10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 2004

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from              to

Commission File Number 0-27084

CITRIX SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	75-2275152
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
851 West Cypress Creek Road Fort Lauderdale, Florida	33309
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

(954) 267-3000

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

None

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

Common Stock, $.001 Par Value

(Title of class)

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

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

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

The aggregate market value of Common Stock held by non-affiliates of the registrant computed by reference to the price of the registrant’s Common Stock as of the last business day of the registrant’s most recently completed second fiscal quarter (based on the last reported sale price on The Nasdaq National Market as of such date) was $3,464,675,126. As of March 8, 2005 there were 169,486,037 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required pursuant to Part III of this report is incorporated by reference from the Company’s definitive proxy statement, relating to the annual meeting of stockholders to be held in May 2005, pursuant to Regulation 14A to be filed with the Securities and Exchange Commission.

CITRIX SYSTEMS, INC.

TABLE OF CONTENTS

Part I:
Item 1.	Business	3
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
Part II:
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters, and Issuer Purchases Of Equity Securities	12
Item 6.	Selected Consolidated Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7a.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
Item 9a.	Controls and Procedures	44
Item 9b.	Other Information	46
Part III:
Item 10.	Directors and Executive Officers of the Registrant	46
Item 11.	Executive Compensation	46
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	46
Item 13.	Certain Relationships and Related Transactions	46
Item 14.	Principal Accountant Fees and Services	46
Part IV:
Item 15.	Exhibits and Financial Statement Schedules	47

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I TEM 1.    BUSINESS

General

Citrix Systems, Inc. (“Citrix” or the “Company”), is a Delaware corporation founded on April 17, 1989. The Company designs, develops and markets access infrastructure software, services and appliances. The Company markets and licenses its products through multiple channels such as value-added resellers, channel distributors, system integrators, independent software vendors and its websites. The Company also promotes its products through relationships with a wide variety of industry participants, including Microsoft Corporation (“Microsoft”).

Business Strategy

Citrix is committed to achieving its vision of making every organization an on-demand enterprise where information is securely, easily and instantly accessible from virtually anywhere using any device. The Company’s business strategy leverages its ability to create and lead new markets through innovation and execution in all phases of product development, marketing and fulfillment.

The Company’s first wave of innovation, in the mid-1990s, enabled the virtualization of the Windows desktop, which made thin-client computing possible. The Company’s second wave of innovation, in the late-1990s, enabled the virtualization and centralization of most application types, making server-based computing possible. The Company’s third and ongoing wave of innovation is focused on creating access infrastructure that connects devices, networks and applications into a core business system that makes on-demand computing a reality.

Citrix Access Infrastructure as a Core Business System

The Company believes that access infrastructure has the potential of being viewed as a core business system because it solves a core business problem: getting the right information securely, easily and instantly to everyone who needs it, when they need it, wherever they are. This is becoming more difficult to accomplish as more and more people conduct business in remote and mobile situations – unpredictably moving from location to location, using multiple access devices, and connecting with a wide range of heterogeneous applications over wired, wireless and Web networks.

To meet this challenge, Citrix’s access infrastructure addresses one of the basic technical challenges businesses face today: the need to provide secure access to private information over both trusted and untrusted networks. Access infrastructure accomplishes this by connecting devices, networks and applications into a system that provides secure, easy and instant access to virtually any information source, for any authorized user, from virtually anywhere, using any connection.

The Company believes that its Citrix access infrastructure helps to transform any organization into an on-demand enterprise. This means that, for a single investment in access infrastructure, businesses get two key benefits: improved operational efficiency that reduces the cost of running Citrix’s business, and accelerated agility that enables the business to capitalize on more opportunities for growing the business.

When used together, Citrix access infrastructure products, including software, services and appliance-based solutions provide a set of capabilities that meet the access needs of end-users on the demand side of the information supply chain, as well as the needs of IT administrators on the supply side of the information supply chain. These capabilities include:

• SmartAccess – Senses and responds to any access scenario for tailored secure access control.

• SmoothRoaming – Delivers continuous access across devices, networks and locations for maximum mobility.

• Instant collaboration – Easily shares workspaces and information from anywhere to increase workgroup and meeting productivity.

• On-Demand assistance – Instantly access remote user support to increase business productivity and customer loyalty.

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• Robust and resilient foundation – Ensures scalability and continuous availability to support business changes.

• Secure by design – Builds infrastructure with security as a foundation, not an afterthought.

• Integrated identity management – Activate and manages the complete access lifecycle for improved workforce agility.

• End-to-end visibility – Observes, monitors and measures access infrastructure resources for informed decision-making.

Citrix access infrastructure is sold as the Citrix MetaFrame Access Suite, as Citrix Online services, and beginning in 2005 as Citrix Gateway appliances. In addition to its access infrastructure solution portfolio of products and services, Citrix also offers customers consulting services, technical support services and product training and certification services.

The Citrix^® MetaFrame^® Access Suite Products

The Citrix MetaFrame Access Suite enables organizations to provide a secure, single point of access to enterprise applications and information on demand. The MetaFrame Access Suite centralizes access to applications and information and enables information technology (“IT”) staffs to deliver, manage, monitor and measure enterprise resources on demand. Citrix customers are able to run IT as a corporate computing utility, providing software as a service. This simplifies the complexity and reduces the costs of deploying and administering hundreds of heterogeneous applications and delivering them to end-users on demand virtually anywhere, anytime, to any device, over any connection.

In the MetaFrame Access Suite, each component product solves a particular access challenge for an organization, while all of the products work together seamlessly to enable the on-demand enterprise.

• Citrix^® MetaFrame^® Presentation Server for Windows.    The foundation of the MetaFrame Access Suite, Citrix MetaFrame Presentation Server is one of the world’s most widely deployed presentation servers for centrally managing heterogeneous applications and delivering their functionality as a service to workers, wherever they may be. MetaFrame Presentation Server is certified to run on Microsoft^® Windows^® 2000 Server and Windows Server^™ 2003, and supports virtually any custom or commercially packaged Windows or Web application. MetaFrame Presentation Server provides an exceptional foundation to build highly scalable, flexible, secure, manageable access solutions that reduce computing costs and increase the utility of any information system.

• Citrix^® MetaFrame^® Presentation Server for UNIX^®.    With Citrix MetaFrame Presentation Server for UNIX, remote, mobile, and local end-users in heterogeneous environments can access UNIX and Java^™ applications from any device, over any connection, and no longer need multiple desktops or software emulation packages. Citrix MetaFrame Presentation Server for UNIX supports Sun Microsystems’ Solaris^™ SPARC 9, Sun Solaris Intel, Hewlett-Packard’s HP-UX^®, and IBM’s AIX^®, and now includes new features to extend performance, usability and security.

• Citrix^® MetaFrame^® Secure Access Manager.    Citrix MetaFrame Secure Access Manager is an access control center that provides, protects and manages access to business information without compromising security, even across public networks, by providing granular resource control through SmartAccess capabilities. SmartAccess provides identity-driven access tailored to virtually any end-user environment by sense-and-respond technology, improving productivity for end-users while ensuring a highly secure access environment for the business. Citrix’s unique sense-and-respond technology autonomically analyzes the access scenario, then delivers the appropriate level of access without compromising security. Depending on who and where end-users are and what device and network they are using, end-users may be granted different levels of access – the ability to preview applications and documents but not edit them, for example, or the ability to edit but not save locally.

• Citrix^® MetaFrame^® Password Manager.    Citrix MetaFrame Password Manager provides password security and enterprise single sign-on access to Windows, Web, and host-based applications – whether or not those applications are locally installed, Web-based, or running in the Citrix Access Suite environment. End-users authenticate once with a single password, and MetaFrame Password Manager does the rest, automatically logging into password-protected information systems, enforcing password policies, and even automating end-user tasks, including

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password changes. MetaFrame Password Manager saves end-users time and saves businesses money by lowering help-desk support costs.

• Citrix^® MetaFrame^® Conferencing Manager.    Citrix MetaFrame Conferencing Manager adds intuitive application conferencing to MetaFrame Presentation Server and eliminates the geographical distance between team members, increases the productivity of meetings, and allows easy collaboration. Teams can now share application sessions, work together on document editing, and conduct online training regardless of the location of individual team members or the access devices or network connections they are using.

Collectively, these products accounted for approximately 50%, 63% and 69% of the Company’s net revenues in 2004, 2003 and 2002, respectively and are included in software licenses revenue in the accompanying consolidated statements of income.

• Citrix Subscription Advantage^™.    To provide customers with the easiest and most convenient way to keep their Citrix software current, the Company markets software under the Citrix Subscription Advantage brand for an additional fee. Citrix Subscription Advantage is the Company’s terminology for post-contract support (“PCS”). Citrix Subscription Advantage is an annual, renewable program that provides subscribers with automatic delivery of software upgrades, enhancements and maintenance releases when and if they become available during the term of their subscription. This product accounted for approximately 36%, 29% and 20% of the Company’s net revenues in 2004, 2003 and 2002, respectively, and is included in software license updates revenue in the accompanying consolidated statements of income.

Citrix Online Services

In February 2004, the Company acquired Expertcity.com, Inc. (“Expertcity”), a market leader in Web-based desktop access as well as a leader in Web-based training and customer assistance products. During 2004, Expertcity was integrated into the Company as the Citrix Online division. The Company’s portfolio of access services now includes the following:

• Citrix^® GoToAssist^™.    Citrix GoToAssist transforms technical support into competitive advantage by reducing support costs while improving end-user productivity and increasing customer loyalty. With just a few mouse clicks, support staff can see what end-users see and vice versa, can chat with end-users in real time, guide them through a product demo, “push” a Web page or file transfer, or take permission-based control of the end-user’s mouse and keyboard to show how to resolve a problem.

• Citrix^® GoToMyPC^®.    Citrix GoToMyPC is an easy-to-use remote-access solution for accessing desktop resources, whether locally installed on the end-user’s computer or running in the Citrix MetaFrame environment. GoToMyPC works seamlessly with all products in the MetaFrame Access Suite, providing Web-based access to all desktop resources using Citrix’s advanced screen-sharing technology. End-users simply log in to the managed service, select from a list of active and authorized PCs, authenticate with a second password unique to their PC, and then can use and control their remote desktops as if actually sitting in front of them.

• Citrix^® GoToMeeting^™.    The instant collaboration solution, Citrix GoToMeeting is an easy-to-use and cost-effective online meeting solution for sharing desktop resources. As a hosted service, GoToMeeting needs minimal deployment, management and maintenance attention from IT staff. Anyone with a PC and Internet browser can host, attend or collaborate in an online meeting within seconds and without hassle. While alternative solutions have overage charges, per-attendee premiums, complex interfaces, and scheduling requirements, GoToMeeting offers All You Can Meet^™ licensing that encourages better, more frequent and more spontaneous collaboration for greater productivity.

Citrix Online services accounted for approximately 6.0% of the Company’s net revenues in 2004 and is included in services revenue in the accompanying consolidated statements of income.

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Citrix Access Gateway Products

In December 2004, the Company acquired Net6 Inc., a leader in providing secure access gateways. Beginning in 2005, the Company’s portfolio of access gateway appliances will include:

• Citrix^® Access Gateway.    The Citrix Access Gateway is a new alternative to Internet Protocol Security (“IPSec”) and traditional Secure Socket Layer Virtual Private Networks (“SSL VPN”) that combines the strengths of IPSec and SSL VPN without their typical weaknesses, offered in an easy-to-deploy appliance. The gateway allows end-users to access IT resources in the same secure way whether they are in front of or behind the firewall, and gives end-users the same experience regardless of their location. For an IT administrator, installation and configuration of both the appliance and client is quick and easy. In addition, as the single point of access, the gateway greatly reduces the complexity and cost involved in managing a variety of different access scenarios for end-users.

• Citrix^® Application Gateway.    The Citrix Application Gateway delivers productivity applications to end-users of Internet Protocol (“IP”) telephones and mobile devices, enabling enterprises to further leverage their IP telephony investment and increase workforce productivity by delivering converged applications to the screens and speakers of IP telephones. The Application Gateway delivers applications to end-users of IP telephones from leading IP PBX vendors including Avaya, Cisco, Mitel, NEC, Nortel Networks and Siemens.

Citrix Services

Citrix provides a portfolio of services designed to allow the Company’s end-customers and entities with which it has a technology relationship to maximize the value of Citrix access infrastructure software. These services are available as a feature of the Company’s business-development program and are available for additional fees to end-customers.

• Citrix Consulting.    The objective of Citrix Consulting is to help ensure the successful implementation of Citrix access infrastructure solutions. Tested methodologies, certified professionals and best practices developed from real-world experience allow Citrix Consulting to provide expert guidance and support to our partners and customers to maximize the effectiveness of their total application access strategy and access infrastructure environment.

• Citrix Technical Support Services.    To accommodate the unique ongoing support needs of customers, Citrix Technical Support Services are specifically designed to address the variety of challenges facing application server software environments. Citrix offers five support-level options, global coverage and personalized relationship management.

• Product Training & Certification.    A series of courses are designed to allow customers and channel members to learn new skills and effective strategies to help plan, implement and administer Citrix products. Students may attend courses at one of over 300 Citrix Authorized Learning Centers^™ (“CALC”s) worldwide.

These services accounted for approximately 8% of the Company’s net revenues in 2004, 2003 and 2002 and are included in services revenue in the Company’s accompanying consolidated statements of income.

Citrix Technology

Citrix products are based on a full range of industry-standard technologies. In addition, some Citrix products also include the Company’s proprietary technologies known as the Independent Computing Architecture (“ICA”) protocol, which allows an application’s graphical end-user interface to be displayed on virtually any client device while the application logic is executed on a central server. Because the ICA^® protocol moves client-based application processing to the server, this approach enables centralized management of applications, end-users, servers, licenses and other system components for greater efficiency and lower cost.

The Company’s ICA^® technology also minimizes the amount of data traveling across an end-user’s network as only encrypted screen refreshes, keystrokes and mouse clicks are transported to and from the client device. This increases remote access security, improves application performance and allows even wireless access to the latest, most powerful applications and information.

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Citrix products are also based on the industry-standard Extensible Markup Language (“XML”). Leveraging XML assures open systems interaction for customers regardless of data source or platform. And by supporting XML, which is the standard for future Web services-based applications, Citrix helps customers get from the client/server world of today to the Web services environments of tomorrow.

Citrix Customers

Citrix offers a portfolio of products and services that target small, medium and large sized organizations in the commercial, government and education sectors. Currently, Citrix has more than 160,000 customers worldwide, including 100% of the Fortune 100, 99% of the Fortune 500 and 97% of the Fortune Global 100.

The Company offers perpetual software licenses for MetaFrame Access Suite products, annual subscriptions for Web-based Citrix Online services, and beginning in 2005 specialized hardware appliances for Citrix Access Gateway products. Perpetual license software products come in both “shrink wrapped” and electronic-based forms. The Company distributes the software in various formats including traditional “boxed” packages for small projects and customers and electronically downloaded formats for its large projects and enterprise customers. The Company’s Web-based services can be accessed over any Internet connection during the subscription period. Hardware appliances come pre-loaded with software for which customers can purchase perpetual licenses.

Technology Relationships

The Company has entered into a number of technology relationships to develop customer markets for its products, broaden the use of the ICA protocol as an industry standard technology for distributed Windows and non Windows applications and to accelerate the development of its existing and future product lines.

Microsoft.    Since its inception, the Company has had a number of license agreements with Microsoft, including licenses relating to Microsoft OS/2, Windows 3.x, Windows for Workgroups, Windows NT^®, Windows CE and Internet Explorer. These agreements have provided the Company with access to certain Microsoft source and object code, technical support and other materials.

In May 1997, the Company entered into a five-year joint license, development and marketing agreement with Microsoft, (as amended, the “Microsoft Development Agreement”), pursuant to which the Company licensed its multi-user Windows NT extensions to Microsoft for inclusion in future versions of Windows NT server software. Pursuant to the Microsoft Development Agreement, the Company’s multi-user Windows NT extensions technology was incorporated into Microsoft’s NT Terminal Server, which was released in July 1998, and Windows 2000 Server, which was released in February 2000.

In May 2002, the Company signed an agreement with Microsoft to provide the Company with access to Microsoft Windows Server source code for current and future Microsoft Server operating systems, including access to Windows Server 2003 and terminal services source code, during the three year term of the agreement. This agreement was terminated in December 2004 and did not provide for payments to or from Microsoft.

In December 2004, the Company entered into a technology collaboration agreement with Microsoft to further enhance the overall extensibility of Windows^® Terminal Server. In conjunction with the technology collaboration agreement, the Company and Microsoft entered into a patent cross license and source code licensing agreements to renew the Company’s access to source code for current versions of Microsoft Windows Server that had previously been provided to the Company pursuant to the agreement between Microsoft and the Company dated May 2002. The technology collaboration agreement also provides for access by the Company to the source code for the forthcoming Microsoft Windows Server codenamed “Longhorn.” The technology collaboration agreement has a five-year term which expires in December 2009. The technology collaboration, patent cross license and source code licensing agreements do not provide for payments to or from Microsoft.

There can be no assurances that the Company’s agreements with Microsoft will be extended or renewed by Microsoft upon their respective expirations or that, if renewed or extended, such agreements will be on terms favorable to the Company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Which May Affect Future Results.”

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Additional Relationships.    As of December 31, 2004, the Company had entered into approximately 100 ICA license agreements. Currently, numerous devices incorporate Citrix ICA, including Windows CE devices, Macintosh clients, Linux Terminals, and other information appliances, such as wireless phones and other handheld devices. ICA licensees include Wyse Technologies, Hewlett-Packard, Neoware, Fujitsu, MaxSpeed and SAP AG, among others.

In addition, the Citrix accessPARTNER network includes Citrix Alliance Partners^™ , which are a coalition of industry-leading companies from across the IT spectrum who work with the Company to design and market complementary solutions for the Company and the customers of Citrix Alliance Partners. The Company’s existing alliance and channel programs, including the Citrix Business Alliance, are now included as part of the Citrix accessPARTNER network. For further information on the Citrix accessPARTNER network see “— Sales, Marketing and Support.” By the end of 2004, the number of Citrix Alliance Partners had grown to approximately 1,800 members, including hardware, software, global and regional consulting alliances. Citrix Premier Plus Alliance Partners include Microsoft, Dell, IBM, EMC², Hewlett-Packard, Siebel Systems, SAP AG, Sun Microsystems and Oracle.

Research and Development

The Company focuses its research and development efforts on developing new products and core technologies for its access infrastructure markets and further enhancing the functionality, reliability, performance and flexibility of existing products. In 2004, the Company acquired additional expertise in Web-based services, telephony, voice over internet protocol and secure access appliances. The Company solicits extensive input concerning product development from end-users, both directly from end-customers and indirectly through its channel distributors.

The Company believes that its software development team and core technologies represent a significant competitive advantage for the Company. Included in the software development team is a group focused on research activities that include prototyping ways to integrate emerging technologies and standards into the Company’s product offerings, such as emerging Web services technologies and Microsoft’s newest Windows Server technologies. Other groups within the software development team have expertise in XML-based software development, integration of acquired technology, multi-tier Web-based application development and deployment and secure sockets layers-based (“SSL”) secure access. The Company maintains a team working on-site at Microsoft focused on enhancing and adding value to the next generation of Microsoft Windows Server products and operating systems.

The software development team also includes a number of key employees who were instrumental in the release of Microsoft’s Window’s NT 4.0 Terminal Server Edition, have expertise in current Microsoft and UNIX operating system environments (Solaris, AIX, HP-UX, and Linux), and were key members from the engineering team that developed the original version of OS/2 at IBM. During 2004, 2003 and 2002, the Company incurred research and development expenses of approximately $86.4 million, $64.4 million and, $68.9 million, respectively.

Sales, Marketing and Support

The Company markets and licenses its products primarily through multiple channels worldwide, including value added resellers, channel distributors, system integrators (“SI”s) and independent software vendors (“ISV”s), managed by the Company’s worldwide sales force. The Company provides training and certification to integrators, value-added resellers and consultants for a full-range of Citrix-based application deployment and management solutions and services through its accessPARTNER network.

As of December 31, 2004, the Company had relationships with approximately 90 distributors and approximately 4,700 Citrix Solution Advisors worldwide. A number of entities with which the Company has channel relationships provide additional end-customer sales channels for the Company’s products under either a Citrix brand or embedded in the licensee’s own software product. For information regarding entities with which the Company has technology relationships, including Citrix Alliance Partners, see “— Technology Relationships.”

In 2004, the Company established the global network of partners called Citrix accessPARTNER. This network spans the system integrators, value-added distributors, resellers, alliance partners, developers, and certified and education professionals who advise on, sell, implement, and provide training for Citrix products and services. At the core of this community are the Citrix Solution Advisors who deliver strategic and successful access infrastructure solutions to Citrix

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customers. Early in 2004, the Company introduced a new program called Citrix Advisor Rewards designed to reward partners for registering projects, submitting forecasts early in the sales process, and providing value-based solutions around Citrix access infrastructure.

The Company regularly takes actions to improve the effectiveness of and strengthen its channel relationships, including eliminating non-performing partners, adding new partners with expertise in selling into new markets, and forming additional relationships with global and regional SIs and ISVs. During 2004 and 2003, the Company particularly focused on streamlining and simplifying sales processes, improving channel incentive programs to reward solution-selling, and training. The Company combined its existing channel programs, including the Citrix Solutions Network^™, into the Citrix accessPARTNER network, a single, global network that spans the solution advisors, SIs, value-added distributors, resellers, alliance partners, and certified education professionals who advise on, sell, implement and provide training for the Citrix MetaFrame Access Suite and related products and services. At the core of this community are Solution Advisors — value-added resellers who deliver strategic and successful access infrastructure solutions for customers. SIs and ISVs are becoming a more central part of Citrix’s strategy in the large enterprise and government markets. The SI program includes members such as IBM, HP, Computer Sciences Corporation, Electronic Data Systems Corporation, Schlumberger, Siemens and Northrop Grumman. The ISV program has a strong representation from targeted industry verticals such as healthcare, financial services and telecommunications. Members in the ISV program include Amdocs, Cerner, Dell, McKesson, Siemens Medical Health Solutions, Reynolds & Reynolds, ESRI and Ericsson, among others.

The Company’s sales and marketing organization actively supports its distributors and resellers. The Company’s sales organization consists of field-based systems sales engineers and corporate sales professionals. Additional sales personnel, based in North America, Europe, Africa, Asia, Australia and South America, support these field personnel. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” and Note 12 to the Company’s Notes to Consolidated Financial Statements for information regarding the Company’s segments. These additional sales personnel recruit prospective customers, provide technical advice with respect to the Company’s products and work closely with key distributors and resellers of the Company’s products. During 2004 and 2003, the Company grew its sales force of sales professionals that work closely with partners to sell to medium and large enterprise customers to achieve the appropriate combination of relationships for licensing, integration and consulting to meet customers’ needs. These and other account penetration efforts are part of the Company’s strategy to increase the usage of Citrix software within the customer’s IT organization.

The Company’s marketing department provides training, sales event support, sales collateral, advertising, direct mail and public relations coverage to its indirect channels to aid in market development and in attracting new customers. In 2003, the Company launched a multi-million-dollar, worldwide advertising campaign. Beginning September 2003, and extending throughout 2004 and into 2005, this multi-media campaign combines CIO-targeted and customer-focused print, Web, billboard and radio advertisements to raise Citrix’s brand awareness using the CIOs of household-name customers to describe the benefits of becoming an on-demand enterprise with Citrix access infrastructure.

The Company provides most of its distributors with stock balancing and price protection rights. These transactions are estimated and provided for at the time of sale as a reduction of revenue. Stock balancing rights permit distributors to return products to the Company up to the forty-fifth day of the fiscal quarter, subject to ordering an equal dollar amount of other Citrix products prior to the last day of the same fiscal quarter. The Company is not obligated to accept product returns from its distributors under any other conditions, unless the product item is defective in manufacture. Product items returned to the Company under the stock-balancing program must be in new, unused and unopened condition. Price protection rights require that the Company grant retroactive price adjustments for inventories of Citrix products held by distributors or resellers if the Company lowers its prices for such products. In the event that the Company decides to reduce its prices, it will establish a reserve to cover exposure to distributor inventory. The Company has not reduced and has no current plans to reduce the prices of its products for inventory currently held by distributors or resellers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and Note 2 to the Company’s Notes to Consolidated Financial Statements for information regarding the Company’s revenue recognition policy.

Except for the Web-based desktop access services offered by the Citrix Online division, the Company’s other service activities are related to post-sale technical support, pre- and post-sale consulting and product training services. Post-sale technical support is offered through Citrix-operated support centers located in the United States, Ireland, Tokyo and Australia. In most cases, the Company provides technical advice to channel distributors and entities with which the Company has a technology relationship, who act as the first line of technical assistance for end-customers. In some cases, end-customers can also choose from a Citrix-delivered fee-based support program ranging from one-time incident charges

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to an enterprise-level support agreement covering multiple sites and servers. In addition, the Company also provides free technical advice through on-line support systems, including its Web-based “Knowledge Center.” For pre- and post-sale consulting, Citrix Consulting, a consulting services organization, provides both exploratory and fee-based consulting services. These services include on-site systems design and implementation services targeted primarily at enterprise-level clients with complex IT environments. Citrix Consulting is also responsible for the development of best practice knowledge that is disseminated to businesses with which Citrix has a business relationship and end-customers through training and written documentation. Leveraging these best practices enables the Company’s integration resellers to provide more complex systems, reach new buyers within existing customer organizations and provide more sophisticated system proposals to prospective customers. Training services for business, end-customers and partners are provided through the Company’s CALC program and eLearning. CALCs are staffed with instructors that have been certified by Citrix and teach their students using Citrix-developed courseware. Over 300 of the world’s leading IT training organizations are CALCs. eLearning is available through both CALCs and from Citrix’s website.

Operations

The Company controls all purchasing, inventory, scheduling, order processing and accounting functions related to its operations. Production, warehousing and shipping are performed internally in the United States and by independent contractors on a purchase order basis in Ireland, depending upon the customer’s geographic market. Master software CD-ROMs, development of user manuals, packaging designs, initial product quality control and testing are performed at the Company’s facilities. In some cases, independent contractors duplicate CD-ROMs, print documentation, and package and assemble product to the Company’s specifications. To date, the Company has not experienced any material difficulties or delays in the manufacture and assembly of its products. Internal manufacturing capabilities and independent contractors provide a redundant source of manufacture and assembly.

The Company generally ships products upon receipt of an order. As a result, the Company does not have significant backlog at any given time, and does not consider backlog to be a significant indicator of future performance.

Competition

As the markets for the Company’s products continue to develop, additional companies, including Microsoft and other companies with significant market presence in the computer hardware, software and networking industries could enter the markets in which the Company competes and further intensify competition.

In addition, alternative products for secure, remote access in the Internet software and hardware markets directly and indirectly compete with the Company’s current products and anticipated future product offerings. Existing or new products that extend Internet software and hardware to provide Web-based information and application access or interactive computing can materially impact the Company’s ability to sell its products in this market. The Company’s competitors in this market include Cisco, Juniper Networks, Oracle, Sun Microsystems, WebEx Communications, Inc. and other makers of secure remote access solutions.

See “— Technology Relationships” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Certain Factors Which May Affect Future Results.” The announcement of the release, and the actual release, of products competitive to the Company’s existing and future product lines, could cause existing and potential customers of the Company to postpone or cancel plans to license certain of its existing and future product offerings, which would adversely impact the Company’s business, results of operations and financial condition.

Proprietary Technology

The Company’s success is dependent upon certain proprietary technologies and core intellectual property. The Company has been awarded a number of domestic and foreign patents and has a number of pending patent applications in the United States and foreign countries. The Company’s technology is also protected under copyright laws. Additionally, the Company relies on trade secret protection and confidentiality and proprietary information agreements to protect its proprietary technology. The Company has trademarks or registered trademarks in the United States and other countries, including Citrix^®, ICA^®, MetaFrame^®, MetaFrameXP^®, GoToMyPC^®, GoToAssist^TM®, GoToMeeting^TM and the Citrix^® logo.

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While the Company’s competitive position could be affected by its ability to protect its proprietary information, the Company believes that because of the rapid pace of technological change in the industry, factors such as the technical expertise, knowledge and innovative skill of the Company’s management and technical personnel, its technology relationships, name recognition, the timeliness and quality of support services provided by the Company and its ability to rapidly develop, enhance and market software products could be more significant in maintaining the Company’s competitive position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Which May Affect Future Results.”

Available Information

The Company’s Internet address is http://www.citrix.com. The Company makes available, free of charge, on or through the Company’s website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Form DEF 14A and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

Employees

As of December 31, 2004, the Company had 2,656 employees. The Company believes its relations with employees are good. In certain countries outside of the United States, the Company’s relations with employees are governed by labor regulations.

ITEM 2.    PROPERTIES

The Company’s corporate offices are located in Fort Lauderdale, Florida. The Company’s corporate offices include leased and subleased office space totaling approximately 461,000 square feet. In addition, the Company leases approximately 142,000 square feet of office space in other locations in the United States and Canada.

The Company leases and subleases a total of approximately 240,000 square feet of office space in various other facilities in Europe, Latin America, the Asia-Pacific region, the Middle East and Africa. In addition, the Company owns land and buildings in the United Kingdom with approximately 48,000 square feet of office space.

ITEM 3.    LEGAL PROCEEDINGS

The Company is a defendant in various litigation matters generally arising out of the normal course of business. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that the ultimate outcome will not materially affect the Company’s business, financial position, results of operations or cash flows.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock and Dividend Policy

The Company’s common stock is currently traded on The Nasdaq National Market under the symbol “CTXS.” The following table sets forth the high and low closing prices for the Company’s common stock as reported on The Nasdaq National Market for the periods indicated, as adjusted to the nearest cent. Such information reflects inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.

	High		Low
Year Ended December 31, 2005:
First quarter (through March 8, 2005)	$	24.00	$	23.28
Year Ended December 31, 2004:
Fourth quarter	$	25.82	$	19.07
Third quarter	$	19.16	$	15.09
Second quarter	$	23.10	$	18.86
First quarter	$	22.72	$	18.50
Year Ended December 31, 2003:
Fourth quarter	$	26.94	$	21.16
Third quarter	$	24.50	$	16.93
Second quarter	$	23.26	$	13.30
First quarter	$	14.76	$	10.98

On March 8, 2005 the last reported sale price of the Company’s common stock on The Nasdaq National Market was $23.70 per share. As of March 8, 2005, there were approximately 1,141 holders of record of the Company’s common stock.

The Company currently intends to retain any earnings for use in its business, for investment in acquisitions and to repurchase shares of its common stock. The Company does not currently anticipate paying any cash dividends on its capital stock in the foreseeable future.

Equity Compensation Plan Information

See Part III, Item 12 for information regarding securities authorized for issuance under the Company’s equity compensation plans.

Issuer Purchases of Equity Securities

The Company’s Board of Directors has authorized an ongoing stock repurchase program with a total repurchase authority granted to the Company of $1.0 billion, of which $200 million was authorized in February 2005. The objective of the stock repurchase program is to manage actual and anticipated dilution and to improve shareholders’ returns. At December 31, 2004, approximately $42.0 million was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. The following table shows the monthly activity related to the Company’s stock repurchase program for the three month period ending December 31, 2004:

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	Total Number of Shares Purchased (1)	Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate dollar value of Shares that may yet be Purchased under the Plans or Programs (in thousands)
October 1, 2004 through October 31, 2004	155,590	$	20.17	(2)	155,590	$	81,049
November 1, 2004 through November 30, 2004	126,463	$	17.67	(2)	126,463	$	91,953	(3)
December 1, 2004 through December 31, 2004	164,051	$	24.93	(2)	164,051	$	41,954
Total	446,104	$	21.21	(2)	446,104	$	41,954

(1) Represents shares received under the Company’s prepaid stock repurchase programs and shares acquired in open market purchases. The Company expended a net amount of $39.1 million during the quarter ended December 31, 2004 for repurchases of the Company’s common stock. For more information see Note 7 to the Company’s consolidated financial statements.

(2) These amounts represent the cumulative average of the price paid per share for shares acquired in open market purchases and those received under the Company’s prepaid stock repurchase programs, some of which extend over more than one fiscal period.

(3) Amount available under the remaining dollar amount the Company has to repurchase shares pursuant to its stock repurchase program increased due to the refund of the notional amount and the receipt of a premium received under one of its prepaid structured programs in November 2004.

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ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.

	Year Ended December 31,
	2004			2003			2002			2001			2000
	(In thousands, except per share data)
Consolidated Statements of Income Data:
Net revenues	$	741,157		$	588,625		$	527,448		$	591,629		$	470,446
Cost of revenues		26,423			31,072			29,841			41,451			41,549
Gross margin		714,734			557,553			497,607			550,178			428,897
Operating expenses:
Research and development		86,357			64,443			68,923			67,699			50,622
Sales, marketing and support		337,566			252,749			235,393			224,108			180,384
General and administrative		106,516			85,672			88,946			85,212			58,685
Amortization of other intangible assets(a)		6,204			300			485			37,228			17,900
In-process research and development		19,100			—			—			2,580			—
Write-down of technology(b)		—			—			—			—			9,081
Total operating expenses		555,743			403,164			393,747			416,827			316,672
Income from operations		158,991			154,389			103,860			133,351			112,225
Interest income		14,274			21,120			30,943			42,006			41,313
Interest expense		(11,586	)		(18,280	)		(18,163	)		(20,553	)		(17,099	)
Other income (expense), net		2,754			3,458			(3,483	)		(2,253	)		(1,422	)
Income before income taxes		164,433			160,687			113,157			152,551			135,017
Income taxes		32,887			33,744			19,237			47,291			40,505
Net income	$	131,546		$	126,943		$	93,920		$	105,260		$	94,512
Diluted earnings per share(c)	$	0.75		$	0.74		$	0.52		$	0.54		$	0.47
Diluted weighted-average shares outstanding(c)(d)		174,734			171,447			179,359			194,498			199,731

	December 31,
	2004		2003		2002		2001		2000
	(In thousands)
Consolidated Balance Sheet Data:
Total assets	$	1,286,084	$	1,344,939	$	1,161,531	$	1,208,230	$	1,112,573
Current portion of long-term debt		—		351,423		—		—		—
Long term debt, capital lease obligations, put warrants and common stock subject to repurchase		—		—		350,024		362,768		346,229
Stockholders’ equity		924,905		706,798		614,590		647,330		592,875

(a) On January 1, 2002 the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. Pursuant to SFAS No. 142, the Company ceased amortizing goodwill.

(b) During 2000, the Company recorded impairment write-downs of previously acquired core technology of $9.1 million.

(c) Diluted earnings per share and diluted weighted-average shares outstanding have been adjusted to reflect the two-for-one stock split in the form of a stock dividend declared on January 19, 2000 and paid on February 16, 2000 to holders of record of the Company’s Common Stock on January 31, 2000.

(d) Pursuant to the Company’s stock repurchase programs, the effect on the calculation of weighted-average shares outstanding from repurchase activities was 2.1 million, 5.4 million, 8.2 million, 3.2 million and 0.8 million in 2004, 2003, 2002, 2001 and 2000, respectively.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We design, develop and market access infrastructure software, services and appliances. We market and license our products through multiple channels such as value-added resellers, channel distributors, system integrators, independent software vendors and our websites. We also promote our products through relationships with a wide variety of industry participants, including Microsoft Corporation (“Microsoft”).

Acquisitions

Net6

On December 8, 2004, we acquired all of the issued and outstanding capital stock of Net6, Inc. or Net6, a leader in providing secure access gateways. The acquisition extends our ability to provide easy and secure access to virtually any resource, both data and voice, on-demand. The results of operations of Net6 are included in our results of operations beginning after December 8, 2004 as part of our Americas geographic segment. The consideration for this transaction was approximately $49.2 million paid in cash. In addition to the purchase price, there were direct transaction costs associated with the acquisition of approximately $1.7 million. The sources of funds for consideration paid in this transaction consisted of available cash and investments.

Expertcity

On February 27, 2004, we acquired all of the issued and outstanding capital stock of Expertcity.com, Inc. or Expertcity, a market leader in Web-based desktop access as well as a leader in Web-based training and customer assistance products. The results of operations of Expertcity are included in our results of operations beginning after February 27, 2004.

The consideration for this transaction was approximately $241.4 million, comprised of approximately $112.6 million in cash, approximately 5.9 million shares of our common stock valued at approximately $124.4 million and direct transaction costs of approximately $4.4 million. These amounts include additional common stock earned by Expertcity upon the achievement of certain revenue and other financial milestones during 2004 pursuant to the merger agreement, which will be issued during 2005. The fair value of the common stock earned as additional purchase price consideration was recorded as goodwill on the date earned. The sources of funds for consideration paid in this transaction consisted of available cash and investments and our authorized common stock. There is no further contingent consideration related to the transaction.

Purchase Accounting for Our Acquisitions

Under the purchase method of accounting, the purchase price was allocated to Expertcity’s and Net6’s respective net tangible and intangible assets based on their estimated fair values. Independent valuation specialists assisted us in determining the fair values of a significant portion of the net assets associated with these transactions.

The allocation of the purchase price is summarized below (in thousands):

	Expertcity			Net6
	Purchase Price Allocation		Asset Life	Purchase Price Allocation		Asset Life
Current assets	$	26,085		$	2,107
Property and equipment		1,998	Various		204	Various
In-process research and development		18,700			400
Intangible assets		50,800	3-7 years		20,300	3-7 years
Goodwill		165,758	Indefinite		33,506	Indefinite
Assets acquired		263,341			56,517
Current liabilities		13,617			2,836
Deferred tax liability		8,292			2,812
Total liabilities assumed		21,909			5,648
Net assets acquired, including direct transaction costs	$	241,432		$	50,869

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Net assets acquired from Expertcity consisted mainly of cash and investments, accounts receivable, deferred revenues and other current liabilities. Net liabilities acquired from Net6 consisted mainly of cash, accounts receivable, deferred revenues and other current and long-term liabilities.

Intangible assets acquired in the Expertcity acquisition are comprised of core and product technologies, trade names, covenants not to compete and customer relationships. Intangible assets acquired in the Net6 acquisition are comprised of core and product technologies, customer relationships and covenants not to compete. The goodwill recorded in relation to these acquisitions is not deductible for tax purposes. The valuation of the trade names for Expertcity was determined based on assigning a royalty rate to the revenue stream that was expected from the services using the trade name. The pre-tax royalty rate was applied to the product revenue and discounted to a present value. The valuation of core and product technology was based on the estimated discounted future cash flows associated with Expertcity’s and Net6’s existing products. The value of customer relationships was determined based on Expertcity’s and Net6’s estimated future discounted cash flows of the relationships in place after considering historical attrition rates.

We expensed purchased in–process research and development of approximately $18.7 million related to the Expertcity acquisition and $0.4 million related to the Net6 acquisition immediately upon the closing of the mergers. For more information regarding the in-process research and development acquired from Expertcity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” and note 3 to our consolidated financial statements.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. We base these estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted.

We believe that the accounting policies described below are critical to understanding our business, results of operations and financial condition because they involve more significant judgments and estimates used in the preparation of our consolidated financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. We have discussed the development, selection and application of our critical accounting policies with the audit committee of our board of directors, and our audit committee has reviewed our disclosure relating to our critical accounting policies in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also critical to understanding our consolidated financial statements. The notes to our consolidated financial statements contain additional information related to our accounting policies and should be read in conjunction with this discussion.

Revenue Recognition.    The accounting related to revenue recognition in the software industry is complex and affected by interpretations of the rules and an understanding of industry practices, both of which are subject to change. As a result, revenue recognition accounting rules require us to make significant judgments. In addition, our judgment is required in assessing the probability of collection, which is generally based on evaluation of customer-specific information, historical collection experience and economic market conditions.

We sell most of our MetaFrame Access Suite products bundled with an initial subscription for software license updates that provide the end-user with free enhancements and upgrades to the licensed product on a when and if available basis. Customers may also elect to purchase technical support, product training or consulting services. We allocate revenue to software license updates and any other undelivered elements of the arrangement based on vendor specific objective

16

evidence, or VSOE, of fair value of each element and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria have been met. The balance of the revenue, net of any discounts inherent in the arrangement, is allocated to the delivered software product using the residual method and recognized at the outset of the arrangement as the software licenses are delivered. If we cannot objectively determine the fair value of each undelivered element based on VSOE, we defer revenue recognition until all elements are delivered, all services have been performed, or until fair value can be objectively determined. We must apply judgment in determining all elements of the arrangement and in determining the VSOE of fair value for each element, considering the price charged for each product or applicable renewal rates for software license updates.

In the normal course of business, we do not permit product returns, but we do provide most of our distributors and value added resellers with stock balancing and price protection rights. Stock balancing rights permit distributors to return products to us up to the forty-fifth day of the fiscal quarter, subject to ordering an equal dollar amount of our other products prior to the last day of the same fiscal quarter. Price protection rights require that we grant retroactive price adjustments for inventories of our products held by distributors or resellers if we lower our prices for such products. We establish provisions for estimated returns for stock balancing and price protection rights, as well as other sales allowances, concurrently with the recognition of revenue. The provisions are established based upon consideration of a variety of factors, including, among other things, recent and historical return rates for both specific products and distributors, estimated distributor inventory levels by product, the impact of any new product releases and projected economic conditions. Actual product returns for stock balancing and price protection provisions incurred are, however, dependent upon future events, including the amount of stock balancing activity by our distributors and the level of distributor inventories at the time of any price adjustments. We continually monitor the factors that influence the pricing of our products and distributor inventory levels and make adjustments to these provisions when we believe actual returns and other allowances could differ from established reserves. Our ability to recognize revenue upon shipment to our distributors is predicated on our ability to reliably estimate future stock balancing returns. If actual experience or changes in market condition impairs our ability to estimate returns, we would be required to defer the recognition of revenue until the delivery of the product to the end-user. Allowances for estimated product returns amounted to approximately $2.3 million at December 31, 2004 and $3.0 million at December 31, 2003. The decrease in allowances for estimated product returns is a reflection of the decrease in stock rotation experience primarily due to a reduction in packaged product inventory held by our distributors resulting from an increase in enterprise customer license arrangements, which are typically delivered electronically. We have not reduced and have no current plans to reduce our prices for inventory currently held by distributors or resellers. Accordingly, there were no reserves required for price protection at December 31, 2004 or December 31, 2003. We also record reductions to revenue for customer programs and incentive offerings including volume-based incentives, at the time the sale is recorded. If market conditions were to decline, we could take actions to increase our customer incentive offerings, which could result in an incremental reduction to our revenue at the time the incentive is offered.

Core and Product Technology Assets.    We review acquired core and product technology assets for impairment on a periodic basis by comparing the estimated net realizable value to the unamortized cost of the technology. We have acquired our core and product technology assets primarily from our Net6, Expertcity and Sequoia acquisitions as well as under other third party agreements. The core and product technology assets acquired in our Net6 acquisition will extend our ability to provide easy and secure access through our MetaFrame Access Suite of products. The core and product technology assets acquired in our Expertcity acquisition form the basis of our Citrix Online division and the assets acquired in our Sequoia acquisition, as well as under other third party agreements, form the basis for our MetaFrame Secure Access Manager product. The recoverability of these technologies is primarily dependent upon our ability to commercialize these products. The estimated net realizable value of the purchased Sequoia and other technology is based on the estimated undiscounted future cash flows associated with our MetaFrame Secure Access Manager. The estimated net realizable value of the purchased Expertcity technology is based on the estimated undiscounted future cash flows associated with our Citrix Online services. Our revenues are forecasted based on historical sales, data received from rate projections on our subscribing customer base and estimates from our sales channels and end-customer sales force. Our assumptions about future revenues and expenses require significant judgment associated with the forecast of MetaFrame Secure Access Manager and our Citrix Online products. Actual revenues and costs could vary significantly from these forecasted amounts. As of December 31, 2004, the estimated undiscounted future cash flows expected from core and product technology assets from these acquisitions is sufficient to recover their carrying value. If these products are not ultimately accepted by our customers, and there is no alternative future use for this technology, we could determine that some or all of their remaining $36.3 million carrying value is impaired. In the event of impairment, we would record an impairment charge to earnings that could have a material adverse effect on our results of operations.

17

On December 8, 2004, we acquired Net6, which resulted in additional core and product technology of $13.3 million, net of amortization, at December 31, 2004. For more information concerning our acquisition of Net6, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Acquisitions.”

Goodwill.    At December 31, 2004, we had $361.5 million in goodwill primarily related to our acquisitions of Net6, Expertcity and Sequoia. The goodwill recorded in relation to these acquisitions is not deductible for tax purposes. We operate in a single market consisting of the design, development, marketing and support of access infrastructure software, hardware and services for enterprise applications. Our revenues are derived from sales in the Americas, Europe, the Middle East and Africa, or EMEA, and Asia-Pacific regions and from our Citrix Online division. These three geographic regions and the Citrix Online division constitute our reportable segments. See note 12 to our consolidated financial statements for additional information regarding our reportable segments. We evaluate goodwill along these segments, which represent our reporting units. Substantially all of our goodwill at December 31, 2004 was associated with our Americas and Citrix Online reportable segments.

On January 1, 2002, we adopted Statement of Financial Accounting Standard or SFAS No. 142, Goodwill and Other Intangible Assets. As a result of adopting SFAS No. 142, our goodwill is no longer amortized but is subject to an annual impairment test. In accordance with SFAS No. 142, we ceased amortizing goodwill with a net book value at January 1, 2002 of $152.4 million, including $10.1 million of acquired workforce previously classified as purchased intangible assets. Excluding goodwill, we have no intangible assets deemed to have indefinite lives.

