the terms of their respective option agreements. All future transactions, other than compensation, stock options pursuant to the plans and other benefits available to employees generally, including any loans from us to our officers, directors, principal stockholders or affiliates, will be approved by a majority of the board of directors, including a majority of the independent and disinterested members of the board of directors or, if required by law, a majority of disinterested stockholders, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties. 62

PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information known to us with respect to the beneficial ownership of our Common Stock as of March 31, 1999, and as adjusted to reflect the sale of common stock offered hereby by (i) each stockholder known by us to own beneficially more than five percent of the common stock, (ii) each of the Named Executive Officers, (iii) each director of our company, (iv) all directors and executive officers as a group and (v) all other selling stockholders. <TABLE> <CAPTION> Shares of Common Stock Beneficially Shares Beneficially Owned Prior to Owned After Offering (2)(3) Offering(2)(3) -------------------- -------------------- Number of Shares Being Name of Beneficial Owner(1) Number Percentage Offered Number Percentage --------------------------- --------- ---------- ------- --------- ---------- <S> <C> <C> <C> <C> <C> New Enterprise Associates Entities (4)............... 2,018,456 20.3 -- 2,018,456 2490 Sand Hill Rd. Menlo Park, California 94025 Austin Ventures Entities (5)........................ 1,310,393 13.2 -- 1,310,393 114 W. 7th St., Suite 300, Austin, Texas 78701 JMI Equity Fund III, L.P. (6)........................ 707,421 7.1 -- 707,421 12680 High Bluff Drive San Diego, California 92130 International Capital Partners, Inc. (7)......... 129,487 1.3 -- 129,487 300 First Stamford Place Stamford, Connecticut 06902 Zesiger Capital Group LLC (8)........................ 1,837,242 18.2 -- 1,837,242 320 Park Avenue New York, New York 10022 Mission Critical Software I, Inc. (9)................... 1,010,586 10.2 Louis R. Woodhill (10)...... 565,480 5.7 Paul F. Koffend, Jr......... 84,741 * E. Alexander Goldstein...... 193,426 1.9 Serverware Group plc (11)... 333,333 3.4 -- Denton House 40-44 Wicklow Street London WCIX 9HL England Michael S. Bennett (12)..... 322,977 3.2 -- 322,977 Thomas P. Bernhardt (13).... 1,061,730 10.7 -- Stephen E. Odom (14)........ 76,303 * -- 76,303 * Oliver J. Thierry (15)...... 84,999 * -- 84,999 * Brian McGrath (16).......... 254,753 2.86 -- 254,755 Scott D. Sandell (4)........ 2,018,456 20.8 -- 2,018,276 John D. Thornton (5)........ 1,310,393 13.2 -- 1,310,393 Douglas L. Ayer (7)......... 129,487 1.3 -- 129,487 * Michael J. Maples........... -- -- -- -- -- John J. Moores (6).......... 707,421 7.1 -- 707,421 All executive officers and directors as a group (13) persons (17)............... 5,956,342 57.3 -- Other stockholders who indi- vidually own less than one percent.................... </TABLE> --------------------- * Less than 1% of the outstanding shares of common stock. 63

(1) Except as otherwise noted below, the address of each person listed on the table is, 720 North Post Oak Rd. Suite 505, Houston, Texas 77024-3835. (2) Assumes no exercise of the underwriters' over-allotment option. If the over-allotment option is exercised in full, we will sell an aggregate of shares of our common stock. (3) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after March 31, 1999 are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws where applicable. (4) Includes 1,910,293 shares held by New Enterprise Associates VII Ltd. Partnership, 82,682 shares held by NEA President's Fund, L.P. and 5,169 shares held by NEA Ventures 1996, L.P. Mr. Sandell disclaims beneficial ownership of these shares except to the extent of his pecuniary interest. Also includes 20,312 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Sandell. (5) Includes 1,231,617 shares held by Austin Venture Partners V, L.P. and 61,589 shares held by Austin Ventures V Affiliates Fund, L.P. Mr. Thornton disclaims beneficial ownership of these shares except to the extent of his pecuniary interest. Also includes 17,187 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Thornton. (6) Mr. Moores disclaims beneficial ownership these shares except to the extent of his pecuniary interest. Also includes 17,187 shares subject to options exercisable within 60 days of March 31, 1999 held by Mr. Moores. (7) Mr. Ayers disclaims beneficial ownership of these shares except to the extent of his pecuniary interest. Also includes 20,312 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Ayers. (8) Includes 1,837,242 shares over which Zesiger Capital has voting and investment discretion. (9) Includes 897,082 shares held by Mission Critical Software I, Inc., and 7,501 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Woodhill. James R. Woodhill is the sole stockholder of Mission Critical Software I, Inc. (10) Includes 20,000 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Woodhill. (11) Includes 333,333 shares subject to warrants exercisable within 60 days from March 31, 1999. (12) Includes 301,039 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Bennett. (13) Includes 16,250 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Bernhardt. (14) Includes 54,366 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Odom. (15) Includes 15,000 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. Thierry. (16) Includes 100,000 shares subject to warrants exercisable within 60 days of March 31, 1999, and 11,250 shares subject to options exercisable within 60 days from March 31, 1999 held by Mr. McGrath. (17) Includes 472,903 shares subject to options exercisable within 60 days from March 31, 1999. 64

DESCRIPTION OF CAPITAL STOCK GENERAL We are authorized to issue 50,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value. The following description of our capital stock does not purport to be complete and is subject to and qualified in its entirety by our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable Delaware law. COMMON STOCK As of March 31, 1999, there were 9,914,270 shares of common stock outstanding that were held of record by approximately 107 stockholders. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for that purpose. See "Dividend Policy." In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued upon the closing of this offering will be fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, our board of directors will have the authority, without action by our stockholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, any or all of which may be greater than the rights of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of the common stock until the board of directors determines the specific rights of the holders of such preferred stock. However, the effects might include, among other things, restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock and delaying or preventing a change in control of our company without further action by the stockholders. We have no present plans to issue any shares of preferred stock. WARRANTS As of March 31, 1999, we had outstanding warrants to purchase (i) 333,333 shares of common stock issued to Serverware Group plc at an exercise price of $1.50 per share and (ii) 100,000 shares of common stock issued to Brian McGrath, our Vice President of Sales at an exercise price of $1.00 per share. If Mr. McGrath voluntarily terminates his employment with us prior to July 1, 1999 other than for good reason, the per share exercise price of Mr. McGrath's warrants will increase to $2.00 per share. REGISTRATION RIGHTS The holders of 6,100,000 shares of common stock and the holder of warrants to purchase 333,333 shares of common stock (the "registrable securities") or their permitted transferees are entitled to certain rights with respect to registration of such shares under the Securities Act of 1933, as amended. These rights are provided under the terms of our agreement with the holders of registrable securities. Under these registration rights, holders of at least a majority of the then outstanding registrable securities may require on 65

two occasions that we register their shares for public resale. We are obligated to register these shares if the holders of a majority of such shares request registration and only if the shares to be registered have an anticipated public offering price of at least $1,000,000. In addition, holders of registrable securities may require on three separate occasions that we register their shares for public resale on Form S-3 or similar short-form registration, provided we are is eligible to use Form S-3 or similar short-form registration, provided we are eligible to use Form S-3 or similar short-form registration and provided further that the value of the securities to be registered is at least $1,000,000. Furthermore, in the event we elect to register any of its shares of common stock for purposes of effecting any public offering, the holders of registrable securities are entitled to include their shares of common stock in the registration, subject however to our right to reduce the number of shares proposed to be registered in view of market conditions. All expenses in connection with any registration (other than underwriting discounts and commissions) will be borne by us. Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions Certain provisions of Delaware law and our certificate of incorporation and bylaws could make more difficult the acquisition of our company by means of a tender offer, a proxy contest or otherwise and the removal of incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. We are 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 a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the "business combination" or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, 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 voting stock. The existence of this provision would be expected to have an anti- takeover effect with respect to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders. Certain Provisions of the Certificate of Incorporation and Bylaws Our certificate of incorporation provides for our board to be divided into three classes, as nearly equal in number as possible, serving staggered terms. Approximately one-third of the board will be elected each year. See "Management." The provision for a classified board could percent a party who acquires control of a majority of the outstanding voting stock from obtaining control of the board of directors until the second annual stockholders meeting following the date the acquiror obtains the controlling stock interest. The classified board provision could have the effect of discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of us and could increase the likelihood that incumbent directors will retain their positions. The certificate of incorporation provides that directors may be removed (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of all of the outstanding shares of voting stock or (ii) without cause by the affirmative vote of the holders of at least 66 and 2/3% of the voting power of all of the then-outstanding shares of the voting stock. 66

Our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given to our Secretary timely written notice, in proper form, of the stockholder's intention to bring that business before the meeting. Although the bylaws do not give the board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting of the stockholders, the bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or defer a potential acquiror from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of our company. Under Delaware law, a special meeting of stockholders may be called by the board of directors or by any other person authorized to do so in the certificate of incorporation or the bylaws. Our bylaws authorize a majority of the board of directors, the chairman of the board or the chief executive officer to call a special meeting of stockholders. The elimination of the right of stockholders to call a special meeting means that a stockholder could not force stockholder consideration of a proposal over the opposition of the board of directors by calling a special meeting of stockholders prior to such time as a majority of the board of directors believed such consideration to be appropriate or until the next annual meeting provided that the requestor met the notice requirements. The restriction on the ability of stockholders to call a special meeting means that a proposal to replace the board could be delayed until the next annual meeting. Under Delaware law, stockholders may execute an action by written consent in lieu of a stockholder meeting. Delaware law permits a corporation to eliminate such actions by written consent. Elimination of written consents of stockholders may lengthen the amount of time required to take stockholder actions since certain actions by written consent are not subject to the minimum notice requirement of a stockholder's meeting. The elimination of stockholders' written consents, however, deters hostile takeover attempts. Without the availability of stockholder's actions by written consent, a holder or group of holders controlling a majority in interest of our capital stock would not be able to amend the our bylaws or remove directors pursuant to a stockholder's written consent. Any such holder or group of holders would have to obtain the consent of a majority of the board of directors, the chairman of the board or the chief executive officer to call a stockholders' meeting and wait until the notice periods determined by the board of directors pursuant to our bylaws prior to taking any such action. Our certificate of incorporation provides for the elimination of actions by written consent of stockholders upon the closing of this offering. Transfer Agent and Registrar The transfer agent and registrar for our common stock is BankBoston, N.A. BankBoston, N.A. is located at 150 Royall Street, Canton, Massachusetts 02021, and its telephone number is (508) 575-3120. 67

SHARES ELIGIBLE FOR FUTURE SALE Future sales of substantial amounts of our common stock in the public market following this offering or the possibility of such sales occurring could adversely affect prevailing market prices for our common stock or could impair our ability to raise capital through an offering of equity securities. After this offering, we will have outstanding 12,414,270 shares of common stock (based upon shares outstanding as of March 31, 1999), assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants after March 31, 1999. All of the shares sold in this offering will be freely tradable without restriction under the Securities Act except for any shares purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining 8,414,270 shares of common stock held by existing stockholders are "Restricted Shares" as that term is defined in Rule 144 under the Securities Act. We issued and sold the Restricted Shares in private transactions in reliance upon exemptions from registration under the Securities Act. Restricted Shares may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration, such as Rule 144 or 701 under the Securities Act, which are summarized below. Our officers, directors, employees the selling stockholders and certain other stockholders, who collectively hold an aggregate of 8,071,134 Restricted Shares, and the underwriters entered into lock-up agreements in connection with this offering. These lock-up agreements provide that, with certain limited exceptions, our officers, directors, employees, selling stockholders and such other stockholders have agreed not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any of our shares for a period of 180 days after the effective date of this offering. Hambrecht & Quist LLC may, in its sole discretion and at any time without prior notice, release all or any portion of the shares subject to these lock-up agreements. We have also entered into an agreement with Hambrecht & Quist LLC that we will not offer, sell or otherwise dispose of our common stock until 180 days after the effective date of this offering. Taking into account the lock-up agreements, the number of shares that will be available for sale in the public market under the provisions of Rules 144, 144(k) and 701 will be as follows: <TABLE> <CAPTION> Number of Date of Availability for Sale Shares ----------------------------- --------- <S> <C> At various times between March 31, 1999 and the date 180 days after the effective date of this offering.................... 343,136 At various times thereafter upon the expiration of applicable holding periods.............................................. 8,071,134 </TABLE> Following the expiration of the lock-up period, certain shares issued upon exercise of options granted by us prior to the completion of this offering will also be available for sale in the public market pursuant to Rule 701 under the Securities Act. Rule 701 permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirement, of Rule 144. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year (including the holding period of any prior owner except an affiliate) would be entitled to sell within any three- month period a number of shares that does not exceed the greater of: . one percent of the number of shares of common stock then outstanding (approximately shares immediately after this offering) or . the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. 68

Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been an affiliate of our company 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 (including the holding period of any prior owner except an affiliate), is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. We intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock reserved for issuance under the stock plans and subject to outstanding options under the 1997 Plan. See "Management--Stock Plans." Such registration statement is expected to be filed and become effective as soon as practicable after the effective date of this offering. Shares of common stock issued upon exercise of options under the Form S-8 will be available for sale in the public market, subject to Rule 144 volume limitations applicable to affiliates and subject to the contractual restrictions described above. At March 31, 1999, options to purchase 3,935,084 shares of common stock were outstanding of which options approximately 761,783 shares were then vested and exercisable. Beginning 180 days after the effective date of this offering, approximately 1,630,443 shares issuable upon the exercise of vested stock options will become eligible for sale in the public market, if such options are exercised. Following this offering, the holders of an aggregate of 6,433,333 shares of outstanding common stock will have the right to require us to register their shares for sale upon meeting certain requirements. See "Description of Capital Stock--Registration Rights." 69

UNDERWRITING Subject to the terms and conditions of the underwriting agreement, the underwriters named below, Hambrecht & Quist LLC, BancBoston Robertson Stephens Inc., and SoundView Technology Group, Inc. have severally agreed to purchase from us the following respective number of shares of Mission Critical Software common stock: <TABLE> <CAPTION> Number of Name Shares ---- --------- <S> <C> Hambrecht & Quist LLC........................................... BancBoston Robertson Stephens Inc............................... SoundView Technology Group, Inc................................. --------- Total........................................................... ========= </TABLE> The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel and independent auditors. The nature of the underwriters' obligation is such that they are committed to purchase all shares of common stock offered in this offering if any of such shares are purchased. The underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at such price less a concession not in excess of $ per share. The underwriters may allow and such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the public offering of the shares, the offering price and other selling terms may be changed by the underwriters. We have granted to the underwriters an option, exercisable no 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 discount, set forth on the cover page of this prospectus. To the extent that the underwriters exercise this option, each underwriter will have a firm commitment to purchase approximately the same percentage thereof which the number of shares of common stock to be purchased by it shown in the above table bears to the total number of shares of common stock offered in this offering. We will be obligated, pursuant to the option, to sell shares to the underwriters to the extent the option is exercised. The underwriters may exercise such option only to cover over-allotments made in connection with the sale of common stock offered in this prospectus. The following table summarizes the compensation that we and the selling stockholders will pay to the underwriters in connection with this offering: <TABLE> <CAPTION> Total ------------------- Without With Per Over- Over- Share allotment allotment ----- --------- --------- <S> <C> <C> <C> Underwriting discounts and commissions paid by Mission Critical Software.......................... Underwriting discounts and commissions paid by sell- ing stockholders................................... </TABLE> The offering of the shares is made for delivery when, as and if accepted by the underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offering without notice. The underwriters reserve the right to reject an order for the purchase of shares in whole or in part. 70

We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof. Certain of our stockholders, including all executive officers and directors and the selling stockholders, who own in the aggregate shares of common stock have agreed that they will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell, or otherwise dispose of any shares of common stock, options or warrants to acquire shares of common stock or securities exchangeable for or convertible into shares of common stock owned by them until the date 180 days after the offering is effective. We have agreed that we will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common stock, options or warrants to acquire shares of common stock or securities exchangeable for or convertible into shares of common stock until the date 180 days following the date after this offering is effective, except that we may issue shares upon the exercise of options granted prior to the date hereof, and may grant additional options under our stock option plans, provided that, without the prior written consent of Hambrecht & Quist LLC, such additional options shall not be exercisable during such period. Prior to this offering, there has been no public market for our shares. The initial public offering price has been negotiated among our company and the underwriters. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of its business potential and earnings, prospects, an assessment of management and the consideration of the above factors in relation to market valuation of companies in related businesses. We have applied to have our common stock quoted on the Nasdaq National Market under the symbol "MCSW." In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over the counter market or otherwise. We estimate that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $875,000. 71

LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California and Austin, Texas. Certain legal matters will be passed upon for the underwriters by Vinson & Elkins L.L.P., Houston, Texas. EXPERTS Ernst & Young LLP, independent auditors, have audited our financial statements at June 30, 1997, June 30, 1998 and March 31, 1999, and for the period from July 19, 1996 (date of inception) to June 30, 1997, the fiscal year ended June 30, 1998 and the nine months ended March 31, 1999, as set forth in their report, which is included in this prospectus. Our financial statements are included in this prospectus and in reliance on their report, given on their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C., a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus does not contain all the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to our company and such common stock, reference is made to the registration statement and to the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. A copy of the registration statement may be inspected by anyone without charge at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any portion of the registration statement may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. The Commission maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Upon completion of this offering, we will become subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by us can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices located at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also makes electronic filings publicly available on the Internet within 24 hours of acceptance. The Commission's Internet address is http://www.sec.gov. The Commission web site also contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. We have also applied to include its common stock for trading on the Nasdaq National Market. Copies of our filings with the Nasdaq National Market are available at its offices at 1735 K Street, N.W., Washington, D.C. 20006. 72

MISSION CRITICAL SOFTWARE, INC. INDEX TO FINANCIAL STATEMENTS <TABLE> <S> <C> Report of Independent Auditors.............................................. F-2 Balance Sheets.............................................................. F-3 Statements of Operations.................................................... F-4 Statements of Stockholders' Equity (Deficit)................................ F-5 Statements of Cash Flows.................................................... F-6 Notes to Financial Statements............................................... F-7 </TABLE> F-1

REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Mission Critical Software, Inc. We have audited the accompanying balance sheets of Mission Critical Software, Inc. (the "Company") as of March 31, 1999, June 30, 1998 and June 30, 1997, and the related statements of operations, stockholders' equity (deficit), and cash flows for the nine months ended March 31, 1999, the year ended June 30, 1998, and the period from July 19, 1996 (date of inception) to June 30, 1997. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mission Critical Software, Inc. at March 31, 1999, June 30, 1998 and June 30, 1997, and the results of its operations and its cash flows for the nine months ended March 31, 1999, the year ended June 30, 1998, and the period from July 19, 1996 (date of inception) to June 30, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Austin, Texas May 21, 1999 F-2

MISSION CRITICAL SOFTWARE, INC. Balance Sheets (in thousands, except share and per share data) <TABLE> <CAPTION> Pro Forma Stockholders' June 30, Equity at ASSETS ---------------- March 31, March 31, 1997 1998 1999 1999 ------- ------- --------- ------------- (unaudited) <S> <C> <C> <C> <C> Current assets: Cash and cash equivalents........... $ 299 $ 4,575 $ 9,458 Accounts receivable, net of allowance of nil, $150 and $395, respectively....................... 1,613 3,912 2,845 Prepaid and other current assets.... 74 202 304 ------- ------- ------- Total current assets.............. 1,986 8,689 12,607 Note receivable from stockholder.... 350 -- -- Property and equipment, net......... 843 1,199 1,744 Acquired technology, net of accumulated amortization of $206, $598, and $889, respectively....... 1,360 968 678 Other assets........................ 56 102 27 ------- ------- ------- Total assets...................... $ 4,595 $10,958 $15,056 ======= ======= ======= <CAPTION> LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) <S> <C> <C> <C> <C> Current liabilities: Revolving line of credit and current maturities of long-term-debt....... $ 507 $ 536 $ 265 Note payable........................ 2,450 -- -- Accounts payable.................... 506 288 651 Accrued liabilities................. 422 2,154 4,685 Deferred revenue.................... 624 2,470 3,464 ------- ------- ------- Total current liabilities......... 4,509 5,448 9,065 Long-term debt, less current maturities......................... 33 352 148 Deferred revenue, less current portion............................ 384 495 929 ------- ------- ------- Total liabilities................. 4,926 6,295 10,142 Redeemable convertible preferred stock, Series A, $0.001 par value, authorized and outstanding-- 1,818,650, 868,650 and 868,650, respectively; no shares outstanding on a pro forma basis at March 31, 1999 ($.205647 per share liquidation preference)............ 374 179 179 $ -- Redeemable convertible preferred stock, Series B, $0.001 par value, authorized and outstanding-- 2,650,000 shares; no shares outstanding on a pro forma basis at March 31, 1999 ($1 per share liquidation preference)............ 2,650 2,650 2,650 -- Redeemable convertible preferred stock, Series C, $0.001 par value, authorized 3,450,000 shares, outstanding--55,000, 3,450,000 and 3,450,000 shares, respectively; no shares outstanding on a pro forma basis at March 31, 1999 ($3 per share liquidation preference)...... 165 10,350 10,350 -- Stockholders' equity (deficit): Common stock, $0.001 par value, authorized--13,083,333 shares, outstanding 2,431,350, 2,484,971 and 2,945,620 shares, respectively; 9,914,270 shares outstanding on a pro forma basis at March 31, 1999.. 2 2 3 10 Additional paid-in capital.......... 1 26 1,651 14,823 Deferred stock compensation......... -- -- (1,153) (1,153) Accumulated deficit................. (3,523) (8,544) (8,766) (8,766) ------- ------- ------- ------- Total stockholders' equity (deficit)........................ (3,520) (8,516) (8,265) $ 4,914 ------- ------- ------- ======= Total liabilities and stockholders' equity (deficit)... $ 4,595 $10,958 $15,056 ======= ======= ======= </TABLE> The accompanying notes are an integral part of these financial statements. F-3

MISSION CRITICAL SOFTWARE, INC. STATEMENTS OF OPERATIONS (in thousands, except per share data) <TABLE> <CAPTION> Period From Year Nine Months Ended July 19, 1996 Ended March 31 (date of inception) June 30, ------------------- to June 30, 1997 1998 1998 1999 ------------------- -------- ----------- ------- (unaudited) <S> <C> <C> <C> <C> Revenue: License.................... $ 4,087 $12,767 $ 8,159 $14,441 Maintenance................ 180 1,609 1,075 2,460 ------- ------- ------- ------- Total revenue................ 4,267 14,376 9,234 16,901 Cost of revenue: Cost of license............ 206 392 294 291 Cost of maintenance........ 142 933 680 681 ------- ------- ------- ------- Total cost of revenue........ 348 1,325 974 972 ------- ------- ------- ------- Gross margin................. 3,919 13,051 8,260 15,929 ------- ------- ------- ------- Operating expenses: Sales and marketing........ 3,554 9,590 6,591 8,952 Research and development... 1,317 3,612 2,470 4,274 General and administrative............ 973 2,228 1,595 1,861 Amortization of deferred stock compensation........ -- -- -- 236 Abandoned lease costs...... -- -- -- 1,034 Acquired in-process research and development.. 1,575 -- -- -- ------- ------- ------- ------- Total operating expenses..... 7,419 15,430 10,656 16,357 ------- ------- ------- ------- Operating loss............... (3,500) (2,379) (2,396) (428) ------- ------- ------- ------- Interest income.............. 35 149 98 261 Interest expense............. (6) (59) (33) (42) Other expense, net........... (27) (27) (3) (13) ------- ------- ------- ------- Loss before income taxes..... (3,498) (2,316) (2,334) (222) Income tax benefit........... 175 -- -- -- ------- ------- ------- ------- Net loss..................... (3,323) (2,316) (2,334) (222) Excess of consideration paid to redeem preferred stock and dividends in arrears.... (181) (3,714) (3,446) (791) ------- ------- ------- ------- Net loss applicable to common stockholders (Note 8)....... $(3,504) $(6,030) $(5,780) $(1,013) ======= ======= ======= ======= Basic and diluted net loss per share................... $ (1.44) $ (2.47) $ (2.37) $ (0.40) ======= ======= ======= ======= Pro forma basic and diluted net loss per share (unaudited)................. $ (0.53) $ (0.02) ======= ======= </TABLE> The accompanying notes are an integral part of these financial statements. F-4

MISSION CRITICAL SOFTWARE, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands, except share data) <TABLE> <CAPTION> Common Stock Additional Deferred ---------------- Paid-in Stock Accumulated Number Amount Capital Compensation Deficit Total --------- ------ ---------- ------------ ----------- ------- <S> <C> <C> <C> <C> <C> <C> Common stock issued for cash............. 2,431,350 $ 2 $ 1 $ -- $ -- $ 3 Effect of deferred tax liability recorded for acquired technol- ogy.................. -- -- -- -- (175) (175) Cost of issuance of Series B Preferred Stock................ -- -- -- -- (25) (25) Net loss.............. -- -- -- -- (3,323) (3,323) --------- --- ------- ------- ------- ------- Balance at June 30, 1997................... 2,431,350 2 1 -- (3,523) (3,520) --------- --- ------- ------- ------- ------- Common stock issued upon exercise of stock options........ 53,621 -- 25 -- -- 25 Redemption of Series A Preferred Stock in excess of issue price................ -- -- -- -- (2,655) (2,655) Cost of issuance of Series C Preferred Stock................ -- -- -- -- (50) (50) Net loss.............. -- -- -- -- (2,316) (2,316) --------- --- ------- ------- ------- ------- Balance at June 30, 1998................... 2,484,971 2 26 -- (8,544) (8,516) --------- --- ------- ------- ------- ------- Common stock issued upon exercise of stock options........ 460,649 1 236 -- -- 237 Deferred stock compen- sation relating to stock options........ -- -- 1,389 (1,389) -- -- Amortization of de- ferred compensation.. -- -- -- 236 -- 236 Net loss.............. -- -- -- -- (222) (222) --------- --- ------- ------- ------- ------- Balance at March 31, 1999................... 2,945,620 $ 3 $ 1,651 $(1,153) $(8,766) $(8,265) ========= === ======= ======= ======= ======= Pro forma stockholders' equity at March 31, 1999 (unaudited)....... 9,914,270 $10 $14,823 $(1,153) $(8,766) $ 4,914 ========= === ======= ======= ======= ======= </TABLE> The accompanying notes are an integral part of these financial statements. F-5

MISSION CRITICAL SOFTWARE, INC. STATEMENTS OF CASH FLOWS (in thousands) <TABLE> <CAPTION> Period From Nine Months Ended July 19, 1996 Year Ended March 31, (date of inception) June 30, ------------------ to June 30, 1997 1998 1998 1999 ------------------- ---------- ----------- ------ (unaudited) <S> <C> <C> <C> <C> Cash flows from operating activities: Net loss................... $(3,323) $(2,316) $(2,334) $ (222) Adjustments to reconcile net loss to net cash provided by (used in) op- erating activities: Depreciation and amortiza- tion..................... 332 860 627 651 Deferred tax benefit...... (175) -- -- -- Noncash compensation ex- pense.................... -- -- -- 236 Acquired in-process re- search and development... 1,400 -- -- -- (Gain) loss on disposal of assets................... 3 18 -- (5) Changes in operating as- sets and liabilities: Accounts receivable...... (1,613) (2,298) (1,715) 1,067 Prepaid and other current assets.................. (37) (128) (127) (102) Other assets............. (55) (46) (45) 75 Accounts payable and ac- crued liabilities....... 786 1,514 270 2,894 Deferred revenue......... 1,008 1,957 796 1,427 ------- ------- ------- ------ Net cash provided by (used in) operating activities... (1,674) (439) (2,528) 6,021 Cash flows from investing activities: Proceeds from sale of prop- erty and equipment........ 5 18 -- 50 Purchase of property and equipment................. (821) (860) (732) (950) Payment from (loan to) stockholder under promis- sory note................. (350) 350 350 -- ------- ------- ------- ------ Net cash used in investing activities................. (1,166) (492) (382) (900) Cash flows from financing activities: Net payments (borrowings) on revolving line of credit................. 500 275 1,300 (275) Borrowings on long-term debt...................... -- 642 681 -- Payments on long-term debt...................... (4) (3,020) (2,972) (200) Redemption of Series A pre- ferred stock.............. -- (2,850) (2,850) -- Issuance of common stock, net of cost............... 3 25 25 237 Issuance of Series B pre- ferred stock, net of cost...................... 2,475 -- -- -- Issuance of Series C pre- ferred stock, net of cost...................... -- 10,135 10,135 -- Subscription of Series C preferred stock........... 165 -- -- -- ------- ------- ------- ------ Net cash provided by (used in) financing activities:.. 3,139 5,207 6,319 (238) ------- ------- ------- ------ Net increase in cash and cash equivalents........... 299 4,276 3,409 4,883 ------- ------- ------- ------ Beginning cash and cash equivalents................ -- 299 299 4,575 ------- ------- ------- ------ Ending cash and cash equiva- lents...................... $ 299 $ 4,575 $ 3,708 $9,458 ======= ======= ======= ====== </TABLE> The accompanying notes are an integral part of these financial statements. F-6

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS March 31, 1999 1. Description of Business and Summary of Significant Accounting Policies Mission Critical Software, Inc. (the "Company") is a leading provider of software products that enable scalable system administration and operations management for Corporate and Internet-based Windows NT networks. The Company was incorporated on July 19, 1996, as a Delaware corporation, and commenced operations on September 4, 1996. Revenue Recognition The Company derives revenue from the sale of product licenses and maintenance. The Company recognizes product license revenue when persuasive evidence of an agreement exists, the product and permanent license key have been delivered, the Company has no remaining significant obligations, customer acceptance periods, if any, have been completed, the license fee is fixed or determinable and collection of the fee is probable. The Company recognizes revenue from maintenance agreements ratably over the term of the agreement, typically one year. Customers purchasing maintenance agreements receive unspecified product upgrades and electronic, Internet-based technical support and telephone support. Such agreements are purchased separately by customers, at their discretion. The Company adopted Statement of Position ("SOP") 97-2, Software Revenue Recognition, and SOP 98-4, Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition, as of July 1, 1997. Prior to July 1, 1997, the Company recognized revenue in accordance with SOP 91-1, Software Revenue Recognition. The adoption of SOP 97-2 and SOP 98-4 did not have a material impact on the Company's financial results. In December 1998, the American Institute of Certified Public Accountants ("AICPA") issued SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. SOP 98-9 amends SOP 98-4 to extend the deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All other provisions of SOP 98-9 are effective for transactions entered into in fiscal years beginning after March 15, 1999. The Company believes that the adoption of SOP 98-9 will not have a material effect on the Company's results of operations or financial condition. Cash and Cash Equivalents The Company considers instruments with an original maturity date of three months or less when purchased to be cash equivalents. Property and Equipment Property and equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line method over the shorter of the estimated useful life or the lease term. The cost of ordinary maintenance and repairs is charged to expense as incurred. Research and Development Research and development expenditures are expensed as incurred. Statement of Financial Accounting Standards ("SFAS") 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, requires capitalization of certain software development costs subsequent to the establishment of F-7

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) technological feasibility. Based on the Company's product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release have been insignificant. Through March 31, 1999, all software development costs have been expensed as incurred. Acquired Technology Acquired Technology is recorded at cost and amortized on the straight-line method over the products' estimated useful lives (three to five years). Stock-Based Compensation SFAS 123, Accounting for Stock-Based Compensation, prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options. As allowed by SFAS 123, the Company has elected to continue to account for its employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Pro-Forma Stockholder's Equity (Unaudited) If the offering contemplated by this prospectus is consummated, all of the redeemable convertible preferred stock outstanding will automatically be converted into common stock. Pro forma stockholders' equity (unaudited) at March 31, 1999, as adjusted for the assumed conversion of redeemable convertible preferred stock based on the shares of redeemable convertible preferred stock outstanding at March 31, 1999, is disclosed on the balance sheet. Income Taxes Income taxes have been provided in accordance with the liability method of accounting for income taxes. Accordingly, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial amounts. A valuation allowance is provided, if necessary, to reduce deferred tax assets to their estimated net realizable value. Comprehensive Loss In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 130, Reporting Comprehensive Income. SFAS 130 establishes standards for the reporting and display of comprehensive income and its components. For the periods ended June 30, 1997, June 30, 1998, and March 31, 1999, comprehensive loss was the same as net loss. Advertising Costs Advertising costs are expensed as incurred. Advertising expense was $181,000, $613,000, and $707,000 for the periods ended June 30, 1997, June 30, 1998, and March 31, 1999, respectively. Concentrations of Credit Risk Financial instruments that subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. The Company's investment policy limits its exposure to credit risk for cash and cash equivalents. The Company licenses its software products primarily to major corporations in a number of industries. Collateral or deposits generally are not required from customers who demonstrate F-8

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) creditworthiness. Credit risk is considered limited for accounts receivable. The following table summarizes the changes in allowance for doubtful amounts for accounts receivable (in thousands): <TABLE> <S> <C> Balance at July 19, 1996 (inception)................................ $ -- Additions charged to costs and expenses............................. -- Write-off of uncollectible accounts................................. -- ---- Balance at June 30, 1997............................................ -- Additions charged to costs and expenses............................. 150 Write-off of uncollectible accounts................................. -- ---- Balance at June 30, 1998............................................ 150 Additions charged to costs and expenses............................. 290 Write-off of uncollectible accounts................................. (45) ---- Balance at March 31, 1999........................................... $395 ==== </TABLE> The Company's products are sold through a network of sales offices and distribution partners. Approximately 15%, 18%, and 20% of the Company's revenues in the periods ended June 30, 1997, June 30, 1998, and March 31, 1999, respectively, were represented by customers outside of North America. During the period ended June 30, 1997, one customer accounted for approximately 11% of total revenue. No one customer accounted for greater than 10% of total revenue during the periods ended June 30, 1998 and March 31, 1999. The Company maintains cash demand deposits with major financial institutions. Balances exceed the $100,000 level covered by federal depository insurance; however, the Company has experienced no losses. Net Loss Per Share The Company follows the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Securities that could potentially dilute basic earnings per share in the future were not included in the diluted computation as they were antidilutive to the Company's net loss total 1,764,600, 3,906,000 and 4,368,000 for the period ended June 30, 1997, June 30, 1998 and March 31, 1999, respectively. Accordingly, basic and diluted net loss per share are the same for all periods presented. Such shares, had they been dilutive, would have been included in the computation of diluted net loss per share using the treasury stock method. The Company's historical capital structure is not indicative of its prospective structure due to the automatic conversion of all shares of redeemable convertible preferred stock into common stock concurrent with the closing of the Company's anticipated initial public offering. Accordingly, a pro forma calculation for the periods ended June 30, 1998 and March 31, 1999 assuming the conversion of all outstanding shares of redeemable convertible preferred stock into common stock upon the Company's initial public offering using the if-converted method from their respective dates of issuance is presented. F-9

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share (in thousands, except per share data): <TABLE> <CAPTION> Period From July 19, 1996 Year Nine Months Ended (date of Ended March 31 inception) to June 30, ------------------- June 30, 1997 1998 1998 1999 ------------- -------- ----------- ------- (unaudited) <S> <C> <C> <C> <C> Net loss........................... $(3,323) $(2,316) $(2,334) $ (222) Excess of consideration paid to redeem preferred stock over carrying amount................... -- (2,655) (2,655) -- Increase in cumulative dividends in arrears on redeemable convertible preferred stock................... (181) (1,059) (791) (791) ------- ------- ------- ------- Net loss applicable to common stockholders...................... $(3,504) $(6,030) $(5,780) $(1,013) ======= ======= ======= ======= Pro forma net loss applicable to common stockholders............... $(4,971) $ (222) ======= ======= Shares used in computing basic and diluted: Net loss per share............... 2,431 2,440 2,435 2,563 ======= ======= ======= ======= Pro forma net loss per share (unaudited)..................... 9,409 9,532 ======= ======= Computation of basic and and diluted: Net loss per share............... $ (1.44) $ (2.47) $ (2.37) $ (0.40) ======= ======= ======= ======= Pro forma net loss per share (unaudited)..................... $ (0.53) $ (0.02) ======= ======= </TABLE> Financial Instruments The Company records all financial instruments at cost. The fair values of accounts receivable, accounts payable, accrued liabilities and indebtedness approximate cost due to their short-term nature or adjustable interest rates. Segments Effective July 1, 1998, the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information. The adoption of SFAS 131 did not have a significant effect on the disclosure of segment information as the Company continues to consider its business activities as a single segment. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Interim Financial Information The financial information for the nine months ended March 31, 1998 are unaudited but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the period. Results for the nine months ended March 31, 1999 are not necessarily indicative of the results for the entire year. Recent Pronouncements In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires entities to capitalize certain costs related to internal-use F-10

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) software once certain criteria have been met. The Company expects that the adoption of SOP 98-1 will not have a material impact on its financial position or results of operations. The Company will adopt SOP 98-1 for its fiscal year beginning July 1, 2000. In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-up Activities. SOP 98-5 requires that all start-up costs related to new operations must be expensed as incurred. In addition, all start-up costs that were capitalized in the past must be written off when SOP 98-5 is adopted. The Company expects that the adoption of SOP 98-5 will not have a material impact on its financial position or results of operations. The Company will be required to implement SOP 98-5 for its fiscal year beginning July 1, 2000. In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes methods for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. Because the Company does not currently hold any derivative instruments and does not engage in hedging activities, it expects that the adoption of SFAS 133 will not have a material impact on its financial position or results of operations. The Company will adopt SFAS 133 for its fiscal year beginning July 1, 2001. 2. Note Receivable From Shareholder At June 30, 1997, the Company held a note receivable of $350,000 from a shareholder which earned interest at 6% per year. The promissory note and all remaining accrued interest were collected on July 28, 1997. The Company recognized interest income of approximately $15,000 and $3,000 for the periods ended June 30, 1997 and June 30, 1998, respectively. 3. Technology Acquisitions On September 4, 1996, the Company acquired various assets and liabilities from a related party through the issuance of 1,697,082 shares of Series A Preferred Stock. The most significant asset acquired was a developed software product which had reached technological feasibility. Accordingly, the assets acquired and liabilities assumed were recorded at their fair values as follows (in thousands): <TABLE> <S> <C> Property and equipment.............................................. $113 Acquired technology................................................. 515 Other assets........................................................ 37 ---- Total assets acquired............................................... 665 Notes payable....................................................... 175 Other liabilities................................................... 141 ---- Total liabilities assumed........................................... 316 ---- Net assets acquired................................................. $349 ==== </TABLE> On June 27, 1997, the Company purchased in-process research and development for $2,625,000, consisting of cash of $100,000, issuance of a note payable in the principal amount of $2,450,000, other direct costs of $75,000 and a warrant to purchase 333,333 shares of the Company's common stock at $1.50 per share. The warrant may be exercised at any time up until the termination date of June 26, 2007. No value was assigned to the warrant in determining the total purchase price since the estimated fair value of the warrant at the purchase date was insignificant (as determined using the Black-Scholes Model). The Company allocated $1,050,000 to acquired technology which was capitalized and the remaining $1,575,000 was allocated to acquired in-process research and development. See Note 10 for further discussion of Acquired In-Process Research and Development. F-11

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) 4. Property and Equipment Property and equipment consisted of the following (in thousands): <TABLE> <CAPTION> Estimated Useful June 30 Life in ------------ March 31 Years 1997 1998 1999 --------- ---- ------ -------- <S> <C> <C> <C> <C> Computer software and equipment............... 3 $769 $1,427 $2,229 Furniture and fixtures........................ 7 40 84 150 Leasehold improvements........................ 5 58 152 165 Office and telephone equipment................ 5 102 118 129 ---- ------ ------ 969 1,781 2,673 Accumulated depreciation and amortization..... (126) (582) (929) ---- ------ ------ Property and equipment, net................... $843 $1,199 $1,744 ==== ====== ====== </TABLE> See also Note 12. 5. Accrued Liabilities Accrued liabilities are summarized as follows (in thousands): <TABLE> <CAPTION> June 30 ----------- March 31 1997 1998 1999 ---- ------ -------- <S> <C> <C> <C> Accrued sales and use and other taxes...................... $ 32 $ 424 $ 548 Accrued compensation and related cost...................... 174 1,080 1,333 Accrued abandoned lease cost............................... -- -- 1,034 Other accrued expenses..................................... 216 650 1,770 ---- ------ ------ $422 $2,154 $4,685 ==== ====== ====== </TABLE> 6. Indebtedness Indebtedness consists of the following (in thousands): <TABLE> <CAPTION> June 30 ------------ March 31 1997 1998 1999 ----- ----- -------- <S> <C> <C> <C> Revolving line of credit facility with a bank ($750, $3,000, and $3,000, respectively) which matures in January 2000, interest payable monthly at prime (7.75% at March 31, 1999) collateralized by all assets of the Company............................................... $ 500 $ 275 $ -- Note payable to a bank, monthly principal installment of $21, interest payable monthly at prime (7.75% at March 31, 1999), maturing in September 2000, collater- alized by all assets of the Company................... -- 579 386 Note payable to a finance company, monthly principal and interest of $1, interest rate of 13%, maturing in November 2001, collateralized by certain equipment............................................. 40 34 27 ----- ----- ----- 540 888 413 Less current maturities................................ (507) (536) (265) ----- ----- ----- $ 33 $ 352 $ 148 ===== ===== ===== </TABLE> F-12

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The revolving line of credit facility subjects the Company to certain restrictive and financial covenants including limitations of dividends and maintenance of certain financial ratios. The Company was in compliance with all the restrictive and financial covenants at March 31, 1999. Future principal payments of indebtedness for the fiscal years ending June 30 are as follows (in thousands): <TABLE> <S> <C> 1999................................................................. $ 66 2000................................................................. 266 2001................................................................. 75 2002................................................................. 6 ---- $413 ==== </TABLE> Total interest paid for the periods ended June 30, 1997, June 30, 1998, and March 31, 1999 was $6,000, $59,000 and $42,000, respectively. As described in Note 3, the Company issued a note payable in the principal amount of $2,450,000 to finance the purchase of in-process research and development. The note bore interest at 10.5% per year and matured on December 31, 1997. The Company retired the note on July 11, 1997. 7. Income Taxes At March 31, 1999, the Company had net operating loss carryforwards of approximately $3.2 million available to offset future taxable income and which begin expiring in 2012, if not utilized. Special limitations exist under the tax law related to cumulative changes in ownership that may restrict the utilization of the regular tax net operating loss carryforwards. The components of deferred taxes were as follows (in thousands): <TABLE> <CAPTION> June 30 ---------------- March 31 1997 1998 1999 ------- ------- -------- <S> <C> <C> <C> Acquired in-process technology................ $ 583 $ 389 $ 243 Net operating loss carryforward............... 626 1,263 1,166 Accrued liabilities........................... 11 324 457 Allowance for doubtful accounts............... -- 55 146 ------- ------- ------- Gross deferred tax assets..................... 1,220 2,031 2,012 Purchased software costs...................... (115) (99) (91) Property and equipment........................ (12) (11) (27) ------- ------- ------- Gross deferred tax liabilities................ (127) (110) (118) Valuation allowance........................... (1,093) (1,921) (1,894) ------- ------- ------- Net deferred tax asset........................ $ -- $ -- $ -- ======= ======= ======= </TABLE> A valuation allowance has been recorded to completely offset the carrying value of the deferred tax asset due to the uncertainty surrounding its realization, including a lack of earnings history and the variability of operating results. The valuation allowance was increased by $1,093,000 and $828,000 during the periods ended June 30, 1997 and June 30, 1998, respectively, and decreased by 27,000 for the period ended March 31, 1999. F-13

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The difference between the Company's effective tax rate and the statutory rate of 34% was as follows: <TABLE> <CAPTION> June 30 ----------- March 31 1997 1998 1999 ---- ---- -------- <S> <C> <C> <C> Statutory tax rate............................... (34)% (34)% (34)% State taxes, net of federal benefit.............. (3)% (3)% (3)% Nondeductible expenses........................... 1 % 1 % 9 % Amortization of stock compensation charge on ISO's........................................... -- -- 36% Valuation allowance.............................. 31 % 36 % (8)% --- --- --- (5)% -- % -- % === === === </TABLE> In connection with the acquisition of various assets and liabilities from a related party on September 4, 1996 (see Note 3), the Company recorded a deferred tax liability of approximately $175,000 for the tax effect of the difference in the recorded basis for book and tax purposes. Consequently, during the period ended June 30, 1997, the Company was able to recognize a $175,000 tax benefit for deferred tax assets generated subsequent to the acquisition to the extent of such deferred tax liability. 8. Redeemable Convertible Preferred Stock On September 4, 1996, the Company's board of directors authorized the issuance of 1,818,650 shares of Series A Redeemable Convertible Preferred Stock (Series A Preferred Stock), $.001 par value, of which 121,568 shares were issued to a member of the board of directors as satisfaction of a note payable to the board member in the principal amount of $25,000, and 1,697,082 shares were issued to a related party in exchange for assets and liabilities as described in Note 3. On July 2, 1997, the Company entered into an agreement to redeem 950,000 shares of Series A Preferred Stock at $3 per share in cash for a total redemption price of $2,850,000. The excess of the redemption price over the carrying amount of the redeemed shares of preferred stock, in the amount of $2,655,000, has been subtracted from net loss to arrive at net loss applicable to common stockholders. The redeemed shares were subsequently canceled. On September 4, 1996, the Company's board of directors authorized the issuance of 2,650,000 shares of Series B Redeemable Convertible Preferred Stock (Series B Preferred Stock), $.001 par value, of which 150,000 shares were issued as satisfaction of a note payable in the principal amount of $150,000, and 2,500,000 shares were issued for cash of $2,475,000, net of issuance costs of $25,000. On July 2, 1997, the Company sold 3,450,000 shares of Series C Redeemable Convertible Preferred Stock (Series C Preferred Stock) at $3 per share, resulting in cash proceeds of $10,300,000, after issuance costs of approximately $50,000. The Company received $165,000 prior to June 30, 1997, as a cash subscription to 55,000 shares of the stock issued. Series A, B and C Preferred Stock (the "Preferred Stock") are convertible into shares of common stock at the option of the holder or in the event the Company completes an initial public offering of common stock. The conversion rate is initially one to one and is subject to adjustment if the Company issues additional shares of common stock. The holders of the Preferred Stock are entitled to vote upon any matter submitted to the common stockholders for a vote as though the common stock and the Preferred Stock constituted a single class of F-14

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) stock. The holders of Preferred Stock shall have the number of votes per share which equals the number of shares of common stock into which each such share of preferred stock held by such holder is then convertible. The holders of the Preferred Stock are entitled to receive, when and as declared by the board of directors, cumulative dividends at the annual rate of $.01645, $.08 and $.24 per share for Series A, B and C, respectively. Such dividends shall accrue on a quarterly basis commencing with the first calendar quarter ending after the issuance of the preferred stock. No dividends were declared or paid on the Company's preferred stock during the periods ended June 30, 1997, June 30, 1998, or March 31, 1999, and dividends in arrears totaled $181,000, $1,240,000 and $2,031,000 as of June 30, 1997, June 30, 1998 and March 31, 1999, respectively. On July 2, 2002, the Company is required to redeem all outstanding shares of Series A, B and C Preferred Stock at a per share price of $.205647, $1 and $3 per share, respectively, plus cumulative dividends in arrears if not previously converted into common stock. 9. Stock Option Plan Effective March 20, 1997, the board of directors adopted the Company's 1997 Stock Option Plan. The 1997 Stock Option Plan provides for the granting of options to purchase the Company's common stock to officers, employees or consultants of the Company upon the terms determined by a committee of the board of directors (the "Committee"). The number of shares of common stock authorized under the 1997 Stock Option Plan at March 31, 1999 are 4,795,000. Options have a ten year term and generally vest over four years. Additionally, in January 1998, in connection with an employment agreement, the Company granted a warrant to purchase 100,000 shares of the Company's Common Stock at an exercise price of $1 per share. No amount was allocated to the value of the warrant as the amount was not significant. In connection with the grant of certain stock options to employees through March 31, 1999, the Company recorded deferred stock compensation of $1,389,000 for the aggregate differences between the exercise prices of options at their date of grant and the deemed fair value for accounting purposes of the common stock subject to such options. The amortization of deferred compensation cost of $236,000 is for the nine months ended March 31, 1999 relates to options awarded to employees in all operating expense categories. This amount has not been separately allocated to these categories. F-15

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The following table summarizes activity under the stock option plan for the periods ended March 31, 1999: <TABLE> <CAPTION> Weighted Average Range of Exercise Exercise Options Price Prices --------- -------- ------------ <S> <C> <C> <C> Options granted............................. 1,495,000 $0.50 $ 0.50 Options forfeited........................... (64,000) 0.50 0.50 Options exercised........................... -- -- -- --------- ----- ------------ Options outstanding, June 30, 1997............ 1,431,000 0.50 0.50 Options granted............................. 2,361,934 0.50 0.50 Options forfeited........................... (266,502) 0.50 0.50 Options exercised........................... (53,621) 0.50 0.50 --------- ----- ------------ Options outstanding, June 30, 1998............ 3,472,811 0.50 0.50 Options granted............................. 1,148,010 5.60 2.50-12.50 Options forfeited........................... (235,090) 0.54 0.50-2.50 Options exercised........................... (450,647) 0.50 0.50 --------- ----- ------------ Options outstanding, March 31, 1999........... 3,935,084 1.99 $0.50-$12.50 ========= ===== ============ Exercisable at: June 30, 1997............................... -- $ -- ========= ===== June 30, 1998............................... 338,620 $0.50 ========= ===== March 31, 1999.............................. 778,508 $0.50 ========= ===== </TABLE> The following tables summarize information concerning outstanding options as of March 31, 1999: <TABLE> <CAPTION> Options Outstanding Options Exercisable ----------------------------------------------------- ------------------------ Range of Weighted-Average Exercise Remaining Weighted-Average Weighted-Average Prices Number Contractual Life Exercise Price Number Exercise Price -------- --------- ---------------- ---------------- ------- ---------------- <S> <C> <C> <C> <C> <C> $0.50 2,791,574 8.6 years $ 0.50 778,508 $0.50 $2.50-- $3.50 798,510 9.5 years $ 2.64 -- -- $12.50 345,000 9.9 years $12.50 -- -- </TABLE> <TABLE> <CAPTION> For the period ended --------------------------- June 30, June 30, March 31, 1997 1998 1999 -------- -------- --------- <S> <C> <C> <C> Weighted-average deemed fair value of stock op- tions granted during the year: Exercise price equal to fair value of stock on date of grant.................................. $-- $0.18 $3.68 Exercise price less than fair value of stock on date of grant.................................. -- -- 2.42 </TABLE> F-16

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The fair value of stock based compensation was calculated in accordance with SFAS 123, Accounting for Stock-Based Compensation, utilizing the minimum value option pricing model with the following assumptions: <TABLE> <CAPTION> For the period ended --------------- June June March 30, 30, 31, 1997 1998 1999 ---- ---- ----- <S> <C> <C> <C> Expected life (in years).................................. 8 8 8 Risk free interest rate 5.0% 5.8% 5.5% Volatility................................................ 0% 0% 0% Dividend yield............................................ 0% 0% 0% </TABLE> The Company's pro-forma stock based compensation is as follows (in thousands): <TABLE> <CAPTION> For the period ended ------------------------- June June March 30, 30, 31, 1997 1998 1999 ------- ------- ------- <S> <C> <C> <C> Pro-forma stock based compensation expense... $ -- $ 60 $ 718 Pro-forma net loss applicable to common stockholders................................ $(3,504) $(6,090) $(1,731) Pro-forma basic and diluted net loss per share....................................... $ (1.44) $ (2.50) $ (0.68) </TABLE> Because options vest over several years and additional option grants are expected, the above pro-forma effects of FAS 123 are not likely to be representative of the effects of reported net income (loss) for future periods. 10. Acquired In-Process Research and Development In June 1997, the Company acquired from Serverware, Ltd. certain in-process research and development for $2.7 million consisting of cash of $100,000, a $2.5 million note payable, a warrant to purchase 333,333 shares of common stock at an exercise price of $1.50 per share and $75,000 of direct costs incurred. No value was allocated to the warrant as such amount was not significant. The Company intended to utilize the acquired in-process research and development to develop a shrinkwrap event management product for Windows NT that it did not possess at the time. In order to capitalize on the event management market, the intention of the Company was to complete the in-process research and development as quickly as possible and sell and market that product (under the name SeNTry). From the date of acquisition to June 30, 1998, the Company expended approximately 80 person months, or approximately $800,000, to complete and enhance the in-process research and development. In June 1998, the Company completed SeNTry, which represented the first completed and enhanced version of the acquired technology. The Company then began internal development of an entirely new event management product (OnePoint Event Manager) the design of which was to be more consistent with its long-term product strategy. A significant amount of uncertainty existed surrounding the successful development and completion of the research and development acquired, which was estimated to be 70% complete at the date of the acquisition. This was the Company's first attempt to develop event management technology. The Company was uncertain of its ability to complete the development of a new product within a timeframe acceptable to the market and ahead of competitors. The in-process research and development effort, at the time of purchase, had not reached technological feasibility as it lacked many key elements including: standardized implementation capabilities, a scalable and extensible architecture, enhanced user interfaces, broad functionality and extensive reporting capabilities. F-17

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The Company assigned a value to the in-process research and development of $1.5 million and to the core technology of $1.1 million based on a discounted cash flow model. The Company based the cash flow projections for revenue on the projected incremental increase in revenue that it expected to receive from the completed acquired in-process research and development. Revenue derived from the completed in-process research and development was expected to commence after completion of the SeNTry product. The Company expected revenue from the in-process research and development to continue until the release of OnePoint Event Manager, which was expected to be released in fiscal 2000. The Company deducted estimated operating expenses and income taxes from estimated revenue to arrive at estimated after-tax cash flows. Projected operating expenses included: cost of revenue and general and administrative, customer support and sales and marketing expenses. The Company estimated operating expenses as a percentage of revenue and based such estimates primarily on projections it prepared. The cash flow projections attributable to the core technology included 50% of the net income before tax expense anticipated to be generated from the completed in-process technology and 15% from the net income before tax expense anticipated to be generated from OnePoint Event Manager, an entirely new and internally developed product. Revenue derived from OnePoint Event Manager was estimated through 2004. The Company deducted estimated operating expenses and income taxes from estimated revenue to arrive at estimated after-tax cash flows. Projected operating expenses included: cost of revenue and general and administrative, customer support and sales and marketing expenses. The Company estimated operating expenses as a percentage of revenue and based such estimates primarily on projections it prepared. The rate used to discount the net cash flows to present value was based on the weighted average cost of capital ("WACC"). The Company used a discount rate of 35% for valuing the in-process research and development and 25% for the core technology. These discount rates are higher than the implied WACC due to the inherent uncertainties surrounding the successful development of the acquired in-process research and development, the useful life of such in-process research and development, the profitability levels of such in-process research and development, and the uncertainty of technological advances that were unknown at the time. 11. Employee Benefit Plan The Company sponsors a defined contribution 401(k) plan to provide substantially all U.S. employees an opportunity to accumulate personal funds for their retirement. Under the terms of the plan, employees may make pre-tax contributions to the plan of up to 20% of their annual salary, subject to annual limitations imposed by the Internal Revenue Code. The Company, in the sole discretion of the board of directors, may make contributions to the plan. The Company made no contributions to the plan during the periods ended June 30, 1997, June 30, 1998 and March 31, 1999. 12. Commitments and Contingencies The Company has entered into certain noncancelable operating leases for office space with terms through 2003. Rent expense totaled $104,000, $434,000 and $418,000 for the periods ended June 30, 1997, June 30, 1998, and March 31, 1999, respectively. Remaining future minimum lease commitments related to these lease agreements for the fiscal years ended June 30 are as follows (in thousands): <TABLE> <S> <C> 1999.............................................................. $ 165 2000.............................................................. 410 2001.............................................................. 408 2002.............................................................. 423 2003.............................................................. 258 ------ $1,664 ====== </TABLE> F-18

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) In February 1999, the board of directors approved the relocation of the Company's corporate offices. As a result, the Company gave notification of its intent to abandon the related office space lease effective August 1, 1999 in accordance with a cancellation option in the lease agreement. During the period ended March 31, 1999, the Company recorded a nonrecurring charge of $1,034,000 for lease abandonment, which represents the required payment for cancellation of the lease. The Company is subject to litigation claims and assessments arising in the ordinary course of business. In the opinion of management, the ultimate outcome of these claims is not expected to have a material adverse effect on the financial statements. 13. Segments of Business and Geographic Area Information The Company considers its business activities to constitute a single segment. A summary of the Company's operations by geographic area follows (in thousands): <TABLE> <CAPTION> Periods ended Nine months ended June 30 March 31 -------------- ------------------- 1997 1998 1998 1999 ------ ------- ----------- ------- (unaudited) <S> <C> <C> <C> <C> Revenue: Domestic customers........................ $3,609 $11,857 $7,672 $13,599 Customers outside North America........... 658 2,519 1,562 3,302 ------ ------- ------ ------- $4,267 $14,376 $9,234 $16,901 ====== ======= ====== ======= </TABLE> 14. Subsequent Events On May 21, 1999, the 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 and shares held by existing stockholders to the public (the "Offering"). If the Offering is consummated under the terms presently anticipated, all of the currently outstanding redeemable convertible preferred stock will convert to 6,968,650 shares of Common Stock. Pro forma stockholders' equity at March 31, 1999 (unaudited) as adjusted for the conversion of the redeemable convertible preferred stock is set forth in the accompanying Balance Sheets and Statements of Stockholders' Equity (Deficit). 1999 Employee Stock Purchase Plan On May 21, 1999, the board of directors approved the adoption of the Company's 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"), subject to stockholder approval and the closing of the Offering. A total of 600,000 shares of common stock has been reserved for issuance under the 1999 Purchase Plan, plus, commencing on July 1, 2000, annual increases equal to the lesser of (i) 500,000 shares, (ii) 4% of the outstanding common shares on the last day of the prior fiscal year or (iii) such amount as determined by the board of directors. The 1999 Purchase Plan permits eligible employees to acquire shares of the Company's common stock through periodic payroll deductions, which may not exceed the lesser of 15% of an employee's compensation or $25,000, where compensation is defined on Form W-2. Each offering period will have a maximum duration of 24 months, comprising four purchase periods of six months each. The price at which the common stock may be purchased is 85% of the lesser of the fair market value of the Company's common stock on the first day of the applicable offering period or on the last day of the respective purchase period. The initial offering period will commence on the effectiveness of the initial public offering and will end on July 31, 2001. F-19

MISSION CRITICAL SOFTWARE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) 1997 Stock Option Plan On May 21, 1999, the board of directors approved an amendment to the Company's 1997 Stock Option Plan, subject to stockholder approval. A total of 4,000,000 shares of common stock have been added to the 1997 Stock Option Plan for issuance to eligible participants under the 1997 Stock Option Plan, plus, commencing on July 1, 2000, annual increases equal to the lesser of (i) 750,000 shares, (ii) 5% of the outstanding common shares on the last day of the prior fiscal year or (iii) such amount as determined by the board of directors. The types of awards that may be made under the 1997 Stock Option Plan are incentive and nonqualified options to purchase shares of common stock. The exercise price for incentive stock options may not be less than 100% of the fair market value of the Company's common stock on the date of grant (85% for nonstatutory options). In the event of a change in control of the Company, an option or award under the 1997 Stock Option Plan will become fully exercisable and fully vested if the option or award is not assumed by the surviving corporation or the surviving corporation does not substitute comparable awards for the awards granted under the 1997 Stock Option Plan. 1999 Director Option Plan On May 21, 1999, the board of directors approved the adoption of the Company's 1999 Director Option Plan, subject to stockholder approval and the closing of the Offering. A total of 250,000 shares of common stock have been reserved for issuance to non-employee members of the board of directors, plus, commencing on July 1, 2000, annual increases equal to the lesser of (i) 250,000 shares, (ii) 2% of the outstanding common shares on the last day of the prior fiscal year or (iii) such amount as determined by the board of directors. F-20

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-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Shares [Mission Critical Software Logo] Common Stock ------------ PROSPECTUS ------------ HAMBRECHT & QUIST BANCBOSTON ROBERTSON STEPHENS SOUNDVIEW TECHNOLOGY GROUP ------------ , 1999 ------------ You should rely only on information contained in this prospectus. We have not authorized anyone to provide you with 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 as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. No action is being taken in any jurisdiction outside the United States to permit a public offering of the common stock or possession or distribution of this prospectus in any such jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction. Until , 1999, all dealers that buy, sell or trade in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

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 Mission Critical Software in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fee. <TABLE> <S> <C> SEC registration fee........................................... $ 16,785 NASD filing fee................................................ 7,860 Nasdaq National Market listing fee............................. 100,000 Printing and engraving costs................................... 175,000 Legal fees and expenses........................................ 350,000 Accounting fees and expenses................................... 179,000 Blue Sky fees and expenses..................................... 10,000 Transfer Agent and Registrar fees.............................. 10,000 Miscellaneous expenses......................................... 26,355 -------- Total.......................................................... $875,000 ======== </TABLE> Item 14. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law. Articles Nine and Ten of the Registrant's Restated Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law. Article 8 of the Registrant's Bylaws provides for the indemnification of officers, directors and third parties acting on behalf of the Registrant if such person acted in good faith and in a manner reasonably believed to be in and not opposed to the best interest of the Registrant, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful. The Registrant has entered into indemnification agreements with its directors and executive officers, in addition to indemnification provided for in the Registrant's Bylaws, and intends to enter into indemnification agreements with any new directors and executive officers in the future. Item 15. Recent Sales of Unregistered Securities During the past three years, the Registrant has issued unregistered securities to a limited number of persons, as described below. None of these transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the Registrant believes that each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access, through their relationships with the Registrant, to information about the Registrant. Since July 1996, (inception), the Registrant has issued and sold (without payment of any selling commission to any person) the following unregistered securities: 1. On September 4, 1996, the Registrant issued and sold: . 2,431,350 shares of Common Stock to employees for $3,000, . 1,818,650 shares of Series A Preferred Stock to one investor and one director in exchange for our OnePoint Administrator Software, and $25,000 and . 2,650,000 shares of Series B Preferred Stock to seven investors for an aggregate purchase price of $2,650,000. II-1

2. On July 2, 1997, the Registrant issued and sold 3,450,000 shares of Series C Preferred Stock to twelve investors for an aggregate purchase price of $10,350,000. 3. From March 1997 to March 31, 1999, the Registrant issued and sold 504,268 shares of Common Stock to employees and consultants at a price of $0.50 per share, upon exercise of stock options, pursuant to the Registrant's 1997 Stock Option Plan. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits <TABLE> <C> <S> 1.1* Form of Underwriting Agreement 3.1.1 Amended and Restated Certificate of Incorporation of the Registrant 3.1.2 Form of Certificate of Incorporation of the Registrant to be filed after the closing of the offering made under this Registration Statement 3.2.1 Amended and Restated Bylaws of the Registrant 3.2.2 Form of Bylaws of the Registrant to be in effect after the closing of the offering made under this Registration Statement 4.1* Specimen common stock certificate 4.2* Amended and Restated Investors Rights Agreement, dated as of July 2, 1997, by and among the Registrant and certain stockholders of the Registrant 4.3 Amended and Restated Stockholders' Agreement, dated as of July 2, 1997, by and among the Registrant and certain stockholders of the Registrant 5.1 Form of opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation 10.1 Form of Indemnification Agreement between the Registrant and each of its directors and officers 10.2 Amended and Restated 1997 Stock Option Plan 10.2.1 Form of Option Agreement under the 1997 Stock Option Plan 10.3 1999 Employee Stock Purchase Plan 10.3.1 Form of Subscription Agreement under the 1999 Employee Stock Purchase Plan 10.4 1999 Director Option Plan 10.4.1* Form of Option Agreement under 1999 Director Option Plan 10.5 Lease Agreement dated October 22, 1996 between Soaring Eagles Orchard, Inc. and the Registrant for the premises located at 720 North Post Oak Road, Houston, Texas 77024 10.5.1 First Amendment dated February 13, 1997 to Lease Agreement between Soaring Eagles Orchards, Inc. and the Registrant 10.5.2 Second Amendment dated April 1, 1997 to Lease Agreement between Soaring Eagles Orchards, Inc. and the Registrant 10.5.3 Third Amendment dated July 22, 1997 to Lease Agreement between Soaring Eagles Orchards, Inc. and the Registrant 10.6* Quickstart Loan and Security Agreement dated February 7, 1997 between the Registrant and Silicon Valley Bank 10.6.1 Amendment dated January 23, 1998 to Quickstart Loan Agreement between Silicon Valley Bank and the Registrant 10.6.2 Loan and Security Agreement dated January 26, 1998 between the Registrant and Silicon Valley Bank 10.6.3* First Amendment dated March 19, 1999 to Loan and Security Agreement between the Registrant and Silicon Valley Bank 10.7 Employment Agreement dated September 4, 1996 between the Registrant and Paul F. Koffend, Jr. 10.8 Employment Agreement dated September 4, 1996 between the Registrant and Louis R. Woodhill 10.8.1 Amended and Restated Employment Agreement dated May 21, 1998 between the Registrant and Louis R. Woodhill 10.9 Employment Agreement dated September 4, 1996 between the Registrant and James R. Woodhill 10.10 Employment Agreement dated January 1, 1997 between the Registrant and Thomas P. Bernhardt </TABLE> II-2

<TABLE> <C> <S> 10.10.1 Consulting Agreement dated September 4, 1996 between the Registrant and Thomas P. Bernhardt 10.11 Employment Agreement dated August 6, 1997 between the Registrant and Brian McGrath 10.11.1 Letter Agreement dated January 13, 1999 between the Registrant and Brian McGrath 10.12 Employment Agreement dated February 23, 1998 between the Registrant and Olivier Thierry 10.12.1 Relocation Agreement dated February 23, 1998 between the Registrant and Olivier Thierry 10.13 Offer Letter dated April 13, 1998 between the Registrant and Michael S. Bennett 10.14 Offer Letter dated April 13, 1998 between the Registrant and Stephen E. Odom 10.15 Offer Letter dated May 28, 1998 between the Registrant and Leslie D. Willard 10.15.1 Letter Agreement dated May 26, 1999 between the Registrant and Leslie D. Willard 10.16 Employment Agreement dated December 21, 1998 between the Registrant and Richard Pleczko 10.16.1 Offer Letter dated December 2, 1998 between Registrant and Richard Pleczko 10.17* Sub-Lease Agreement between Learmonth & Burchett Management Systems and the Registrant regarding the premises located at 9009 Mountain Ridge Drive, Suite 250, Austin, Texas 78759 10.18 Offer Letter dated February 8, 1999 between the Registrant and Richard Kangas 10.18.1 Employment Agreement dated February 8, 1999 between the Registrant and Richard Kangas 10.19 Offer Letter dated March 1, 1999 between the Registrant and Michael J. Rovner 10.19.1 Employment Agreement dated March 24, 1999 between the Registrant and Michael J. Rovner 10.20 Form of Consulting Agreement 10.21* Lease Agreement dated April 8, 1999 between the Registrant and EnergyCorp Group LC for the premises located at 13939 Northwest Freeway, Houston, Texas 23.1 Consent of Independent Auditors 23.2 Consent of Counsel (included in Exhibit 5.1) 24.1 Power of Attorney (see Page II-5) 27.1 Financial Data Schedule </TABLE> -------- *To be filed by amendment (b) Financial Statement Schedules 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 by the Registrant 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 a 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) II-3

under the Securities 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-4

SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 28th day of May 1999. MISSION CRITICAL SOFTWARE, INC. By: /s/ Michael S. Bennett ---------------------------------- Michael S. Bennett President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael S. Bennett and Stephen E. Odom and each of them, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all 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 such attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Michael S. Bennett President, Chief May 28, 1999 ----------------------------------- Executive Officer and (Michael S. Bennett) Director (Principal Executive Officer) /s/ Stephen E. Odom Chief Operating Officer, May 28, 1999 ----------------------------------- Chief Financial Officer, (Stephen E. Odom) Treasurer and Secretary (Principal Financial and Accounting Officer) /s/ Thomas P. Bernhardt Chief Technology May 28, 1999 ----------------------------------- Officer and (Thomas P. Bernhardt) Director /s/ Douglas L. Ayer Director May 28, 1999 ----------------------------------- (Douglas L. Ayer) /s/ Michael J. Maples Director May 28, 1999 ----------------------------------- (Michael J. Maples) /s/ John J. Moores Director May 28, 1999 ----------------------------------- (John J. Moores) /s/ Scott D. Sandell Director May 28, 1999 ----------------------------------- (Scott D. Sandell) /s/ John D. Thornton Director May 28, 1999 ----------------------------------- (John D. Thornton) II-5

EXHIBIT 3.1.1 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 07/02/1997 971221300--2645676 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF MISSION CRITICAL SOFTWARE, INC. Incorporated Pursuant to an Original Certificate of Incorporation Filed with the Secretary of State, July 19, 1996 ------------------------------------------------ The undersigned, for the purpose of amending the restating the Certificate of Incorporation of Mission Critical Software, Inc. (the "CORPORATION") under the laws of the State of Delaware, hereby certifies as follows: FIRST. The name of the Corporation is Mission Critical Software, Inc. SECOND. The address of the Corporation's registered office in the State of Delaware is 10-13 Centre Road, City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent at such address is The Prentice- Hall Corporation System, Inc. THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. Section 1. CAPITAL STOCK The total number of shares of all classes of stock which the Corporation shall have authority to issue is Twenty-One Million, Seventy-Six Thousand, Nine Hundred Eighty-Three (21,076,983), consisting of Thirteen Million, Eighty-Three Thousand, Three Hundred Thirty-Three (13,083,333) shares of common stock, par value $0.001 per share (the "Common Stock"), and Seven Million, Nine Hundred Ninety-Three Thousand, Six Hundred fifty (7,993,650) shares of preferred stock, par value $0.001 per share (the "Preferred Stock").

Section 2. COMMON STOCK Section 2.1. VOTING RIGHTS. The holders of shares of Common Stock shall be entitled to one vote for each share so held with respect to all matters voted on by the shareholders of the Corporation, subject in all cases to Sections 3.5 and 3.7 or this Article Fourth. Section 2.2. LIQUIDATION RIGHTS. Subject to the prior and superior right of the Preferred Stock, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of Common Stock shall be entitled to receive that portion of the remaining funds to be distributed to holders of Common Stock. Section 2.3. DIVIDENDS. Dividends may be paid on the Common Stock as and when declared by the Board of Directors; provided however, that no cash dividends may be declared or paid on the Common Stock unless dividends shall first have been declared and paid with respect to the Preferred Stock, as provided in Section 3.6 of this Article Fourth. Section 3. PREFERRED STOCK Section 3.1. DESIGNATION. Of the 7,993,650 shares of Preferred Stock which the Corporation has authority to issue, 1,818,650 shall be designated and known as "Series A Convertible Preferred Stock" ("SERIES A PREFERRED"). 2,650,000 shall be designated and known as "Series B Convertible Preferred Stock" ("SERIES B PREFERRED") and 3,525,000 shall be designated and known as "Series C Convertible Preferred Stock" ("SERIES C PREFERRED"). Section 3.2. LIQUIDATION RIGHTS. (a) AMOUNT. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation each holder of a share of 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 Common Stock by reason of their ownership thereof, an amount equal to the accrued but unpaid dividends on such share of Preferred Stock to and including the date full payment is so tendered to the holders of the Preferred Stock with respect to such liquidation, dissolution or winding up, plus an amount equal to (i) $0.205647 per share of Series A Preferred, (ii) One Dollar ($1.00) per share of Series B Preferred and (iii) Three dollars ($3.00) per share of Series C Preferred. The liquidation amounts set forth in this Section 3.2 shall be subject to equitable adjustment whenever there shall occur a stock split, stock dividend, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the Preferred Stock. (b) PRIORITY. All of the preferential amounts to be paid to the holders of the Series B Preferred and the Series C Preferred pursuant to this Section 3.2 shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any assets of, the Corporation to, the holders of the Series A Preferred or the Common Stock in connection with such liquidation, dissolution or winding up. If the assets or surplus funds to be distributed to the holders of the Series B Preferred and Series C Preferred are insufficient to permit the payment to such holders of their full preferential amount, the assets and surplus funds legally available for distribution shall be distributed ratably among the holders of the Series B Preferred and 2

the Series C Preferred, in proportion to the full preferential amount each such holder is otherwise entitled to receive. After payment to the holders of the Series B Preferred and the Series C Preferred of the preferential amounts so payable to them, all of the preferential amounts to be paid to the holders of the Series A Preferred pursuant to this Section 3.2 shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Corporation to, the holders of the Common Stock in connection with such liquidation, dissolution or winding up. If the assets or surplus funds to be distributed to the holders of the Series A Preferred are insufficient to permit the payment to such holders of their full preferential amount, the assets and surplus funds legally available for distribution shall be distributed ratably among the holders of the Series A Preferred in proportion to the full preferential amount each such holder is otherwise entitled to receive. After payment or the setting apart of payment to the holders of the Preferred Stock of the preferential amounts so payable to them, all remaining assets available for distribution (after payment or provision for payment of all debts and liabilities of the Corporation) shall be distributed to the respective holders of Common Stock ratably in proportion to the number of shares of Common Stock they then hold. A sale of all or substantially all of the assets of the Corporation or the consolidation or merger of the Corporation shall be regarded as a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Section 3.2, but only if the holders of the outstanding stock of the Corporation immediately prior to the closing of such sale, merger or consolidation hold, immediately after such closing, less than a majority in interest of the issued and outstanding shares of voting securities (as measured by voting power) of the corporation purchasing all or substantially all of the Corporation's assets or of the corporation (including without limitation the Corporation) surviving or resulting from such merger or consolidation, as the case may be; provided, however, that the holders of a majority of the outstanding shares of Series A Preferred, the holders of a majority of the outstanding shares of Series B Preferred and the holders of a majority of the outstanding shares of Series C Preferred may elect acting separately, by notice to the Corporation no later than 5 days before the effective date of such event, to cause their respective series of Preferred Stock be treated under the provisions of Section 3.3(d)(vii) in lieu of this Section 3.2 in connection with such sale, merger or consolidation. In the event the consideration payable to the Corporation or to the holders of its outstanding stock in connection with any such sale, merger or consolidation (the "TRANSACTION CONSIDERATION") does not consist entirely of cash, then the Corporation may satisfy its obligations under this Section 3.2 by paying to the holders of Preferred Stock a portion of the Transaction Consideration with a fair market value equal to the amount required to be distributed pursuant to this Section 3.2. The fair market value of the Transaction Consideration shall be determined by mutual agreement of the Corporation and the holders of a majority of the outstanding shares of Preferred Stock with respect to which a liquidation preference is being paid hereunder. If the Transaction Consideration consists of more than one type of consideration, then each type of consideration shall be distributed to each holder of Preferred Stock in the same proportions as such type of consideration represents of the total Transaction Consideration. 3

Section 3.3. CONVERSION. The holders of Preferred Stock shall have conversion rights as follows (the "CONVERSION RIGHTS"): (a) RIGHT TO CONVERT. Each share of Preferred Stock shall be convertible at the option of the holder thereof at any time after the date of issuance and without the payment of any additional consideration therefor into that number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Purchase Price for such series of Preferred Stock being converted (as defined below) by the Conversion Price (as defined below) as adjusted pursuant to this Section 3.3 and in effect at the time of conversion. The Purchase Price and the initial Conversion Price of (i) the Series A Preferred shall be $0.205647 (ii) the Series B Preferred shall be One Dollar ($1.00) and (iii) the Series C Preferred shall be Three Dollars ($3.00). The Conversion Price shall be subject to adjustment (in order to adjust the number of shares of Common Stock into which the Preferred Stock is convertible) as hereinafter provided. Each person so converting shares of Preferred Stock shall not be entitled to accrued but unpaid dividends up to the time of the conversion. (b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price upon: (i) The closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public having an aggregate offering price to the public resulting in gross proceeds to the Corporation of not less than $20,000,000 and placing a pre-offering market value on the Corporation of at least $10.00 per share of Common Stock; or (ii) the consummation of the sale by the Corporation of substantially all of its assets or of a merger or consolidation with another corporation which results in the payment of cash consideration with respect to all of the share of Common Stock then outstanding (assuming the conversion of the Preferred Stock) of at least $10.00 per share of Common Stock. (c) MECHANICS OF CONVERSION. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective applicable Conversion Price. In the case of a conversion under Section 3.3(a), before any holder of Preferred Stock shall be entitled to convert the same into full 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 the Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein his name or names of his nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued, together with the applicable federal taxpayer identification number. The Corporation shall, as soon as practicable after such surrender and notice, issue and deliver at such office to such holder of Preferred Stock, or to his nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled together with cash in lieu of any fraction of a share. In the case of an automatic conversion under Section 3.3(b), such conversion may be effected without surrender of the certificates representing the Preferred 4

Stock or the delivery of any new certificates, and the outstanding certificates shall be deemed to represent the shares of Common Stock into which such Preferred Stock was converted and the Corporation shall, as soon as practicable thereafter deliver cash, if any, in lieu of any fraction of a share so converted. A conversion shall be deemed to have been made, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock (i) in the case of a conversion under Section 3.3(a), immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted and (ii) in the case of a conversion under Section 3.3(b) immediately prior to the closing of such offering or the consummation of such transaction by the Corporation. (d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES: (i) SPECIAL DEFINITIONS. For purposes of this Section 3.3(d), the following definitions shall apply: (1) "OPTION" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "ORIGINAL ISSUE DATE" shall mean July 2, 1997. (3) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, shares (other than Common Stock, Series A Preferred, Series B Preferred and Series C Preferred), or other securities directly or indirectly convertible into or exchangeable for Common Stock. (4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued (or, pursuant to Section 3.3(d)(iii), 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 Preferred Stock of by way of dividend or distribution on shares of Series A Preferred, Series B Preferred or Series C Preferred; (B) to officers, directors or employees of, or consultants to, the Corporation pursuant to action by the Board of Directors prior to the Original issue Date, pursuant to the Corporation's Stock Option Plan in existence as of the Original Issue Date or pursuant to any other stock purchase or option plan or other employee or director stock incentive or compensation program (collectively, the "Plans") approved by the Board of Directors; and (5) upon the exercise of any warrants outstanding on the Original Issue Date. (ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the number of shares of Common Stock into which any series of Preferred Stock is convertible shall be made by adjustment in the Conversion Price of such series of Preferred Stock in respect of the issuance of Additional Shares of Common Stock or otherwise, unless the consideration per share for such Additional Shares of Common Stock issued or deemed to be issued by the Corporation is less than 5

the Conversion Price of such series of Preferred Stock in effect on the date of, and immediately prior to, the issue of such Additional Shares. (iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. (1) OPTIONS AND CONVERTIBLE SECURITIES. 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 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 for a subsequent adjustment of such number) 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, 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 Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 3.3(d)(v)) of such Additional Shares of Common Stock would be less than the Conversion Price of any series of Preferred Stock in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) no further adjustment in the Conversion Price of any series of Preferred Stock 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; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price of any series of Preferred Stock 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; (C) 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 Conversion Price of any series of Preferred Stock 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: (I) 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, is 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 6

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 (II) 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 3.3(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price of any series of Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price of such series of Preferred Stock on the original adjustment date, or (ii) the Conversion Price of such series of Preferred Stock that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (E) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Conversion Price of any series of Preferred Stock 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 (C) above; and (F) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price of any series of Preferred Stock which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price of such series of Preferred Stock shall be adjusted pursuant to this Section 3.3(d)(iii) as of the actual date of their issuance. (2) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND SUBDIVISIONS. In the event the Corporation at an time or from time to time after the Original Issue Date of any series of Preferred Stock shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall not be deemed to have been issued, but the Conversion Price of each series of Preferred Stock shall be adjusted in accordance with Section 3.2(d)(vi). (iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 3.3(d)(iii) 7

without consideration or for a consideration per share less than the Conversion Price of any series of Preferred Stock in effect on the date of and immediately prior to such issue, then and in such event, in order to increase the number of shares of Common Stock into which such series of Preferred Stock is convertible, concurrently with such issuance, the Conversion Price of such series of Preferred Stock shall be reduced to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction (x) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Preferred Stock or Convertible Securities), plus (B) 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 such Conversion Price, and (y) the denominator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Preferred Stock or Convertible Securities), plus (B) the number of such Additional Shares of Common Stock so issued, provided that the Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $0.05, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.05 or more. (v) DETERMINATION OF CONSIDERATION. For purposes of this Section 3.3(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (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. (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 3.3(d)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing (x) 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 for a subsequent adjustment of such consideration until such subsequent adjustment occurs) payable to the Corporation upon the exercise of such Options or the 8

conversion or exchange of such Convertible Securities or in the case of Options for Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number until such subsequent adjustment occurs) issuable upon the exercise of such Options or the conversion of exchange of such Convertible Securities. (vi) ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS, SUBDIVISIONS, COMBINATIONS, OR CONSOLIDATION OF COMMON STOCK. (1) STOCK DIVIDENDS, DISTRIBUTIONS OR SUBDIVISIONS. In the event the Corporation at any time or from time to time shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), the Conversion Price of each series of Preferred Stock in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately decreased. (2) COMBINATIONS OR CONSOLIDATIONS. 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, the Conversion Price of each series of Preferred Stock in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (vii) ADJUSTMENT FOR MERGER OR REORGANIZATION. Subject to the last sentence of this Section 3.3(d)(vii), in case of any consolidation or merger of the Corporation with or into another corporation or the conveyance of all or substantially all of the assets of the Corporation to another corporation, each share of Preferred Stock shall thereafter be convertible, at the option of the holder thereof in the manner described in the last sentence of this Section, into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Preferred Stock would have been entitled upon such consolidation, merger or conveyance. In any such case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of these provisions set forth with respect to the rights and interest thereafter of the holders of the Preferred Stock, to the end that these provisions (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Preferred Stock. In the event that such merger or consolidation of the Corporation or the sale of all or substantially all its assets and properties as such events are more fully set forth in the first paragraph of this Section 3.3(d)(vii), shall also be subject to the provisions of Section 3.2 above, each of (i) the holders of a majority of the outstanding Series A Preferred, (ii) the holders of a majority of the outstanding Series B Preferred, and (iii) the holders of a majority of the outstanding Series C Preferred may elect to obtain the treatment of such series of Preferred Stock, respectively, under this Section 3.3(d)(vii) in lieu of that described in Section 3.2, notice of which election shall be submitted in writing to the Corporation at its principal offices no later than five (5) days before the effective date of such event. 9

(e) NO IMPAIRMENT. The Corporation will not, by amendment of its Certificate 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 preformed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 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 Preferred Stock against impairment. (f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of any Conversion Price pursuant to this Section 3.3, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with these terms and furnish to each holder of Preferred Stock a certificate setting forth such adjustment, readjustment or conversion and showing in detail the facts upon which such adjustment, readjustment or conversion is based; provided that the failure to promptly provide such notice shall not affect the effectiveness of such adjustment, readjustment or conversion. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price of any 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 any series of Preferred Stock. (g) NOTICES OF RECORD DATE. In the event of (i) any taking by the Corporation of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, or (ii) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation, and any transfer of all or substantially all of the assets of the Corporation to any other corporation, or any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Preferred Stock at least 30 days prior to the record date specified therein, a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. (h) COMMON STOCK RESERVED. The Corporation shall reserve and keep available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of the Preferred Stock. 10

Section 3.4. REDEMPTION. (a) MANDATORY REDEMPTION. On July 2, 2002 (the "REDEMPTION DATE"), the Corporation shall offer to each holder of shares of Preferred Stock to redeem all outstanding shares of Preferred Stock. Each outstanding share of Preferred Stock for which redemption is requested hereunder shall be redeemed by the Corporation paying cash, out of funds legally available therefor, an amount equal to the Purchase Price of such series of Preferred Stock being redeemed, plus in each case, all accrued but unpaid dividends payable in accordance with Section 3.6 on each such share (the "REDEMPTION PRICE"). (i) Should the Corporation not have sufficient funds legally available for redeeming all shares of Series C Preferred and Series B Preferred to be redeemed on the Redemption Date, the Corporation shall redeem a pro rata portion (based on the aggregate Redemption Price held by each holder requesting redemption) of each holder's shares of Series C Preferred and Series B Preferred who has requested redemption out of funds legally available therefor and shall redeem the remaining shares of Series C Preferred and Series B Preferred requested to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. (ii) Once all shares of Series C Preferred and Series B Preferred which have requested redemption have been so redeemed, the Corporation may redeem all shares of Series A Preferred requesting redemption. Should the Corporation not have sufficient funds legally available for redeeming all shares of Series A Preferred to be redeemed on the Redemption Date, the Corporation shall redeem a pro rata portion (based on the aggregate Redemption Price held by each holder requesting redemption) of each holder's shares of Series A Preferred Stock who has requested redemption out of funds legally available therefor and shall redeem the remaining shares of Series A Preferred requested to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. Not less than forty-five (45) days nor more than sixty (60) days before the Redemption Date, the Corporation shall offer to redeem shares of Preferred Stock by giving written notice thereof to each holder of shares of Preferred Stock, which notice shall state the aggregate Redemption Price for Preferred Stock eligible to be redeemed by such holder on the Redemption Date. Any holder of shares of Preferred Stock to be redeemed may redeem all or part of such shares by giving written notice thereof to the Corporation, no less than fifteen (15) days prior to the Redemption Date, which notice shall specify the number of shares of each series of Preferred Stock which such holder wishes to redeem, and by surrendering to the Corporation on or before the Redemption Date the share certificates for the number of shares of Preferred Stock to be redeemed in accordance with such notice. If less than all of the shares represented by such certificates are redeemed, a new certificate shall be issued for the unredeemed shares as promptly as possible. Notwithstanding the foregoing, the holders of eighty percent (80%) or more of the Preferred Stock shall have the right to postpone for a specified period of time or waive such rights of redemption of all holders by written notice to the Corporation and to all such holders. (b) ADJUSTMENTS. The Redemption Price shall be subject to equitable adjustment whenever there shall occur a stock split, stock dividend, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the Preferred Stock. 11