We use judgment in assessing goodwill for impairment. Goodwill is reviewed for impairment annually, or sooner if events or changes in circumstances indicate that the carrying amount could exceed fair value. Fair values are based on discounted cash flows using a discount rate determined by our management to be consistent with industry discount rates and the risks inherent in our current business model. In accordance with SFAS No. 142, we completed the required impairment tests of goodwill at the date of adoption and annually as required. There were no impairment charges recorded as a result of the adoption of SFAS No. 142 or annual impairment tests. Due to uncertain market conditions and potential changes in our strategy and product portfolio, it is possible that the forecasts we use to support our goodwill could change in the future, which could result in non-cash charges that would adversely affect our results of operations and financial condition.

Current and Deferred Tax Assets.    We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements. At December 31, 2004, the Company has $40.8 million in net deferred tax assets. SFAS No. 109, Accounting for Income Taxes, requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is not more likely than not that some portion or all of the deferred tax assets will be realized. Management reviews deferred tax assets periodically for recoverability and makes estimates and judgments regarding the expected geographic sources of taxable income, gains from investments, as well as tax planning strategies in assessing the need for a valuation allowance. At December 31, 2004, we determined that a valuation allowance of approximately $1.3 million relating to foreign tax credit carryovers was necessary to reduce our deferred tax assets to the amount that will more likely than not be realized. If the estimates and assumptions used in our determination change in the future, we could be required to revise our estimates of the valuation allowances against our deferred tax assets and adjust our provisions for additional income taxes.

In the ordinary course of global business, there are transactions for which the ultimate tax outcome is uncertain, thus judgment is required in determining the worldwide provision for income taxes. We provide for income taxes on transactions based on our estimate of the probable liability. We adjust our provision as appropriate for changes that impact our underlying judgments. Changes that impact provision estimates include such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in which we operate, it is possible that our estimates of our tax liability and the realizability of our deferred tax assets could change in the future, which may result in additional tax liabilities and adversely affect our results of operations, financial condition and cash flows.

Stock-based Compensation Disclosures

Our stock option program is a broad based, long-term retention program that is intended to attract and reward talented employees and align stockholder and employee interests. The number and frequency of stock option grants are based on competitive practices, our operating results, the number of options available for grant under our shareholder approved plans, and other factors. All employees are eligible to participate in the stock option program.

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As of December 31, 2004, we had six stock-based compensation plans, including plans assumed in acquisitions. We typically grant stock options for a fixed number of shares to employees with an exercise price equal to or above the market value of the shares at the date of grant. As discussed in note 2 to our consolidated financial statements, we apply the intrinsic value method under Accounting Principles Board or APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for our plans except for 51,546 options assumed as part of the Net6 acquisition, which were accounted for in with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25) because they had an exercise price below market value. No stock-based compensation cost has been reflected in net income except for the amounts related to the 51,546 options assumed as part of the Net6 acquisition. The impact of our fixed stock plans and our stock purchase plan on our consolidated financial statements from the use of options is reflected in the calculation of earnings per share in the form of dilution.

The following table (in thousands, except option price) provides information as of December 31, 2004 about the securities authorized for issuance to our employees and directors under our fixed stock compensation plans, consisting of our Amended and Restated 1995 Stock Plan, the Third Amended and Restated 1995 Employee Stock Purchase Plan, the Amended and Restated 1995 Non-Employee Director Option Plan and the Second Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan:

	(A)	(B)		(C)
Plan	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A))
Equity compensation plans approved by security holders	36,876	$	25.23	42,872
Equity compensation plans not approved by security holders*	52		3.86	—
Total	36,928	$	25.20	42,872

* Consists of the Amended and Restated 2000 Stock Incentive Plan of Net6 Inc. and the Amended and Restated 2003 Stock Incentive Plan of Net6 Inc., each of which we assumed in our acquisition of Net6. For more information concerning these plans, see note 6 to our consolidated financial statements.

The following table provides information about stock options granted in 2004 and 2003 for employees, non-employee directors and for certain executive officers. The stock option data for listed officers relates to our Named Executive Officers. The “Named Executive Officers” for the year ended December 31, 2004, consist of our chief executive officer and the four other most highly compensated executive officers who earned total annual salary and bonus in excess of $100,000 in 2004. For further information on 2004 Named Executive Officers, see our 2004 proxy statement that will be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2004. For 2003, the “Named Executive Officers” consist of our chief executive officer and the four other most highly compensated executive officers and one other individual that would have qualified, except that she was not an executive officer at December 2003 that earned total annual salary and bonus in excess of $100,000 in 2003. The 2003 Named Executive Officers are identified in our 2003 Proxy Statement dated April 4, 2004. Named Executive officers for both years presented were employees as of the respective year end.

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	Year ended December 31,
	2004		2003
Net grants to all employees, non-employee directors and executive officers as a percent of outstanding shares(1)(2)	1.73	%	1.03	%
Grants to Named Executive Officers as a percent of outstanding shares(2)	0.17	%	0.24	%
Grants to Named Executive Officers as a percent of total options granted	4.83	%	6.89	%
Cumulative options held by Named Executive Officers as a percent of total options outstanding(3)	9.66	%	10.08	%

(1) Net grants represent total options granted during the period net of options forfeited during the period.

(2) Calculation is based on outstanding shares of common stock as of the beginning of the respective period.

(3) Calculation is based on total options outstanding as of the end of the respective period.

The following table presents our option activity from December 31, 2002 through December 31, 2004 (in thousands, except weighted-average exercise price). Some amounts may not add due to rounding.

			Options Outstanding
	Options Available for Grant		Number of Shares		Weighted Average Exercise Price
Balance at December 31, 2002	30,001		41,221		$	24.51
Granted at market value	(5,575	)	5,575			16.19
Granted above market value	(349	)	349			12.00
Exercised	—		(4,723	)		11.64
Forfeited/cancelled	4,199		(4,199	)		28.14
Reduction in plan shares (1)	(500	)	N/A			N/A
Additional shares reserved	9,249		N/A			N/A
Balance at December 31, 2003	37,025		38,222			24.56
Granted at market value	(5,638	)	5,638			20.97
Granted below market value	(52	)	52			3.86
Exercised	—		(4,492	)		13.06
Forfeited/cancelled	2,491		(2,491	)		25.14
Additional shares reserved	9,046		N/A			N/A
Balance at December 31, 2004	42,872		36,928		$	25.20

(1) The number of shares reserved for issuance under our Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan was reduced by 500,000 shares pursuant to an amendment to such option plan authorized by our Board of Directors on May 15, 2003.

A summary of our in-the-money and out-of-the-money option information as of December 31, 2004 is as follows (in thousands, except weighted average exercise price). Out-of-the-money options are those options with an exercise price equal to or above the closing price of $24.46 per share for our common stock at December 31, 2004.

	Exercisable			Unexercisable			Total
	Shares	Weighted Exercise Price		Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
In-the-money	13,700	$	16.48	10,190	$	16.20	23,890	$	16.36
Out-of-the-money	11,825		42.68	1,213		28.84	13,038		41.39
Total options outstanding	25,525		28.62	11,403		17.55	36,928		25.20

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The following table provides information with regard to our stock option grants during 2004 to the 2004 Named Executive Officers:

	Individual Grants(1)
	Number of Securities Underlying Options Granted (#)	Exercise Price ($/share)		Expiration Date
Mark Templeton	37,500 37,500	$ $	22.47 17.55	April 13, 2009 August 2, 2009
John Burris	25,000 25,000 25,000	$ $ $	22.47 17.55 22.94	April 13, 2009 August 2, 2009 October 25, 2009
David Friedman	15,000 15,000	$ $	22.47 17.55	April 13, 2009 August 2, 2009
Stefan Sjostrom	12,500 22,500	$ $	22.47 17.55	April 13, 2009 August 2, 2009
David Henshall	17,500 17,500 25,000	$ $ $	22.47 17.55 22.94	April 13, 2009 August 2, 2009 October 25, 2009

(1) These options vest over 3 years at a rate of 33.3% of the shares underlying the option one year from the date of the grant and at a rate of 2.78%, monthly, thereafter.

The following table presents certain information regarding option exercises for 2004 and outstanding options held by 2004 Named Executive Officers as of December 31, 2004:

	Shares Acquired on Exercise (#)	Value Realized ($)(1)		Number of Securities Underlying Unexercised Options at December 31, 2004		Values of Unexercised In- the-Money Options at December 31, 2004 ($)
				Exercisable	Unexercisable	Exercisable		Unexercisable(2)
Mark Templeton	—		—	2,011,458	191,042	$	9,656,322	$	1,514,173
John Burris	30,624	$	571,138	435,829	144,297	$	729,912	$	1,016,313
David Friedman	—		—	62,864	127,136	$	1,033,877	$	1,711,098
Stefan Sjostrom	27,187	$	459,186	233,432	101,631	$	354,767	$	781,473
David Henshall	—		—	83,333	176,667	$	841,663	$	1,372,087

(1) The amounts disclosed in this column were calculated based on the difference between the fair market value of our common stock on the date of exercise and the exercise price of the options in accordance with regulations promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and do not reflect amounts actually received by the named officers.

(2) Value is based on the difference between the option exercise price and the fair market value at December 31, 2004 ($24.46 per share), multiplied by the number of shares underlying the option.

For further information regarding our stock option plans, see note 6 to our consolidated financial statements.

The following discussion relating to the individual financial statement captions, our overall financial performance, operations and financial position should be read in conjunction with the factors and events described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Which May Affect Future Results,” which could impact our future performance and financial position.

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Results of Operations

The following table sets forth our consolidated statements of income data and presentation of that data as a percentage of change from period-to-period.

	Year Ended December 31,									2004 Compared to 2003		2003 Compared to 2002
	2004			2003			2002
Revenues:
Software licenses	$	369,826		$	374,403		$	363,145		(1.2	)%	3.1	%
Software license updates		271,547			168,793			105,682		60.9		59.7
Services		99,784			45,429			44,539		119.6		2.0
Other		—			—			14,082		*		*
Total net revenues		741,157			588,625			527,448		25.9		11.6
Cost of revenues:
Cost of software license revenues		3,824			13,555			12,444		(71.8	)	8.9
Cost of services revenues		16,472			6,481			6,586		154.2		(1.6	)
Amortization of core and product technology		6,127			11,036			10,811		(44.5	)	2.1
Total cost of revenues		26,423			31,072			29,841		(15.0	)	4.1
Gross margin		714,734			557,553			497,607		28.2		12.0
Operating expenses:
Research and development		86,357			64,443			68,923		34.0		(6.5	)
Sales, marketing and support		337,566			252,749			235,393		33.6		7.4
General and administrative		106,516			85,672			88,946		24.3		(3.7	)
Amortization of other intangible assets		6,204			300			485		*		(38.1	)
In-process research and development		19,100			—			—		*		*
Total operating expenses		555,743			403,164			393,747		37.8		2.4
Income from operations		158,991			154,389			103,860		3.0		48.7
Interest income		14,274			21,120			30,943		(32.4	)	(31.7	)
Interest expense		(4,367	)		(18,280	)		(18,163	)	(76.1	)	0.6
Write-off of deferred debt issuance costs		(7,219	)		—			—		*		*
Other income (expense), net		2,754			3,458			(3,483	)	(20.4	)	199.3
Income before income taxes		164,433			160,687			113,157		2.3		42.0
Income taxes		32,887			33,744			19,237		(2.5	)	75.4
Net income	$	131,546		$	126,943		$	93,920		3.6		35.2

* not meaningful.

Net Revenues.    Our operations consist of the design, development, marketing and support of access infrastructure software and services that enable effective and efficient enterprise-wide deployment and management of applications and information.

Net revenues include the following categories: Software Licenses, Software License Updates, Services, and Other. Software Licenses primarily represents fees related to the licensing of our MetaFrame Access Suite products. These revenues are reflected net of sales allowances and provisions for stock balancing return rights. The MetaFrame Presentation Server product accounted for approximately 93.3% of our Software License revenue for the year ended December 31, 2004, 97.6% of our Software License revenue for the year ended December 31, 2003 and 97.7% of our Software License revenue for the year ended December 31, 2002. Software License Updates consists of fees related to our Subscription Advantage program (our terminology for post contract support) that are recognized ratably over the term of the contract, which is typically 12 to 24 months. Subscription Advantage is an annual renewable program that provides subscribers with automatic delivery of software upgrades, enhancements and maintenance releases when and if they become available during the term of the subscription. Services consist primarily of technical support services and Web-based desktop access services revenue recognized ratably over the contract term, revenue from product training and certification, and consulting services revenue related to implementation of our software products, which are recognized as the services are provided. In May 1997, we entered into a five-year joint license, development and marketing agreement with the Microsoft Corporation or the Microsoft Development Agreement, which expired in May 2002. Other revenues in 2002 represents the royalty fees recognized in connection with the Microsoft Development Agreement.

Net revenues increased $152.5 million during 2004 compared to 2003. Software License revenue decreased $4.6 million during 2004 primarily due to a weakness in our packaged product sales which are typically purchased by medium and small-sized businesses. Software License Updates revenue increased $102.8 million during 2004 primarily due to a larger base of subscribers and increasing renewal rates related to our Subscription Advantage program. Services revenue increased

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$54.4 million during 2004 primarily due to the addition of the Citrix Online division resulting from our February 2004 Expertcity acquisition. We currently expect Subscription Advantage to continue to be of strategic importance to our business in 2005 because it fosters long-term customer relationships and gives us improved visibility and predictability due to the recurring nature of this revenue stream.

In January 2004, we launched our Advisor Rewards Program which gives sales incentives to resellers for the sale of certain license types. In the third quarter of 2004, we extended our Advisor Rewards Program to a broader range of license types, which we anticipate will continue to stimulate demand for our MetaFrame products from smaller customers and projects. Revenues associated with our Advisor Rewards Program is partially offset by the associated incentives to our resellers.

Net revenues increased $61.2 million during 2003 compared to 2002. Software License revenue increased $11.3 million during 2003 primarily due to an increase in Software Licenses, revenue from the sale of Citrix MetaFrame Presentation Server, under enterprise customer license arrangements. Also, the increase over 2002 was partially due to weakness during 2002 in packaged product sales to our distributors and resellers, associated with a reduction in packaged product inventory held by our distributors and overall weakness in IT spending during 2002. Software License Updates revenue increased $63.1 million during 2003 compared to 2002 primarily due to the continued acceptance of our renewable Subscription Advantage program. These increases were partially offset by a decrease in Other revenue of $14.1 million during 2003 associated with the expiration of the Microsoft Development Agreement in May 2002.

Deferred revenues, primarily related to Citrix Subscription Advantage and Services revenues, increased approximately $60.1 million compared to December 31, 2003. The significant increase was due primarily to increased renewals of Citrix Subscription Advantage, and the services sold by our Citrix Online division, which were acquired from Expertcity. We expect deferred revenue to increase in 2005 due primarily to currently expected increases in both annual contract adoptions for Citrix Online services and Subscription Advantage renewals.

International and Segment Revenues.    International revenues (sales outside of the United States) accounted for approximately 53.2% of our net revenues for the year ended December 31, 2004, 54.6% of our net revenues for the year ended December 31, 2003, and 53.7% of our net revenues for the year ended December 31, 2002.

An analysis of our reportable segment net revenue is presented below:

	Year Ended December 31,						Revenue Growth 2003 to 2004		Revenue Growth 2002 to 2003
	2004		2003		2002
Americas(1)	$	335,436	$	291,470	$	255,438	15.1	%	14.1	%
EMEA(2)		293,690		243,890		209,520	20.4		16.4
Asia-Pacific		67,930		53,265		48,408	27.5		10.0
Citrix Online division		44,101		—		—	100.0		—
Other(3)		—				14,082	—		(100.0	)
Consolidated net revenues	$	741,157	$	588,625	$	527,448	25.9		11.6

(1) Our Americas segment is comprised of the United States, Canada and Latin America.

(2) Defined as Europe, Middle East and Africa.

(3) Represents royalty fees in connection with the Microsoft Development Agreement, which expired in May 2002.

With respect to our segment revenues, the increase in net revenues during 2004 as compared to 2003 was due primarily to the factors mentioned above across all geographic segments, particularly Europe. The increase in net revenues during 2003 as compared to 2002 was due primarily to the factors mentioned above across all geographic segments. For additional information on international revenues, please refer to note 12 to our consolidated financial statements.

Cost of Revenues.    Cost of revenues consists primarily of the compensation costs and other personnel-related costs of providing services and amortization of core and product technology, as well as costs of product media and duplication, manuals, packaging materials and shipping expense service capacity costs and royalties. Cost of software licenses revenues decreased $9.7 million in 2004 as compared to 2003 due primarily to a decrease in royalties due to the expiration of certain

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license agreements. Cost of services revenues increased $10.0 million in 2004 compared to 2003 primarily due to the addition of our Citrix Online division resulting from the February 2004 Expertcity acquisition. Amortization of core and product technology decreased $4.9 million in 2004 as compared to 2003 primarily due to the reclassification of certain intangible tax assets related to a 2001 acquisition from a product technology intangible asset to goodwill resulting in an approximately $7.2 million reduction in amortization expense partially offset due to an increase in amortization expense related to core and product technology intangible assets acquired in the Expertcity acquisition. Cost of revenues for software licenses revenues, cost of services revenues and amortization of core and product technology for 2003 remained relatively unchanged compared to 2002.

Gross Margin.    Gross margin as a percent of revenue was 96.4% for 2004, 94.7% for 2003 and 94.3% for 2002. The increase in gross margin as a percentage of net revenue in 2004 compared to 2003 was primarily due to the decrease in cost of revenues as discussed above. We currently anticipate that in the next twelve months, gross margin as a percentage of net revenues will remain relatively unchanged as compared with current levels. Gross margin, however, will fluctuate from time to time based on a number of factors attributable to the cost of revenues as discussed above.

Operating Expenses.    As further discussed below, during 2002 we reduced our worldwide workforce by approximately 10% (approximately 200 employees) and consolidated certain functions from our Salt Lake City, Utah and Columbia, Maryland facilities into our Fort Lauderdale, Florida facility. As a result of such actions, we incurred expenses of approximately $10.9 million, primarily for severance and related facility expenses, of which approximately $7.0 million were included in research and development expenses, $2.8 million were included in sales, marketing and support expenses and $1.1 million were included in general and administrative expenses.

Our results of operations are subject to fluctuations in foreign currency exchange rates. In order to minimize the impact on our operating results, we generally initiate our hedging of currency exchange risks one year in advance of anticipated foreign currency expenses. As a result of this policy, foreign currency denominated expenses will be higher or lower in the current year depending on the weakness or strength of the dollar in the prior year. Since the U.S. dollar was generally weak in 2004, we currently expect that operating expenses will be higher in 2005 but further dollar weakness in 2005 will not have a further material adverse impact on our operating expenses until 2006.

As permitted by SFAS No. 123, Accounting for Stock-based Compensation, we currently account for share-based payments to employees using the APB Opinion No. 25 intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires companies to expense the value of employee stock options and similar awards. SFAS No. 123R permits public companies to adopt its requirements using one of two methods: A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123R for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. A “prospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123R for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. We are currently in the process of determining the effects on our financial position, results of operations and cash flows that will result from the adoption of SFAS No. 123R.

Research and Development Expenses.    Research and development expenses consist primarily of personnel-related costs. We expense substantially all development costs included in the research and development of software products and enhancements to existing products as incurred except for certain core technologies with alternative future use. Research and development expenses increased approximately $21.9 million during 2004 as compared to 2003 primarily due to increased headcount and related personnel costs, as well as an increase in staffing and associated personnel costs related to the Expertcity acquisition. During 2005, we expect research and development expenses to increase as we continue to make investments in our business and hire personnel to achieve our product development goals.

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Research and development expenses decreased approximately $4.5 million during 2003 as compared to 2002, primarily due to severance, relocation and reduced headcount costs and related facility charges associated with the consolidation of our Salt Lake City, Utah and Columbia, Maryland development teams into our remaining engineering facilities in Fort Lauderdale, Florida during 2002. These decreases were partially offset by an increase in costs for external consultants and developers.

Sales, Marketing and Support Expenses.    Sales, marketing and support expenses increased approximately $84.8 million during 2004 as compared to 2003, primarily due to the hiring of additional sales personnel and related personnel costs and increases in commissions and other variable compensation costs due to the achievement of targeted sales goals and an increase in staffing and associated personnel costs related to the Expertcity acquisition. In addition, there was an increase in marketing program costs resulting from our worldwide brand awareness and advertising campaign and from the marketing of services related to our Citrix Online division, which were introduced in the first quarter of 2004. These increases were partially offset by an increase in the allocation of certain revenue generating services expenses from operating expense to cost of services revenues. During 2005, we currently expect sales, marketing and support expenses to increase as we continue to make investments in our business to achieve our strategic goals.

Sales, marketing and support expenses increased approximately $17.4 million during 2003 as compared to 2002 primarily due to increases in commissions and other variable compensation costs due to the achievement of targeted sales goals. In addition and to a lesser extent, the increase in marketing program costs resulted primarily from our launch of a worldwide brand awareness and advertising campaign and increases in product training costs and reseller commissions associated with the increase in our software license updates.

General and Administrative Expenses.    General and administrative expenses increased approximately $20.8 million during 2004 as compared to 2003 primarily due to an increase in external consulting and services associated with regulatory compliance requirements and information systems, an increase in headcount and related personnel costs as well as an increase in staffing and associated personnel costs related to the Expertcity acquisition.

General and administrative expenses decreased approximately $3.3 million during 2003 as compared to 2002 due primarily to a decrease in depreciation expense resulting from asset maturities and the abandonment of certain leasehold improvements during 2002 and a decrease in our provision for doubtful accounts. These decreases were partially offset by an increase in incentive compensation resulting from the achievement of our financial targets and an increase in insurance costs.

Amortization of Other Intangible Assets.    Amortization of other intangible assets increased approximately $5.9 million in 2004 as compared to 2003 primarily due to an increase in amortization expense related to intangible assets acquired in the Expertcity acquisition. As of December 31, 2004, we had unamortized other identified intangible assets with estimable useful lives in the net amount of $29.4 million. Amortization of intangible assets remained relatively unchanged in 2003 compared to 2002. Amortization expense totaled $6.2 million during 2004, $0.3 million during 2003 and $0.5 million in 2002. We currently expect amortization expense to increase during 2005 as a result of our acquisitions. For more information regarding the Net6 and Expertcity acquisitions see, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Acquisitions” and note 3 to our consolidated financial statements.

In-Process Research and Development.    During 2004, we acquired Expertcity and Net6 and an aggregate of approximately $19.1 million of the respective purchase prices were allocated to in-process research and development, or IPR&D. The amounts allocated to IPR&D had not yet reached technological feasibility, had no alternative future use and were written off at the date of the acquisitions in accordance with Financial Accounting Standards Board Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method. There were no write-offs of IPR&D during 2003 and 2002. For more information regarding the acquisitions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Acquisitions” and note 3 to our consolidated financial statements.

Our efforts with respect to the acquired technologies currently consist of design and development that may be required to support the release of the technologies into updated versions of existing service offerings and potentially new product and service offerings by our Citrix Online division. We currently expect that we will successfully develop new products or services utilizing the acquired in-process technology, but there can be no assurance that commercial viability of future product or service offerings will be achieved. Furthermore, future developments in the software industry, changes in

25

technology, changes in other products and offerings or other developments may cause us to alter or abandon product plans. Failure to complete the development of projects in their entirety, or in a timely manner, could have a material adverse impact on our financial condition and results of operations.

The fair value assigned to IPR&D was based on valuations prepared using methodologies and valuation techniques consistent with those used by independent appraisers. All fair values were determined using the income approach, which includes estimating the revenue and expenses associated with a project’s sales cycle and by estimating the amount of after-tax cash flows attributable to the projects. The future cash flows were discounted to present value utilizing an appropriate risk-adjusted rate of return, which ranged from 17% to 25%. The rate of return included a factor that takes into account the uncertainty surrounding the successful development of the IPR&D.

Interest Income.    Interest income decreased approximately $6.8 million during 2004 as compared to 2003 due to lower levels of cash and investments held in 2004 that resulted from the maturity of AAA-zero coupon corporate securities of $195.4 million in March 2004, the payment of approximately $355.7 million for the redemption of our convertible subordinated debentures in March 2004 and our payment of approximately $161.8 million in cash for our Expertcity and Net6 acquisitions. Interest income decreased approximately $9.8 million during 2003 as compared to 2002 primarily due to decreases in interest rates. For more information see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Acquisitions” and “— Liquidity and Capital Resources” and notes 3 and 8 to our consolidated financial statements.

Interest Expense.    Interest expense decreased $13.9 million during 2004 compared to 2003 primarily due to the redemption of our convertible subordinated debentures on March 22, 2004. Interest expense remained relatively unchanged during 2003 compared to 2002 and primarily represented non-cash interest accretion on our convertible subordinated debentures. For more information see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and note 8 to our consolidated financial statements.

Write-off of Deferred Debt Issuance Costs.    In 2004, we incurred a charge of approximately $7.2 million for our remaining prepaid issuance costs as a result of the redemption of our convertible subordinated debentures. For more information on our convertible subordinated debentures see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity” and note 8 to our consolidated financial statements.

Other Income (Expense), Net.    Other income (expense), net is primarily comprised of remeasurement and foreign currency transaction gains (losses), other-than-temporary declines in the value of our equity investments and realized gains (losses) on the sale of available-for-sale investments. Other income (expense), net remained relatively constant during 2004 compared to 2003. The $6.9 million increase in other income (expense), net during 2003 compared to 2002 was due primarily to a decline in remeasurement and foreign currency transaction losses, as well as, realized gains on the sale of certain of our available-for-sale investments in 2003.

Income Taxes.    On October 22, 2004, the American Jobs Creation Act, or the AJCA, was signed into law. The AJCA includes a deduction for 85% of certain foreign earnings that are repatriated, as defined in the AJCA. We may elect to apply this provision to qualifying earnings repatriations in 2005. We have started an evaluation of the repatriation provision; however, we do not expect to be able to complete this evaluation until after Congress or the Treasury Department provides guidance concerning key elements of the provision. We expect to complete our evaluation of the effects of the repatriation provision within a reasonable period of time following the publication of the anticipated guidance. Based on the provisions of the AJCA, the range of possible amounts that we are eligible to repatriate under this provision is between zero and $500 million. As such, the related potential range of income tax is between zero and $52 million.

We maintain certain operational and administrative processes in overseas subsidiaries and our foreign earnings are taxed at lower foreign tax rates. Other than through the one-time repatriation provision within the AJCA, we do not expect to remit earnings from our foreign subsidiaries. Accordingly, since 2000 we have not provided for deferred taxes on foreign earnings.

In 2004, our effective tax rate decreased to 20% from 21% in 2003, primarily due to an increase in annual taxable income in our geographic locations that are taxed at a lower rate. In 2003, our effective tax rate increased to 21% from 17% in 2002 primarily due to an increase in annual taxable income in our geographic locations that are taxed at a higher rate. Our effective tax rate may fluctuate throughout 2005 based on a number of factors including variations in estimated taxable

26

income in our geographic locations, repatriation of foreign earnings in accordance with the AJCA, completed and potential acquisitions, and changes in statutory tax rates, among others.

Liquidity and Capital Resources

During 2004, we generated positive operating cash flows of $265.3 million. These cash flows related primarily to net income of $131.5 million, adjusted for, among other things, tax benefits from the exercise of non-statutory stock options and disqualifying dispositions of incentive stock options of $20.9 million, non-cash charges, including depreciation and amortization of $33.6 million, the write off of in-process research and development associated with the Net6 and Expertcity acquisitions of $19.1 million, the write-off of deferred debt issuance costs on our convertible subordinated debentures of $7.2 million, provision for product returns of $6.7 million, the accretion of original issue discount and amortization of financing costs of $4.3 million and an aggregate increase in cash flow from our operating assets and liabilities of $42.5 million. Our investing activities provided $39.3 million of cash consisting primarily of the net proceeds, after reinvestment, from sales and maturities of our available-for-sale and held-to-maturity investments of $221.3 million partially offset by cash paid for the Expertcity and Net6 acquisitions, net of cash acquired, of $140.8 million, the expenditure of $24.4 million for the purchase of property and equipment and cash paid for licensing agreements and core technology of $16.8 million. Our financing activities used cash of $414.1 million related to $355.7 million of cash paid for the redemption of our convertible subordinated debentures and $121.9 million of cash paid under our stock repurchase programs partially offset by $63.5 million in proceeds received from employee stock compensation plans.

During 2003, we generated positive operating cash flows of $255.4 million. These cash flows related primarily to net income of $126.9 million, adjusted for, among other things, tax benefits from the exercise of non-statutory stock options and disqualifying dispositions of incentive stock options of $10.3 million, non-cash charges, including depreciation and amortization expenses of $34.3 million, the accretion of original issue discount and amortization of financing costs on our convertible subordinated debentures of $18.2 million and an aggregate increase in cash flow from our operating assets and liabilities of $60.9 million, primarily resulting in an increase in deferred revenue due to the success of our Subscription Advantage program. Our investing activities used cash of $89.3 million consisting primarily of purchases of investments, net of proceeds from sales and maturities, of $75.3 million and the expenditure of $11.1 million for the purchase of property and equipment. Our financing activities used cash of $65.5 million related primarily to the expenditure of $124.6 million for the stock repurchase program, partially offset by the proceeds received from employee stock compensation plans of $58.4 million.

Cash and Investments

As of December 31, 2004, we had $417.1 million in cash and investments compared to $751.8 million at December 31, 2003. Additionally, at December 31, 2004, we had $149.1 million of restricted cash equivalents and investments, see “— Restricted Cash Equivalents and Investments” below. The $334.7 million decrease in cash and investments as compared to December 31, 2003, was due primarily to the redemption of our convertible subordinated debentures and expenditures related to our Expertcity and Net6 acquisitions partially offset by positive cash flow from operations and stock option exercises. We generally invest our cash and cash equivalents in investment grade, highly liquid securities to allow for flexibility in the event of immediate cash needs. Our short and long-term investments primarily consist of interest bearing securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Convertible Subordinated Debentures” and notes 3 and 8 to our consolidated financial statements for further information.

Included in short-term investments in 2003 were $192.5 million in AAA-rated zero coupon corporate securities classified as held-to-maturity investments that matured on March 22, 2004. At December 31, 2004, we had no investments classified as held-to-maturity.

Restricted Cash Equivalents and Investments

As of December 31, 2004, we had $149.1 million in restricted cash equivalents and investments. Approximately $62.8 million in investment securities and cash equivalents were pledged as collateral for specified obligations under our synthetic lease and approximately $86.3 million in investment securities were pledged as collateral for certain of our credit default contracts and interest rate swaps. The $2.6 million increase in restricted cash and investments compared to December 31, 2003 is primarily due to an increase in the liability position of the interest rate swaps associated with the contracts being

27

collateralized. Restricted cash at December 31, 2004 is comprised of cash equivalents, short-term and long-term investments. We maintain the ability to manage the composition of the restricted cash equivalents and investments within certain limits to withdraw and use excess investment earnings from the pledged collateral for operating purposes. For further information regarding our synthetic lease, credit default contracts and interest rate swaps, see notes 10 and 13 to our consolidated financial statements.

Accounts Receivable, Net

At December 31, 2004, we had approximately $108.4 million in accounts receivable, net of allowances. The increase of $20.9 million in accounts receivable as compared to 2003 was primarily due to an increase in sales, particularly in the last month of the year. Our allowance for returns is $2.3 million at December 31, 2004 compared to $3.0 million at December 31, 2003. The decrease of $0.7 million is comprised of $7.4 million in credits issued for stock balancing rights during 2004 partially offset by $6.7 million of provisions for returns recorded during 2004. The overall decrease in our allowance for returns is primarily due to a reduction in packaged product inventory held by our distributors. Our allowance for doubtful accounts is $2.6 million at December 31, 2004 compared to $3.4 million at December 31, 2003. The decrease of $0.7 million is comprised of $2.7 million of uncollectible accounts written off, net of recoveries, partially offset by $1.1 million of provisions for doubtful accounts recorded during the year and $0.9 million of provisions for doubtful accounts associated with accounts receivable acquired in our Expertcity and Net6 acquisitions. From time to time, we could maintain individually significant accounts receivable balances from our distributors or customers, which are comprised of large business enterprises, governments and small and medium-sized businesses. If the financial condition of our distributors or customers deteriorates, our operating results could be adversely affected. At December 31, 2004 and 2003, no distributor or customer accounted for more than 10% of our accounts receivable. For more information regarding significant customers see note 12 to our consolidated financial statements.

Convertible Subordinated Debentures

In March 1999, we sold $850 million principal amount at maturity of our zero coupon convertible subordinated debentures, or the Debentures, due March 22, 2019, in a private placement. The Debentures were priced with a yield to maturity of 5.25% and resulted in net proceeds to us of approximately $291.9 million, net of original issue discount and net of debt issuance costs of approximately $9.6 million. In October 2000, the Board of Directors approved a program authorizing us to repurchase up to $25 million of the Debentures in open market purchases. Additionally, in April 2002, the Board of Directors granted additional authority of $100 million to us to repurchase Debentures through private transactions, bringing the total repurchase authority to $125 million. The Board of Directors’ authorization to repurchase the Debentures allowed us to repurchase Debentures when market conditions were favorable. As of December 31, 2003, 76,000 units of our Debentures representing $76.0 million in principal amount at maturity, had been repurchased under these programs for $29.9 million. On March 22, 2004, we redeemed all of the outstanding Debentures for an aggregate redemption price of approximately $355.7 million. We used the proceeds from our held-to-maturity investments that matured on March 22, 2004 and cash on hand to fund the redemption. At the date of redemption, we incurred a charge for the associated deferred debt issuance costs of approximately $7.2 million.

Stock Repurchase Program

As of December 31, 2004, our board of directors authorized an ongoing stock repurchase program with a total repurchase authority granted to us of $800 million. In February 2005, the Company’s board of directors authorized the repurchase of an additional $200 million, increasing the total authority to $1 billion. The objective of our stock repurchase program is to manage actual and anticipated dilution and to improve shareholders’ return. At December 31, 2004, approximately $42.0 million was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock.

We are authorized to make open market purchases of our common stock using general corporate funds. Additionally, from time to time, we have entered into structured stock repurchase arrangements with large financial institutions using general corporate funds as part of our stock repurchase program in order to lower our average cost to acquire shares. These programs include terms that require us to make up front payments to a counterparty financial institution and result in the receipt of stock during or at the end of the period of the agreement or the receipt of either stock or cash at the maturity of the agreement. Delivery of stock under certain programs may be dependent on market conditions. Prior to June 2003, we sold

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put warrants that entitled the holder of each warrant to sell to us, generally by physical delivery, one share of our common stock at a specified price. At December 31, 2004 there were no put warrants outstanding.

We expended an aggregate of $121.9 million and $123.9 million during 2004 and 2003, respectively, net of premiums received, under all stock repurchase transactions. During 2004, we took delivery of a total of 4,458,740 shares of outstanding common stock with an average per share price of $18.77; and during 2003, we took delivery of a total of 8,859,381 shares of outstanding common stock with an average per share price of $15.86. Some of these shares were received pursuant to prepaid programs. Since inception of our stock repurchase programs, the average cost of shares acquired was $16.55 per share compared to an average close price during open trading windows of $19.83 per share. In addition, a significant portion of the funds used to repurchase stock was funded by proceeds from employee stock option exercises and the related tax benefit. We remain committed to our ongoing stock repurchase program. As of December 31, 2004, we have remaining prepaid notional amounts of approximately $53.1 million under our stock repurchase agreements. As the total shares to be received for the open repurchase agreements at December 31, 2004 is not determinable until the contracts mature in 2005, the above price per share amounts exclude the remaining shares to be received subject to the agreements.

Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to continue throughout 2005. We believe that our existing cash and investments together with cash flows expected from operations will be sufficient to meet expected operating and capital expenditure requirements for the next 12 months. We continue to search for suitable acquisition candidates and could acquire or make investments in companies we believe are related to our strategic objectives. We could from time to time seek to raise additional funds through the issuance of debt or equity securities for larger acquisitions.

Contractual Obligations and Off-Balance Sheet Arrangement

Contractual Obligations

We have certain contractual obligations that are recorded as liabilities in our consolidated financial statements. Other items, such as operating lease obligations, are not recognized as liabilities in our consolidated financial statements, but are required to be disclosed in the notes to our consolidated financial statements.

The following table summarizes our significant contractual obligations at December 31, 2004 and the future periods in which such obligations are expected to be settled in cash. Additional details regarding these obligations are provided in the footnotes to our consolidated financial statements (in thousands):

	Payments due by period
	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Operating lease obligations	$	106,243	$	20,813	$	29,524	$	17,407	$	38,499
Synthetic lease obligations		11,563		2,252		5,290		4,021		—
Total contractual obligations (1)	$	117,806	$	23,065	$	34,814	$	21,428	$	38,499

(1) Total contractual obligations do not include agreements where our commitment is variable in nature or where cancellation without payment provisions exist.

As of December 31, 2004, we did not have any individually material long-term debt obligations, capital lease obligations, purchase obligations, or other material long-term commitments reflected on our consolidated balance sheets.

Off-Balance Sheet Arrangement

During 2002, we became a party to a synthetic lease arrangement totaling approximately $61.0 million for our corporate headquarters office space in Fort Lauderdale, Florida. The synthetic lease represents a form of off-balance sheet financing under which an unrelated third party lessor funded 100% of the costs of acquiring the property and leases the asset to us. The synthetic lease qualifies as an operating lease for accounting purposes and as a financing lease for tax purposes. We do

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not include the property or the lease debt as an asset or a liability on our accompanying consolidated balance sheets. Consequently, payments made pursuant to the lease are recorded as operating expenses in our consolidated statements of income. We entered into the synthetic lease in order to lease our headquarters properties under more favorable terms than under our previous lease arrangements. We do not materially rely on off-balance sheet arrangements for our liquidity or as capital resources. For information regarding cash outflows associated with our lease payments see “— Contractual Obligations.”

The initial term of the synthetic lease is seven years. Upon approval by the lessor, we can renew the lease twice for additional two-year periods. The lease payments vary based on the London Interbank Offered Rate, or LIBOR, plus a margin. At any time during the lease term, we have the option to sublease the property and upon thirty days’ written notice, we have the option to purchase the property for an amount representing the original property cost and transaction fees of approximately $61.0 million plus any lease breakage costs and outstanding amounts owed. Upon at least 180 days notice prior to the termination of the initial lease term, we have the option to remarket the property for sale to a third party. If we choose not to purchase the property at the end of the lease term, we have guaranteed a residual value to the lessor of approximately $51.9 million and possession of the buildings will be returned to the lessor. On a periodic basis, we evaluate the property for indications of permanent impairment. If an evaluation were to indicate that the fair value of the property were to decline below $51.9 million, we would be responsible for the difference under our residual value guarantee, which could have a material adverse effect on our results of operations and financial condition.

The synthetic lease includes certain financial covenants including a requirement for us to maintain a restricted balance of approximately $62.8 million as collateral, which is classified as restricted cash equivalents and investments in our accompanying consolidated balance sheets. We maintain the ability to manage the composition of restricted investments within certain limits and to withdraw and use excess investment earnings from the pledged collateral for operating purposes. Additionally, we must maintain a minimum net cash and investment balance, collateralized investments and equity investments, of $100.0 million, as of the end of each fiscal quarter. As of December 31, 2004, we had approximately $316.7 million in cash and investments in excess of this required level. The synthetic lease includes non-financial covenants, including the maintenance of the property and adequate insurance, prompt delivery of financial statements to the administrative agent of the lessor and prompt payment of taxes associated with the property. As of December 31, 2004, we were in compliance with all material provisions of the arrangement.

In January 2003, the FASB issued FASB Interpretation, or FIN, No. 46, Consolidation of Variable Interest Entities, which addresses the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. In December 2003, the FASB issued FIN No. 46 (revised), which replaced FIN No. 46. FIN No. 46 (revised) was effective immediately for certain disclosure requirements and variable interest entities referred to as special-purpose entities for periods ending after December 15, 2003 and for other types of entities for financial statements for periods ending after March 15, 2004. We determined that we are not required to consolidate the lessor, the leased facility or the related debt associated with our synthetic lease in accordance with FIN No. 46 (revised). Accordingly, there was no impact on our financial position, results of operations or cash flows from adoption. However, if the lessor were to change its ownership of the property or significantly change its ownership of other properties that it currently holds, we could be required to consolidate the entity, the leased facility and the debt in a future period.

Commitments

Capital expenditures were $24.4 million during 2004, $11.1 million during 2003 and $19.1 million during 2002. During 2004, capital expenditures were primarily related to computer equipment purchases associated with our research and development activities and leasehold improvements. The increase of $13.3 million in capital expenditures during 2004 compared to 2003 is due to expenditures in 2004 for purchases of computer equipment related to existing and new research and development projects and leasehold improvements on renovations to currently occupied buildings. In the normal course of business, we enter into commitments related to capital expenditures, however, we currently have no material contractual commitments for capital expenditures over the next 12 months.

During 2002 and 2001, we took actions to consolidate certain of our offices, including the exit of certain leased office space and the abandonment of certain leasehold improvements. Lease obligations related to these existing operating leases continue to 2025 with a total remaining obligation at December 31, 2004 of approximately $22.5 million, of which $3.0 million was accrued for as of December 31, 2004, and is reflected in accrued expenses and other liabilities in our

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consolidated financial statements. In calculating this accrual, we made estimates, based on market information, including the estimated vacancy periods and sublease rates and opportunities. We periodically re-evaluate our estimates; and if actual circumstances prove to be materially worse than management has estimated, the total charges for these vacant facilities could be significantly higher.

Certain Factors Which May Affect Future Results

Our operating results and financial condition have varied in the past and could in the future vary significantly depending on a number of factors. From time to time, information provided by us or statements made by our employees contain “forward-looking” information that involves risks and uncertainties. In particular, statements contained in this Form 10-K, and in the documents incorporated by reference into this Form 10-K, that are not historical facts, including, but not limited to statements concerning new products, product development and offerings, Subscription Advantage, product and price competition, Citrix Online division, competition and strategy, product price and inventory, contingent consideration payments, deferred revenues, economic and market conditions, revenue recognition, profits, growth of revenues, cost of revenues, operating expenses, sales, marketing and support expenses, research and development expenses valuations of investments and derivative instruments, technology relationships, reinvestment or repatriation of foreign earnings, gross margins, amortization expense and intangible assets, interest income, interest expense, impairment charges, anticipated operating and capital expenditure requirements, cash inflows, contractual obligations in-process research and development, advertising campaigns, tax rates, leasing and subleasing activities, acquisitions, stock repurchases, investment transactions, liquidity, litigation matters, intellectual property matters, distribution channels, stock price, Advisor Rewards Program, third party licenses and potential debt or equity financings constitute forward-looking statements and are made under the safe harbor provisions of the Section 27 of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are neither promises nor guarantees. Our actual results of operations and financial condition have varied and could in the future vary significantly from those stated in any forward-looking statements. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Form 10-K, in the documents incorporated by reference into this Form 10-K or presented elsewhere by our management from time to time. Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition.

Our long sales cycle for enterprise-wide sales could cause significant variability in our revenue and operating results for any particular period.

In recent quarters, a growing number of our large and medium-sized customers have decided to implement our enterprise customer license arrangements on a department or enterprise-wide basis. Our long sales cycle for these large-scale deployments makes it difficult to predict when these sales will occur, and we may not be able to sustain these sales on a predictable basis.

We have a long sales cycle for these enterprise-wide sales because:

• our sales force generally needs to explain and demonstrate the benefits of a large-scale deployment of our product to potential and existing customers prior to sale;

• our service personnel typically spend a significant amount of time assisting potential customers in their testing and evaluation of our products and services;

• our customers are typically large and medium size organizations that carefully research their technology needs and the many potential projects prior to making capital expenditures for software infrastructure; and

• before making a purchase, our potential customers usually must get approvals from various levels of decision makers within their organizations, and this process can be lengthy.

The continued long sales cycle for these large-scale deployment sales could make it difficult to predict the quarter in which sales will occur. Delays in sales could cause significant variability in our revenue and operating results for any particular period.

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We face intense competition, which could result in fewer customer orders and reduced revenues and margins.

We compete in intensely competitive markets. Some of our competitors and potential competitors have significantly greater financial, technical, sales and marketing and other resources than we do.

For example, our ability to market the Citrix MetaFrame product line, and its individual products including: Citrix MetaFrame Presentation Server, Citrix MetaFrame Secure Access Manager, Citrix MetaFrame Conferencing Manager and Citrix MetaFrame Password Manager, and other future product offerings could be affected by Microsoft’s licensing and pricing scheme for client devices, servers and applications. Further, the announcement of the release, and the actual release, of new Windows-based server operating systems or products incorporating similar features to our products could cause our existing and potential customers to postpone or cancel plans to license certain of our existing and future product and service offerings.

In addition, alternative products for secure, remote access in the Internet software and hardware markets directly and indirectly compete with our current Citrix MetaFrame product line and our Web-based desk-top access products and services, including GoToAssist, GoToMyPC and GoToMeeting and anticipated future product and service offerings.

Existing or new products and services that extend Internet software and hardware to provide Web-based information and application access or interactive computing can materially impact our ability to sell our products and services in this market. Our current competitors in this market include Microsoft, Oracle Corporation, Sun Microsystems, Inc., Cisco Systems, Inc., Webex Communications, Inc., Symantec Corporation, and other makers of secure remote access solutions.

As the markets for our products and services continue to develop, additional companies, including companies with significant market presence in the computer hardware, software and networking industries could enter the markets in which we compete and further intensify competition. In addition, we believe price competition could become a more significant competitive factor in the future. As a result, we may not be able to maintain our historic prices and margins, which could adversely affect our business, results of operations and financial condition.

Sales of products within our MetaFrame product line constitute a substantial majority of our revenue.