Section 3.5. VOTING RIGHTS. (a) The holders of shares of Preferred Stock shall be entitled to notice of any stockholders' meeting and to vote upon any matter submitted to a stockholder for a vote, as though the Common Stock and the Preferred Stock constituted a single class of stock, except with respect to those matters on which the Delaware General Corporation Law requires that a vote must be by a separate class or classes or by separate series, as to which each such class or series shall have the right to vote in accordance with such law, and except as provided in Section 3.7. The holders of Preferred Stock shall have that number of votes per share which equals the number of shares of Common Stock into which each such share of Preferred Stock held by such holder is then convertible. (b) The holders of Preferred Stock and the holders of Common Stock shall vote upon the election of directors in accordance with the Amended and Restated Stockholders' Agreement dated July 2, 1997, as it may be amended from time to time. Section 3.6. DIVIDEND RIGHTS. (a) The holders of the then outstanding shares of Series C Preferred shall be entitled to receive, when and as declared by the Board of Directors concurrently with the payment or setting aside for payment of a dividend on the Series B Preferred pursuant to clause (b) below and prior to the payment or setting aside for payment of any dividend on the Series A Preferred or Common Stock, out of funds legally available therefor, cumulative cash dividends at the annual rate of $0.24 per share. Such dividends shall accrue on a quarterly basis commencing with the first calendar quarter ending after the Original Issue Date. Such dividends shall be cumulative and shall accrue whether or not declared, from and after such calendar quarter. (b) The holders of the then outstanding shares of Series B Preferred shall be entitled to receive, when and as declared by the Board of Directors concurrently with the payment or setting aside for payment of a dividend on the Series C Preferred pursuant to clause (a) above and prior to the payment or setting aside for payment of any dividend on the Series A Preferred or Common Stock, out of funds legally available therefor, cumulative cash dividends at the annual rate of $0.08 per share. Such dividends shall accrue on a quarterly basis commencing with the first calendar quarter ending after the Original Issue Date. Such dividends shall be cumulative and shall accrue whether or not declared, from and after such calendar quarter. (c) The holders of the then outstanding shares of Series A Preferred shall be entitled to receive, when and as declared by the Board of Directors and prior to the payment or setting aside for payment of any dividends on the Common Stock, out of funds legally available therefor, cumulative cash dividends at the annual rate of $0.01645176 per share. Such dividends shall accrue on a quarterly basis commencing with the first calendar quarter ending after the Original Issue Date. Such dividends shall be cumulative and shall accrue whether or not declared, from and after such calendar quarter. (d) The dividends provided for in clauses (a), (b) and (c) of this Section 3.6 shall be payable on liquidation and redemption in accordance with Sections 3.2 and 3.4 hereof. In the 12

event that the Board of Directors declares and/or pays such dividends on any series of Preferred Stock other than in such events, it shall do so pro rata within each series of Preferred Stock, based on the aggregate amount of dividends accrued to each holder of Preferred Stock on the date of such declaration (or, if the Board makes no declaration, on the date of payment); provided, that no such declaration and/or payment may be made with respect to the Series A Preferred until the holders of the Series C Preferred and the Series B Preferred shall have received payment of all accrued dividends under Section 3.6(a) and Section 3.6(b), respectively. Section 3.7. COVENANTS. (a) In addition to Section 3.5 and any vote which any series of Preferred Stock may have under Delaware law, so long as any shares of Series B Preferred or Series C Preferred shall be outstanding, the Corporation shall not, without first obtaining the affirmative vote or written consent of not less than 66 2/3% of the outstanding shares of Series B Preferred and Series C Preferred voting together as a single class on an as-converted-to Common Stock basis. (i) amend or repeal any provision of, or add any provision to, the Corporation's Restated Certificate of Incorporation or By-Laws if such action would change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock generally or the Series B Preferred or Series C Preferred in particular, or would otherwise adversely affect the Series B Preferred or Series C Preferred; (ii) reclassify any Common Stock or Series A Preferred into shares having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of any series of Preferred Stock other than the Series A Preferred: (iii) pay or declare any dividend or distribution on any shares of Common Stock or Preferred Stock (except as provided in Sections 3.6(a), (b) and (c)) or apply any of its assets to the redemption, retirement, purchase or other acquisition directly or indirectly, through subsidiaries, if any, or otherwise, of any shares of Common Stock or Preferred stock except (i) from officers, directors or employees of, or consultants, to the Corporation upon termination of their respective service to or employment with the Company either (A) at a price per share equal to or less than that paid by such officer, director, employee or consultant, as the case may be, for such shares or (B) for an aggregate price of no more than $50,000 for all such former officer's, director's, employee's or consultant's shares, as the case may be and (ii) as required by this Amended and Restated Certificate of Incorporation; (iv) create or issue any other class or classes of stock or series of Preferred Stock having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Preferred Stock; or (v) authorize (A) any merger or consolidation of the Corporation with or into any other corporation or entity (except into or with a wholly-owned subsidiary with the requisite stockholder approval), (B) the sale of all or substantially all of the assets of the Corporation of (C) the liquidation or reorganization of the Corporation. 13

(b) In addition to Section 3.5 and any vote which any series of Preferred Stock may have under Delaware law, until January 2, 1999, so long as any shares of Series C Preferred shall be outstanding, the Corporation shall not, without first obtaining the affirmative vote or written consent of not less than a majority of the outstanding shares of Series C Preferred, voting together as a separate class, sell all or substantially all of the assets of the Corporation or merge or consolidate the Corporation with and into another Corporation; provided, that in the event the proceeds of any such sale, merger or consolidation payable to the holders of Series C Preferred is greater than or equal to Six Dollars ($6.00) per share of Series C Preferred (subject to equitable adjustment whenever there shall occur a stock split, stock dividend, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the Preferred Stock), this Section 3.7(b) shall have no effect. Section 3.8. CONVERTED, REDEEMED OR OTHERWISE ACQUIRED SHARES. Any share of Preferred Stock that is converted under Section 3.3., redeemed under Section 3.4 or otherwise acquired by the Corporation will be canceled and will not be reissued, sold or transferred. Section 3.9. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary shall be vested in the Common Stock. FIFTH. The Corporation is to have perpetual existence. SIXTH. Subject to Section 3.7 of Article Fourth, the Board of Directors is authorized to adopt, amend or repeal the by-laws of the Corporation. SEVENTH. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. EIGHTH. Whenever a compromise or arrangement is proposed between the Corporation and its creditor or any class of them and/or between the Corporation and its stockholders or any class of them, any court or equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the Corporation under the provisions of (S)291 of the Delaware General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provision of (S)279 of the Delaware General Corporation Law, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation, as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. NINTH. The Corporation shall, to the fullest extent permitted by the General Corporation Law of the State of Delaware, as amended from time to time, indemnify each person who was or is a 14

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 is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom. Indemnification may include payment by the Corporation of expenses in defending an action or proceeding in advance of the final disposition of such action or proceeding upon receipt of any undertaking by the person indemnified to repay such payment if it is ultimately determined that such person is not entitled to indemnification under this Article, which undertaking may be accepted without reference to the financial ability of such person to make such repayments. The Corporation shall not indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person unless the initiation thereof was approved by the Board of Directors of the Corporation. The indemnification rights provided in this Article (i) shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any law, agreement or vote of stockholders or disinterested directors or otherwise, and (ii) shall inure to the benefit of the heirs, executors and administrators of such persons. The Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. No amendment or repeal of this Article shall deprive any person of the benefits hereof with respect to any act or omission occurring prior to such amendment or repeal. TENTH. A director shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that the elimination or limitation of liability is prohibited under the Delaware General Corporation Law as in effect when such liability is determined. No amendment or repeal of this provision shall deprive a director of the benefits hereof with respect to any act or omission occurring prior to such amendment or repeal. ELEVENTH. Subject to Section 3.7 of Article Fourth, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or thereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. This Restated Certificate of Incorporation of the Corporation has been duly adopted in accordance with the provisions of Section 228, 242, and 245 of the General Corporation Law of the State of Delaware and written notice of the adoption of this Restated Certificate of Incorporation has been given as provided by Section 228 of the General Corporation Law of the State of Delaware to the stockholders entitled to such notice. 15

Signed this 2nd day of July, 1997. /s/ Louis R. Woodhill ---------------------- Louis R. Woodhill President Attest: /s/ Paul F. Koffend, Jr. ------------------------- Paul F. Koffend, Jr. Secretary 16

CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF MISSION CRITICAL SOFTWARE, INC. Michael S. Bennett and Stephen E. Odom certify that: 1. They are the President and Secretary, respectively, of Mission Critical Software, Inc., a Delaware corporation. 2. Article FOURTH, Section 1 of the Amended and Restated Certificate of Incorporation is hereby amended to read in its entirety as follows: " The total number of shares of all classes of stock which the Corporation shall have authority to issue is Fifty Six Million Nine Hundred Sixty Eight Thousand Six Hundred Fifty (56,968,650) shares, consisting of Fifty Million (50,000,000) shares of Common Stock, par value $0.001 per share (the "Common Stock") and Six Million Nine Hundred Sixty Eight Thousand Six Hundred Fifty (6,968,650) shares of Preferred Stock, par value $0.001 per share (the "Preferred Stock"). The corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount 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 the Preferred Stock." 3. Article FOURTH, Section 3.1 of the Amended and Restated Certificate of Incorporation is hereby amended to read in its entirety as follows: "Section 3.1 DESIGNATION. Of the Six Million Nine Hundred Sixty Eight Thousand Six Hundred Fifty (6,968,650) shares of Preferred Stock which the Corporation has authority to issue, Eight Hundred Sixty Eight Thousand Six Hundred Fifty (868,650) shall be designated and known as "Series A Convertible Preferred Stock ("Series A Preferred"), Two Million Six Hundred Fifty Thousand (2,650,000) shall be designated and known as "Series B Convertible Preferred Stock ("Series B Preferred"), and Three Million Four Hundred Fifty Thousand (3,450,000) shall be designated and known as "Series C Convertible Preferred Stock ("Series C Preferred")." 4. The foregoing amendment of the Amended and Restated Certificate of Incorporation has been duly adopted by the Board of Directors. 5. The foregoing amendment of the Amended and Restated Certificate of Incorporation has been duly approved by the required of the stockholders in accordance with Section 216 of the General Corporation Law and Article 2, Section 2.11 of the Bylaws of the Corporation.

IN WITNESS WHEREOF, this Certificate of Amendment of Amended and Restated Certificate of Incorporation has been signed this ______ day of May, 1999. _________________________________ Michael S. Bennett, President Attest: ____________________________ Stephen E. Odom, Secretary -2-

EXHIBIT 3.1.2 RESTATED CERTIFICATE OF INCORPORATION OF MISSION CRITICAL SOFTWARE, INC. Mission Critical Software, Inc., a corporation organized and existing under laws of the State of Delaware, hereby certifies as follows: 1. The name of the Corporation is Mission Critical Software, Inc. Mission Critical Software, Inc. was originally incorporated under the same name, and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the state of Delaware on July 19, 1996, and was amended and restated on September 4, 1996 and July 2, 1997, and further amended on May 24, 1999. 2 Pursuant to Sections 228, 242 and 245 of the General Corporation Laws of the State of Delaware, this Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this corporation. 3. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby amended and restated to read in its entirety as follows: FIRST: The name of this corporation is Mission Critical Software, Inc. SECOND: The address of the corporation's registered office in the State of Delaware is 10-13 Centre Road, City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent at such address is The Prentice- Hall Corporation System, Inc. THIRD: The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is 55,000,000 shares. 50,000,000 shares shall be Common Stock, par value $.001 per share, and 5,000,000 shares shall be Preferred Stock, par value $.001 per share. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine and alter the powers, rights, preferences and privileges and the qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then

outstanding) the number of shares of any series subsequent to the issue of shares of that series, to determine the designation of any series, and to fix the number of shares of any series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. FIFTH: "Qualified Public Offering" as used in this Certificate of Incorporation shall mean the corporation's initial firm commitment underwritten public offering pursuant to an effective registration under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public. For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the 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, effective upon the closing of a Qualified Public Offering: 1. 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 which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors. The Board of Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Article, 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. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then- outstanding shares of voting stock of the corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class; or (ii) 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. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, or be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in -2-

accordance with the preceding sentence 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 such director's successor shall have been elected and qualified. 2. 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. 3. The directors of the corporation need not be elected by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins, or unless the Bylaws so provide. 4. The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required for the adoption, amendment or repeal of the following sections of the corporation's Bylaws by the stockholders of this corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting). 5. No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws. 6. Advance notice of stockholder nomination for the election of directors and of 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. 7. Any director, or the entire Board of Directors, may be removed from office at any time (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class; or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. SIXTH: Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal Article FIFTH or this Article SIXTH. SEVENTH: 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, except as provided in Article SIXTH of this Certificate, and all rights conferred upon the stockholders herein are granted subject to this right. EIGHTH: -3-

1. 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 fiduciary duty as a director. 2. 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. 3. Neither any amendment nor repeal of this Article I, nor the adoption of any provision of the corporation's Certificate of Incorporation inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of this Article EIGHTH, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article EIGHTH, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent provision. NINTH: 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. IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed this ____ day of ____, 1999. Mission Critical Software, Inc. By: ------------------------------------- Michael S. Bennett President and Chief Executive Officer ATTEST: ----------------------------- Stephen E. Odom, Secretary -4-

EXHIBIT 3.2.1 BYLAWS OF MISSION CRITICAL SOFTWARE, INC. ARTICLE 1 OFFICES Section 1.1. REGISTERED OFFICE. The registered office of the Corporation which is required by the state of Delaware to be maintained in the state of Delaware shall be the registered office named in the charter documents of the Corporation, or such other office as may be designated from time to time by the Board of Directors in the manner provided by law. Section 1.2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the state of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 STOCKHOLDERS Section 2.1. PLACE OF MEETINGS. All meetings of the stockholders shall be held at the principal office of the Corporation, or at such other place within or without the state of Delaware as shall be specified or fixed in the notices or waivers of notice thereof. Section 2.2. QUORUM; ADJOURNMENT OF MEETINGS. Unless otherwise required by law or provided in the charter documents of the Corporation or these Bylaws, (i) the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business, (ii) in all matters other than election of directors, the affirmative vote of the holders of a majority of such stock so present or represented at any meeting of stockholders at which a quorum is present shall constitute the act of the stockholders, and (iii) where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, subject to the provisions of clauses (ii) and (iii) above. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Notwithstanding the other provisions of the charter documents of the Corporation or these Bylaws, the chairman of the meeting or the holders of a majority of the issued and outstanding stock, present in person or represented by proxy and entitled to vote thereat, at any meeting of

stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called. Section 2.3. ANNUAL MEETING. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place (within or without the state of Delaware), on such date, and at such time as the Board of Directors shall fix and set forth in the notice of the meeting, which date shall be within thirteen (13) months subsequent to the last annual meeting of stockholders. Section 2.4. SPECIAL MEETINGS. Special meetings of stockholders may be called for any purpose (including, without limitation, the filling of board vacancies and newly created directorships) may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time by the board of directors or the president and shall be called by the president upon the written request of holders of shares entitled to cast not less than 25% of the votes at such meeting or by the written request of the holders of not less than 50% of the outstanding shares of any series or class of the Corporation's stock, such written request shall state the purpose or purposes of the meeting and shall be delivered to the President. On such written request, the President shall fix a date and time for such meeting within 10 days of the date requested for such meeting in such written request. Section 2.5. RECORD DATE. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors of the Corporation may fix a date as the record date for any such of stockholders, which record date shall not precede the date on which the resolutions fixing the record date are adopted and which record date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting of stockholders, nor more than sixty (60) days prior to any other action to which such record date relates. If the Board of Directors does not fix a record date for any meeting of the stockholders, the record date for determining stockholders entitled to notice of or to vote at such meeting shall be at the close of business on the day next preceding the day on which notice is given, or, in accordance with Article 7, Section 7.3 of these Bylaws notice is waived, at the close of business on the day next preceding the day on which the meeting is held. The record date for determining stockholders for any other purpose (other than the consenting to corporate action in writing without a meeting) shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of -2-

stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. For the purpose of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If the Board of Directors does not fix the record date, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation at its registered office in the state of incorporation of the Corporation or at its principal place of business. If the Board of Directors does not fix the record date, and prior action by the Board of Directors is necessary, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. Section 2.6. NOTICE OF MEETINGS. Written notice of the place, date and hour of all meetings, and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by or at the direction of the President, the Secretary or the other person(s) calling the meeting to each stockholder entitled to vote thereat not less than ten (10) nor more than sixty (60) days before the date of the meeting. Such notice may be delivered either personally or by mail. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Section 2.7. STOCKHOLDER LIST. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The stockholder list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.8. PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Proxies for use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting, who shall decide all questions touching upon the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions. -3-

No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power. Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of such portion of the shares as is equal to the reciprocal of the fraction equal to the number of proxies representing such shares divided by the total number of shares represented by such proxies. Section 2.9. VOTING; ELECTION; INSPECTORS. Unless otherwise required by law or provided for in the charter documents of the Corporation, each stockholder shall on each matter submitted to a vote at a meeting of stockholders have one vote for each share of the stock entitled to vote which is registered in his name on the record date for the meeting. For the purposes hereof, each election to fill a directorship shall constitute a separate matter. Shares registered in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaws (or comparable body) of such corporation may determine. Shares registered in the name of a deceased person may be voted by the executor or administrator of such person's estate, either in person or by proxy. All voting, except as required by the charter documents of the Corporation or where otherwise required by law, may be by a voice vote; provided, however, upon request of the chairman of the meeting or upon demand therefor by stockholders holding a majority of the issued and outstanding stock present in person or by proxy at any meeting a stock vote shall be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. All elections of directors shall be by written ballots, unless otherwise provided in the charter documents of the Corporation. At any meeting at which a vote is taken by written ballots, the chairman of the meeting may appoint one or more inspectors; each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of such inspector's ability. Such inspector shall receive the written ballots, count the votes, and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector. Unless otherwise provided in the charter documents of the Corporation, cumulative voting for the election of directors shall be prohibited. Section 2.10. CONDUCT OF MEETINGS. The meetings of the stockholders shall be presided over by the President, or, if the President is not present, by a chairman elected at the meeting. The Secretary of the Corporation, if present, shall act as secretary of such meetings, or, if the Secretary is -4-

not present, an Assistant Secretary shall so act; if neither the Secretary of or Assistant Secretary is present, then a secretary shall be appointed by the chairman of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to the chairman in order. Section 2.11. TREASURY STOCK. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it and such shares shall not be counted for quorum purposes. Nothing in this Section 2.11 shall be construed as limiting the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Section 2.12. ACTION WITHOUT MEETING. Unless otherwise provided in the charter documents of the Corporation any action permitted or required by law, the charter documents of the Corporation, any action permitted or required by law, the charter documents of the Corporation or these Bylaws to be taken at a meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the state of incorporation, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in the state of incorporation, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of corporation action without a meeting by less than a unanimous written consent shall be given by the-Secretary to those stockholders who have not consented in writing. ARTICLE 3 BOARD OF DIRECTORS Section 3.1. POWER; NUMBER; TERM OF OFFICE. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, and, subject to the restrictions imposed by law or the charter documents of the Corporation, the Board of Directors may exercise all the powers of the Corporation. -5-

Notwithstanding anything contained in these Bylaws to the contrary, at any time that a valid agreement among the stockholders is in force with respect to the nomination, election and removal of directors or similar matters, such agreement is hereby recognized and directors shall be nominated, elected and removed in accordance therewith. The number of directors which shall constitute the whole Board of Directors shall be determined from time to time by the Board of Directors (provided that no decrease in the number of directors which would have the effect of shortening the term of an incumbent director may be made by the Board of Directors). If the Board of Directors makes no such determination the number of directors shall be one. Each director shall hold office for the term for which such director is elected, and until such director's successor shall have been elected and qualified or until such director's earlier death, resignation or removal. Unless otherwise provided in the charter documents of the Corporation, directors need not be stockholders nor resident of the state of Delaware. Section 3.2. QUORUM; VOTING. Unless otherwise provided in the charter documents of the Corporation, a majority of the number of directors fixed in accordance with Section 3.1 shall constitute a quorum for the transaction of business of the Board of Directors and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 3.3. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may hold their meetings and may have an office and keep the books of the Corporation, except as otherwise provided by law, in such place or places, within or without the state of incorporation of the Corporation, as the Board of Directors may from time to time determine. At all meetings of the Board of Directors business shall be transacted in such order as shall from time to time be determined by the President or by the Board of Directors. Section 3.4. FIRST MEETING. Each newly elected Board of Directors may hold its first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after and at the same place as the annual meeting of the stockholders. Notice of such meeting shall not be required. At the first meeting of the Board of Directors in each year at which a quorum shall be present, held after the annual meeting of stockholders, the Board of Directors shall elect the officers of the Corporation. Section 3.5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times and places as shall be designated from time to time by the President, or in the President's absence, by another officer of the Corporation. Notice of such regular meetings shall not be required. Section 3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the President, or on the written request of any director, by the Secretary, in each case on at least twenty-four (24) hours' personal, written, telegraphic, cable or wireless notice to each director. Such notice, or any waiver thereof pursuant to Article 7, Section 7.3 hereof, need not state the purpose or purposes of such meeting, except as may otherwise be required by law or provided for in the charter -6-

documents of the Corporation or these Bylaws. Meetings may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing. Section 3.7. REMOVAL. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 3.8. VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS. Unless otherwise provided in the charter documents of the Corporation, and subject to the provisions of any agreement among Stockholders providing for the election of directors, vacancies existing on the Board of Directors for any reason and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of the holders of the Corporation's outstanding stock entitled to vote thereon, and any director so chosen shall hold office until the next annual election and until such director's successor shall have been elected and qualified, or until such director's earlier death, resignation or removal. Section 3.9. COMPENSATION. Directors and members of standing committees may receive such compensation as the Board of Directors from time to time shall determine to be appropriate, and shall be reimbursed for all reasonable expenses incurred in attending and returning from meetings of the board of Directors. Section 3.10. ACTION WITHOUT A MEETING: TELEPHONE CONFERENCE MEETING. Unless otherwise restricted by the charter-documents of the Corporation, any action required or permitted to be taken at any of the Board of Directors or any committee designated by the Board of Directors may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be stated as such in any document or instrument filed with the Secretary of State of the state of incorporation of the Corporation. Unless otherwise restricted by the charter documents of the Corporation, subject to the requirement for notice of meetings, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in a meeting of such Board of Directors or committee, as the case may be, by means of a conference telephone connection or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 3.11. APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY STOCKHOLDERS. The Board of Directors in its discretion may submit any act or contract for approval or ratification at any annual meeting of the stockholders, or at any special meeting of the stockholders called for the purpose of considering any such act or contract, and any act or contract that shall be approved or be ratified by the vote of the stockholders holding a majority of the issued and outstanding shares of stock of the Corporation entitled to vote and present in person or by proxy at such meeting (provided that a quorum is present) shall be as valid and as binding upon the Corporation and upon all the -7-

stockholders as if it has been approved or ratified by every stockholder of the Corporation. In addition, any such act or contract may be approved or ratified by the written consent of stockholders holding a majority of the issued and outstanding shares of capital stock of the Corporation entitled to vote, and such consent shall be as valid and binding upon the Corporation and upon all the stockholders as if it had been approved or ratified by every stockholder of the Corporation. ARTICLE 4 COMMITTEES Section 4.1. DESIGNATION; POWERS. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, including, if they shall so determine, an executive committee and a compensation committee, with each such committee to consist of one or more of the directors of the Corporation. Any such designated committee shall have and may exercise such of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in such resolution, except that no such committee shall have the power or authority of the Board of Directors in reference of amending the charter documents of the Corporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution of the Corporation, or amending, altering or repealing these Bylaws or adopting new bylaws for the Corporation. Any such designated committee may authorize the seal of the Corporation to be affixed to all papers which may require it. In addition to the above, such committee or committees shall have such other powers and limitations of authority as may be determined from time to time by the Board of Directors. Section 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated pursuant to this Article 4 shall keep regular minutes of its actions and proceedings in a book provided for that purpose and report the same to the Board of Directors at its meeting next succeeding such action, shall fix its own rules or procedures, and shall meet at such times and at such place or places as may be provided by such rules, or by such committee or the board of Directors. Should a committee fail to fix its own rules, the provisions of these Bylaws, pertaining to the calling of meetings and conduct of business by the Board of Directors, shall apply as nearly as may be possible. At every meeting of any such committee, the presence of a majority of all the members thereof shall constitute a quorum, except as provided in Section 4.3 of this Article 4 and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution. Section 4.3. SUBSTITUTION AND REMOVAL OF MEMBERS: VACANCIES. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. The Board of Directors shall have the power at any time to remove any member(s) of a committee and to appoint other directors in lieu of the person(s) so removed and shall also have the power to fill vacancies in a committee. -8-

ARTICLE 5 OFFICERS Section 5.1. NUMBER, TITLES, AND TERM OF OFFICE. The officers of the Corporation shall be a President, Treasurer, a Secretary, and such other officers as the Board of Directors may from time to time elect or appoint (including, but not limited to, a Chairman of the Board, and or more Vice Presidents, (anyone or more of whom may be designated Executive Vice President or Senior Vice President) Vice Chairman of the Board, one or more Assistant Secretaries and one or more Assistant Treasurers). Each officer shall hold office until such officer's successor shall be duly elected and shall qualify or until such officer's death or until such officer shall resign or shall have been removed. Any number of offices may be held by the same person, unless the Articles of Incorporation of the Corporation provide otherwise. Except for the Chairman of the Board and the Vice Chairman of the Board, no officer need be a director. Section 5.2. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the chief executive officer of the Corporation. Subject to the control of the Board of Directors and the Executive Committee (if any), the President shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; and shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to the President by the Board of Directors. The President shall preside at all meetings of the stockholders and of the Board of Directors. Section 5.3. VICE PRESIDENTS. Each Vice President shall at all times possess power to sign all certificates, contracts and other instruments of the Corporation, except as otherwise limited in writing by the Chairman of the Board, the President or the Vice Chairman of the Board of the Corporation. Each Vice President shall have such other powers and duties as from time to time may be assigned to such Vice President by the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board. Section 5.4. SECRETARY. The Secretary shall keep the minutes of all meetings of the Board of Directors, committees of the Board of Directors and the stockholders, in books provided for that purpose; shall attend to the giving and serving of all notices; may in the name of the Corporation affix the seal of the Corporation to all contracts and attest the affixation of the seal of the Corporation thereto; may sign with the other appointed officers all certificates for shares of capital stock of the Corporation; shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection of any director upon application at the office of the Corporation during business hours; shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to the Secretary by the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board; and shall in general perform all acts incident of the office of Secretary, subject to the control of the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board. -9-

Section 5.5. ASSISTANT SECRETARIES. Each Assistant Secretary shall have the usual powers and duties pertaining to such offices, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to an Assistant Secretary by the board of directors, the President, or the Secretary. The Assistant Secretaries shall exercise the powers of the Secretary during that officer's absence or inability or refusal to act. Section 5.6. TREASURER. The Treasurer shall have responsibility for the custody and control of all the funds and securities of the Corporation, and shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to the Treasurer by the Board of Directors or the President. The Treasurer shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors or the President; and the Treasurer shall, if required by the Board of Directors, give such bond for the faithful discharge of the Treasurer's duties in such form as the Board of Directors may require. Section 5.7. ASSISTANT TREASURERS. Each Assistant Treasurer shall have the usual powers and duties pertaining to such office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to each Assistant Treasurer by the Board of Directors, the President, or the Treasurer. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer's absence or inability or refusal to act. Section 5.8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, the President, together with the Secretary or any Assistant Secretary shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. Section 5.9. DELEGATION. For any reason that the Board of Directors may deem sufficient, the Board of Directors may, except where otherwise provided by statute, delegate the powers or duties of any officer to any other person, and may authorize any officer to delegate specified duties of such office to any other person. Any such delegation or authorization by the Board shall be effected from time to time by resolution of the Board of Directors. ARTICLE 6 CAPITAL STOCK Section 6.1. CERTIFICATES OF STOCK. The certificates for shares of the capital stock of the Corporation shall be in such form, not inconsistent with that required by law and the charter documents of the Corporation, as shall be approved by the Board of Directors. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the President or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation representing the number of shares (and, if the stock of the Corporation shall be divided into classes or series, certifying the class and series of such shares) owned by such stockholder which are registered in certified form; provided, however, that any of or all the signatures on the certificate may be facsimile. The stock record books and the blank -10-

stock certificate books shall be kept by the Secretary or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time determine. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The stock certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder's name and number of shares. Section 6.2. TRANSFER OF SHARES. The shares of stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon surrender and cancellation of certificates for a like number of shares. Upon surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, 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 the state of Delaware. Section 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation. Section 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors may determine the conditions upon which the Corporation may issue a new certificate of stock in place of a certificate theretofore issued by it which is alleged to have been lost, stolen or destroyed and may require the owner of such certificate or such owner's legal representative to give bond, with surety sufficient to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate in the place of the one so lost, stolen destroyed. ARTICLE 7 MISCELLANEOUS PROVISIONS Section 7.1. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of July of each year. Section 7.2. CORPORATE SEAL. The corporate seal shall be circular in form and shall have inscribed thereon the name of the Corporation and the state of its incorporation, which seal shall be in the charge of the Secretary and shall be affixed to certificates of stock, debentures, bonds and -11-

other documents, in accordance with the direction of the Board of Directors or a committee thereof, and as may be required by law; however, the Secretary may, if the Secretary deems it expedient, have a facsimile of the corporate seal inscribed on any such certificates of stock, debentures, bonds, contract or other documents. Duplicates of the seal may be kept for use by any Assistant Secretary. Section 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required to be given by law, the charter documents of the Corporation or under the provisions of these Bylaws, said notice shall be deemed to be sufficient if given (i) by telegraphic, cable or wireless transmission (including by telecopy or facsimile transmission) or (ii) by deposit of the same in a post office box or by delivery to an overnight courier service company in a sealed prepaid wrapper addressed to the person entitled thereto at such person's post office address, as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such transmission or mailing or delivery to courier, as the case may be. Whenever notice is required to be given by law, the charter documents of the Corporation or under any of the provisions of these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person, including without limitation a director, at meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the charter documents of the Corporation or these Bylaws. Section 7.4. FACSIMILE SIGNATURE. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors. Section 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the Board of Directors, or a member of any committee designated by the Board of Directors, shall, in the performance of such person's duties, be protected to the fullest extent permitted by law in relying upon the records of the Corporation and upon information, opinion, reports or statements presented to the Corporation. Section 7.6. APPLICATION OF BYLAWS. In the event that any provisions of these Bylaws is or may be in conflict with any law of the United States, of the state of Delaware, or of any other governmental body or power having jurisdiction over this Corporation, or over the subject matter to which such provision of these Bylaws applies, or may apply, such provision of these Bylaws shall be inoperative to the extent only that the operation thereof unavoidably conflicts with such law, and shall in all other respects be in full force and effect. -12-

ARTICLE 8 INDEMNIFICATION OF OFFICERS AND DIRECTORS Section 8.1. INDEMNIFICATION. Each person who was, in or is threatened to be made a named defendant or respondent in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Further, the Corporation shall pay the expenses (including attorney's fees) incurred by an officer or director in defending any proceeding, the subject matter for which indemnification is sought herewith, in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 8.2. CLAIMS AND DEFENSES. If a claim under Section 8.1 of this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct -13-

set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be determinative of whether claimant has met the applicable standard of conduct with respect to any suit by claimant against Corporation. Section 8.3. NONEXCLUSIVITY. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 8.4. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. ARTICLE 9 AMENDMENTS Section 9.1. AMENDMENTS. The Board of Directors shall have the power to adopt, amend and repeal from time to time Bylaws of the Corporation, subject to the right of the stockholders entitled to vote with respect thereto to amend or repeal such Bylaws as adopted or amended by the Board of Directors. CERTIFICATE The foregoing Bylaws were adopted by the Incorporator acting by unanimous consent dated effective on August 12, 1996 and approved by the Board of Director acting by unanimous consent dated effective of August 12, 1996. -14-

EXHIBIT 3.2.2 As amended, May 21, 1999 BYLAWS OF MISSION CRITICAL SOFTWARE, INC. ARTICLE 1 OFFICES Section 1.1. REGISTERED OFFICE. The registered office of the Corporation which is required by the state of Delaware to be maintained in the state of Delaware shall be the registered office named in the charter documents of the Corporation, or such other office as may be designated from time to time by the Board of Directors in the manner provided by law. Section 1.2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the state of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 STOCKHOLDERS Section 2.1. PLACE OF MEETINGS. All meetings of the stockholders shall be held at the principal office of the Corporation, or at such other place within or without the state of Delaware as shall be specified or fixed in the notices or waivers of notice thereof. Section 2.2. QUORUM; ADJOURNMENT OF MEETINGS. Unless otherwise required by law or provided in the charter documents of the Corporation or these Bylaws, (i) the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business, (ii) in all matters other than election of directors, the affirmative vote of the holders of a majority of such stock so present or represented at any meeting of stockholders at which a quorum is present shall constitute the act of the stockholders, and (iii) where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, subject to the provisions of clauses (ii) and (iii) above. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.

Notwithstanding the other provisions of the charter documents of the Corporation or these Bylaws, the chairman of the meeting or the holders of a majority of the issued and outstanding stock, present in person or represented by proxy and entitled to vote thereat, at any meeting of stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called. Section 2.3. ANNUAL MEETING. (a) An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place (within or without the state of Delaware), on such date, and at such time as the Board of Directors shall fix and set forth in the notice of the meeting, which date shall be within thirteen (13) months subsequent to the last annual meeting of stockholders. (b) At an annual meeting of stockholders, only such business shall be conducted as shal 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 business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the date specified in the corporation's proxy statement released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received a reasonable time before the solicitation is made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) 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"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these -2-

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 (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 warrants, 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. Section 2.4. SPECIAL MEETINGS. Special meetings of stockholders may be called at any time by a majority of the the Board of Directors, or by the chairman of the board, but such special meetings may not be called by any other person or persons. Section 2.5. RECORD DATE. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other -3-

lawful action, the Board of Directors of the Corporation may fix a date as the record date for any such of stockholders, which record date shall not precede the date on which the resolutions fixing the record date are adopted and which record date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting of stockholders, nor more than sixty (60) days prior to any other action to which such record date relates. If the Board of Directors does not fix a record date for any meeting of the stockholders, the record date for determining stockholders entitled to notice of or to vote at such meeting shall be at the close of business on the day next preceding the day on which notice is given, or, in accordance with Article 7, Section 7.3 of these Bylaws notice is waived, at the close of business on the day next preceding the day on which the meeting is held. The record date for determining stockholders for any other purpose (other than the consenting to corporate action in writing without a meeting) shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 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; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. For the purpose of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If the Board of Directors does not fix the record date, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation at its registered office in the state of incorporation of the Corporation or at its principal place of business. If the Board of Directors does not fix the record date, and prior action by the Board of Directors is necessary, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. Section 2.6. NOTICE OF MEETINGS. Written notice of the place, date and hour of all meetings, and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by or at the direction of the President, the Secretary or the other person(s) calling the meeting to each stockholder entitled to vote thereat not less than ten (10) nor more than sixty (60) days before the date of the meeting. Such notice may be delivered either personally or by mail. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Section 2.7. STOCKHOLDER LIST. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the -4-

notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The stockholder list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.8. PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Proxies for use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting, who shall decide all questions touching upon the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions. No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power. Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of such portion of the shares as is equal to the reciprocal of the fraction equal to the number of proxies representing such shares divided by the total number of shares represented by such proxies. Section 2.9. VOTING; ELECTION; INSPECTORS. Unless otherwise required by law or provided for in the charter documents of the Corporation, each stockholder shall on each matter submitted to a vote at a meeting of stockholders have one vote for each share of the stock entitled to vote which is registered in his name on the record date for the meeting. For the purposes hereof, each election to fill a directorship shall constitute a separate matter. Shares registered in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaws (or comparable body) of such corporation may determine. Shares registered in the name of a deceased person may be voted by the executor or administrator of such person's estate, either in person or by proxy. All voting, except as required by the charter documents of the Corporation or where otherwise required by law, may be by a voice vote; provided, however, upon request of the chairman of the meeting or upon demand therefor by stockholders holding a majority of the issued and outstanding stock present in person or by proxy at any meeting a stock vote shall be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. All elections of directors shall be by written ballots, unless otherwise provided in the charter documents of the Corporation. -5-

At any meeting at which a vote is taken by written ballots, the chairman of the meeting may appoint one or more inspectors; each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of such inspector's ability. Such inspector shall receive the written ballots, count the votes, and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector. Unless otherwise provided in the charter documents of the Corporation, cumulative voting for the election of directors shall be prohibited. Section 2.10. CONDUCT OF MEETINGS. The meetings of the stockholders shall be presided over by the President, or, if the President is not present, by a chairman elected at the meeting. The Secretary of the Corporation, if present, shall act as secretary of such meetings, or, if the Secretary is not present, an Assistant Secretary shall so act; if neither the Secretary of or Assistant Secretary is present, then a secretary shall be appointed by the chairman of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to the chairman in order. Section 2.11. TREASURY STOCK. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it and such shares shall not be counted for quorum purposes. Nothing in this Section 2.11 shall be construed as limiting the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Section 2.12. ACTION WITHOUT MEETING. Unless otherwise provided in the Certificate of Incorporation, any action which may be taken at any annual or special meeting of stockholders 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. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. Following the closing date of the Corporation's initial public offering of shares of its Common Stock pursuant to an effective registration statement filed with the Securities and Exchange Commission (the "IPO"), no action of stockholders shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with the notice requirements of Section 2.6 above and no action of the stockholders shall be taken by written consent. -6-

ARTICLE 3 BOARD OF DIRECTORS Section 3.1. POWER; NUMBER; TERM OF OFFICE. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, and, subject to the restrictions imposed by law or the charter documents of the Corporation, the Board of Directors may exercise all the powers of the Corporation. Notwithstanding anything contained in these Bylaws to the contrary, at any time that a valid agreement among the stockholders is in force with respect to the nomination, election and removal of directors or similar matters, such agreement is hereby recognized and directors shall be nominated, elected and removed in accordance therewith. The number of directors which shall constitute the whole Board of Directors shall be determined from time to time by the Board of Directors (provided that no decrease in the number of directors which would have the effect of shortening the term of an incumbent director may be made by the Board of Directors). Each director shall hold office for the term for which such director is elected, and until such director's successor shall have been elected and qualified or until such director's earlier death, resignation or removal. Unless otherwise provided in the charter documents of the Corporation, directors need not be stockholders nor resident of the state of Delaware. Section 3.2. CLASSES OF DIRECTORS. Effective upon the closing of the Corporation's IPO, the Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the IPO, the term of office of the Class I Directors shall expire and Class I Directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the closing of the IPO, the term of office of the Class II Directors shall expire and Class II Directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class III Directors shall expire and Class III Directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, Directors shall be elected for a full term of three years to succeed the Directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Article, each Director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. Section 3.3. QUORUM; VOTING. Unless otherwise provided in the charter documents of the Corporation, a majority of the number of directors then in office shall constitute a quorum for the transaction of business of the Board of Directors and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. -7-

Section 3.4. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may hold their meetings and may have an office and keep the books of the Corporation, except as otherwise provided by law, in such place or places, within or without the state of incorporation of the Corporation, as the Board of Directors may from time to time determine. At all meetings of the Board of Directors business shall be transacted in such order as shall from time to time be determined by the President or by the Board of Directors. Section 3.5. FIRST MEETING. Each newly elected Board of Directors may hold its first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after and at the same place as the annual meeting of the stockholders. Notice of such meeting shall not be required. At the first meeting of the Board of Directors in each year at which a quorum shall be present, held after the annual meeting of stockholders, the Board of Directors shall elect the officers of the Corporation. Section 3.6. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times and places as shall be designated from time to time by the President, or in the President's absence, by another officer of the Corporation. Notice of such regular meetings shall not be required. Section 3.7. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the President, or on the written request of any director, by the Secretary, in each case on at least twenty-four (24) hours' personal, written, telegraphic, cable or wireless notice to each director. Such notice, or any waiver thereof pursuant to Article 7, Section 7.3 hereof, need not state the purpose or purposes of such meeting, except as may otherwise be required by law or provided for in the charter documents of the Corporation or these Bylaws. Meetings may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing. Section 3.8. REMOVAL. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 3.9. VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS. 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 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, vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. -8-

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, although less than a quorum, or by a sole remaining director. (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 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 (10) percent of the total number of the shares at the time outstanding 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. Section 3.10. COMPENSATION. Directors and members of standing committees may receive such compensation as the Board of Directors from time to time shall determine to be appropriate, and shall be reimbursed for all reasonable expenses incurred in attending and returning from meetings of the board of Directors. Section 3.11. ACTION WITHOUT A MEETING: TELEPHONE CONFERENCE MEETING. Unless otherwise restricted by the charter documents of the Corporation, any action required or permitted to be taken at any of the Board of Directors or any committee designated by the Board of Directors may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be stated as such in any document or instrument filed with the Secretary of State of the state of incorporation of the Corporation. Unless otherwise restricted by the charter documents of the Corporation, subject to the requirement for notice of meetings, members of the Board of Directors, or members of any -9-

committee designated by the Board of Directors, may participate in a meeting of such Board of Directors or committee, as the case may be, by means of a conference telephone connection or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 3.12. APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY STOCKHOLDERS. The Board of Directors in its discretion may submit any act or contract for approval or ratification at any annual meeting of the stockholders, or at any special meeting of the stockholders called for the purpose of considering any such act or contract, and any act or contract that shall be approved or be ratified by the vote of the stockholders holding a majority of the issued and outstanding shares of stock of the Corporation entitled to vote and present in person or by proxy at such meeting (provided that a quorum is present) shall be as valid and as binding upon the Corporation and upon all the stockholders as if it has been approved or ratified by every stockholder of the Corporation. In addition, any such act or contract may be approved or ratified by the written consent of stockholders holding a majority of the issued and outstanding shares of capital stock of the Corporation entitled to vote, and such consent shall be as valid and binding upon the Corporation and upon all the stockholders as if it had been approved or ratified by every stockholder of the Corporation. ARTICLE 4 COMMITTEES Section 4.1. DESIGNATION; POWERS. The Board of Directors may, by resolution passed by a majority of the board, designate one or more committees, including, if they shall so determine, an executive committee and a compensation committee, with each such committee to consist of one or more of the directors of the Corporation. Any such designated committee shall have and may exercise such of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in such resolution, except that no such committee shall have the power or authority of the Board of Directors in reference of amending the charter documents of the Corporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution of the Corporation, or amending, altering or repealing these Bylaws or adopting new bylaws for the Corporation. Any such designated committee may authorize the seal of the Corporation to be affixed to all papers which may require it. In addition to the above, such committee or committees shall have such other powers and limitations of authority as may be determined from time to time by the Board of Directors. Section 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated pursuant to this Article 4 shall keep regular minutes of its actions and proceedings in a book provided for that purpose and report the same to the Board of Directors at its meeting next succeeding such action, shall fix its own rules or procedures, and shall meet at such times and at such place or places as may be provided by such rules, or by such committee or the board of Directors. Should a committee fail to fix its own rules, the provisions of these Bylaws, pertaining to the calling of meetings and conduct of business by the Board of Directors, shall apply as nearly as may be possible. At every meeting of -10-

any such committee, the presence of a majority of all the members thereof shall constitute a quorum, except as provided in Section 4.3 of this Article 4 and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution. Section 4.3. SUBSTITUTION AND REMOVAL OF MEMBERS: VACANCIES. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. The Board of Directors shall have the power at any time to remove any member(s) of a committee and to appoint other directors in lieu of the person(s) so removed and shall also have the power to fill vacancies in a committee. ARTICLE 5 OFFICERS Section 5.1. NUMBER, TITLES, AND TERM OF OFFICE. The officers of the Corporation shall be a President, Treasurer, a Secretary, and such other officers as the Board of Directors may from time to time elect or appoint (including, but not limited to, a Chairman of the Board, and or more Vice Presidents, (anyone or more of whom may be designated Executive Vice President or Senior Vice President) Vice Chairman of the Board, one or more Assistant Secretaries and one or more Assistant Treasurers). Each officer shall hold office until such officer's successor shall be duly elected and shall qualify or until such officer's death or until such officer shall resign or shall have been removed. Any number of offices may be held by the same person, unless the Articles of Incorporation of the Corporation provide otherwise. Except for the Chairman of the Board and the Vice Chairman of the Board, no officer need be a director. Section 5.2. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the chief executive officer of the Corporation. Subject to the control of the Board of Directors and the Executive Committee (if any), the President shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; and shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to the President by the Board of Directors. The President shall preside at all meetings of the stockholders and of the Board of Directors. Section 5.3. VICE PRESIDENTS. Each Vice President shall at all times possess power to sign all certificates, contracts and other instruments of the Corporation, except as otherwise limited in writing by the Chairman of the Board, the President or the Vice Chairman of the Board of the Corporation. Each Vice President shall have such other powers and duties as from time to time may be assigned to such Vice President by the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board. -11-

Section 5.4. SECRETARY. The Secretary shall keep the minutes of all meetings of the Board of Directors, committees of the Board of Directors and the stockholders, in books provided for that purpose; shall attend to the giving and serving of all notices; may in the name of the Corporation affix the seal of the Corporation to all contracts and attest the affixation of the seal of the Corporation thereto; may sign with the other appointed officers all certificates for shares of capital stock of the Corporation; shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection of any director upon application at the office of the Corporation during business hours; shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to the Secretary by the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board; and shall in general perform all acts incident of the office of Secretary, subject to the control of the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board. Section 5.5. ASSISTANT SECRETARIES. Each Assistant Secretary shall have the usual powers and duties pertaining to such offices, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to an Assistant Secretary by the board of directors, the President, or the Secretary. The Assistant Secretaries shall exercise the powers of the Secretary during that officer's absence or inability or refusal to act. Section 5.6. TREASURER. The Treasurer shall have responsibility for the custody and control of all the funds and securities of the Corporation, and shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to the Treasurer by the Board of Directors or the President. The Treasurer shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors or the President; and the Treasurer shall, if required by the Board of Directors, give such bond for the faithful discharge of the Treasurer's duties in such form as the Board of Directors may require. Section 5.7. ASSISTANT TREASURERS. Each Assistant Treasurer shall have the usual powers and duties pertaining to such office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to each Assistant Treasurer by the Board of Directors, the President, or the Treasurer. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer's absence or inability or refusal to act. Section 5.8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, the President, together with the Secretary or any Assistant Secretary shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. Section 5.9. DELEGATION. For any reason that the Board of Directors may deem sufficient, the Board of Directors may, except where otherwise provided by statute, delegate the powers or duties of any officer to any other person, and may authorize any officer to delegate specified duties -12-

of such office to any other person. Any such delegation or authorization by the Board shall be effected from time to time by resolution of the Board of Directors. ARTICLE 6 CAPITAL STOCK Section 6.1. CERTIFICATES OF STOCK. The certificates for shares of the capital stock of the Corporation shall be in such form, not inconsistent with that required by law and the charter documents of the Corporation, as shall be approved by the Board of Directors. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the President or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation representing the number of shares (and, if the stock of the Corporation shall be divided into classes or series, certifying the class and series of such shares) owned by such stockholder which are registered in certified form; provided, however, that any of or all the signatures on the certificate may be facsimile. The stock record books and the blank stock certificate books shall be kept by the Secretary or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time determine. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The stock certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder's name and number of shares. Section 6.2. TRANSFER OF SHARES. The shares of stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon surrender and cancellation of certificates for a like number of shares. Upon surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, 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 the state of Delaware. Section 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation. Section 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors may determine the conditions upon which the Corporation may issue a new certificate of stock in place of a certificate -13-

theretofore issued by it which is alleged to have been lost, stolen or destroyed and may require the owner of such certificate or such owner's legal representative to give bond, with surety sufficient to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate in the place of the one so lost, stolen destroyed. ARTICLE 7 MISCELLANEOUS PROVISIONS Section 7.1. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of July of each year. Section 7.2. CORPORATE SEAL. The corporate seal shall be circular in form and shall have inscribed thereon the name of the Corporation and the state of its incorporation, which seal shall be in the charge of the Secretary and shall be affixed to certificates of stock, debentures, bonds and other documents, in accordance with the direction of the Board of Directors or a committee thereof, and as may be required by law; however, the Secretary may, if the Secretary deems it expedient, have a facsimile of the corporate seal inscribed on any such certificates of stock, debentures, bonds, contract or other documents. Duplicates of the seal may be kept for use by any Assistant Secretary. Section 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required to be given by law, the charter documents of the Corporation or under the provisions of these Bylaws, said notice shall be deemed to be sufficient if given (i) by telegraphic, cable or wireless transmission (including by telecopy or facsimile transmission) or (ii) by deposit of the same in a post office box or by delivery to an overnight courier service company in a sealed prepaid wrapper addressed to the person entitled thereto at such person's post office address, as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such transmission or mailing or delivery to courier, as the case may be. Whenever notice is required to be given by law, the charter documents of the Corporation or under any of the provisions of these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person, including without limitation a director, at meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the charter documents of the Corporation or these Bylaws. Section 7.4. FACSIMILE SIGNATURE. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors. Section 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the Board of Directors, or a member of any committee designated by the Board of Directors, shall, in the -14-

performance of such person's duties, be protected to the fullest extent permitted by law in relying upon the records of the Corporation and upon information, opinion, reports or statements presented to the Corporation. Section 7.6. APPLICATION OF BYLAWS. In the event that any provisions of these Bylaws is or may be in conflict with any law of the United States, of the state of Delaware, or of any other governmental body or power having jurisdiction over this Corporation, or over the subject matter to which such provision of these Bylaws applies, or may apply, such provision of these Bylaws shall be inoperative to the extent only that the operation thereof unavoidably conflicts with such law, and shall in all other respects be in full force and effect. ARTICLE 8 INDEMNIFICATION OF OFFICERS AND DIRECTORS Section 8.1. INDEMNIFICATION. 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. 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. Section 8.2. 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. Section 8.3. 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. -15-

ARTICLE 9 AMENDMENTS Section 9.1. AMENDMENTS. The Board of Directors shall have the power to adopt, amend and repeal from time to time Bylaws of the Corporation, subject to the right of the stockholders entitled to vote with respect thereto to amend or repeal such Bylaws as adopted or amended by the Board of Directors. -16-

As amended, May 21, 1999 CERTIFICATE The foregoing Bylaws were adopted by the Incorporator acting by unanimous consent dated effective on August 12, 1996 and approved by the Board of Directors acting by unanimous consent dated effective of August 12, 1996. -17-

EXHIBIT 4.3 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT is made as of July 2, 1997 by and among the stockholders listed on Schedule I hereto (individually, a "Stockholder" and collectively, the "Stockholders") and Mission Critical Software, Inc., a Delaware corporation, (the "Company"). WHEREAS, the Stockholders are the holders of all of the outstanding shares of the Common Stock, par value $.001 per share, of the Company (the "Common Stock"), all of the outstanding shares of the Series A Convertible Preferred Stock, par value $.001 per share, of the Company (the "Series A Stock"), all of the outstanding shares of Series B Convertible Preferred Stock, par value $.001 per share, of the Company (the "Series B Stock"), and all of the outstanding shares of Series C Convertible Preferred Stock, par value $.001 per share, of the Company (the "Series C Stock" and together with the Series A Stock and the Series B Stock, the "Preferred Stock"); and WHEREAS, the holders of the Common Stock, the Series A Stock and the Series B Stock and the Company are parties to a Stockholders Agreement dated as of September 4, 1996 (the "Original Agreement"); and WHEREAS, the holders of Series C Stock, pursuant to that certain Series C Convertible Preferred Stock Purchase Agreement dated as of the date hereof (the "Purchase Agreement"), have agreed to purchase an aggregate of 3,450,000 shares of Series C Stock; and it is a condition precedent to the closing of such purchase and sale that the Company and the Stockholders enter into this Agreement, thereby amending and restating the Original Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto covenant and agree as follows: 1. GENERAL PROVISIONS. 1.1. SHARES SUBJECT TO THIS AGREEMENT. The Stockholders expressly agree that, unless otherwise specified herein, the terms and restrictions of this Agreement shall apply to the Common Stock and the Preferred Stock, and all other equity securities of the Company now or hereafter issued (collectively referred to herein as the "Shares") which any of them now owns or hereafter acquires by any means, including without limitation by purchase, assignment or operation of law, or as a result of any stock dividend, stock split, reorganization, reclassification, whether voluntary or involuntary, or other similar transaction, and to any shares of capital stock of any successor in interest of the Company, whether by sale, merger, consolidation or other similar transaction, or by purchase, assignment or operation of law. Without limiting the foregoing, the defined terms "Preferred Stock" and "Shares" as used herein expressly include all shares of Common Stock of the Company issued on conversion of the Series A Stock, Series B Stock and Series C Stock, in accordance with the Company's Amended and Restated Certificate of Incorporation. 1

1.2. NO PARTNERSHIP RELATIONSHIP. Notwithstanding, but not in limitation of, any other provision of this Agreement, the parties understand and agree that the creation, management and operation of the Company shall not create or imply a general partnership between or among the Stockholders and shall not make any Stockholder the agent or partner of any other Stockholder for any purpose. 2. ELECTION OF THE BOARD OF DIRECTORS. 2.1. ELECTION OF DIRECTORS. Each of the Stockholders agrees to vote his, her or its Shares (and any other shares of the capital stock of the Company over which he, she or it exercises voting control) and to take such other actions as are necessary, so as to fix the number of members of the Board of Directors of the Company at nine (9) and (to the extent of the voting rights of the shares of capital stock held by such party) to elect and thereafter continue in office as directors of the Company: (i) one (1) individual who shall be designated by International Capital Partners, Inc. and Zesiger Capital Group, LLC (the "ICP Director"); (ii) one (1) individual who shall be designated by New Enterprise Associates VII, Limited Partnership ("NEA VII") (the "NEA Director"); (iii) one (1) individual who shall be designated by Austin Ventures V, L.P. (the "Austin Ventures Director"); (iv) one (1) individual who shall be designated by JMI Equity Fund III, L.P. (the "JMI Director"); (v) four (4) individuals who shall be designated by the Stockholders owning a majority of the Shares of Common Stock and Series A Stock voting together (the "Common Directors"); (vi) one (1) individual who shall not be an employee of the Company and who shall be designated by all of the Common Directors and then approved by each of the ICP Director, the NEA Director, the Austin Ventures Director and the JMI Director (the "Independent Director"). The Stockholders agree that no individual designated as a Common Director or the Independent Director shall be an ancestor, descendent, spouse, sibling, or spouse or descendent of a sibling of any other director of the Company. As used herein, the ICP Director, the NEA Director, the Austin Ventures Director and the JMI Director are collectively referred to as the "VC Directors." As of the date hereof, each of the parties agrees that (i) Douglas L. Ayer shall be designated as the ICP Director, (ii) Scott D. Sandell shall be designated as the NEA Director, 2

(iii) John D. Thornton shall be designated the Austin Ventures Director, (iv) John Moores shall be designated the JMI Director, (v) Thomas P. Bernhardt, Louis R. Woodhill and Paul F. Koffend, Jr. shall be designated as the Common Directors, and (vi) E. Alexander Goldstein shall be designated as the Independent Director. As of the date hereof, one Common Director shall be undesignated. Without limiting the generality of the foregoing, at each annual meeting of the stockholders of the Company, and at each special meeting of the stockholders called for the purpose of electing directors of the Company, and at any time at which the stockholders of the Company have the right to, or shall, elect directors of the Company, then, and in each event, each Stockholder shall vote or cause to be voted all Shares owned or controlled by him, her or it (or shall consent in writing in lieu of a meeting of stockholders of the Company, as the case may be) to set the number of, and to elect persons as, directors of the Company in accordance with this Section 2.1. 2.2. REMOVAL OF BOARD MEMBERS. Each of the Stockholders agrees to vote his, her or its Shares (and any other shares of the capital stock of the Company over which he, she or it exercises voting control) and take such other actions as are necessary, for the removal of any director upon the request of the party or parties designating such director or in the case of the Independent Director upon the unanimous consent of either (i) all of the VC Directors or (ii) all of the Common Directors. Any such removal shall create a vacancy which shall be filled in accordance with Section 2.3. 2.3. VACANCIES ON THE BOARD OF DIRECTORS. Each of the Stockholders agrees to vote his, her or its Shares (and any other shares of the capital stock of the Company over which he, she or it exercises voting control) and take such other actions as are necessary, in such manner as shall be necessary or appropriate to ensure that any vacancy on the Board of Directors of the Company shall be filled either (i) in accordance with Section 2.1 or (ii) pending such shareholder action, by the vote of a majority of the Board of Directors. 2.4. OBLIGATION OF THE COMPANY. The Company hereby agrees not to take any action or fail to object to any action which would be inconsistent with the parties' exercise of their obligations under this Section 2. 2.5. ELECTION OF DIRECTORS. The Company shall provide the Stockholders with 30 days' prior written notice of any meeting at which directors are to be elected. Each group of Stockholders designating a director hereunder shall give written notice to the Company no later than 20 days prior to such meeting, of the persons designated by such group as nominees for election as directors. The Company agrees to nominate and recommend for election as directors only the individuals designated, or to be designated, pursuant to Section 2.1. If such Stockholders fail to give notice to the Company as provided above, it shall be deemed that the designee[s] of such Stockholders then serving as director[s] shall be their designee[s] for reelection. 2.6. REIMBURSEMENT OF EXPENSES. The Company shall pay the reasonable out- of-pocket expenses of all Directors (other than any Directors who are employees of the Company, who shall be reimbursed in accordance with the Company's existing employee travel policy) in attending meetings of the Board of Directors and committees thereof (including, without limitation, travel, room and board). 3

2.7. COMMITTEES OF THE BOARD. The Stockholders shall cause their director- nominees to vote in favor of (i) the establishment of a Compensation Committee comprised solely of each VC Director and the Independent Director to oversee (A) the compensation of all executive officers of the Company, (B) the compensation of all employees of the Company earning $100,000 or more per year, and (C) all awards of stock, stock options or other form of equity compensation to officers, employees and consultants of the Company, whether pursuant to an equity incentive plan approved by the Company's shareholders or otherwise, and (ii) the appointment of each VC Director to any other committee of the Board of Directors which may from and after the date hereof be established. 2.8. INDEMNIFICATION AND INSURANCE. The Company shall indemnify each member of the Board of Directors to the fullest extent provided by law and shall advance expenses in connection with defending such claims to the extent provided in the By-laws of the Company as such By-laws exist on the date hereof. Upon the consummation of an initial public offering of the Common Stock of the Company, the Company shall obtain directors liability insurance with per-claim coverage of at least $1,000,000. 3. RIGHT OF FIRST REFUSAL ON COMMON STOCK AND SERIES A STOCK. 3.1. RESTRICTED TRANSFER. Except as otherwise provided for in Sections 3.2 and 3.4 below, and except in connection with transfers to the Company, each holder of Common Stock and each holder of Series A Stock listed on Schedule II hereto (each, a "Selling Stockholder") agrees that he, she or it shall not sell, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively, "transfer"), any of the Common Stock or Series A Stock held by him, her or it except for transfers pursuant to this Agreement. 3.2. PERMITTED TRANSFERS. A Selling Stockholder may transfer Common Stock or Series A Stock (a "Permitted Transfer") to or for the benefit of any Permitted Transferee (as defined below), provided that such Common Stock and Series A Stock shall remain subject to this Agreement and such Permitted Transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement. For the purposes of this Agreement, a "Permitted Transferee" shall mean (i) an ancestor, descendant, sibling or spouse of an individual Selling Stockholder or to any trust for the benefit of, or partnership solely owned by, any such persons or to a trust for the benefit of, or partnership solely owned by, the Selling Stockholder, provided such transfer does not effect any change in the voting control of the Common Stock or Series A Stock, as the case may be, and (ii) an entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, a corporation or partnership Selling Stockholder. 3.3. SALE NOTICE. At least twenty (20) days prior to making any transfer of Common Stock or Series A Stock other than a Permitted Transfer, a Selling Stockholder (and/or a Permitted Transferee of a Selling Stockholder), shall deliver a written notice (the "Sale Notice") to each holder of Series B Stock (each, a "Series B Stockholder"), each holder of Series C Stock (each, a "Series C Stockholder", and together with the Series B Stockholders, the "Series B and C Stockholders") and to the Company disclosing in reasonable detail the identity of the proposed transferees and the terms and conditions of the proposed transfer. 4

3.4. RIGHT OF FIRST REFUSAL. The Company may elect to purchase some or all of the Common Stock and/or Series A Stock to be transferred (the "Offered Stock") upon the terms and conditions set forth in the Sale Notice by delivering a written notice of such election to the transferring Selling Stockholder (the "Offeror") and the Series B and C Stockholders within ten (10) business days after the date of delivery of the Sale Notice by the Offeror as determined pursuant to Section 6.1 below (the "Delivery Date"). If the Company fails to elect to purchase all of the Offered Stock, it shall promptly notify the Series B and C Stockholders and the Series B and C Stockholders may elect to purchase some or all of the Offered Stock which the Company did not elect to purchase ("Remaining Offered Stock") upon the terms and conditions set forth in the Sale Notice by delivering a written notice of such election to the Company, the Offeror and the other Series B and C Stockholders within twenty (20) business days after the Delivery Date. If more than one Series B and C Stockholder elects to purchase the Remaining Offered Stock, the Remaining Offered Stock shall be apportioned among such electing Series B and C Stockholders pro rata to their respective holdings of the Common Stock issued or issuable upon conversion of such Series B and C Stockholders' shares of Series B Stock or Series C Stock, as the case may be. The closing of the purchase and sale of the Offered Stock and Remaining Offered Stock shall take place on a date agreed upon by the Offeror and the Company and/or the Series B and C Stockholders purchasing the remaining shares of Common Stock or Series A Stock, as the case may be, but in any event within thirty (30) business days after the Delivery Date, at the principal office of the Company, or such other place as may be agreed to by the Offeror, the Company and such Series B and C Stockholders. Such purchase and sale shall take place upon the terms and conditions set forth in the Sale Notice that in the event that the transaction described in a Sale Notice involves in whole or in part the payment of non-cash consideration, or the payment of consideration over time, the Company and any purchasing Series B and C Stockholder shall have the right to elect, upon exercise of their rights set forth in this Section 3, to pay to the Selling Stockholders in full consideration for the Offered Stock the market price of such securities which shall be the present cash value of the consideration described in the Sale Notice as determined by the Board of Directors of the Company in good faith. If the Company and the Series B and C Stockholders fail to elect to purchase all of the Offered Stock, the Offeror may, subject to Section 4, transfer the Offered Stock not purchased by the Company and the Series B and C Stockholders at a price and on terms no more favorable to the transferee than those specified in the Sale Notice during the 120-day period immediately following the date on which the Series B and C Stockholder's right of first refusal expired. Any Offered Stock not sold or transferred during such 120-day period will again be subject to the provisions of this Section 3. 3.5. EFFECT OF PROHIBITED TRANSFER. The Company shall not be required (a) to transfer on its books any of the Common Stock or Series A Stock which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement, or (b) to treat as owner of such Common Stock or Series A Stock or to pay dividends to any transferee to whom any such Common Stock or Series A Stock shall have been so sold or transferred. 3.6. ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS, ETC. If from time to time during the term of this Agreement there is any stock split-up, stock dividend, stock distribution or other reclassification of the Common Stock or Series A Stock of the Company, any and all new, substituted or additional securities to which a Selling Stockholder is entitled by reason of his, her or its ownership of Common Stock or Series A Stock shall be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Shares. 5

3.7. ACQUISITION OF COMMON STOCK AND SERIES A STOCK BY SERIES B AND C STOCKHOLDERS. Notwithstanding anything in this Agreement to the contrary, shares of Common Stock and Series A Stock acquired pursuant to this Agreement by a Series B and C Stockholder not listed on Schedule II shall no longer be subject to the transfer restrictions of Sections 3 and 4 hereto. 4. RIGHT OF CO-SALE ON COMMON STOCK. 4.1. CO-SALE RIGHT. If the Company and/or Series B and C Stockholders do not elect to purchase all of the Offered Stock from the Selling Stockholder pursuant to Section 3 above, any Series B and C Stockholder not electing to purchase any of the Offered Stock pursuant to Section 3 above may elect to participate in the contemplated sale by delivering written notice to the Selling Stockholder and the Company within twenty (20) business days after receipt of the Sale Notice. If such Series B and C Stockholder (each a "Participating Seller") elects to so participate, such Participating Seller shall be entitled to sell, at the same price and on the same terms, such number of shares of Common Stock as is determined by multiplying the number of shares of Offered Stock (or the number of shares of Common Stock into which the Offered Stock is convertible, as the case may be) by a fraction, the numerator of which is the number of Shares owned by such Participating Seller (assuming the conversion of such Participating Seller's Preferred Stock into shares of Common Stock) at the time of the transfer and the denominator of which is the number of Shares owned by all Series B and C Stockholders and the Selling Stockholders at the time of the transfer (assuming the conversion of all Preferred Stock into Common Stock). 4.2. OVERALLOTMENT. If any Series B and C Stockholder does not elect to fully participate in the Selling Stockholder's sale pursuant to this Section 4, the Selling Stockholder shall promptly give notice of such failure to the Participating Sellers who did so elect. Such notice may be made by telephone if confirmed in writing within two (2) days. Such Participating Sellers shall have five (5) days from the date such notice was given to agree to sell their pro rata share of the unsold portion. For purposes of this Section 4.2, a Participating Seller's pro rata share shall be the ratio of (x) the number of Shares (assuming the conversion of all shares of Preferred Stock into Common Stock) held by such Participating Seller to (y) the total number of Shares (assuming the conversion of all shares of Preferred Stock into Common Stock) held by all Participating Sellers. 4.3. DELIVERY OF CERTIFICATES. The Participating Sellers shall effect their participation in the sale by promptly delivering to the Selling Stockholder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent: (a) the type and number of shares of Common Stock which the Participating Seller elects to sell; or (b) that number of shares of Series B Stock and Series C Stock which is at such time convertible into the number of shares of Common Stock (or the number of shares of Common Stock into which the Offered Stock is convertible, as the case may be) which the Participating Seller elects to sell; PROVIDED, HOWEVER, that if the prospective purchaser objects to the delivery of Series B Stock or Series C Stock in lieu of Common Stock or Series A Stock, the Participating Seller shall convert such Series B Stock or Series C Stock into Common Stock and deliver Common Stock as provided in this paragraph 4.3. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser. 6

4.4. CONSUMMATION OF SALE. The stock certificate or certificates that the Participating Sellers deliver to the Selling Stockholder pursuant to paragraph 4.3 shall be transferred to the prospective purchaser along with the stock certificate or certificates representing the Selling Stockholders' Shares to be sold by the Selling Stockholder, such number of Selling Stockholders' Shares to be correspondingly reduced by the Participating Sellers' shares, in consummation of the sale of the Selling Stockholders' Shares pursuant to the terms and conditions specified in the Sale Notice, and the purchaser of such shares shall concurrently therewith remit to each Participating Seller and to the Selling Stockholder that portion of the sale proceeds to which such Participating Seller or the Selling Stockholder, as the case may be, is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibit such assignment or otherwise refuse to purchase shares or other securities from a Participating Seller who is exercising its rights of co- sale hereunder, the Selling Stockholder shall not sell to such prospective purchaser or purchasers any Selling Stockholders' Shares unless and until, simultaneously with such sale, the Selling Stockholder shall purchase such shares or other securities from such Participating Seller for the same consideration and on the same terms and conditions as the proposed transfer described in the Sale Notice. 5. MISCELLANEOUS. 5.1. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party's address set forth below or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by telex, telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv) sent by registered mail, return receipt requested, postage prepaid. If to the Stockholders: at their respective addresses listed on Schedule 1 With a copy to: International Capital Partners, Inc. 300 First Stamford Place Stamford, CT 06902 Attn: Douglas L. Ayer, Managing Partner If to the Company: Mission Critical Software, Inc. 720 North Post Oak Road Houston, TX 77024 Attn: Louis Woodhill, President With a copy to: Baker & Hostetler 1000 Louisiana, Suite 200 Houston, TX 77002-5009 Attn: Richard C. Yount, Jr., Esq. All notices, requests, consents and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if made by telex, telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by electronic confirmation or otherwise, (iii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iv) if sent by registered mail, on the fifth business day following the day such mailing is made. 7

5.2. RESTRICTIVE LEGEND. All certificates representing Common Stock or Preferred Stock shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: "The shares of stock represented by this certificate are subject to transfer restrictions and voting agreements set forth in a certain Amended and Restated Stockholders' Agreement dated as of July 2, 1997 among the corporation, the registered owner of this certificate (or his predecessor in interest) and others, and such Agreement is available for inspection without charge at the offices of the corporation." If requested by a holder of Common Stock or Preferred Stock, the Company will remove any legend set forth on the certificate representing such shares of Common Stock or Preferred Stock, unless counsel to the Company advises the Company that such legend is necessary or advisable in light of contractual obligations or is necessary in light of provisions of applicable law. 5.3. TRANSFERS AMONG ZESIGER STOCKHOLDERS. Stockholders owning shares of Common Stock or Preferred Stock and who are party to an investment advisory agreement with Zesiger Capital Group LLC ("Zesiger Stockholders") may transfer, without provision of an opinion of counsel and regardless of any legends stated on the stock certificates representing such shares, such Common Stock or Preferred Stock to or for the benefit of any other Zesiger Stockholder (each, a "Zesiger Transferee"); provided that such Common Stock and Preferred Stock shall remain subject to this Agreement and such Zesiger Transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement. 5.4. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement. 8

5.5. TERMINATION. This Agreement shall terminate and shall be of no further force or effect upon the conversion of all of the outstanding shares of Preferred Stock into Common Stock under the Company's Amended and Restated Certificate of Incorporation. 5.6. MODIFICATIONS AND AMENDMENTS. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by (a) the Company, (b) the holders of record of more than 66 2/3% of the Common Stock and Series A Stock, voting together, exclusive of Common Stock issued on conversion of Series B Stock and Series C Stock, and (c) the holders of record of more than 66 2/3% of the Common Stock issued or issuable on conversion of the Series B Stock and Series C Stock voting together as a class. Notwithstanding the foregoing, no amendment shall affect the right of a Stockholder or group of Stockholders to designate a representative to the Board of Directors as provided in Section 2 without the written consent of such Stockholder, or in the case of a group of Stockholders holders of 66 2/3% of the Shares held by such group. 5.7. WAIVERS AND CONSENTS. The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party (or in the case of the Stockholders, the percentage of such group set forth in Section 5.5) entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. 5.8. ASSIGNMENT; BENEFIT. The rights and obligations under this Agreement may be assigned by any party hereto in connection with an assignment of Shares, to the extent permitted hereby, and provided that such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement. All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties hereto and shall inure to the benefit of the respective successors and permitted transferees and assigns of each party hereto; provided however, that no such succession in interest or permitted transfer or assignment shall be effective unless and until such successor or permitted transferee or assign shall agree in writing to be bound by the terms hereof. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third-party beneficiary of this Agreement. 5.9. GOVERNING LAW. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of Delaware, without giving effect to the conflict of law principles thereof. 5.10. SEVERABILITY. In the event that any court of competent jurisdiction shall determine that any provision, or any portion thereof, contained in this Agreement shall be unenforceable in any respect, then such provision shall be deemed limited to the extent that such court deems it enforceable, and as so limited shall remain in full force and effect. In the event that such court shall deem any such provision, or portion thereof, wholly unenforceable, the remaining provisions of this Agreement shall nevertheless remain in full force and effect. 9

5.11. HEADINGS AND CAPTIONS. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify or affect the meaning or construction of any of the terms or provisions hereof. 5.12. ENFORCEMENT. Each of the parties hereto acknowledges and agrees that the rights acquired by each party hereunder are unique and that irreparable damage would occur in the event that any of the provisions of this Agreement to be performed by the other parties were not performed in accordance with their specific terms or were otherwise breached. Accordingly, in addition to any other remedy to which the parties hereto are entitled at law or in equity, each party hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by any other party and to enforce specifically the terms and provisions hereof in any federal or state court to which the parties have agreed hereunder to submit to jurisdiction. 5.13. NO WAIVER OF RIGHTS, POWERS AND REMEDIES. No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing among the parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies. No notice to or demand on a party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other or further action in any circumstances without such notice or demand. 5.14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made by the parties hereto in this Agreement or in any other agreement, certificate or instrument provided for or contemplated hereby, shall survive (i) the execution and delivery hereof, and (ii) any investigations made by or on behalf of the parties. No claim shall be made by a party for any alleged misrepresentation or breach of warranty by any other party unless notice for such claim shall have been given to such other party in accordance with the notice provision hereof. 5.15. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [Remainder of Page Intentionally Left Blank] 10

IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed by their duly authorized representatives, as of the date first written above. MISSION CRITICAL SOFTWARE, INC. By: /s/ Louis Woodhill ----------------------------- Title: President STOCKHOLDERS MISSION CRITICAL SOFTWARE I, INC. By: /s/ James R. Woodhill ----------------------------- Title: Chairman NEW ENTERPRISE ASSOCIATES VI, LIMITED PARTNERSHIP By: NEA Partners VI, Limited Partnership its general partner By: ----------------------------- General Partner NEW ENTERPRISE ASSOCIATES VII, LIMITED PARTNERSHIP By: NEA Partners VII, Limited Partnership its general partner By: /s/ Thomas C. McConnell ----------------------------- General Partner NEA PRESIDENTS' FUND, L.P. By: NEA General Partners, L.P. its general partner By: /s/ Thomas C. McConnell ----------------------------- General Partner 11

NEA VENTURES 1996, L.P. By: /s/ Lynn S. Walker ----------------------------- Title: Vice President INTERNATIONAL CAPITAL PARTNERS, INC. By: /s/ Douglas Ayer ----------------------------- Title: President and Managing Partner ZESIGER CAPITAL GROUP LLC, as agent and attorney-in-fact for certain of the investors as indicated on Schedule I By: /s/ Andrew D. Zacks ----------------------------- Name: Andrew D. Zacks ----------------------------- Title: Principal AUSTIN VENTURES V, L.P. By: AV Partners V, L.P. its general partner By: /s/ John D. Thornton ----------------------------- Name: John D. Thornton ----------------------------- Title: General Partner COMMERCE FUNDING CORPORATION By: /s/ Randall C. Elkins ----------------------------- Randall C. Elkins President 12

/s/ Thomas P. Bernhardt --------------------------------- Thomas P. Bernhardt /s/ Louis R. Woodhill --------------------------------- Louis R. Woodhill /s/ James R. Woodhill --------------------------------- James R. Woodhill /s/ Richard E. Denham --------------------------------- Richard E. Denham /s/ Paul F. Koffend, Jr. --------------------------------- Paul F. (Mick) Koffend, Jr. /s/ Marcus Erickson --------------------------------- Marcus Erickson /s/ E. Alexander Goldstein --------------------------------- E. Alexander Goldstein /s/ Brian J. McGrath --------------------------------- Brian J. McGrath /s/ Peter D. Schaeffer by R.C. Yount --------------------------------- Peter D. Schaeffer /s/ Goran Rynger by R.C. Yount --------------------------------- Peter D. Schaeffer /s/ Gregg Swensen --------------------------------- Gregg Swensen /s/ Lisa Swensen --------------------------------- Lisa Swensen 13

/s/ Robert W. Cox --------------------------------- Robert W. Cox /s/ Courtney L.G. Parker --------------------------------- Courtney L.G. Parker /s/ Marc Geller --------------------------------- Marc Geller /s/ Randall C. Elkins --------------------------------- Randall C. Elkins 14

JMI EQUITY FUND III, L.P. By: JMI Associates III, L.L.C. its general partner By: /s/ Charles E. Noels --------------------------------- Managing Member 15

SCHEDULE 1 Stockholders of Mission Critical Software, Inc. <TABLE> <CAPTION> NAME ADDRESS ---- ------- <S> <C> Mission Critical Software I, Inc. 720 North Post Oak Road, Suite 505 Houston, Texas 77024 New Enterprise Associates VI, Limited c/o New Enterprise Associates Partnership 2490 Sand Hill Road Menlo Park, CA 94025 New Enterprise Associates VII, Limited c/o New Enterprise Associates Partnership 2490 Sand Hill Road Menlo Park, CA 94025 NEA President's Fund, L.P. c/o New Enterprise Associates 2490 Sand Hill Road Menlo Park, CA 94025 NEA Ventures 1996, L.P. c/o New Enterprise Associates 2490 Sand Hill Road Menlo Park, CA 94025 Commerce Funding Corporation Randall C. Elkins, President 1000 Louisiana, Suite 2000 Houston, TX 77002 Austin Ventures V, L.P. 114 W. 7th Street, Suite 300 Austin, TX 78701 Attn: John D. Thornton International Capital Partners, Inc. 300 First Stamford Place Stamford, CT 06902 Attn: Douglas L. Ayer, Managing Partner JMI Equity Fund 111 St. Paul Street Baltimore, MD 21202 Attn: Brad Woloson Thomas P. Bernhardt 14 Ash Branch Ct. The Woodlands, TX 77381 Louis R. Woodhill 2114 Pecan Trail Drive Richmond, TX 77469 James R. Woodhill 1960 Hadden Avenue Houston, TX 77019 Richard E. Denham 99 North Post Oak Lane #8103 Houston, TX 77024 Paul F. (Mick) Koffend, Jr. 1238 Glourie Drive Houston, TX 77055 </TABLE> 1

<TABLE> <CAPTION> NAME ADDRESS ---- ------- <S> <C> Robert W. Cox 3918 Oak Gardens Drive Kingwood, TX 77339 Randall C. Elkins 22219 Treesdale Lane Katy, TX 77450 Marcus Erickson 7527 Timber Ridge Trail Sugarland, TX 77479 Marc Geller 3501 Nottingham Houston, TX 77005 E. Alexander Goldstein 1755 Churchview Lane Columbus, OH 43220 Brian J. McGrath 2 Oak Street, Box 2797 Kennebunkport, ME 04046 Peter D. Schaeffer 2918 E. Autumn Run Circle Sugarland, TX 77479 Courtney LG Parker 402 East Gaywood Drive Houston, TX 77079 Goran Rynger Torpvagen IA S-18352 Taby Sweden Gregg and Lisa Swensen 207 Bird Song Terrace Franklin Lakes, NJ 07417 </TABLE> 2

<TABLE> <CAPTION> <S> <C> *A. Carey Zesiger See footnote below *Albert L. Zesiger See footnote below *Alexa L. Zesiger See footnote below *Alza Corporation Retirement Plan See footnote below *Barrie Ramsay Zesiger See footnote below *Brearley School General Investment Fund See footnote below *Chapin School Ltd. - Endowment Fund See footnote below *State of Oregon PERS/ZCG See footnote below *David Zesiger See footnote below *Dean Witter Foundation See footnote below *Elizabeth Heller Mandell Trust See footnote below *Harold & Grace Willens JTWROS See footnote below *Leonard Kingsley See footnote below *Lisa W. Hess See footnote below *Mary Ann S. Hamilton Trust for Self See footnote below *Mary Van Schulyer Raiser See footnote below *Morgan Trust Co. of the Bahamas Ltd. See footnote below *Nicola L. Zesiger See footnote below *Planned Parenthood of NY See footnote below *Psychology Associates See footnote below *Tab Products Co. Pension Plan See footnote below *The Ferris Hamilton Family Trust See footnote below *The Jenifer Altman Foundation See footnote below *The Meehan Investment Partnership I, L.P. See footnote below *Van Loben Sels Foundation See footnote below *Warren Investment Group Ltd. See footnote below *Public Employees Retirement System of Idaho See footnote below </TABLE> ------------------ * An asterisk next to a stockholders name indicates that the stockholder has designated Zesiger Capital Group LLC as his, her or its agent and attorney-in- fact. A copy of the Limited Power of Attorney signed by the Stockholder has been provided to Mission Critical Software, Inc. The address of all such stockholders is c/o Zesiger Capital Group LLC, 320 Park Avenue, New York, NY 10022. 3

*Wells Family LLC See footnote below *The Trustees of Amherst College See footnote below * An asterisk next to a stockholders name indicates that the stockholder has designated Zesiger Capital Group LLC as his, her or its agent and attorney-in- fact. A copy of the Limited Power of Attorney signed by the Stockholder has been provided to Mission Critical Software, Inc. The address of all such stockholders is c/o Zesiger Capital Group LLC, 320 Park Avenue, New York, NY 10022. 4

SCHEDULE II Selling Stockholders under Section 3 Mission Critical Software I, Inc. Thomas P. Bernhardt Louis R. Woodhill James R. Woodhill Richard E. Denham Paul F. (Mick) Koffend, Jr. Marcus Erickson E. Alexander Goldstein 1

EXHIBIT 5.1 WILSON SONSINI GOODRICH & ROSATI Professional Corporation 8911 CAPITAL OF TEXAS HIGHWAY, SUITE 3350 AUSTIN, TEXAS 78759 TELEPHONE 512-338-5400 FACSIMILE 512-338-5499 WWW.WSGR.COM _____ __, 1999 Mission Critical Software, Inc. 720 North Post Oak Road Houston, Texas 77024 RE: REGISTRATION STATEMENT ON FORM S-1 Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 (File No. 333______) to be filed by you with the Securities and Exchange Commission on May __, 1999 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of __________ shares (including shares issuable upon exercise of the underwriters' over-allotment option) of Common Stock of Mission Critical Software, Inc.(the "Shares"). As your counsel in connection with this transaction, we have examined the proceedings proposed to be taken in connection with such sale and issuance of the Shares. It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, and upon completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with the securities laws of various states, where required, the Shares when issued and sold in the manner referred to in the Registration Statement will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the prospectus constituting a part thereof, and any amendment thereto. Very truly yours, WILSON, SONSINI, GOODRICH & ROSATI Professional Corporation

EXHIBIT 10.1 MISSION CRITICAL SOFTWARE, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is effective as of _________, ____ by and between Mission Critical Software, Inc., a Delaware corporation (the "Company"), and ______________ ("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; and WHEREAS, in connection with the Company's reincorporation, the Company and Indemnitee desire to continue to have in place the additional protection provided by an indemnification agreement, with such changes as are required to conform the existing agreement to Delaware law and to provide indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by Delaware law; WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and advanced expenses by the Company as set forth herein; NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 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, (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 (iv) 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 Mission Critical Software, Inc., any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Mission Critical Software, Inc. (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. 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 -2-

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) 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. 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 -3-

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 to Indemnitee to which Indemnitee is not entitled hereunder under applicable law; 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 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 -4-

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 employment of separate counsel by one or more Indemnitees has been previously authorized by the Company in writing, or (ii) an Indemnitee shall have provided to the Company a written statement that such Indemnitee has reasonably concluded that there may be a conflict of interest between such Indemnitee and the other Indemnitees with respect to the matters arising under this Agreement. 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 therefore by the Company hereunder under applicable law, the Company shall make Expense Advances to Indemnitee. b. FORM OF UNDERTAKING. Any obligation to repay any Expense Advances hereunder pursuant to a written undertaking by the Indemnitee 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 thirty (30) 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 ten (10) business days after such written demand by Indemnitee is presented to the Company. -5-

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 under 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 under applicable law, 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 retained 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 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 -6-

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 ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying 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. -7-

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 or make Expense Advances to Indemnitee with respect to Claims arising out of acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under 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, Expense Advances, 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 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. 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 -8-

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 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. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 15. 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. -9-

16. 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. 17. 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. 18. 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 as applied to contracts between Delaware residents entered into and to be performed entirely in the State of Delaware without regard to principles of conflicts of laws. 19. 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. 20. 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. 21. 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. 22. 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. [Remainder of Page Intentionally Left Blank] -10-

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. MISSION CRITICAL SOFTWARE, INC. By: ---------------------------- Name: -------------------------- Title: ------------------------- Address: 720 North Post Oak Road Houston, TX 77024 AGREED TO AND ACCEPTED INDEMNITEE: ---------------------------------- (signature) ---------------------------------- Name ---------------------------------- Address ---------------------------------- -11-

EXHIBIT 10.2 MISSION CRITICAL SOFTWARE, INC. 1997 STOCK PLAN (AS AMENDED MAY 21, 1999) 1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees appointed in accordance with Section 4 hereof. (b) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a committee of Directors appointed by the Board in accordance with Section 4 hereof. (f) "COMMON STOCK" means the Common Stock of the Company. (g) "COMPANY" means Mission Critical Software, Inc., a Delaware corporation. (h) "CONSULTANT" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity and who is compensated for such services. (i) "DIRECTOR" means a member of the Board of Directors of the Company. (j) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon

expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (l) "FAIR MARKET VALUE" means, 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 for the last market trading day prior to the time 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 between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (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. (m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (o) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "OPTION" means a stock option granted pursuant to the Plan. (q) "OPTION AGREEMENT" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (r) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding Options are exchanged for Options with a lower exercise price. -2-

(s) "OPTIONED STOCK" means the Common Stock subject to an Option. (t) "OPTIONEE" means the holder of an outstanding Option granted under the Plan. (u) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (v) "PLAN" means this 1997 Stock Plan. (w) "SERVICE PROVIDER" means an Employee, Director or Consultant. (x) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 12 below. (y) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 8,795,000 Shares, together with an annual increase in the number of shares of Common Stock reserved for issuance hereunder on the first day of the Company's fiscal year, beginning with July 1, 2000, equal to the lesser of (i) 750,000 shares, (ii) 5% of the outstanding shares of the Company as of the last day of the prior fiscal year or (iii) such amount as determined by the Board of Directors. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of an Option, shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. (i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered by different Committees with respect to different groups of Employees and Consultants. (ii) SECTION 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. -3-

(iii) RULE 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) OTHER ADMINISTRATION. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which Committee shall be constituted to satisfy Applicable Laws. (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, of any Option granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (viii) to initiate an Option Exchange Program; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; -4-

(x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (xii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 5. ELIGIBILITY. (a) Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. (b) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause. (d) Upon the Company, or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act, or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants to options to Service Providers: (i) No Employee shall be granted in any fiscal year, Options to purchase more than 500,000 Shares. -5-

(ii) In connection with his or her initial employment, and Employee may be granted Options to purchase up to an additional 1,000,000 Shares which shall not count against the amount set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted appropriately in connection with any change in the Company's capitalization as described in Section 11. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. OPTION EXERCISE PRICE AND CONSIDERATION. (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock -6-

of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) granted to any other Service Provider, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, (6) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, (7) any combination of the foregoing methods of payment, or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. EXERCISE OF OPTION. (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. 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), no right to vote or receive dividends or any other rights as a Stockholder shall exist with respect to the Shares, notwithstanding the exercise -7-

of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is -8-

not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the Stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, 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 increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The 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 Board, 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 Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option or right substituted by the successor corporation or a -9-

Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, Board of Directors of the Company, at its discretion, may choose to accelerate the vesting of some portion of or all of the outstanding options such that the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. In the alternative, if the successor corporation does not assume or substitute the Option and the Company's Board of Directors fails to act to accelerate the vesting of some portion of or all of the outstanding Options, the Option that have not been fully vested will terminate upon closing of the merger. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 12. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan. (b) STOCKHOLDER APPROVAL. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to -10-

exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 14. CONDITIONS UPON ISSUANCE OF SHARES. (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option, the Administrator 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. 15. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. RESERVATION OF SHARES. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 17. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. -11-

EXHIBIT 10.2.1 MISSION CRITICAL SOFTWARE, INC. 1997 STOCK OPTION PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT [Optionee's Name and Address] The undersigned Optionee has been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number ________________________ Date of Grant ________________________ Vesting Commencement Date ________________________ Exercise Price per Share $________________________ Total Number of Shares Granted ________________________ Total Exercise Price $________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: ________________________ Vesting Schedule: This Option shall be exercisable, in whole or in part, according to the following vesting schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to Optionee's continuing to be a Service Provider on such dates.