We anticipate that sales of products within our MetaFrame product line and related enhancements will constitute a substantial majority of our revenue for the foreseeable future. Our ability to continue to generate revenue from our MetaFrame product line will depend on market acceptance of Windows Server Operating Systems and/or UNIX Operating Systems. Declines in demand for our MetaFrame products could occur as a result of:

• new competitive product releases and updates to existing products;

• price competition;

• technological change;

• decreasing or stagnant information technology spending levels;

• general economic conditions; or

• lack of success of entities with which we have a strategic or technology relationship.

If our customers do not continue to purchase our MetaFrame products as a result of these or other factors, our revenue would decrease and our results of operations and financial condition would be adversely affected.

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If we do not develop new products and services or enhancements to our existing products and services, our business, results of operations and financial condition could be adversely affected.

The markets for our products and services are characterized by:

• rapid technological change;

• evolving industry standards;

• fluctuations in customer demand;

• changes in customer requirements; and

• frequent new product and service introductions and enhancements.

Our future success depends on our ability to continually enhance our current products and services and develop and introduce new products and services that our customers choose to buy. If we are unable to keep pace with technological developments and customer demands by introducing new products and services and enhancements to our existing products and services, our business, results of operations and financial condition could be adversely affected. Our future success could be hindered by:

• delays in our introduction of new products and services;

• delays in market acceptance of new products and services or new releases of our current products and services; and

• our, or a competitor’s, announcement of new product or service enhancements or technologies that could replace or shorten the life cycle of our existing product and service offerings.

For example, we cannot guarantee that our access infrastructure software will achieve the broad market acceptance by our channel and entities with which we have a strategic or technology relationship, customers and prospective customers necessary to generate significant revenue. In addition, we cannot guarantee that we will be able to respond effectively to technological changes or new product announcements by others. If we experience material delays or sales shortfalls with respect to our new products and services or new releases of our current products and services, those delays or shortfalls could have a material adverse effect on our business, results of operations and financial condition.

Our business could be adversely impacted by the failure to renew our agreements with Microsoft for source code access.

In December 2004, we entered into a five-year technology collaboration and licensing agreement with Microsoft Corporation or Microsoft. The arrangement includes a new technology initiative for closer collaboration on terminal server functionality in future server operating systems, continued access to source code for key components of Microsoft’s current and future server operating systems, and a patent cross-licensing agreement. This technology collaboration and licensing agreement replaces the agreement we signed with Microsoft in May 2002, that provided us access to Microsoft Windows Server source code for current and future Microsoft server operating systems, including access to Windows Server 2003 and terminal services source code. There can be no assurances that our current agreements with Microsoft will be extended or renewed by Microsoft after their respective expirations. In addition, Microsoft could terminate the current agreements before the expiration of the term for breach or upon a change in our control. The early termination or the failure to renew certain terms of these agreements with Microsoft in a manner favorable to us could negatively impact the timing of our release of future products and enhancements.

Our business could be adversely impacted by conditions affecting the information technology market.

The demand for our products and services depends substantially upon the general demand for business-related computer hardware and software, which fluctuates based on numerous factors, including capital spending levels, the spending levels and growth of our current and prospective customers and general economic conditions. Fluctuations in the demand for our products and services could have a material adverse effect on our business, results of operations and financial condition. In the past, adverse economic conditions decreased demand for our products and negatively impacted our financial results.

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Future economic projections for the IT sector are uncertain. If an uncertain IT spending environment persists, it could negatively impact our business, results of operations and financial condition.

The anticipated benefits to us of acquiring Expertcity may not be realized.

We acquired Expertcity, now known as Citrix Online in February 2004, with the expectation that the acquisition would result in various benefits including, among other things, enhanced revenue and profits, greater market presence and development, and enhancements to our product portfolio and customer base. We expect that the acquisition will enhance our position in the access infrastructure market through the combination of our technologies, products, services, distribution channels and customer contacts with those of Citrix Online, and will enable us to broaden our customer base to include individuals, professionals and small office/home office customers as well as extend our presence in the enterprise access infrastructure market. We may not fully realize some of these benefits and the acquisition may result in the deterioration or loss of significant business. For example, if our business or Citrix Online’s business fails to meet the demands of the marketplace, customer acceptance of the products and services of the combined companies could decline, which could have a material adverse effect on our results of operations and financial condition. Costs incurred and potential liabilities assumed in connection with the acquisition also could have an adverse effect on our business, financial condition and operating results.

Achieving the expected benefits of the acquisition will depend in part on the integration of Citrix Online’s and our businesses in a timely and efficient manner. The challenges involved in this integration include difficulties integrating Citrix Online’s operations, technologies and products as well as coordinating the efforts of Citrix Online’s sales organization with our larger and more widely dispersed sales organization. Although the integration of the two businesses is ongoing, it is still complex, time consuming and expensive, disruptive to our business and may result in the loss of customers or key employees or the diversion of the attention of management which could have an adverse effect on our business, financial condition and operating results.

Acquisitions present many risks, and we may not realize the financial and strategic goals we anticipate at the time of an acquisition.

Our growth is dependent upon market growth, our ability to enhance existing products and services, and our ability to introduce new products and services on a timely basis. We intend to continue to address the need to develop new products and services and enhance existing products and services through acquisitions of other companies, product lines and/or technologies.

Acquisitions, including those of high-technology companies, are inherently risky. We cannot assure anyone that our previous acquisitions or any future acquisitions will be successful in helping us reach our financial and strategic goals either for that acquisition or for us generally. The risks we commonly encounter are:

• difficulties integrating the operations, technologies, and products of the acquired companies;

• undetected errors or unauthorized use of a third-party’s code in products of the acquired companies;

• the risk of diverting management’s attention from normal daily operations of the business;

• potential difficulties in completing products associated with purchased in-process research and development;

• risks of entering markets in which we have no or limited direct prior experience and where competitors have stronger market positions;

• the potential loss of key employees of the acquired company; and

• an uncertain sales and earnings stream from the acquired company, which could unexpectedly dilute our earnings.

These factors could have a material adverse effect on our business, results of operations and financial condition. We cannot guarantee that the combined company resulting from any acquisition can continue to support the growth achieved by

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the companies separately. We must also focus on our ability to manage and integrate any acquisition. Our failure to manage growth effectively and successfully integrate acquired companies could adversely affect our business and operating results.

If we determine that any of our goodwill or intangible assets, including technology purchased in acquisitions, are impaired, we would be required to take a charge to earnings, which could have a material adverse effect on our results of operations.

We have a significant amount of goodwill and other intangible assets, such as product and core technology, related to our acquisition of Sequoia Software Corporation in 2001 and Expertcity and Net6 in 2004. We do not amortize goodwill and intangible assets that are deemed to have indefinite lives. However, we do amortize certain product and core technologies, trademarks, patents and other intangibles. We periodically evaluate our intangible assets, including goodwill, for impairment. As of December 31, 2004 we had $361.5 million of goodwill. We review for impairment annually, or sooner if events or changes in circumstances indicate that the carrying amount could exceed fair value. Fair values are based on discounted cash flows using a discount rate determined by our management to be consistent with industry discount rates and the risks inherent in our current business model. Due to uncertain market conditions and potential changes in our strategy and product portfolio, it is possible that the forecasts we use to support our goodwill could change in the future, which could result in non-cash charges that would adversely affect our results of operations and financial condition.

At December 31, 2004, we had $87.2 million, net, of unamortized identified intangibles with estimable useful lives, of which $5.6 million consists of core technology we purchased in the acquisition of Sequoia, $22.1 million relates to product and core technology purchased in the Expertcity acquisition, $13.3 million relates to product and core technology purchased in the Net6 acquisition and $16.8 million represents core technology purchased under third party licenses. We have commercialized and currently market the Sequoia and other licensed technology through our secure access infrastructure software, which includes Citrix MetaFrame Secure Access Manager and Citrix MetaFrame Password Manager. We currently market the technologies acquired in the Expertcity and Net6 acquisitions through our Citrix Online and Citrix Gateway divisions. However, our channel distributors and entities with which we have technology relationships, customers or prospective customers may not purchase or widely accept our new line of products and services. If we fail to complete the development of our anticipated future product offerings, if we fail to complete them in a timely manner, or if we are unsuccessful in selling these new products and services, we could determine that the value of the purchased technology is impaired in whole or in part and take a charge to earnings. We could also incur additional charges in later periods to reflect costs associated with completing those projects that could not be completed in a timely manner. If the actual revenues and operating profit attributable to acquired product and core technologies are less than the projections we used to initially value product and core technologies when we acquired it, such intangible assets may be deemed to be impaired. If we determine that any of our intangible assets are impaired, we would be required to take a related charge to earnings that could have a material adverse effect on our results of operations.

We recorded approximately $216.6 million of goodwill and intangible assets in connection with our acquisition of Expertcity and $53.8 million of goodwill and intangible assets in connection with our acquisition of Net6. If the actual revenues and operating profit attributable to acquired intangible assets are less than the projections we used to initially value these intangible assets when we acquired them, then these intangible assets may be deemed to be impaired. If we determine that any of the goodwill or other intangible assets associated with our acquisitions of Expertcity or Net6 are impaired, then we would be required to reduce the value of those assets or to write them off completely by taking a related charge to earnings. If we are required to write down or write off all or a portion of those assets, or if financial analysts or investors believe we may need to take such action in the future, our stock price and operating results could be materially adversely affected.

If we fail to manage our operations and grow revenue or fail to continue to effectively control expenses, our future operating results could be adversely affected.

Historically, the scope of our operations, the number of our employees and the geographic area of our operations and our revenue have grown rapidly. In addition, we have acquired both domestic and international companies. This growth and the assimilation of acquired operations and their employees could continue to place a significant strain on our managerial, operational and financial resources. To manage our growth, if any, effectively, we need to continue to implement and improve additional management and financial systems and controls. We may not be able to manage the current scope of our operations or future growth effectively and still exploit market opportunities for our products and services in a timely and cost-effective way. Our future operating results could also depend on our ability to manage:

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• our expanding product line;

• our marketing and sales organizations; and

• our client support organization as installations of our products increase.

In addition, to the extent our revenue grows, if at all, we believe that our cost of revenues and certain operating expenses could also increase. We believe that we could incur additional costs and royalties as we develop, license or buy new technologies or enhancements to our existing products and services. These added costs and royalties could increase our cost of revenues and operating expenses. However, we cannot currently quantify the costs for such transactions that have not yet occurred. In addition, we may need to use a substantial portion of our cash and investments or issue additional shares of our common stock to fund these additional costs.

We attribute most of our growth during recent years to the introduction of the MetaFrame software for Windows operating systems in mid-1998. We cannot assure you that the access infrastructure software market, in which we operate, will grow. We cannot assure you that the release of our access infrastructure software suite of products or other new products will increase our revenue growth rate.

We cannot assure you that our operating expenses will be lower than our estimated or actual revenues in any given quarter. If we experience a shortfall in revenue in any given quarter, we likely will not be able to further reduce operating expenses quickly in response. Any significant shortfall in revenue could immediately and adversely affect our results of operations for that quarter. Also, due to the fixed nature of many of our expenses and our current expectation for revenue growth, our income from operations and cash flows from operating and investing activities could be lower than in recent years.

We could change our licensing programs, which could negatively impact the timing of our recognition of revenue.

We continually re-evaluate our licensing programs, including specific license models, delivery methods, and terms and conditions, to market our current and future products and services. We could implement different licensing models in certain circumstances, for which we would recognize licensing fees over a longer period. Changes to our licensing programs, including the timing of the release of enhancements, discounts and other factors, could impact the timing of the recognition of revenue for our products, related enhancements and services and could adversely affect our operating results and financial condition.

As our international sales and operations grow, we could become increasingly subject to additional risks that could harm our business.

We conduct significant sales and customer support operations in countries outside of the United States. During 2004, we derived approximately 53% of our revenues from sales outside the United States. Our continued growth and profitability could require us to further expand our international operations. To successfully expand international sales, we must establish additional foreign operations, hire additional personnel and recruit additional international resellers. Our international operations are subject to a variety of risks, which could cause fluctuations in the results of our international operations. These risks include:

• compliance with foreign regulatory and market requirements;

• variability of foreign economic, political and labor conditions;

• changing restrictions imposed by regulatory requirements, tariffs or other trade barriers or by United States export laws;

• longer accounts receivable payment cycles;

• potentially adverse tax consequences;

• difficulties in protecting intellectual property; and

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• burdens of complying with a wide variety of foreign laws.

• as we generate cash flow in non-U.S. jurisdictions, if necessary, we may experience difficulty transferring such funds to the U.S. in a tax efficient manner.

Our results of operations are also subject to fluctuations in foreign currency exchange rates. In order to minimize the impacts on our operating results, we generally initiate our hedging of currency exchange risks one year in advance of anticipated foreign currency expenses. As a result of this practice, foreign currency denominated expenses will be higher or lower in the current year depending on the weakness or strength of the dollar in the prior year. There is a risk that there will be fluctuations in foreign currency exchange rates beyond the one year timeframe for which we hedge our risk. Because the dollar was generally weak in 2004, operating expenses are higher in 2005, but further dollar weakness in 2005 will not have an additional material impact on our operating expenses until 2006.

Our success depends, in part, on our ability to anticipate and address these risks. We cannot guarantee that these or other factors will not adversely affect our business or operating results.

Our proprietary rights could offer only limited protection. Our products could infringe third-party intellectual property rights, which could result in material costs.

Our efforts to protect our proprietary rights may not be successful. We rely primarily on a combination of copyright, trademark, patent and trade secret laws, confidentiality procedures and contractual provisions, to protect our proprietary rights. The loss of any material trade secret, trademark, trade name, patent or copyright could have a material adverse effect on our business. Despite our precautions, it could be possible for unauthorized third parties to copy or reverse engineer certain portions of our products or to otherwise obtain and use our proprietary information. If we cannot protect our proprietary technology against unauthorized copying or use, we may not remain competitive. Any patents owned by us could be invalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not being currently challenged, may not be issued with the scope we seek, if at all, and if issued, may not provide any meaningful protection or competitive advantage.

In addition, our ability to protect our proprietary rights could be affected by:

• Differences in International Law; Enforceability of Licenses. The laws of some foreign countries do not protect our intellectual property to the same extent as do the laws of the United States and Canada. For example, we derive a significant portion of our sales from licensing our packaged products under “shrink wrap” or “click-to-accept” license agreements that are not signed by licensees and electronic enterprise customer licensing arrangements that are delivered electronically, all of which could be unenforceable under the laws of many foreign jurisdictions in which we license our products.

• Third Party Infringement Claims. As we expand our product lines, the number of products and competitors in our industry segments increase and the functionality of these products overlap, we could become increasingly subject to infringement claims and claims to the unauthorized use of a third-party’s code in our products. Companies and inventors are more frequently seeking to patent software and business methods because of developments in the law that could extend the ability to obtain such patents. As a result, we could receive more patent infringement claims. Responding to any infringement claim, regardless of its validity, could result in costly litigation; injunctive relief or require us to obtain a license to intellectual property rights of those third parties. Licenses may not be available on reasonable terms, on terms compatible with the protection of our proprietary rights, or at all. In addition, attention to these claims could divert our management’s time and attention from developing our business. If a successful claim is made against us and we fail to develop or license a substitute technology, our business, results of operations, financial condition or cash flows could be materially adversely affected.

We are subject to risks associated with our strategic and technology relationships.

Our business depends on strategic and technology relationships. We cannot assure you that those relationships will continue in the future. In addition to our relationship with Microsoft, we rely on strategic or technology relationships with such companies as SAP, International Business Machines Corporation, Hewlett-Packard Company, Dell Inc. and others. We depend on the entities with which we have strategic or technology relationships to successfully test our products, to

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incorporate our technology into their products and to market and sell those products. We cannot assure you that we will be able to maintain our current strategic and technology relationships or to develop additional strategic and technology relationships. If any entities in which we have a strategic or technology relationship are unable to incorporate our technology into their products or to market or sell those products, our business, operating results and financial condition could be materially adversely affected.

If we lose access to third party licenses, releases of our products could be delayed.

We believe that we will continue to rely, in part, on third party licenses to enhance and differentiate our products. Third party licensing arrangements are subject to a number of risks and uncertainties, including:

• undetected errors or unauthorized use of another person’s code in the third party’s software;

• disagreement over the scope of the license and other key terms, such as royalties payable; and

• infringement actions brought by third party licensees;

• termination or expiration of the license.

If we lose or are unable to maintain any of these third party licenses or are required to modify software obtained under third party licenses, it could delay the release of our products. Any delays could have a material adverse effect on our business, results of operations and financial condition.

The market for our Web-based training and customer assistance products is volatile, and if it does not develop or develops more slowly than we expect, our Citrix Online division will be harmed.

The market for our Web-based training and customer assistance products is new and unproven, and it is uncertain whether these services will achieve and sustain high levels of demand and market acceptance. Our success with our Citrix Online division will depend to a substantial extent on the willingness of enterprises, large and small, to increase their use of application services in general and for GoToMyPC, GoToMeeting and GoToAssist, in particular. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to migrate to application services. Furthermore, some enterprises may be reluctant or unwilling to use application services because they have concerns regarding the risks associated with security capabilities, among other things, of the technology delivery model associated with these services. If enterprises do not perceive the benefits of application services, then the market for these services may not further develop at all, or it may develop more slowly than we expect, either of which would significantly adversely affect our financial condition and the operating results for our Citrix Online division.

Our success depends on our ability to attract and retain and further penetrate large enterprise customers.

We must retain and continue to expand our ability to reach and penetrate large enterprise customers by adding effective channel distributors and expanding our consulting services. Our inability to attract and retain large enterprise customers could have a material adverse effect on our business, results of operations and financial condition. Large enterprise customers usually request special pricing and generally have longer sales cycles, which could negatively impact our revenues. By granting special pricing, such as bundled pricing or discounts, to these large customers, we may have to defer recognition of some portion of the revenue from such sales. This deferral could reduce our revenues and operating profits for a given reporting period. Additionally, as we attempt to attract and penetrate large enterprise customers, we may need to increase corporate branding and marketing activities, which could increase our operating expenses. These efforts may not proportionally increase our operating revenues and could reduce our profits.

Our success may depend on our ability to attract and retain small-sized customers.

In order to successfully attract new customer segments to our MetaFrame products and expand our existing relationships with enterprise customers, we must reach and retain small-sized customers and small project initiatives within our larger enterprise customers. We have begun a marketing initiative to reach these customers that includes extending our Advisor Rewards program to include a broader range of license types. We cannot guarantee that our small-sized customer marketing

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initiative will be successful. Our failure to attract and retain small sized customers and small project initiatives within our larger enterprise customers could have a material adverse effect on our business, results of operations and financial condition. Additionally, as we attempt to attract and retain small sized customers and small project initiatives within our larger enterprise customers, we may need to increase corporate branding and broaden our marketing activities, which could increase our operating expenses. These efforts may not proportionally increase our operating revenues and could reduce our profits.

Our business could be adversely affected if we are unable to expand and diversify our distribution channels.

We currently intend to continue to expand our distribution channels by leveraging our relationships with independent hardware and software vendors and system integrators to encourage them to recommend or distribute our products. In addition, an integral part of our strategy is to diversify our base of channel relationships by adding more channel members with abilities to reach larger enterprise customers. This will require additional resources, as we will need to expand our internal sales and service coverage of these customers. If we fail in these efforts and cannot expand or diversify our distribution channels, our business could be adversely affected. In addition to this diversification of our base, we will need to maintain a healthy mix of channel members who cater to smaller customers. We may need to add and remove distribution members to maintain customer satisfaction and a steady adoption rate of our products, which could increase our operating expenses. Through our accessPARTNER network, Citrix Authorized Learning Centers and other programs, we are currently investing, and intend to continue to invest, significant resources to develop these channels, which could reduce our profits.

We rely on indirect distribution channels and major distributors that we do not control.

We rely significantly on independent distributors and resellers to market and distribute our products. We do not control our distributors and resellers. Additionally, our distributors and resellers are not obligated to buy our products and could also represent other lines of products. Some of our distributors and resellers maintain inventories of our packaged products for resale to smaller end-users. If distributors and resellers reduce their inventory of our packaged products, our business could be adversely affected. Further, we could maintain individually significant accounts receivable balances with certain distributors. The financial condition of our distributors could deteriorate and distributors could significantly delay or default on their payment obligations. Any significant delays or defaults could have a material adverse effect on our business, results of operations and financial condition.

Our products could contain errors that could delay the release of new products and may not be detected until after our products are shipped.

Despite significant testing by us and by current and potential customers, our products, especially new products or releases, could contain errors. In some cases, these errors may not be discovered until after commercial shipments have been made. Errors in our products could delay the development or release of new products and could adversely affect market acceptance of our products. Additionally, our products depend on third party products, which could contain defects and could reduce the performance of our products or render them useless. Because our products are often used in mission-critical applications, errors in our products or the products of third parties upon which our products rely could give rise to warranty or other claims by our customers.

Our synthetic lease is an off-balance sheet arrangement that could negatively affect our financial condition and results.

In April 2002, we entered into a seven-year synthetic lease with a lessor for our headquarters office buildings in Fort Lauderdale, Florida. The synthetic lease qualifies for operating lease accounting treatment under SFAS No. 13, Accounting for Leases, so we do not include the property or the associated lease debt on our consolidated balance sheet. In December 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities (revised), which was effective immediately for certain disclosure requirements and variable interest entities referred to as special-purpose entities for periods ending after December 15, 2003 and for other types of entities for financial statements for periods ending after March 15, 2004. We have determined that we were not required to consolidate the lessor entity, the leased facility or the related debt upon adopting of FIN No. 46 (revised). Accordingly, there was no impact on our financial position, results of operations or cash flows from adoption. However, if the lessor were to change its ownership of our property or significantly change its ownership of other properties that it currently holds, we could be required to consolidate the entity, the leased facility and the debt at that time.

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If we elect not to purchase the property at the end of the lease term, we have guaranteed a minimum residual value of approximately $51.9 million to the lessor. Therefore, if the fair value of the property declines below $51.9 million, our residual value guarantee would require us to pay the difference to the lessor, which could have a material adverse effect on our results of operations and financial condition.

If our security measures are breached and unauthorized access is obtained to our Citrix Online division customers’ data, our services may be perceived as not being secure and customers may curtail or stop using our service.

Use of our GoToMyPC, GoToMeeting or GoToAssist services involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to one of our online customers’ data, our reputation will be damaged, our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized access to or sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If any compromises of security were to occur, it could have the effect of substantially reducing the use of the Web for commerce and communications. Anyone who circumvents our security measures could misappropriate proprietary information or cause interruptions in our services or operations. The Internet is a public network, and data is sent over this network from many sources. In the past, computer viruses, software programs that disable or impair computers, have been distributed and have rapidly spread over the Internet. Computer viruses could be introduced into our systems or those of our customers or suppliers, which could disrupt our network or make it inaccessible to our Citrix Online division customers. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and customers for our Citrix Online division, which would significantly adversely affect our financial condition and the operating results for our Citrix Online division.

Evolving regulation of the Web may adversely affect our Citrix Online division.

As Web commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. For example, we believe increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information could affect our online customers’ ability to use and share data and restricting our ability to store, process and share data with these customers. In addition, taxation of services provided over the Web or other charges imposed by government agencies or by private organizations for accessing the Web may also be imposed. Any regulation imposing greater fees for Web use or restricting information exchange over the Web could result in a decline in the use of the Web and the viability of Web-based services, which would significantly adversely affect our financial condition and the operating results for our Citrix Online division.

If we do not generate sufficient cash flow from operations in the future, we may not be able to fund our operations and fulfill our future obligations.

Our ability to generate sufficient cash flow from operations to fund our operations and product development, including the payment of cash consideration in acquisitions and the payment of our other obligations, depends on a range of economic, competitive and business factors, many of which are outside our control. We cannot assure you that our business will generate sufficient cash flow from operations, or that we will be able to liquidate our investments, repatriate cash and investments held in our overseas subsidiaries, sell assets or raise equity or debt financings when needed or desirable. An inability to fund our operations or fulfill outstanding obligations could have a material adverse effect on our business, financial condition and results of operations. For further information, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

If we lose key personnel or cannot hire enough qualified employees, our ability to manage our business could be adversely affected.

Our success depends, in large part, upon the services of a number of key employees. Except for certain key employees of acquired businesses, we do not have long-term employment agreements with any of our key personnel. Any officer or employee can terminate his or her relationship with us at any time. The effective management of our growth, if any, could depend upon our ability to retain our highly skilled technical, managerial, finance and marketing personnel. If any of those employees leave, we will need to attract and retain replacements for them. We also need to add key personnel in the future.

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The market for these qualified employees is competitive. We could find it difficult to successfully attract, assimilate or retain sufficiently qualified personnel in sufficient numbers. Furthermore, we may hire key personnel in connection with our future acquisitions; however, any of these employees will be able to terminate his or her relationship with us at any time. If we cannot retain and add the necessary staff and resources for these acquired businesses, our ability to develop acquired products, markets and customers could be adversely affected. Also, we may need to hire additional personnel to develop new products, product enhancements and technologies. If we cannot add the necessary staff and resources, our ability to develop future enhancements and features to our existing or future products could be delayed. Any delays could have a material adverse effect on our business, results of operations and financial condition.

Failure to obtain approval from our shareholders of new stock plans could adversely affect our ability to attract and retain employees.

Several of our stock plans terminate in 2005. Accordingly, our Board of Directors has recommend to our shareholders the approval of new stock plans for the issuance of stock options and other forms of equity-based compensation to our employees, officers and directors. We may not be able to secure approval for these new stock plans from our shareholders. If we do not get such approvals, we will be forced to curtail our stock option issuances, which will adversely impact our ability to retain existing employees and attract qualified candidates.

If stock balancing returns or price adjustments exceed our reserves, our operating results could be adversely affected.

We provide most of our distributors with stock balancing return rights, which generally permit our distributors to return products to us by the forty-fifth day of a fiscal quarter, subject to ordering an equal dollar amount of our products prior to the last day of the same fiscal quarter. We also provide price protection rights to most of our distributors. Price protection rights require that we grant retroactive price adjustments for inventories of our products held by distributors if we lower our prices for those products within a specified time period. To cover our exposure to these product returns and price adjustments, we establish reserves based on our evaluation of historical product trends and current marketing plans. However, we cannot assure you that our reserves will be sufficient to cover our future product returns and price adjustments. If we inadequately forecast reserves, our operating results could be adversely affected.

Our stock price could be volatile, and you could lose the value of your investment.

Our stock price has been volatile and has fluctuated significantly to date. The trading price of our stock is likely to continue to be highly volatile and subject to wide fluctuations. Your investment in our stock could lose value. Some of the factors that could significantly affect the market price of our stock include:

• actual or anticipated variations in operating and financial results;

• analyst reports or recommendations;

• changes in interest rates; and

• other events or factors, many of which are beyond our control.

The stock market in general, The Nasdaq National Market and the market for software companies and technology companies in particular, have experienced extreme price and volume fluctuations. These broad market and industry factors could materially and adversely affect the market price of our stock, regardless of our actual operating performance.

Our business and investments could be adversely impacted by unfavorable economic political and social conditions.

General economic and market conditions, and other factors outside our control including terrorist and military actions, could adversely affect our business and impair the value of our investments. Any further downturn in general economic conditions could result in a reduction in demand for our products and services and could harm our business. These conditions make it difficult for us, and our customers, to accurately forecast and plan future business activities and could have a material adverse effect on our business, financial condition and results of operations. In addition, an economic downturn could result in an impairment in the value of our investments requiring us to record losses related to such investments. Impairment in the value of these investments may disrupt our ongoing business and distract management. As

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of December 31, 2004, we had $479.9 million of short and long-term investments, including restricted investments, with various issuers and financial institutions. In many cases we do not attempt to reduce or eliminate our market exposure on these investments and could incur losses related to the impairment of these investments. Fluctuations in economic and market conditions could adversely affect the value of our investments, and we could lose some of our investment portfolio. A total loss of an investment could adversely affect our results of operations and financial condition. For further information on these investments, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about our market risk includes “forward-looking statements” that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The analysis methods we used to assess and mitigate risk discussed below should not be considered projections of future events, gains or losses.

We are exposed to financial market risks, including changes in foreign currency exchange rates and interest rates that could adversely affect our results of operations or financial condition. To mitigate foreign currency and interest rate risk, we utilize derivative financial instruments. The counter-parties to our derivative instruments are major financial institutions. All of the potential changes noted below are based on sensitivity analyses performed on our financial position as of December 31, 2004. Actual results could differ materially.

Discussions of our accounting policies for derivatives and hedging activities are included in notes 2 and 13 to our consolidated financial statements.

Exposure to Exchange Rates

A substantial majority of our overseas expense and capital purchasing activities are transacted in local currencies, including Euros, British pounds sterling, Swiss francs, Australian dollars and Japanese yen. To reduce exposure to reduction in U.S. dollar value and the volatility of future cash flows caused by changes in currency exchange rates, we have established a hedging program. We use foreign currency forward contracts to hedge certain forecasted foreign currency expenditures. Our hedging program significantly reduces, but does not entirely eliminate, the impact of currency exchange rate movements.

At December 31, 2004 and 2003, we had in place foreign currency forward sale contracts with a notional amount of $39.0 million and $37.2 million, respectively, and foreign currency forward purchase contracts with a notional amount of $165.0 million and $160.9 million, respectively. At December 31, 2004 and 2003, these contracts had an aggregate fair value of $8.0 million and $7.9 million, respectively. Based on a hypothetical 10% appreciation of the U.S. dollar from December 31, 2004 market rates the fair value of our foreign currency forward contracts would decrease by $13.3 million. Conversely, a hypothetical 10% depreciation of the U.S. dollar from December 31, 2004 market rates would increase the fair value of our foreign currency forward contracts by $13.3 million. Foreign operating costs in these hypothetical movements would move in the opposite direction. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates quantified above, changes in exchange rates could also change the dollar value of sales and affect the volume of sales as competitors’ products become more or less attractive. We do not anticipate any material adverse impact to our consolidated financial position, results of operations, or cash flows as a result of these forward foreign exchange contracts.

Exposure to Interest Rates

We have interest rate exposures resulting from our interest-based available-for-sale securities. In order to better manage our exposure to interest rate risk, we are a party to 19 interest rate swap agreements. The swap agreements, with an aggregate notional amount of $182.4 million convert the fixed rate return on certain of our available-for-sale securities, to a floating rate. The aggregate fair value of the interest rate swaps at December 31, 2004 was an asset of $1.1 million. Based upon a hypothetical 1% increase in the market interest rate as of December 31, 2004, the fair value of these aggregated assets would have increased by approximately $4.2 million. Based on a hypothetical 1% decrease in the market interest rate as of December 31, 2004, the fair value of these aggregated liabilities would have increased by approximately $4.2 million. The underlying assets would experience offsetting gains and losses. We also maintain available-for-sale and held-to-maturity investments in debt securities, which limits the amount of credit exposure to any one issue, issuer, or type of instrument. The securities in our investment portfolio are not leveraged. The securities classified as available-for-sale are subject to interest rate risk. The modeling technique used measures the change in fair values arising from an immediate hypothetical shift in market interest rates and assumes that ending fair values include principal plus accrued interest and reinvestment income. If market interest rates were to increase by 100 basis points from December 31, 2004 and 2003 levels, the fair value of the available-for-sale portfolio would decline by approximately $0.3 million and $0.6 million, respectively. This sensitivity analysis on our available-for-sale portfolio excludes the underlying investments to our 19 interest rate swaps

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discussed above, as the interest rate risk related to those investments has been effectively hedged. For more information see note 13 to our consolidated financial statements.

These amounts are determined by considering the impact of the hypothetical interest rate movements on our interest rate swap agreements and available-for-sale and held-to-maturity investment portfolios. This analysis does not consider the effect of credit risk as a result of the reduced level of overall economic activity that could exist in such an environment.

In April 2002, we entered into a synthetic lease with a substantive lessor totaling approximately $61.0 million related to office space utilized for our corporate headquarters. Payments under this synthetic lease are indexed to a variable interest rate (LIBOR plus a margin). Based upon our interest rate exposure under this synthetic lease at December 31, 2004, a 100 basis point change in the current interest rate would have an immaterial effect on our financial position and results of operations. In addition to interest rate exposure, if the fair value of our headquarters building in Fort Lauderdale, Florida were to significantly decline, there could be a material adverse effect on our results of operations and financial condition.

ITEM 8.    FINANCIAL STATEMENTS AND SCHEDULES

The Company’s Consolidated Financial Statements and related financial statement schedule, together with the reports of independent registered public accounting firm, appear at pages F-1 through F-33 of this Form 10-K.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes in or disagreements with our independent registered public accountants on accounting or financial disclosure matters during the Company’s two most recent fiscal years.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of December 31, 2004, the Company’s management, with the participation of the Company’s President and Chief Executive Officer and the Company’s Vice President and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Company’s President and Chief Executive Officer and the Company’s Vice President and Chief Financial Officer concluded that, as of December 31, 2004, the Company’s disclosure controls and procedures were effective in ensuring that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated and communicated to the Company’s management, including the Company’s President and Chief Executive Officer and the Company’s Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2004, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a – 15(f). Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment we believe that, as of December 31, 2004, our internal control over financial reporting is effective based on those criteria. Our management’s assessment of the effectiveness or our internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears below.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Citrix Systems, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Citrix Systems, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Citrix Systems Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

In our opinion, management’s assessment that Citrix Systems, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Citrix Systems, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Citrix Systems, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2004 and our report dated March 10, 2005 expressed an unqualified opinion thereon.

/s/Ernst & Young LLP

Certified Public Accountants

West Palm Beach, Florida

March 10, 2005

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ITEM 9B.    OTHER INFORMATION

The Company’s policy governing transactions in its securities by its directors, officers and employees permits its officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The Company has been advised that its President and Chief Executive Officer, Mark B. Templeton, its Senior Vice President, Worldwide Sales and Services, John C. Burris, its Vice President, EMEA, Stefan Sjostrom, and a director, John W. White, each entered into a trading plan during the fourth quarter of 2004 in accordance with Rule 10b5-1 and the Company’s policy governing transactions in its securities. The Company undertakes no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2004.

ITEM 11.    EXECUTIVE COMPENSATION

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2004.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2004.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2004.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the Company’s close of the fiscal year ended December 31, 2004.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Consolidated Financial Statements.

For a list of the consolidated financial information included herein, see Index on Page F-1.

2. Financial Statement Schedules.

The following consolidated financial statement schedule is included in Item 8:

Valuation and Qualifying Accounts

3. List of Exhibits.

Exhibit No.		No. Description
2.1	(6)	Agreement and Plan of Merger, dated as of March 20, 2001, by and among Citrix Systems, Inc., Soundgarden Acquisition Corp. and Sequoia Software Corporation
2.2	(10)	Agreement and Plan of Merger dated as of December 18, 2003 by and among Citrix Systems, Inc., EAC Acquisition Corporation, Expertcity.com, Inc., Edward G. Sim and Andreas von Blottnitz
2.3		Agreement and Plan of Merger dated as of November 21, 2004 by and among Citrix Systems, Inc., Hal Acquisition Corporation, Net6, Inc., and Tim Guleri
3.1	(1)	Amended and Restated Certificate of Incorporation of the Company
3.2	(12)	Amended and Restated By-laws of the Company
3.3	(2)	Certificate of Amendment of Amended and Restated Certificate of Incorporation
4.1	(1)	Specimen certificate representing the Common Stock
10.1	(11)*	Fourth Amended and Restated 1995 Stock Plan
10.2	(14)*	Second Amended and Restated 1995 Non-Employee Director Stock Option Plan
10.3	(8)*	Third Amended and Restated 1995 Employee Stock Purchase Plan
10.4	(9)*	Second Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan
10.5	(13)*	2000 Director and Officer Stock Option and Incentive Plan, Non-Qualified Stock Option Agreement
10.6	(13)*	2000 Director and Officer Stock Option and Incentive Plan, Incentive Stock Option Agreement
10.7	*	Amended and Restated 2000 Stock Incentive Plan of Net6 Inc. (a subsidiary of Citrix Systems, Inc.)
10.8	*	Amended and Restated 2003 Stock Incentive Plan of Net6 Inc. (a subsidiary of Citrix Systems, Inc.)
10.9	(4)	License, Development and Marketing Agreement dated May 9, 1997 between the Company and Microsoft Corporation
10.10	(5)	Amendment No. 1 to License, Development and Marketing Agreement dated May 9, 1997 between the Company and Microsoft Corporation

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10.11	Microsoft Master Source Code Agreement by and between the Company and Microsoft dated December 16, 2004
10.12	License Form by and between the Company and Microsoft Corporation dated December 16, 2004 (with certain information omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission)
10.13(7)	Participation Agreement dated as of April 23, 2002, by and among Citrix Systems, Inc., Citrix Capital Corp., Selco Service Corporation and Key Corporate Capital, Inc. (the “Participation Agreement”) (with certain information omitted pursuant to a grant of confidential treatment and filed separately with the Securities and Exchange Commission)
10.14(7)	Amendment No. 1 to Participation Agreement dated as of June 17, 2002 (with certain information omitted pursuant to a grant of confidential treatment and filed separately with the Securities and Exchange Commission)
10.15(7)	Master Lease dated as of April 23, 2002 by and between Citrix Systems, Inc. and Selco Service Corporation (with certain information omitted pursuant to a grant for confidential treatment and filed separately with the Securities and Exchange Commission)
10.16(15)*	2005 Executive Bonus Plan
21.1	List of Subsidiaries
23.1	Consent of Ernst & Young LLP
24.1	Power of Attorney (Included in signature page)
31.1	Rule 13a-14(a) / 15d-14(a) Certifications
31.2	Rule 13a-14(a) / 15d-14(a) Certifications
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Indicates a management contract or any compensatory plan, contract or arrangement.

  (1) Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1 (File No. 33-98542), as amended.

  (2) Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

  (3) Incorporated herein by reference to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

  (4) Incorporated herein by reference to Exhibit 10 of the Company’s Current Report on Form 8-K dated as of May 9, 1997.

  (5) Incorporated herein by reference to Exhibit 10 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.

  (6) Incorporated by reference herein to Exhibit 2 of the Company’s Schedule 13D Report dated as of March 28, 2001.

  (7) Incorporated by reference herein to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

48

  (8) Incorporated by reference herein to exhibits of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

  (9) Incorporated by reference herein to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.

(10) Incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated as of December 30, 2003.

(11) Incorporated by reference herein to exhibits of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

(12) Incorporated by reference herein to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.

(13) Incorporated by reference herein to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.

(14) Incorporated by reference herein to exhibits of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

(15) Incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated as of February 10, 2005.

(c) Exhibits.

The Company hereby files as part of this Form 10-K the exhibits listed in Item 15(a)(3) above. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C., and at the Commission’s regional offices at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511 and 233 Broadway, 13th floor, New York, NY 10279. Copies of such material can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 29549, at prescribed rates.

(d) Financial Statement Schedule.

The Company hereby files as part of this Form 10-K the consolidated financial statement schedule listed in Item 15(a)(2) above, which is attached hereto.

49

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Fort Lauderdale, Florida on the 11th day of March, 2005.

CITRIX SYSTEMS, INC
By:	/S/    MARK B. TEMPLETON
	Mark B. Templeton President and Chief Executive Officer

POWER OF ATTORNEY AND SIGNATURES

We, the undersigned officers and directors of Citrix Systems, Inc., hereby severally constitute and appoint Mark B. Templeton and David J. Henshall, and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, all amendments to this report, and generally to do all things in our names and on our behalf in such capacities to enable Citrix Systems, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated below on the 11th day of March, 2005.

Signature	Title(s)
/S/    MARK B. TEMPLETON         Mark B. Templeton	President, Chief Executive Officer and Director (Principal Executive Officer)
/S/    DAVID J. HENSHALL         David J. Henshall	Chief Financial Officer and Vice President, Finance (Principal Financial and Accounting Officer)
/S/    STEPHEN M. DOW         Stephen M. Dow	Chairman of the Board of Directors
/S/    THOMAS F. BOGAN         Thomas F. Bogan	Director
/S/    MURRAY J. DEMO         Murray J. Demo	Director
/S/    GARY E. MORIN         Gary E. Morin	Director
/S/    GODFREY R. SULLIVAN         Godfrey R. Sullivan	Director
/S/    JOHN W. WHITE         John W. White	Director

50

CITRIX SYSTEMS, INC.

List of Financial Statements and Financial Statement Schedule

The following consolidated financial statements of Citrix Systems, Inc. are included in Item 8:

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets — December 31, 2004 and 2003	F-3
Consolidated Statements of Income — Years ended December 31, 2004, 2003 and 2002	F-4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income — Years ended December 31, 2004, 2003 and 2002	F-5
Consolidated Statements of Cash Flows — Years ended December 31, 2004, 2003 and 2002	F-6
Notes to Consolidated Financial Statements	F-7

The following consolidated financial statement schedule of Citrix Systems, Inc. is included in Item 15(a):

Schedule II Valuation and Qualifying Accounts F-34

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Citrix Systems, Inc.

We have audited the accompanying consolidated balance sheets of Citrix Systems, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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 consolidated financial position of Citrix Systems, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Citrix Systems, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2005 expressed an unqualified opinion thereon.

/s/Ernst & Young LLP

Certified Public Accountants

West Palm Beach, Florida

March 10, 2005

F-2

CITRIX SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2004			2003
	(In thousands, except par value)
Assets
Current assets:
Cash and cash equivalents	$	73,485		$	182,969
Short-term investments		159,656			385,431
Accounts receivable, net of allowances of $4,916 and $6,365 in 2004 and 2003, respectively		108,399			87,464
Prepaid expenses and other current assets		41,159			58,167
Current portion of deferred tax assets, net		43,881			51,540
Total current assets		426,580			765,571
Restricted cash equivalents and investments		149,051			146,460
Long-term investments		183,974			183,411
Property and equipment, net		69,281			65,837
Goodwill, net		361,452			152,364
Other intangible assets, net		87,172			21,300
Long-term portion of deferred tax assets, net		—			3,168
Other assets		8,574			6,828
	$	1,286,084		$	1,344,939
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	131,287		$	114,456
Current portion of deferred revenues		210,872			152,938
Convertible subordinated debentures		—			351,423
Total current liabilities		342,159			618,817
Long-term portion of deferred revenues		14,271			12,137
Other liabilities		4,749			7,187
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock at $.01 par value: 5,000 shares authorized, none issued and outstanding		—			—
Common stock at $.001 par value: 1,000,000 shares authorized; 212,991 and 202,622 shares issued at 2004 and 2003, respectively		213			203
Additional paid-in capital		872,659			700,111
Deferred compensation		(1,063	)		—
Retained earnings		778,286			646,740
Accumulated other comprehensive income		7,489			7,810
		1,657,584			1,354,864
Less — common stock in treasury, at cost (42,608 and 38,150 shares in 2004 and 2003, respectively)		(732,679	)		(648,066	)
Total stockholders’ equity		924,905			706,798
	$	1,286,084		$	1,344,939

See accompanying notes.

F-3

CITRIX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2004			2003			2002
	(In thousands, except per share information)
Revenues:
Software licenses	$	369,826		$	374,403		$	363,145
Software license updates		271,547			168,793			105,682
Services		99,784			45,429			44,539
Other		—			—			14,082
Total net revenues		741,157			588,625			527,448
Cost of revenues:
Cost of software license revenues		3,824			13,555			12,444
Cost of services revenues		16,472			6,481			6,586
Amortization of core and product technology		6,127			11,036			10,811
Total cost of revenues		26,423			31,072			29,841
Gross margin		714,734			557,553			497,607
Operating expenses:
Research and development		86,357			64,443			68,923
Sales, marketing and support		337,566			252,749			235,393
General and administrative		106,516			85,672			88,946
Amortization of other intangible assets		6,204			300			485
In-process research and development		19,100			—			—
Total operating expenses		555,743			403,164			393,747
Income from operations		158,991			154,389			103,860
Interest income		14,274			21,120			30,943
Interest expense		(4,367	)		(18,280	)		(18,163	)
Write-off of deferred debt issuance costs		(7,219	)		—			—
Other income (expense), net		2,754			3,458			(3,483	)
Income before income taxes		164,433			160,687			113,157
Income taxes		32,887			33,744			19,237
Net income	$	131,546		$	126,943		$	93,920
Earnings per share:
Basic	$	0.78		$	0.77		$	0.53
Diluted	$	0.75		$	0.74		$	0.52
Weighted average shares outstanding:
Basic		168,868			165,323			177,428
Diluted		174,734			171,447			179,359

See accompanying notes.