TERMINATION PERIOD: This Option shall be exercisable for three (3) months after Optionee ceases to be a Service Provider. Upon Optionee's death or disability, this Option may be exercised for such longer period as provided in the Plan. In no event may Optionee exercise this Option after the Term/Expiration Date as provided above. II. AGREEMENT 1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 13(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO"). 2. EXERCISE OF OPTION. a. RIGHT TO EXERCISE. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. b. METHOD OF EXERCISE. This Option shall be exercisable by delivery of an exercise notice in the form attached as Exhibit A (the "Exercise Notice") which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise complies with Applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.

3. OPTIONEE'S REPRESENTATIONS. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B, and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement. 4. LOCK-UP PERIOD. Optionee hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: a. cash or check; b. consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or c. surrender of other Shares which, (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. 6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Law. 7. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option -3-

Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 8. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. a. EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. b. EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular federal income tax liability upon the exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. c. DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within one year after exercise or two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the -4-

extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. d. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. 10. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws but not the choice of law rules of Texas.. 11. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. -5-

MISSION CRITICAL SOFTWARE, INC. _______________________________________ By _______________________________________ Title -6-

OPTIONEE'S ACCEPTANCE AND ACKNOWLEDGMENT Dated:________________________ ________________________________ Residential Address ______________________________ ________________________________ Optionee's Signature City, State, Zip Code _____ I hereby acknowledge that I am not legally married as of the date of this Agreement. _____ I hereby acknowledge that I am legally married as of the date of this Agreement and, if applicable, by executing this Agreement, my spouse agrees to be bound by all the terms and conditions of this Agreement. _____________________________ Spouse's Signature SPOUSAL SIGNATURE IS REQUIRED FOR RESIDENTS OF COMMUNITY PROPERTY STATES: ARIZONA, CALIFORNIA, IDAHO, LOUISIANA, NEVADA, NEW MEXICO, TEXAS, WASHINGTON AND WISCONSIN. THIS OPTION WILL BECOME EFFECTIVE UPON RECEIPT BY THE COMPANY OF ONE FULLY EXECUTED COPY OF THIS AGREEMENT -7-

EXHIBIT A 1997 STOCK OPTION PLAN EXERCISE NOTICE Mission Critical Software, Inc. 720 North Post Oak Road Suite 505 Houston, Texas 77024 Attention: Chief Executive Officer 1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Mission Critical Software, Inc. (the "Company") under and pursuant to the 1997 Stock Option Plan (the "Plan") and the Stock Option Agreement dated ________, 19 (the "Option Agreement"). 2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement. 3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. RIGHTS AS STOCKHOLDER. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 11 of the Plan. 5. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). a. NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name -8-

of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). b. EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. c. PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. d. PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. e. HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice, that any such sale or other transfer is effected in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. f. EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the -9-

Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. g. TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate as to any Shares upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. 6. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. a. LEGENDS. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE -10-

SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. b. STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. c. REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 9. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 10. GOVERNING LAW; SEVERABILITY. This Agreement is governed by the internal substantive laws but not the choice of law rules, of Texas. 11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. Submitted by: Accepted by: OPTIONEE: MISSION CRITICAL SOFTWARE, INC. ________________________________ _________________________________ Signature By ________________________________ _________________________________ Print Name Its -11-

Address: Address: ________________________________ _________________________________ ________________________________ _________________________________ _________________________________ Date Received -12-

EXHIBIT B INVESTMENT REPRESENTATION STATEMENT OPTIONEE: COMPANY: MISSION CRITICAL SOFTWARE, INC. SECURITY: COMMON STOCK AMOUNT: DATE: In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: a. Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). b. Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer

without the consent of the Securities Commissioner of the State of Texas and any other legend required under applicable state securities laws. c. Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than two years after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than three years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. d. Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. -2-

e. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Securities Commissioner of the State of Texas. -------------------------------------- Signature of Optionee: Date:__________________________, 19___ -3-

EXHIBIT 10.3 MISSION CRITICAL SOFTWARE, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1999 Employee Stock Purchase Plan of Mission Critical Software, Inc. (the "Company"). 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 Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the common stock of the Company. (d) "COMPANY" shall mean Mission Critical Software, Inc. and any Designated Subsidiary of the Company. (e) "COMPENSATION" shall mean all compensation of the participant reported by the Company on Form W-2. (f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "EMPLOYEE" shall mean any individual who is an Employee of the Company for tax purposes whose customary employment with the Company 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. (h) "ENROLLMENT DATE" shall mean the first Trading Day of each Offering Period. (i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase Period. (j) "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 for the last market trading day prior to the date of determination, as reported in The Wall Street Journal or such other source as the Board 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 prior to the date of determination, as reported in The Wall Street Journal or such other source as the Board 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 Board; 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"). (k) "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 February 1 and August 1 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 last Trading Day on or before July 31, 2001. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "PLAN" shall mean this 1999 Employee Stock Purchase Plan. (m) "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; provided, however, that the first Purchase 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 last Trading Day on or before January 31, 2000. (n) "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 Board pursuant to Section 20. -2-

(o) "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. (p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (q) "TRADING DAY" shall mean a day on which national stock exchanges and the Nasdaq System are open for trading. 3. ELIGIBILITY. (a) Any 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 February 1 and August 1 each year, or on such other date as the Board 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 last Trading Day on or before July 31, 2001. The Board 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 at least five (5) days 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. -3-

(b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll 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 percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period. (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. A participant may not, except as set forth below, change his or her rate of payroll deductions during a Purchase Period. A participant may increase or decrease the rate of his or her payroll deductions during a later Purchase Period by completing and filing with the Company a new subscription agreement authorizing a change in payroll deduction rate prior to the commencement date of such Purchase 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. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. Notwithstanding the foregoing, a participant may decrease his or her participation in the Plan to zero percent (0%) during a Purchase Period by completing and filing with the Company a new subscription agreement authorizing such elimination of payroll deductions. The participant may recommence payroll deductions during a later Purchase Period by completing and filing with the Company a new subscription agreement authorizing the rate of payroll deductions prior to the commencement date of such Purchase Period. (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 shall 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, -4-

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 prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13 hereof. The Board 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 monies 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 Board 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 Board 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 -5-

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 promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 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. Upon a participant's ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the 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 six hundred thousand (600,000) shares together with an annual increase in the number of shares reserved for issuanced thereunder on the -6-

first day of the Company's fiscal year, beginning with July 1, 2000, equal to the lesser of (i) 500,000 shares, (ii) four percent (4%) of the outstanding shares of the Company on the last day of the prior fiscal year or (iii) such amount as determined by the Board of Directors. If, on a given Exercise Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised. (c) 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. 14. ADMINISTRATION. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee 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 Board or its committee 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. 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, -7-

transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw fund 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 Reserves, 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 increase or decrease 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 Board, 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 Board. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. 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. (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 -8-

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 Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, 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 Board 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 Board (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 Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. (c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board 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) altering 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 -9-

(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 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 for a term of ten (10) years unless sooner 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. -10-

EXHIBIT 10.3.1 MISSION CRITICAL SOFTWARE, INC. 1999 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 Mission Critical Software, Inc. 1999 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 not 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

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 _______________________________________ (Address) -2-

<TABLE> <CAPTION> <S> <C> 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) </TABLE> -3-

MISSION CRITICAL SOFTWARE, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the Mission Critical Software, Inc. 1999 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 10.4 MISSION CRITICAL SOFTWARE, INC. 1999 DIRECTOR OPTION PLAN 1. PURPOSES OF THE PLAN. The purposes of this 1999 Director Option Plan are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" means the common stock of the Company. (d) "COMPANY" means Mission Critical Software, Inc. (e) "DIRECTOR" means a member of the Board. (f) "DISABILITY" means total and permanent disability as defined in section 22(e)(3) of the Code. (g) "EMPLOYEE" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, 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 for the last market trading day prior to the time 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, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock for the last market

trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or (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 Board. (j) "INSIDE DIRECTOR" means a Director who is an Employee. (k) "OPTION" means a stock option granted pursuant to the Plan. (l) "OPTIONED STOCK" means the Common Stock subject to an Option. (m) "OPTIONEE" means a Director who holds an Option. (n) "OUTSIDE DIRECTOR" means a Director who is not an Employee of the Company. (o) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (p) "PLAN" means this 1999 Director Option Plan. (q) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. (r) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 250,000 Shares (the "Pool") (the Shares may be authorized, but unissued, or reacquired Common Stock), together with an annual increase to the number of shares reserved thereunder on the first day of the Company's fiscal year, beginning with July 1, 2000, equal to the lesser of (i) 250,000 Shares, (ii) 2% of the outstanding shares of Common Stock on the last day of each prior fiscal year or (ii) such amount as determined by the Board of Directors. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN. (a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: -2-

(i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options. (ii) Each Outside Director who becomes an Outside Director after the effective date of the Company's initial public offering shall be automatically granted an Option to purchase 37,500 Shares (post-split) (such Option shall each be known as a "First Option") on the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. (iii) Each Outside Director shall be automatically granted an Option to purchase 12,500 Shares (a "Subsequent Option") at the next meeting of the Board of Directors following the Annual Meeting of Stockholders in each year commencing with the 1999 Annual Meeting of Stockholders provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. (iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any exercise of an Option granted before the Company has obtained stockholder approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 16 hereof. (v) The terms of a First Option granted hereunder shall be as follows: (A) the term of the First Option shall be ten (10) years. (B) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option. (D) subject to Section 10 hereof, the First Option shall become exercisable cumulatively with respect to 1/3 of the Shares subject to the First Option on the anniversary of the date of grant, and as to 1/36th of the First Option at the end of each month thereafter, so that the First Option shall be fully exercisable three years after its date of grant, provided that the Optionee continues to serve as a Director on such dates. (vi) The terms of a Subsequent Option granted hereunder shall be as follows: (A) the term of the Subsequent Option shall be ten (10) years. (B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. -3-

(C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option. (D) subject to Section 10 hereof, the Subsequent Option shall become exercisable cumulatively with respect to 1/2 of the Shares subject to the Subsequent Option on the anniversary of the date of grant, and as to 1/24th of the Subsequent Option at the end of each month thereafter, so that the Subsequent Option shall be fully exercisable two years after its date of grant, provided that the Optionee continues to serve as a Director on such dates. (vii) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. 5. ELIGIBILITY. Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. TERM OF PLAN. The Plan shall become effective upon the later to occur of the effective date of the Company's initial public offering of its Common Stock that is registered with the Securities and Exchange Commission or its approval by the stockholders of the Company as described in Section 16 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 of the Plan. 7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment. 8. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4 hereof; provided, however, -4-

that no Options shall be exercisable until stockholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to Section 10 hereof, in the event an Optionee's status as a Director terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within three (3) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (c) DISABILITY OF OPTIONEE. In the event Optionee's status as a Director terminates as a result of Disability, the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) DEATH OF OPTIONEE. In the event of an Optionee's death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, and to the extent that the Optionee's estate or a person who acquired the right to -5-

exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares 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." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation or the sale of substantially all of the assets of the Company, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 8(b) through (d); provided, however, that if the Successor Corporation does not assume such outstanding Option or substitute for it an equivalent option, and the Option would otherwise terminate pursuant to Sections 8(b) through 8(d) after the consummation of the merger or asset sale transaction, then the Board shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and upon the expiration of such period the Option shall terminate. For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a -6-

majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 11. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4 hereof. 13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, 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 relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. -7-

14. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 15. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve. 16. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and any stock exchange rules. -8-

EXHIBIT 10.5 LEASE THIS LEASE ("Lease") is entered into as of the 22 day of October 1996, by and between SOARING EAGLES ORCHARD, INC., a Washington Corporation ("Landlord") and MISSION CRITICAL SOFTWARE, INC. ("Tenant"), whose address prior to the Commencement Date (hereinafter defined) is 12600 Northborough, Suite 392, Houston, Texas 77067. WITNESSETH: ARTICLE 1 1.01. INTRODUCTORY PROVISIONS AND DEFINITIONS. The Lease provisions set forth in this Section 1.01 in summary form are solely to facilitate convenient reference by the parties. If there is any conflict between this Section and any other provisions of this Lease, the latter shall control. For purposes of this lease the following terms shall have the meanings set forth opposite the term. <TABLE> <S> <C> <C> (a) Project Name and Address: 720 North Post Oak Office Building 720 North Post Oak Road Houston, Texas 77024 (b) Building: Approximately 93,165 square feet of Net Rentable Area (c) Premises: Approximately 7,067 square feet of Rentable Area on the fifth (5th) floor as shown on Exhibit "B" (d) Primary Term: Sixty-four (64) months (e) Commencement Date: December 1, 1996 (f) Expiration Date: March 31, 2002 (g) Base Rent: $6,874.18 per month* (h) Base Operating Expense For the Building: 1997 base year per square foot of Rentable Area (i) Tenant's Initial Pro Rata Share: 7.6% (j) Security Deposit: $6,874.18 (k) Supplements: $10,000.00 due upon lease execution (l) Permitted Use: General office use consistent with software development and marketing (m) Guarantor: N/A (n) Broker: Transwestern Property Company (o) Addresses for Notices: TO: Tenant Mission Critical Software 720 N. Post Oak Road, Suite 500 Houston, Texas 77024 TO: Landlord Transwestern Property Company (Building Manager) 720 N. Post Oak Road, Suite 132 Houston, Texas 77024 c/o Property Manager </TABLE> * Base Rent for months 1-4 shall be abated. 1

ARTICLE 2 2.01. PREMISES. Landlord hereby does lease, let and demise unto Tenant, and Tenant hereby does lease and rent from Landlord, upon and subject to the provisions of this Lease, the Rentable Area of the Premises located in the Building located on the tract of land ("Land") situated in Harris County, Texas and more particularly described on EXHIBIT "A" attached hereto and incorporated herein for all purposes (the Building, the Land, the parking areas and garages, and any present or future associated underground or elevated pedestrian tunnels or walkways being hereinafter collectively referred to as the "Project"), TO HAVE AND TO HOLD said Premises for the Term, subject to the provisions of this Lease. Such space so leased to Tenant is herein called the "Premises" and is reflected on the floor plans ("Floor Plans") of the Building attached hereto as EXHIBIT "B". 2.02. IMPROVEMENTS BY LANDLORD. Before the Commencement Date and subject to delays caused by Tenant, Landlord shall substantially complete any leasehold improvements ("Leasehold Improvements") to be constructed or installed by Landlord pursuant to EXHIBIT "C" attached hereto and incorporated herein for all purposes. All installations hereafter placed on the Premises in excess of Building Standard items as determined by Landlord and as set forth in EXHIBIT "C" shall be for Tenant's account and at Tenant's cost (and Tenant shall pay ad valorem taxes and increased insurance thereon), which costs shall be payable by Tenant to Landlord as additional rent hereunder promptly upon being invoiced therefore, and failure by Tenant to pay same in full within thirty (30) days shall constitute an event of default by Tenant hereunder giving rise to all remedies available to Landlord under this Lease and at law for non-payment of rent. ARTICLE 3 3.01. TERM. Subject to the other provisions hereof, this Lease shall be and continue in full force and effect for a primary term commencing on the Commencement Date, and expiring on the Expiration Date. Such term, as it may be modified, is herein called the "Term". 3.02. COMMENCEMENT. Subject to Section 3.04 hereof, if on the Commencement Date any of the work described in EXHIBIT "C" hereto that is required to be performed by Landlord at Landlord's expense has not been substantially completed, or if Landlord is unable to tender possession of the Premises to Tenant on the Commencement Date due to any other reason beyond the reasonable control of Landlord, then the Commencement Date shall be postponed until such work is substantially completed, the Expiration Date shall be extended so that the Term shall continue for the full number of years set forth in Section 3.01 and Landlord shall not be liable for any claims or damages in connection with such failure to complete construction or tender possession. Notwithstanding the preceding provided Tenant has executed and delivered the Lease to Landlord for full execution by October 18, 1996 and Tenant has complied with the terms and conditions of Exhibit "C" attached hereto, if the Landlord does not substantially complete all of the leasehold improvements and Tenant has not occupied the Lease Premises, through no fault or delay of Tenant, by January 1, 1997, then Tenant shall have the option to terminate this Lease effective thirty (30) days following written notice and to receive the return of the first month's rent and security deposit within thirty (30) days of written notice. 3.03. LATE POSSESSION. No delay in the completion of the Premises resulting from delay or failure on the part of Tenant in furnishing information, work or other matters required in EXHIBIT "C" shall delay the Commencement Date, the Expiration Date or the commencement of installments of Rent. 3.04. EARLY POSSESSION. If prior to the Commencement Date, Tenant shall enter into possession of all or any part of the Premises, such possession shall be subject to all of the provisions of this Lease, and the Term and the payment of all Rent shall commence, with respect to all or such part of the premises as are so occupied by Tenant, on the date of such entry, and the total amount of all Rent due hereunder shall be increased accordingly, on a per diem basis, provided that no such early entry shall be permitted without Landlord's prior written consent or

operate to change the Expiration Date provided for herein. 3.05. CERTIFICATE OF COMMENCEMENT DATE AND EXPIRATION DATE. If the Commencement Date or Expiration Date is other than as set forth in Section 3.01 hereof, then upon request by either Landlord or Tenant, both parties shall execute and deliver a certificate setting forth the actual Commencement Date and Expiration Date. 3.06. ACCEPTANCE LETTER. Before the entry into possession of the Premises by Tenant, Tenant shall furnish to Landlord a letter accepting the condition of the Premises or specifying any area that is not acceptable. If Tenant enters and accepts possession, Tenant shall be deemed to have accepted the condition of the Premises without Landlord having any obligation to do further work other than these items specified by Tenant required in previous sentence in Tenant's letter. ARTICLE 4 4.01. BASE RENT. Tenant, in consideration for this Lease and the leasing of the Premises for the Term, agrees to pay to Landlord without deduction or set-off as rent, the Base Rent, in equal monthly installments for each calendar month during the Term. Base Rent is payable in advance and without demand, on the first day of each calendar month during the Term. If the Commencement Date is other than the first day of a month, Tenant shall be required to pay only a pro rate portion of the monthly installment of Base Rent for the first partial month of the Term for which Base Rent is payable hereunder on the Commencement Date. 4.02. PAYMENT OF RENT. As used in this Lease, "Rent" shall mean the Base Rent, the Operating Expense reimbursements pursuant to Section 5.01, the parking rent, and all other amounts provided for in this Lease to be paid by Tenant, all of which shall constitute rental in consideration for this Lease and the Leasing of the Premises. The Rent shall be paid at the times and in the amounts provided for herein in Legal tender of the United States of America to Landlord at the address specified above or to such other person or at such other address as Landlord may from time to time designate in writing. The Rent shall be paid without notice, demand, abatement, deduction, or offset except as may be expressly set forth in this Lease. Landlord shall, at its option, have the right to collect from Tenant, five cents ($.05) for each dollar ($1.00) of each installment of Rent which is not received within ten (10) days after its due date for any reason whatsoever (notwithstanding any notice requirement hereunder, if any) and Tenant agrees to pay such amount immediately on demand as liquidated damages to cover the additional costs of collecting and processing such late payments. Any payment which is less than the amount of Rent then due shall constitute a payment made on account thereof, the parties hereto agreeing that the Landlord's acceptance of that 2

payment shall not alter or impair the Landlord's rights under this Lease to be paid all of such amounts then due, or in other respect. Tenant acknowledges that the late payment by Tenant to Landlord of Rent due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and such late charges represent a fair and reasonable estimate of the cost that Landlord will incur by reason of the late payment by Tenant. ARTICLE 5 5.01. OPERATING EXPENSE REIMBURSEMENT. In the event that Operating Expenses (defined in Section 5.02 hereof) of the Building during any calendar year of the Term shall exceed the Base Operating Expense for the Building, Tenant shall pay to Landlord its proportionate share of the increase in such Operating Expenses over the Base Operating Expense. Tenant's proportionate share of such increase is agreed to be Tenant's Pro Rata Share. Thereafter, from time to time, Landlord shall provide to Tenant the Estimated Operating Expense Increase (or an amendment thereto) for any year. In addition to the Base Rent, Tenant shall pay in advance on the first day of each calendar month during the Term, installments equal to 1/12th of Tenant's Pro Rate Share of the Estimated Operating Expense Increase, except that the first such monthly installment is due upon the Commencement Date. As soon as possible after the comparison year, Landlord shall furnish to Tenant a statement certified by Landlord of the Actual Operating Expense Increase (hereinafter defined) for the immediately preceding calendar year, which statement shall specify the various types of Operating Expenses and set forth Landlord's calculations of Tenant's Pro Rata Share of the Actual Operating Expense Increase. If Tenant's Pro Rata Share of the Estimated Operating Expense Increase paid to Landlord during the previous calendar year exceeds Tenant's Pro Rata Share of the Actual Operating Expense Increase, then Landlord shall refund the difference to Tenant at the time Landlord furnishes the statement of the Actual Operating Expense Increase. Otherwise, within fifteen (15) days after Landlord furnishes such statement to Tenant, Tenant shall make a lump sum payment to Landlord equal to Tenant's Pro Rata Share of the positive difference between the Actual Operating Expense Increase and the Estimated Operating Expense Increase theretofore paid by Tenant. The "Estimated Operating Expense Increase" shall equal Landlord's estimate of Operating Expenses for the applicable calendar year, less the Base Operating Expense. Landlord's statement of the Estimated Operating Expense Increase shall control for the year specified in such statement and for each succeeding year during the Term until Landlord provides a new statement of the Estimated Operating Expense Increase. The "Actual Operating Expense Increase" shall equal the actual Operating Expenses for the applicable calendar year, less the Base Operating Expense. 5.02. OPERATING EXPENSES. The term "Operating Expenses" shall mean and include those reasonable amounts, expenses, and costs of whatsoever nature that Landlord incurs because of or in connection with the ownership, operation, management, repair, or maintenance of the Project and Landlord's personal property used in connection therewith. Operating Expenses shall be determined on an accrual basis in accordance with generally accepted accounting principles consistently applied and shall include, without limitation, the following: (a) Wages, salaries, fees, related taxes, insurance, benefits, and reimbursable expenses of all personnel engaged in operating, repairing, and maintaining the Project and providing traffic control about the Project; provided, however, that if during the Term such personnel are also working on other projects being operated by Landlord, their wages, salaries, fees and related expenses shall be allocated by Landlord in good faith among all of such projects and only that portion of such expenses allocable to the Project shall be included as an "Operating Expense." (b) Cost of all supplies and materials used in operating, repairing, and maintaining the Project. (c) Cost of all utilities for the Project, including, without limitation, water, electricity, gas, fuel oil, heating, lighting, air conditioning, and ventilating. (d) Cost of all maintenance, security, window cleaning, elevator maintenance, landscaping, repair, Janitorial, and other similar service agreements for the Project and the equipment and other personal property of Landlord therein and thereon used in connection with the operation, management, repair or maintenance of the Project. (e) Cost of all insurance relating to the Project and its occupancy or operations, including but not limited to (i) the cost of rent loss and casualty and

liability insurance applicable to the Project or Landlord's personal property used in connection with the operation of the Project, (ii) the cost of business interruption insurance in such amounts as will reimburse Landlord for all losses of earnings and other income attributable to the ownership and operation of the Project, and (iii) the cost of insurance against such perils and occurrences as are commonly insured against by prudent Landlords. (f) All taxes, assessments, and governmental charges and fees of whatsoever nature, whether now existing or subsequently created, attributable to the Project or its occupancy or operation, excluding only franchise and income taxes of Landlord (but not excluding such taxes if imposed in the future wholly or partially in lieu of present real estate, ad valorem, or similar taxes), and including all such taxes whether assessed to or paid by Landlord or third parties, but excluding such taxes to the extent, if any, that Tenant, any other tenant of the Project, or any other party specifically reimburses Landlord therefore (other than through the payment of Operating Expense reimbursements). (g) Costs of repairs to and maintenance of the Project, excluding any such costs as are paid by the proceeds of insurance, by Tenant, or by other third parties. (h) A management fee not to exceed four percent (4%) for management services rendered in connection with the Project. (i) Amortization of the cost of capital investment items which are installed primarily to reduce Operating Expenses for the benefit of all of the Project's tenants or which may be required by any governmental authority. All such costs, including interest costs, shall be amortized over the reasonable life of the capital investment items, with the reasonable life and amortization schedule being determined by Landlord according to generally accepted accounting principles, but in no event to extend beyond the reasonable life of the Building. (j) Landlord's central accounting costs, and legal, appraisal, and other such third party fees relating to the operation of the Project. 3

(k) The fair market rental value of Landlord's and the property manager's offices, if any, in the Building not to exceed fair market value. Notwithstanding the foregoing provisions of this Section 5.02, "Operating Expenses" shall not include any of the following: (1) Costs incurred by Landlord for alterations, additions and replacements which are considered capital expenditures under generally accepted accounting principles, consistently applied, except to the extent provided in Section 5.02(1). (2) Any costs or expenditures for which (and to the extent) Landlord is entitled to reimbursement by Tenant (other than pursuant to this Article 5), any other tenant of the Project (other than through the payment of Operating Expense reimbursements), insurance, or condemnation proceeds. (3) The cost of preparing, renovating, painting, decorating, or otherwise modifying any part of the Building other than Building Common Areas and Floor Common Areas. (4) Leasing commissions, ground rentals (except to the extent the same may be made to pay insurance or taxes), non-cash items (including, without limitation, depreciation, except to the extent provided in Section 5.02(1), and obsolescence), debt service (principal and interest) and other debt costs, and advertising and promotional expenditures. (5) One (1) time annually Tenant shall have the right during normal business hours to audit the previous year's Operating Expenses of the Building by giving Landlord fifteen (15) days notice of such intent to audit. 5.03. PRORATION AND ADJUSTMENT OF OPERATING EXPENSES. If this Lease commences on other than the first day of a calendar year, or if this Lease expires on other than the last day of a calendar year, then the Operating Expenses for all of such calendar year shall be prorated according to the portion of the Term that occurs during such calendar year. If at any time the Building is not fully occupied or Landlord is not supplying all services to all portions of the Building during an entire calendar year, then Operating Expenses shall be adjusted as though the Building had been fully occupied and Landlord were supplying all services to all portions of the Building during the entire calendar year. ARTICLE 6 6.01. USE. Tenant shall use and occupy the Premises only for the purpose set forth in Article 1.01 (k), and for no other purposes. Tenant shall not use or permit the Premises to be used for any unlawful purpose or in any unlawful manner, and shall comply with all federal, state, and local governmental laws, ordinances, orders, rules and regulations applicable to the Premises, the Project, and the occupancy thereof and Tenant shall give prompt written notice to Landlord of any notification to Tenant of any claimed violation thereof. Tenant shall not do or permit anything to be done in or about the Premises, nor bring or keep anything therein which will in any way increase the existing rate of or affect any fire or other insurance upon the Project or any of its contents, or cause cancellation of any insurance policy covering the Project or any part thereof or any of its contents. Tenant shall not do or permit anything to be done in or about the Premises and/or Project which will in any way obstruct or interfere with the rights of other tenants or occupants of the Project or injure or annoy them. Tenant shall not permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. ARTICLE 7 7.01. LANDLORD'S SERVICES. Provided Tenant is not in default hereunder, Landlord shall, at Landlord's expense except as provided to the contrary in this Lease, furnish to Tenant the following services: (a) Air conditioning and central heat at such temperatures and in such amounts as are reasonably considered by Landlord to be standard for the Building, during normal business hours for the Building as set forth in the Rules and Regulations as hereinafter defined. (b) Janitorial services in the Premises and public and exterior portions of

the Building for all days, except Saturdays, Sundays and holidays; provided, however, if Tenant's floor covering or other improvements is other than Building Standard, as hereinafter defined, Tenant shall pay the additional cleaning cost attributable thereto as additional rent upon presentation of a statement therefore by Landlord. (c) Hot and cold water at those points of supply provided for general use of other tenants in the Building. (d) Normal and customary routine maintenance for all public, structural, and exterior portions of the Project according to Landlord's standards. (e) Electric lighting service for all public portions of the Project. (f) Automatic passenger elevator service at all times for access to and egress from the Premises. Freight elevator service, in common with other tenants, shall be provided during reasonable business hours as prescribed by Landlord, exclusive of Saturdays, Sundays, and holidays. (g) All Building Standard fluorescent bulb replacement in all areas and all incandescent bulb replacement in public areas, toilet and rest room areas and stairwells. (h) Electrical facilities to furnish sufficient power for typewriters, calculating machines, personal computers and other machines of similar low electrical consumption (total electrical power requirement not to exceed one watt per square foot of Rentable Area); but not including electricity required for electronic data processing equipment, special lighting in excess of Building Standard, and any other item of electrical equipment, or that requires a voltage other than 120 volts single phase; and provided that if the installation of said electrical equipment requires additional air conditioning capacity above that provided by the Building Standard system, then the additional air conditioning installation and operating costs will be the obligation of Tenant. Landlord, at its option, may cause a water meter, electric current meter or such similar device to be installed on the Premises so as to measure the amount of water and electric current consumed by Tenant. The cost of any such meters and of the installation, maintenance and repair thereof shall be paid for by Tenant and Tenant agrees to pay to Landlord, promptly upon demand by Landlord, for all such excess water and electric expense incurred. If a separate meter is not installed or Landlord is prevented from installing a separate meter by operation of law 4

or other cause beyond Landlord's control, such excess costs for such water and electric current will be established by an estimate made by the utility company, electrical engineer, or an independent consultant, which estimate shall be binding on Tenant. 7.02. ADDITIONAL SERVICE COST. Tenant shall pay Landlord, upon demand, such additional amounts as are reasonably necessary to recover additional costs incurred by Landlord in performing or providing non-standard janitorial maintenance, security, or other services or requirements of Tenant or in performing any services (and in paying additional taxes) as to any Non-Building Standard installations in the Premises. Tenant shall pay Landlord, upon demand, reasonable charges for providing off- hour and non-standard air conditioning, heating and electricity; provided, however, that Tenant's excessive use or consumption of heating, air conditioning and/or electrical services in violation of Section 7.01 above, without Landlord's prior written consent, shall constitute a default under this Lease. 7.03. INTERRUPTION OF SERVICES. Any failure or defect in Landlord's hereinabove described services shall not be construed as an eviction of Tenant, nor entitle Tenant to any reduction, abatement, offset, or refund of Rent or to any damages from Landlord. Landlord shall not be in breach or default under this Lease, provided Landlord uses reasonable diligence to restore any such failure or defect after Landlord receives written notice thereof. 7.04. KEYS AND LOCKS. Landlord shall furnish to Tenant two (2) keys for each corridor door entering the Premises. Additional keys will be furnished at a charge by Landlord on an order signed by Tenant or Tenant's authorized representative. All such keys shall remain the property of Landlord. No additional locks shall be allowed on any door of the Premises without Landlord's permission, and Tenant shall not make, or permit to be made any duplicate keys, except those furnished by Landlord. Upon termination of this Lease, Tenant shall surrender to Landlord all keys to the Premises, and give to Landlord an explanation of the combination of all locks for safes, safe cabinets and vault doors, if any, in the Premises. 7.05. SIGNS. Landlord shall provide and install all letters and numerals on entrance doors in or at the Premises. All such letters and numerals are to be Building Standard graphics, and no other letters, numbers, or signage shall be used or permitted on the Premises without the prior written consent of Landlord. ARTICLE 8 8.01. ALTERATIONS. Tenant shall make no alterations, installations, additions, or improvements in or to the Premises or place signs on the Premises which are visible from outside the Premises, without Landlord's prior written consent. All alterations, installations, additions or improvements, other than moveable furniture and moveable trade fixtures, made by Tenant to the Premises shall remain upon and be surrendered with the Premises and become the property of Landlord at the expiration or termination of this Lease or the termination of Tenant's right to possession of the Premises; provided, however, that Landlord may require Tenant, at Tenant's cost, to remove any or all of such items that are not Building Standard upon the expiration or termination of this Lease or the termination of Tenant's right to possession of the Premises. All work performed by Tenant with respect to the Premises shall (a) be performed so as not to alter the exterior appearance of the Building, (b) be preformed by a contractor approved in writing by Landlord, (c) be performed so as not to adversely affect the structure or safety of the Building, (d) comply with all building, safety, fire, and other codes and governmental and insurance requirements, (e) be performed so as not to result in any usage in excess of Building Standard of water, electricity, gas, heating, ventilating, or air conditioning (either during or after such work) unless prior written arrangements reasonably satisfactory to Landlord are made with respect thereto, (f) be completed promptly and in a good and workmanlike manner, and (g) be performed in such a manner that no valid mechanic's, materialman's, or other similar liens attached to Tenant's leasehold estate and in no event shall Tenant permit, or be authorized to permit, any such liens (valid or alleged) or other claims to be asserted against Landlord or Landlord's rights, estates, and interests with respect to the Project or this Lease. In all events, Tenant shall not be entitled to perform any work unless and until Tenant has obtained and furnished to Landlord an appropriate workman's compensation policy covering all workmen and a general liability policy naming Landlord as a co-insured with policy limits not less than $1,000,000. Landlord may require, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to the estimated cost of any improvements, additions or alterations in the Premises which have been approved by Landlord. 8.02. REMOVAL OF TRADE FIXTURES AND PERSONAL PROPERTY.