F-4

CITRIX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(In thousands)

	Common Stock				Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income(Loss)			Deferred Compensation			Common Stock in Treasury					Total Stockholders’ Equity			Total Comprehensive Income
	Shares	Amount														Shares		Amount
Balance at December 31, 2001	196,627	$	197		$	507,857		$	425,877	$	(84	)		—		(11,450	)	$	(286,517	)	$	647,330
Exercise of stock options	551		1			3,369			—		—			—		—			—			3,370
Common stock issued under employee stock purchase plan	248		—			1,301			—		—			—		—			—			1,301
Tax benefit from employer stock plans	—		—			25,735			—		—			—		—			—			25,735
Proceeds from sale of put warrants	—		—			3,310			—		—			—		—			—			3,310
Put warrant obligations, net of expired put warrants	—		—			9,215			—		—			—		—			—			9,215
Repurchase of common stock	—		—			85,811			—		—			—		(17,840	)		(218,679	)		(132,868	)
Common stock subject to repurchase	—		—			(9,135	)		—		—			—		—			—			(9,135	)
Cash paid in advance for share repurchase contract	—		—			(31,504	)		—		—			—		—			—			(31,504	)
Unrealized gain on forward contracts and interest rate swap, net of reclassification adjustments and net of tax	—		—			—			—		3,428			—		—			—			3,428		$	3,428
Unrealized gain on available-for-sale securities, net of tax	—		—			—			—		489			—		—			—			489			489
Net income	—		—			—			93,920		—			—		—			—			93,920			93,920
Total comprehensive income																								$	97,837
Balance at December 31, 2002	197,426		197	*		595,959			519,797		3,833			—		(29,290	)		(505,196	)		614,590	*
Exercise of stock options	4,723		5			54,984			—		—			—		—			—			54,989
Common stock issued under employee stock purchase plan	473		—			3,434			—		—			—		—			—			3,434
Tax benefit from employer stock plans	—		—			10,289			—		—			—		—			—			10,289
Proceeds from sale of put warrants	—		—			655			—		—			—		—			—			655
Put warrant obligations, net of expired put warrants	—		—			7,340			—		—			—		(200	)		(2,517	)		4,823
Repurchase of common stock	—		—			33,195			—		—			—		(8,659	)		(140,354	)		(107,159	)
Common stock subject to repurchase	—		—			9,135			—		—			—		—			—			9,135
Cash paid in advance for share repurchase contracts	—		—			(14,878	)		—		—			—		—			—			(14,878	)
Unrealized gain on forward contracts and interest rate swaps, net of reclassification adjustments and net of tax	—		—			—			—		3,672			—		—			—			3,672		$	3,672
Unrealized gain on available-for-sale securities, net of tax	—		—			—			—		305			—		—			—			305			305
Net income	—		—			—			126,943		—			—		—			—			126,943			126,943
Total comprehensive income																								$	130,920
Balance at December 31, 2003	202,622		203	*		700,111	*		646,740		7,810			—		(38,150	)*	$	(648,066	)*		706,798
Exercise of stock options	4,492		4			58,673			—		—			—		—			—			58,677
Common stock issued under employee stock purchase plan	299		—			4,786			—		—			—		—			—			4,786
Common stock issued for acquisition	5,578		6			124,416			—		—			—								124,422
Tax benefit from employer stock plans	—		—			20,875			—		—			—		—			—			20,875
Deferred compensation			—			1,088								(1,063	)							25
Repurchase of common stock	—		—			15,782			—		—			—		(4,458	)		(84,613	)		(68,831	)
Cash paid in advance for share repurchase contracts	—		—			(53,072	)		—		—			—		—			—			(53,072	)
Unrealized loss on forward contracts and interest rate swaps, net of reclassification adjustments and net of taxes	—		—			—			—		(164	)		—		—			—			(164	)	$	(164	)
Unrealized loss on available-for-sale securities, net of tax	—		—			—			—		(156	)		—		—			—			(156	)		(156	)
Net income	—		—			—			131,546		—			—		—			—			131,546			131,546
Total comprehensive income
Balance at December 31, 2004	212,991	$	213		$	872,659		$	778,286	$	7,489	*	$	(1,063	)	(42,608	)	$	(732,679	)	$	924,905	*	$	131,226

* Amounts do not add due to rounding

See accompanying notes.

F-5

CITRIX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2004			2003			2002
	(In thousands)
Operating activities
Net income	$	131,546		$	126,943		$	93,920
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		12,331			11,336			11,296
Depreciation and amortization of property and equipment		21,247			23,000			30,142
Write-off of deferred debt issuance costs		7,219			—			—
Realized gain on the repurchase of convertible subordinated debentures		—			—			(1,547	)
Realized loss (gain) on the termination of interest rate swap		(328	)		736			(3,356	)
Realized (gains) losses on investments		—			(1,978	)		2,095
In-process research and development		19,100			—			—
Provision for doubtful accounts		1,108			522			3,486
Provision for product returns		6,663			3,825			25,282
Provision for (recovery of) inventory reserves		428			(4	)		1,407
Deferred income tax provision (benefit)		(2,360	)		1,343			(4,218	)
Tax benefit related to the exercise of non-statutory stock options and disqualified dispositions of incentive stock options		20,875			10,289			25,735
Accretion of original issue discount and amortization of financing cost		4,318			18,237			17,711
Other non-cash items		677			273			2,006
Total adjustments to reconcile net income to net cash provided by operating activities		91,278			67,579			110,039
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(25,312	)		(22,340	)		(33,205	)
Prepaid expenses and other current assets		9,172			(4,413	)		(1,000	)
Other assets		(456	)		6,119			5,661
Deferred tax assets, net		12,249			(731	)		6,480
Accounts payable and accrued expenses		1,763			20,455			(18,496	)
Deferred revenues		54,118			61,084			17,787
Other liabilities		(9,077	)		735			5,917
Total changes in operating assets and liabilities, net of effects of acquisitions		42,457			60,909			(16,856	)
Net cash provided by operating activities		265,281			255,431			187,103
Investing activities
Purchases of available for-sale investments		(192,745	)		(381,107	)		(423,207	)
Proceeds from sales of available-for-sale investments		161,846			196,524			349,600
Proceeds from maturities of available-for-sale investments		56,867			109,252			88,229
Proceeds from maturities of held-to-maturity investments		195,350			—			—
Purchases of property and equipment		(24,412	)		(11,063	)		(19,104	)
(Payment for) proceeds from termination of interest rate swaps		—			(1,572	)		3,902
Cash paid for acquisitions, net of cash acquired		(140,788	)		—			(10,680	)
Cash paid for licensing agreements and core technology		(16,784	)		(1,358	)		(3,000	)
Net cash provided by (used in) investing activities		39,334			(89,324	)		(14,260	)
Financing activities
Proceeds from issuance of common stock		63,463			58,423			4,671
Cash paid to repurchase convertible subordinated debentures		(355,659	)		—			(27,773	)
Cash paid under stock repurchase programs		(121,903	)		(124,554	)		(164,372	)
Proceeds from sale of put warrants		—			655			3,310
Other		—			(12	)		(22	)
Net cash used in financing activities		(414,099	)		(65,488	)		(184,186	)
Change in cash and cash equivalents		(109,484	)		100,619			(11,343	)
Cash and cash equivalents at beginning of year		182,969			82,350			93,693
Cash and cash equivalents at end of year	$	73,485		$	182,969		$	82,350

(continued)

F-6

Supplemental Cash Flow Information (In thousands)
Non-cash investing activity—Increase (decrease) in restricted cash equivalents and investments	$	2,591	$	(25,646	)	$	172,106
Cash paid for income taxes	$	2,623	$	10,331		$	14,222
Cash paid for interest	$	559	$	2,976		$	4,155

See accompanying notes

F-7

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    ORGANIZATION

Citrix Systems, Inc. (“Citrix” or the “Company”), is a Delaware corporation founded on April 17, 1989. The Company designs, develops and markets access infrastructure software, services and appliances. The Company markets and licenses its products through multiple channels such as value-added resellers, channel distributors, system integrators, independent software vendors and its websites, managed by the Company’s. The Company also promotes its products through relationships with a wide variety of industry participants, including Microsoft Corporation (“Microsoft”).

2.    SIGNIFICANT ACCOUNTING POLICIES

Consolidation Policy

The consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries in the Americas, Europe, the Middle East and Africa (“EMEA”) and Asia-Pacific. All significant transactions and balances between the Company and its subsidiaries have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents at December 31, 2004 and 2003 include marketable securities, which are primarily municipal securities, money market funds, corporate securities, commercial paper and government securities with initial or remaining contractual maturities when purchased of three months or less. The Company minimizes its credit risk associated with cash and cash equivalents by investing primarily in investment grade, highly liquid instruments and periodically evaluating the credit quality of its primary financial institutions.

Restricted Cash Equivalents and Investments

Restricted cash equivalents and investments at December 31, 2004 and 2003 include approximately $62.8 million in investment securities and cash equivalents were pledged as collateral for specified obligations under the Company’s synthetic lease arrangement. In addition, at December 31, 2004 and 2003 approximately $86.3 million and $83.6 million, respectively, in investment securities were pledged as collateral for certain of the Company’s credit default contracts and interest rate swaps. The Company maintains the ability to manage the composition of the restricted cash equivalents and investments within certain limits and to withdraw and use excess investment earnings from the restricted collateral for operating purposes. For further information, see Notes 10 and 13.

Investments

Short and long-term investments at December 31, 2004 and 2003 primarily consist of corporate securities, government securities, commercial paper and municipal securities. Investments classified as available-for-sale are stated at fair value with unrealized gains and losses, net of taxes, reported in accumulated other comprehensive income. Investments classified as held-to-maturity are stated at amortized cost. The Company does not recognize changes in the fair value of held-to-maturity investments in income unless a decline in value is considered other-than-temporary.

The Company minimizes its credit risk associated with investments by investing primarily in investment grade, highly liquid securities. The Company maintains investments with various financial institutions and the Company’s policy is designed to limit exposure to any one issuer depending on credit quality. Periodic evaluations of the relative credit standing of those issuers are considered in the Company’s investment strategy. The Company uses information provided by third parties to adjust the carrying value of certain of its investments and derivative instruments to fair value at the end of each period. Fair values are based on valuation models that use market quotes and, for certain investments, assumptions as to the creditworthiness of the entities issuing those underlying investments.

F-8

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accounts Receivable

Substantially all of the Company’s accounts receivable are due from value-added resellers and distributors of computer software. Collateral is not required. Credit losses and expected product returns are provided for in the consolidated financial statements and have historically been within management’s expectations. If the financial condition of a significant distributor or customer were to deteriorate, the Company’s operating results could be adversely affected. No distributor or customer accounted for more than 10% of gross accounts receivable at December 31, 2004 or 2003.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally three years for computer equipment, software, office equipment and furniture, the lesser of the lease term or five years for leasehold improvements, seven years for the Company’s enterprise resource planning system and 40 years for buildings. Depreciation expense was $21.2 million, $23.0 million and $30.1 million for 2004, 2003 and 2002, respectively.

During 2003, the Company retired $15.4 million in property and equipment that were no longer in use. At the time of retirement, these assets had no remaining net book value and no asset retirement obligations associated with them. In 2004 retirements were not material.

Property and equipment consist of the following:

	December 31,
	2004			2003
	(In thousands)
Buildings	$	17,781		$	17,781
Computer equipment		57,628			48,452
Software		47,799			40,548
Equipment and furniture		18,143			16,297
Leasehold improvements		35,759			30,922
Land		9,062			9,062
		186,172			163,062
Less accumulated depreciation and amortization		(116,891	)		(97,225	)
	$	69,281		$	65,837

Long-Lived Assets

The Company reviews for impairment of long-lived assets and certain identifiable intangible assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. During 2004 and 2003, the Company did not recognize any impairment charges associated with its long-lived or intangible assets. During 2002, the Company recognized $2.0 million in asset impairment charges primarily due to the consolidation of certain of its offices resulting in the abandonment of certain leasehold improvements. These charges are reflected in operating expenses in the accompanying consolidated statement of income for the year ended December 31, 2002 and primarily related to the Americas geographic segment.

Software Developed or Obtained for Internal Use

The Company accounts for internal use software pursuant to the American Institute of Certified Public Accountants Statement of Position (“SOP”) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Pursuant to SOP 98-1, the Company capitalizes external direct costs of materials and services used in the project and internal costs such as payroll and benefits of those employees directly associated with the development of the software. The amount of costs capitalized in 2004 and 2003 relating to internal use software were $6.6 million and $3.8 million, respectively, consisting of purchased software and services provided by external vendors. These costs are being

F-9

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amortized over the estimated useful life of the software developed, which is generally three to seven years and are included in property and equipment in the accompanying consolidated balance sheets.

Goodwill

The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142, requires that goodwill and certain intangible assets are not amortized, but are subject to an annual impairment test. At December 31, 2004 and 2003, the Company had $361.5 million and $152.4 million of goodwill, respectively. There was no impairment of goodwill as a result of the annual impairment tests completed during the fourth quarters of 2004 and 2003. Excluding goodwill, the Company has no intangible assets deemed to have indefinite lives. Substantially all of the Company’s goodwill at December 31, 2004 was associated with the Americas and Citrix Online reportable segments and at December 31, 2003 substantially all of the Company’s goodwill was associated with the Americas reportable segment. See Note 3 for acquisitions and Note 12 for segment information.

Intangible Assets

The Company has intangible assets with definite lives that are recorded at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally three to seven years, except for patents, which are amortized over 10 years. In accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, the Company records acquired core and product technology at net realizable value and reviews this technology for impairment on a periodic basis by comparing the estimated net realizable value to the unamortized cost of the technology. There has been no impairment of these assets for any of the periods presented.

Intangible assets consist of the following (in thousands):

	December 31, 2004				December 31, 2003
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Core and product technologies	$	125,248	$	67,488	$	82,486	$	63,092
Other		43,432		14,020		9,447		7,541
Total	$	168,680	$	81,508	$	91,933	$	70,633

Amortization of core and product technology was $6.1 million, $11.0 million and $10.8 million for 2004, 2003 and 2002, respectively, and is classified as a component of cost of revenues on the accompanying consolidated statements of income. Amortization of other intangible assets was $6.2 million, $0.3 million and $0.5 million for 2004, 2003 and 2002, respectively. Estimated future annual amortization expense is as follows (in thousands):

Year ending December 31,
2005	$	23,254
2006		19,205
2007		14,149
2008		11,684
2009		8,098

During 2004, the Company reclassified certain acquired intangible assets to goodwill to adjust the purchase price allocation resulting from a 2001 acquisition. The adjustment resulted in a $4.4 million reduction of amortization expense, net of related tax effect of $2.8 million in 2004.

Software Development Costs

SFAS No. 86 requires certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Software development costs incurred beyond the establishment of technological feasibility have not been significant.

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CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition

The Company markets and licenses software products primarily through value-added resellers, channel distributors, system integrators and independent software vendors. The Company’s software licenses are generally perpetual. The Company also separately sells software license updates and services, which include product training, technical support and consulting services, as well as Web-based desktop access services.

The Company’s packaged products are typically purchased by medium and small-sized businesses with a minimal number of locations. In these cases, the software license is delivered with the packaged product. Electronic license arrangements are used with more complex multiserver environments typically found in larger business enterprises that deploy the Company’s products on a department or enterprise-wide basis, which could require differences in product features and functionality at various customer locations. Once the Company receives a software license agreement and purchase order, the enterprise customer licenses are electronically delivered. “Software activation keys” that enable the feature configuration ordered by the end-user are delivered separate from the software. Software may be delivered indirectly by a channel distributor, via download from the Company’s website or directly to the end-user by the Company.

Revenue is recognized when it is earned. The Company’s revenue recognition policies are in compliance with Statement of Position (“SOP”) 97-2 (as amended by SOP 98-4 and SOP 98-9) and related interpretations, Software Revenue Recognition. In addition, for the Company’s Web-based desktop access services revenue is recognized in accordance with Emerging Issues Task Force (“EITF”) No. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of the arrangement exists; delivery has occurred and the Company has no remaining obligations; the fee is fixed or determinable; and collectibility is probable. The Company defines these four criteria as follows:

• Persuasive evidence of the arrangement exists. The Company recognizes revenue on packaged product upon shipment to distributors and resellers. For packaged product sales, it is the Company’s customary practice to require a purchase order from distributors and resellers who have previously negotiated a master packaged product distribution or resale agreement. For electronic and paper license arrangements, the Company typically requires a purchase order from the distributor, reseller or end-user (depending on the arrangement) and an executed software license agreement from the end-user. For technical support, product training and consulting services, the Company requires a purchase order and an executed agreement. For Web-based desktop access services, the Company requires the customer or the reseller to electronically accept the terms of an online services agreement or execute a contract and generally submit a purchase order.

• Delivery has occurred and the Company has no remaining obligations. For software license sales, the Company’s standard delivery method is free-on-board shipping point. Consequently, it considers delivery of packaged product to have occurred when the products are shipped pursuant to an agreement and purchase order. The Company considers delivery of licenses under electronic licensing agreements to have occurred when the related products are shipped and the end-user has been electronically provided with the licenses and software activation keys that allow the end-user to take immediate possession of the software. For product training and consulting services, the Company fulfills its obligation when the services are performed. For software license updates, technical support and Web-based desktop access services, the Company assumes that its obligation is satisfied ratably over the respective terms of the agreements, which are typically 12 to 24 months.

• The fee is fixed or determinable. In the normal course of business, the Company does not provide customers the right to a refund of any portion of their license fees or extended payment terms. The Company sells software license updates and services, which includes technical support, product training and consulting services, and Web-based desktop access services separately and it determines vendor specific objective evidence (“VSOE”) of fair value by the price charged for each product when sold separately or applicable renewal rates.

• Collectibility is probable. The Company determines collectibility on a customer-by-customer basis and generally does not require collateral. The Company typically sells software licenses and updates to distributors or resellers for whom there are histories of successful collection. New customers are subject to a credit review process that

F-11

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

evaluates the their financial position and ultimately their ability to pay. Customers are also subject to an ongoing credit review process. If the Company determines from the outset of an arrangement that collectibility is not probable, revenue recognition is deferred until customer payment is received and the other parameters of revenue recognition described above have been achieved. Management’s judgment is required in assessing the probability of collection, which is generally based on evaluation of customer specific information, historical experience and economic market conditions.

Net revenues include the following categories: Software Licenses, Software License Updates and Services. Software Licenses primarily represent fees related to the licensing of our MetaFrame products. These revenues are reflected net of sales allowances and provisions for stock balancing return rights. Software License Updates consists of fees related to the Subscription Advantage program (the Company’s terminology for post contract support) that are recognized ratably over the term of the contract, which is typically 12-24 months. Subscription Advantage is a renewable program that provides subscribers with automatic delivery of software upgrades, enhancements and maintenance releases when and if they become available during the term of subscription. Services consist primarily of technical support services and Web-based desktop access services revenue recognized ratably over the contract term, revenue from product training and certification, and consulting services revenue related to implementation of the Company’s software products, which is recognized as the services are provided.

The Company licenses most of its software products bundled with an initial subscription for software license updates that provide the end-user with free enhancements and upgrades to the licensed product on a when and if available basis. Customers may also elect to purchase technical support, product training or consulting services. The Company allocates revenue to software license updates and any other undelivered elements of the arrangement based on VSOE of fair value of each element and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria described above have been met. The balance of the revenue, net of any discounts inherent in the arrangement, is allocated to the delivered software product using the residual method and recognized at the outset of the arrangement as the software licenses are delivered. If management cannot objectively determine the fair value of each undelivered element based on VSOE, revenue recognition is deferred until all elements are delivered, all services have been performed, or until fair value can be objectively determined.

In the normal course of business, the Company does not permit product returns, but it does provide most of its distributors and value added resellers with stock balancing and price protection rights. Stock balancing rights permit distributors to return products to the Company by the forty-fifth day of the fiscal quarter, subject to ordering an equal dollar amount of the Company’s other products prior to the last day of the same fiscal quarter. Price protection rights require that the Company grant retroactive price adjustments for inventories of products held by distributors or resellers if it lowers prices for such products. The Company establishes provisions for estimated returns for stock balancing and price protection rights, as well as other sales allowances, concurrently with the recognition of revenue. The provisions are established based upon consideration of a variety of factors, including, among other things, recent and historical return rates for both specific products and distributors, estimated distributor inventory levels by product, the impact of any new product releases and projected economic conditions. Actual product returns for stock balancing and price protection provisions incurred are, however, dependent upon future events, including the amount of stock balancing activity by distributors and the level of distributor inventories at the time of any price adjustments. The Company continually monitors the factors that influence the pricing of its products and distributor inventory levels and makes adjustments to these provisions when it believes actual returns and other allowances could differ from established reserves. The Company’s ability to recognize revenue upon shipment to distributors is predicated on its ability to reliably estimate future stock balancing returns. If actual experience or changes in market condition impairs the Company’s ability to estimate returns, it would be required to defer the recognition of revenue until the delivery of the product to the end-user. Allowances for estimated product returns amounted to approximately $2.3 million at December 31, 2004 and $3.0 million at December 31, 2003. The Company has not reduced and has no current plans to reduce its prices for inventory currently held by distributors or resellers. Accordingly, there were no reserves required for price protection at December 31, 2004 or December 31, 2003. The Company also records estimated reductions to revenue for customer programs and incentive offerings including volume-based incentives. If market conditions were to decline, the Company could take actions to increase its customer incentive offerings, which could result in an incremental reduction to revenue at the time the incentive is offered.

F-12

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Product Concentration

The Company derives a substantial portion of its revenues from one software product and anticipates that this product and future derivative products and product lines based upon this technology, if any, will constitute a majority of its revenue for the foreseeable future. The Company could experience declines in demand for products, whether as a result of general economic conditions, new competitive product releases, price competition, lack of success of its strategic partners, technological change or other factors.

Cost of Revenues

Cost of revenues consists primarily of compensation and other personnel-related costs of providing services and amortization of core and product technology, as well as, costs of product media and duplication, manuals, packaging materials, shipping expense, service capacity costs and royalties. The Company is a party to licensing agreements with various entities, which give the Company the right to use certain software code in its products or in the development of future products in exchange for the payment of a fixed fee or certain amounts based upon the sales of the related product. The licensing agreements generally have terms ranging from one to five years, and generally include renewal options. However, some agreements may be perpetual unless expressly terminated. Royalties and other costs related to these agreements are included in cost of revenues.

Foreign Currency

The functional currency of each of the Company’s wholly-owned foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of the subsidiaries are remeasured into U.S. dollars at year-end exchange rates, and revenues and expenses are remeasured at average rates prevailing during the year. Remeasurement and foreign currency transaction gains (losses) of approximately $1.7 million, $2.4 million and $(1.1) million for the years ended December 31, 2004, 2003, and 2002, respectively, are included in other income (expense), net in the accompanying consolidated statements of income.

Derivatives and Hedging Activities

In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations and amendments, the Company records derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. For derivatives that are designated as and qualify as effective cash flow hedges, the portion of gain or loss on the derivative instrument effective at offsetting changes in the hedged item is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings as operating income (expense) when the hedged transaction affects earnings. For derivative instruments that are designated as and qualify as effective fair value hedges, the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk is recognized in current earnings as interest income (expense) during the period of the change in fair values. Derivatives not designated as hedging instruments are adjusted to fair value through earnings as other income (expense) in the period the changes in fair value occur. The application of the provisions of SFAS No. 133 could impact the volatility of earnings.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes attributing all derivatives that are designated as cash flow hedges to floating rate assets or liabilities or forecasted transactions and attributing all derivatives that are designated as fair value hedges to fixed rate assets or liabilities. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in cash flows or fair value of the hedged item. Fluctuations in the value of the derivative instruments are generally offset by changes in the hedged item; however, if it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the affected derivative.

Advertising Expense

The Company expenses costs as incurred. The Company has cooperative advertising agreements with certain distributors and resellers whereby the Company will reimburse distributors and resellers for qualified advertising of Citrix

F-13

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

products. The Company also has advertising agreements with, and purchases advertising from, online media providers to advertise its Web-based desktop access products. Reimbursement is made once the distributor, reseller or provider provides substantiation of qualified expenditures. The Company estimates the impact of these expenses and recognizes them at the time of product sales as a component of sales, marketing and support expenses in the accompanying consolidated statements of income. The Company recognized advertising expenses of approximately $35.2 million, $13.5 million and $10.0 million, during the years ended December 31, 2004, 2003 and 2002, respectively.

Income Taxes

The Company estimates income taxes based on rates in effect in each of the jurisdictions in which it operates. Deferred income tax assets and liabilities are determined based upon differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The realization of deferred tax assets is based on historical tax positions and expectations about future taxable income. Valuation allowances are recorded related to deferred tax assets based on the “not more likely than not” criteria of SFAS No. 109, Accounting for Income Taxes.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates made by management include the provision for doubtful accounts receivable, provision for estimated returns for stock balancing and price protection rights, as well as other sales allowances, the valuation of the Company’s goodwill, net realizable value of core and product technology, the provision for income taxes and the amortization and depreciation periods for intangible and long-lived assets. While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial position and results of operations taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates.

Accounting for Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock Based Compensation- Transition and Disclosure, defines a fair value method of accounting for issuance of stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to SFAS No. 123, companies are not required to adopt the fair value method of accounting for employee stock-based transactions. Companies are permitted to account for such transactions under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, but are required to disclose in a note to the consolidated financial statements pro forma net income and per share amounts as if a company had applied the fair methods prescribed by SFAS No. 123.

The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans, stock options granted to employees and non-employee directors and has complied with the disclosure requirements of SFAS No. 123. Except for non-employee directors, the Company has not granted any options to non-employees. The Company has elected to follow APB Opinion No. 25 because the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models, including the Black-Scholes model, that were developed for use with traded options which have no vesting restrictions and are fully transferable, as opposed to employee stock options, which are typically non-transferable and last up to ten years. Currently, management believes there is not one agreed upon option valuation method that is comparable among all reporting companies. Specifically, the Black-Scholes model requires the input of highly subjective assumptions, including assumptions related to the expected stock price volatility over the expected life of the option. Because the Company’s stock-based awards to employees have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing pricing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees. Since the Black-Scholes model is based on statistical expectations, the calculation can result in substantial earnings volatility that may not agree, as to timing or amount, with the actual gain or loss accrued or realized by the option holder.

F-14

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

No stock-based employee compensation cost is reflected in net income except for amounts related to the 51,546 options assumed as part of the Net6 acquisition, which were accounted for in accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25), and was not material. Substantially all options granted under the Company’s six stock-based compensation plans, including plans assumed from acquired entities, have an exercise price equal to or above market value of the underlying common stock on the date of grant. Had compensation cost for the grants issued at an exercise price equal to or above market value under the Company’s stock-based compensation plans had been determined based on the fair value at the grant dates for grants under those plans consistent with the fair value method of SFAS No. 123, the Company’s cash flows would have remained unchanged; however, net income and earnings per share would have been reduced to the pro forma amounts indicated below:

	2004			2003			2002
	(In thousands, except per share information)
Net income (loss):
As reported	$	131,546		$	126,943		$	93,920
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(48,043	)		(87,645	)		(137,645	)
Pro forma	$	83,503		$	39,298		$	(43,725	)
Basic earnings (loss) per share:
As reported	$	0.78		$	0.77		$	0.53
Pro forma	$	0.49		$	0.24		$	(0.25	)
Diluted earnings (loss) per share:
As reported	$	0.75		$	0.74		$	0.52
Pro forma	$	0.48		$	0.23		$	(0.25	)

For purposes of the pro forma calculations, the fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model, assuming no expected dividends and the following assumptions:

	2004 Grants	2003 Grants	2002 Grants
Expected volatility factors	0.38 – 0.49	0.57 – 0.68	0.69
Approximate risk free interest rate	3.0% – 3.5%	2.5% – 3.0%	4.0%
Expected lives	3.32 – 4.76 years	4.70 – 4.75 years	4.60 years

The determination of the fair value of all options is based on the above assumptions. Because additional option grants are expected to be made each year and forfeitures will occur when employees leave the Company, the above pro forma disclosures are not representative of pro forma effects on reported net income (loss) for future years. See Note 6 for more information regarding the Company’s stock option plans.

Earnings Per Share

Basic earnings per share is calculated by dividing income available to shareholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of certain stock options (calculated using the treasury stock method) and put warrants (calculated using the reverse treasury stock method). Certain shares under the Company’s stock-based compensation programs, and common stock potentially issuable upon conversion of the Company’s convertible subordinated debentures were excluded from the computation of diluted earnings per share due to their anti-dilutive effect for the respective periods in which they were outstanding. The reconciliation of the numerator and denominator of the earnings per share calculation is presented in Note 14.

Reclassifications

Certain reclassifications of the prior years’ financial statements have been made to conform to the current year’s presentation.

F-15

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. ACQUISITIONS

On February 27, 2004, the Company acquired all of the issued and outstanding capital stock of Expertcity.com, Inc. (“Expertcity”), a market leader in Web-based desktop access, as well as a leader in Web-based training and customer assistance products. The consideration for this transaction was approximately $241.4 million, comprised of approximately $112.6 million in cash, approximately 5.9 million shares of the Company’s common stock valued at approximately $124.4 million and direct transactions costs of approximately $4.4 million. These amounts include additional common stock earned by Expertcity upon the achievement of certain revenue and other financial milestones during 2004 pursuant to the merger agreement, which will be issued during 2005. The fair value of the common stock earned as additional purchase price consideration was recorded as goodwill on the date earned. There is no further contingent consideration related to the transaction. The sources of funds for consideration paid in this transaction consisted of available cash and investments and our authorized common stock.

On December 8, 2004, the Company acquired all of the issued and outstanding capital stock of Net6, Inc. (“Net6”), a leader in secure access gateways. The acquisition extends the Company’s ability to provide easy and secure access to virtually any resource, both data and voice, on-demand. The consideration for this transaction was approximately $49.2 million and was paid in cash. In addition to the purchase price, direct transaction costs associated with the acquisition were approximately $1.7 million.

Under the purchase method of accounting, the purchase price for each of Expertcity and Net6 was allocated to Expertcity’s and Net6’s respective net tangible and intangible assets based on their estimated fair values as of the date of the completion of the respective acquisitions. Independent valuation specialists conducted separate valuations to assist us in determining the fair values of a significant portion of Expertcity’s and Net6’s net assets.

The allocation of the purchase price is summarized below (in thousands):

	Expertcity			Net6
	Purchase Price Allocation		Asset Life	Purchase Price Allocation		Asset Life
Current assets	$	26,085		$	2,107
Property and equipment		1,998	Various		204	Various
In-process research and development		18,700			400
Intangible assets		50,800	3-7 years		20,300	3-7 years
Goodwill		165,758	Indefinite		33,506	Indefinite
Assets acquired		263,341			56,517
Current liabilities		13,617			2,836
Deferred tax liability		8,292			2,812
Total liabilities assumed		21,909			5,648
Net assets acquired, including direct transaction costs	$	241,432		$	50,869

The goodwill recorded in relation to these acquisitions is not deductible for tax purposes. Identifiable intangible assets purchased in the Expertcity and Net6 acquisitions and their weighted average lives are as follows:

	Expertcity		Asset Life	Net6		Asset Life
Trade name	$	4,500	5 years	$	—	N/A
Covenants not to compete		8,000	4 years		300	3 years
Customer relationships		13,000	3 years		6,600	6 years
Core and product technologies		25,300	6.7 years		13,400	7 years
Total	$	50,800		$	20,300

The fair values used in determining the purchase price allocation for certain intangible assets for Expertcity and Net6 were based on estimated discounted future cash flows, royalty rates and historical data, among other information. Purchased in-process research and development (“IPR&D”) of approximately $19.1 million was expensed immediately upon closing of the respective mergers in accordance with Financial Accounting Standards Board Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method, due to the fact that it pertains to

F-16

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

technology that was not currently technologically feasible, meaning it had not reached the working model stage, did not contain all of the major functions planned for the product, was not ready for initial customer testing and had no alternative future use. The fair value assigned to in-process research and development was determined using the income approach, which includes estimating the revenue and expenses associated with a project’s sales cycle and by estimating the amount of after-tax cash flows attributable to the projects. The future cash flows were discounted to present value utilizing an appropriate risk-adjusted rate of return, which ranged from 17% to 25%. The rate of return included a factor that takes into account the uncertainty surrounding the successful development of the IPR&D.

The $165.8 million of goodwill related to the Expertcity acquisition was assigned to the Citrix Online division segment and the $33.5 million of goodwill related to the Net6 acquisition was assigned to the Americas segment. See Note 12 for segment information.

The results of operations of Expertcity and Net6 are included in the Company’s results of operations beginning after their respective acquisition dates. Expertcity is the Company’s new segment, the Citrix Online division and Net6 is part of the Company’s Americas reportable segment. The following unaudited pro forma information combines the consolidated results of operations of the Company and Expertcity and Net6 as if the acquisitions had occurred at the beginning of fiscal year 2003 (in thousands, except per share data):

	December 31,
	2004		2003
Revenues	$	750,861	$	625,435
Income from operations		143,724		132,868
Net income		118,224		108,897
Per share – basic		0.68		0.64
Per share – diluted		0.66		0.62

4. CASH AND INVESTMENTS

Cash and cash equivalents and investments consist of the following:

	December 31,
	2004		2003
	(In thousands)
Cash and cash equivalents:
Cash	$	36,019	$	67,419
Municipal securities		4,896		8,705
Money market funds		34,902		50,289
Corporate securities		3,577		9,684
Government securities		6,837		57,006
Total	$	86,231	$	193,103
Reported as:
Cash and cash equivalents	$	73,485	$	182,969
Restricted cash equivalents and investments	$	12,746	$	10,134
Short-term investments:
Corporate securities	$	112,632	$	284,867
Government securities		25,828		14,666
Commercial paper		—		1,988
Municipal securities		69,485		117,690
Total	$	207,945	$	419,211
Reported as:
Short-term investments	$	159,656	$	385,431
Restricted cash equivalents and investments	$	48,289	$	33,780
Long-term investments:
Corporate securities	$	167,910	$	169,418
Government securities (1)		103,699		116,251
Other		381		288
Total	$	271,990	$	285,957
Reported as:
Long-term investments	$	183,974	$	183,411
Restricted cash equivalents and investments	$	88,016	$	102,546

F-17

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(1) Includes investments in both United States and foreign government securities.

The Company had two AAA-rated zero coupon corporate securities classified as held-to-maturity investments that were carried at the combined accreted value of approximately $192.5 million at December 31, 2003. These securities matured on March 22, 2004 and the Company received $195.4 million, all of which was used to redeem a portion of the Company’s convertible subordinated debentures. At December 31, 2004, the Company held no investments classified as held-to-maturity.

The Company’s other short and long-term investments are classified as available-for-sale and are recorded at fair value. Gross realized gains and losses on sales of securities during 2004 and 2003 were not material. Gross realized gains and losses were $0.7 million and $2.8 million, respectively, for the year ended December 31, 2002. At December 31, 2004, the average original contractual maturity of the Company’s short-term available-for-sale investments was approximately 13 months. The Company’s long-term available-for-sale investments at December 31, 2004 include $253.6 million of investments, including restricted investments, with original contractual maturities ranging from one to five years and $18.0 million of investments with original contractual maturities ranging from five to 10 years. The average remaining maturities of the Company’s short and long-term available-for-sale investments, including restricted investments, at December 31, 2004 were five and 27 months, respectively. In addition, included in short-term available for sale investments are auction rate securities owned by the Company that generally reset every seven to 28 days. The Company also owns $0.4 million in equity investments not due at a single maturity date classified as long-term investments.

The Company has investments in two instruments with an aggregate amount of $50.0 million that include structured credit risk features related to certain referenced entities. Under the terms of these debt instruments, the Company assumes the default risk, above a certain threshold, of a portfolio of specific referenced issuers in exchange for a fixed yield that is added to the LIBOR-based yield on the underlying debt instrument. In the event of default by the underlying referenced issuers above specified amounts, the Company will pay the counterparty an amount equivalent to its loss, not to exceed the face value of the instrument. The primary risk associated with these investments is the default risk of the underlying issuers. The credit ratings of these instruments are equivalent to the likelihood of an event of default under “AAA” or “AA” rated individual securities. The purpose of these instruments is to provide additional yield on certain of the Company’s available-for-sale investments. These instruments mature in November 2007 and February 2008. To date there have been no credit events for the underlying referenced entities resulting in losses to the Company. The Company separately accounts for changes in the fair value of the structured credit features of the investments and as of December 31, 2004 and 2003, there was no material change in fair value.

The change in net unrealized securities gains (losses) recognized in other comprehensive income includes unrealized gains (losses) that arose from changes in market value of securities that were held during the period and gains (losses) that were previously unrealized, but have been recognized in current period net income due to sales or maturities of available-for-sale securities. This reclassification has no effect on total comprehensive income or stockholders’ equity and was immaterial for all periods presented. The unrealized gain (loss) associated with each individual category of cash and investments was not significant for either of the periods presented.

F-18

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

	December 31,
	2004		2003
	(In thousands)
Accounts payable	$	17,554	$	14,992
Accrued compensation and employee benefits		29,734		25,528
Accrued cooperative advertising and marketing programs		14,699		9,964
Accrued taxes		37,050		37,253
Other		32,250		26,719
	$	131,287	$	114,456

6. EMPLOYEE STOCK COMPENSATION AND BENEFIT PLANS

Stock Compensation Plans

As of December 31, 2004, the Company has six stock-based compensation plans including plans assumed in acquisitions, which are described below. The Company typically grants stock options for a fixed number of shares to employees with an exercise price equal to or above the market value of the shares at the date of grant. As mentioned in Note 2, the Company applies the intrinsic value method under APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock plans and its stock purchase plan except for 51,546 options assumed as part of the Net6 acquisition that had an exercise price below market value and were accounted for in accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25). The impact on the Company’s financial statements from the use of options is reflected in the calculation of earnings per share in the form of dilution (see Note 14).

Fixed Stock Option Plans

The Company’s Amended and Restated 1995 Stock Plan (the “1995 Plan”) was originally adopted by the Board on September 28, 1995 and approved by the Company’s stockholders in October 1995. Under the terms of the 1995 Plan, the Company is authorized to grant incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”), make stock awards and provide the opportunity to purchase stock to employees, directors and officers and consultants of the Company. The 1995 Plan, as amended, provides for the issuance of a maximum of 69,945,623 shares of common stock, plus, effective January 1, 2001 and each year thereafter, a number of shares of common stock equal to 5% of the total number of shares of common stock issued and outstanding as of December 31 of the preceding year. Under the 1995 Plan, a maximum of 60,000,000 ISOs may be granted and ISOs must be granted at exercise prices no less than fair market value at the date of grant, except for ISOs granted to employees who own more than 10% of the Company’s combined voting power, for which the exercise prices will be no less than 110% of the market value at the date of grant. NSOs, stock awards or stock purchases may be granted or authorized, as applicable, at prices no less than the minimum legal consideration required. Under the 1995 Plan, as amended, stock options must be granted at exercise prices no less than market value at the date of grant; provided, however, that if an NSO is expressly granted in lieu of a reasonable amount of salary or cash bonus, the exercise price may be equal to or greater than 85% of the fair market value at the date of such grant. ISOs and NSOs expire five or ten years from the date of grant depending on the applicable option agreement. All options are exercisable upon vesting. Ten year options typically vest over four years at a rate of 25% of the shares underlying the option one year from the date of grant and at a rate of 2.08% monthly thereafter and five year options typically vest over three years at a rate of 33.3% of the shares underlying the option one year from date of grant and at a rate of 2.78% monthly thereafter.

The Company’s Second Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan (the “2000 Plan”) was originally adopted by the Board of Directors and approved by the Company’s stockholders on May 18, 2000. Under the terms of the 2000 Plan, the Company is authorized to make stock awards, provide eligible individuals with the opportunity to purchase stock, grant ISOs and grant NSOs to officers and directors of the Company. The 2000 Plan provides for the issuance of up to 4,000,000 shares, plus, effective on January 1, 2001, on January 1 of each year, a number of shares of common stock equal to one-half of one percent (0.5%) of the total number of shares of common stock issued and

F-19

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

outstanding as of December 31 of the preceding year. Notwithstanding the foregoing, the maximum number of stock options that may be issued pursuant to the 2000 Plan shall be equal to the maximum number of stock options issuable under the 2000 Plan at any time less 500,000 stock options, and no more than 3,000,000 shares of common stock may be issued pursuant to the exercise of incentive stock options granted under the 2000 Plan. Under the 2000 Plan, stock options must be granted at exercise prices no less than market value at the date of grant, provided however, that if an NSO is expressly granted in lieu of a reasonable amount of salary or cash bonus, the exercise price may be equal to or greater than 85% of the fair market value at the date of such grant. ISOs and NSOs expire ten or five years from date of grant depending on the applicable option agreement. All options are exercisable upon vesting. Ten year options typically vest over four years at a rate of 25% of the shares underlying the option one year from the date of grant and at a rate of 2.08% monthly thereafter and five year options typically vest over three years at a rate of 33.3% of the shares underlying the option one year from date of grant and at a rate of 2.78% monthly thereafter.

The Second Amended and Restated 1995 Non-Employee Director Stock Option Plan (the “Director Option Plan”) was originally adopted by the Board of Directors on September 28, 1995 and approved by the Company’s stockholders in October 1995. The Director Option Plan provides for the grant of options to purchase a maximum of 3,600,000 shares of common stock of the Company to non-employee directors of the Company.

Pursuant to the Director Option Plan, each non-employee director is eligible to receive an initial grant of an option to purchase 60,000 shares of common stock and an annual grant of an option to purchase 20,000 shares of common stock on the first business day of the month following the Annual Meeting of Stockholders, provided that no annual grant shall be granted to any non-employee director in the same calendar year that such person received his or her initial grant. The initial grant vests 33.3% after the conclusion of the first year and 2.78% per month over the remaining two years. The annual grant vests in equal monthly increments over a period of one year. All options granted under the Director Option Plan have an exercise price equal to the fair market value of the common stock on the date of grant and a term of five years from the date of grant. Options are exercisable to the extent vested only while the optionee is serving as a director of the Company or within 90 days after the optionee ceases to serve as a director of the Company.

The Company’s Amended and Restated 2000 Stock Incentive Plan of Net6, Inc. (the “2000 Net6 Plan”) was originally adopted and approved by the Board of Directors and stockholders of Net6 on January 19, 2001. The 2000 Net6 Plan and the outstanding unvested stock options under the 2000 Net6 Plan (the “2000 Assumed Options”) were assumed by the Company on December 8, 2004 in connection with the Company’s acquisition of Net6. Under the terms of the 2000 Net6 Plan, Net6 was authorized to grant ISOs and NSOs and to make stock awards to employees, directors, officers and consultants of Net6. The 2000 Net6 Plan, as amended and restated, provides for the issuance of a maximum of 167,850 (as adjusted for stock splits) shares of common stock. As of December 8, 2004, however, the Company’s Board of Directors resolved to cap the 2000 Net6 Plan with 7,861 shares of the 2000 Assumed Options outstanding and to make no further option grants or stock awards under the 2000 Net6 Plan. ISOs were granted at exercise prices no less than the fair market value at the date of grant, except for ISOs granted to employees who owned more than 10% of Net6’s combined voting power, for which the exercise prices were no less than 110% of the market value at the date of grant. NSOs were granted at exercise prices no less than 85% of the fair market value at the date of grant. Stock awards were authorized at prices established by the Board of Directors of Net6. ISOs and NSOs expire five or ten years from the original grant date depending on the applicable option agreement. All options are exercisable upon vesting. The 2000 Assumed Options generally vest over four years with 25% of the shares underlying the option vesting one year from the original grant date and at a rate of 2.08% monthly thereafter.

The Company’s Amended and Restated 2003 Stock Incentive Plan of Net6, Inc. (the “2003 Net6 Plan”) was originally adopted and approved by the Board of Directors and stockholders of Net6 on May 15, 2003. The 2003 Net6 Plan and the outstanding unvested stock options under the 2003 Net6 Plan (the “2003 Assumed Options”) were assumed by the Company on December 8, 2004 in connection with the Company’s acquisition of Net6. Under the terms of the 2003 Net6 Plan, Net6 was authorized to grant ISOs and NSOs and to make stock awards to employees, directors, officers and consultants of Net6. The 2003 Net6 Plan, as amended and restated, provides for the issuance of a maximum of 102,575 (as adjusted for stock splits) shares of common stock. As of December 8, 2004, however, the Company’s Board of Directors resolved to cap the 2003 Net6 Plan with 43,685 shares of the 2003 Assumed Options outstanding and to make no further option grants or stock awards under the 2003 Net6 Plan. ISOs were granted at exercise prices no less than the fair market value at the date of grant, except for ISOs granted to employees who owned more than 10% of Net6’s combined voting power, for which the exercise prices were no less than 110% of the market value at the date of grant. NSOs were granted at

F-20

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

exercise prices established by the Board of Directors of Net6, provided that NSOs granted to certain Net6 officers were granted at no less than fair market value at the date of grant. Stock awards were authorized at prices established by the Board of Directors of Net6, provided that stock awards made to certain Net6 officers were made at no less than fair market value at the date of award. ISOs and NSOs expire five or ten years from the original grant date depending on the applicable option agreement. All options are exercisable upon vesting. The 2003 Assumed Options generally vest over four years with 25% of the shares underlying the option vesting one year from the original grant date and at a rate of 2.08% monthly thereafter.

A summary of the status and activity of the Company’s fixed stock option plans is as follows:

	Year Ended December 31,
	2004				2003				2002
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	38,221,590		$	24.56	41,220,517		$	24.51	39,596,278		$	28.92
Granted at market value	5,637,687			20.97	5,574,808			16.19	9,274,497			9.98
Granted above market value	—			—	348,500			12.00	355,626			17.92
Granted below market value	51,546			3.86	—			—	—			—
Exercised	(4,491,795	)		13.06	(4,722,911	)		11.64	(550,791	)		6.12
Forfeited	(2,490,866	)		25.14	(4,199,324	)		28.14	(7,455,093	)		30.86
Outstanding at end of year	36,928,162			25.20	38,221,590			24.56	41,220,517			24.51
Options exercisable at end of year	25,525,048			28.62	25,044,225			28.76	24,101,550			27.01
Weighted-average fair value of options granted during the year at market value			$	7.26			$	8.68			$	5.80
Weighted-average fair value of options granted during the year above market value				—				6.71				8.57
Weighted-average fair value of options granted during the year below market value				21.55				—				—

Information about stock options outstanding as of December 31, 2004 is as follows:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Options Outstanding at December 31, 2004	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Options Exercisable at December 31, 2004	Weighted Average Exercise Price
$   2.49 to $    9.38	3,804,701	6.13	$	6.38	2,148,454	$	6.90
$ 10.06 to $  15.25	4,673,325	6.97	$	13.25	2,518,514	$	13.54
$ 15.34 to $  17.55	4,323,986	4.92	$	16.39	3,084,235	$	16.01
$ 17.66 to $  19.69	3,755,861	6.39	$	18.68	2,199,702	$	18.92
$ 19.81 to $  22.19	3,894,204	5.04	$	21.29	1,300,644	$	21.62
$ 22.47 to $  24.98	4,116,042	5.23	$	23.73	2,448,525	$	23.56
$ 25.44 to $  26.13	3,702,820	4.75	$	25.51	3,631,192	$	25.50
$ 27.81 to $  35.49	4,698,025	5.95	$	33.17	4,236,203	$	32.99
$ 36.25 to $  48.44	976,470	4.96	$	44.90	974,904	$	44.92
$ 53.38 to $104.00	2,982,728	5.14	$	76.64	2,982,675	$	76.64
	36,928,162	5.63	$	25.20	25,525,048	$	28.62

Stock Purchase Plan

The Third Amended and Restated 1995 Employee Stock Purchase Plan (the “1995 Purchase Plan”) was originally adopted by the Board of Directors on September 28, 1995 and approved by the Company’s stockholders in October 1995. The 1995 Purchase Plan provides for the issuance of a maximum of 9,000,000 shares of common stock upon the exercise of non-transferable options granted to participating employees. All U.S.-based employees of the Company whose customary employment is 20 hours or more per week and more than five months in any calendar year, and employees of certain international subsidiaries, are eligible to participate in the 1995 Purchase Plan. Employees who would immediately after the grant own 5% or more of the Company’s common stock and directors who are not employees of the Company, may not participate in the 1995 Purchase Plan. To participate in the 1995 Purchase Plan, an employee must authorize the Company to deduct an amount (not less than 1% nor more than 10% of a participant’s total cash compensation, up to a maximum of $25,000) from his or her pay during six-month periods (each a “Plan Period”).