Tenant agrees to remove all of its trade fixtures, personal property and, at Landlord's request pursuant to Section 8.01, Non-Building Standard items, on or before the date of expiration or termination of the Term, and shall promptly reimburse Landlord for the cost of repairing all damage done to the Premises or the Project by such removal and the cost of restoring the Premises to their original condition, reasonable wear and tear excepted, after such removal. Tenant shall not be responsible for the removal of telephone network cabling installed in the Premises. 8.03. REPAIRS BY LANDLORD. Landlord shall repair and maintain the structural portions of the Project, including the Building Standard plumbing (exclusive of tenant kitchens and coffee bars), air conditioning, heating and electrical systems installed or furnished by Landlord, and all areas of the Project for the common non-exclusive use of all tenants in the Project, unless such maintenance and repairs are caused in part or in whole by the act, neglect, or omission of any duty by the Tenant, its agents, servants, employees or invitees, or unless such maintenance or repairs are otherwise herein provided to be made by Tenant. Landlord shall not be liable for any failure to make such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant and then, only if, after ten (10) days have elapsed, Landlord has failed to commence to make such repairs or maintenance. Landlord shall not be liable for any damages, compensation or claim for loss of the use of the whole or any part of the Premises or Tenant's personal property, or any inconvenience, loss of business, or annoyance arising from any such repair and/or maintenance performed by Landlord hereunder, except for damage resulting from Landlord's gross negligence or willful misconduct. Landlord reserves the right to make such repairs, changes, alterations, additions, or improvements in or to any portion of the Project and the fixtures and equipment thereof as it may deem necessary or desirable. 8.04. REPAIRS BY TENANT. By taking possession of the Premises, Tenant shall be deemed to have accepted the Premises as being in good, sanitary order, condition and repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises in good condition and repair, damage thereto from causes beyond the reasonable control of Tenant and ordinary wear and tear excepted. Tenant shall, upon the expiration or sooner termination of this Lease, surrender the Premises to the Landlord in good condition, ordinary wear and tear and damage from causes beyond the reasonable control of Tenant excepted. Any injury or 5

damage to the Premises or Project, or the appurtenances or fixtures thereof, caused by or resulting from the act, omission or neglect of Tenant or Tenant's employees, servants, agents, invitees, assignees, or subtenants shall be repaired or replaced by Tenant, or at Landlord's option by Landlord, at the expense of Tenant. If Tenant fails to maintain the Premises or fails to repair or replace any damage to the Premises or Project resulting from the negligence or intentional act of Tenant, its employees, servants, agents, invitees, assignees or subtenants, Landlord may, but shall not be obligated to cause such maintenance, repair or replacement to be done, as Landlord deems necessary, and Tenant shall immediately pay to Landlord all costs related thereto, plus a charge for Landlord's overhead of fifteen percent (15%) of such cost. ARTICLE 9 9.01. LANDLORD'S INSURANCE. Landlord shall fully insure the Project and shall maintain liability and other insurance in such amounts as may be required by Landlord's mortgagee for the Project or in such greater amounts as Landlord, in its discretion, may deem appropriate. Such insurance shall be for the sole benefit of Landlord and, if required, Landlord's mortgagee. 9.02. TENANT'S INSURANCE. Tenant shall, at Tenant's expense, fully insure its property located in the Premises against fire and other casualty and shall maintain public liability insurance with combined limits of at least $1,000,000. The limits or amounts of said insurance coverage shall not, however, limit the liability of the Tenant hereunder. Tenant shall cause Landlord to be named as an additional insured under such public liability insurance policy and the fire and casualty insurance policy which Tenant is required to maintain with respect to Tenant's property located in the Premises. If Tenant shall fail to procure and maintain said insurance, Landlord may, but shall not be required to, procure and maintain same, and in such event, premiums and costs thereof shall be reimbursed and paid by Tenant to Landlord on demand by Landlord. Insurance required hereunder shall be with companies rated AAA or better in "Best's Insurance Guide." Tenant shall deliver to Landlord prior to occupancy of the Premises copies of policies of liability insurance required herein or certificates evidencing the existence and amounts of such insurance. No policy shall be cancelable or subject to reduction of coverage except after thirty (30) days prior written notice to Landlord. 9.03. WAIVER OF SUBROGATION. Whenever (a) any loss, cost, damage or expense resulting from fire, explosion or any other casualty or occurrence is incurred by either of the parties to this Lease in connection with the Premises or the Project, and (b) such party is then covered (or is required to be covered under the foregoing provisions of this Article 9) in whole or in part by insurance with respect to such loss, cost, damage or expense, then the party so insured (or required to be insured) hereby releases the other party from any liability it may have on account of such loss, cost, damage or expense to the extent of such insurance coverage in place or required to be in place, and waives any right of subrogation which might otherwise exist in or accrue to any person on account thereof; provided, however, that such release of liability shall not be operative in any case where the effect thereof is to invalidate such insurance coverage or increase the cost thereof; provided that in the case of increased cost, the other party shall have the right, within thirty (30) days following written notice, to pay such increased cost, thereupon keeping such release and waiver in full force and effect. Landlord and Tenant shall use their respective best efforts to obtain such a release and waiver of subrogation from their respective insurance carriers and shall immediately notify the other of any failure to obtain or maintain the same. 9.04. WAIVER OF LIABILITY AND INDEMNITY. Landlord, its agents and employees, shall not be liable for any injury to or death of persons or for any loss of or damage to property of Tenant or of others, regardless of whether such property is entrusted to employees of the Project, or such loss or damage is occasioned by casualty, theft, or any other cause of whatsoever nature, unless caused solely by the willful misconduct or gross negligence of Landlord. In no event shall Landlord be liable as the result of the acts or omissions of Tenant or any other tenant of the Project. All personal property upon the Premises shall be at the risk of Tenant only and Landlord shall not be liable for any damage thereto or theft thereof. Except in the event of willful misconduct or gross negligence Tenant hereby indemnifies and holds Landlord harmless from and against any and all claims arising from Tenant's use of the

Premises for the conduct of its business or from any activity, work or other thing done, permitted or suffered by Tenant on or about the Project and shall further indemnify and hold harmless Landlord from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act or omission of, or due to the negligence of, the Tenant, or any officer, agent, employee, guest or invitee of Tenant and from and against all costs, attorneys' fees, expenses and liabilities incurred in or related to any such claim or any action or proceeding brought thereon. Except for any injury or damage to persons or property on the Project that is caused by or results from the negligent act of Tenant, or Tenant's agents, employees, invitees, or contractors, and except as otherwise expressly stated in this Lease, Landlord shall indemnify and hold Tenant harmless from and against any and all claims arising from any breach or default in the performance of any obligation on Landlord's part to be performed under the terms of this Lease, or arising from any act or omission of, or due to the negligence of, the Landlord, or any officer, employee, representative, invitee or contractor of Landlord, and from and against all costs, attorneys fees, expenses and liabilities incurred ir or related to any such claim or any action or proceeding brought thereon. ARTICLE 10 10.01 CASUALTY. If the Premises or Project, or any portion of either, shall be damaged by fire or other casualty covered by the insurance carried or required to be carried by Landlord hereunder, and the cost of repairing such damage shall not be greater than ten percent (10%) of the then full replacement cost thereof, then, subject to the following provisions of this Article, Landlord shall repair the Premises and/or Project. If the Premises or Project shall be damaged (a) by fire or other casualty not covered by insurance carried by Landlord hereunder, (b) by fire or other casualty covered by insurance carried by Landlord hereunder and Landlord's mortgagee requires that such insurance proceeds be used to retire the mortgage debt, or to an extent greater than ten percent (10%) of the then full replacement cost thereof, then Landlord shall have the option to either (I) repair or reconstruct the same to substantially the same condition as immediately prior to such fire or other casualty, or (ii) terminate this Lease by so notifying Tenant within ninety (90) days after the date of such fire or other casualty, such termination to be effective as of the date of such notice. The Rent required to be paid hereunder shall be abated in proportion to the portions of the Premises, if any, which are rendered untenantable by fire or other casualty hereunder until repairs of the Premises are completed, or if the Premises are not repaired, until the termination date hereunder. Other than such Rent abatement, no damages, compensation or claim shall be payable by Landlord for loss of the use of the whole or any part of the Premises, Tenant's personal property, or any inconvenience, loss of business, or annoyance arising from any such repair and reconstruction. 6

If this Lease is terminated as provided in (c)(ii) above, all Rent shall be apportioned and paid up to the termination date. Landlord shall not be required to repair or replace any furniture, furnishings or other personal property which Tenant may be entitled to remove from the Premises or any property constructed and installed by or for Tenant pursuant to Section 8.01 hereof or any installations in excess of Building Standard. 10.02. END OF TERM CASUALTY. Notwithstanding anything to the contrary in this Article, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises or the Project when the damage resulting from any casualty covered under this Article occurs during the last twelve (12) months of the Term or any extension thereof. ARTICLE 11 11.01. CONDEMNATION. If all or substantially all of the Premises be taken by virtue of eminent domain or for any public or quasi-public use or purpose, this Lease and the estate hereby granted shall terminate on the date the condemning authority takes possession and Tenant shall be free to terminate this Lease and vacate the Premises. 11.02. CONDEMNATION AWARD. Landlord shall be entitled to the whole of any and all awards which may be paid or made in connection with any such taking, except that Tenant shall be entitled to make a separate claim with the condemning authority for (a) any moving expenses incurred by Tenant as a result of such condemnation, and (b) any relocation costs incurred by Tenant. Tenant shall be granted the right to pursue its own award in the event of a condemnation. ARTICLE 12 12.01. ENTRY. Landlord, its agents, employees, and representatives, shall have the right to enter the Premises at any time upon reasonable notice to Tenant under the circumstances (such notice may be oral and not in compliance with Section 17.05 hereof, but no notice shall be required in the case of routine maintenance or any emergency) for any purpose which Landlord may reasonably deem necessary for the operation and maintenance of the Project, including, without limitation, the exhibiting of the Premises to prospective purchasers, mortgagees, or tenants. ARTICLE 13 13.01. SUBORDINATION. This Lease is and shall be subject and subordinate to any and all ground or similar leases affecting the Project, all mortgages which may now or hereafter encumber or affect the Project and to all renewals, modifications, consolidations, replacements and extensions of any such leases and/or mortgages; provided, however, that at the option of any Underlying Party (hereinafter defined), this Lease shall be superior to the lease or mortgage of such Underlying Party. The provisions of this Section 13.01 shall be self-operative and shall require no further consent or agreement requested by any such lessor or mortgagee in connection with this Section 13.01. Tenant shall, however, execute promptly any appropriate certificate or instrument that Landlord may request. As used in this Lease, the term "Underlying Party" shall mean the holder of the lessor's interest under any ground or similar lease of all or part of the Building and/or the mortgagee or purchaser at foreclosure with respect to any mortgage of all or part of the Building. Tenant agrees that any Underlying Party may unilaterally subordinate its mortgage or lease to this Lease at any time by filing a notice of such subordination in the Official Public Records of Real Property of the county where the Building is located. In the event Landlord places a mortgage on the property that exceeds 80% of value. Landlord shall use its best efforts to procure a non-disturbance agreement benefiting Tenant. 13.02. ATTORNMENT. In the event of the termination of any ground or similar lease affecting the Project or the enforcement by the trustee or the beneficiary under any mortgage or deed of trust of remedies provided by law or by such mortgage or deed of trust, Tenant will, upon request of any person or party succeeding to the interest of Landlord as the result of such termination or enforcement, automatically become the Tenant of such successor in interest

without change in the terms or other provisions of this Lease; provided, however, that such successor in interest shall not be bound by (a) any payment of Rent for more than one month in advance, or (b) any amendment or modification of this Lease made without the written consent of such trustee or such beneficiary or such successor in interest. Upon request by any such successor in interest, Tenant shall execute and deliver an instrument or instruments confirming the attornment provided for herein. 13.03. QUIET ENJOYMENT. Tenant, on paying the Rent and keeping and performing the conditions and covenants herein contained, shall and may peaceably and quietly enjoy the Premises for the Term, subject to all applicable laws and ordinances, applicable insurance requirements and regulations, and the provisions of this Lease. ARTICLE 14 14.01. ASSIGNMENT. Tenant shall not assign or in any manner transfer this Lease or any estate or interest herein, or sublet the Premises or any part thereof, or grant any license, concession or other right of occupancy of any portion of the Premises without the prior written consent of Landlord which shall not be unreasonably withheld. Landlord shall have the option, upon receipt from Tenant of a written request for Landlord's consent to a subletting or assignment, to cancel this Lease as of the date which is thirty (30) days following the receipt by Landlord of the request from Tenant to sublet or assign. The option of Landlord to cancel this Lease, as provided for above, shall be exercised, if at all, within fifteen (15) days following Landlord's receipt of such written notice, by delivering to Tenant written notice of Landlord's intention to exercise the option to so cancel this Lease. If Tenant desires at any time to enter into an assignment of this Lease or a sublease of the Premises or any portion thereof, Tenant shall give written notice to Landlord of its desire to do so, which notice shall contain (a) the name of the proposed assignee or subtenant, (b) the nature of the proposed assignee's or subtenant's business to be carried on in the Premises, the terms and provisions of the proposed assignment or sublease, and (d) resumes, business plans, references, financial information, and other information as Landlord may reasonably request concerning the proposed assignee or subtenant. If Tenant is a corporation, partnership or other entity, and if at any time during the term of this Lease or any renewal or extension hereof, the person or persons who own a majority of either the outstanding voting interest or all outstanding ownership interests of Tenant at the time of execution of this Lease cease to own a majority of such interest (except as a result of transfers by devise or 7

descent), the loss of a majority of such interest shall be deemed an assignment of this Lease by Tenant and therefore subject in all respects to the provisions of this Section 14.01. The previous sentence shall not apply, however, if Tenant is a corporation and at the time of the execution of this Lease the outstanding voting shares of capital stock of Tenant are listed on a recognized security exchange or over the counter market. 14.02. CONTINUED LIABILITY. Tenant shall, despite any permitted assignment or sublease, remain directly and primarily liable for the performance of all of the covenants, duties, and obligations of Tenant hereunder and Landlord shall be permitted to enforce the provisions of this Lease against Tenant or any assignee or sublease without demand upon or proceeding in any way against any other person. over, in the event that the rental due and payable by a sublessee (or a combination of the rental payable under such sublease, plus any bonus or other consideration thereof incident thereto) exceeds the Rent payable under this Lease, or if with respect to a permitted assignment, permitted license, or other transfer by Tenant permitted by Landlord, the consideration payable to Tenant by the assignee, licensee or other transferee exceeds Rent payable under this Lease, then Tenant shall be bound and obligated to pay Landlord all such excess rental and other excess consideration within ten (10) days following receipt thereof by Tenant from such sublessee, assignee, licensee or other transferee, as the case may be. 14.03. CONSENT. If this Lease is assigned or if the Premises are subleased, then Landlord may collect rent from the assignee or sublessee and apply the net amount collected to the Rent payable hereunder, but no such transaction or collection of rent or application thereof by Landlord shall be deemed a waiver of any provision hereof or a release of Tenant from the performance by Tenant of its obligations hereunder. 14.04. TRANSFER BY LANDLORD. In the event of the transfer and assignment by Landlord of its interest in this Lease and in the Project to a person expressly assuming Landlord's obligations under this Lease, Landlord shall thereby be released from any further obligations hereunder, and Tenant agrees to look solely to such successor in interest of the Landlord for performance of such obligations. Any security given by Tenant to secure performance of Tenant's obligations hereunder may be assigned and transferred by Landlord to such successor in interest, and Landlord shall thereby be discharged of any further obligation relating thereto. ARTICLE 15 15.01. DEFAULT BY TENANT. Each of the following shall constitute a "Default" by Tenant: (a) The failure of Tenant to pay the Base Rent, any other installment of Rent, or any part thereof when due; or (b) Tenant shall fail to fulfill or perform, in whole or in part, any of its obligations under this Lease (other than the payment of Rent) and such failure or non-performance shall continue for a period of fifteen (15) days after written notice thereof has been given by Landlord to Tenant; or (c) The entry of a decree or order by a court having jurisdiction adjudging Tenant to be bankrupt or insolvent or approving as properly filed a petition seeking reorganization of Tenant under the National Bankruptcy Act, or any other similar applicable Federal or State Law, or a decree or order of a court having jurisdiction for the appointment of a receiver or liquidator or a trustee or assignee in bankruptcy or insolvency of Tenant or its property or for the winding up or liquidation of its affairs; or Tenant shall institute proceedings to be adjudicated a voluntary bankrupt or shall consent to the filing of any bankruptcy, reorganization, receivership or other proceeding against Tenant, or any such proceedings shall be instituted against Tenant and the same shall not be vacated within ninety (90) days after the same are commenced; or Tenant shall make an assignment for the benefit of Tenant's creditors or admit in writing Tenant's inability to pay the debts of Tenant generally as they may become due; or (e) Tenant shall do or permit to be done anything which creates a lien upon the Premises or any portion of the Project; or 15.02. RIGHTS UPON DEFAULT BY TENANT. (a) This Lease and the term and estate hereby granted and the demise hereby made are subject to the limitation that if and whenever there shall occur any event of Default, as enumerated above, Landlord may, at Landlord's option, without any notice or demand whatsoever in addition to any other remedy or right given hereunder or by law or equity do any one or more of the following:

(1) Terminate this Lease by written notice to Tenant, in which event Tenant shall immediately surrender possession of the Premises to Landlord; (2) Terminate Tenant's right to possession of the Premises under this Lease without terminating the Lease itself, by written notice to Tenant, in which event Tenant shall immediately surrender possession of the Premises to Landlord; (3) Enter upon and take possession of the Premises and expel or remove Tenant and any other occupant therefrom, with or without having terminated this Lease; 8

(4) Alter locks and other security devices at the Premises with or without having terminated this Lease or Tenant's right to possession under the Lease; (5) In the event of any default described in subsection (b) of Section 15.01, Landlord shall have the right to enter upon the Premises without being liable for prosecution or any claim for damages therefore, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for the reasonable any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action. (b) Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises by Tenant, whether by agreement or by operation of law, it being understood that such surrender can be effected only by the written agreement of Landlord and Tenant. No such alteration of locks or other security devices and no removal or other exercise of dominion by Landlord over the property of Tenant or others at the Premises shall be deemed unauthorized or constitute a conversion, Tenant hereby consenting, after any event of Default, to the aforesaid exercise of dominion over Tenant's property within the Premises. All claims for damages by reason of such re-entry and/or repossession and/or alteration of locks except for gross negligence or willful misconduct by Landlord or other security devices are hereby waived, as are all claims for damages by reason of any distress warrant, forcible detainer proceedings, sequestration proceedings or other legal process. Tenant agrees that any re- entry by Landlord may be pursuant to a judgment obtained in forcible detainer proceedings or other legal proceedings or without the necessity for any legal proceedings, as Landlord may elect, and Landlord shall not be liable in trespass or otherwise. (c) (i) In the event Landlord elects to terminate this Lease by reason of an event of Default, then notwithstanding such termination, the Tenant shall be liable for and shall pay to the Landlord, at the address specified in Section 1.01(a) above, the sum of all Rent accrued to the date of such termination, plus, as damages, (1) an amount equal to the total of the Rent provided in this Lease for the remaining portion of the Term of the Lease (had such Term not been terminated by Landlord prior to the Expiration Date stated in Section 3.01), less the reasonable rental value of the Premises for such period, such amount to be discounted to present value at the rate of six percent (6%) per annum (the undersigned parties here stipulating that such reasonable rental shall in no event be deemed to exceed 60% of the present value of the Rent for such period). (ii) In the event Landlord elects to terminate this Lease by reason of an event of Default, in lieu of exercising the right of Landlord under the preceding subparagraph (I), Landlord may instead hold Tenant liable for all Rent accrued to the date of such termination, plus such Rent as would otherwise have been required to be paid by Tenant to Landlord during the period following termination of the Term measured from the date of such termination by Landlord until the Expiration Date stated in Section 3.01 (had Landlord not elected to terminate the Lease on account of such event of Default) diminished by any net sums thereafter received by Landlord through reletting the Premises during said period (after deducting expenses incurred by Landlord as provided in Section 15.03 hereof). Actions to collect amounts due by Tenant as provided for in this paragraph may be brought from time to time by Landlord during the aforesaid period, on one or more occasions, without the necessity of Landlord's waiting until expiration of such period; If Landlord elects to exercise the remedy prescribed in this subparagraph (ii), this election shall in no way prejudice Landlord's right at any time thereafter to cancel said election in favor of the remedy prescribed in the foregoing subparagraph (I). (f) In the event of a Default, Tenant shall in addition to all other sums owed to Landlord, pay to Landlord an amount equal to the dollar amount of all "concessions" provided to Tenant in connection with this Lease, including, but not limited to, rental concessions, above standard tenant improvements, relocation allowances, cash payments, any other unamortized tenant improvements, and the like. The foregoing shall not, however, act to limit in any manner the damages or remedies to which Landlord may be entitled under this Lease or by law, but shall act only as a reimbursement of such concessions as may have been provided to Tenant as an incentive to enter into this Lease. 15.03. EXPENSE OF REPOSSESSION. 15.04. CUMULATIVE REMEDIES. The remedies of Landlord hereunder shall be deemed cumulative and not exclusive of each other.

15.05. ATTORNEY'S FEES. If on account of any breach or default by Tenant in its obligations hereunder, Landlord shall employ an attorney to present, enforce or defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable attorney's fees incurred by Landlord in such connection and assessed by a court of competent jurisdiction. 15.06. INTEREST. All late payments of Rent, costs or other amounts due from Tenant under this Lease shall bear interest from the date due until paid at the maximum non- usurious rate of interest at which Tenant may legally contract in Texas. 9

15.07. SECURITY DEPOSIT Tenant shall deposit with Landlord prior to on the date Tenant occupies the Premises, the Security Deposit to be held by Landlord without interest as security for the performance by Tenant of Tenant's covenants and obligations under this Lease, it being expressly understood that such deposit may be commingled with Landlord's other funds and is not an advance payment of rental or a measure of Landlord's damages in case of Default by Tenant. If the Premises are conveyed by Landlord, the security deposit or any balance thereof may be turned over to Landlord's grantee or assignee, and if the same is turned over, Tenant hereby releases Landlord from any and all liability with respect to the security deposit and its application and Tenant agrees to look solely to such grantee or assignee for such application or return. Upon the occurrence of any event of Default by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein or provided by law, use such fund to the extent necessary to make good any arrears of Rents and any other damage, injury, expense or liability caused to Landlord by such event of Default, and Tenant shall pay to Landlord on demand the amount so applied in order to restore the security deposit to its original amount. If Tenant is not then in Default hereunder, any remaining balance of such deposit shall be returned by Landlord to Tenant within thirty (30) days following expiration of this Lease (subject to the provisions of Section 14.04 above). 15.08. LANDLORD'S CONTRACTUAL SECURITY INTEREST. 15.09. USE AND STORAGE OF PERSONAL PROPERTY. 15.10. DEFAULT BY LANDLORD. In the event of a default or breach by Landlord under this Lease, then Tenant shall be entitled to the same rights and remedies as may be available to Landlord under this Lease. ARTICLE 16 16.01. HAZARDOUS WASTE. To the best of Landlord's knowledge there are no pending condemnation projects affecting the Building and that there are no hazardous materials in, on or under the Building. Tenant hereby represents and warrants to Landlord the following: Tenant shall not cause or permit the release, discharge, or disposal nor the presence, use, transportation, generation, or storage of any Hazardous Material (as hereafter defined) in, on, under, about, to, or from the Premises by either Tenant, Tenant's employees, agents, contractors, or invitees (collectively the "Tenant") other than the use of such materials in de minimus quantities reasonably necessitated by the Tenant's regular business activities. Tenant further agrees and covenants to Landlord, its agents, employees, affiliates and shareholders (collectively the "Landlord") the following: 10

1. To comply with all Environmental Laws in effect, or may come into effect, applicable to the Tenant or Tenant's use and occupancy of the Premises; 2. To immediately notify Landlord, in writing, of any existing, pending, or threatened (a) investigation, inquiry, claim or action by any governmental authority in connection with any Environmental Laws; (b) third party claims; (c) regulatory actions; and/or (d) contamination of the Premises; 3. Tenant shall, at Tenant's expense, investigate, monitor, remediate, and/or clean up any Hazardous Material or other environmental condition on, about, or under the Premises required as a result of Tenant's use or occupancy of the Premises; 4. To keep the Premises free of any lien imposed pursuant to any Environmental Laws; and 5. To indemnify, defend, and save Landlord harmless from and against any and all claims (including personal injury, real, or personal property damage), actions, judgments, damages, penalties, fines, costs, liabilities, interests, or attorney's fees that arise, directly or indirectly, from Tenant's violation of any Environmental Laws or the presence of any Hazardous Materials on, under or about the Premises. The Tenant's obligations, responsibilities, and liabilities under this Section shall survive the expiration of this Lease. For purposes of this Section the following definitions apply: "Hazardous Materials" shall mean: (1) any "hazardous waste" and/or "hazardous substance" defined pursuant to any Environmental Laws; (2) asbestos or any substance containing asbestos; (3) polychlorinated biphenyls; (4) lead; (5) radon; (6) pesticides; (7) petroleum or any other substance containing hydrocarbons; (8) any substance which, when on the Premises, is prohibited by any Environmental Laws; and (9) any other substance, material, or waste which, (i) by any Environmental Laws requires special handling or notification of any governmental authority in its collection, storage, treatment, or disposal or (ii) is defined or classified as hazardous, dangerous or toxic pursuant to any legal requirement. "Environmental Laws" shall mean: any and all federal, state, and local laws, statutes, codes, ordinances, regulations, rules, or other requirements, relating to human health or safety or to the environment, including, but not limited to, those applicable to storage, treatment, disposal, handling and release of any Hazardous Materials, all as amended or modified from time to time. ARTICLE 17 17.01. SUBSTITUTE PREMISES. 17.02. ESTOPPEL LETTERS. Tenant will, at such time or times as Landlord may request, execute and acknowledge a certificate stating whether this Lease is in full force and effect, whether any amendments or modifications exist, whether there are any defaults hereunder, and containing such other related information as may be reasonably requested. 17.03. HOLDOVER. If Tenant shall remain in possession of the Premises after the expiration or earlier termination of this Lease, Tenant shall pay as rent an amount equal to one hundred fifty percent (150%) of the daily rental rate prevailing on the date of such termination or expiration (computed on the basis of a thirty (30) day month). The remaining in possession by Tenant or the acceptance by Landlord of the payment of said rent shall not be construed as an extension or renewal of this Lease. The rental payable to Landlord under this Section shall not be deemed to be in lieu of any damages or other remedy to which Landlord may be entitled by virtue of Tenant's holding over. 17.04. SURRENDER. Upon the expiration or earlier termination of the Lease, Tenant shall peacefully quit and surrender the Premises in broom clean condition and in good order and condition, excepting ordinary wear and tear, but subject to Sections 8.01 and 8.02 hereof. Tenant shall also cause all exposed electrical wires, plumbing, and utilities to be capped. 17.05. NOTICE.

Except as otherwise herein provided, any statement, notice, or other communication which Landlord or Tenant may desire or be required to give to the other shall be in writing and shall be deemed properly given if mailed by first class United States mail, postage prepaid, registered or certified with return receipt requested, or by delivering same in person or by courier to the intended addressee. Notice so mailed shall be effective upon the expiration of three (3) business days after its deposit. Notice given in any other manner shall be effective only if and when received by the addressee. For purposes of notice, the addresses of the parties shall be as set forth in the opening provisions of this Lease and/or Section 1.01 hereof. Either party shall have the right to change its address for notice hereunder to any other location within the United States by the giving of thirty (30) days' notice to the other party in the manner set forth hereinabove. 17.06. RULES AND REGULATIONS. Tenant, as well as any assignee or sublessee approved by Landlord, will comply with the rules of the Project adopted by Landlord, which are set forth in EXHIBIT "E" attached hereto and made a part hereof for all purposes. Landlord shall have the right to change such Rules and Regulations or to amend them in any reasonable manner for the safety, care and cleanliness of the Project, and the Premises, and for preservation of good order therein, all of which changes and amendments will be sent by Landlord to Tenant in writing and shall be thereafter binding upon, 11

carried out and observed by Tenant. Tenant shall further be responsible for the compliance with such Rules and Regulations by the employees, servants, agents and invitees of Tenant. 17.07. LANDLORD'S LIABILITY. Tenant specifically agrees to look solely to Landlord's and Landlord's assignees interest in the Project for the recovery of any judgment from Landlord, it being agreed that Landlord shall never be personally liable for any such judgment. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest, or any other action not involving the personal liability of Landlord to respond in monetary damages from assets other than Landlord's interest in the Project or any suit or action in connection with enforcement or collection of amounts which may become owing or payable under or on account of insurance maintained by Landlord. 17.08. INABILITY TO PERFORM. If, by reason of inability reasonably to obtain and utilize labor, materials, equipment, or supplies, or by reason of circumstances directly or indirectly the result of any state of war or national or local emergency, or by reason of any laws, rules, orders, regulations, action, non-action, or requirements of any governmental authority now or hereafter in force, or by reason of strikes or riots, or by reason of accidents in, damage to, or the making of repairs, replacements, or improvements to the Project or the Premises, or any of the equipment of either, or by the reason of any other cause beyond the reasonable control of Landlord, Landlord shall be unable to perform or shall be delayed in the performance of any obligation hereunder, then this Lease and the obligation of Tenant to pay the Base Rent or additional items of Rent and to perform and comply with all of the other covenants and agreements hereunder shall in no way be affected or impaired except as otherwise expressly provided for in this Lease, and such non-performance or delay in performance by landlord shall not give rise to any claim against Landlord for damages or constitute a total or partial eviction, constructive or otherwise. Landlord shall exercise due diligence in undertaking to remedy such inability to perform or delay in performance with all reasonable dispatch, but shall not be required to adjust a labor dispute against its will. 17.09. TENANT AUTHORIZATION. If Tenant signs as a corporation, each of the persons executing this Lease on behalf of Tenant represents and warrants that Tenant is a duly organized and existing corporation, that Tenant has and is qualified to do business in Texas, that the corporation has full right and authority to enter into this Lease, and that all persons signing on behalf of the corporation were authorized to do so by appropriate corporate actions. If Tenant is a general partnership, limited partnership, trust, or other legal entity, each individual executing this Lease on behalf of said entity represents and warrants that he or she is duly authorized to execute this Lease on behalf of such entity and in accordance with such entity's governing instruments, and that this Lease is binding upon such entity. Upon the Landlord's request, Tenant shall furnish Landlord with proper proof of due authorization for Tenant's execution of this Lease as Landlord shall require. 17.10. BROKER. Tenant and Landlord each represents and warrants to the other that Tenant and Landlord, respectively, have dealt with, and only with, Broker as real estate broker in connection with this Lease, and that, insofar as Tenant and Landlord, respectively, knows, no other broker negotiated this Lease or is entitled to any commission in connection herewith and Tenant and Landlord, respectively, shall indemnify and hold harmless the other from and against all claims (and costs of defending against and such claims) of any broker or similar parties claiming by, through, or under Tenant and Landlord, respectively, in connection with this Lease. 17.11. MEMORANDUM OF LEASE. Without the prior written consent of Landlord (which may be granted of withheld in Landlord's sole discretion), Tenant shall not record this Lease or a memorandum or other instrument with respect to this Lease. 17.12. PARKING. Tenant shall be permitted to use, on a non-exclusive basis certain parking spaces during the Term as more fully provided for in EXHIBIT "D" hereto. Use of the parking spaces is subject to such rules and regulations governing the use as Landlord may from time to time prescribe, including the designation of specific areas in which automobiles owned by Tenant, its employees, agents and invitees shall be part. Tenant shall furnish to Landlord upon request a complete list of license numbers and physical description of all automobiles operated by Tenant, its employees and agents. 17.13. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for all taxes levied or assessed against personal property and

furniture placed by Tenant on the Premises if such taxes for which Tenant is liable are levied or assessed against Landlord or Landlord's property and if Landlord elects to pay the same, or if the assessed value of the Project is increased by the inclusion of personal property, furniture placed by Tenant on the Premises, and Landlord elects to pay the taxes based on such increase, Tenant shall pay to Landlord upon demand, that part of such taxes for which Tenant is primarily liable hereunder, together with interest thereon until paid at the rate set forth in Section 15.06 hereof. 17.14. LANDLORD'S RIGHTS IN EVENT OF NON-RENEWAL. During the last ninety days of the original term, or of any renewal term, should Tenant not elect to renew the term as provided herein, Landlord or any person authorized by Landlord may during normal business hours, exhibit the same to prospective tenants, Such entry or actions permitted herein shall not constitute eviction of Tenant. 17.15. JOINT AND SEVERAL LIABILITY. If there is more than one tenant, the obligations hereunder imposed upon Tenant shall be Joint and several. If there is a guarantor of the obligations hereunder imposed upon Tenant, there shall be a joint and several obligation of Tenant and such guarantor, and Landlord may not first proceed against Tenant before proceeding against such guarantor, nor shall any such guarantor be released from its guaranty for any reason whatsoever. 17.16. ACCEPTANCE BY LANDLORD. 17.17. TIME OF ESSENCE. Time is of the essence of this Lease and all of its provisions in which performance is a factor. 12

17.18. ENTIRE AGREEMENT. This Lease, including EXHIBITS "A" through "E" and Supplements, if any, attached hereto (which Exhibits are hereby incorporated herein and shall constitute a portion hereof), contains the entire agreement between Landlord and Tenant with respect to the subject matter hereof. 17.19. AMENDMENT. Any agreement hereafter made between Landlord and Tenant shall be ineffective to modify, release or otherwise affect this Lease, in whole or in part, unless such agreement is in writing and signed by the party to be bound thereby. 17.20. SEVERABILITY. If any term or provision of this Lease shall, to any extent, be held invalid or unenforceable by a final judgment of a court of competent jurisdiction, the remainder of this Lease shall not be affected thereby. 17.21. SUCCESSORS. Subject to the limitations and conditions set forth elsewhere herein, this Lease shall bind and inure to the benefit of the respective heirs, legal representatives, successors, and assigns of the parties hereto. All rights, powers, privileges, immunities, and duties either Party under this Lease, including, but not limited to, any notices required or permitted to be delivered by Landlord to Tenant hereunder, may, be exercised or performed by that Party's agent or attorney. 17.22. CAPTIONS. The captions in this Lease are inserted only as a matter of convenience and for reference only and they in no way define, limit, or describe the scope of this Lease or the intent of any provisions hereof. 17.23. NUMBER AND GENDER. All genders used in this Lease shall include the other genders, the singular shall include the plural, and the plural shall include the singular, whenever and as often as may be appropriate. 17.24. GOVERNING LAW. This Lease shall be governed by and construed in accordance with the laws of the State of Texas. 18.00 The submission of this Lease to Tenant shall not be construed as an offer, reservation or option. Tenant has no rights under this lease unless Tenant and Landlord execute this Lease, and Landlord delivers the executed Lease to Tenant. IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as of the day and year first above written. LANDLORD TENANT SOARING EAGLES ORCHARD, INC., MISSION CRITICAL SOFTWARE, INC. a Washington corporation By: Cummings-Baccus Interests, its authorized agent By: /s/ Signature Illegible By: /s/ Signature Illegible Name: M. Buckner Baccus Name: Paul F. Koffend, Jr. Its: Vice President Its: Chief Financial Officer 13

LIST OF EXHIBITS Exhibit "A" - Land Exhibit "B" - Floor Plans Exhibit "C" - Leasehold Improvements Exhibit "D" - Parking Exhibit "E" - Rules and Regulations Exhibit "F" - Special Provisions

EXHIBIT "A" Land Being a tract of land containing 1.9146 Acres (83,401 square feet) of land located in the John Reinerman Survey, Abstract No. 647 in the City of Houston, Harris County, Texas, and being a part of land described in deed from William Quensel to Eliza Roy, dated October 22, 1885, recorded in Volume 33, Page 24 of the Harris County Deed Records, said tract being more particularly described by metes and bounds as follows: all bearings are referenced to the deed of record; BEGINNING at a 1-inch iron pipe found at the common West corner of said tract and that certain tract conveyed to "710 Post Oak, L.C." and recorded under Harris County Clerk's File No. N980973; THENCE North 01 deg. 39 min. 00 sec. West, coincident with the Easterly right- of-way line of North Post Oak Road (based on 120.00 foot right-of-way), a distance of 382.30 feet to a found 5\8-inch iron rod with aluminum cap stamped "Cotton" for the Northwest corner of the herein described tract; THENCE North 88 deg. 22 min. 54 sec. East, with the common line of said tract and that certain tract conveyed to Fit Properties, L.C. and Bear Properties, Inc. under Film Code No. 115-480250 Harris County, Texas, a distance of 219.20 feet to a found 5\18-inch iron rod with aluminum cap stamped "Cotton" for the Northwest corner of the herein described tract; THENCE coincident with the Westerly right-of-way line of Interstate Highway 610 Freeway and along the arc of a curve to the right, said curve having a central angle of 10 deg. 31 min. 45 sec., a radius of 805.50 feet, an arc length of 148.02 feet and a chord which bears South 03 deg. 20 min. 41 sec. East, 147.82 feet, to a 1\2-inch iron rod set for corner and end of said curve; THENCE South 02 deg. 43 min. 12 sec. West, continuing with the said westerly right-of-way line of Interstate Highway 610, a distance of 235,42 feet to a 5\8- inch iron rod found for the Southwest corner of the herein described tract; THENCE South 88 deg. 26 min. 11 sec. West with the common line of this tract and said "710 Post Oak, L.C. tract", a distance of 205.63 feet to the POINT OF BEGINNING and containing 1.9146 Acres (83,401 square feet) of land.

[EXHIBIT OMITTED] Landlord (Initials) Tenant (Initials) STD TX LEASE FORM CBI 6\95 B-1

EXHIBIT "C" LEASEHOLD IMPROVEMENTS ARTICLE 1 LANDLORD'S WORK Tenant Improvements shall be substantially similar to the plan attached hereto as Exhibit "C-1", Tenant Improvements shall be defined as all construction to the Premises, architectural fees of $.55 per square foot and construction management fee of five percent (5%) of the total costs, as outlined below, Landlord and Tenant agree to share in the cost of the Tenant Improvements as outlined below: 1. Landlord shall provide an allowance of $84,189.44 for the sole purpose of Tenant Improvements to the Premises. Should costs exceed the estimate of $118,924.00 any additional costs shall be paid for by Tenant upon move-in or amortized into the rental rate over the first year of the Lease, however, in no event shall Landlord be obligated to amortize more than $7,067.00. Should the cost of construction be less than $118,924.00 Tenant shall receive a credit towards rent for such savings. ARTICLE 2 TENANT'S WORK 2.01 Any additional Leasehold Improvements than those shown on Exhibit "C- 1" to be constructed in the Premises shall be constructed by Tenant at Tenant's cost, provided, however, all such improvements shall be expressly subject to review and approval by Landlord. 2.02 Under no circumstances whatsoever will Tenant, or Tenant's authorized representative, ever alter or modify or in any disturb any central system or installation of the Building, including, but not limited to, exterior building, central plumbing system, central fire protection and fire alert systems, central building maintenance systems, central structural systems, elevators, and anything located within the central core of the Building. Only with Landlord's express written permission and under direct supervision of Landlord or Landlord's authorized representative shall Tenant or Tenant's authorized representative alter or modify or in any manner disturb any branch of any system or installation of the Building which is located within the Premises, including, but not limited to, branch electrical, heating, ventilating and air conditioning systems, and branch fire protection and alert systems. For the purposes of this Section 2.04, "central" shall be defined as that portion of any Building System or component which is within the core and\or common to and\or serves or exists for the benefit of other tenants in the Building; and "branch" shall be defined as that portion of any Building System or component which serves to connect or extend control systems into the Premises. Landlord (Initials) Tenant (Initials) STD TX LEASE FORM CBI 6\95 c-1

[EXHIBIT OMITTED] Landlord (Initials) Tenant (Initials) STD TX LEASE FORM CBI 6\95 c-1-1

EXHIBIT "D" PARKING 1. At the beginning of the original Term of this Lease, Landlord shall make available to Tenant six (6) covered reserved parking permits in the area designated for parking on the Land. 2. Tenant shall indemnify and hold harmless Landlord from and against all claims, losses, liabilities, damages, costs and expenses (including, but not limited to, attorneys' fees and court costs) arising or alleged to arise out of Tenant's use of any such parking spaces. Tenant shall have no further rights to (a) any parking permit not taken at the beginning of the original Term or (b) any parking permit taken at the beginning of the original Term and thereafter released by Tenant or terminated by Landlord for failure to pay parking rent or to comply with the other terms and conditions for the leasing of such parking permit imposed by Landlord. Upon the termination of this Lease, Tenant's rights to the parking permit then being leased to Tenant hereunder shall terminate. In the event any of the above parking spaces are or become unavailable at any time or from time to time throughout the Term, whether due to casualty or any other cause, the Lease shall continue in full force and effect, and Tenant's sole remedy shall be an abatement of Parking Rent for those parking spaces rendered unavailable, which abatement shall continue until such time as said parking spaces, or substitutes therefore, again become available, it being expressly agreed and understood that Landlord shall have no duty to provide substitute parking spaces for those spaces rendered unavailable. 3. Tenant agrees to comply with all reasonable rules and regulations now or hereafter established by Landlord relating to the use of the garage by contract parking patrons. A condition of any parking shall be compliance by the parking patron with garage rules and regulations, including any sticker or other identification system established by Landlord. The following rules and regulations are in effect until notice is given to Tenant of any change. Landlord reserves the right to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the garage as it deems necessary for the operation of the garage. Landlord may refuse to permit any person who violates the rules to park in the garage, and any violation of the rules shall subject the car to removal. RULES AND REGULATIONS 1. Cars must be parked entirely within the stall lines painted on the floor. 2. All directional signs and arrows must be observed. 3. The speed limit shall be 5 miles per hour. 4. Parking is prohibited: (a) in areas not striped for parking (b) in aisles (c) where "no parking" signs are posted (d) in cross hatched areas (e) in such other areas as may be designated by Landlord or Landlord's agent(s). 5. Parking stickers or any other device or form of identification supplied by Landlord shall remain the property of the Landlord and shall not be transferable. There will be a replacement charge payable by Tenant equal to the amount posted from time to time by Landlord for loss of any magnetic parking card or parking sticker. 6. Garage managers or attendants are not authorized to make or allow any exceptions to these Rules and Regulations. 7. Every parker is required to park and lock his own car. All responsibility for damage to cars or persons is assumed by the parker. 8. No intermediate or full size cars shall be parked in parking spaces limited to compact cars. 9. All motorcycles/motorized bicycles are to be parked in the designated motorcycle area, and will be removed from the property if not in the designated area.

Failure to promptly pay the rent required hereunder or persistent failure on the part of Tenant or Tenant's designated parkers to observe the rules and regulations above shall give Landlord the right to terminate Lessee's right to use the parking structure. No such termination shall create any liability on Landlord or be deemed to interfere with Tenant's right to quiet possession of the Premises. Landlord (Initials) Tenant (Initials) STD TX LEASE FORM CBI 6\95 D-1

EXHIBIT "E" RULES AND REGULATIONS 1. The sidewalks, walks, plaza entries, corridors, concourses, ramps, staircases, escalators and elevators of the Project shall not be obstructed or used by Tenant, or the employees, agents, servants, visitors or licensees of Tenant for any purpose other than ingress and egress to and from the Premises. No bicycle or motorcycle shall be brought into the Building or kept on the Premises without the prior written consent of Landlord. 2. No freight, furniture or bulky matter of any description will be received into the Project or carried into the elevators except in such a manner, during such hours and using such elevators and passageways as may be approved by Landlord, and then only upon having been scheduled in advance. Any hand trucks, carryalls, or similar equipment used for the delivery or receipt of merchandise or equipment shall be equipped with rubber tires, side guards and such other safeguards as Landlord shall require. 3. Landlord shall have the right to prescribe the weight, position and manner of installation of safes or other heavy equipment which shall, if considered necessary by Landlord, be installed in a manner which shall insure satisfactory weight distribution. All damage done to the Project by reason of a safe or any other article of Tenant's office equipment being on the Premises shall be repaired at the expense of Tenant. The time, routing and manner of moving safes or other heavy equipment shall be subject to prior approval by Landlord. 4. Only persons authorized by Landlord will be permitted to furnish newspapers, ice, drinking water, towels, barbering, shoe shining, janitorial services, floor polishing and other similar services and concessions to Tenant, and only at hours and under regulations fixed by Landlord. Tenant shall use no other method of heating or cooling than that supplied by Landlord other than fans. 5. Tenant, or the employees, agents, servants, visitors or licensees of Tenant shall not at any time place, leave or discard any rubbish, paper, articles or objects of any kind whatsoever outside the doors of the Premises or in the corridors or passageways of the Project. No animals or birds shall be brought or kept in or about the Project. 6. Landlord shall have the right to prohibit any advertising by Tenant which, in Landlord's opinion, tends to impair the reputation of the Project or its desirability for offices and, upon written notice from Landlord, Tenant will refrain from or discontinue such advertising. 7. Tenant shall not place, or cause or allow to be placed, any sign, placard, picture, advertisement, notice or lettering whatsoever, in, about or on the exterior of the Premises, Building or Project except in and at such places as may be designated by Landlord and consented to by Landlord in writing. Any such sign, placard, advertisement, picture, notice or lettering so placed may be removed by Landlord without notice to and at the expense of Tenant. All lettering and graphics on corridor doors shall conform to the Building Standard prescribed by Landlord. No trademark shall be displayed in any event. 8. Canvassing, soliciting or peddling in the Building and/or Project is prohibited and Tenant shall cooperate to prevent same. 9. Landlord shall have the right to exclude any person from the Project other than during customary business hours as set forth in the Lease, and any person in the Project will be subject to identification by employees and agents of Landlord. All persons in or entering the Project shall be required to comply with the security policies of the Project. If Tenant desires any additional security service for the Premises, Tenant shall have the right (with the advance written consent of Landlord) to obtain such additional service at Tenant's sole cost and expense. Tenant shall keep doors to unattended areas locked and shall otherwise exercise reasonable precautions to protect property from theft, loss or damage. Landlord shall not be responsible for the theft, loss or damage of any property or for any error with regard to the exclusion from or admission to the Project of any person. In case of invasion, mob, riot or public excitement, the Landlord reserves the right to prevent access to the Project during the continuance of same by closing the doors or taking other measures for the safety of the tenants and protection of the Project and property or persons therein. 10. Only workman employed, designated or approved by Landlord may be employed for repairs, installations, alterations, painting, material moving and other similar work that may be done in or on the Premises.

11. Tenant shall not do any cooking or conduct any restaurant, luncheonette, automat or cafeteria for the sale or service of food or beverages to its employees or to others, or permit the delivery of any food or beverage to the Premises, except by such persons delivering the same as shall be approved by Landlord and only under regulations fixed by Landlord. Tenant may, however, operate a coffee bar by and for its employees. 12. Tenant shall not bring or permit to be brought or kept in or on the Premises or Project any inflammable, combustible, corrosive, caustic, poisonous, or explosive substance, or cause or permit any odors to permeate in or emanate from the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of light, radiation, magnetism, noise, odors and/or vibrations, or interfere in any way with other tenants or those having business in the Project. 13. Tenant shall not mark, paint, drill into, or in any way deface any part of the Project or the Premises. No boring, driving of nails or screws, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. Tenant shall not install any resilient tile or similar floor covering in the Premises except with the prior approval of Landlord. The use of cement or other similar adhesive material is expressly prohibited. 14. No additional locks or bolts of any kind shall be placed on any door in the Project or the Premises and no lock on any door therein shall be changed or altered in any respect. Landlord shall furnish two keys for each lock on exterior doors to the Premises and shall, on Tenant's request and at Tenant's expense, provide additional duplicate keys. Tenant shall not make duplicate keys. All keys shall be returned to Landlord upon the termination of this Lease and Tenant shall give to Landlord the explanations of the combinations of all safes, vaults and combination locks remaining with the Premises. Landlord may at all times keep a pass key to the Premises. All entrance doors to the Premises shall be left closed at all times and left locked when the Premises are not in use. Landlord (Initials) Tenant (Initials) STD TX LEASE FORM CBI 6\95 E-1

EXHIBIT "E" (Continued) 15. Tenant shall give immediate notice to Landlord in case of theft, unauthorized solicitation or accident in the Premises or in the Project or of defects therein or in any fixtures or equipment, or of any known emergency in the Project. 16. Tenant shall not use the Premises or permit the Premises to be used for photographic, multilith or multigraph reproductions, except in connection with its own business and not as a service for others without Landlord's prior permission. 17. Tenant shall not use or permit any portion of the Premises to be used as an office for a public stenographer or typist, offset printing, the sale of liquor or tobacco, a barber or manicure shop, an employment bureau, a labor union office, a doctor's or dentist's office, a dance or music studio, any type of school, or for any use other than those specifically granted in this Lease. 18. Tenant shall not advertise for laborers giving the Premises as an address, nor pay such laborers at a location in the Premises. 19. The requirements of Tenant will be attended to only upon application at the office of Landlord in the Building or at such other address as may be designated by Landlord in the Lease. Employees of Landlord shall not perform any work or do anything outside of their regular duties, unless under special instructions from the office of Landlord. 20. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Business machines and mechanical and electrical equipment belonging to Tenant which cause noise, vibration, electrical or magnetic interference, or any other nuisance that may be transmitted to the structure or other portions of the Project or to the Premises to such a degree as to be objectionable to Landlord or which interfere with the use or enjoyment by other tenants of their premises or the public portions of the Project shall be placed and maintained by Tenant, at Tenant's expense in settings of cork, rubber, spring type, or other vibration eliminators sufficient to eliminate noise or vibration. 21. No awnings, draperies, shutters or other interior or exterior window coverings that are visible from the exterior of the Building or from the exterior of the Premises within the Building may be installed by Tenant. 22. Tenant shall not place, install or operate within the Premises or any other part of the Project any engine, stove, or machinery, or conduct mechanical operations therein, without the written consent of Landlord. 23. No portion of the Premises or any other part of the Project shall at any time be used or occupied as sleeping or lodging quarters. 24. Tenant shall at all times keep the Premises neat and orderly. 25. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who or whose employees or invitees shall have caused it. 26. Landlord reserves the right to exclude or expel from the Project any person who, in the Judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the Rules and Regulations of the Project. 27. Normal business hours shall be deemed to be 8:00 a.m. through 6:00 p.m. on weekdays and 8:00 a.m. through 12:00 p.m. on Saturdays, exclusive of holidays. Holidays shall, for purposes of this Lease, be deemed to be New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. 28. Landlord reserves the right, without the approval of Tenant, to rescind, add to and amend any rules or regulations, to add new rules or regulations, and to waive any rules or regulations with respect to any tenant or tenants. 29. All tenants will refer all contractor's representatives and installation technicians who are to perform any work within the Building, grounds, and Parking Area to Landlord for Landlord's supervision, approval and control before the performance of any such work. This provision shall apply to all work performed in the Building, grounds and

Parking Area including, but not limited to, installations of telephones, telegraph equipment, electrical devices and attachments, and any and all installations of every nature effecting floors, walls, woodwork, trim, window, ceilings, equipment and any other physical portion of the Building, grounds, and Parking Area. Tenant shall not mark, paint, drill into, or in any way deface any part of the Building without Landlord's written consent. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as the Landlord may direct. All Christmas and other decorations in the Building must be flame retardant. 30. Any services which Tenant requests Landlord to perform which Landlord is not required to perform under this Lease shall, if performed by Landlord, be billed to Tenant at Landlord's cost plus a ten percent (10%) fee to cover Landlord's overhead costs. Landlord shall have the right to reasonably refuse to perform any such services. 31. The Building and all Leased Premises are designated as no smoking areas. Tenants, their employees, agents, invitees and guest shall not be allowed to smoke in any area of the Building or Leased Premises. Smoking shall only be allowed in an area so designated by the Landlord or Landlord's agent and such area may be changed from time-to-time upon prior written notice from Landlord to Tenant. Landlord (Initials) Tenant (Initials) STD TX LEASE FORM CBI 6\95 E-2

EXHIBIT "F" SPECIAL PROVISIONS 1. Option to Extend Lease: If Tenant is not in default under this Lease at the time of the exercise of this option or at the commencement of the extended Lease Term, Tenant may extend the Lease Term for one (1) extension term of five (5) years commencing on the next day after the initial Expiration Date by giving Landlord an extension notice at least nine (9) months, but not more than twelve (12) months, prior to the initial Expiration Date. If Tenant timely gives a valid extension notice, the Lease Term is extended for five (5) years upon the same terms as in the Lease, except that the Rent and other applicable terms adjust based on the Market Rate and Tenant has no further option to extend the Lease Term after this option is exercised. Within thirty (30) days after Landlord receives Tenant's extension notice, Landlord shall deliver a notice to Tenant specifying the Market Rate. If Tenant does not approve Landlord's designation of Market Rate, then Tenant, as its sole remedy, may revoke its exercise notice by delivering a revocation notice to Landlord within fifteen (15) and delivers to Landlord an Arbitration Notice (herein so called) within sixty (60) days after Tenant's receipt of Landlord's notice specifying the Market Rate, but otherwise Tenant may not revoke its extension notice. If Tenant gives a revocation notice, the Lease Term ends on the initial Expiration Date and Tenant has not further rights under this Section. 2. Expansion Option: Provided Tenant is not in default hereunder, Tenant shall have the option (the "Expansion") through March 31, 1997 to expand into such Suites 510, 520 and 530 as noted on the attached Exhibit "F-1" (Expansion Area"). The terms and conditions of such expansion area shall be mutually agreed upon by Landlord and Tenant. Landlord shall not sign a new lease on Suites 510, 520 and 530 until March 1, 1997, however, in the event Tenant and Landlord cannot mutually agree to the terms and conditions under which Tenant shall take the Expansion Area by said date, the Expansion Option shall become null and void. 3. Right of First Refusal: Provided Tenant is not in default, Tenant shall have the Right of First Refusal on all spaces on the fifth (5th) floor (the "Refusal Space") which might become available for lease throughout the Primary Term. Upon Landlord delivering written notice to Tenant that Landlord has a bona fide offer from a third party, Tenant shall have three (3) business days to either accept or reject such Right of First Refusal Space. The terms and conditions of such Right of First Refusal Space shall be the same as those in the offer to the third party, which will be outlined on the Landlord's written notice to Tenant. In the event Tenant either gives written notice that it declines the Refusal Space or does not provide notice within the established time frame Tenant's Right of First Refusal shall be aware of such space and Landlord shall be unencumbered to lease such Refusal Space. 4. Prepaid Rent. Tenant shall pay to Landlord $24,734.50 prior to taking occupancy of the Premises. 5. Cap on Controllable Operating Expense: Tenant shall not be liable for any controllable operating expense escalations which are in excess of 10% in any given year. Landlord (Initials) Tenant (Initials) STD TX LEASE FORM CBI 6\95 F-1

[EXHIBIT OMITTED] Landlord (Initials) Tenant (Initials) STD TX LEASE FORM CBI 6\95 F-1-1

EXHIBIT 10.5.1 FIRST AMENDMENT TO LEASE AGREEMENT THIS FIRST AMENDMENT TO LEASE AGREEMENT (hereinafter called the "First Amendment") entered into this 13th day of February, 1997, by and between SOARING EAGLES ORCHARDS, INC., a Washington corporation, (hereinafter called "Landlord" or "Lessor") and MISSION CRITICAL SOFTWARE, INC. (hereinafter called "Tenant" or "Lessee"). WITNESSETH: WHEREAS, under that certain Lease Agreement dated October 22, 1996 (hereinafter called the "Lease"), by and between Tenant and Landlord, Tenant leased approximately 7,067 rentable square feet of space (hereinafter called the "Leased Premises") on the fifth (5th) floor of the 720 North Post Oak Road Office Building (hereinafter called the "Building") situated at 720 North Post Oak Road, Houston, Texas for a term of sixty-four (64) months; WHEREAS, Landlord and Tenant have agreed to amend the Lease to expand the Leased Premises, subject to the terms and conditions set forth herein; and WHEREAS, Landlord and Tenant have agreed to further amend the terms of the Lease upon the terms and conditions contained herein. NOW, THEREFORE, as of the Commencement Date (hereinafter defined) it is mutually covenant and agreed as follows: 1. EXPANSION AREA: The Premises shall be expanded by 2,205 square feet of net rentable area ("NRA") as shown on the attached Exhibit "A", "First Expansion" creating a new square footage for the Premises of 9,272 square feet of NRA. 2. PRIMARY TERM: The Term of the Expansion Area shall commence March 1, 1997 and terminate on March 31, 2002. 3. BASE RENT: The Base Rent payment for the entire Premises shall be as follows: March 1, 1997 through March 31, 1997: $0.00 monthly April 1, 1997 through May 31, 1997: $6,874.18 monthly June 1, 1997 through May 31, 1998: $9,814.18 monthly June 1, 1998 through March 31, 2002: $8,895.43 monthly 4. TENANT'S INITIAL PRO RATA SHARE: Commencing March 1, 1997 the Tenant's Pro Rata Share for the Building is changed from 7.6% to 10%. 5. TENANT'S IMPROVEMENTS: Landlord shall provide Tenant with an allowance of $22,050.00 for the sole purposes of improving the Leased Premises. Any additional costs shall be paid for by the Tenant prior to Tenant taking occupancy of the First Expansion Area. 6. EXPANSION OPTION: Should Tenant expand into Suite 530 containing approximately 1,455 square feet of NRA as shown on the attached Exhibit "B", "Future Expansion" prior to June 1, 1997. Tenant shall have the option to use the following terms and conditions: Months 1-3: $0.00 per square foot Months 4-15: $16.00 per square foot annually Month 16 through March 31, 2002: $11.00 per square foot annually Tenant Improvements: $10.00 per square foot of NRA 7. Unless otherwise defined herein all capitalized terms shall have the same meaning as identified in the Lease. 1

8. This First Amendment supersedes all previous legal documents between Tenant and Landlord and except as specifically herein amended, all other terms and conditions of the Lease shall remain in full force and effect throughout the term of this First Amendment. 9. The submission of this First Amendment to Tenant shall not be construed as an offer, reservation or option. Tenant has no additional rights under this Lease unless Tenant and Landlord execute this First Amendment and Landlord delivers the executed First Amendment to Tenant. IN WITNESS WHEREOF, the parties hereto executed this First Amendment to Lease Agreement as of the day and year hereinabove written. LANDLORD: SOARING EAGLES ORCHARDS, INC., a Washington Corporation by Cummings-Baccus Interests its authorized agent BY: /s/ M. Buckner Baccus --------------------------------- NAME: M. Buckner Baccus TITLE: Vice President TENANT: MISSION CRITICAL SOFTWARE INC. BY: /s/ Paul F. Koffend, Jr. --------------------------------- NAME: Paul F. Koffend, Jr. TITLE: Chief Financial Officer 2

[EXHIBIT OMITTED] 3

[EXHIBIT OMITTED] 4

Exhibit 10.5.2 SECOND AMENDMENT TO LEASE AGREEMENT THIS SECOND AMENDMENT TO LEASE AGREEMENT (hereinafter called the "Second Amendment") entered into this 1st day of April, 1997, by and between SOARING EAGLES ORCHARDS, INC., a Washington corporation, (hereinafter called "Landlord" or "Lessor") and MISSION CRITICAL SOFTWARE, INC. (hereinafter called "Tenant" or "Lessee"). WITNESSETH: WHEREAS, under that certain Lease Agreement dated October 22, 1996 (hereinafter called the "Lease"), by and between Tenant and Landlord, Tenant leased approximately 7,067 rentable square feet of space (hereinafter called the "Leased Premises") on the fifth (5th) floor of the 720 North Post Oak Road Office Building (hereinafter called the "Building") situated at 720 North Post Oak Road, Houston, Texas for a term of sixty-four (64) months; WHEREAS, Landlord and Tenant amended the Lease by the First Amendment to Lease Agreement dated February 13, 1997 where Tenant expanded by 2,205 square feet of net rentable area; and WHEREAS, Landlord and Tenant agree that the Lease Agreement and First Amendment to Lease Agreement shall be collectively referred to as the "Lease". WHEREAS, Landlord and Tenant have agreed to further amend the terms of the Lease upon the terms and conditions contained herein. NOW, THEREFORE, as of June 1, 1997, hereinafter deemed to be the Effective Date, it is mutually covenant and agreed as follows: 1. EXPANSION AREA: The Premises shall be expanded by 1,455 square feet of net rentable area ("NRA") as shown on the attached Exhibit "A", "Second Expansion" creating a new square footage for the Premises of 10,727 square feet of NRA. 2. PRIMARY TERM: The Term of the Expansion Area shall commence June 1, 1997 (the "Commencement Date") and terminate on March 31, 2002. 3. BASE RENT: The Base Rent payment for the entire Premises shall be as follows: June 1, 1997 through August 31, 1997: $9,814.18 monthly September 1, 1997 through May 31, 1998: $11,754.18 monthly June 1, 1998 through August 31, 1998: $10,835.43 monthly September 1, 1998 through March 31, 2002: $10,229.18 monthly 4. TENANT'S INITIAL PRO RATA SHARE: Commencing June 1, 1997 the Tenant's Pro Rata Share for the Building is changed from 10.00% to 11.12%. 5. TENANT'S IMPROVEMENTS: Landlord shall provide Tenant with an allowance of $14,550.00 for the sole purposes of improving the Leased Premises which shall include, architectural fees of $.55 psf, construction management fees equal to 5% of the total cost of construction and appropriate state sales tax. Any additional costs shall be paid for by the Tenant prior to Tenant taking occupancy of the Second Expansion Area. Landlord reserves the right to approve Tenant's improvements to the Second Expansion Space. 6. Unless otherwise defined herein all capitalized terms shall have the same meaning as identified in the Lease. 7. This Second Amendment supersedes all previous legal documents between Tenant and Landlord and except as specifically herein amended, all other terms and conditions of the Lease shall remain in full force and effect throughout the term of this Second Amendment. 1

8. The submission of this Second Amendment to Tenant shall not be construed as an offer, reservation or option. Tenant has no additional rights under this Lease unless Tenant and Landlord execute this Second Amendment and Landlord delivers the executed Second Amendment to Tenant. IN WITNESS WHEREOF, the parties hereto executed this Second Amendment to Lease Agreement as of the day and year hereinabove written. LANDLORD: SOARING EAGLES ORCHARDS, INC., a Washington Corporation by Cummings-Baccus Interests its authorized agent BY: /s/ M. Buckner Baccus ------------------------------------ NAME: M. Buckner Baccus TITLE: Vice President TENANT: MISSION CRITICAL SOFTWARE, INC. BY: /s/ Paul F. Koffend, Jr. ------------------------------------ NAME: Paul F. Koffend, Jr. TITLE: Chief Financial Officer 2

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Exhibit 10.5.3 THIRD AMENDMENT TO LEASE AGREEMENT THIS THIRD AMENDMENT TO LEASE AGREEMENT (hereinafter called the "Third Amendment") entered into this 22ND day of JULY, 1997, by and between SOARING EAGLES ORCHARDS, INC., a Washington Corporation, (hereinafter called "Landlord" or "Lessor") and Mission Critical Software, Inc. (hereinafter called "Tenant" or "Lessee"). WITNESSETH: WHEREAS, under that certain Lease Agreement dated October 22, 1996 (hereinafter called the "Lease"), by and between Tenant and Landlord, Tenant leased approximately 7,067 rentable square feet of space (hereinafter called the "Leased Premises") on the fifth (5th) floor of the 720 North Post Oak Road Office Building (hereinafter called the "Building") situated at 720 North Post Oak Road, Houston, Texas for a term of sixty-four (64) months; WHEREAS, Landlord and Tenant amended the Lease by the First Amendment to Lease Agreement dated February 13, 1997 where Tenant expanded the Premises by an additional 2,205 square feet of Rentable Area creating a new total square footage for the Premises of 9,272 square feet of Rentable Area; and WHEREAS, Landlord and Tenant amended the Lease by the Second Amendment to Lease Agreement dated April 1, 1997 where Tenant expanded the Premises by an additional 1,455 square feet of Rentable Area creating a new total square footage for the Premises of 10,727 square feet of Rentable Area; and WHEREAS, Landlord and Tenant have agreed to further amend the terms of the Lease upon the terms and conditions contained herein. NOW, THEREFORE, as of the November 1, 1997 (hereinafter defined) it is mutually covenant and agreed as follows: 1. EXPANSION AREA: The Premises shall be expanded in two (2) stages as outlined below: A. The "Third Expansion" shall expand the premises by an additional 1,801 square feet of Rentable Area as shown on the attached Exhibit A, creating a new total Rentable Area of 12,528 square feet. B. The "Fourth Expansion" shall expand the premises by an additional 19,170 square feet of Rentable Area as shown on the attached Exhibit B and Exhibit B-1, creating a new total Rentable Area of 31,698 square feet. 2. PRIMARY TERM: The Term of the "Third Expansion" shall commence on November 1, 1997 or upon Tenant's possession of the "Third Expansion" area, whichever occurs first. The "Fourth Expansion" shall commence on February 1, 1998 or upon Tenant's possession of the Fourth Expansion which ever occurs first. The Term of the Lease shall continue until the expiration date of the Lease which shall be revised and extended to January 31, 2003. 3. BASE RENT: Effective November 1, 1997, the Base Rent for the Premises shall be as follows: <TABLE> <CAPTION> <S> <C> <C> <C> November 1, 1997 through January 31, 1998 $13,630.22 February 1, 1998 through May 31, 1998 $33,598.97 June 1, 1998 through August 31, 1998 $32,680.22 September 1, 1998 through January 31, 2001 $32,073.97 February 1, 2001 through March 31, 2002 $34,695.35 April 1, 2002 through January 31, 2003 $36,981.00 </TABLE> 1

4. TENANTS INITIAL PRO RATA SHARE: Commencing November 1, 1997 the Tenant's Initial Pro Rata Share for the building shall be 13.15%, and commencing February 1, 1998 the Tenants Initial Pro Rata Share shall be 33.27%. 5. TENANT IMPROVEMENTS: Tenant accepts the "Third Expansion" and "Fourth Expansion in their current "as-is" condition and Landlord shall not be liable or required to make any improvements to such space. 6. CANCELLATION OPTION: On August 1, 2000, Tenant shall have the option to cancel all or a portion of Leased Premises so long as Tenant provides six (6) months prior written notice to Landlord along with a payment in cash equal to $14.00 for each square foot of Rentable Area to be vacated. However, should the space which Tenant decides to cancel be less than 10,000 square feet in Rentable Area, Landlord shall have the option to, at Landlord's sole and absolute discretion, approve the location of such partial reduction in space. 7. RIGHT OF FIRST REFUSAL: Lessor hereby grants Lessee a Right of First Refusal ("Refusal Right") with respect to any space on the sixth (6th) floor of the building; However, the Refusal Right may not be exercised during any time when there is an uncured Event of Default under the Lease. Additionally, the Refusal Right shall be subject to the rights of any Lessee presently occupying space in the Building, as of the date of execution of this amendment. If any space subject to the Refusal Right becomes available and Lessor receives an offer from a third party to lease all or part of the Refusal Space which Lessor desires to accept, Lessor shall so notify Lessee ("Refusal Notice"), describing the general terms of the offer (i.e. rent, location of the premises, size of the premises, length of the term, improvement allowance (if any)). Lessee shall have five (5) days from the receipt of the Refusal Notice to notify Lessor in writing of the desire by Lessee to exercise Lessee's Refusal Right with respect to the subject Refusal Space, which shall be on the same terms and conditions with respect to the entire space as set forth in the Refusal Notice. If Lessee fails to so notify Lessor within such five (5) day period, Lessee shall be deemed to have irrevocably waived its Refusal Right and Lessor shall have the right to enter into a lease with any party with respect to that portion of the Refusal Space. If Lessee properly exercised its Refusal Right in the manner and within the time period specified herein, Lessor and Lessee shall, within thirty (30) days after Lessee delivers to Lessor notice of its election, enter into a written amendment modifying and supplementing the Lease and containing such other terms and provisions as Lessor may reasonably deem appropriate. If Lessee fails to enter into such amendment within the thirty (30) day period, Lessee shall be deemed to have irrevocably waived its Refusal Right for said particular space, and Lessor shall have the right to enter into a lease with any party with respect to that portion of the Refusal Space. The Refusal Right shall automatically terminate upon the termination of the Lease. 8. Unless otherwise defined herein all capitalized terms shall have the same meaning as identified in the Lease. 9. This Third Amendment supersedes all previous legal documents between Tenant and Landlord and except as specifically herein amended, all other terms and conditions of the Lease shall remain in full force and effect throughout the term of this Third Amendment. 10. The submission of this Third Amendment to Tenant shall not be construed as an offer, reservation or option. Tenant has no additional rights under this lease unless Tenant and Landlord execute this Third Amendment, and Landlord delivers the executed Third Amendment to Tenant. 2

IN WITNESS WHEREOF, the parties hereto executed this Third Amendment to Lease Agreement as of the day and year hereinabove written. LANDLORD: SOARING EAGLES ORCHARDS, INC., a Washington Corporation by Cummings-Baccus Interest its authorized agent By: /s/ M. Buckner Baccus -------------------------------------- Name: M. Buckner Baccus Title: Vice President TENANT: MISSION CRITICAL SOFTWARE, INC. By: /s/ Paul F. Koffend, Jr. --------------------------------------- Name: PAUL F. KOFFEND, JR. Title: CFO 3

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Exhibit 10.6.1 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of January 23, 1998, by and between Mission Critical Software, Inc. ("Borrower") whose address is 720 North Post Oak Road, Suite 505, Houston, TX 77024 and Silicon Valley Bank a California-chartered bank ("Silicon") with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 with a loan production office located at 9442 Capital of Texas Highway North, Arboretum Plaza One, Austin, TX 78759. 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by Borrower to Silicon, Borrower is indebted to Silicon pursuant to, among other documents, a QuickStart Loan and Security Agreement (and Schedules thereto) dated February 7, 1997, as may be amended from time to time, (the "Loan Agreement"). The Loan Agreement provided for, among other things, a Credit Limit the original principal amount of Seven Hundred Fifty Thousand and 00/100 Dollars ($750,000,000). Defined terms used but not otherwise defined herein shall have the same meanings as in the Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Silicon shall be referred to as the "Indebtedness." 2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the indebtedness is secured by the Collateral as described in the Loan Agreement. Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Indebtedness shall be referred to as the "Security Documents". Hereinafter, the Security Documents, together with all other documents evidencing or securing the indebtedness shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. A. MODIFICATION(S) TO LOAN AGREEMENT. 1. Subparagraph (h) is hereby incorporated into Section 5 entitled "Events of Default and Remedies" to read as follows: (h) Borrower's failure to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Silicon and Borrower. B. MODIFICATION(S) TO SCHEDULE (EQUIPMENT ADVANCES). 1. The paragraph entitled "Credit Limit (Equipment)" is hereby amended in its entirety to read as follows: $750,000,000 (such amount to be funded under the aggregate Credit Limit). Equipment Advances will be made only on or prior to March 7, 1998 (the "Last Advance Date") and only for the purpose of purchasing equipment reasonably acceptable to Silicon. Borrower must provide invoices for the equipment to Silicon on or before the Last Advance Date. Equipment Advances shall be allowed up to 85% of eligible existing equipment and 100% of new equipment purchases excluding taxes, shipping, software and installation expenses. Eligible equipment shall consist of invoices dated after July 1, 1997.

2. The first sentence of the paragraph entitled "Interest Rate" is hereby amended in its entirety to read as follows: A rate equal to the "Prime Rate" in effect from time to time. 2. The paragraph entitled "Maturity Date" is hereby amended in its entirety to read as follows: After the Last Advance Date, the unpaid principal balance of the Equipment Advances shall be repaid in thirty (30) equal monthly installments of principal plus interest commencing on April 7, 1998 and continuing on the same day of each month thereafter until the entire unpaid principal balance and all accrued unpaid interest of the Equipment Advances have been paid (subject to Silicon's right to accelerate the Equipment Advances on a Event of Default). 4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing below) agrees that, as of the date hereof, it has no defenses against the obligations to pay any amounts under the indebtedness. 6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below) understands and agrees that in modifying the existing indebtedness, Silicon is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan documents remain unchanged and in full force and effect. Silicon's agreement to modifications to the existing indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Silicon to make any future modifications to the indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the indebtedness. It is the intention of Silicon and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Silicon in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. This Loan Modification Agreement is executed as of the date first written above. BORROWER: SILICON: MISSION CRITICAL SOFTWARE, INC. SILICON VALLEY BANK By: /s/ Louis R. Woodhill By: /s/ Stuart Edwards ----------------------------- ------------------------------- Name: Louis R. Woodhill Name: Stuart Edwards --------------------------- ----------------------------- Title: President Title: Vice President -------------------------- ---------------------------- 2

EXHIBIT 10.6.2 LOAN AND SECURITY AGREEMENT BETWEEN SILICON VALLEY BANK AND MISSION CRITICAL SOFTWARE, INC.

TABLE OF CONTENTS Page ---- RECITALS.................................................................. 1 AGREEMENT................................................................. 1 1. DEFINITIONS AND CONSTRUCTION..................................... 1 1.1 Definitions................................................ 1 1.2 Accounting and Other Terms................................. 9 2. LOAN AND TERMS OF PAYMENT........................................ 9 2.1 Credit Extensions.......................................... 9 2.2 Overadvances............................................... 10 2.3 Interest Rates, Payments, and Calculations................. 10 2.4 Crediting Payments......................................... 11 2.5 Fees....................................................... 12 2.6 Additional Costs........................................... 12 2.7 Term....................................................... 13 3. CONDITIONS OF LOANS.............................................. 13 3.1 Conditions Precedent to Initial Credit Extension........... 13 3.2 Conditions Precedent to all Credit Extensions.............. 14 4. CREATION OF SECURITY INTEREST.................................... 14 4.1 Grant of Security Interest................................. 14 4.2 Delivery of Additional Documentation Required.............. 14 4.3 Right to Inspect........................................... 14 5. REPRESENTATIONS AND WARRANTIES................................... 14 5.1 Due Organization and Qualification......................... 14 5.2 Due Authorization; No Conflict............................. 15 5.3 No Prior Encumbrances...................................... 15 5.4 Bona Fide Eligible Accounts................................ 15 5.5 Merchantable Inventory..................................... 15 5.7 Name; Location of Chief Executive Office................... 15 5.8 Litigation................................................. 16 5.9 No Material Adverse Change in Financial Statements......... 16 5.10 Solvency................................................... 16 5.11 Regulatory Compliance...................................... 16 5.12 Environmental Condition.................................... 16 5.13 Taxes...................................................... 17 5.14 Subsidiaries............................................... 17 5.15 Government Consents........................................ 17 5.16 Full Disclosure............................................ 17 6. AFFIRMATIVE COVENANTS............................................ 17 6.1 Good Standing.............................................. 17 6.2 Government Compliance...................................... 17 6.3 Financial Statements, Reports, Certificates................ 17 6.4 Inventory; Returns......................................... 18 i

Page ---- 6.5 Taxes...................................................... 18 6.6 Insurance.................................................. 19 6.7 Quick Ratio................................................ 19 6.8 Debt-Tangible Net Worth Ratio.............................. 19 6.9 Tangible Net Worth......................................... 19 6.10 Registration of Intellectual Property Rights............... 19 6.11 Further Assurances......................................... 20 7. NEGATIVE COVENANTS............................................... 20 7.1 Dispositions............................................... 20 7.2 Changes in Business, Ownership, Management or Business Locations.................................... 20 7.3 Mergers or Acquisitions.................................... 20 7.4 Indebtedness............................................... 21 7.5 Encumbrances............................................... 21 7.6 Distributions.............................................. 21 7.7 Investments................................................ 21 7.8 Transactions with Affiliates............................... 21 7.9 Intellectual Property Agreements........................... 21 7.10 Subordinated Debt.......................................... 21 7.11 Inventory.................................................. 21 7.12 Compliance................................................. 21 8. EVENTS OF DEFAULT................................................ 22 8.1 Payment Default............................................ 22 8.2 Covenant Default........................................... 22 8.3 Material Adverse Change.................................... 22 8.4 Attachment................................................. 22 8.5 Insolvency................................................. 23 8.6 Other Agreements........................................... 23 8.7 Subordinated Debt.......................................... 23 8.8 Judgments.................................................. 23 8.9 Misrepresentations......................................... 23 9. BANK'S RIGHTS AND REMEDIES....................................... 23 9.1 Rights and Remedies........................................ 23 9.2 Power of Attorney.......................................... 25 9.3 Accounts Collection........................................ 25 9.4 Bank Expenses.............................................. 25 9.5 Bank's Liability for Collateral............................ 26 9.6 Remedies Cumulative........................................ 26 9.7 Demand; Protest............................................ 26 10. NOTICES.......................................................... 26 11. CHOICE OF LAW AND VENUE.......................................... 27 12. GENERAL PROVISIONS............................................... 27 12.1 Successors and Assigns..................................... 27 12.2 INDEMNIFICATION............................................ 27 12.3 Time of Essence............................................ 27 12.4 Severability of Provisions................................. 27 ii

Page ---- 12.5 Amendments in Writing, Integration......................... 28 12.6 Counterparts............................................... 28 12.7 Survival................................................... 28 12.9 WAIVER OF JURY TRIAL....................................... 28 12.10 NOTICE OF ORAL AGREEMENT................................... 29 EXHIBIT A........................................................ A-1 EXHIBIT B........................................................ B-1 EXHIBIT C........................................................ C-1 EXHIBIT D........................................................ D-1 iii

LOAN AND SECURITY AGREEMENT This LOAN AND SECURITY AGREEMENT is entered into as of January 26, 1998, by and between SILICON VALLEY BANK, a California-chartered bank ("Bank") with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at 9020 Capital of Texas Highway North, Building 1, Suite 350, Austin, Texas 78759 and Mission Critical Software, Inc., a Delaware corporation ("Borrower"). R E C I T A L S Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank. AGREEMENT The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: "Accounts" means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing. "Advance" or "Advances" means a loan advance under the Committed Revolving Line. "Affiliate" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, such Person's, managers and members. "Bank Expenses" means all reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents (excluding those attorneys' fees incurred by Bank in connection with the preparation and negotiation of this Agreement); and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal or review, or those incurred in any Insolvency 1

Proceeding) whether or not suit is brought and those attorneys' fees and expenses assessed in favor of Bank by a court of competent jurisdiction. "Borrower's Books" means all of Borrower's books and records including, without limitation: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information. "Borrowing Base" means an amount equal to eighty percent (80%) of Eligible Accounts plus the Foreign Amount Add-Back, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower. "Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of Texas or the State of California are authorized or required to close. "Closing Date" means the date of this Agreement. "Code" means the Uniform Commercial Code as in effect in the State of Texas from time to time. "Collateral" means the property described on Exhibit A attached hereto. "Committed Revolving Line" means a credit extension of up to Three Million and No/100 Dollars ($3,000,000.00). "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement. "Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held. 2

"Credit Extension" means each Advance and any other extension of credit by Bank for the benefit of Borrower hereunder. "Current Assets" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of Borrower and its Subsidiaries as at such date. "Current Liabilities" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding Credit Extensions made under this Agreement, including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendable at the option of Borrower or any Subsidiary to a date more than one year from the date of determination, but excluding Subordinated Debt. "Eligible Accounts" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of Borrower's representations and warranties to Bank set forth in Section 5.4; provided, that standards of eligibility may be fixed and revised from time to time by Bank in Bank's reasonable judgment and upon thirty days prior notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank in writing, Eligible Accounts shall not include the following: (a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice date; (b) Accounts with respect to an account debtor, fifty percent (50%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date; (c) Accounts with respect to an account debtor, including Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank; (d) Accounts with respect to which the account debtor does not have its principal place of business in the United States; provided Bank will allow, as part of the Borrowing Base, an amount that, in the aggregate and from time to time, does not exceed the lesser of (i) eighty percent (80%) of the total of all Foreign Accounts and (ii) twenty percent (20%) of the total of all Eligible Accounts and (iii) Five Hundred Thousand and No/100 Dollars ($500,000.00) (the lesser of (i), (ii) and (iii) to be the "Foreign Amount Add-Back"); (e) Accounts with respect to which the account debtor is a federal, state, or local governmental entity or any department, agency, or instrumentality thereof; (f) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent 3

of any amounts owing to the account debtor (sometimes referred to as "contra" accounts, e.g. accounts payable, customer deposits, credit accounts etc.); (g) Accounts generated by demonstration or promotional equipment, or with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional; (h) Accounts with respect to which the account debtor is an Affiliate, officer, employee, or agent of Borrower, except those Accounts that are included pursuant to and in accordance with (d) above; (i) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and (j) Accounts the collection of which Bank reasonably determines to be doubtful. "Equipment" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "Foreign Accounts" means Accounts with respect to which the account debtor does not have its principal place of business in the United States. "GAAP" means generally accepted accounting principles as in effect in the United States from time to time. "Indebtedness" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations. "Insolvency Proceeding" means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "Intellectual Property Collateral" means 4

(a) Copyrights, Trademarks, Patents, and Mask Works and all other intellectual property rights referred to the Intellectual Property Security Agreement and exhibits thereto, as may be revised, amended or modified from time to time; (b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held; (d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above and such claims shall exist in favor of Bank without any further action by Borrower; (e) All licenses or other rights to use any of the Copyrights, Patents, Trademarks, or Mask Works, and all license fees and royalties arising from such use to the extent permitted by such license or rights; (f) All amendments, renewals and extensions of any of the Copyrights, Trademarks, Patents, or Mask Works; and (g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "Inventory" means all present and future goods or other inventory, including software, in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such goods or other inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above. "Investment" means any beneficial ownership (including stock, partnership interest or other securities) of any Person, or any loan, advance or capital contribution to any Person. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. "Loan Documents" means, collectively, this Agreement, any note or notes that may be executed by Borrower in favor of Bank, and any other present or future agreement entered 5

into between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated from time to time. "Mask Works" means all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired. "Material Adverse Effect" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents. "Maximum Lawful Rate" means the maximum rate of interest and the term "Maximum Lawful Amount" means the maximum amount of interest that are permissible under applicable state or federal law for the type of loan evidenced by the Loan Documents. If the Maximum Lawful Rate is increased by statute or other governmental action subsequent to the date of this Agreement, then the new Maximum Lawful Rate shall be applicable to the payments provided for hereunder from the effective date thereof, unless otherwise prohibited by applicable law. "Negotiable Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper. "Obligations" means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise. "Patents" means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same. "Payment Date" means the 25th calendar day of each month commencing on the first such date after the Closing Date and ending on the Revolving Maturity Date. "Permitted Indebtedness" means: (a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document; (b) Indebtedness existing on the Closing Date and disclosed in the Schedule; (c) Subordinated Debt; 6

(d) Indebtedness to trade creditors incurred in the ordinary course of business; and (e) Indebtedness secured by Permitted Liens. "Permitted Investment" means: (a) Investments existing on the Closing Date disclosed in the Schedule; and (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America, any State or any agency or instrumentality thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank. "Permitted Liens" means the following: (a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and as to which adequate reserves are maintained on Borrower's Books in accordance with GAAP, provided the same have no priority over any of Bank's security interests; (c) Liens (i) upon or in any Equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment; (d) Leases or subleases and licenses or sublicenses granted to others in the ordinary course of Borrower's business not interfering in any material respect with the business of Borrower and its Subsidiaries taken as a whole, and any interest or title of a lessor, licensor or under any lease or license provided that such leases, subleases, licenses and sublicenses do not prohibit the grant of the security interest granted hereunder; and (e) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase. 7

"Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency. "Prime Rate" means the variable rate of interest, per annum, most recently announced by Bank as its "prime rate," whether or not such announced rate is the lowest rate available from Bank. "Quick Assets" means, as of any applicable date, the consolidated cash, cash equivalents, accounts receivable and investments with maturities of fewer than ninety (90) days of Borrower determined in accordance with GAAP. "Responsible Officer" means each of the Chief Executive Officer, the President, the Chief Financial Officer and the Chief Technical Officer of Borrower. "Revolving Maturity Date" means January 25, 1999. "Schedule" means the schedule of exceptions attached hereto, if any. "Subordinated Debt" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and Bank). "Subsidiary" means with respect to any Person, corporation, partnership, company association, joint venture, or any other business entity of which more than fifty percent (50%) of the voting stock or other equity interests is owned or controlled, directly or indirectly, by such Person or one or more Affiliates of such Person. "Tangible Net Worth" means as of any applicable date, the consolidated total assets of Borrower and its Subsidiaries minus, without duplication, (i) the sum of any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, and (c) all reserves not already deducted from assets, and (ii) Total Liabilities. "Total Liabilities" means as of any applicable date, any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheet of Borrower, including in any event all Indebtedness, but specifically excluding Subordinated Debt. "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks. 8

1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations and determinations made hereunder shall be made in accordance with GAAP. When used herein, the term "financial statements" shall include, for all statements other than interim statements, the notes and schedules thereto. The terms "including" and "includes" shall always be read as meaning "including (or includes) without limitation", when used herein or in any other Loan Document. 2. LOAN AND TERMS OF PAYMENT 2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower also promises to pay interest on the unpaid principal amount of such Advances at rates in accordance with the terms hereof. 2.1.1 (a) Subject to and upon the terms and conditions of this Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding amount not to exceed (i) the lesser of the Committed Revolving Line and the Borrowing Base minus (ii) the amount advanced pursuant to Section 2.1.2 hereof. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time during the term of this Agreement. (b) Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 5:00 p.m. Central time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. BANK SHALL BE ENTITLED TO RELY ON ANY TELEPHONIC REQUEST FOR AN ADVANCE FROM ANY PERSON WHO BANK REASONABLY BELIEVES TO BE A RESPONSIBLE OFFICER OR A DESIGNEE THEREOF, AND BORROWER SHALL INDEMNIFY AND HOLD BANK HARMLESS FOR ANY DAMAGES OR LOSS SUFFERED BY BANK AS A RESULT OF SUCH RELIANCE. Bank will credit the amount of Advances made under this Section 2.1 to Borrower's deposit account. (c) The Committed Revolving Line shall terminate on the Revolving Maturity Date, at which time all Advances under this Section 2.1 and other amounts due under this Agreement (except as otherwise expressly specified herein) shall be immediately due and payable. 2.1.2 MERCHANT CARD SUBLIMIT. Subject to the terms and conditions of this Agreement, Bank agrees to make Advances for the account of Borrower with respect to any merchant card facility or other third party facility that extends credit to Borrower on a revolving account basis; provided, the aggregate amount advanced to Borrower pursuant to this Section 2.1.2 shall not in any case exceed Sixty Thousand and No/100 Dollars ($60,000.00) at any one time. 2.2 OVERADVANCES. If, at any time or for any reason, the amount of Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this Agreement is greater than the 9

lesser of the Committed Revolving Line and the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of such excess. 2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS. (a) INTEREST RATE. Except as set forth in Section 2.3(b), Advances shall bear interest, on the average daily balance thereof, at a per annum rate equal to the Prime Rate. (b) DEFAULT RATE. All Obligations shall bear interest, from and after the occurrence of an Event of Default, at the "Default Interest Rate." The Default Interest Rate shall be, at Bank's option, (i) the interest rate applicable immediately prior to the occurrence of the Event of Default plus five (5) percentage points or (ii) such lesser rate of interest as Bank in its sole discretion may choose to charge; but never more than the Maximum Lawful Rate or at a rate that would cause the total interest contracted for, charged or received by Bank to exceed the Maximum Lawful Amount. (c) PAYMENTS. Interest hereunder shall be due and payable on each Payment Date. Any interest not paid when due shall be compounded daily and become a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. (d) COMPUTATION. (i) CHANGES. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. (ii) SPREADING OF INTEREST. Because of the possibility of irregular periodic balances of principal, the fluctuating nature of the interest rate, or premature payment, the total interest that will accrue under this Agreement cannot be determined in advance. Bank does not intend to contract for, charge or receive more than the Maximum Lawful Rate or Maximum Lawful Amount permitted by applicable state or federal law, and, to prevent such an occurrence, Bank and Borrower agree that all amounts of interest, whenever contracted for, charged or received by Bank, with respect to the loan of money evidenced by the Loan Documents, shall be spread, prorated or allocated over the full period of time the Obligations are unpaid, including the period of any renewal or extension thereof. If the maturity of the Obligations is accelerated for any reason whether as a lawsuit or an Event of Default or otherwise prior to the full stated term, the total amount of interest contracted for, charged or received to the time of such demand shall be spread, prorated or allocated along with any interest thereafter accruing over the full period of time that the Obligations thereafter remain unpaid for the purpose of determining if such interest exceeds the Maximum Lawful Amount. (iii) EXCESS INTEREST. At maturity (whether by acceleration or otherwise) or on earlier final payment of the Obligations, Bank shall compute the total amount of interest that has been contracted for, charged or received by Bank or payable by Borrower hereunder and compare such amount to the Maximum Lawful Amount that could have been contracted for, charged or received by Bank. If such computation reflects that the total amount of interest that has been contracted for, charged or received by Bank or payable by Borrower exceeds the Maximum Lawful Amount, then Bank shall apply such excess to the reduction of the principal balance and not 10

to the payment of interest; or if such excess interest exceeds the unpaid principal balance, such excess shall be refunded to Borrower. This provision concerning the crediting or refund of excess interest shall control and take precedence over all other agreements between Borrower and Bank so that under no circumstances shall the total interest contracted for, charged or received by Bank exceed the Maximum Lawful Amount. (iv) DAILY COMPUTATION OF INTEREST. To the extent permitted by applicable law, Bank at its option may either (i) calculate the per diem interest rate or amount based on the actual number of days in the year (365 or 366, as the case may be), and charge that per diem interest rate or amount each day, or (ii) calculate the per diem interest rate or amount as if each year has only 360 days, and charge that per diem interest rate or amount each day for the actual number of days of the year (365 or 366 as the case may be). If the Loan Documents call for monthly payments, Bank at its option may determine the payment amount based on the assumption that each year has only 360 days and each month has 30 days. In no event shall Bank compute the interest in a manner that would cause Bank to contract for, charge or receive interest that would exceed the Maximum Lawful Rate or the Maximum Lawful Amount. (v) REVOLVING LOAN ACCOUNTS AND USURY CEILING. In no event shall Chapter 346 of the Texas Finance Code, as supplemented by the Texas Credit Title ("Texas Finance Code")(which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Agreement or Borrower's payment obligations hereunder. To the extent that Chapter 303 of the Texas Finance Code, is applicable to this Agreement, the "weekly ceiling" specified in such Chapter 303 is the applicable ceiling; provided that, if any applicable law permits greater interest, the law permitting the greatest interest shall apply. 2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment, whether directed to Borrower's deposit account with Bank or to the Obligations or otherwise, shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment in respect of the Obligations unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 2:00 p.m. Central time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension. 2.5 FEES. Borrower shall pay to Bank the following: (a) FACILITY FEE. A Facility Fee equal to Seven Thousand Five Hundred and No/100 Dollars ($7,500.00), which fee shall be due on the Closing Date and shall be fully earned and non-refundable; 11