F-21

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The maximum number of shares of Common Stock an employee may purchase in any Plan Period is 12,000 shares subject to certain other limitations. The exercise price for the option for each Plan Period is 85% of the lesser of the market price of the Common Stock on the first or last business day of the Plan Period. If an employee is not a participant on the last day of the Plan Period, such employee is not entitled to exercise his or her option, and the amount of his or her accumulated payroll deductions are refunded. An employee’s rights under the 1995 Purchase Plan terminate upon his or her voluntary withdrawal from the 1995 Purchase Plan at any time or upon termination of employment. In January 2002, the 1995 Purchase Plan was amended to change the Plan Periods to avoid automatic purchases of shares of Common Stock from being made during the Company’s regular black-out periods. Under the 1995 Purchase Plan, the Company issued 299,498 shares, 473,002 shares and 248,027 shares in 2004, 2003, and 2002, respectively.

Benefit Plan

The Company maintains a 401(k) benefit plan (the “Plan”) allowing eligible U.S.-based employees to contribute up to 60% of their annual compensation, limited to an annual maximum amount as set periodically by the Internal Revenue Service. The Company, at its discretion, may contribute up to $0.50 of each dollar of employee contribution, limited to a maximum of 6% of the employee’s annual compensation. The Company’s matching contributions for 2004, 2003 and 2002 were $2.3 million and $2.0 million for both 2003 and 2002, respectively. The Company’s contributions vest over a four-year period at 25% per year.

7. CAPITAL STOCK

Common Stock

The Company has reserved for future issuance 79,800,352 shares of common stock for the exercise of stock options outstanding or available for grant.

Stock Repurchase Programs

The Company’s Board of Directors has authorized an ongoing stock repurchase program with a total repurchase authority granted to the Company of $1.0 billion, of which $200 million was authorized in February 2005, the objective of which is to manage actual and anticipated dilution and improve shareholders’ return. At December 31, 2004, approximately $42.0 million was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock.

The Company is authorized to make open market purchases of its common stock using general corporate funds. Additionally, from time to time, the Company has entered into structured stock repurchase arrangements with large financial institutions using general corporate funds as part of its share repurchase program in order to lower the average cost to acquire shares. These programs include terms that require the Company to make up front payments to the counterparty financial institution and result in the receipt of stock during or at the end of the period of the agreement or the receipt of either stock or cash at the maturity of the agreement, depending on market conditions. Prior to June 2003, the Company sold put warrants that entitled the holder of each warrant to sell to the Company, generally by physical delivery, one share of its common stock at a specified price. At December 31, 2004 and 2003 there were no put warrants outstanding.

The Company expended an aggregate of $121.0 million, $123.9 million and $161.1 million during 2004, 2003 and 2002, respectively, net of premiums received, under all stock repurchase transactions. During 2004, the Company took delivery of a total of 4,458,740 shares of outstanding common stock with an average per share price of $18.77; and during 2003, the Company took delivery of a total of 8,859,381 shares of outstanding common stock with an average per share price of $15.86. Some of these shares were received pursuant to prepaid programs. Since the inception of the stock repurchase programs, the average cost of shares acquired was $16.55 per share compared to an average close price during open trading windows of $19.83 per share. In addition, a significant portion of the funds used to repurchase stock was funded by proceeds from employee stock option exercises and the related tax benefit. As of December 31, 2004, the Company has remaining prepaid notional amounts of approximately $53.1 million under structured stock repurchase agreements. Due to the fact that the total shares to be received for the open repurchase agreements at December 31, 2004 is not determinable until the contracts mature in 2005, the above price per share amounts exclude the remaining shares to be received subject to the agreements.

F-22

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Preferred Stock

The Company is authorized to issue 5,000,000 shares of preferred stock, $0.01 par value per share. The Company has no present plans to issue such shares.

8. CONVERTIBLE SUBORDINATED DEBENTURES

In March 1999, the Company sold $850 million principal amount at maturity of its zero coupon convertible subordinated debentures (the “Debentures”) due March 22, 2019, in a private placement. The Debentures were priced with a yield to maturity of 5.25% and resulted in net proceeds to the Company of approximately $291.9 million, net of original issue discount and net of debt issuance costs of approximately $9.6 million. In October 2000, the Board of Directors approved a program authorizing the Company to repurchase up to $25 million of the Debentures in open market purchases. Additionally, in April 2002, the Board of Directors granted additional authority of $100 million to the Company to repurchase Debentures through private transactions, bringing the total repurchase authority to $125 million. The Board of Directors’ authorization to repurchase the Debentures allowed the Company to repurchase Debentures when market conditions were favorable. Through December 31, 2003, 76,000 units of the Company’s Debentures representing $76.0 million in principal amount at maturity, had been repurchased under these programs for $29.9 million. On March 22, 2004, the Company redeemed all of the outstanding Debentures for an aggregate redemption price of approximately $355.7 million. The Company used the proceeds from its held-to-maturity investments that matured on March 22, 2004 and cash on hand to fund the redemption. At the date of redemption, the Company incurred a charge for the write-off of the associated deferred debt issuance costs of approximately $7.2 million.

9. FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short maturity of these items. The Company’s investments classified as available-for-sale securities, including restricted investments, are carried at fair value on the accompanying consolidated balance sheets based primarily on quoted market prices for such financial instruments. The aggregate fair value of the Company’s available-for-sale investments was $479.6 million and $512.4 million at December 31, 2004 and 2003, respectively. The Company’s held-to-maturity investments had a carrying value of $192.5 million at December 31, 2003, and an aggregate fair value of $194.5 million at December 31, 2003 based on dealer quotation. The carrying amount of the Company’s Debentures at December 31, 2003 was $351.4 million and the fair value of the Debentures, based on the quoted market price as of December 31, 2003 was approximately $355.9 million.

10. COMMITMENTS AND CONTINGENCIES

The Company leases certain office space and equipment under various operating leases. In addition to rent, the leases require the Company to pay for taxes, insurance, maintenance and other operating expenses. Certain of these leases contain stated escalation clauses while others contain renewal options. The Company recognizes rent expense on a straight-line basis over the term of the lease, excluding renewal periods, unless renewal of the lease is reasonably assured.

Rental expense for the years ended December 31, 2004, 2003 and 2002 totaled approximately $18.0 million, $16.4 million and $24.4 million, respectively. Rental expense for 2002 includes lease losses associated with the vacancy of certain of the Company’s leased properties, as discussed below. Sublease income for the years ended December 31, 2004, 2003 and 2002 was approximately $1.6 million, $2.0 million and $1.7 million, respectively. Lease commitments under non-cancelable operating leases with initial or remaining terms in excess of one year and sublease income associated with non-cancelable subleases, including estimated future payments under the Company’s synthetic lease arrangement, are as follows:

F-23

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Operating Leases		Sublease Income
	(In thousands)
Years ending December 31, 2005	$	23,065	$	894
2006		19,857		1,203
2007		14,957		1,324
2008		11,871		1,316
2009		9,557		747
Thereafter		38,499		317
	$	117,806	$	5,801

During 2002, the Company became a party to a synthetic lease arrangement totaling approximately $61.0 million for its corporate headquarters office space in Fort Lauderdale, Florida. The synthetic lease represents a form of off-balance sheet financing under which an unrelated third party lessor funded 100% of the costs of acquiring the property and leases the asset to the Company. The synthetic lease qualifies as an operating lease for accounting purposes and as a financing lease for tax purposes. The Company does not include the property or the related lease debt as an asset or a liability in its consolidated balance sheets. Consequently, payments made pursuant to the lease are recorded as operating expenses in the Company’s consolidated statements of income. The Company entered into the synthetic lease in order to lease its headquarters properties under more favorable terms than under its previous lease arrangements.

The initial term of the synthetic lease is seven years. Upon approval by the lessor, the Company can renew the lease twice for additional two-year periods. The lease payments vary based on LIBOR plus a margin. At any time during the lease term, the Company has the option to sublease the property and upon thirty-days’ written notice, the Company has the option to purchase the property for an amount representing the original property cost and transaction fees of approximately $61.0 million plus any lease breakage costs and outstanding amounts owed. Upon at least 180 days notice prior to the termination of the initial lease term, the Company has the option to remarket the property for sale to a third party. If the Company chooses not to purchase the property at the end of the lease term, it has guaranteed a residual value to the lessor of approximately $51.9 million and possession of the buildings will be returned to the lessor. On a periodic basis, the Company evaluates the property for indicators of impairment. If an evaluation were to indicate that fair value of the building were to decline below $51.9 million, the Company would be responsible for the difference under its residual value guarantee, which could have a material adverse effect on the Company’s results of operations and financial condition.

The synthetic lease includes certain financial covenants including a requirement for the Company to maintain a pledged balance of approximately $62.8 million in cash and/or investment securities as collateral. This amount is included in restricted cash equivalents and investments in the accompanying consolidated balance sheets. The Company maintains the ability to manage the composition of the restricted investments within certain limits and to withdraw and use excess investment earnings from the restricted collateral for operating purposes. Additionally, the Company must maintain a minimum cash and investment balance of $100.0 million, excluding the Company’s collateralized investments and equity investments as of the end of each fiscal quarter. As of December 31, 2004, the Company had approximately $316.7 million in cash and investments in excess of this required level. The synthetic lease includes non-financial covenants, including the maintenance of the property and adequate insurance, prompt delivery of financial statements to the lender of the lessor and prompt payment of taxes associated with the property. As of December 31, 2004, the Company was in compliance with all material provisions of the arrangement.

In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, which addresses the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. In December 2003, the FASB issued FIN No. 46 (revised). FIN No. 46 (revised) was effective immediately for certain disclosure requirements and variable interest entities referred to as special-purpose entities for periods ending after December 15, 2003 and for all types of entities for financial statements for periods ending after March 15, 2004. The Company determined that it was not required to consolidate the lessor, the leased facility or the related debt upon the adoption of FIN No. 46 (revised). Accordingly, there was no impact on its financial position, results of operations or cash flows from adoption. However, if the lessor were to change its ownership of the property or significantly change its ownership of other properties that it currently holds, the Company could be required to consolidate the entity, the leased facility and the debt in a future period.

F-24

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2002 and 2001, the Company took actions to consolidate certain of its offices, including the exit of certain leased office space and the abandonment of certain leasehold improvements. Lease obligations related to these existing operating leases continue to 2025 with a total remaining obligation at December 31, 2004 of approximately $22.5 million, of which $3.0 million was accrued for as of December 31, 2004, and is reflected in accrued expenses and other liabilities in the accompanying consolidated balance sheets. In calculating this accrual, the Company made estimates, based on market information, including the estimated vacancy periods and sublease rates and opportunities. The Company periodically re-evaluates its estimates and if actual circumstances prove to be materially worse than management has estimated, the total charges for these vacant facilities could be significantly higher.

11. INCOME TAXES

The United States and foreign components of income before income taxes are as follows:

	2004		2003		2002
	(In thousands)
United States	$	29,017	$	45,820	$	33,865
Foreign		135,416		114,867		79,292
Total	$	164,433	$	160,687	$	113,157

The components of the provision for income taxes are as follows:

	2004			2003		2002
	(In thousands)
Current:
Federal	$	23,763		$	20,887	$	13,786
Foreign		8,974			5,435		5,389
State		2,510			6,079		4,280
Total current		35,247			32,401		23,455
Deferred		(2,360	)		1,343		(4,218	)
Total provision for income taxes	$	32,887		$	33,744	$	19,237

The significant components of the Company’s deferred tax assets and liabilities consisted of the following:

	December 31,
	2004			2003
	(In thousands)
Deferred tax assets:
Acquired technology	$	—		$	16,348
Accruals and reserves		6,422			4,826
Depreciation and amortization		2,663			413
Tax credits		25,547			24,612
Net operating losses		22,684			8,999
Other		4,265			10,408
Valuation allowance		(1,332	)		(2,145	)
Total deferred tax assets		60,249			63,461
Deferred tax liabilities:
Acquired technology		(10,712	)		—
Foreign earnings		(8,753	)		(8,753	)
Total deferred tax liabilities		(19,465	)		(8,753	)
Total net deferred tax assets	$	40,784		$	54,708

SFAS No. 109, Accounting for Income Taxes, requires a valuation allowance to reduce the deferred tax assets reported if it is not more likely than not that some portion or all of the deferred tax assets will be realized. At December 31, 2004, the Company has recorded a valuation allowance of approximately $1.3 million relating to deferred tax assets for foreign tax credit carryovers.

During the years ended December 31, 2004, 2003, and 2002, the Company recognized tax benefits related to the exercise of employee stock options in the amount of $20.9 million, $10.3 million, and $25.7 million, respectively. These

F-25

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

benefits were recorded to additional paid-in capital. At December 31, 2004, the Company had approximately $35.0 million of additional U.S. net operating loss carryforwards resulting from stock options, a substantial portion of which begins to expire in 2020. The Company will record the benefit of the net operating loss carryforwards generated from the exercise of employee stock options in the period that the net operating loss carryforwards are utilized.

At December 31, 2004, the Company had $70.3 million of remaining net operating loss carryforwards from acquisitions. The utilization of these net operating loss carryforwards are limited in any one year pursuant to Internal Revenue Code Section 382 and begin to expire in 2020.

At December 31, 2004, the Company had research and development tax credit carryforwards of approximately $10.8 million that expire beginning in 2008. The Company had foreign tax credit carryforwards of approximately $12.6 million at December 31, 2004 that expire beginning in 2009.

Additionally, the Company had alternative minimum tax credit carryforwards of approximately $2.1 million at December 31, 2004 that have no expiration date.

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

	Year Ended December 31,
	2004		2003		2002
Federal statutory taxes	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	4.5		3.8		3.8
Foreign operations	(27.0	)	(21.7	)	(17.9	)
Permanent differences	5.0		1.7		0.5
Tax credits	—		(1.7	)	(7.6	)
Other	3.0		2.6		3.2
Change in valuation allowance	(0.5	)	1.3		—
	20.0	%	21.0	%	17.0	%

The Company’s tax provision is based on expected income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. In the ordinary course of global business, there are transactions for which the ultimate tax outcome is uncertain, thus judgment is required in determining the worldwide provision for income taxes and the associated realizability of deferred tax assets and liabilities. The Company establishes reserves when it becomes probable that a tax return position may be challenged and that the Company may not succeed in completely defending that challenge. The Company adjusts these reserves in light of changing facts and circumstances, such as the settlement of a tax audit. The Company’s annual tax rate includes the impact of reserve provisions and changes to reserves. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its reserves reflect the probable outcome of known tax contingencies. Resolution of the tax contingencies would be recognized as an increase or decrease to the Company’s tax rate in the period of resolution.

On October 22, 2004, the American Jobs Creation Act (“the AJCA”) was signed into law. The AJCA includes a deduction for 85% of certain foreign earnings that are repatriated, as defined in the AJCA. The Company may elect to apply this provision to qualifying earnings repatriations in 2005. The Company has started an evaluation of the effects of the repatriation provision; however, the Company does not expect to be able to complete this evaluation until after Congress or the Treasury Department provides guidance concerning the key elements of the provision. The Company expects to complete its evaluation of the effects of the repatriation provision within a reasonable period of time following the publication of the anticipated guidance. Per the provisions of the AJCA, the range of possible amounts that the Company is eligible to repatriate under this provision is between zero and $500 million. The related potential range of income tax is between zero and $52 million.

Other than considering the one-time repatriation provision within the AJCA, the Company does not expect to remit earnings from its foreign subsidiaries. Accordingly, since 2000 the Company has not provided for deferred taxes on foreign earnings.

12. GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS

The Company operates in a single market consisting of the design, development, marketing, sales and support of access infrastructure software and services for enterprise applications, as well as Web-based desktop access. The Company’s

F-26

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

revenues are derived from MetaFrame Access Suite sales and related services in the Americas, EMEA and Asia-Pacific regions and from Web-based desktop access services sold by its Citrix Online division. These three geographic regions and the Citrix Online division constitute the Company’s four reportable segments.

The Company does not engage in intercompany revenue transfers between segments. The Company’s management evaluates performance based primarily on revenues in the geographic locations in which the Company operates and separately evaluates revenues from the Citrix Online division. Segment profit for each segment includes certain sales, marketing, general and administrative expenses directly attributable to the segment and excludes certain expenses that are managed outside the reportable segments. Costs excluded from segment profit primarily consist of research and development costs associated with the MetaFrame Access Suite products, amortization of core and product technology, amortization of other intangible assets, interest, corporate expenses and income taxes, as well as, charges for in-process research and development. Corporate expenses are comprised primarily of corporate marketing costs, operations and certain general and administrative expenses, which are separately managed. Accounting policies of the segments are the same as the Company’s consolidated accounting policies.

International revenues (sales outside of the United States) accounted for approximately 53.2%, 54.6% and 53.7% of our net revenues for the year ended December 31, 2004, 2003, and 2002, respectively. Net revenues and segment profit for 2004, 2003 and 2002 classified by the Company’s reportable segments, are presented below.

	2004			2003			2002
	(In thousands)
Net revenues:
Americas(1)	$	335,436		$	291,470		$	255,438
EMEA(2)		293,690			243,890			209,520
Asia-Pacific		67,930			53,265			48,408
Citrix Online division		44,101			—			—
Other(3)		—			—			14,082
Consolidated	$	741,157		$	588,625		$	527,448
Segment profit (loss):
Americas	$	199,332		$	158,781		$	122,553
EMEA		174,277			151,557			123,126
Asia-Pacific		19,587			18,364			18,839
Other(3)		—			—			14,082
Citrix Online division		(1,124	)		—			—
Unallocated expenses(4):
Amortization of intangibles		(12,331	)		(11,336	)		(11,296	)
In-process research and development		(19,100	)		—			—
Research and development		(81,483	)		(64,443	)		(68,923	)
Net interest and other income		5,442			6,298			9,297
Other corporate expenses		(120,167	)		(98,534	)		(94,521	)
Consolidated income before income taxes	$	164,433		$	160,687		$	113,157

(1) The Americas segment is comprised of the United States, Canada and Latin America.

(2) Defined as Europe, the Middle East and Africa.

(3) Represents royalty fees in connection with the Microsoft Development Agreement, which expired in May 2002.

(4) Represents expenses presented to management only on a consolidated basis and not allocated to the geographic operating segments.

Identifiable assets classified by the Company’s reportable segments are shown below. Long-lived assets consist of property and equipment, net:

F-27

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31,
	2004		2003
	(In thousands)
Identifiable assets:
Americas	$	537,199	$	975,054
EMEA		483,637		328,689
Asia-Pacific		43,240		41,196
Citrix Online division		222,008		—
Total identifiable assets	$	1,286,084	$	1,344,939
Long-lived assets, net:
United States	$	31,376	$	29,917
United Kingdom		30,165		31,821
Other foreign countries		7,740		4,099
Total long-lived assets, net	$	69,281	$	65,837

The decrease in Americas identifiable assets is primarily due to a decrease in cash, cash equivalents and investments related to the redemption of the Company’s convertible subordinated debentures and to expenditures related to the Net6 and Expertcity acquisitions.

Export revenue represents shipments of finished goods and services from the United States to international customers, primarily in Latin America and Canada. Shipments from the United States to international customers for 2004, 2003 and 2002 were $32.9 million, $24.3 million and $25.3 million, respectively.

The Company had net revenue attributed to individual distributors in excess of 10% of total net sales as follows. There were no individual end-customers that represented greater than 10% of net sales for any of the years presented. The revenue contributed by the distributors below is primarily recorded in the Americas segment.

	Year Ended December 31,
	2004		2003		2002
Distributor A	11	%	13	%	13	%
Distributor B	8	%	9	%	10	%

13. DERIVATIVE FINANCIAL INSTRUMENTS

As of December 31, 2004 and 2003, the Company had $12.6 million and $12.8 million of derivative assets, respectively, and $7.9 million and $9.4 million of derivative liabilities, respectively, representing the fair values of the Company’s outstanding derivative instruments, which are recorded in other current assets, other assets, accrued expenses and other liabilities in the accompanying consolidated balance sheets. The change in derivatives recognized in other comprehensive income includes unrealized gains (losses) that arose from changes in market value of derivatives that were held during the period, and gains (losses) that were previously unrealized, but have been recognized in current period net income due to termination or maturities of derivative contracts. This reclassification has no effect on total comprehensive income or stockholders’ equity. The following table presents these components of other comprehensive income, net of tax for the Company’s derivative instruments (in thousands):

	For the Year Ended December 31,
	2004			2003			2002
Unrealized gains on derivative instruments	$	6,258		$	11,200		$	9,091
Reclassification of realized gains		(6,422	)		(7,528	)		(5,663	)
Net change in other comprehensive income due to derivative instruments	$	(164	)	$	3,672		$	3,428

The total cumulative unrealized gain on derivative instruments was $7.0 million and $7.2 million at December 31, 2004 and 2003, respectively, and is included in accumulated other comprehensive income in the accompanying consolidated balance sheets.

F-28

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash Flow Hedges. At December 31, 2004 and 2003, the Company had in place foreign currency forward sale contracts with a notional amount of $39.0 million and $37.2 million, respectively, and foreign currency forward purchase contracts with a notional amount of $165.0 million and $160.9 million, respectively. The fair value of these contracts at December 31, 2004 and 2003 were assets of $11.5 million and $12.8 million, respectively and liabilities of $3.5 million and $4.9 million, respectively. A substantial portion of the Company’s anticipated overseas expense will be transacted in local currencies. To protect against fluctuations in operating expenses and the volatility of future cash flows caused by changes in currency exchange rates, the Company has established a program that uses forward foreign exchange forward contracts to reduce its exposure to these potential changes. The terms of these instruments, and the hedged transactions to which they relate, generally do not exceed 12 months. Currencies hedged are Euros, British pounds sterling, Swiss francs, Australian dollars, and Japanese yen. There was no material ineffectiveness of the Company’s foreign currency forward contracts for 2004, 2003 or 2002.

In order to manage its exposure to interest rate risk, in November 2001, the Company entered into an interest rate swap instrument with a notional amount of $174.6 million that was to expire in March 2004. The swap converted the floating rate return on certain of the Company’s available for sale investment securities to a fixed interest rate. In October 2002, the Company terminated this interest rate swap instrument. Upon termination, the Company received a cash payment of $9.2 million as settlement under the swap instrument. The swap was previously accounted for as an effective cash flow hedge, and in accordance with the provisions of SFAS No. 133, the remaining amount in accumulated other comprehensive income of approximately $2.4 million was recognized in interest income through the remaining holding period of the underlying investments in 2002.

Fair Value Hedges. The Company uses interest rate swap instruments to hedge against the changes in fair value of certain of its available-for-sale securities due to changes in interest rates. At December 31, 2004, the instruments have an aggregate notional amount of $182.4 million related to specific available-for-sale securities and expire on various dates through September 2008. Each of the instruments swap the fixed rate interest on the underlying investments for a variable rate based on the London Interbank Offered Rate (“LIBOR”) plus a specified margin. During 2003, the Company sold $104.0 million of the underlying fixed rate available-for-sale securities and discontinued hedge accounting for the related $104.0 million of the interest rate swaps. Changes in the fair value of the swap instruments are recorded in earnings along with related designated changes in the value of the underlying investments. The fair value of the instruments at December 31, 2004 were liabilities of approximately $4.4 million and assets of $1.1 million. At December 31, 2003, the fair value of the instruments were liabilities of approximately $4.2 million. Changes in the fair value of these derivatives are recorded in earnings. There was no material ineffectiveness of the Company’s interest rate swaps for the years ended December 31, 2004, 2003 or 2002.

Derivatives not Designated as Hedges. The Company utilizes credit derivatives and other instruments for investment purposes that either do not qualify or are not designated for hedge accounting treatment under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations. Accordingly, changes in the fair value of these contracts, if any, are recorded in other income (expense), net. Under the terms of the credit contracts, the Company assumes the default risk, above a certain threshold, of a portfolio of specified referenced issuers in exchange for a fixed yield that is recorded in interest income. In the event of default by underlying referenced issuers above specified amounts, the Company will pay the counterparty an amount equivalent to its loss, not to exceed the notional value of the contract. The primary risk associated with these transactions is the default risk of the underlying issuers. The risk levels of these instruments are equivalent to “AAA,” or better single securities. The purpose of the credit default contracts is to provide additional yield on certain of the Company’s underlying available-for-sale investments.

The Company is a party to three credit default contracts that have an aggregate notional amount of $75.0 million and expire on various dates through March 2008. The Company was also a party to a credit default contract that has an aggregate notional amount of $195.4 million and expired on March 22, 2004. At December 31, 2004, the Company has restricted approximately $86.3 million of investment securities as collateral for these contracts and interest rate swaps, which is included in restricted cash equivalents and investments in the accompanying consolidated balance sheet. The Company maintains the ability to manage the composition of the restricted investments within certain limits and to withdraw and use excess investment earnings from the restricted collateral for operating purposes. The fixed yield earned on these contracts during 2004 and 2003 is included in interest income in the accompanying consolidated statements of income. To date there have been no credit events for the underlying referenced entities resulting in losses to the Company. As of December 31, 2004, the fair value of these contracts was not material.

F-29

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

	Year Ended December 31,
	2004		2003		2002
	(In thousands, except per share information)
Numerator:
Net income	$	131,546	$	126,943	$	93,920
Denominator:
Denominator for basic earnings per share — weighted average shares		168,868		165,323		177,428
Effect of dilutive securities:
Put warrants		—		—		3
Employee stock options		5,644		6,124		1,928
Contingent consideration related to acquisition		222		—		—
Denominator for diluted earnings per share — adjusted weighted-average shares		174,734		171,447		179,359
Basic earnings per share	$	0.78	$	0.77	$	0.53
Diluted earnings per share	$	0.75	$	0.74	$	0.52
Antidilutive weighted average shares		28,878		41,216		50,919

The above antidilutive weighted average shares to purchase shares of common stock includes certain shares under the Company’s stock option programs, certain put warrants under the Company’s stock repurchase program and common stock potentially issuable on the conversion of the Debentures and were not included in computing diluted earnings per share because their effects were antidilutive for the respective periods that they were outstanding. The decrease in anti-dilutive weighted shares for 2004 compared to 2003 is due to the redemption of the Company’s convertible subordinated debentures during March 2004.

15. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires companies to expense the value of employee stock option and similar awards. SFAS No. 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. As of the effective date, the Company will be required to expense all awards granted, modified, cancelled or repurchased as well as the portion of prior awards for which the requisite service has not been rendered, based on the grant-date fair value of those awards as calculated for pro forma disclosures under SFAS No.123. SFAS No.123R permits public companies to adopt its requirements using one of two methods: A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123R for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. A “prospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123R for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The adoption of SFAS No. 123R’s fair value method will have an impact on the Company’s results of operations. Currently, the impact the adoption of SFAS No. 123R will have on the Company’s results of operations cannot be estimated because among other things it will depend on the levels of share-based payments granted in the future. The Company is currently in the process of determining the effects on its financial position, results of operations and cash flows that will result from the adoption of SFAS No. 123R.

F-30

CITRIX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. LEGAL MATTERS

The Company is a defendant in various litigation matters generally arising out of the normal course of business. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that the ultimate outcome will not materially affect the Company’s business, financial position, results of operations or cash flows.

F-31

SUPPLEMENTAL FINANCIAL INFORMATION

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Total Year
	(In thousands, except per share amounts)
2004
Net revenues	$	161,310	$	178,302	$	187,578	$	213,967		$	741,157
Gross margin		154,040		169,779		178,803		212,112			714,734
Income from operations		16,697		37,092		46,323		58,879	(a)		158,991
Net income		9,325		31,475		38,448		52,298	(a)		131,546
Basic earnings per common share		0.06		0.18		0.23		0.31	(a)		0.78
Diluted earnings per common share		0.05		0.18		0.22		0.30	(a)		0.75
2003
Net revenues	$	143,491	$	143,049	$	144,341	$	157,744		$	588,625
Gross margin		135,886		135,376		136,190		150,101			557,553
Income from operations		37,928		35,498		38,716		42,247			154,389
Net income		30,329		29,344		30,995		36,275			126,943
Basic earnings per common share		0.18		0.18		0.19		0.22			0.77
Diluted earnings per common share		0.18		0.17		0.18		0.21			0.74

(a) In the fourth quarter, the Company recorded a reduction of amortization expense of $4.4 million, net of related tax effect of $2.8 million, resulting from the reclassification of certain intangible assets to goodwill to adjust the purchase price allocation from a 2001 acquisition.

F-32

CITRIX SYSTEMS, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

	Beginning of Period		Charged (Credited) to Costs and Expenses			Charged to Other Accounts			Deductions			Balance at End of Period
	(In thousands)
2004
Deducted from asset accounts:
Allowance for doubtful accounts	$	3,364	$	1,108		$	879	(3)	$	2,708	(2)	$	2,643
Allowance for returns		3,001		—			6,663	(1)		7,391	(4)		2,273
Allowance for inventory obsolescence		129		428			9			433			133
Valuation allowance for deferred tax assets		2,145		—			—			813			1,332
2003
Deducted from asset accounts:
Allowance for doubtful accounts	$	6,050	$	522		$	—		$	3,208	(2)	$	3,364
Allowance for returns		10,488		—			3,825	(1)		11,312	(4)		3,001
Allowance for inventory obsolescence		504		(4	)		—			371			129
Valuation allowance for deferred tax assets		—		2,145			—			—			2,145
2002
Deducted from asset accounts:
Allowance for doubtful accounts	$	3,726	$	3,486		$	—		$	1,162	(2)	$	6,050
Allowance for returns		8,343		—			25,282	(1)		23,137	(4)		10,488
Allowance for inventory obsolescence		1,570		1,407			—			2,473			504

(1) Netted against revenues.

(2) Uncollectible accounts written off, net of recoveries.

(3) Addition from the Expertcity and Net6 acquisitions.

(4) Credits issued for stock balancing rights.

F-33

EXHIBIT INDEX

Exhibit No.	No. Description
2.1(6)	Agreement and Plan of Merger, dated as of March 20, 2001, by and among Citrix Systems, Inc., Soundgarden Acquisition Corp. and Sequoia Software Corporation
2.2(10)	Agreement and Plan of Merger dated as of December 18, 2003 by and among Citrix Systems, Inc., EAC Acquisition Corporation, Expertcity.com, Inc., Edward G. Sim and Andreas von Blottnitz
2.3	Agreement and Plan of Merger dated as of November 21, 2004 by and among Citrix Systems, Inc., Hal Acquisition Corporation, Net6, Inc., and Tim Guleri
3.1(1)	Amended and Restated Certificate of Incorporation of the Company
3.2(12)	Amended and Restated By-laws of the Company
3.3(2)	Certificate of Amendment of Amended and Restated Certificate of Incorporation
4.1(1)	Specimen certificate representing the Common Stock
10.1(11)*	Fourth Amended and Restated 1995 Stock Plan
10.2(14)*	Second Amended and Restated 1995 Non-Employee Director Stock Option Plan
10.3(8)*	Third Amended and Restated 1995 Employee Stock Purchase Plan
10.4(9)*	Second Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan
10.5(13)*	2000 Director and Officer Stock Option and Incentive Plan, Non-Qualified Stock Option Agreement
10.6(13)*	2000 Director and Officer Stock Option and Incentive Plan, Incentive Stock Option Agreement
10.7*	Amended and Restated 2000 Stock Incentive Plan of Net6 Inc. (a subsidiary of Citrix Systems, Inc.)
10.8*	Amended and Restated 2003 Stock Incentive Plan of Net6 Inc. (a subsidiary of Citrix Systems, Inc.)
10.9(4)	License, Development and Marketing Agreement dated May 9, 1997 between the Company and Microsoft Corporation
10.10(5)	Amendment No. 1 to License, Development and Marketing Agreement dated May 9, 1997 between the Company and Microsoft Corporation
10.11	Microsoft Master Source Code Agreement by and between the Company and Microsoft dated December 16, 2004
10.12	License Form by and between the Company and Microsoft Corporation dated December 16, 2004 (with certain information omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission)
10.13(7)	Participation Agreement dated as of April 23, 2002, by and among Citrix Systems, Inc., Citrix Capital Corp., Selco Service Corporation and Key Corporate Capital, Inc. (the “Participation Agreement”) (with certain information omitted pursuant to a grant of confidential treatment and filed separately with the Securities and Exchange Commission)
10.14(7)	Amendment No. 1 to Participation Agreement dated as of June 17, 2002 (with certain information omitted pursuant to a grant of confidential treatment and filed separately with the Securities and Exchange Commission)

10.15(7)	Master Lease dated as of April 23, 2002 by and between Citrix Systems, Inc. and Selco Service Corporation (with certain information omitted pursuant to a grant of confidential treatment and filed separately with the Securities and Exchange Commission)
10.16(15)*	2005 Executive Bonus Plan
21.1	List of Subsidiaries
23.1	Consent of Ernst & Young LLP
24.1	Power of Attorney (Included in signature page)
31.1	Rule 13a-14(a) / 15d-14(a) Certifications
31.2	Rule 13a-14(a) / 15d-14(a) Certifications
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Indicates a management contract or any compensatory plan, contract or arrangement.

  (1) Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1 (File No. 33-98542), as amended.

  (2) Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

  (3) Incorporated herein by reference to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

  (4) Incorporated herein by reference to Exhibit 10 of the Company’s Current Report on Form 8-K dated as of May 9, 1997.

  (5) Incorporated herein by reference to Exhibit 10 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.

  (6) Incorporated by reference herein to Exhibit 2 of the Company’s Schedule 13D Report dated as of March 28, 2001.

  (7) Incorporated by reference herein to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

  (8) Incorporated by reference herein to exhibits of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

  (9) Incorporated by reference herein to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.

(10) Incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated as of December 30, 2003.

(11) Incorporated by reference herein to exhibits of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

(12) Incorporated by reference herein to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.

(13) Incorporated by reference herein to exhibits of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.

(14) Incorporated by reference herein to exhibits of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

(15) Incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated as of February 10, 2005.

EX-2.3

Exhibit 2.3

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

CITRIX SYSTEMS, INC.,

HAL ACQUISITION CORPORATION

AND

NET6, INC.

Dated as of November 21, 2004

TABLE OF CONTENTS

			Page
ARTICLE I—DEFINITIONS			1
	1.1	Definitions	1
ARTICLE II—THE MERGER			9
	2.1	The Merger	9
	2.2	Effective Time	9
	2.3	Effect of the Merger	10
	2.4	Certificate of Incorporation; By-laws	10
	2.5	Directors and Officers	10
	2.6	Merger Consideration; Effect on Capital Stock	10
	2.7	Dissenting Shares	13
	2.8	Surrender of Certificates	14
	2.9	No Further Ownership Rights in Company Capital Stock	15
	2.10	Lost, Stolen or Destroyed Certificates	15
	2.11	Taking of Necessary Action; Further Action	16
ARTICLE III—REPRESENTATIONS AND WARRANTIES OF THE COMPANY			16
	3.1	Organization of the Company	16
	3.2	Subsidiaries	16
	3.3	Company Capital Structure	16
	3.4	Authority	18
	3.5	No Conflict	19
	3.6	Consents	20
	3.7	Company Financial Statements and Controls	20
	3.8	No Undisclosed Liabilities	21
	3.9	Absence of Certain Changes	21
	3.10	Accounts Receivable	24
	3.11	Restrictions on Business Activities	24
	3.12	Title to Properties; Absence of Liens and Encumbrances	24
	3.13	Governmental Authorization	26
	3.14	Intellectual Property	26
	3.15	Product Warranties; Defects; Liabilities	29
	3.16	Agreements, Contracts and Commitments	29
	3.17	Change of Control Payments	31
	3.18	Interested Party Transactions	31
	3.19	Compliance with Laws	31
	3.20	Litigation	31
	3.21	Insurance	32
	3.22	Minute Books	32
	3.23	Environmental Matters	32
	3.24	Brokers’ and Finders’ Fees	33

	3.25	Employee Matters and Benefit Plans	33
	3.26	Employment Matters	35
	3.27	Foreign Corrupt Practices Act	39
	3.28	Approvals	39
	3.29	Representations Complete	39
ARTICLE IV—REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB			39
	4.1	Organization of Parent and Merger Sub	39
	4.2	Authority	39
	4.3	No Conflict	40
	4.4	Litigation	40
	4.5	Brokers’ and Finders’ Fees	40
	4.6	Financing	40
ARTICLE V—STOCKHOLDER APPROVAL			41
	5.1	Stockholder Approval	41
ARTICLE VII—CONDUCT PRIOR TO THE EFFECTIVE TIME			42
	6.1	Conduct of Business of the Company and Subsidiaries	42
ARTICLE VII—ADDITIONAL AGREEMENTS			43
	7.1	Access to Information	43
	7.2	Confidentiality	43
	7.3	Public Disclosure	43
	7.4	Consents	44
	7.5	Conditions to the Merger; Further Assurances	44
	7.6	Notification of Certain Matters	44
	7.8	Benefit Arrangements	45
	7.9	Company Options	45
	7.10	Company Warrants	46
	7.11	Termination of Company Investor Rights	46
	7.12	No Solicitation	46
	7.13	Resignation of Officers and Directors	47
	7.14	Indemnification of Company Officers and Directors	48
ARTICLE VIII—TAX MATTERS			49
	8.1	Tax Representations	49
	8.2	Tax Covenants	51
ARTICLE IX—CONDITIONS TO THE MERGER			52
	9.1	Conditions to Obligations of Each Party to Effect the Merger	52
	9.2	Additional Conditions to Obligations of the Company	52
	9.3	Additional Conditions to the Obligations of Parent and Merger Sub	53

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ARTICLE X—SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION;         ESCROW			56
	10.1	Survival of Representations, Warranties and Covenants	56
	10.2	Indemnification	57
	10.3	Limitations	57
	10.4	Procedures	58
	10.5	Stockholder Representative; Power of Attorney	59
	10.6	No Subrogation	61
	10.7	Purchase Price Adjustment	61
ARTICLE XI—TERMINATION, AMENDMENT AND WAIVER			61
	11.1	Termination	61
	11.2	Effect of Termination	63
	11.3	Amendment	63
	11.4	Extension; Waiver	63
ARTICLE XII—GENERAL PROVISIONS			64
	12.1	Notices	64
	12.2	Interpretation	65
	12.3	Counterparts	65
	12.4	Entire Agreement; Assignment	65
	12.5	Severability	65
	12.6	Other Remedies	66
	12.7	Governing Law	66
	12.8	Rules of Construction	66
	12.9	Specific Performance	66
	12.10	Expenses	66
	12.11	Parties in Interest	66

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of November 21, 2004 by and among Citrix Systems, Inc., a Delaware corporation (“Parent”), Hal Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), Net6, Inc., a Delaware corporation (the “Company”), and Tim Guleri as the stockholder representative (the “Stockholder Representative”).

RECITALS

A. Parent, Merger Sub and the Company intend to effect a merger (the “Merger”) of Merger Sub with and into the Company in accordance with this Agreement and the General Corporation Law of the State of Delaware, as amended (the “DGCL”), and, to the extent applicable, the California General Corporation Law, as amended (the “CGCL”), with the Company to be the surviving corporation of the Merger.

B. The board of directors of the Company has unanimously (i) determined that the Merger is fair to, and in the best interests of, the Company and its Stockholders, (ii) approved this Agreement, the Merger, the Escrow Agreement and the other transactions contemplated by this Agreement and (iii) determined to recommend that the stockholders of the Company adopt and approve this Agreement, the Escrow Agreement and the other transactions contemplated by this Agreement, and approve the Merger.

C. The respective boards of directors of Parent and Merger Sub have approved this Agreement, the Merger, the Escrow Agreement and the other transactions contemplated by this Agreement.

D. Concurrently with the execution of this Agreement, and as a condition of and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, each of the Persons listed on Schedule 1 hereto is entering into a Voting Agreement in the form attached hereto as Exhibit A (the “Voting Agreement”).

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions. For purposes of this Agreement:

“2000 Option Plan” shall have the meaning set forth in Section 3.3(b)(i).

“2003 Option Plan” shall have the meaning set forth in Section 3.3(b)(i).

“Accounting Referee” shall have the meaning set forth in Section 2.6(c)(v).

“Acquisition Expenses” shall mean all fees and expenses incurred by the Company or any of its Subsidiaries in connection with the Merger or the other transactions contemplated by this Agreement, including without limitation all legal, accounting, investment banking, tax, financial advisory and all other fees and expenses of third parties incurred in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby.

“Acquisition Expenses Deficiency” shall mean the amount by which the Acquisition Expenses actually incurred exceed the amount of Acquisition Expenses reflected on the Closing Date Balance Sheet.

“Acquisition Proposal” shall have the meaning set forth in Section 7.12(b).

“Affiliate” shall mean, with respect to the Person to which it refers, a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, such Person.

“Agreed Claims” shall have the meaning set forth in Section 10.4(d).

“Agreement” shall have the meaning set forth in the Preamble.

“Balance Sheet Date” shall have the meaning set forth in Section 3.7(a).

“Business Day” shall mean any day of the year on which national banking institutions in the State of Florida are open to the public for conducting business and are not required to close.

“Certificate of Merger” shall have the meaning set forth in Section 2.2.

“Certificates” shall have the meaning set forth in Section 2.8(b).

“CGCL” shall have the meaning set forth in Recital A.

“Claim Certificate” shall have the meaning set forth in Section 10.4(a).

“Closing” shall have the meaning set forth in Section 2.2.

“Closing Date” shall have the meaning set forth in Section 2.2.

“Closing Date Balance Sheet” shall have the meaning set forth in Section 2.6(c)(iii).

“Closing Working Capital” shall have the meaning set forth in Section 2.6(c)(iii).

“Code” shall have the meaning set forth in Section 2.6(d).

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“Co-Employer” shall mean any Person that is or was considered to be a co-employer with the Company or any of its Subsidiaries.

“Company” shall have the meaning set forth in the Preamble.

“Company Authorizations” shall have the meaning set forth in Section 3.13.

“Company Balance Sheet” shall have the meaning set forth in Section 3.7(a).

“Company Capital Stock” shall mean the Company Common Stock (including the Company Restricted Stock) and the Preferred Stock, collectively.

“Company Certificate of Incorporation” shall mean the Company’s Second Amended and Restated Certificate of Incorporation.

“Company Common Stock” shall have the meaning set forth in Section 3.3(a).

“Company Customer Information” shall have the meaning set forth in Section 3.12(d).

“Company Employee Plan” shall mean any plan, program, policy, practice, contract, agreement or other arrangement (written or oral) providing for deferred compensation, profit sharing, bonus, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits, welfare, pension or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded, including without limitation each “employee benefit plan” within the meaning of Section 3(3) of ERISA, which is or has been maintained, contributed to, or required to be contributed to, by the Company or any of its Subsidiaries or ERISA Affiliates for the benefit of any Employee, or pursuant to which the Company or any of its Subsidiaries has or may have any material liability, contingent or otherwise.

“Company Financial Statements” shall have the meaning set forth in Section 3.7(a).

“Company Indemnification Obligations” shall have the meaning set forth in Section 7.14(a).

“Company Indemnified Parties” shall have the meaning set forth in Section 7.14(a).

“Company Intellectual Property” shall mean any Intellectual Property that is used or held for use in the business of the Company or any of its Subsidiaries (a) as currently conducted or (b) as currently proposed to be conducted with respect to the Company’s products and services currently under development.

“Company Material Adverse Effect” shall mean a material adverse effect on (a) the business, assets, liabilities, condition (financial or other) or results of operations of the Company and its Subsidiaries taken as a whole or (b) the ability of the Company to perform its obligations pursuant to this Agreement and to consummate the Merger and the transactions contemplated by this Agreement in a timely manner.

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“Company Option Plans” shall have the meaning set forth in Section 3.3(b)(i).

“Company Options” shall have the meaning set forth in Section 3.3(b)(i).

“Company Products” shall have the meaning set forth in Section 3.15.

“Company Registered Intellectual Property” shall mean all of the Registered Intellectual Property owned by, under obligation of assignment to, or filed in the name of, the Company or any of its Subsidiaries.

“Company Restricted Stock” shall mean shares of Company Capital Stock that are subject to certain vesting restrictions provided for in the Company Option Plans and/or in a purchase agreement.

“Company Schedules” shall have the meaning set forth in Article III.

“Company Stockholder Requisite Approval” shall have the meaning set forth in Section 3.4.

“Company Stockholders Meeting” shall have the meaning set forth in Section 5.1(d).

“Continuing Employees” shall have the meaning set forth in Section 7.8(a).

“Contract(s)” shall have the meaning set forth in Section 3.5.

“Controls ” shall have the meaning set forth in Section 3.7(b).

“Costs” shall have the meaning set forth in Section 7.14(a).