(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary fees and reasonable out-of-pocket expenses for Bank's audits of Borrower's Accounts performed in accordance with Section 6.3 below, and for each appraisal of Collateral and financial analysis and examination of Borrower performed from time to time by Bank or its agents; (c) BANK EXPENSES. Upon demand from Bank, including, without limitation, upon the date hereof, all Bank Expenses incurred through the date hereof, including reasonable attorneys' fees and expenses, and, after the date hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due. 2.6 ADDITIONAL COSTS. In case any change in law, regulation, treaty or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law), in each case after the date of this Agreement: (a) subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof); (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or (c) imposes upon Bank any other condition with respect to its performance under this Agreement, and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement of the amount and setting forth Bank's calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error. Bank agrees that it will allocate all such increased costs among its customers similarly affected in good faith and in a manner consistent with Bank's customary practice. 2.7 TERM. Except as otherwise set forth herein, this Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for a term ending on the Revolving Maturity Date. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination of this Agreement, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding. 3. CONDITIONS OF LOANS 12

3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following: (a) this Agreement; (b) a certificate of the Secretary of Borrower with respect to articles, bylaws, incumbency and resolutions authorizing the execution and delivery of this Agreement; (c) an intellectual property security agreement: (d) UCC-1 financing statements covering the Collateral and UCC-3 termination statements or assignments in favor of Bank from each Person that has a security interest in the Collateral or any part thereof; (e) insurance certificate; (f) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof; (g) Certificate of Foreign Qualification (if applicable); (h) Subordination of Lien from the Person who leases the real property set forth in Section 10 of this Agreement to Borrower; and (i) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions: (a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and (b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Credit Extension. The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2(b). 4. CREATION OF SECURITY INTEREST 4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral and all proceeds 13

thereof, in order to secure prompt payment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof. Borrower acknowledges that Bank may place a "hold" on any deposit account pledged as Collateral to secure the Obligations. Notwithstanding termination of this Agreement, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding. 4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interest in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral. 5. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as follows: 5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is a corporation duly existing and in good standing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, Texas and any other state in which the conduct of its business or its ownership of property requires that it be so qualified. 5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound, which default could have a Material Adverse Effect. 5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the Collateral, free and clear of Liens, except for Permitted Liens. 5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing obligations. The service or property giving rise to such Eligible Accounts has been performed or delivered to the account debtor or to the account debtor's agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or 14

imminent Insolvency Proceeding of any account debtor whose accounts are included in any Borrowing Base Certificate as an Eligible Account. 5.5 MERCHANTABLE INVENTORY. All Inventory (other than that software portion of Inventory that is work in progress) is in all material respects of good and marketable quality, free from all material defects. 5.6 INTELLECTUAL PROPERTY. To the best of Borrower's knowledge, Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. Each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. Except for and upon the filing with the United States Patent and Trademark Office with respect to the Patents and Trademarks and the Register of Copyrights with respect to the Copyrights and Mask Works necessary to perfect the security interests created hereunder, and except as has been already made or obtained, no authorization, approval or other action by, and no notice to or filing with, any United States governmental authority or United States regulatory body is required either (i) for the grant by Borrower of the security interest granted hereby or for the execution, delivery or performance of Loan Documents by Borrower in the United States or (ii) for the perfection in the United States or the exercise by Bank of its rights and remedies hereunder. 5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in the Schedule, Borrower has not done business and will not without at least thirty (30) days prior written notice to Bank do business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof. 5.8 LITIGATION. Except as set forth in the Schedule, there are no actions or proceedings pending, or, to Borrower's knowledge, threatened by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect on Borrower's interest or Bank's security interest in the Collateral. 5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated financial statements related to Borrower and any Subsidiary that have been delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank on or about the Closing Date. 5.10 SOLVENCY. The fair book value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. 5.11 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No 15

event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's incurring any liability that could have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T and U of the Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect. 5.12 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no Lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the release, or other disposition of hazardous waste or hazardous substances into the environment. 5.13 TAXES. Borrower and each Subsidiary has filed or caused to be filed all tax returns required to be filed on a timely basis, and has paid, or has made adequate provision for the payment of, all taxes reflected therein. 5.14 SUBSIDIARIES. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments. 5.15 GOVERNMENT CONSENTS. Other than as set forth on the Schedule attached hereto, Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted. 5.16 FULL DISCLOSURE. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading. 16

6. AFFIRMATIVE COVENANTS Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following: 6.1 GOOD STANDING. Borrower shall maintain its and each of its Subsidiaries' corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in Texas and every other jurisdiction in which the failure to so qualify could have a Material Adverse Effect. Borrower shall maintain in force, and shall cause each of its Subsidiaries to maintain, to the extent consistent with prudent management of Borrower's business, all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect. 6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect on the Collateral or the priority of Bank's Lien on the Collateral. 6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during such period, in a form and certified by an officer of Borrower reasonably acceptable to Bank; (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrower's fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) within five (5) days of filing, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (e) prompt notice of any material change in the composition of the Intellectual Property Collateral, including, but not limited to, any subsequent ownership right of the Borrower in or to any Copyright, Patent or Trademark not specified in any intellectual property security agreement between Borrower and Bank or knowledge of an event that materially adversely effects the value of the Intellectual Property Collateral; and (f) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time. Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank an aged listings of accounts receivable and accounts payable and, if there are any then outstanding Advances, a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto, together therewith. 17

Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank monthly financial statements, and if there are any then outstanding Advances, a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto, together therewith. Bank shall have a right from time to time hereafter to audit Borrower's Accounts at Borrower's expense, provided that such audits will be conducted no more often than once every twelve (12) months unless an Event of Default has occurred and is continuing. 6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and marketable condition, free from all material defects. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000). 6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is (i) contested in good faith by appropriate proceedings, (ii) is reserved against (to the extent required by GAAP) by Borrower and (iii) no Lien other than a Permitted Lien results. 6.6 INSURANCE. (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower's ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower's. (b) All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof and all liability insurance policies shall show the Bank as an additional insured, and shall specify that the insurer must give at least fifteen (15) days notice to Bank before canceling its policy for any reason. At Bank's request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. 18

All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations. 6.7 QUICK RATIO. Borrower shall maintain, as of the last day of each calendar month, a ratio of Quick Assets to Current Liabilities less deferred maintenance revenue of at least 1.25 to 1.0. 6.8 DEBT-TANGIBLE NET WORTH RATIO. Borrower shall maintain, as of the last day of each calendar month, a ratio of Total Liabilities less deferred maintenance revenue and less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than 1.50 to 1.0. 6.9 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day of each calendar month, a Tangible Net Worth of not less than Three Million and No/100 Dollars ($3,000,000.00). 6.10 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. (a) Borrower shall give Bank no less than thirty (30) days prior notice of its registration with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, of those intellectual property rights referred to the Intellectual Property Security Agreement and exhibits thereto, as may be revised, amended or modified, and delivered to Bank by Borrower in connection with this Agreement. (b) Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect Bank's security interest in the Intellectual Property Collateral. (c) Borrower shall (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents, Copyrights, and Mask Works, (ii) use its best efforts to detect infringements of the Trademarks, Patents, Copyrights and Mask Works and promptly advise Bank in writing of material infringements detected and (iii) not allow any Trademarks, Patents, Copyrights, or Mask Works to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld, unless Bank determines that reasonable business practices suggest that abandonment is appropriate. (d) Bank shall have the right, but not the obligation, to take, at Borrower's sole expense, any actions that Borrower is required under this Section 6.10 to take but which Borrower fails to take, after fifteen (15) days notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section 6.10. 6.11 FURTHER ASSURANCES. At any time and from time to time, Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement. 7. NEGATIVE COVENANTS 19

Borrower covenants and agrees that, so long as any Credit Extension hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Advances, Borrower will not do any of the following: 7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than Transfers: (i) of inventory in the ordinary course of business, (ii) of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; (iii) that constitute payment of normal and usual operating expenses in the ordinary course of business; or (iv) of worn-out or obsolete Equipment. 7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto), or suffer an aggregate change in Borrower's ownership of greater than thirty-five percent (35%) or a material change in Borrower's management and replacements reasonably satisfactory to Bank are not made in within thirty (30) days. Borrower will not, without at least thirty (30) days prior written notification to Bank, relocate its chief executive office or add any new offices or business locations. 7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person if (i) an Event of Default has occurred and is continuing or would exist after giving effect to such action or (ii) such transaction results in a change of more than 35% of Borrower's Net Worth. 7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness. 7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. 7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock. 7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments. 7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a nonaffiliated Person. 20

7.9 INTELLECTUAL PROPERTY AGREEMENTS. Other than those escrow agreements entered into by Borrower in the ordinary course of its business, permit the inclusion in any material contract to which it becomes a party of any provisions that could or might in any way prevent the creation of a security interest in Borrower's rights and interests in any property included within the definition of the Intellectual Property Collateral acquired under such contracts. 7.10 SUBORDINATED DEBT. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank's prior written consent. 7.11 INVENTORY. Store Inventory with an aggregate value of more than Fifty Thousand and No/100 Dollars ($50,000) with one or more bailees, warehousemen, or similar parties unless Bank has received a pledge of any warehouse receipt covering such Inventory. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory only at the location set forth in Section 10 hereof and such other locations of which Borrower gives Bank prior written notice and as to which Borrower signs and files a financing statement where needed to perfect Bank's security interest. 7.12 COMPLIANCE. Become an "investment company" or a company controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Advance for such purpose; fail to meet the minimum funding requirements of ERISA; permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, which violation could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral; or permit any of its Subsidiaries to do any of the foregoing. 8. EVENTS OF DEFAULT Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of the Obligations. 8.2 COVENANT DEFAULT. (a) If Borrower (i) fails or neglects to perform any obligation under Section 6.3 within five (5) calendar days of when due or (ii) fails to perform any obligation under Sections 6.7, 6.8 or 6.9 or (iii) violates any of the covenants contained in Article 7 of this Agreement, or (b) If Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank, 21

including without limitation, those documents relating to Bank's loan to Borrower of Seven Hundred Fifty Thousand and No/100 Dollars ($750,000.00) dated on or about February 7, 1997 and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) calendar days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) calendar day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) calendar days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Advances will be required to be made during such cure period). 8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material adverse change in the business, operations, or condition (financial or otherwise) of the Borrower, or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations or (iii) is a material impairment of the value or priority of Bank's security interests in the Collateral; 8.4 ATTACHMENT. If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period); 8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within thirty (30) days (provided that no Advances will be made prior to the dismissal of such Insolvency Proceeding); 8.6 OTHER AGREEMENTS. If there is a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) or that could have a Material Adverse Effect; 8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank; 22

8.8 JUDGMENTS. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) calendar days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment); or 8.9 MISREPRESENTATIONS. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate or writing delivered to Bank by Borrower or any Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document. 9. BANK'S RIGHTS AND REMEDIES 9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 all Obligations shall become immediately due and payable without any action by Bank); (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank; (c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; (d) Without notice to or demand upon Borrower, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's premises, Borrower hereby grants Bank a license to enter such premises and to occupy the same, without charge in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise; (e) Without notice to Borrower, set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank; 23

(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit; (g) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable, and apply the proceeds thereof to the Obligations in whatever manner or order it deems appropriate; and (h) Bank may credit bid and purchase at any public sale, or at any private sale as permitted by law. (i) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. (j) Bank shall have a non-exclusive, royalty-free license to use the Intellectual Property Collateral to the extent reasonably necessary to permit Bank to exercise its rights and remedies upon the occurrence of an Event of Default. 9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; and (e) settle and adjust disputes and claims respecting the Accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (f) to modify, in its sole discretion, any intellectual property security agreement entered into between Borrower and Bank without first obtaining Borrower's approval of or signature to such modification by amending Exhibit A, Exhibit B, Exhibit C, and Exhibit D, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents, Trademarks, or Mask Works in which Borrower no longer has or claims any right, title or interest; (g) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; and (h) to transfer the Intellectual Property Collateral into the name of Bank or a third party to the extent permitted under the Code, provided Bank may exercise such power of attorney to sign the name of Borrower on any of the 24

documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's attorney-in-fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide advances hereunder is terminated. 9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the continuance of an Event of Default, Bank may notify any Person owing funds to Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank's trustee, and if requested or required by Bank, immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit. 9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves under the Committed Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement. 9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies, not expressly set forth herein, and as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. 9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, notice of intent to accelerate, notice of acceleration, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable. 25

10. NOTICES Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid or by electronic mail) shall be personally delivered or sent by a recognized overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by facsimile to Borrower or to Bank, as the case may be, at its addresses set forth below: If to Borrower: Mission Critical Software, Inc. 720 N. Post Oak Road, Suite 505 Houston, Texas 77024 Attn: Paul F. Koffend, Jr. Fax: 713/548-1770 Electronic mail: mick.koffend@missioncritical.com If to Bank: Silicon Valley Bank 9020 Capital of Texas Highway North Building 1, Suite 350 Austin, Texas 78759 Attn: Mr. Stuart Edwards, Vice President Fax: 512/794-0855 Electronic mail: sedwards@svbank.com The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 11. CHOICE OF LAW AND VENUE THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW AS IF PERFORMED ENTIRELY WITHIN THE STATE OF TEXAS BY TEXAS RESIDENTS. EACH OF BORROWER AND BANK HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF TRAVIS, STATE OF TEXAS. 12. GENERAL PROVISIONS 12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. If Bank refuses to consent in writing to an assignment by Borrower of this Agreement or Borrower's rights hereunder and provided that no Obligation remains outstanding, at Borrower's request, Bank shall execute a document, in form satisfactory to Bank , evidencing mutual termination of this Agreement. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or 26

grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder. 12.2 INDEMNIFICATION. Borrower shall, indemnify, defend, protect and hold harmless Bank and its directors, officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses and Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under the Loan Documents, or otherwise (including without limitation reasonable attorneys' fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 12.3 TIME OF ESSENCE. Time is of the essence for the performance of all obligations set forth in this Agreement. 12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. If any term, provision, covenant, or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated and this Agreement shall be construed as if such invalid, void or unenforceable provision had never been contained herein. 12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be amended or terminated except by a writing signed by Borrower and Bank. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement and the Loan Documents. 12.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 12.7 SURVIVAL. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run; provided that so long as the obligations referred to in the first sentence of this Section 12.7 have been satisfied, and Bank has no commitment to make any Credit Extensions or to make any other loans to Borrower, Bank shall release all security interests granted hereunder and redeliver all Collateral held by it in accordance with applicable law. 12.8 CONFIDENTIALITY. In handling any confidential information of Borrower, Bank shall exercise the same degree of care that it exercises with respect to its own proprietary information 27

of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the Subsidiaries or Affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulation, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank, and (v) as Bank may deem appropriate in connection with the exercise of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information. 12.9 WAIVER OF JURY TRIAL. BANK AND BORROWER EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. 12.10 NOTICE OF ORAL AGREEMENT. THIS AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. MISSION CRITICAL SOFTWARE, INC. By: /s/ Louis R. Woodhill -------------------------------- Name: Louis R. Woodhill Title: President SILICON VALLEY BANK By: /s/ Stuart Edwards -------------------------------- Stuart Edwards, Vice President 28

SCHEDULE TO LOAN AND SECURITY AGREEMENT DATED JANUARY 26, 1998 BETWEEN SILICON VALLEY BANK AND MISSION CRITICAL SOFTWARE, INC. Section 5.6: As of "Closing Date", Borrower has not filed with the United States Patent and Trademark Office for any of its "Intellectual Property". Section 5.9: Borrower's most recent financial statements, those as of December 31, 1997, are attached. Section 5.13: Borrower has never received a property tax rendition from the Harris County Appraisal District. The Amounts accrued are based on Borrower's estimate. Section 5.15: Borrower is in the process of establishing a branch office in Paris, France. A Branch Manager has been appointed by Borrower's Board of Directors, and consultations about the registration process and tax effects have been conducted. However, the actual registration process has not begun and is not expected to be finished before March 31, 1998. Section 6.6: Borrower has caused Sedgwick of Texas, Inc. to provide a Certificate of Liability Insurance to Bank at its loan production office in Austin, Texas. Section 7.2: Borrower has engaged the services of an executive search firm to find a new Chief Executive Officer. As of "Closing Date", no satisfactory candidate has been found, and there is no guarantee that the search will prove successful. Section 7.4: Existing indebtedness as of "Closing Date" follows. CREDITOR/LENDER PURPOSE AMOUNT OUTSTANDING ------------------------------------------------------------------------------- TIFCO Insurance Financing Corporation Insurance premium $26,740.48 ------------------------------------------------------------------------------- MONEX Phone system lease $36,530.44 ------------------------------------------------------------------------------- Danka Copier (operating) lease Approx. $10,500.00 ------------------------------------------------------------------------------- Danka Copier (operating) lease Approx. $12,000.00 (Lease signed 01/22/98) ------------------------------------------------------------------------------- Section 7.5: Existing liens as of "Closing Date" are attached. Schedule to Loan and Security Agreement Page 1 of 3

The lien shown on "Page 1" (Financing statement number 959402355 filed in the Common Pleas Court in Cincinnati, Ohio on May 3, 1996) pertains to a company which has no relationship to Borrower. (Borrower has been unable to register its name in Michigan because of the existence of this company.) The liens shown on "Page 2" through "Page 5" (Financing Statement number 0842337 filed with the County Clerk of Harris County, Texas on December 31, 1991(which has been terminated); Financing Statement number 0847172 filed with the County Clerk of Harris County, Texas on April 1, 1992 (which has been terminated) pertain to a company formerly known as Mission Critical Software, Inc., but has changed its name to Mission Critical Software I, Inc. Section 7.7: Existing investments as of "Closing Date" follow. ---------------------------------------------------- INVESTMENT AMOUNT ---------------------------------------------------- Federal agency discount notes $2,244,007.99 ---------------------------------------------------- Money market funds $ 34,340.93 ---------------------------------------------------- Section 7.9: As of January 23, 1998, the following EA customers have License Agreements which require Borrower to escrow Source Code. The escrow agreement that Borrower has with Data Security International, Inc. gives the listed companies, the right to have the Source Code for Enterprise Administrator in the event that Borrower cannot or will not provide maintenance for the product. 1) Merrill, Lynch, Pierce, Fenner & Smith 2) Mayo Foundation 3) Prudential Insurance Company of America 4) Merck 5) ALCOA 6) Blue Cross/Blue Shield of Florida 7) Honeywell 8) Proctor & Gamble 9) USAA 10) Johnson & Johnson Section 7.11: Some of Borrower's supplies inventory is stored at a vendor's place of business at Borrower's request. In general, the supplies are printed materials used in sales, marketing and product distribution. The amount of inventory varies over time, as does the vendor with whom the supplies are stored. The following represents Borrower's "off-site" inventories. This inventory consists of printed marketing media and/or product manuals that are produced and stored at the below listed vendor sites. Schedule to Loan and Security Agreement Page 2 of 3

OFF-SITE INVENTORY VALUATION As of 1/22/98 PRECISION GRAPHICS, INC. Stephan Lackey 2311 Dunlavy Houston, TX 77006 Voice: +1.713.528.2345 Fax: +1.713.528.0142 Cost of off-site brochures and User Guides $ 27,362.15 SOUTHWEST PRINTERS, INC. John Houston 1055 Conrad Sauer Houston, TX 77043 Voice: +1.713.777.3333 Fax: +1.713.777.7514 Cost of off-site marketing and distribution supplies $ 14,965.75 MEDIA, INC. Randy Richardson 10400 Westoffice Drive Suite #120 Houston, TX 77042 Voice: +1.713.784.5595 Fax: +1.713.784.5598 Cost of off-site product distribution supplies (CDs, jewel cases, inserts) $ 11,232.94 Total cost of off-site inventory $ 53,560.84 =========== Schedule to Loan and Security Agreement Page 3 of 3

EXHIBIT A The Collateral shall consist of all right, title and interest of Borrower in and to the following: (a) All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; (b) All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above; (c) All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind; (d) All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower; (e) All documents, cash, deposit accounts, securities, investment property, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; (f) All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and (g) All Borrower's Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. A-1

EXHIBIT B LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING IS 5:00 P.M., C.S.T. TO: CENTRAL CLIENT SERVICE DIVISION DATE:__________ FAX#: (408)__________________________ TIME:__________ FROM: Mission Critical Software, Inc. _______________________________ BORROWER'S NAME FROM: _______________________________ AUTHORIZED SIGNER'S NAME _______________________________ AUTHORIZED SIGNATURE PHONE: _______________________________ FROM ACCOUNT # _______________________ TO ACCOUNT# __________________________ -------------------------------------------------------------------------------- REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT PRINCIPAL INCREASE (ADVANCE) $_____________ PRINCIPAL PAYMENT (ONLY) $_____________ INTEREST PAYMENT (ONLY) $_____________ PRINCIPAL AND INTEREST (PAYMENT) $_____________ OTHER INSTRUCTIONS: ______________________________ -------------------------------------------------------------------------------- All representations and warranties of Borrower stated in the Loan and Security Agreement are true, correct and complete in all material respects as of the date of the telephone request for and Advance confirmed by this Advance Request; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. -------------------------------------------------------------------------------- BANK USE ONLY: TELEPHONE REQUEST: The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me. ______________________________ Authorized Requester Authorized Signature (Bank) Phone # ___________________ -------------------------------------------------------------------------------- B-1

EXHIBIT C BORROWING BASE CERTIFICATE Borrower: Mission Critical Software, Inc. Bank: Silicon Valley Bank Commitment Amount: $3,000,000.00 ACCOUNTS RECEIVABLE 1. Receivable Book Value as of ________________ $__________ 2. Additions (please explain on reverse) $__________ 3. TOTAL ACCOUNTS RECEIVABLE $__________ ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) 4. Amounts over 90 days due $__________ 5. Balance of 50% over 90 day accounts $__________ 6. Concentration Limits $__________ 7. Foreign Accounts $__________ 8. Governmental Accounts $__________ 9. Contra Accounts $__________ 10. Promotion or Demo Accounts $__________ 11. Intercompany/Employee Accounts $__________ 12. Other (please explain on reverse) $__________ 13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________ 14. Eligible Accounts (#3 minus #13) $__________ 15. LOAN VALUE OF ELIGIBLE ACCOUNTS (80% of #14) $__________ 16. Foreign Amount Add-Back [Lesser of (80% of #7) and (20% of #15) and $500,000.00] $__________ 17. BORROWING BASE (#15 plus #16) $__________ 18. Maximum Loan Amount $__________ 19. Total Funds Available [Lesser of #18 and #17] $__________ 20. Present balance owing on Line of Credit $__________ 21. Outstanding under Merchant Card Sublimit ($60,000.00 maximum) $__________ 22. RESERVE POSITION (#19 minus (#20 plus #21) $__________ The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Silicon Valley Bank. COMMENTS: ======================================= BANK USE ONLY Received By:____________________ Date:________________ Reviewed By:____________________ Compliance Status: Yes / No ======================================= Mission Critical Software, Inc. By: _______________________ Authorized Signer C-1

EXHIBIT D COMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK FROM: MISSION CRITICAL SOFTWARE, INC. The undersigned authorized officer of Mission Critical Software, Inc. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending ___________________ with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer expressly acknowledges that no borrowings may be requested by the Borrower at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that such compliance is determined not just at the date this certificate is delivered. PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN. <TABLE> <CAPTION> REPORTING COVENANT REQUIRED COMPLIES ------------------ -------- -------- <S> <C> <C> <C> Monthly financial statements Monthly within 30 days Yes No Annual (CPA Audited) FYE within 120 days Yes No 10Q and 10K Within 5 days after filing with the SEC Yes No A/R & A/P Agings Monthly within 30 days Yes No FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES ------------------ -------- ------ -------- Maintain on a Monthly Basis: Minimum Quick Ratio 1.25:1.0 _____:1.0 Yes No Minimum Tangible Net Worth $3,000,000.00 $________ Yes No Maximum Debt/Tangible Net Worth 1.50:1.0 _____:1.0 Yes No </TABLE> ======================================= BANK USE ONLY Received By:____________________ Date:________________ Reviewed By:____________________ Compliance Status: Yes / No ======================================= COMMENTS REGARDING EXCEPTIONS: Sincerely, ________________________ Date: __________ SIGNATURE ________________________ TITLE D-1

DISBURSEMENT REQUEST AND AUTHORIZATION Borrower: Mission Critical Software, Inc. Bank: Silicon Valley Bank LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal amount up to $3,000,000.00. PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business. DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Bank's conditions for making the loan have been satisfied. Please disburse the loan proceeds as follows: Revolving Line Amount paid to Borrower directly: $_____________ Undisbursed Funds $_____________ Principal $_____________ CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges: Prepaid Finance Charges Paid in Cash: $ 7,500.00 $ 7,500.00 Loan Fee $_________ Accounts Receivables Audit Other Charges Paid in Cash: $ 500.00 $_________ UCC Search Fees $_________ UCC Filing Fees $ -0- Patent Filing Fees $ -0- Trademark Filing Fees $ -0- Copyright Filing Fees $ -0- Outside Counsel Fees $ 500.00 Third Party Expenses Incurred by Outside Counsel Total Charges Paid in Cash $ 8,000.00 AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from Borrower's account numbered _________________ the amount of any loan payment. If the funds in the account are insufficient to cover any payment, Bank shall not be obligated to advance funds to cover the payment. FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS AUTHORIZATION IS DATED AS OF JANUARY 26, 1998. BORROWER: ____________________________________ Authorized Officer

AGREEMENT TO PROVIDE INSURANCE GRANTOR: Mission Critical Software, Inc. BANK: Silicon Valley Bank INSURANCE REQUIREMENTS. Mission Critical Software, Inc. ("Grantor") understands that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to Grantor by Bank. These requirements are set forth in the Loan Documents. The following minimum insurance coverages must be provided on the following described collateral (the "Collateral"): Collateral: All Inventory, Equipment and Fixtures. Type: All risks, including fire, theft and liability. Amount: Full insurable value. Basis: Replacement value. Endorsements: Loss payable clause to Bank with stipulation that coverage will not be cancelled or diminished without a minimum of fifteen (15) days prior written notice to Bank. INSURANCE COMPANY. Grantor may obtain insurance from any insurance company Grantor may choose that is reasonably acceptable to Bank. Grantor understands that credit may not be denied solely because insurance was not purchased through Bank. FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or before closing, evidence of the required insurance as provided above, with an effective date of ___________________, 1998, or earlier. Grantor acknowledges and agrees that if Grantor fails to provide any required insurance or fails to continue such insurance in force, Bank may do so at Grantor's expense as provided in the Loan and Security Agreement. The cost of such insurance, at the option of Bank, shall be payable on demand or shall be added to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS. AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor authorizes Bank to provide to any person (including any insurance agent or company) all information Bank deems appropriate, whether regarding the Collateral, the loan or other financial accommodations, or both. GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 26, 1998. GRANTOR: x______________________________ Authorized Officer ================================================================================ FOR BANK USE ONLY INSURANCE VERIFICATION DATE: PHONE: AGENT'S NAME: INSURANCE COMPANY: POLICY NUMBER: EFFECTIVE DATES: COMMENTS: ================================================================================

INTELLECTUAL PROPERTY SECURITY AGREEMENT This Intellectual Property Security Agreement is entered into as of January 26, 1998 and between SILICON VALLEY BANK ("Bank") and MISSION CRITICAL SOFTWARE, INC. ("Grantor"). RECITALS A. Bank has agreed to make certain advances of money and to extend certain financial accommodation to Grantor (the "Loans") in the amount and manner set forth in that certain Loan and Security Agreement by and between Bank and Grantor dated of even date herewith (as the same may be amended, modified or supplemented from time to time, the "Loan Agreement"; capitalized terms used herein are used as defined in the Loan Agreement). Bank is willing to make the Loans to Grantor, but only upon the condition, among others, that Grantor shall grant to Bank a security interest in certain Copyrights, Trademarks and Patents to secure the obligations of Grantor under the Loan Agreement. B. Pursuant to the terms of the Loan Agreement, Grantor has granted to Bank a security interest in all of Grantor's right, title and interest, whether presently existing or hereafter acquired, in, to and under all of the Collateral. NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, as collateral security for the prompt and complete payment when due of its obligations under the Loan Agreement, Grantor hereby represents, warrants, covenants and agrees as follows: AGREEMENT To secure its obligations under the Loan Agreement, Grantor grants and pledges to Bank a security interest in all of Grantor's right, title and interest in, to and under its Intellectual Property Collateral (including without limitation those Copyrights, Patents, Trademarks and Mask Works listed on Schedules A, B, C and D hereto), and including without limitation all proceeds thereof (such as, by way of example but not by way of limitation, license royalties and proceeds of infringement suits), the right to sue for past, present and future infringements, all rights corresponding thereto throughout the world and all re-issues, divisions continuations, renewals, extensions and continuations-in-part thereof. This security interest is granted in conjunction with the security interest granted to Bank under the Loan Agreement. The rights and remedies of Bank with respect to the security interest granted hereby are in addition to those set forth in the Loan Agreement and the other Loan Documents, and those which are now or hereafter available to Bank as a matter of law or equity. Each right, power and remedy of Bank provided for herein or in the Loan Agreement or any of the Loan Documents, or now or hereafter existing at law or in equity shall be cumulative and concurrent and shall be in addition to every right, power or remedy provided for herein and the exercise by Bank of any one or more of the rights, powers or remedies provided for in this Intellectual Property Security Agreement, the Loan Agreement or any of the other Loan Documents, or now or hereafter

existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Bank, of any or all other rights, powers or remedies. IN WITNESS WHEREOF, the parties have cause this Intellectual Property Security Agreement to be duly executed by its officers thereunto duly authorized as of the first date written above. GRANTOR: MISSION CRITICAL SOFTWARE, INC. Address of Grantor: 720 N. Post Oak Road, Suite 505 Houston, Texas 77024 By: /s/ Louis R. Woodhill ------------------------------ Name: Louis R. Woodhill Title: President BANK: SILICON VALLEY BANK Address of Bank: 9020 Capital of Texas Highway North Building 1, Suite 350 Austin, Texas 78759 Fax: 512/794-0855 By: /s/ Stuart Edwards ------------------------------------ Stuart Edwards, Vice President 2

EXHIBIT A Copyrights <TABLE> <CAPTION> Registration/ Registration/ Application Application Description Number Date ----------- ------ ---- <S> <C> <C> Enterprise Administrator software None None EA Automation Scripting Kit software None None SeNTry Enterprise Event Manager software None None User guides and manuals for EA, EEM and TASK None None OPS/MVS software None None Enterprise Storage Manager software None None User guides and manuals for OPS/MVS and ESM None None </TABLE> A-1

EXHIBIT B <TABLE> <CAPTION> Patents Description Registration/ Registration/ ----------- Application Application Number Date ------ ---- <S> <C> <C> NONE </TABLE> B-1

EXHIBIT C Trademarks <TABLE> <CAPTION> Description Registration/ Registration/ ----------- Application Application Number Date ------ ---- <S> <C> <C> MISSION CRITICAL None None MISSION CRITICAL SOFTWARE LOGO None None MCS None None ENTERPRISE ADMINISTRATOR None None ENTERPRISE ADMINISTRATOR LOGO None None EA None None EAS BADGE LOGO None None ENTERPRISE EVENT MANAGER None None EEM None None EEM BADE LOGO None None SENTRY None None SENTRY EEM LOGO None None DEPUTY None None MARSHALL None None RANGER None None </TABLE> C-1

EXHIBIT D Mask Works <TABLE> <CAPTION> Registration/ Registration/ Application Application Description Number Date ----------- ------ ---- <S> <C> <C> </TABLE> NONE D-1

CORPORATE BORROWING RESOLUTION <TABLE> <CAPTION> <S> <C> BORROWER: MISSION CRITICAL SOFTWARE, INC. BANK: SILICON VALLEY BANK 720 N. Post Oak Road 9020 Capital of Texas Highway North Suite 505 Building 1, Suite 350 Houston, Texas 77024 Austin, Texas 78759 </TABLE> I, the undersigned Secretary or Assistant Secretary of Mission Critical Software, Inc. ("Borrower"), HEREBY CERTIFY that Borrower is a corporation duly organized and existing under and by virtue of the State of Delaware and is authorized to do business in the State of Texas. I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other duly authorized corporate action in lieu of a meeting), duly called and held, at which a quorum was present and voting, the following resolutions were adopted. BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of Borrower, whose actual signatures are shown below: <TABLE> <CAPTION> <S> <C> <C> NAMES POSITIONS ACTUAL SIGNATURES Louis R. Woodhill President /s/ Louis R. Woodhill ------------------------ Thomas P. Bernhardt Chief Technical Officer /s/ Thomas P. Bernhardt ------------------------ Paul F. (Mick) Koffend, Jr. Chief Financial Officer /s/ Paul F. Koffend, Jr. ------------------------ </TABLE> acting for and on behalf of Borrower and as its act and deed be, and they hereby are, authorized and empowered: Borrow Money. To borrow from time to time from Silicon Valley Bank ("Bank"), on such terms as may be agreed upon between the officers of Borrower and Bank, such sum or sums of money as in their judgment should be borrowed. Execute Loan Documents. To execute and deliver to Bank the loan documents of Borrower, on Bank's forms, at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any indebtedness of Borrower to Bank, and also to execute and deliver to Bank one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for one or more of the loan documents, or any portion of the loan documents. Grant Security. To grant a security interest to Bank in any of Borrower's assets, which security interest shall secure all of Borrower's obligations to Bank. Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to Borrower or in which Borrower may have an interest, and either to receive cash for the same or to cause such

proceeds to be credited to the account of Borrower with Bank, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable. Further Acts. To do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements, as they may in their discretion deem reasonably necessary to proper in order to carry into effect the provisions of these Resolutions. BE IF FURTHER RESOLVED, that any and all acts authorized pursuant to these Resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Bank may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Bank. Any such notice shall not affect any of Borrower's agreements or commitments in effect at the time notice is given. I FURTHER CERTIFY that the persons named above are principal officers of the Corporation and occupy the positions set opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that they are in full force and effect and have not been modified or revoked in any manner whatsoever. IN WITNESS WHEREOF, I have hereunto set my hand on January 26, 1998 and attest that the signatures set opposite the names listed above are their genuine signatures. CERTIFIED TO AND ATTESTED BY: x /s/ Paul F. Koffend, Jr. --------------------------------- *Secretary or Assistant Secretary x /s/ Thomas P. Bernhardt --------------------------------- *NOTE: In case the Secretary or other certifying officer is designated by the foregoing resolutions as one of the signing officers, this resolution must also be signed by a second Officer or Director of Borrower. 2

<TABLE> <CAPTION> <S> | <C> | THIS SPACE FOR USE OF FILING OFFICER | | NONSTANDARD FORM | | FINANCING STATEMENT | (To Be Filed With The Texas Secretary of State) | | This Financing Statement is presented to a | Filing Officer for filing pursuant to the | Uniform Commerical Code. | | |_________________________________________________________ </TABLE> 1. DEBTOR. The name and address of the Debtor is: Mission Critical Software, Inc. 720 N. Post Oak Road, Suite 505 Houston, Texas 77024 2. SECURED PARTY. The name and address of the Secured Party is: Silicon Valley Bank 3003 Tasman Drive Santa Clara, California 95954 3. COLLATERAL. This Financing Statement covers all right, title and interest of Debtor in and to the following collateral: a) All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; b) All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Debtor's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above; c) All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind; d) All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Debtor arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Debtor, whether or not

earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Debtor; (e) All documents, cash, deposit accounts, securities, investment property, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Debtor's books and records, including without limitation, ledgers; records relating to Debtor's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs or tape file and equipment containing such information ("Books") relating to the foregoing; (f) All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and (g) All Debtor's Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. 4. SIGNATURE OF DEBTOR: MISSION CRITICAL SOFTWARE, INC. By: /s/ Louis R. Woodhill -------------------------------- Name: Louis R. Woodhill Title: President Page 2

EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into effective as of September 4, 1996, by and between Paul F. Koffend, Jr., (hereinafter "EMPLOYEE"), and MISSION CRITICAL SOFTWARE, INC., a Delaware corporation having its principal office at 12600 Northborough, Suite 392, Houston, Texas 77067 (hereinafter "EMPLOYER"). W I T N E S S E T H: This Agreement is made and entered into under the following circumstances: (1) Whereas, Employer is in the business of the development, marketing and sale of software products and systems (the "BUSINESS ACTIVITIES"); and (2) Whereas Employer desires, on the terms and conditions stated herein, to employ Employee; and (3) Whereas Employee desires, on the terms and conditions stated herein, to be employed by Employer. NOW, THEREFORE, in consideration of Five Hundred Dollars ($500.00) and the foregoing recitals, and the promises, covenants, terms and conditions contained herein, the receipt and sufficiency of which are forever acknowledged and confessed, the parties hereto agree as follows: 1. EMPLOYMENT AND TERM. Employer hereby employs Employee, and Employee hereby accepts employment with Employer commencing September 4, 1996 (hereinafter the "EFFECTIVE DATE"). 2. DUTIES. Employee shall perform the duties and functions as are normal and customary to the position for which Employee was hired, as well as any other duties delegated to Employee by Employer. Employee shall, in all Employee's actions, demonstrate the utmost good faith, honesty and loyalty towards Employer and its interests. Employee will perform Employee's duties and assignments in the offices and work spaces provided by Employer unless otherwise specifically authorized by the management of Employee. Employee agrees that Employee's employment with Employer shall be the exclusive, full-time employment of Employee. Employee shall comply with all applicable policies of Employer. Employee understands that the nature of Employer's Business Activities requires that Employer be able to contact Employee twenty-four hours a day. Employee shall carry at all times a beeper provided by Employer to allow Employer and/or its customers to maintain such contact.

In addition to pagers, Employer may provide to Employee for business- related use computers, cellular phones, equipment, funds, lists, books, records, and other materials of Employer. Employee shall exercise due care in using such items, and agrees that, upon the termination of Employee's employment with Employer, Employee will immediately surrender to Employer all such items and any other property of Employer in the possession of or provided to Employee. 3. COMPENSATION. Employee shall be entitled to initial base compensation of $8,000.00 per month, subject to adjustment by Employer from time to time. 4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee, in the performance of services hereunder, is an employee of Employer. Accordingly, Employer shall deduct from all compensation paid to Employee pursuant to this Agreement any sums required by law or any other requirement of any governmental body. 5. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's expense, fringe benefits commensurate with those provided to Employer's employees of similar position and seniority. Employee shall be entitled to paid leave for vacation and illness in accordance with Employer's policies. 6. TERMINATION. Notwithstanding any other provisions of this Agreement, the Employee's employment with Employer shall terminate: a. upon the death of Employee; or, b. upon Employee's "disability" (For purposes of this Agreement, the term "disability" shall mean the inability of Employee, arising out of any medically determinable physical or mental impairment, to perform the services required of him hereunder for a period of ninety (90) consecutive days during which ninety (90) day period Employee's compensation hereunder shall continue); c. immediately (unless Employer and Employee otherwise agree at the time such notice is given) upon written notice from either party to the other, with or without cause; or d. at Employer's option, immediately upon the existence of "cause." For purposes of this Agreement, the term "cause" shall be defined as: (1) willful and continued failure of Employee to substantially perform the duties required of him by Employer in a manner satisfactory to Employer, in Employer's sole reasonable discretion, exercised in good faith; (2) a material violation of any written policy or procedure which has been distributed by the Employer to its employees; (3) any dishonesty by Employee in his dealings with Employer, the commission of fraud by Employee, or gross negligence in the performance of the duties of Employee; -2-

(4) the arrest or conviction (or plea of guilty or nolo contendere) of Employee of any felony or other crime involving dishonesty or moral turpitude; (5) any violation of any covenant or restriction contained in Section 9 or Section 10 hereof; or (6) unlawful use of narcotics or other controlled substances, or use of alcohol or other drugs in a manner Employer reasonably determines to be adverse to the best interests of Employer or in violation of Employer's applicable policies. 7. EFFECTS OF TERMINATION. In the event of termination of this Agreement, neither party shall have any further obligations hereunder except for (i) obligations accruing prior to the date of termination and (ii) obligations, promises or covenants contained herein which are expressly made to extend beyond the term of this Agreement, including, without limitation, confidentiality of information, indemnities and Employee's covenants not to compete (which covenants and agreements shall survive the termination or expiration of this Agreement). The termination of this Agreement, for whatever reason, shall not extinguish those obligations of Employee specified in the Restrictive Covenants (hereinafter defined), nor shall the same extinguish the right of either party to bring an action, either in law or in equity, for breach of this Agreement by the other party. 8. COPYRIGHT ASSIGNMENT/WORK MADE FOR HIRE. Employee does hereby sell, grant, convey and assign unto Employer, its successors, assigns and licensees forever, all right, title and interest in and to all computer software programs, computer code, system design, documents, system architecture, and the data base model/structure, and other material constituting or otherwise relating to the Property (as defined herein) hereafter written by Employee or to the development of which Employee may have contributed ideas, know-how, skill or labor, and all changes, additions, adjuncts, alterations, modifications, translations, transformations, adaptions, elaborations, emulations, revisions or other developments made in connection with the Property, which may heretofore have been written or which may hereafter be written for the benefit of, at the request of or with the sanction of Employer. As used herein, Property includes all computer software, source code and programs and other computer products, (i) acquired by Employer from a third party specifically including that Property acquired from Mission Critical Software I, Inc. by Employer in that certain Assignment Agreement dated September 4, 1996, (ii) made, conceived and/or developed, or in the process of being made, conceived or developed, by an employee or employees of Employer while employed by Employer in its business or by its customers or (iii) made, conceived and/or developed, or in the process of being made, conceived or developed, by an employee or employees of Employer in the course of performing services for or at the request of or while being compensated by Employer or within a reasonable period of time thereafter if they involved the use of company time or materials or facilities or if they resulted from or were suggested by the employee's or employees' work with Employer whether or not they are used or usable by Employer in its business or by its customers. Property shall also include advertisements, marketing materials, -3-

collateral files of all types, word processing, spreadsheets, slogans, trademarks and service marks. Employee agrees and acknowledges that any and all Property written, developed, created or produced by Employee, in whole or in part, for Employer constitutes and will constitute a "work made for hire" for Employer, as contemplated in 17 U.S.C. Section 101. Employer is and shall be considered the author of the Property for all purposes and the sole and exclusive owner of all rights to the Property and all derivative works, including all right, title, and interest comprised in the copyright and all trademarks, patents and other right in and to the Property and each and every part of the Property. Employee assigns to Employer all rights whatsoever that Employee has in the Property and any adaption, version or derivation of the Property. This assignment of rights includes an assignment of any copyright in the Property not owned by Employer as a result of the parties' agreement that the Property constitutes a work made-for-hire for Em