“DGCL” shall have the meaning set forth in Recital A.

“Dissenting Share Payments” shall have the meaning set forth in Section 2.7(c).

“Dissenting Shares” shall have the meaning set forth in Section 2.7(a).

“DOL” shall mean the United States Department of Labor.

“Effective Time” shall have the meaning set forth in Section 2.2.

“Employee” shall mean any current, former or retired employee, officer or director of the Company or any of its Subsidiaries, including any employee or former employee co-employed by the Company or any of its Subsidiaries with a Co-Employer.

“Employment Agreement” shall mean any management, employment, severance, consulting, relocation, repatriation, expatriation, visa, work permit or similar agreement or contract between the Company, any of its Subsidiaries or any Affiliate thereof and any Employee or consultant.

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“Environmental Permits” shall have the meaning set forth in Section 3.23(c).

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” shall mean any Person that, together with the Company or any of its Affiliates, would be treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and the regulations thereunder.

“Escrow Agent ” shall mean JPMorgan Chase Bank, N.A.

“Escrow Agreement ” shall have the meaning set forth in Section 9.2(c).

“Estimated Closing Date Balance Sheet” shall have the meaning set forth in Section 2.6(c)(i).

“Estimated Working Capital” shall have the meaning set forth in Section 2.6(c)(i).

“Estimated Working Capital Deficiency” shall mean the amount by which the Estimated Working Capital is less than zero dollars.

“Estimated Working Capital Excess” shall mean the amount by which the Estimated Working Capital exceeds zero dollars.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Expense Certificate” shall have the meaning set forth in Section 9.3(m).

“Final Determination Date” shall have the meaning set forth in Section 2.6(c)(vi).

“Fundamental Representations ” shall have the meaning set forth in Section 10.1(a).

“GAAP” shall have the meaning set forth in Section 3.7(a).

“Governmental Entity” shall have the meaning set forth in Section 3.6.

“Hazardous Material” shall have the meaning set forth in Section 3.23(a).

“Hazardous Materials Activities” shall have the meaning set forth in Section 3.23(b).

“HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Indemnified Parties” shall have the meaning set forth in Section 10.2.

“Indemnity Escrow Amount ” shall have the meaning set forth in Section 2.6(e).

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“Intellectual Property” shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, international and foreign patents and applications therefore and all reissues, divisions, divisionals, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and all patents, applications, documents and filings claiming priority to or serving as a basis for priority thereof, (ii) all inventions (whether or not patentable), invention disclosures, improvements, trade secrets, proprietary information, know how, computer software programs (in both source code and object code form), technology, technical data, customer lists, tangible or intangible proprietary information, and all documentation relating to any of the foregoing, (iii) all copyrights, copyrights registrations and applications therefore, and all other rights corresponding thereto throughout the world, (iv) all industrial designs and any registrations and applications therefore throughout the world, (v) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefore throughout the world, (vi) all databases and data collections and all rights therein throughout the world, (vii) all moral and economic rights of authors and inventors, however denominated, throughout the world, (viii) all Web addresses, sites and domain names and numbers, (ix) all mask works and (x) any similar or equivalent rights to any of the foregoing anywhere in the world.

“IRS ” shall mean the Internal Revenue Service.

“Key Employees” shall have the meaning set forth in Section 9.2(d).

“knowledge ” (including any derivation thereof such as “known” or “knowing”) shall mean the actual knowledge of the officers and directors of the Company and its Subsidiaries including, but not limited to, Murli Thirumale, Goutham Rao, Gordon Payne, Brad Peterson and Eric Brueggeman, or any facts or circumstances that would be known after due inquiry by a Person holding a comparable office or job with comparable experience or responsibility of any of the foregoing persons.

“Law(s)” shall mean any federal, state, foreign, or local law, statute, ordinance, rule, regulation, writ, injunction, directive, order, judgment, administrative interpretation, treaty, decree, administrative or judicial decision and any other executive, legislative, regulatory or administrative proclamation.

“Lease(s)” shall have the meaning set forth in Section 3.12(a)(ii).

“Leased Real Property” shall have the meaning set forth in Section 3.12(a)(i).

“Letter of Transmittal” shall have the meaning set forth in Section 2.8(b).

“Lien” shall mean any lien, pledge, mortgage, deed of trust, security interest, claim, lease, license, charge, option, right of first refusal, easement, restriction, reservation, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement, or encumbrance of any nature whatsoever.

“Loss(es)” shall have the meaning set forth in Section 10.2.

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“Merger” shall have the meaning set forth in Recital A.

“Merger Consideration” shall have the meaning set forth in Section 2.6(a).

“Merger Sub” shall have the meaning set forth in the Preamble.

“Nondisclosure Agreement” shall have the meaning set forth in Section 7.2.

“Nonstatutory Option” shall mean any Company Option (or portion thereof) that is not an incentive stock option within the meaning of Section 422 of the Code.

“Option Agreements” shall have the meaning set forth in Section 7.9.

“Option Exchange Ratio” shall mean 0.0373.

“Parent ” shall have the meaning set forth in the Preamble.

“Parent Common Stock” shall mean shares of common stock of Parent, par value $.001 per share.

“Payment Agent” shall have the meaning set forth in Section 2.8(a).

“Person” shall mean any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Entity or other entity.

“Plans” shall have the meaning set forth in Section 7.8(a).

“Preferred Stock” shall have the meaning set forth in Section 3.3(a).

“Proposal” shall have the meaning set forth in Section 7.12.

“Publicly Available Software” shall mean (i) any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software, open source software (e.g. Linux), or pursuant to similar licensing and distribution models and (ii) any software that requires as a condition of use, modification, and/or distribution of such software that such software or other software incorporated into, derived from, or distributed with such software: (a) be disclosed or distributed in source code form, (b) be licensed for the purpose of making derivative works, or (c) be redistributable at no or minimal charge. Publicly Available Software includes, without limitation, software licensed or distributed pursuant to any of the following licenses: (a) GNU General Public License (GPL) or Lesser/Library GPL (LGPL), (b) the Artistic License (e.g. PERL), (c) the Mozilla Public License, (d) the Netscape Public License, (e) the Sun Community Source License (SCSL), (f) the Sun Industry Source License (SISL), (g) the IBM Common Public License, (h) the Open SSL License, and (i) the Apache Software License, or any distribution model similar to any of the foregoing.

“Real Property” shall have the meaning set forth in Section 3.12(a)(i).

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“Registered Intellectual Property” shall mean all United States, international and foreign: (i) patents and patent applications (including provisional applications and design patents and applications) and all reissues, divisions, divisionals, renewals, extensions, counterparts, continuations and continuations-in-part thereof, and all patents, applications, documents and filings claiming priority thereto or serving as a basis for priority thereof; (ii) registered trademarks, registered service marks, applications to register trademarks, applications to register service marks, intent-to-use applications or other registrations or applications related to trademarks; (iii) registered copyrights and applications for copyright registration; (iv) domain name registrations and Internet number assignments and (v) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued, filed with or recorded by any Governmental Entity.

“Related Agreement(s)” shall have the meaning set forth in Section 3.4.

“Soliciting Materials” shall have the meaning set forth in Section 5.1(b).

“Stockholder Representative” shall have the meaning set forth in the Preamble.

“Stockholders” shall have the meaning set forth in Section 2.6(b).

“Subsidiary” means, with respect to any Person, any corporation or other organization, whether incorporated or unincorporated, of which such Person or any other Subsidiary of such Person beneficially owns 50% or more of the voting or equity interests.

“Superior Proposal” shall have the meaning set forth in Section 7.12(b).

“Surviving Corporation” shall have the meaning set forth in Section 2.1.

“Tax” and “Taxes” shall mean any federal, state, local and foreign net income, alternative or add-on minimum, estimated, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, capital profits, lease, service, license, social security withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit taxes, customs duties and other taxes, governmental fees and other like assessments and charges of any kind whatsoever (including Tax liabilities incurred or borne as a transferee or successor, or by contract or otherwise), together with all interest, penalties, additions to tax and additional amounts with respect thereto.

“Tax Authority” shall mean any Governmental Entity responsible for the imposition or collection of any Tax.

“Tax Returns ” shall mean all returns, declarations, reports, claims for refund, information statements and other documents relating to Taxes, including all schedules and attachments thereto, and including all amendments thereof.

“Termination Date” shall have the meaning set forth in Section 11.1(b).

“Termination Fee” shall have the meaning set forth in Section 11.2(b).

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“Third Party Claim” shall have the meaning set forth in Section 10.4(c).

“Unvested Options ” shall have the meaning set forth in Section 3.3(b)(i).

“Vested Options ” shall have the meaning set forth in Section 3.3(b)(i).

“Voting Agreement” shall have the meaning set forth in Recital D.

“Warrant” shall have the meaning set forth in Section 3.3(b)(ii).

“Working Capital” shall mean for the Company and its Subsidiaries on a consolidated basis (x) total current assets minus (y) (i) total current liabilities (including the Acquisition Expenses) plus (ii) the non-current portion of any indebtedness for borrowed money.

“Working Capital Deficiency” shall have the meaning set forth in Section 2.6(c)(vii).

“Working Capital Escrow Amount” shall mean $750,000.

“Working Capital Excess” shall have the meaning set forth in Section 2.6(c)(viii).

“Working Capital Indemnity Amount” shall have the meaning set forth in Section 2.6(c)(vii).

ARTICLE II

THE MERGER

2.1 The Merger. At the Effective Time, and subject to and upon the terms and conditions of this Agreement and the provisions of the DGCL, Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation and as a wholly-owned subsidiary of Parent. The surviving corporation after the Merger is sometimes referred to herein as the “Surviving Corporation.”

2.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 11.1, the closing of the Merger (the “Closing”) will take place as promptly as practicable, but no later than three (3) Business Days, following the satisfaction or waiver of the conditions set forth in Article IX (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts unless another place or time is agreed to by Parent and the Company. The date upon which the Closing occurs is herein referred to as the “Closing Date.” On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger, in substantially the form attached hereto as Exhibit B (the “Certificate of Merger”), with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL (the time of acceptance by the Secretary of State of the State of Delaware of such filing being referred to herein as the “Effective Time”).

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2.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the rights and property of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts and liabilities of the Company and Merger Sub shall become the debts and liabilities of the Surviving Corporation.

2.4 Certificate of Incorporation; By-laws.

(a) At the Effective Time, the certificate of incorporation of the Surviving Corporation shall be amended and restated in the form set forth in Exhibit C.

(b) At the Effective Time, the By-laws of the Surviving Corporation shall be amended and restated in the form set forth in Exhibit D.

2.5 Directors and Officers. The director(s) of Merger Sub immediately prior to the Effective Time shall be the initial director(s) of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-laws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the By-laws of the Surviving Corporation.

2.6 Merger Consideration; Effect on Capital Stock.

(a) Merger Consideration. The aggregate consideration (the “Merger Consideration”) to be paid by Parent and Merger Sub in the Merger to holders of outstanding shares of Company Capital Stock shall be $50 million in cash, subject to adjustment as set forth in Section 2.6(c).

(b) Effect on Company Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of shares of Company Capital Stock (the “Stockholders”), each share of Company Capital Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares) will be canceled and extinguished and be converted into the right to receive, upon surrender of the certificate representing such share of Company Capital Stock in the manner provided in Section 2.8 hereof, the per share Merger Consideration applicable to such share of Company Capital Stock determined in accordance with Article 4B, Section 2 of the Company Certificate of Incorporation as in effect on the date hereof, treating the Merger as a liquidation, dissolution or winding-up of the Company within the meaning of such Section 2, payable upon the terms and subject to the conditions set forth in this Agreement, including, without limitation, this Section 2.6 and the escrow provisions set forth in Section 2.6(e) and Article X hereof.

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(c) Adjustment to Merger Consideration.

(i) At least five (5) Business Days prior to the Closing Date, the Company shall deliver to Parent (i) an estimated unaudited balance sheet (the “Estimated Closing Date Balance Sheet”) of the Company as of the Closing Date, and (ii) a certificate executed by the Chief Executive Officer of the Company and the Chief Financial Officer of the Company stating that the Estimated Closing Date Balance Sheet has been prepared in accordance with this Section 2.6. The Estimated Closing Date Balance Sheet shall be substantially in the form of the Company Balance Sheet and shall be prepared in accordance with GAAP and on a basis consistent with and utilizing the same principles, practices and policies as those used in preparing the Company Balance Sheet. The Estimated Closing Date Balance Sheet shall set forth Working Capital as of the Closing Date as derived from the Estimated Closing Date Balance Sheet (the “Estimated Working Capital”). Parent shall be given timely access to all supporting workpapers and any other documentation used in the preparation of the Estimated Closing Date Balance Sheet.

(ii) The Merger Consideration shall be increased on a dollar-for-dollar basis by the amount of the Estimated Working Capital Excess and shall be decreased on a dollar-for-dollar basis by the amount of the Estimated Working Capital Deficiency.

(iii) Within ninety (90) days of the Closing Date, Parent shall prepare and deliver to the Stockholder Representative an audited (unless Parent and the Stockholder Representative agree in writing that such balance sheet need not be audited) balance sheet (the “Closing Date Balance Sheet”) of the Company as of 11:59 p.m. on the Closing Date. The Closing Date Balance Sheet shall be substantially in the form of the Company Balance Sheet and shall be prepared in accordance with GAAP and on a basis consistent with and utilizing the same principles, practices and policies as those used in preparing the Company Balance Sheet. The Closing Date Balance Sheet shall set forth Working Capital as of the Closing Date as derived from the Closing Date Balance Sheet (the “Closing Working Capital”). The Stockholder Representative shall be given timely access to all supporting workpapers and any other documentation used in the preparation of the Closing Date Balance Sheet.

(iv) The Stockholder Representative may dispute any amounts reflected on the Closing Date Balance Sheet or the calculation of Closing Working Capital; provided, however, that the Stockholder Representative shall have notified Parent in writing of each disputed item, specifying the amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute, within twenty (20) days of Parent’s delivery of the Closing Date Balance Sheet pursuant to clause (iii) above.

(v) If the Stockholder Representative shall have delivered a notice of disagreement within the twenty (20) day period referred to in Section 2.6(c)(iv), the Stockholder Representative and Parent shall, during the twenty (20) days following such delivery, use good faith efforts to reach agreement on the disputed items or amounts in order to finally determine the Closing Date Balance Sheet and/or Closing Working Capital. If the Stockholder Representative and Parent are unable to reach agreement concerning the Closing Date Balance Sheet and/or Closing Working Capital during that period, they shall promptly thereafter submit

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to Deloitte & Touche LLP (the “Accounting Referee”), and thereafter cause the Accounting Referee to review, the disputed items or amounts for the purpose of final determination of the Closing Date Balance Sheet and/or the calculation of Closing Working Capital. In making such determination and calculations, the Accounting Referee shall consider only those items or amounts in the Closing Date Balance Sheet and/or Parent’s calculation of Closing Working Capital as to which the Stockholder Representative has disagreed in writing. The Accounting Referee shall deliver to the Stockholder Representative and Parent as promptly as practicable (but in no event later than thirty (30) days after submission) a report setting forth the Accounting Referee’s calculation of the disputed amounts. Such report shall be final and binding upon the Stockholder Representative, Parent, the Surviving Corporation, the Stockholders, and all other parties to this Agreement and the resulting Closing Date Balance Sheet and calculation of Closing Working Capital shall be final for all purposes of this Agreement. The Parent and the Stockholders shall each pay their own fees and expenses and one-half of the costs and charges of the Accounting Referee’s review and report. The Stockholders’ share of the costs of the Accounting Referee will be deducted from the Working Capital Escrow.

(vi) The Closing Date Balance Sheet and Closing Working Capital shall be deemed conclusively determined for purposes of this Agreement upon the date (the “Final Determination Date”) that is the earlier of (x) the failure of the Stockholder Representative to notify Parent of a dispute within twenty (20) days of Parent’s delivery of the Closing Date Balance Sheet pursuant to clause (iii) above, (y) the resolution of all disputes pursuant to Section 2.6(c)(v) by agreement of Parent and the Stockholder Representative, and (z) the resolution of all disputes pursuant to Section 2.6(c)(v) by the Accounting Referee.

(vii) In the event that the Closing Working Capital is less than the Estimated Working Capital (such deficiency, the “Working Capital Deficiency”), then Parent shall issue written instructions directing the Escrow Agent to, and the Escrow Agent shall, disburse from the Working Capital Escrow Amount to Parent no later than three (3) Business Days following the Final Determination Date, an amount equal to the Working Capital Deficiency, and the amount of the Working Capital Deficiency shall be deemed a decrease to the Merger Consideration. If the Working Capital Deficiency is greater than the Working Capital Escrow Amount (such shortfall, the “Working Capital Indemnity Amount”), then Parent shall issue written instructions directing the Escrow Agent to, and the Escrow Agent shall, disburse the entire Working Capital Escrow Amount to Parent and disburse the Working Capital Indemnity Amount out of the Indemnity Escrow Amount to Parent in accordance with Section 10.2 of this Agreement and the terms of the Escrow Agreement. If the Working Capital Deficiency is less than the Working Capital Escrow Amount, then Parent shall issue written instructions directing the Escrow Agent to, and the Escrow Agent shall disburse, after making the disbursement specified in the first sentence of this Section 2.6(c)(vii), the balance of the Working Capital Escrow Amount to the Payment Agent for distribution to the Stockholders as Merger Consideration pursuant to this Section 2.6.

(viii) In the event that the Closing Working Capital exceeds the Estimated Working Capital (such excess, the “Working Capital Excess”), then (i) Parent shall pay the Working Capital Excess to the Payment Agent and the amount of the Working Capital Excess shall be deemed an increase to the Merger Consideration and (ii) Parent shall issue

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written instructions directing the Escrow Agent to, and the Escrow Agent shall, disburse the remaining Working Capital Escrow Amount to the Payment Agent for distribution to the Stockholders as Merger Consideration pursuant to this Section 2.6. Such amounts shall be paid no later than three (3) Business Days following the Final Determination Date.

(d) Tax Withholding. Parent and the Company shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any Person such amounts as Parent, the Company or the Surviving Corporation determines it is required to deduct and withhold with respect to the making of such payment, or the exercise of Company Options, under the Internal Revenue Code of 1986, as amended (the “Code”), or any other provision of Tax Law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes hereof as having been paid to such Person in respect of which such deduction and withholding was made.

(e) Escrow. At Closing, Parent, on behalf of the Stockholders, shall deposit with the Escrow Agent a portion of the Merger Consideration equal to the sum of (x) $6,000,000 in cash (the “Indemnity Escrow Amount”) and (y) the Working Capital Escrow Amount. The Stockholders shall be deemed to have deposited with the Escrow Agent (1) the Indemnity Escrow Amount to provide a source of funding to the Indemnified Parties for any Losses for which they are entitled to be indemnified pursuant to Article X and (2) the Working Capital Escrow Amount to provide a source of funding to Parent for any Working Capital Deficiency pursuant to Section 2.6(c)(vii).

(f) Cancellation of Parent-Owned and Company-Owned Stock. Each share of Company Capital Stock owned by Merger Sub, Parent, the Company or any direct or indirect wholly-owned subsidiary of Parent or of the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof or consideration therefore.

(g) Capital Stock of Merger Sub. Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and non-assessable share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of common stock of the Surviving Corporation.

2.7 Dissenting Shares.

(a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock held by a Stockholder who either (i) has demanded and perfected appraisal or dissenters’ rights for such shares in accordance with the DGCL or the CGCL, as applicable, and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal or dissenters’ rights, or (ii) as of the Effective Time, retains the right to demand and perfect dissenters’ rights under the CGCL (collectively, “Dissenting Shares”), shall not be converted into or represent the right to receive the Merger Consideration pursuant to Section 2.6, but the holder thereof shall only be entitled to such rights as are granted by the DGCL or the CGCL, as applicable.

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(b) Notwithstanding the provisions of subsection (a), if any Stockholder who holds Dissenting Shares as of the Effective Time shall effectively withdraw or lose (through passage of time, failure to demand or perfect, or otherwise) the right to demand and perfect appraisal or dissenters’ rights under the DGCL and the CGCL, then, as of the later of the Effective Time and the occurrence of such event, such holder’s shares that were Dissenting Shares shall automatically be converted into and represent only the right to receive the Merger Consideration pursuant to and subject to Section 2.6 (including Section 2.6(e)), without interest thereon upon surrender of the certificate representing such shares.

(c) The Company shall give Parent (i) prompt notice of any written demands for appraisal of any shares of Company Capital Stock, demands for purchase by the Company of any shares of Company Capital Stock pursuant to the exercise of dissenters’ rights, withdrawals of such demands, and any other instruments or notices served pursuant to the DGCL or the CGCL, as applicable, on the Company and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under the DGCL or demands for purchase under the CGCL. The Company shall not, except with the prior written consent of Parent, (A) voluntarily make any payment with respect to any demands for appraisal of Company Capital Stock or demands for purchase of Company Capital Stock or (B) offer to settle or settle any such demands. Notwithstanding the foregoing, to the extent that Parent or the Company (y) makes any payment or payments in respect of any Dissenting Shares in excess of the Merger Consideration that otherwise would have been payable in respect of such shares in accordance with this Agreement or (z) incurs any other costs or expenses (including specifically, but without limitation, attorneys’ fees, costs and expenses in connection with any action or proceeding or in connection with any investigation) in respect of any Dissenting Shares (other than payments for such shares) (together “Dissenting Share Payments”), Parent shall be indemnified under the terms of Article X for the amount of such Dissenting Share Payments.

2.8 Surrender of Certificates.

(a) Payment Agent. Prior to the Effective Time, Parent shall designate a United States bank or trust company reasonably acceptable to the Company to act as payment agent (the “Payment Agent”) in the Merger.

(b) Exchange Procedures. Promptly after the Closing, Parent shall cause to be mailed to each holder of record of a certificate or certificates (the “Certificates”) which immediately prior to the Effective Time represented outstanding shares of Company Capital Stock, (A) a letter of transmittal (the “Letter of Transmittal”) which shall specify that delivery of the Certificates shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Payment Agent and shall be in such form and have such other provisions as Parent may specify and (B) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. The Letter of Transmittal shall indicate that applicable withholding Taxes (which have not otherwise been previously withheld and paid to the appropriate Tax authority) with respect to the exercise of Nonstatutory Options will be withheld from the Merger Consideration otherwise payable to each Stockholder who acquired shares of Company Capital Stock pursuant to the exercise of a Nonstatutory Option. Upon delivery of a Letter of Transmittal to the Payment Agent, or to such other agent or agents as may

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be appointed by Parent, duly completed and validly executed in accordance with the instructions thereto, together with surrender of a Certificate (or Certificates) for cancellation, the Stockholder shall be entitled to receive in exchange therefore the Merger Consideration to which such Stockholder is entitled pursuant to Section 2.6 (less the amounts to be deposited with the Escrow Agent on such holder’s behalf), and the Certificate(s) so surrendered shall forthwith be canceled. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed from and after the Effective Time, for all corporate purposes, to evidence only the right to receive the Merger Consideration as provided in this Article II.

(c) Parent to Provide Cash to Payment Agent.

(i) Within two (2) Business Days after the Effective Time, Parent shall deposit with the Payment Agent the Merger Consideration payable in exchange for outstanding shares of Company Capital Stock; provided, however, that, on behalf of the Stockholders, Parent shall deposit the Indemnity Escrow Amount and the Working Capital Escrow Amount with the Escrow Agent pursuant to Section 2.6(e) and Article X. No interest shall be payable on any cash deliverable upon the exchange of any Company Capital Stock.

(ii) The funds deposited by Parent with the Payment Agent shall be invested by the Payment Agent as directed by Parent or the Surviving Corporation, pending payment thereof by the Payment Agent to the Stockholders. Earnings from such investments shall be the sole and exclusive property of Parent and the Surviving Corporation and no part of such earnings shall accrue to the benefit of any Stockholders.

(d) No Liability. Notwithstanding anything to the contrary in this Section 2.8, none of the Payment Agent, Parent, the Surviving Corporation or any party hereto shall be liable to a holder of shares of Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar Law.

2.9 No Further Ownership Rights in Company Capital Stock. The cash amounts paid upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Capital Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article II.

2.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have been lost, stolen or destroyed, the Payment Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, the amount of Merger Consideration in cash as required pursuant to Section 2.6; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may direct

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as indemnity against any claim that may be made against Parent, the Surviving Corporation or the Payment Agent with respect to the Certificates alleged to have been lost, stolen or destroyed.

2.11 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Subject to such exceptions as are disclosed in the disclosure schedules dated as of the date hereof and delivered herewith to Parent (the “Company Schedules”) (each of which exceptions disclosed in one section of the Company Schedules shall be deemed disclosed in each other section provided it is reasonably apparent on its face that the matter is responsive to the representation to which such other section relates), the Company hereby represents and warrants to each of Parent and Merger Sub, as of the date hereof and as of the Closing, as follows:

3.1 Organization of the Company. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. The Company has the full corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and as now proposed to be conducted. The Company is duly qualified or licensed to do business and is in good standing as a foreign corporation in the State of California and in each other jurisdiction in which the conduct of its business or the ownership, leasing, holding or use of its properties makes such qualification necessary, except such other jurisdictions where the failure to be so qualified or licensed or in good standing could not reasonably be expected to have a Company Material Adverse Effect. The Company has delivered a true and correct copy of its Certificate of Incorporation and By-laws, each as amended to date and in full force and effect on the date hereof, to Parent. Schedule 3.1 lists every state or foreign jurisdiction in which the Company has facilities, maintains an office or has any employees.

3.2 Subsidiaries. The Company does not own and has never otherwise owned, directly or indirectly, any capital stock of or any other equity interest in, or controlled, directly or indirectly, any other Person, and the Company is not and has not otherwise been, directly or indirectly, a party to, member of or participant in any partnership, joint venture or similar business entity. The Company has no Subsidiaries.

3.3 Company Capital Structure.

(a) The authorized capital stock of the Company consists of: 40,000,000 shares of Common Stock, par value $0.0001 per share (the “Company Common Stock”), of which 11,055,653 shares are issued and outstanding; and 22,522,057 shares of

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Preferred Stock, par value $0.0001 per share (the “Preferred Stock”). Of the authorized Preferred Stock: 8,590,231 shares have been designated Series A Preferred Stock, of which shares 8,405,809 shares are issued and outstanding; and 13,931,826 shares have been designated Series B Preferred Stock, of which 13,731,824 shares are issued and outstanding. No other shares of Preferred Stock are issued or outstanding. The Company Capital Stock, including all shares of the Company Restricted Stock, is held of record by the Persons, with the addresses of record and in the amounts set forth on Schedule 3.3(a). All outstanding shares of Company Capital Stock (i) are duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the Company Certificate of Incorporation or Bylaws of the Company or any agreement to which the Company is a party or by which it is bound, and (ii) have been offered, sold and delivered by the Company in compliance in all material respects with all applicable Laws. All preferential rights of the Preferred Stock in connection with the sale of substantially all of the assets of the Company or a merger involving the Company are set forth in the Company Certificate of Incorporation. There are no declared or accrued but unpaid dividends with respect to any shares of Company Capital Stock.

(b) (i) Except for the Company’s 2000 Stock Incentive Plan (the “2000 Option Plan”) and the Company’s 2003 Stock Incentive Plan (the “2003 Option Plan”, and together with the 2000 Option Plan, the “Company Option Plans ”), neither the Company nor any of its Subsidiaries has ever adopted, sponsored or maintained any stock option plan or any other plan or agreement providing for equity compensation to any Person. The Company Option Plans have been duly authorized, approved and adopted by the Company’s board of directors and its stockholders and are in full force and effect. The Company has reserved a total of 8,250,000 shares of Company Common Stock for issuance to employees and directors of, and consultants to, the Company under the Company Option Plans, of which (A) 2,861,278 shares are issuable, as of the date hereof, upon the exercise of outstanding, unexercised stock options granted pursuant to the Company Option Plans (the “Company Options ”), (B) 4,963,069 shares are available for grant but have not yet been granted pursuant to the Company Option Plans, (C) 405,653 shares have been issued and are outstanding pursuant to the prior exercise of stock options or other stock rights granted pursuant to the Company Option Plans and (D) 20,000 shares of Company Restricted Stock have been issued and are outstanding pursuant to the prior exercise of stock options or other stock rights granted pursuant to the Company Option Plans. No outstanding Company Option permits payment of the exercise price therefore by any means other than cash, check or such other form of payment permitted in Section 5.3 of the applicable Company Option Plan. All outstanding Company Options have been offered, issued and delivered by the Company in compliance in all material respects with all applicable Laws. Schedule 3.3(b) sets forth for each outstanding Company Option, the name of the holder of such option, the domicile address of such holder, an indication of whether such holder is a current Employee of the Company, the date of grant or issuance of such option, the number of shares of Company Common Stock subject to such option, the exercise price of such option, the vesting schedule for such option, including the extent vested to the date of this Agreement and whether and to what extent the exercisability of such option will be accelerated and become exercisable as a result of the transactions contemplated by this Agreement, and whether such option is a Nonstatutory Option or an incentive stock option as defined in Section 422 of the Code. Assuming the actions to be taken pursuant to Section 7.9 hereof are properly taken, the exercisability of the Company Options will not be accelerated by reason of the Merger or the

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transactions contemplated by this Agreement and (i) the number of shares of Company Common Stock subject to Company Options that will be vested as of the Effective Time will be 1,409,195 shares (the “Vested Options”) and (ii) the number of shares of Company Common Stock subject to Company Options that will be unvested as of the Effective Time will be 1,452,083 shares (the “Unvested Options”).

(ii) The Company has issued warrants (each a “Warrant” and collectively, the “Warrants”) for the purchase of an aggregate of 184,431 shares of Series A Preferred Stock and 193,550 shares of Series B Preferred Stock, respectively. All Warrants have been offered, issued and delivered by the Company in compliance in all material respects with all applicable Laws. Schedule 3.3(b)(ii) sets forth for each outstanding Warrant, the name of the holder of such Warrant, the domicile address of such holder, an indication of whether such holder is a current Employee of the Company, the date of grant or issuance of such Warrant, the number of shares of Company Capital Stock (and the class and series thereof) subject to such Warrant, the exercise price of such Warrant, the vesting schedule for such Warrant, including the extent vested as of the date of this Agreement and whether and to what extent the exercisability of such Warrant will be accelerated and become exercisable as a result of the transactions contemplated by this Agreement. Except for the Company Options and Warrants, there are no options, warrants, calls, rights, convertible securities, commitments or agreements of any character, written or oral, to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound obligating the Company or any Subsidiary to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any Company Capital Stock or any capital stock of any Subsidiary or obligating the Company or any Subsidiary to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Company or any of its Subsidiaries.

(iii) Except as set forth in Schedule 3.3(b)(iii), (A) there are no voting trusts, proxies, or other agreements or understandings with respect to the voting stock of the Company or any of its Subsidiaries to which the Company or any of its Subsidiaries is a party, by which the Company or any of its Subsidiaries is bound, or of which the Company has knowledge, and (B) there are no agreements or understandings to which the Company or any of its Subsidiaries is a party, by which the Company or any of its Subsidiaries is bound, or of which the Company has knowledge relating to the registration, sale or transfer (including agreements relating to rights of first refusal, “co-sale” rights or “drag-along” rights) of any Company Capital Stock. The holders of Company Options, Warrants and Company Capital Stock have been or will be properly given, or shall have properly waived, any required notice prior to the Merger. Each holder of Company Restricted Stock has filed on a timely basis an election under Section 83(b) of the Code with respect to such Company Restricted Stock.

3.4 Authority. The Company has all requisite corporate power and authority to enter into this Agreement and each of the Certificate of Merger, the Escrow Agreement, and any other agreements, certificates or documents contemplated thereby or hereby (collectively, the “Related Agreements” and each a “Related Agreement”) to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement

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and the Related Agreements to which the Company is a party and the consummation by the Company of the transactions contemplated hereby and thereby (including the Merger) have been duly authorized by all necessary corporate action on the part of the Company and no further action is required on the part of the Company to authorize this Agreement and the Related Agreements to which it is a party and the transactions contemplated hereby and thereby (including the Merger), subject only to the approval of this Agreement and the Merger by the Stockholders. Schedule 3.4 sets forth all votes, consents or approvals required of the Stockholders in connection with this Agreement and the Related Agreements and the performance by the Company of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby, including the Merger (the “Company Stockholder Requisite Approval”). This Agreement, the Related Agreements and the Merger have been unanimously approved by the board of directors of the Company. This Agreement has been, and each of the Related Agreements to which the Company is a party will be at the Closing, duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties hereto and thereto (other than the Company), constitutes, and in the case of the Related Agreements they will at Closing constitute, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity; provided, however, that the Certificate of Merger will not be effective until filed with the Secretary of State of the State of Delaware.

3.5 No Conflict. The execution and delivery by the Company of this Agreement and the Related Agreements to which the Company is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit under (i) any provision of the Company Certificate of Incorporation, By-laws or other charter documents of the Company or any of its Subsidiaries, (ii) any (x) mortgage, indenture, lease, contract, insurance policy, covenant or other agreement, instrument or commitment, permit, concession, franchise or license which is material and to which the Company or any of its Subsidiaries is a party or to which they or any of their respective properties or assets (whether tangible or intangible) are subject or bound or (y) mortgage, indenture, lease, contract, insurance policy, covenant or other agreement, instrument or commitment, permit, concession, franchise or license described in Section 3.16 (each of the items described in clauses (x) and (y) being a “Contract” and collectively the “Contracts”), or (iii) any Law applicable to the Company or any of its Subsidiaries or any of their respective properties or assets (whether tangible or intangible). Schedule 3.5 sets forth all notices to, and all necessary consents, waivers and approvals of, parties to any Contracts as are required thereunder in connection with the Merger, or for any such Contract to remain in full force and effect without limitation, modification or alteration (including payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company or any of its Subsidiaries, as the case may be, would otherwise be required to pay pursuant to the terms of such Contracts had the transactions contemplated by this Agreement not occurred) after the Effective Time so as to preserve all material rights of, and benefits to, the Company and its Subsidiaries, as the case may be, under such Contracts from and after the Effective Time.

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3.6 Consents. Except as set forth in Schedule 3.6, no consent, waiver, approval, order or authorization of, or registration, declaration or filing with, or notice to any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission (each, a “Governmental Entity”) or any third party, including, without limitation, any permits, authorizations or other such actions required by the HSR Act, is required by, or with respect to, the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement and the Related Agreements to which the Company is a party or the consummation of the transactions contemplated hereby and thereby, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, and (ii) the adoption of this Agreement and approval of the transactions contemplated by this Agreement by the Company Stockholder Requisite Approval.

3.7 Company Financial Statements and Controls.

(a) Schedule 3.7 sets forth (i) the audited balance sheet and the related audited statements of operations and cash flows of the Company for the fiscal years ended December 31, 2002 and December 31, 2003, and (ii) the unaudited balance sheet of the Company (the “Company Balance Sheet”) as of October 31, 2004 (the “Balance Sheet Date”) and the related unaudited statements of operations and cash flows of the Company and its Subsidiaries for the ten month period then ended (the financial statements referred to in items (i) and (ii), collectively, the “Company Financial Statements”). The Company Financial Statements are accurate and complete in all material respects and have been prepared in accordance with generally accepted accounting principles effective in the United States (“GAAP”) applied on a basis consistent throughout the periods indicated and consistent with each other, except for the absence of footnotes in the case of the unaudited Company Financial Statements. The Company Financial Statements fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company as of the dates and during the periods indicated therein, subject, in the case of the unaudited financial statements, to normal year-end adjustments, which were not material in amount or significance.

(b) The Company has in place systems and processes designed to (i) provide reasonable assurance regarding the reliability of the Company Financial Statements and (ii) in a timely manner accumulate and communicate to the Company’s Chief Executive Officer the type of information that would be required to be disclosed in the Company Financial Statements (such process herein referred to as the “Controls”). Since January 1, 2003, neither the Company nor, to the Company’s knowledge, any director, officer, employee, auditor, accountant or representative of the Company has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or oral, regarding the Controls and the Financial Statements. To the Company’s knowledge, there have been no instances of fraud, whether or not material, that occurred during any period covered by the Company Financial Statements To the Company’s knowledge, no Employee of the Company or any Subsidiary has provided or is providing information to any Governmental Entity regarding the commission or possible commission of any crime or the violation or possible violation of any applicable Law of any Governmental Entity having jurisdiction over the Company, any of its Subsidiaries or any part of their respective operations.

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(c) During the periods covered by the Company Financial Statements, the Company’s external auditor was independent of the Company and its management. Schedule 3.7 sets forth all reports, if any, by the Company’s external auditors to the Company’s board of directors, or any committee thereof, or the Company’s management concerning any of the following and pertaining to any period covered by the Company Financial Statements: (i) critical accounting policies, (ii) the Controls, (iii) significant accounting estimates or judgements, (iv) alternative accounting treatments and (v) any required communications with the Company’s board of directors, or any committee thereof, or with management of the Company.

3.8 No Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has (a) any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in Company Financial Statements in accordance with GAAP), which (i) exceeds $20,000 individually or $60,000 in the aggregate and (ii) has not (x) been reflected in the Company Balance Sheet or (y) arisen in the ordinary course of the Company’s business consistent with past practices since the Balance Sheet Date, or (b) any “off-balance sheet arrangements” (as such term is defined in Item 303(a)(4) of Regulation S-K promulgated under the Exchange Act).

3.9 Absence of Certain Changes. Except as set forth in Schedule 3.9, since the Balance Sheet Date and through and including the date of this Agreement, there has not been, occurred or arisen any:

(a) transaction by the Company or any of its Subsidiaries, except in the ordinary course of business and consistent with past practices;

(b) amendments or changes to the Company Certificate of Incorporation or By-laws of the Company or any of its Subsidiaries;

(c) capital expenditure or capital commitment by the Company or any of its Subsidiaries of $25,000 in any individual case or $40,000 in the aggregate;

(d) payment, discharge or satisfaction, in any amount in excess of $25,000 in any one case, or $40,000 in the aggregate, of any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise of the Company or any of its Subsidiaries), other than payments, discharges or satisfactions in the ordinary course of business of liabilities reflected or reserved against in the Company Balance Sheet;

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

(f) work stoppage, labor strike or other labor trouble, or any action, suit, claim, labor dispute or grievance relating to any labor, employment and/or safety matter involving the Company or any of its Subsidiaries, including without limitation charges of wrongful discharge, discrimination, or other unlawful labor and/or employment practices or actions;

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(g) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by the Company or any of its Subsidiaries;

(h) revaluation by the Company or any of its Subsidiaries of any of their assets, including, without limitation, the writing down of the value of inventory or writing off of notes or accounts receivable, in any case in excess of $25,000 in the aggregate;

(i) declaration, setting aside or payment of a dividend on or other distribution (whether in cash, stock or property) with respect to any Company Capital Stock, Company Options or Warrants, or any direct or indirect redemption, purchase or other acquisition by the Company or any Subsidiary of any Company Capital Stock, Company Options or Warrants, other than (i) repurchases of Company Common Stock from employees, consultants or other Persons performing services for the Company pursuant to agreements under which the Company has the option to repurchase such shares at cost upon the termination of employment or other services, or (ii) any split, combination or reclassification of any Company Capital Stock;

(j) increase in the salary or other compensation payable or to become payable by the Company or any of its Subsidiaries to any of their officers, directors, employees, consultants, contractors, or advisors, including, without limitation, the modification of any existing compensation or equity arrangements with such individuals (including any repricing of any Company Options or any amendment of any vesting terms related to Company Options or Company Restricted Stock held by such individuals), or the declaration, payment or commitment or obligation of any kind for the payment, by the Company or any Subsidiary, of a bonus or other additional salary or compensation to any such Person;

(k) employee terminations and/or layoffs, and the Company and its Subsidiaries have preserved intact and kept available the services of its Employees, in each case in accordance with past practice, it being understood that termination of Employees with poor performance ratings or for cause shall not constitute a violation of this clause (k);

(l) (A) grant of any severance or termination pay (i) to any director or officer or (ii) to any other Employee, except payments made pursuant to written agreements outstanding on the date hereof and as disclosed in the Company Schedules, (B) adoption or amendment of any employee benefit plan or severance plan, (C) entering into any employment contract, extension of any employment offer, payment or agreement to pay any bonus or special remuneration to any director or Employee or (D) increase in the salaries, wage, rates or other compensation of Employees, other than payments made pursuant to standard written agreements outstanding on the date hereof and disclosed in Schedule 3.16;

(m) entering into of any Contract to which the Company or any of its Subsidiaries is a party or by which they or any of their assets are bound, or any termination, extension, amendment or modification of the terms of any Contract (including without limitation, any strategic alliance, joint development or joint marketing agreement or any loan agreement or instrument) to which the Company or any of its Subsidiaries is a party or by which they or any of their assets are bound, or any waiver, release or assignment of any material rights or claims thereunder;

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(n) sale, lease, license or other disposition of any of the assets or properties of the Company or any of its Subsidiaries, or creation of any Lien in such assets or properties, except sales of inventory in the ordinary course of business and consistent with past practices and sales of assets or properties not in excess of $10,000 in the aggregate;

(o) loan by the Company or any Subsidiary to any Person, incurring by the Company or any of its Subsidiaries of any indebtedness, guaranteeing by the Company or any of its Subsidiaries of any indebtedness, issuance or sale of any debt securities of the Company or any of its Subsidiaries or purchase of or guaranteeing of any debt securities of others, except for advances to Employees for travel and business expenses in the ordinary course of business and consistent with past practices;

(p) waiver or release of any right or claim of the Company or any of its Subsidiaries, including any write-off or other compromise of any account receivable of the Company, except in the ordinary course of business and consistent with past practices;

(q) commencement, notice or threat of commencement, of any lawsuit or proceeding against or investigation of the Company or any of its Subsidiaries or their affairs, or commencement or settlement of any litigation by the Company or any of its Subsidiaries;

(r) (i) transfer or sale by the Company or any of its Subsidiaries of any rights to the Company Intellectual Property or the entering into of any license agreement (other than non-exclusive end-user license agreements entered into by the Company in the ordinary course of business consistent with past practices that do not include any rights with respect to source code), distribution agreement, reseller agreement, security agreement, assignment or other conveyance or option for the foregoing, with respect to the Company Intellectual Property with any Person, (ii) the purchase or other acquisition of any Intellectual Property or the entering into of any license agreement, distribution agreement, reseller agreement, security agreement, assignment or other conveyance or option for the foregoing, with respect to the Intellectual Property of any Person, other than in-bound “shrink wrap” end-user licenses, (iii) change in pricing or royalties set or charged by the Company or any of its Subsidiaries to its customers or licensees or in pricing or royalties set or charged by Persons who have licensed Intellectual Property to the Company or any of its Subsidiaries or (iv) entering into, or amendment of, any agreement with respect to the development of any Intellectual Property with a third party;

(s) agreement, or modification to any agreement, pursuant to which any Person was granted marketing, distribution, development, manufacturing or similar rights of any type or scope with respect to any products, services or technology of the Company or any of its Subsidiaries;

(t) except as set forth in Schedule 3.3(b), issuance, grant, delivery or sale (or authorization of the same) by the Company of any Company Capital Stock, any Company Options, any Warrants or any securities exchangeable, convertible or exercisable therefore, or any securities, subscriptions, warrants, options or rights to purchase any of the foregoing, or purchase or proposed purchase of any of the foregoing;

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(u) event, occurrence, change, effect or condition of any character that has had or reasonably could be expected to have a Company Material Adverse Effect; or

(v) agreement (whether written or oral) by the Company or any of its Subsidiaries, or any officer or Employees thereof, to do any of the things described in the preceding clauses (a) through (u) (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement and the Related Agreements).

3.10 Accounts Receivable. Schedule 3.10 lists all accounts receivable of the Company and its Subsidiaries as of the Balance Sheet Date, together with an aging schedule indicating a range of days elapsed since being invoiced. All of the accounts receivable of the Company and its Subsidiaries arose in the ordinary course of business, are carried at values determined in accordance with GAAP consistently applied and will be good and collectible in full within ninety (90) days of the Closing Date, except to the extent of any reserve for uncollectible accounts receivable set forth on the Company Balance Sheet. No Person has any Lien on any accounts receivable of the Company or any of its Subsidiaries and no request or agreement for deduction or discount has been made with respect to any accounts receivable of the Company or any of its Subsidiaries.

3.11 Restrictions on Business Activities. There is no agreement (non-competition or otherwise), commitment, judgment, injunction, order or decree to which the Company or any of its Subsidiaries is a party or otherwise binding upon the Company or any of its Subsidiaries which has had or could reasonably be expected to have the effect of prohibiting or impairing any acquisition of property (tangible or intangible) by the Company or any of its Subsidiaries, the conduct of business by the Company or any of its Subsidiaries as conducted to date or as currently contemplated to be conducted in the future, or otherwise limiting the freedom of the Company or any of its Subsidiaries to engage in any line of business or to compete with any Person. Without limiting the generality of the foregoing, neither the Company nor any of its Subsidiaries has (i) entered into any agreement under which the Company or any of its Subsidiaries is restricted from selling, licensing, manufacturing or otherwise distributing any of its technology or products or from providing services to customers or potential customers or any class of customers, in any geographic area, during any period of time, or in any segment of the market or (ii) granted any Person exclusive rights to sell, license, manufacture or otherwise distribute any of its technology or products in any geographic area or with respect to any customers or potential customers or any class of customers during any period of time or in any segment of the market.

3.12 Title to Properties; Absence of Liens and Encumbrances.

(a) (i) None of the real property, and leases and subleases of, and other interests in, real property, used or occupied by the Company or any of its Subsidiaries, in each case, together with all buildout, fixtures and improvements created thereon (“Real Property”), is owned by the Company or any of its Subsidiaries, nor has the Company or any of its Subsidiaries ever owned any Real Property. All of the Real Property is leased or subleased by the Company or one of its Subsidiaries, or the Company or one of its Subsidiaries has an interest in such Real Property pursuant to a warehousing, license or occupancy agreement (“Leased Real Property”).

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(ii) Schedule 3.12(a)(ii) sets forth all leases, subleases and other agreements pursuant to which the Company and each of its Subsidiaries derives its rights in the Leased Real Property (the “Leases”), including, with respect to each such Lease, the identity of the landlord or sublandlord, the date of such Lease and each amendment thereto, the aggregate annual rent, and the address of all buildings.

(iii) The Leases are in good standing and are valid, binding and enforceable in accordance with their respective terms, and there does not exist under any such Lease any default by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any other Person, or any event that, with or without notice or lapse of time or both, would constitute a default by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any other Person. The Company has delivered to Parent complete copies of all Leases, including all amendments and agreements related thereto, and the Leases constitute the entire agreement between the Company or any of its Subsidiaries and each landlord or sublandlord with respect to the Leased Real Property. All rent and other charges currently due and payable under the Leases have been paid.

(iv) The Company or one of its Subsidiaries is the holder of the tenant’s interest under the Leases and has not assigned the Leases nor subleased all or any portion of the premises leased thereunder. Neither the Company nor any of its Subsidiaries has made any material alterations, additions or improvements to the premises leased under the Leases that are required to be removed (or of which any landlord or sublandlord could require removal) at the termination of the respective Lease terms. The Company or one of its Subsidiaries owns all trade fixtures, equipment and personal property located in the premises leased under the Leases and the landlords thereunder have no Lien thereon or claim thereto.

(b) The Company and each of its Subsidiaries has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its material tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in the Company Financial Statements or in Schedule 3.12(b) and except for liens for Taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby.

(c) All facilities, machinery, equipment, fixtures, vehicles, and other personal properties owned, leased or used by the Company or any of its Subsidiaries are (i) adequate for the conduct of the business of the Company and its Subsidiaries as currently conducted and as currently proposed to be conducted and (ii) in good operating condition, subject to normal wear and tear, and reasonably fit and usable for the purposes for which they are being used, except where a failure to be in such condition would not have a Company Material Adverse Effect.

(d) Neither the Company nor any of its Subsidiaries has sold, transferred, disclosed, made available to the public or otherwise released for distribution any of its customer files and other customer information relating to the Company’s or any of its Subsidiaries current and former customers (the “Company Customer Information”). Except for information as

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provided to sales representatives (which information is subject to a customary non-disclosure agreement), no Person other than the Company or one of its Subsidiaries possesses or has any claims or rights with respect to use of the Company Customer Information.

3.13 Governmental Authorization. Schedule 3.13 lists each material consent, license, permit, grant or other authorization issued to the Company or any of its Subsidiaries by a Governmental Entity (i) pursuant to which the Company or any of its Subsidiaries currently operates or holds any interest in any of its properties or (ii) which is required for the operation of its business as currently conducted or as currently proposed to be conducted or the holding of any such interest (herein collectively called “Company Authorizations”). The Company Authorizations are in full force and effect and constitute all Company Authorizations required to permit the Company and each of its Subsidiaries to operate or conduct its business as currently conducted or as currently proposed to be conducted or to hold any interest in its properties or assets.

3.14 Intellectual Property.

(a) Schedule 3.14(a) lists: (i) all Company Registered Intellectual Property, (ii) all hardware products and tools, software and firmware products and tools and services that are currently sold, published, offered, or under development by the Company and any of its Subsidiaries, and (iii) all licenses (in and out), sublicenses and other agreements to which the Company and any of its Subsidiaries is a party and pursuant to which the Company or any of its Subsidiaries or any other Person is authorized to use any of the Company Intellectual Property or exercise any rights with respect thereto, other than in-bound “shrink-wrap” end-user licenses and similar generally available commercial binary code end-user licenses in each case that are not used for software development or in any software, products or services provided by the Company to customers.

(b) Each item of Company Intellectual Property is either: (i) owned solely by the Company or one of its Subsidiaries free and clear of any Liens, or (ii) rightfully used and authorized for use by the Company or one of its Subsidiaries and their permitted successors pursuant to a valid and enforceable written license or other written grant of a right by a third party to use its proprietary information. Other than in-bound “shrink-wrap” end-user licenses and similar generally available commercial binary code end-user licenses in each case that are not used for software development or in any software, products or services provided by the Company to customers, all of the Company Intellectual Property that is used by the Company or any of its Subsidiaries pursuant to a license or other grant of a right by a third party to use its proprietary information is separately identified as such in Schedule 3.14(b). The Company and its Subsidiaries have all rights in the Company Intellectual Property necessary to carry out the Company’s and the Subsidiaries’ former and current activities and to produce, market, sell and license all products and services currently under development, including without limitation (except as noted in Schedule 3.14(b)) rights to make, use, exclude others from using, reproduce, modify, adapt, create derivative works based on, translate, distribute (directly and indirectly), transmit, display and perform publicly, license, rent, lease, assign and sell the Company Intellectual Property in all geographic locations and fields of use, and to sublicense any or all such rights to third parties, including the right to grant further sublicenses.

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(c) The Company and each of its Subsidiaries are in compliance with and have not breached, violated or defaulted under, or received notice that they have breached, violated or defaulted under, any of the terms or conditions of any license, sublicense or other agreement to which the Company or any Subsidiary is a party or otherwise bound relating to any of the Company Intellectual Property, nor does the Company have knowledge of any event or occurrence that would constitute such a breach, violation or default (with or without the lapse of time, giving of notice or both). Each such agreement is in full force and effect, and neither the Company nor any of its Subsidiaries is in default thereunder, nor to the knowledge of the Company is any party obligated to the Company or any of its Subsidiaries pursuant to any such agreement in default thereunder. Following the Closing Date, the Surviving Corporation will be permitted to exercise all of the Company’s rights under such contracts, licenses and agreements to the same extent the Company and each Subsidiary would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than fees, royalties or payments which the Company or any Subsidiary would otherwise have been required to pay had the transactions contemplated by this Agreement not occurred. Neither the Company nor any Subsidiary is obligated to provide any consideration (whether financial or otherwise) to any third party, nor is any third party otherwise entitled to any consideration, with respect to any exercise of rights by the Company or any Subsidiary or the Surviving Corporation, as successor to the Company or any Subsidiary, in the Company Intellectual Property.

(d) The use of the Company Intellectual Property by the Company and its Subsidiaries, as currently used, and as currently proposed to be used in products and services currently under development, does not infringe any other Person’s copyright, trade secret rights, right of privacy, right in personal data, moral right, patent, trademark, service mark, trade name, firm name, logo, trade dress, mask work or other intellectual property right, or give rise to any claim of unfair competition. No funds or facilities of any university were used in the development of Company Intellectual Property. No claims (i) challenging the validity, enforceability, effectiveness or ownership by the Company or any Subsidiary of any of the Company Intellectual Property or (ii) to the effect that the use, reproduction, modification, manufacture, distribution, licensing, sublicensing, sale, or any other exercise of rights in any Company Intellectual Property by the Company and its Subsidiaries, infringes or will infringe on any intellectual property or other proprietary or personal right of any Person have been asserted against the Company or any Subsidiary or, to the Company’s knowledge, are threatened by any Person nor, to the Company’s knowledge, does there exist any valid basis for such a claim. There are no legal or governmental proceedings, including, without limitation, interference, re-examination, reissue, opposition, nullity, or cancellation proceedings pending that relate to any of the Company Intellectual Property, other than review of pending patent and trademark applications, and neither the Company nor any Subsidiary is aware of any information indicating that such proceedings are threatened or contemplated by any Governmental Entity or any other Person. All Company Registered Intellectual Property is valid and subsisting. To the Company’s knowledge, there is no unauthorized use, infringement, or misappropriation of any Company Intellectual Property by any third party or Employee.

(e) The Company and its Subsidiaries have secured from all parties (including Employees thereof) who have created any portion of, or otherwise have any rights in or to, the

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Company Intellectual Property owned by the Company or any of its Subsidiaries valid and enforceable written assignments of any such work, invention, improvement or other rights to the Company and each Subsidiary and have provided true and complete copies of such assignments to Parent.

(f) The transactions contemplated under this Agreement will not alter, impair or otherwise affect any rights of the Company or any Subsidiary in any Company Intellectual Property.

(g) The Company Intellectual Property owned by the Company or any Subsidiary is not subject to any source code escrow or similar agreement.

(h) The Company and its Subsidiaries have taken commercially reasonable measures to protect the proprietary nature of the Company Intellectual Property and to maintain in confidence all trade secrets and confidential information owned or used by the Company or any of its Subsidiaries.

(i) To the Company’s knowledge, the Company Intellectual Property does not contain any “viruses.” For the purposes of this Agreement, “virus” means any computer code designed to disrupt, disable or harm in any manner the operation of any software or hardware. To the Company’s knowledge, none of the Company Intellectual Property contains any worm, bomb, backdoor, clock, timer or other disabling device, code, design or routine which causes the software or any portion thereof to be erased, inoperable or otherwise incapable of being used, either automatically, with the passage of time or upon command by any party.

(j) Neither the Company nor any of its Subsidiaries have used Publicly Available Software in whole or in part in the development of any part of Company Intellectual Property in a manner that may subject the Company Intellectual Property, in whole or in part, to all or part of the license obligations of any Publicly Available Software. No source code licensee of the Company has received from the Company or distributed to any third party any combination of Publicly Available Software and Company Intellectual Property in a manner that may subject the Company Intellectual Property, in whole or in part, to all or part of the license obligations of any Publicly Available Software. Except as set forth in Schedule 3.14(j), the Company Intellectual Property does not include any Publicly Available Software.

(k) None of the Company’s or any of its Subsidiaries’ professional services agreements with their customers, their agreements with merchants, their agreements with outside consultants for the performance of professional services on the Company’s, its Subsidiaries’ or customers’ behalf, nor any agreement or license with any end user or reseller of the Company’s or any Subsidiary’s products, confers upon any Person other than the Company or any Subsidiary any ownership right with respect to any Intellectual Property developed in connection with such agreement or license.

(l) Neither the Company nor any Subsidiary has transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was material Company Intellectual Property, to any Person.

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3.15 Product Warranties; Defects; Liabilities. Each product (including any software product) manufactured, sold, licensed, leased or delivered by the Company or any Subsidiary (the “Company Products”) has been in conformity in all material respects with the specifications for such Company Product, all applicable contractual commitments and all applicable express and implied warranties. To the Company’s knowledge, neither the Company nor any Subsidiary has any liability or obligation (nor is there any basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company or any Subsidiary giving rise to any liability or obligation) for replacement or repair of Company Products or other damages in connection therewith except liabilities or obligations for replacement or repair incurred in the ordinary course of business consistent with past practice. No Company Product is subject to any guaranty, warranty, or other indemnity beyond the applicable standard terms and conditions of sale, license or lease or beyond that implied or imposed by applicable Law. Schedule 3.15 includes a copy of the standard terms and conditions of sale, license, or lease for each of the Company Products, which standard terms and conditions apply to each sale, license or lease of each of the Company Products.

3.16 Agreements, Contracts and Commitments. Except as set forth on Schedule 3.16, neither the Company nor any of its Subsidiaries has, is a party to or is bound by:

(i) any collective bargaining agreement;

(ii) any employment or consulting agreement, contract or commitment with any officer, director, Employee, contractor, consultant, advisor or member of the Company’s or Subsidiaries’ board of directors;

(iii) any bonus, deferred compensation, severance, salary continuation, pension, profit sharing or retirement plan, or any other employee benefit plan or arrangement that is not listed on Schedule 3.25(a) or 3.9(j);

(iv) any commission and/or sales agreement with an employee, individual consultant or salesperson, or under which a firm or other organization provides commission or sales-based services to the Company or any Subsidiary, that is not listed on Schedules 3.26(b), 3.26(c) or 3.9(j);

(v) any agreement or plan, including without limitation any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of the Merger or any of the other transactions contemplated by this Agreement and the Related Agreements or the value of any of the benefits of which will be calculated on the basis of the Merger or any of the other transactions contemplated by this Agreement or the Related Agreements;

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

(vii) any lease of personal property having a value individually in excess of $20,000;

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(viii) any agreement of indemnification or guaranty to any third party, including, without limitation, with respect to e-commerce activity;

(ix) any agreement containing any covenant limiting the freedom of the Company to engage in any line of business or in any geographic territory or to compete with any Person, or which grants to any Person any exclusivity to any geographic territory, any customer, or any product or service;

(x) any agreement relating to capital expenditures and involving future payments in excess of $20,000;

(xi) any agreement relating to the disposition of assets or any interest in any business enterprise outside the ordinary course of the Company’s or any Subsidiary’s business or any agreement relating to the acquisition of assets or any interest in any business enterprise;

(xii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or the extension of credit, including guaranties referred to in clause (viii) hereof;

(xiii) any unpaid or unperformed purchase order or purchase contract (including for services) involving $20,000 or more;

(xiv) any dealer, distribution, content provider, destination site or merchant agreement involving $20,000 or more;

(xv) any joint marketing (including any pilot program) or development agreement;

(xvi) any agreement pursuant to which the Company or any Subsidiary has granted or may be obligated to grant in the future, to any Person, a source-code license or option or other right to use or acquire source-code, including any agreements which provide for source code escrow arrangements;

(xvii) any sales representative, original equipment manufacturer, value added re-seller, remarketer or other agreement for distribution of the Company’s or any Subsidiary’s products or services, or the products or services of any other Person;

(xviii) any agreement pursuant to which the Company has advanced or loaned any amount to any Stockholder of the Company or any director, officer, Employee, or consultant thereof, other than business travel advances in the ordinary course of business consistent with past practice;

(xix) any contractual obligations that the Company would be required to disclose pursuant to Item 303(a)(5) of Regulation S-K promulgated under the Exchange Act if the Company were an issuer with a class of securities registered pursuant to the Exchange Act; or

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(xx) any other agreement that involves $10,000 or more or is not cancelable without penalty within ninety (90) days.

Each Contract is in full force and effect. The Company and each of its Subsidiaries are in compliance with and have not breached, violated or defaulted under, or received notice that they have breached, violated or defaulted under, any of the terms or conditions of any Contract, nor does the Company have knowledge of any event or occurrence that would constitute such a breach, violation or default (with or without the lapse of time, giving of notice or both).

3.17 Change of Control Payments. Schedule 3.17 sets forth each plan, agreement or arrangement pursuant to which any amounts may become payable (whether currently or in the future) to current or former officers, directors or Employees of the Company or any Subsidiary as a result of or in connection with the Merger or any of the other transactions contemplated by this Agreement or the Related Agreements.

3.18 Interested Party Transactions.

(a) To the Company’s knowledge, no officer, director or Affiliate of the Company or any of its Subsidiaries (nor any ancestor, sibling, descendant or spouse of any of such Persons, or any trust, partnership or corporation in which any of such Persons has or has had an economic interest), has or has had, directly or indirectly, (i) an economic interest in any Person which furnished or sold, or furnishes or sells, services or products that the Company or any Subsidiary furnishes or sells, or proposes to furnish or sell, (ii) an economic interest in any Person that purchases from or sells or furnishes to, the Company or any Subsidiary, any goods or services, or (iii) a beneficial interest in any contract or agreement set forth in any Contract; provided, however, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an “economic interest in any entity” for purposes of this Section 3.18.

(b) There are no receivables of the Company or any Subsidiary owed by any director, officer, employee, or consultant to the Company or any Subsidiary (or any ancestor, sibling, descendant, or spouse of any such Persons, or any trust, partnership, or corporation in which any of such Persons has an economic interest), other than advances in the ordinary and usual course of business for reimbursable business expenses (as determined in accordance with the Company’s established employee reimbursement policies and consistent with past practice). None of the Stockholders has agreed to, or assumed, any obligation or duty to guaranty or otherwise assume or incur any obligation or liability of the Company or any Subsidiary.

3.19 Compliance with Laws. The Company has complied with, is not in violation of, and has not received any notices of violation with respect to, any Law. The Company is in compliance with all privacy and anti-SPAM Laws that are applicable to its business and business practices as conducted to date.

3.20 Litigation. There is no action, suit or proceeding of any nature pending or, to the Company’s knowledge, threatened against the Company or any of its Subsidiaries, any of their respective properties or any of their respective officers, directors or Employees, nor, to the

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knowledge of the Company, is there any reasonable basis therefore. There is no investigation pending or, to the Company’s knowledge, threatened against the Company or any of its Subsidiaries, any of their respective properties or any of their respective officers, directors or employees by or before any Governmental Entity. No Governmental Entity has at any time challenged or questioned the legal right of the Company or any Subsidiary to conduct its operations as presently or previously conducted or as presently proposed to be conducted.

3.21 Insurance. Schedule 3.21 sets forth all insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, Employees, officers and directors of the Company, any of its Subsidiaries or any Affiliate thereof, including the type of coverage, the carrier, the amount of coverage, the term and the annual premiums of such policies. There is no claim by the Company or any of its Subsidiaries or any Affiliate thereof pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed or that the Company has a reason to believe will be denied or disputed by the underwriters of such policies or bonds. There is no pending claim that will exceed the policy limits. All premiums due and payable under all such policies and bonds have been paid (or if installment payments are due, will be paid if incurred prior to the Closing) and the Company, its Subsidiaries and its Affiliates are otherwise in material compliance with the terms of such policies and bonds. The Company has no knowledge of a threatened termination of, or premium increase with respect to, any of such policies. None of the Company, any of its Subsidiaries or any Affiliate of either has ever maintained, established, sponsored, participated in or contributed to any self-insurance plan or program.

3.22 Minute Books. The corporate minutes of the Company and its Subsidiaries made available to counsel for Parent contain complete and accurate records of all material actions taken, and summaries of all meetings held, by the Stockholders and the board of directors of the Company and its Subsidiaries (and any committees thereof) since the time of incorporation of the Company and each Subsidiary, as the case may be.

3.23 Environmental Matters. Except as could not reasonably be expected, individually or in the aggregate, to have a Company Material Adverse Effect:

(a) Hazardous Material. Neither the Company nor any of its Subsidiaries has: (i) operated any underground storage tanks at any property that the Company or any Subsidiary has at any time owned, operated, occupied or leased, or (ii) released any substance that has been designated by any Governmental Entity or by applicable federal, state, local or foreign Law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including without limitation PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the federal Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws (a “Hazardous Material”), but excluding office and janitorial supplies properly and safely maintained. No Hazardous Materials are present, as a result of the actions of the Company or any Subsidiary, or, to the Company’s knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including,

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without limitation, the land and the improvements, ground water and surface water thereof, that the Company or any Subsidiary has at any time owned, operated, occupied or leased.

(b) Hazardous Materials Activities. Neither the Company nor any of its Subsidiaries has transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any Law promulgated by any Governmental Entity, nor has the Company or any of its Subsidiaries disposed of, transported, sold, or manufactured any product containing a Hazardous Material (any or all of the foregoing being collectively referred to as “Hazardous Materials Activities”) in violation of any Law promulgated by any Governmental Entity to prohibit, regulate or control Hazardous Materials or any Hazardous Materials Activity.

(c) Permits. The Company and each of its Subsidiaries currently hold all environmental approvals, permits, licenses, clearances and consents (the “Environmental Permits”) necessary for the conduct of their respective Hazardous Material Activities and other business as such activities and business are currently being conducted and as currently proposed to be conducted.

(d) Environmental Liabilities. No action, proceeding, investigation, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the Company’s knowledge, threatened, concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is aware of any fact or circumstance which could involve the Company or any Subsidiary in any environmental litigation or impose upon the Company or any Subsidiary any environmental liability.

3.24 Brokers’ and Finders’ Fees. Neither the Company nor any of its Subsidiaries has incurred, or will incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement, the Merger or any other transaction contemplated hereby or by the Related Agreements.

3.25 Employee Matters and Benefit Plans.

(a) Schedule. Schedule 3.25(a) sets forth each Company Employee Plan. Neither the Company nor any of its Subsidiaries has any stated plan, intention or commitment to establish any new Company Employee Plan, to modify any Company Employee Plan (except to the extent required by Law or to conform any such Company Employee Plan to the requirements of any applicable Law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to enter into any Company Employee Plan.

(b) Documents. The Company has previously provided to Parent (i) correct and complete copies of all documents embodying or relating to each Company Employee Plan, including all amendments thereto and written interpretations thereof, (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan, (iii) the three (3) most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan or related trust, (iv) if any Company

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Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets, (v) the most recent summary plan description together with the most recent summary of material modifications, if any, with respect to each Company Employee Plan, (vi) all IRS determination, opinion, notification and advisory letters and rulings relating to Company Employee Plans and copies of all applications and correspondence to or from the IRS, DOL or any other Governmental Entity with respect to any Company Employee Plan, (vii) all material written agreements and contracts relating to each Company Employee Plan, including, without limitation, fidelity or ERISA bonds, administrative service agreements, group annuity contracts and group insurance contracts, (viii) all communications material to any Employee or Employees relating to any Company Employee Plan and any proposed Company Employee Plans, in each case relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules, other than individual employee statements of benefits or distribution notices issued in the ordinary course of business, or other events which would result in any material liability to the Company and which are not reflected in the current summary plan description and plan document, (ix) all forms and notices relating to the provision of post-employment continuation of health coverage, (x) all policies pertaining to fiduciary liability insurance covering the fiduciaries of each Company Employee Plan and (xi) all discrimination and qualification tests, if any, for each Company Employee Plan for the most recent plan year.

(c) Employee Plan Compliance. (i) The Company and each Subsidiary has performed all obligations required to be performed by it under each Company Employee Plan in all material respects and each Company Employee Plan has been established and maintained in accordance with its terms and in compliance with all applicable Laws, including, without limitation, ERISA or the Code, (ii) each Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code is so qualified and has either received a favorable determination letter or opinion letter from the IRS with respect to such Company Employee Plan as to its qualified status under the Code, including all amendments to the Code effected by the so called “GUST” and EGTRRA legislation, or has a period of time remaining under applicable Treasury regulations or IRS pronouncements in which to apply for and obtain such a letter, (iii) no non-exempt “prohibited transaction,” within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any Company Employee Plan, (iv) there are no actions, suits or claims pending, or, to the knowledge of the Company, threatened or anticipated (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan, (v) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without liability to the Company, any of its Subsidiaries, Parent or any of its ERISA Affiliates (other than ordinary administration expenses typically incurred in a termination event), (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Company, threatened by the IRS or DOL with respect to any Company Employee Plan, (vii) all annual reports and other filings required by the DOL or the IRS have been timely made, (viii) neither the Company nor any of its Subsidiaries nor any Affiliate is subject to any penalty or Tax with respect to any Company Employee Plan under Section 502(i) of ERISA or Section 4975 through 4980D of the Code, and (ix) no Company Employee Plan is sponsored or maintained by Co-Employer.

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(d) Pension Plans. None of the Company, any Subsidiary or any ERISA Affiliate now, or has ever, maintained, established, sponsored, participated in, or contributed to, any “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA which is subject to Title IV of ERISA or Section 412 of the Code.

(e) Multiemployer Plans. At no time has the Company, any Subsidiary or any ERISA Affiliate contributed to or been requested to contribute to any “multiemployer plan”, as defined in Section 3(37) of ERISA.

(f) No Post-Employment Obligations. No Company Employee Plan provides, or has any liability to provide, life insurance, medical or other employee welfare benefits to any Employee upon his or her retirement or termination of employment for any reason, except as may be required by Law, and neither the Company nor any Subsidiary has ever represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) that such Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by Law.

(g) Effect of Transaction.

(i) The execution and delivery by the Company of this Agreement and any Related Agreement to which the Company is a party, and the consummation of the transactions contemplated hereby and thereby, will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit under any Company Employee Plan, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee.

(ii) No payment or benefit, whether under a Company Employee Plan, an agreement or otherwise which will or may be made by the Company, any of its Subsidiaries or Parent or any of their respective Affiliates with respect to any Employee resulting from this transaction will be characterized as an “excess parachute payment,” within the meaning of Section 280G(b)(2) of the Code.

3.26 Employment Matters.

(a) Schedule 3.26(a) sets forth, with respect to each Employee (including any Employee who is on a leave of absence or on layoff status subject to recall), the name of such Employee and the date as of which such Employee was originally hired by the Company or any of its Subsidiaries, and whether the Employee is on an active or inactive status. Schedule 3.26(a) also sets forth, with respect to each Employee, (i) such Employee’s title, (ii) such Employee’s annualized compensation as of the date of this Agreement, including base salary, vacation and/or paid time off accrual amounts, bonus and/or commission potential, severance pay potential, and any other compensation forms, (iii) each current benefit plan in which such Employee participates or is eligible to participate, (iv) any governmental authorization, permit or license

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that is held by such Employee and that is used in connection with the Company’s business, and (v) whether the Employee has executed the Company’s standard form of proprietary information and inventions agreement.

(b) Schedule 3.26(b) contains a list of individuals who are currently performing services for the Company or any of its Subsidiaries and are classified as “consultants” or “independent contractors,” the respective compensation of each such “consultant” or “independent contractor” and whether the Company is party to a consulting or independent contractor agreement with the individual. Any such agreements have been delivered to Parent and are set forth on Schedule 3.26(b). Any Persons engaged by the Company or any of its Subsidiaries as independent contractors, rather than Employees, have been properly classified as such, are not entitled to any benefits to which regular, full-time Employees are entitled to, and have been engaged in accordance with all applicable Laws.

(c) Each Employment Agreement is set forth on Schedule 3.26(c) and a copy of each Employment Agreement and any amendment thereto has been provided to Parent. Except as set forth in Schedule 3.26(c), the employment of each of the Employees is terminable by the Company at will. All agreements that provide that an Employee is not employed at will are identified in Schedule 3.26(c).

(d) The Company and each Subsidiary has delivered to Parent accurate and complete copies of all employee manuals and handbooks, employment policy statements, employment agreements, and other materials relating to the employment of the Employees.

(e) (i) None of the Company’s Employees have given the Company or any of its Subsidiaries notice or any other communication terminating his or her employment with the Company or any of its Subsidiaries, or terminating his or her employment upon a sale of, or business combination relating to, the Company or any Subsidiary or in connection with the transactions contemplated by this Agreement, or expressed or otherwise indicated that he or she will not accept employment with Parent, (ii) neither the Company nor any Subsidiary has a present intention to terminate the employment of any current employee, (iii) to the Company’s knowledge, no current employee has received, or is currently considering, an offer to join a business that likely would be competitive with the Company’s or any Subsidiary’s business, (iv) to the Company’s knowledge, no Employee, consultant or contractor is a party to or is bound by any employment contract, patent disclosure agreement, noncompetition agreement, any other restrictive covenant or other contract with any Person, or subject to any judgment, decree or order of any Government Entity, any of which could reasonably be expected to have a material adverse effect in any way on (A) the performance by such Person of any of his or her duties or responsibilities for the Company or any Subsidiary, or (B) the Company’s business or operations, (v) to the Company’s knowledge, no current employee, contractor or consultant is in violation of any term of any employment contract, patent disclosure agreement, noncompetition agreement, or any other restrictive covenant to a former employer or entity relating to the right of any such Employee, contractor or consultant to be employed or retained by the Company or any Subsidiary, as the case may be, and (vi) neither the Company nor any Subsidiary is, and neither has ever been, engaged in any dispute or litigation with an Employee regarding intellectual property matters.

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(f) Neither the Company nor any of its Subsidiaries is presently, nor have they been in the past, a party to or bound by any union contract, collective bargaining agreement or similar contract. Neither the Company nor any of its Subsidiaries knows of any activities or proceedings of any labor union to organize any Employees.

(g) Neither the Company nor any of its Subsidiaries is engaged, nor to the Company’s knowledge has ever been engaged, in any unfair labor practice of any nature, which, if adversely determined, would, individually or in the aggregate, result in any liability to the Company or any of its Subsidiaries. There has never been any slowdown, work stoppage, labor dispute or union organizing activity, or any similar activity or dispute, affecting the Company, any of its Subsidiaries or any Employees. There is not now pending, and to the Company’s knowledge no Person has threatened to commence, any such slowdown, work stoppage, labor dispute, union organizing activity or any similar activity or dispute, nor has any event occurred, nor does any condition or circumstance exist, that could reasonably be expected to directly or indirectly give rise to or provide a basis for the commencement of any such slowdown, work stoppage, labor dispute, union organizing activity or any similar activity or dispute.

(h) The Employees have been, and currently are, properly classified under the Fair Labor Standards Act of 1938, as amended, and under any applicable Law. Neither the Company nor any of its Subsidiaries is delinquent to, or has failed to pay, any of its Employees, consultants or contractors for any wages (including overtime), salaries, commissions, bonuses, benefits or other direct compensation for any services performed by them to the date hereof or amounts required to be reimbursed to such individuals. Neither the Company nor any of its Subsidiaries is liable for any payment to any trust or other fund or to any Governmental Entity, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the normal course of business and consistent with past practice).

(i) Neither the Company nor any of its Subsidiaries has an established severance pay practice or policy. Except as set forth in Schedule 3.26(i), (i) neither the Company nor any of its Subsidiaries is liable for any severance pay, bonus compensation, acceleration of payment or vesting of any equity interest, or other payments (other than accrued salary, vacation, or other paid time off in accordance with the Company’s and Subsidiaries’ policies) to any Employee arising from the termination of employment under any benefit or severance policy, practice, agreement, plan, program of the Company, applicable Law or otherwise, and (ii) as a result of or in connection with the transactions contemplated hereunder or as a result of the termination by the Company or any of its Subsidiaries of any Persons employed by the Company or any of its Subsidiaries on or prior to the Closing Date, the Company will not have (A) any liability that exists or arises, or may be deemed to exist or arise, under any Company or any of its Subsidiaries’ benefit or severance policy, practice, agreement, plan, program, Law applicable thereto or otherwise, including, without limitation, severance pay, bonus compensation or similar payment, or (B) to accelerate the time of payment or vesting, or increase the amount of or otherwise enhance any benefit, due any Employee. Accordingly, as of the Closing Date, the Company shall have satisfied in full all of its obligations to such Employees, consultants or contractors, and Parent will not be liable to any such employees,

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consultants and/or contractors for any severance pay, accelerated vesting, or any other payments whatsoever (other than in accordance with Parent’s policies).

(j) The Company and each of its Subsidiaries is in compliance with all applicable Laws, agreements, contracts and promises respecting employment, employment practices, employee benefits, terms and conditions of employment, immigration matters, labor matters, and wages and hours, in each case, with respect to its employees.

(k) There are no claims pending or, to the Company’s knowledge, threatened, before any Governmental Entity by any Employees for compensation, pending severance benefits, vacation time, vacation pay or pension benefits, or any other claim threatened or pending before any Governmental Entity (or any state “referral agency”) from any Employee or any other Person arising out of the Company’s or any Subsidiary’s status as employer, whether in the form of claims for employment discrimination, harassment, unfair labor practices, grievances, wrongful discharge, breach of contract, tort, unfair competition or otherwise. In addition, there are no pending, threatened or reasonably anticipated claims or actions against the Company or any of its Subsidiaries under any workers compensation policy or long-term disability policy.

(l) The Company and each Subsidiary, and to the Company’s knowledge each Employee, is in compliance with all applicable visa and work permit requirements, and no visa or work permit held by an Employee will expire during the six (6) month period beginning at the date of this Agreement.

(m) To the Company’s knowledge, neither the execution nor the delivery of this Agreement, nor the carrying on of the Company’s and Subsidiaries’ business as presently conducted or as presently proposed to be conducted, nor any activity of any Company or any Subsidiary officers, directors, Employees or consultants in connection with the carrying on of the Company’s and Subsidiaries’ business as presently conducted or as presently proposed to be conducted, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract or agreement under which any of such officers, directors, employees or consultants is now bound.

3.27 Foreign Corrupt Practices Act. Neither the Company nor any of its Subsidiaries (including any of their officers or directors) has taken any action which would cause it to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any rules or regulations thereunder.

3.28 Approvals. The aggregate number of shares of Company Common Stock and Preferred Stock owned by those Persons entering into Voting Agreements as of the date hereof constitutes a sufficient number of shares of the Company Common Stock and the Company Preferred Stock to approve this Agreement, the Merger, the Escrow Agreement and the transactions contemplated hereby and thereby under the Company’s Certificate of Incorporation and the DGCL and constitute the Company Stockholder Requisite Approval.

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3.29 Representations Complete. None of the representations or warranties made by the Company in this Agreement or any Related Agreement, nor any statement made in the Company Schedule or any certificate furnished by the Company pursuant to this Agreement, when taken together, (i) contains any untrue statement of a material fact, or (ii) omits to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub represent and warrant to the Company as follows:

4.1 Organization of Parent and Merger Sub. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Parent and Merger Sub has the full corporate power and authority to own its properties and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the conduct of its business or the ownership, leasing, holding or use of its properties makes such qualification necessary, except such jurisdictions where the failure to be so qualified or licensed or in good standing could not reasonably be expected to have a material adverse effect on the business, assets, liabilities, condition (financial and other) or results of operations of Parent and its subsidiaries on a consolidated basis.

4.2 Authority. Each of Parent and Merger Sub has all requisite corporate power and authority to enter into this Agreement and the Related Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Related Agreements to which Parent or Merger Sub is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement has been, and each of the Related Agreements to which Parent or Merger Sub is a party will be at the Closing, duly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery by the other parties hereto and thereto (other than Parent and Merger Sub), this Agreement constitutes, and in the case of the Related Agreements they will at Closing constitute, valid and binding obligations of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with their respective terms, except as such enforceability may be subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar Laws affecting the enforcement of creditors’ rights generally and by general principles of equity. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, or notice to, any Governmental Entity, including, without limitation, any permits, authorizations or other such actions required by the HSR Act, is required by or with respect to Parent or Merger Sub in connection with the execution and delivery of this Agreement and the Related Agreements by Parent and Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated hereby or thereby except for (i) the filing of the

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Certificate of Merger with the Secretary of State of the State of Delaware and (ii) such consents, approvals, order, authorizations, registrations, declarations, filings and notices as may be required under applicable securities Laws.

4.3 No Conflict. The execution and delivery by Parent and Merger Sub of this Agreement and any Related Agreement to which either is a party do not, and the consummation of the transactions contemplated hereby and thereby will not, result in any violation of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit under, (i) any provision of the Certificates of Incorporation or By-laws of Parent or Merger Sub, as in effect on the date hereof, (ii) any contract to which Parent or Merger Sub or any of their respective properties or assets (whether tangible or intangible) is subject, or (iii) any Laws applicable to Parent or Merger Sub or any of their respective properties (whether tangible or intangible) or assets, except, in the case of (ii) or (iii), for such violations or defaults as could not individually or in the aggregate reasonably be expected to have a material adverse effect on the business, assets, liabilities, condition (financial or other) or results of operations of Parent and its subsidiaries on a consolidated basis.

4.4 Litigation. There is no action, suit or proceeding of any nature pending or, to the Parent or Merger Sub’s knowledge, threatened against the Parent or Merger Sub, any of their respective properties or any of their respective officers, directors or Employees, that would have a material adverse effect on the ability of Parent or Merger Sub to perform its obligations pursuant to this Agreement and to consummate the Merger and the transactions contemplated by this Agreement in a timely manner. There is no investigation pending or, to the Parent or Merger Sub’s knowledge, threatened against the Parent or Merger Sub, any of their respective properties or any of their respective officers, directors or employees by or before any Governmental Entity, that would have a material adverse effect on the ability of Parent or Merger Sub to perform its obligations pursuant to this Agreement and to consummate the Merger and the transactions contemplated by this Agreement in a timely manner.

4.5 Brokers’ and Finders’ Fees. Neither Parent nor Merger Sub has incurred, or will incur, directly or indirectly, any brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement, the Merger or any other transaction contemplated hereby or by the Related Agreements, that would subject the Stockholders to any liability for such fees or commissions or similar charges.

4.6 Financing. Parent and Merger Sub collectively have and will have at the Effective Time sufficient funds to pay the Merger Consideration.

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ARTICLE V

STOCKHOLDER APPROVAL

5.1 Stockholder Approval. (a) Immediately upon the execution of this Agreement, the Company shall submit this Agreement and the transactions contemplated hereby to the Stockholders for approval and adoption as provided by the DGCL and CGCL and the Company Certificate of Incorporation and By-laws of the Company. Such submission, and any proxy or consent in connection therewith, shall specify that adoption of this Agreement shall constitute approval by the Stockholders of: (A) the escrow and indemnification obligations of the Stockholders set forth in Section 2.6(e) and Article X hereof and the deposit of the Indemnity Escrow Amount and the Working Capital Escrow Amount with the Escrow Agent, and (B) the appointment of Tim Guleri as Stockholder Representative, with the rights and responsibilities set forth in this Agreement.

(b) Any materials to be submitted to the Stockholders in connection with the solicitation of their approval of the Merger and this Agreement (the “Soliciting Materials”) shall be subject to review and approval by Parent, which approval shall not be unreasonably withheld, and shall include (i) information regarding the Company, the terms of the Merger, this Agreement and the Related Agreements, (ii) the unanimous recommendation of the board of directors of the Company in favor of the Merger, this Agreement, the Escrow Agreement and the other transactions contemplated by this Agreement, and (iii) a statement that the Company’s board of directors has unanimously determined that the terms of the Merger and this Agreement are fair to and in the best interests of the Company and the Stockholders.

(c) Notwithstanding anything to the contrary contained he rein, the Company shall not include in the Soliciting Materials any information with respect to Parent or its Affiliates or the form and content of which shall not have been approved by Parent prior to such inclusion, which approval shall not be unreasonably withheld. The Company shall use its best efforts to obtain, within two (2) Business Days of the date hereof, the consent of its Stockholders sufficient to approve the Merger and this Agreement and to enable the Closing to occur as promptly as practicable following the date hereof.

(d) Notwithstanding the foregoing, the Company shall give the Stockholders sufficient notice such that (i) no Stockholder will be entitled to exercise appraisal rights if such Stockholder has not perfected such appraisal rights prior to Closing, pursuant to Section 262 of the DGCL and (ii) each Stockholder will be entitled to exercise dissenters’ rights under the CGCL. The Company shall consult with Parent as to whether the approval of this Agreement and the Merger and the transactions contemplated hereby by the Stockholders shall be sought by written consent or by means of a Stockholders’ meeting (the “Company Stockholders Meeting”). If approval is sought by means of a Company Stockholders Meeting, then the Company shall consult with Parent regarding the date of the Company Stockholders Meeting and shall not postpone or adjourn (other than for absence of a quorum) the Company Stockholders Meeting without the consent of Parent, which consent shall not be unreasonably withheld.

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ARTICLE VI

CONDUCT PRIOR TO THE EFFECTIVE TIME

6.1 Conduct of Business of the Company and Subsidiaries. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement and the Effective Time, the Company agrees (except to the extent that Parent shall otherwise consent in writing) to, and to cause each of its Subsidiaries to, carry on its business in the usual and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable best efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. The Company shall promptly notify Parent of any materially negative event involving or adversely affecting the Company, any Subsidiary or their respective businesses. Except as expressly contemplated by this Agreement, the Company shall not, and shall cause each of its Subsidiaries to not, without the prior written consent of Parent:

(a) Reprice any Company Options or Warrants or authorize cash payments in exchange for any outstanding Company Option or Warrant or permit the exercise price of any outstanding Company Option or Warrant to be paid by means other than by cash or check;

(b) Make any payments or enter into any commitment or transaction outside of the ordinary course of business consistent with past practices or in excess of $10,000 in any individual case;

(c) Issue, grant, deliver or sell, or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any Company Capital Stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities (except for the issuance of Company Common Stock upon exercise of presently outstanding Company Options or Warrants; provided, that (i) the Company timely pays in cash all Taxes required to be withheld and paid in connection with such exercise or conversion, (ii) the amount of such Taxes is contributed to the Company in cash by the Person exercising or converting such Company Option or Warrant, (iii) for purposes of determining the amount of such Taxes, the fair market value of the Company Common Stock received pursuant to such exercise or conversion is equal to the maximum aggregate consideration payable with respect to such Company Common Stock pursuant to this Agreement, including for this purpose any consideration to be deposited with the Escrow Agent as part of the Indemnity Escrow Amount or Working Capital Escrow Amount, and (iv) the Company promptly notifies Parent of such exercise or conversion);

(d) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any Person

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or division thereof, or otherwise acquire or agree to acquire outside of the ordinary course of business any assets in any amount, or in the ordinary course of business in an amount in excess of $10,000 in the case of a single transaction or in excess of $20,000 in the aggregate;

(e) Hire any Employees, or encourage any Employees to resign from the Company, or promote any Employees or change the employment status or titles of any of the Employees, except for the hiring of Employees at non-executive levels in the ordinary course of business at compensation rates comparable to other Employees at similar levels;

(f) Engage in any action with the intent to directly or indirectly adversely impact any of the transactions contemplated by this Agreement;

(g) Take any action that would have been a breach of any of the provisions of Section 3.9 had such action occurred after the Balance Sheet Date and prior to the date of this Agreement (without regard for disclosures in the Company Schedules); or

(h) Take, or agree in writing or otherwise to take, any of the actions described in Sections 6.1(a) through (g) above, or any other action that would prevent the Company from performing or cause the Company not to perform its covenants hereunder.

ARTICLE VII

ADDITIONAL AGREEMENTS

7.1 Access to Information. The Company shall afford Parent and its accountants, legal counsel, and other representatives complete and timely access during normal business hours during the period prior to the Effective Time to (a) all of the properties, books, contracts, commitments and records of the Company and its Subsidiaries and (b) all other information concerning the business, properties, products, services and personnel of the Company and its Subsidiaries as Parent may reasonably request. To the extent available, the Company agrees to provide Parent and its accountants, legal counsel, and other representatives copies of internal financial statements promptly upon request. No information or knowledge obtained in any investigation pursuant to this Section 7.1 or otherwise shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger.

7.2 Confidentiality. The parties acknowledge that the Company and Parent have previously executed a Mutual Nondisclosure Agreement, dated as of September 17, 2004 (the “Nondisclosure Agreement”), which Nondisclosure Agreement will continue in full force and effect in accordance with its terms.

7.3 Public Disclosure. Unless otherwise required by Law (including without limitation applicable securities Laws) or, as to Parent, by regulatory authority, prior to the Effective Time no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto (other than disclosures to Stockholders pursuant to Section 5.1 and other than a press release, Form 8-K and a stockholder conference

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call by Parent in connection with the execution of this Agreement) unless approved by Parent and the Company prior to release, provided, however, that such approval shall not be unreasonably withheld. Notwithstanding the immediately preceding sentence, in the event that either party is required by Law or Governmental Entity to make any such disclosure, such party shall notify the other party prior to making such disclosure and shall use its reasonable best efforts to give the other party an opportunity to comment on such disclosure.

7.4 Consents. The Company shall promptly apply for or otherwise seek and use its reasonable best efforts to obtain all consents and approvals required to be obtained by it for the consummation of the Merger, including all consents, waivers, or approvals under any of the Contracts in order to preserve the benefits thereunder for the Surviving Corporation and otherwise in connection with the Merger.

7.5 Conditions to the Merger; Further Assurances. Each of the parties to this Agreement shall use its reasonable best efforts to effectuate the transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to closing under this Agreement. Each of the parties to this Agreement shall use its reasonable best efforts to comply promptly with all legal requirements which may be imposed on such party with respect to the Merger and will promptly cooperate with and furnish information to any other party hereto in connection with any such requirements imposed upon such other party in connection with the Merger. Each party will use its reasonable best efforts to obtain and make (and will cooperate with the other parties in obtaining or making) any consent, authorization, order or approval of, or any registration, declaration, or filing with, or an exemption by, any Governmental Entity, or other third party, required to be obtained or made by such party or its Subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement; provided, however, Parent shall not be required to agree to any divestiture by Parent or the Company or any of Parent’s Affiliates of any shares of capital stock or of any business, assets or property of Parent or its Affiliates or of the Company or its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, property and stock. Each party hereto, at the request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be reasonably necessary or desirable for effecting completely the consummation of the Merger and the other transactions contemplated by this Agreement and the Related Agreements.

7.6 Notification of Certain Matters. The Company shall give prompt written notice to Parent, and Parent shall give prompt written notice to the Company, of (i) the occurrence or non-occurrence of any event which is likely to cause any representation or warranty of the Company, on the one hand, or Parent or Merger Sub, on the other hand, contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time and (ii) any failure of the Company or Parent, as applicable, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 7.6 shall not limit or otherwise affect any remedies available to the party receiving such notice.

7.7 [RESERVED]

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7.8 Benefit Arrangements.

(a) Subject to the other provisions of this paragraph, Parent agrees that all full-time Employees of the Company who continue employment with the Surviving Corporation after the Effective Time (the “Continuing Employees”) shall have the opportunity to participate, or to continue to participate, in employee benefit plans and arrangements of the Surviving Corporation or, at Parent’s election, of the Parent, that provide the following benefits: 401(k), health, dental, life insurance, long-term disability, as well as any other employee benefits and arrangements available generally to the full-time employees of Parent on the same terms and conditions as are available to such Parent employees (the “Plans”). Participation of the Continuing Employees in such Plans shall be in accordance with the terms and conditions of the Plans; provided, however, that nothing in this Section 7.8 or elsewhere in this Agreement shall limit the right of Parent or the Surviving Corporation to amend or terminate any such Plan at any time. Nothing in this Section 7.8 or elsewhere in this Agreement shall be construed to create a right in any Employee to employment with Parent, the Surviving Corporation or any other Subsidiary of Parent, and the employment of each Continuing Employee shall be “at will” employment, if permitted under applicable Law.

(b) The Company agrees that the Board of Directors of the Company, prior to the Effective Time, will vote to terminate prior to the Effective Time the Company’s 401(k) plan, and any other pension plan that it sponsors or maintains for the benefit of any of the Employees, and will authorize the appropriate officers of the Company to use their best efforts to take all other necessary actions to complete the termination of said plans, including, but not limited to, the distribution of assets as soon as practicable thereafter.

7.9 Company Options. Effective as of the Effective Time, Parent shall assume the Company Option Plans and the option agreements representing the Company Options (the “Option Agreements”) with respect to the Unvested Options; provided, however, that (i) each Unvested Option so assumed shall thereafter be exercisable for such number of shares of Parent Common Stock as equals the number of unvested shares of Company Common Stock subject to such Unvested Option multiplied by the Option Exchange Ratio, (ii) the exercise price per share of each such assumed Unvested Option shall be equal to the exercise price per share set forth in the Option Agreement for such Unvested Option divided by the Option Exchange Ratio, and (iii) the vesting schedule for such assumed Unvested Option shall remain unchanged and as set forth in the Option Agreement for such assumed Unvested Option without any acceleration whatsoever. The Company and the Administrator of the Company Option Plans (the “Administrator”) shall take all actions necessary or required under the Company Option Plans and the Option Agreements to cause (i) the Company Option Plans and all Unvested Options to be assumed on the terms and conditions set forth in the preceding sentence such that the vesting of no Company Options is accelerated, (ii) all Vested Options, to the extent not previously exercised, to be terminated effective as of immediately prior to the Effective Time, and (iii) the Company Option Plans to be amended such that, after the Effective Time, (x) no further option grants may be made under the Company Option Plans, (y) outstanding Options cannot be repriced and (z) the exercise price for outstanding Options may be paid only in cash or by check.

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7.10 Company Warrants. The Company shall take all action necessary or required under the Warrants to cause such Warrants to be exercised, and if not exercised terminated, effective as of immediately prior to the Effective Time.

7.11 Termination of Company Investor Rights. The Company shall take such steps as may be necessary to terminate, as of the Closing, all Company investor rights granted by the Company to the Stockholders and in effect prior to the Closing, including, without limitation, rights of co-sale, voting, registration, first refusal, board observation or information or operational covenants.

7.12 No Solicitation. (a) Until the earlier of the Effective Time and the date of termination of this Agreement pursuant to Section 11.1 hereof, the Company shall not (nor shall the Company permit any of its Subsidiaries or any of their respective officers, directors, employees, stockholders, advisors, agents, representatives or Affiliates to), directly or indirectly, take any of the following actions with any Person other than Parent and its designees: (a) solicit, encourage, seek, entertain, support, assist, initiate or participate in any inquiry, negotiations or discussions, or enter into any agreement, with respect to any offer or proposal to acquire all or any material part of the business, assets or technologies of the Company or its Subsidiaries, or any amount of the Company Capital Stock or capital stock of any Subsidiary (whether or not outstanding), whether by merger, purchase of assets, purchase of securities, tender offer, license or otherwise, or effect any such transaction (a “Proposal”), (b) disclose any information to any Person concerning the business, technologies or properties of the Company or its Subsidiaries, or afford to any Person access to their respective properties, technologies, books or records, not customarily afforded such access, (c) assist or cooperate with any Person to make any Proposal, or (d) enter into any agreement with any Person with respect to a Proposal. The Company shall immediately cease and cause to be terminated any such negotiations, discussions or agreements (other than with Parent) that are the subject matter of clause (a), (b), (c) or (d) above.

(b) Notwithstanding the foregoing, the Board of Directors of the Company, directly or indirectly through advisors, agents or other intermediaries, at any time prior to the time the Merger has been approved by the Stockholders, may, in response to a bona fide written Proposal from a third party that was not solicited by the Company, any of its Subsidiaries or Affiliates or any of their respective officers, directors, employees, stockholders, agents, advisors, representatives or Affiliates and that involves the acquisition by the third party of at least a majority of the outstanding shares of Company Capital Stock (an “Acquisition Proposal”), provide information concerning the Company to, and engage in negotiations and discussions with, the third party proposing or offering the Acquisition Proposal if the Company receives from the third party so requesting such information an executed confidentiality agreement (a copy of which shall be provided to Parent for informational purposes) the terms of which are (without regard to the terms of the Acquisition Proposal) (x) no less favorable to the Company and (y) no less restrictive on the third party requesting such information than those contained in the Nondisclosure Agreement. In the event that (w) the Acquisition Proposal does not contain a financing contingency, (x) the Board of Directors of the Company determines in good faith (after consultation with its financial advisor and outside legal counsel) that the Acquisition Proposal, if accepted, is reasonably likely to be consummated, (y) the Board of Directors of the Company determines in good faith (after consultation with its outside legal counsel and its financial

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advisor) that the Acquisition Proposal would, taking into account all relevant material terms of such Acquisition Proposal and this Agreement, if consummated, result in a transaction that (1) involves the acquisition by the third party of all or substantially all of the outstanding shares of Company Capital Stock, (2) is superior, from a financial point of view, to the Stockholders than the Merger and (3) is more favorable generally to the Stockholders than the Merger (any Acquisition Proposal as to which such determinations have been made being referred to in this Agreement as a “Superior Proposal”) and (z) the Board of Directors determines in good faith (after consultation with its outside legal counsel) that the failure to take such action would result in a breach of its fiduciary duties under applicable Law, then the Company shall be entitled to terminate this Agreement pursuant to and subject to the conditions of Section 11.1(g) hereof.

(c) Nothing in this Section 7.12 shall permit the Company to enter into any agreement, orally or in writing, with respect to a Proposal during the term of this Agreement (other than a confidentiality agreement as described above). After the date hereof and before the Effective Time, neither the Company’s Board of Directors nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Parent, its recommendation to the Stockholders that they approve this Agreement and the Merger or (ii) approve or recommend, or propose publicly to approve or recommend, any Proposal. Notwithstanding the foregoing, at any time after the date hereof and prior to the time this Agreement and the Merger has been approved by the Stockholders, the Company’s Board of Directors, as a result of a Superior Proposal, may withdraw or modify in a manner adverse to Parent its recommendation to the Stockholders that they approve this Agreement and the Merger if and only to the extent that the Company’s Board of Directors determines in good faith (after consultation with its outside legal counsel and its financial advisor) that the failure to take such action would result in a breach of its fiduciary duties under applicable Law. The Company shall advise Parent in writing of any Proposal (including the terms thereof and the identity of the Person making the Proposal) and inquiries with respect to any Proposal within 24 hours of the receipt of such Proposal or inquiry and shall keep Parent informed on a current basis of the status of any discussions regarding a Proposal.

(d) The parties hereto agree that irreparable damage would occur in the event that the provisions of this Section 7.12 were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed by the parties hereto that Parent shall be entitled to an immediate injunction or injunctions, without the necessity of proving the inadequacy of money damages as a remedy and without the necessity of posting any bond or other security, to prevent breaches of the provisions of this Section 7.12 and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which Parent may be entitled at law or in equity. Without limiting the foregoing, it is understood that any violation of the restrictions set forth above by any officer, director, employee, stockholder, agent, advisor, representative, Subsidiary or Affiliate of the Company shall be deemed to be a breach of this Agreement by the Company.

7.13 Resignation of Officers and Directors. The Company shall obtain the resignations of the officers and directors of the Company and its Subsidiaries, effective as of the Effective Time.

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7.14 Indemnification of Company Officers and Directors.

(a) For a period of six (6) years after the Effective Time, Parent agrees that it will indemnify, defend and hold harmless each director and officer of the Company (when acting in such capacity) determined as of immediately prior to the Effective Time (the “Company Indemnified Parties”), to the fullest extent that the Company would have been required or permitted under the Company Certificate of Incorporation and By-laws in effect on the date hereof (the “Company Indemnification Obligations”), against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities (collectively, “Costs”) incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time which are asserted after the Effective Time. In connection therewith, Parent shall also advance expenses to the Company Indemnified Parties as incurred to the fullest extent permitted under the Company Indemnification Obligations; provided, however, that the Person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Person is not entitled to indemnification. However, the foregoing provisions of this Section 7.14 shall not apply to: (i) any claim for indemnification made pursuant to Article X hereof, (ii) any matter that, were it asserted by a third party against Parent or the Surviving Corporation, would be an indemnifiable claim pursuant to Article X hereof, or (iii) any claim or matter that relates to a willful or intentional breach of a representation, warranty or covenant made by the Company in connection with this Agreement or the transactions contemplated hereby or made by a Stockholder in connection with its Voting Agreement.

(b) Any Company Indemnified Party wishing to claim indemnification under paragraph (a) of this Section 7.14 upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify Parent thereof. In the event of any such claim, action, suit, proceeding or investigation, (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof and, provided that Parent or Surviving Corporation does promptly assume and defend such claim, Parent shall not be liable to such Company Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Company Indemnified Parties in connection with the defense thereof, (ii) the Company Indemnified Parties will cooperate in the defense of any such matter and (iii) Parent shall not be liable for any settlement effected without its prior written consent; and provided, further, that Parent shall not have any obligation hereunder to any Company Indemnified Party if and when a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Company Indemnified Party in the manner contemplated hereby is prohibited by applicable Law; and provided further, that any Company Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof in the event the representation of such Company Indemnified Party by counsel retained by or on behalf of the Parent or the Surviving Corporation would be inappropriate due to conflicts of interest, as established by the reasonable advice of Parent’s counsel, between any such Company Indemnified Party and any other party represented by such counsel in such proceeding or actions, in which case such Company Indemnified Party and Parent each shall pay, as incurred, one-half the fees and expenses of such separate counsel.

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(c) Parent will not, nor will Parent permit the Surviving Corporation to, merge or consolidate with any other Person or sell all or substantially all of the Parent’s or the Surviving Corporation’s assets unless Parent or the Surviving Corporation will ensure that the surviving or resulting entity assumes the obligations imposed by this Section 7.14.

(d) The provisions of this Section 7.14 are intended to be for the benefit of, and shall be enforceable by, each of the Company Indemnified Parties and their heirs and estates.

ARTICLE VIII

TAX MATTERS

8.1 Tax Representations. Subject to such exceptions as are disclosed in the Company Schedules, the Company hereby represents and warrants to each of Parent and Merger Sub, as of the date hereof and as of the Closing, as follows:

(a) The Company and each Subsidiary have timely filed all material Tax Returns required to be filed (determined without regard to extensions). The Company and each Subsidiary have paid all Taxes owed (whether or not shown, or required to be shown, on Tax Returns). The Company and each of its Subsidiaries have withheld and paid all Taxes required to have been withheld and paid. All Tax Returns filed by the Company and the Subsidiaries were complete and correct in all material respects, and such Tax Returns correctly reflected the facts regarding the income, business, assets, operations, activities, status and other matters of the Company and the Subsidiaries and any other information required to be shown thereon. Neither the Company nor any Subsidiary has participated, within the meaning of Treasury Regulation Section 1.6011-4(c), in (i) any “reportable transaction” within the meaning of Section 6011 of the Code and the Treasury Regulations thereunder, (ii) any “confidential corporate tax shelter” within the meaning of Section 6111 of the Code and the Treasury Regulations thereunder, or (iii) any “potentially abusive tax shelter” within the meaning of Section 6112 of the Code and the Treasury Regulations thereunder. The Company and each Subsidiary have disclosed on their Tax Returns all positions taken therein that could give rise to a substantial understatement of Tax within the meaning of Section 6662 of the Code (or any similar provision of state, local or foreign Tax law). There are no Liens for Taxes upon any of the Company’s or any Subsidiary’s assets, other than Liens for Taxes not yet due and payable, and there is no reasonable basis for the imposition of such Liens.

(b) None of the Tax Returns filed by the Company or any Subsidiary or Taxes payable by the Company or any Subsidiary have been the subject of an audit, action, suit, proceeding, claim, examination, deficiency or assessment by any Governmental Entity, and no such audit, action, suit, proceeding, claim, examination, deficiency or assessment is currently pending or, to the Company’s knowledge, is contemplated.

(c) Neither the Company nor any Subsidiary is currently the beneficiary of any extension of time within which to file any Tax Return, and neither the Company nor any Subsidiary has waived any statute of limitation with respect to any Tax or agreed to any

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extension of time with respect to a Tax assessment or deficiency. All material elections with respect to Taxes affecting the Company or any Subsidiary, as of the date hereof, are set forth in the Company Financial Statements, the Company Tax Returns or in Schedule 8.1.

(d) Neither the Company nor any Subsidiary is a party to any agreement, contract, arrangement or plan (including without limitation the Company Options and Company Restricted Stock) that has resulted or would result, separately or in the aggregate, in the payment of (i) any “excess parachute payments” within the meaning of Section 280G of the Code (without regard to the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the Code) or (ii) any amount for which a deduction would be disallowed or deferred under Section 162 or Section 404 of the Code. None of the shares of outstanding capital stock of the Company or any Subsidiary is subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code. No portion of the Merger Consideration is subject to the Tax withholding provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of any other provision of law.

(e) Neither the Company nor any Subsidiary is a party to or member of any joint venture, partnership, limited liability company or other arrangement or contract which could be treated as a partnership for federal income tax purposes. Neither the Company nor any Subsidiary has ever filed a consent pursuant to former Section 341(f) of the Code, relating to collapsible corporations, and former Section 341(f)(2) does not apply to any of the Company’s or any Subsidiary’s assets. Neither the Company nor any Subsidiary is, or has been, a U.S. real property holding company (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Neither the Company nor any Subsidiary owns an interest in real property in any jurisdiction in which a Tax is imposed, or the value of the interest reassessed, on the transfer of an interest in real property and which treats the transfer of an interest in an entity that owns an interest in real property as a transfer of the interest in real property. Neither the Company nor any Subsidiary has ever been either a “controlled corporation” or a “distributing corporation” (within the meaning of Section 355(a)(1)(A) of the Code) with respect to a transaction that was described in, or intended to qualify as a tax-free transaction pursuant to Section 355 of the Code. Neither the Company nor any Subsidiary has made or agreed to make any adjustment under Section 481(a) of the Code (or any corresponding provision of state, local or foreign Tax law) by reason of a change in accounting method or otherwise, and will not be required to make such an adjustment as a result of the transactions contemplated by this Agreement. Neither the Company nor any Subsidiary has participated in an international boycott as defined in Section 999 of the Code. Neither the Company nor any Subsidiary has ever (i) made an election under Section 1362 of the Code to be treated as an S corporation for federal income tax purposes or (ii) made a similar election under any comparable provision of any state, local or foreign Tax law. Neither the Company nor any Subsidiary owns, directly or indirectly, any interests in an entity that is or has been a “passive foreign investment company” within the meaning of Section 1297 of the Code or a “controlled foreign corporation” within the meaning of Section 957 of the Code.

(f) Neither the Company nor any Subsidiary is a party to any Tax sharing agreement or similar arrangement (including, without limitation, an indemnification agreement or arrangement). Neither the Company nor any Subsidiary has ever been a member of a group

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filing a consolidated federal income Tax Return or a combined, consolidated, unitary or other affiliated group Tax Return for state, local or foreign Tax purposes (other than a group the common parent of which is the Company), and neither the Company nor any Subsidiary has any liability for the Taxes of any Person (other than the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any corresponding provision of state, local or foreign Tax law), or as a transferee or successor, or by contract, or otherwise.

(g) The unpaid Taxes of the Company and its Subsidiaries did not, as of the Balance Sheet Date, exceed the reserve for actual Taxes (as opposed to any reserve for deferred Taxes established to reflect timing differences between book and Tax income) as shown on the Company Balance Sheet, and will not exceed such reserve as adjusted for the passage of time through the Closing Date in accordance with the reasonable past custom and practice of the Company and its Subsidiaries in filing Tax Returns. Neither the Company nor any Subsidiary will incur any liability for Taxes from the Balance Sheet Date through the Closing Date other than in the ordinary course of business.

(h) Schedule 8.1 lists all jurisdictions (whether foreign or domestic) to which any Tax is properly payable by the Company or any Subsidiary. No claim has ever been made by a Tax Authority in a jurisdiction where the Company or any Subsidiary does not file Tax Returns that the Company or any Subsidiary is or may be subject to Tax in that jurisdiction. Neither the Company nor any Subsidiary has, or has ever had, a permanent establishment or other taxable presence in any foreign country, as determined pursuant to applicable foreign law and any applicable Tax treaty or convention between the United States and such foreign country.

(i) The Company has delivered to Parent correct and complete copies of all Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any of the Company and its Subsidiaries for all periods from January 1, 1998 through the date hereof.

(j) Since the Balance Sheet Date, there has not been any change in any method of Tax accounting or any making of a Tax election or change of an existing election by the Company or any Subsidiary.

(k) Schedule 8.1(k) sets forth for each outstanding Company Option whether such option is a Nonstatutory Option or an incentive stock option as defined in Section 422 of the Code.

8.2 Tax Covenants. The parties hereto agree that:

(a) Conduct of the Company. From the date hereof until the Closing Date, neither the Company nor any Subsidiary shall make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes, except with the prior written consent of Parent, which consent shall not be unreasonably withheld.

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(b) Tax Returns. The Company will promptly provide or make available to Parent copies of all Tax Returns, reports and information statements that are filed after the date of this Agreement and prior to the Closing Date.

(c) Tax Contests. Notwithstanding any of the foregoing, Parent will have the right to conduct any Tax audit or other Tax contest relating to the Surviving Corporation; provided, however, that in accordance with Section 10.4(c), the Stockholders shall not be liable to indemnify Parent or any other party hereto for any settlement of any such claim related to Taxes effected without the prior written consent of the Stockholder Representative, which consent shall not be unreasonably withheld.

(d) Parachute Payments. The Company will take all action that is necessary to ensure that no agreement, contract, arrangement or plan (including, without limitation, the Company Options) of the Company or any Subsidiary or, for this purpose, any options granted by Parent to employees of the Company pursuant to the transactions contemplated by this Agreement, will result, separately or in the aggregate, in the payment of an “excess parachute payment” within the meaning of Section 280G of the Code.

ARTICLE IX

CONDITIONS TO THE MERGER

9.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction (or written waiver by such party) at or prior to the Closing of the following conditions:

(a) Stockholder Approval. The principal terms of this Agreement, the Escrow Agreement and the Merger, and the other items submitted for Stockholder approval as set forth in Article V, shall have been approved and adopted by the Stockholders by the requisite vote under applicable Law and the Company’s Certificate of Incorporation.

(b) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be in effect, and there shall be no pending action, proceeding or other application before any Governmental Entity seeking any such order, restraint or prohibition.

9.2 Additional Conditions to Obligations of the Company. The obligations of the Company to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by the Company:

(a) Representations and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement shall have been true and correct (in the case of representations and warranties qualified as to materiality) or true and correct in all material

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respects (in the case of other representations and warranties) on and as of the date of this Agreement and shall be so true and correct on and as of the Closing Date with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which shall remain so true and correct as of such date), and the Company shall have received a certificate to such effect signed on behalf of Parent and Merger Sub by a duly authorized officer of Parent and Merger Sub.

(b) Agreements and Covenants. Parent and Merger Sub shall have performed or complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed or complied with by them on or prior to the Closing Date, and the Company shall have received a certificate to such effect signed on behalf of Parent and Merger Sub by a duly authorized officer of Parent and Merger Sub.

(c) Escrow Agreement. Each of Parent and the Escrow Agent shall have executed and delivered to the Company an escrow agreement substantially in the form attached hereto as Exhibit E (the “Escrow Agreement”).

(d) Employment Agreements. Parent shall have delivered to each of Murli Thirumale, Goutham Rao and Gordon Payne (the “Key Employees”) an Employment Agreement substantially in the form previously agreed between Parent and the Company.

(e) Legal Opinion. The Company shall have received a legal opinion from Testa, Hurwitz & Thibeault, LLP, legal counsel to Parent and Merger Sub, in a form reasonably acceptable to the Company.

9.3 Additional Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Parent:

(a) Representations and Warranties. The representations and warranties of the Company contained in this Agreement (including the Company Schedules) shall have been true and correct (in the case of representations and warranties qualified as to materiality) or true and correct in all material respects (in the case of other representations and warranties) on and as of the date of this Agreement and shall be so true and correct on and as of the Closing Date with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which shall remain so true and correct as of such date), and Parent and Merger Sub shall have received a certificate to such effect signed on behalf of the Company by a duly authorized officer of the Company.

(b) Agreements and Covenants. The Company shall have performed or complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed or complied with by it on or prior to the Closing Date, and Parent and Merger Sub shall have received a certificate to such effect signed on behalf of the Company by a duly authorized officer of the Company.

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(c) Third Party Consents. Parent shall have been furnished with evidence satisfactory to it that the Company has obtained the consent of Venture Lending & Leasing III, Inc. as set forth on Schedule 3.5.

(d) Employment Agreements. Each of the Key Employees shall have executed and delivered to Parent an Employment Agreement and an Executive Confidentiality, Non-Solicitation and Non-Competition Agreement substantially in the form previously agreed between Parent and the Company.

(e) Legal Opinion. Parent and Merger Sub shall have received a legal opinion from Stradling Yocca Carlson & Rauth, legal counsel to the Company, in a form reasonably acceptable to Parent.

(f) No Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any events, occurrences, changes, effects or conditions of any character which, individually or in the aggregate, have had or could reasonably be expected to have a Company Material Adverse Effect, and Parent and Merger Sub shall have received a certificate to such effect signed on behalf of the Company by a duly authorized officer of the Company.

(g) Dissenters’ Rights. Holders of not more than 5.00% of the outstanding shares of Company Capital Stock (calculated on an as-if-converted to common stock basis) shall have exercised, or shall have continuing rights to exercise, appraisal or dissenters’ rights under the DGCL or the CGCL, as applicable, with respect to the transactions contemplated by this Agreement.

(h) Termination of Company Investor Rights. Parent shall have been furnished evidence satisfactory to it that (i) all investor rights granted by the Company to its Stockholders and in effect prior to the Closing, including, without limitation, rights of co-sale, voting, registration, first refusal, board observation or information or operational covenants shall have terminated as of the Closing and (ii) all required notifications of the Merger and the other transactions contemplated hereby to the holders of Company Capital Stock, Company Options and Warrants have been properly delivered and all applicable notice periods have expired or been waived.

(i) [Reserved]

(j) Stockholder Approval. Stockholders holding at least 90% of the capital stock of the Company (calculated on an as-if-converted to common stock basis) and 95% of the Preferred Stock (calculated on an as-if-converted to common stock basis) shall have approved this Agreement, the Merger and the transactions contemplated hereby and thereby, and such approvals shall include the approval of all of the Persons listed in Schedule 9.3(j) hereof.

(k) Unanimous Board Approval. The board of directors of the Company shall have unanimously (i) approved the Merger and determined that the Merger is fair to, and in the best interests of, the Company and the Stockholders, (ii) approved this Agreement, the Merger, the Escrow Agreement and the other transactions contemplated by this Agreement and (iii) recommended to the Stockholders to adopt and approve this Agreement, the Escrow Agreement

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and the other transactions contemplated by this Agreement and approve the Merger, which unanimous approval recommendation shall not have been modified or withdrawn in a manner adverse to Parent.

(l) Tax Certificate. The Company shall have delivered to Parent a properly executed statement satisfying the requirements of Treasury Regulation Sections 1.897-2(h) and 1.1445-2(c)(3) in a form reasonably acceptable to Parent.

(m) Acquisition Expenses. The Company shall have delivered to Parent a certificate signed by the Chief Executive Officer of the Company setting forth the Acquisition Expenses (the “Expense Certificate”).

(n) Resignations. Parent shall have received resignation letters executed and delivered by the directors and officers of the Company.

(o) Stockholder, Optionholder and Warrantholder List. The Company shall have delivered to Parent, as of immediately prior to the Effective Time, a true and complete list, certified by the Secretary of the Company, of (i) all Stockholders as of the Closing Date, including the number of shares of capital stock of the Company held at the Closing Date by each Stockholder (and the class and series thereof), and the address of each Stockholder, (ii) all holders of Company Options as of immediately prior to the Effective Time, including the class, series and number of shares of Company Capital Stock the options are exercisable for, the date of grant, the exercise price and a break out of which options are Vested Options and which are Unvested Options by Option holder and (iii) all holders of the Warrants, including class, series and number of shares of Company Capital Stock the warrants are exercisable for, the date of grant, exercise price and any exercise restrictions.

(p) Legal Action. There shall not be any overtly threatened or pending action, proceeding or other application before any court or Governmental Entity brought by any Person or Governmental Entity: (i) challenging or seeking to restrain or prohibit the consummation of the Merger or the other transactions contemplated by this Agreement, or seeking to obtain any material damages from Parent, Merger Sub or the Company as a result of the Merger or such other transactions, or (ii) seeking to prohibit or impose any limitations on Parent’s ownership or operation of all or any portion of the Company’s business or assets, or to compel Parent to dispose of or hold separate all or any portion of its or the Company’s business or assets as a result of the transactions contemplated by the Agreement which if successful would have a material adverse effect on Parent’s ability to receive the anticipated benefits of the Merger.

(q) Escrow Agreement. The Company, the Stockholder Representative and the Escrow Agent shall have executed and delivered to Parent the Escrow Agreement.

(r) Termination of Company Options and Company Option Plans. All outstanding Vested Options shall have been terminated in accordance with the terms of the Company Option Plans and the applicable Option Agreements as of immediately prior to the Effective Time.

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(s) Termination of Certain Agreements. All existing Employment Agreements, severance agreements, change of control agreements, bonus plans or arrangements between the Company or any of its Subsidiaries and any of their current or former officers, directors or Employees shall have been terminated to the reasonable satisfaction of Parent, and Parent and Merger Sub shall have received a certificate to such effect signed on behalf of the Company by a duly authorized officer of the Company.

(t) Company Warrants. All Warrants shall have been terminated in accordance with their terms as of immediately prior to the Effective Time.

(u) Merger Consideration Certificate. The Company shall have delivered to Parent a certificate signed by the Chief Executive Officer of the Company setting forth the Merger Consideration to be paid to each Stockholder in respect of their shares of Company Capital Stock.

(v) Termination of Certain Agreements. All existing agreements providing for indemnification by the Company of its officers and directors, including, without limitation, the Indemnification Agreement by and among the Company and certain parties dated as of March 14, 2001 and the Indemnification Agreement by and among the Company and certain parties dated as of March 4, 2003, shall have been terminated to the reasonable satisfaction of Parent.

(w) Senior Officer Certificates. Each of Murli Thirumale and Gordon Payne shall have executed and delivered to Parent Subordinate Certificates in the form previously agreed between Parent and the Company.

ARTICLE X

SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;

INDEMNIFICATION; ESCROW

10.1 Survival of Representations, Warranties and Covenants.

(a) The representations and warranties of the Company set forth in this Agreement or in any certificate, document or other instrument delivered pursuant to or in connection with this Agreement shall survive the execution and delivery of this Agreement, any investigation by or on behalf of Parent or Merger Sub, and the Effective Time and shall terminate at 5:00 PM Eastern time on the twenty-four (24) month anniversary of the Closing Date, except that the representations and warranties of the Company set forth in Sections 3.1, 3.3, 3.4 and 3.14 (collectively, the “Fundamental Representations”) shall so survive but shall not terminate until 5:00 PM Eastern time on the five (5) year anniversary of the Closing Date, and except, in all cases, with respect to any Loss, claim or breach of which any Indemnified Party shall have provided written notice to the Stockholder Representative prior to such termination.

(b) The representations and warranties of Parent and Merger Sub set forth in

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this Agreement or in any certificate, document or other instrument delivered pursuant to or in connection with this Agreement shall terminate at the Effective Time. The respective covenants, agreements and obligations of the Company, Parent and Merger Sub set forth in this Agreement or in any certificate, document or other instrument delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement, any investigation by or on behalf of any party hereto, and the Effective Time without limitation.

10.2 Indemnification. As an integral term of the Merger, each Stockholder, jointly and severally, shall indemnify, defend and hold harmless Parent, Merger Sub, the Surviving Corporation and each of their officers, directors, employees, members, agents and Affiliates (the “Indemnified Parties”) against any and all claims, losses, liabilities, damages, deficiencies, interest and penalties, costs and expenses, including reasonable attorneys’ fees and expenses, and expenses of investigation and defense (hereinafter individually a “Loss” and collectively “Losses”; provided, however, that “Losses” shall not include any amounts actually received by the Company in respect of insurance) incurred or suffered by any such Indemnified Parties directly or indirectly as a result of, with respect to or in connection with (i) the failure of any representation or warranty of the Company set forth herein or in any certificate, document or other instrument delivered pursuant to or in connection with this Agreement to be true and correct in all respects as of the date of this Agreement and as of the Closing Date, (ii) any failure by the Company to fully perform, fulfill or comply with any covenant set forth herein or in any certificate, document or other instrument delivered pursuant to or in connection with this Agreement, (iii) any Dissenting Share Payments, (iv) any Acquisition Expenses Deficiency, (v) the Working Capital Indemnity Amount, and (vi) any Stockholder claims relating to or arising out of the Merger, this Agreement or the transactions contemplated hereby, except for claims arising out of or related to disputing a claim to indemnification made by an Indemnified Party hereunder. The Indemnity Escrow Amount shall be available to reimburse the Indemnified Parties for any Losses for which they are entitled to be indemnified pursuant to this Section 10.2. The waiver by Parent and Merger Sub of any of the conditions set forth in Article IX shall not effect the provisions of this Article X.

10.3 Limitations. Except with respect to Losses incurred or suffered by any Indemnified Party directly or indirectly as a result of, with respect to or in connection with any breach or inaccuracy of any of the Fundamental Representations, the sole and exclusive remedy of the Indemnified Parties for money damages with respect to indemnification pursuant to Section 10.2(i) shall be to make claims against the Indemnity Escrow Amount in accordance with the Escrow Agreement. No claims shall be made by any Indemnified Party against the Indemnity Escrow Amount pursuant to Section 10.2(i) hereof, other than any claims arising from any breach or inaccuracy of any of the Fundamental Representations, unless and until the aggregate amount of Losses for which the Indemnified Parties are entitled to be indemnified pursuant to Section 10.2(i) exceed $200,000 and then only to the extent of such excess. The indemnification obligation of each Stockholder for money damages pursuant to Section 10.2(i) with respect to or in connection with any breach or inaccuracy of any of the Fundamental Representations shall be limited to the aggregate gross amount of Merger Consideration such Stockholder has received pursuant to this Agreement and the Merger. Parent, Merger Sub, and the Indemnified Parties agree that the sole and exclusive remedy for money damages for any matters relating to this Agreement, the Escrow Agreement and any certificate or instrument

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delivered pursuant hereto shall be the rights to indemnification set forth in this Article X. Notwithstanding anything in this Article X to the contrary, nothing in this Agreement shall limit (i) any right or remedy for fraud, intentional misrepresentation or willful breach or misconduct or (ii) any equitable remedy, including a preliminary or permanent injunction or specific performance.

10.4 Procedures.

(a) Promptly after the discovery of any Loss or Losses by any Indemnified Party which might give rise to indemnification hereunder, the Indemnified Party shall deliver to the Stockholder Representative a certificate (the “Claim Certificate”), which Claim Certificate shall:

(i) state that the Indemnified Party has paid or properly accrued Losses, or anticipates that it will incur liability for Losses, for which such Indemnified Party is entitled to indemnification pursuant to this Agreement; and

(ii) specify in reasonable detail, to the extent available, each individual item of Loss included in the amount so stated, the date such item was paid or properly accrued, the basis for any anticipated liability and the nature of the misrepresentation, default, breach of warranty or breach of covenant or claim to which each such item is related and the computation of the amount to which such Indemnified Party claims to be entitled hereunder.

(b) In case the Stockholder Representative shall object to the indemnification of an Indemnified Party in respect of any claim or claims specified in any Claim Certificate, the Stockholder Representative shall, within thirty (30) days after receipt by the Stockholder Representative of such Claim Certificate, deliver to the Indemnified Party a written notice to such effect and the Stockholder Representative and the Indemnified Party shall, within the thirty-day period beginning on the date of receipt by the Indemnified Party of such written objection, attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims to which the Stockholder Representative shall have so objected. If the Indemnified Party and the Stockholder Representative shall succeed in reaching agreement with respect to any of such claims, the Indemnified Party and the Stockholder Representative shall promptly prepare and sign a memorandum setting forth such agreement. Should the Indemnified Party and the Stockholder Representative be unable to agree as to any particular item or items or amount or amounts, then the Indemnified Party shall be entitled to pursue its available remedies for resolving its claim for indemnification.

(c) Promptly after the assertion by any third party of any claim against any Indemnified Party (a “Third Party Claim”) that, in the judgment of such Indemnified Party, may result in the incurrence by such Indemnified Party of Losses for which such Indemnified Party would be entitled to indemnification pursuant to this Agreement, such Indemnified Party shall deliver to the Stockholder Representative a written notice describing in reasonable detail such Third Party Claim; provided, however, that no delay on the part of the Indemnified Party in notifying the Stockholder Representative shall relieve the Stockholders of any liability or obligations hereunder, except to the extent that the Stockholders have been materially prejudiced

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thereby, and then only to such extent. The Indemnified Party shall have the right in its sole discretion to conduct the defense of any such Third Party Claim; provided, however, that the Stockholders shall not be liable to indemnify any Indemnified Party for any settlement of any such Third Party Claim effected without the prior written consent of the Stockholder Representative, which consent shall not be unreasonably withheld. If any such action or claim is settled with the prior written consent of the Stockholder Representative, or if there be a final judgment for the plaintiff in any such action, the Indemnified Party shall be entitled to indemnification for the amount of any Loss relating thereto.

(d) Claims for Losses specified in any Claim Certificate to which the Stockholder Representative did not object in writing within thirty (30) days of receipt of such Claim Certificate, claims for Losses covered by a memorandum of agreement of the nature described in Section 10.4(b), and claims for Losses the validity and amount of which have been the subject of resolution by arbitration or of a final non-appealable judicial determination are hereinafter referred to, collectively, as “Agreed Claims.” The Indemnified Party shall be entitled to payment for any Agreed Claims within ten (10) Business Days of the determination of the amount of any such Agreed Claims.

10.5 Stockholder Representative; Power of Attorney.

(a) By virtue of the adoption of this Agreement and the approval of the Merger by the Stockholders, each Stockholder (regardless of whether or not such Stockholder votes in favor of the adoption of the Agreement and the approval of the Merger, whether at a meeting or by written consent in lieu thereof) hereby initially appoints, as of the date of this Agreement, Tim Guleri (together with his permitted successors, the “Stockholder Representative”), as his, her or its true and lawful agent and attorney-in-fact to enter into any agreement in connection with the transactions contemplated by this Agreement and any transactions contemplated by the Escrow Agreement, and to: (i) give and receive notices and communications to or from Parent (on behalf of itself or any other Indemnified Party) and/or the Escrow Agent relating to this Agreement, the Escrow Agreement or any of the transactions and other matters contemplated hereby or thereby (except to the extent that this Agreement or the Escrow Agreement expressly contemplates that any such notice or communication shall be given or received by such Stockholders individually), (ii) authorize deliveries to Parent of cash from (A) the Working Capital Escrow Amount to provide a source of funding to Parent for any Working Capital Deficiency and (B) the Indemnity Escrow Amount in satisfaction of claims asserted by Parent (on behalf of itself or any other Indemnified Party, including by not objecting to such claims), (iii) object to such claims pursuant to Section 10.4, (iv) consent or agree to, negotiate, enter into settlements and compromises of, and agree to arbitration and comply with orders of courts and awards of arbitrators with respect to, such claims, (v) assert, negotiate, enter into settlements and compromises of, and agree to arbitration and comply with orders of courts and awards of arbitrators with respect to, any other claim by any Indemnified Party, against any such Stockholder or by any such Stockholder against any Indemnified Party or any dispute between any Indemnified Party and any such Stockholder, in each case relating to this Agreement, the Escrow Agreement or the transactions contemplated hereby or thereby, (vi) amend this Agreement, the Escrow Agreement or any other agreement referred to herein or contemplated hereby, and (vii) take all actions necessary or appropriate in the judgment of the

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Stockholder Representative for the accomplishment of the foregoing, in each case without having to seek or obtain the consent of any Person under any circumstance. The person serving as the Stockholder Representative may be replaced from time to time by the holders of a majority in interest of the Indemnity Escrow Amount upon not less than ten (10) days’ prior written notice to Parent and with Parent’s written consent, which shall not be unreasonably withheld. No bond shall be required of the Stockholder Representative, and the Stockholder Representative shall receive no compensation for his services. Notices or communications to or from the Stockholder Representative shall constitute notice to or from each of the Stockholders.

(b) The Stockholder Representative shall not be liable to any Stockholder for any act done or omitted hereunder as the Stockholder Representative while acting in good faith and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Stockholders shall jointly and severally indemnify the Stockholder Representative and hold him harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Stockholder Representative and arising out of or in connection with the acceptance or administration of his duties hereunder. The Stockholder Representative shall be reimbursed for reasonable expenses incurred in the performance of his duties (including, without limitation, the reasonable fees of counsel), and (i) such fees related to costs and charges of the Accounting Referee’s review and report shall be paid out of the Working Capital Escrow Amount and (ii) such other fees shall be paid out of the Indemnity Escrow Amount, pursuant to the terms of the Escrow Agreement.

(c) The Stockholder Representative shall have access to relevant information about the Company and the reasonable assistance of the Company’s officers and the employees for purposes of performing its duties and exercising its rights hereunder; provided, however, that the Stockholder Representative shall treat confidentially and not disclose any nonpublic information from or about the Company to anyone (except on a need to know basis to individuals who agree to treat such information confidentially).

(d) Any notice or communication given or received by, and any decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, the Stockholder Representative shall constitute a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of all the Stockholders and shall be final, binding and conclusive upon each such Stockholder; and each Indemnified Party and the Escrow Agent shall be entitled to rely upon any such notice, communication, decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction as being a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, each and every such Stockholder. Except for their gross negligence and willful misconduct, each Indemnified Party and the Escrow Agent are hereby relieved from any liability to any Person for any acts done by them in accordance with any such notice, communication, decision, action, failure to act within a designated period of time, agreement, consent or instruction of the Stockholder Representative.

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(e) Except for matters that are subject to Section 10.4, and without limiting the generality or effect of Section 10.5(a), any and all claims and disputes between or among any Indemnified Party, the Stockholder Representative and/or any one or more Stockholders relating to this Agreement or the Escrow Agreement or the transactions contemplated hereby or thereby shall in the case of any claim or dispute asserted by or against or involving any such Stockholder (other than any claim against or dispute with the Stockholder Representative), be asserted or otherwise addressed solely by the Stockholder Representative on behalf of such Stockholder (and not by such Stockholder acting on its own behalf).

10.6 No Subrogation. Following the Closing, no Stockholder shall have any right of indemnification, contribution or subrogation against the Company or any Subsidiary with respect to any indemnification made by or on behalf of any Stockholder under Section 10.2 if the Merger and the transactions contemplated by this Agreement are consummated.

10.7 Purchase Price Adjustment. Amounts required to be paid as indemnification pursuant to this Article 10 shall be treated as adjustments to the purchase price for tax purposes.

ARTICLE XI

TERMINATION, AMENDMENT AND WAIVER

11.1 Termination. This Agreement may be terminated and the Merger abandoned at any time prior to the Closing Date regardless of whether this Agreement and/or the Merger have been approved by the Stockholders:

(a) by written agreement of the Company, Parent and Merger Sub;

(b) by either Parent or the Company if: (i) the Closing Date has not occurred by (the “Termination Date”) (x) if all of the conditions to Closing set forth in Sections 9.1 and 9.3 have been satisfied or waived by such date, December 20, 2004 and (y) if clause (x) is not applicable, January 15, 2005; provided, that the right to terminate this Agreement under this clause 11.1(b)(i) shall not be available to any party whose failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Closing Date to occur on or before the Termination Date and such action or failure constitutes a breach of this Agreement, (ii) there shall be a final non-appealable order of a Governmental Entity in effect preventing consummation of the Merger, or (iii) there shall be any Law enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity that would make consummation of the Merger illegal;

(c) by Parent if there shall have been any action taken, or any Law enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental Entity, which would: (i) prohibit Parent’s or the Company’s ownership or operation of any portion of the business of the Company or (ii) compel Parent or the Company to dispose of or hold separate, as a result of the Merger, any portion of the business or assets of the Company or Parent;

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(d) by Parent if it is not in material breach of its obligations under this Agreement and (x) there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company and as a result of such breach the conditions set forth in Section 9.3(a) or 9.3(b), as the case may be, would not then be satisfied, or (y) there shall have occurred any events, occurrences, changes, effects or conditions of any character which, individually or in the aggregate, have had or could reasonably be expected to have a Company Material Adverse Effect and as a result the condition set forth in Section 9.3(f) would not then be satisfied;

(e) by Parent, if the Company or its Board of Directors (A) fails to recommend or publicly proposes not to recommend the adoption and approval of this Agreement and the Merger by the Stockholders or breaches Section 5.1 or (B) shall have withdrawn, modified or amended in any respect adverse to Parent its recommendation of the adoption and approval of this Agreement and the Merger by the Stockholders (or publicly proposes to do so) or failed to reconfirm its recommendation of this Agreement and the Merger within three Business Days after a written request by Parent to do so;

(f) by the Company if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Merger Sub and as a result of such breach the conditions set forth in Section 9.2(a) or 9.2(b), as the case may be, would not then be satisfied.

(g) by the Company if (A) the Company is not in breach of Section 5.1 or 7.12 hereof, (B) the Board of Directors of the Company authorizes the Company, subject to complying with the terms of this Agreement, to enter into a binding written agreement concerning a transaction that constitutes a Superior Proposal and the Company notifies Parent in writing that it intends to enter into such an agreement attaching the most current version of such agreement to such notice, (C) Parent does not make, within five Business Days of receipt of the Company’s written notification of its intention to enter into a binding agreement for a Superior Proposal, an offer that the Board of Directors of the Company determines, in good faith after consultation with its outside legal counsel and its financial advisor, is at least as favorable to the Stockholders as the Superior Proposal (taking into account all financial and strategic considerations and other relevant factors), (D) concurrent with such termination the Company pays to Parent in immediately available funds the fees and expenses required to be paid pursuant to Section 11.2(b) and (E) concurrently with such termination the Company enters into a binding written agreement with respect to such Superior Proposal. The Company agrees (1) that it will not enter into a binding agreement referred to in clause (B) above until at least the sixth Business Day after it has provided the notice to Parent required thereby and (2) to notify Parent promptly if its intention to enter into a written agreement referred to in its notification shall change at any time after giving such notification.

Where action is taken to terminate this Agreement pursuant to Section 11.1, it shall be sufficient for such action to be authorized by the board of directors of the party taking such action.

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11.2 Effect of Termination. (a) Except as set forth in this Section 11.2, any termination of this Agreement under Section 11.1 will be effective immediately upon the delivery of written notice by the terminating party to the other parties hereto. In the event of the termination of this Agreement as provided in Section 11.1, this Agreement shall be of no further force or effect, except (i) as set forth in Sections 7.2 and 7.3, this Section 11.2, Section 11.3 and Article XII, each of which shall survive the termination of this Agreement, and (ii) nothing herein shall relieve any party from liability for any breach of this Agreement. No termination of this Agreement shall affect the obligations of the parties contained in the Nondisclosure Agreement, all of which obligations shall survive termination of this Agreement.

(b) In the event that this Agreement is terminated (A) by Parent pursuant to Section 11.1(e) or (B) by the Company pursuant to Section 11.1(g), then the Company shall promptly, but in no event later than the earlier of the date of such termination or date of entrance into an agreement concerning a Superior Proposal or such earlier time as required by this Agreement pay to Parent a cash termination fee of $2,500,000 payable by wire transfer of same day funds (the “Termination Fee”).

(c) In the event that (A) this Agreement is terminated pursuant to Section 11.1(b)(i) after the Company receives a Proposal and (B) within 12 months of such termination the Company enters into an agreement concerning any Proposal, the Company shall at the time of entering into such agreement pay to Parent the Termination Fee payable by wire transfer of same day funds.

(d) The Company and Parent each acknowledge that the agreements contained in Sections 11.2 (b) and (c) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the Company and Parent would not enter into this Agreement; accordingly, if the Company fails to promptly pay the amounts due pursuant to this Section, and, in order to obtain such payment, Parent commences a suit which results in a judgment against the Company for the fees set forth in this Section 11.2, the Company shall pay to Parent its costs and expenses (including reasonable attorneys’ fees) in connection with such suit, together with interest from the date of termination of this Agreement on the amounts owed at the prime rate of the Bank of America in effect from time to time during such period plus two percent. Provided that the Company has not breached its obligations pursuant to Sections 5.1 and 7.12, the payment of the Termination Fee pursuant to Section 11.2(b) or (c) shall be the sole and exclusive remedy that may be available in law or equity to Parent or Merger Sub for the termination of this Agreement pursuant to Section 11.1(e) or 11.1(g).

11.3 Amendment. Except as is otherwise required by applicable Law, prior to the Closing this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed by Parent, Merger Sub and the Company. Except as is otherwise required by applicable Law, after the Closing this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed by Parent, Merger Sub and the Stockholder Representative.

11.4 Extension; Waiver. At any time prior to the Effective Time, Parent and Merger Sub, on the one hand, and the Company, on the other, may, to the extent legally allowed,

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(i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto or (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if, and to the extent set forth, in an instrument in writing signed on behalf of such party.

ARTICLE XII

GENERAL PROVISIONS

12.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if properly addressed: (i) if delivered personally, by commercial delivery service or by facsimile (with acknowledgment of a complete transmission), on the day of delivery, or (ii) if delivered by registered or certified mail (return receipt requested), three (3) Business Days after mailing, or (iii) if delivered by first class mail, three (3) Business Days after mailing. Notices shall be deemed to be deemed properly addressed to any party hereto if addressed to the following addresses (or at such other address for a party as shall be specified by like notice):

(a)	if to Parent or Merger Sub, to:
	Citrix Systems, Inc.
	851 W. Cypress Creek Road
	Fort Lauderdale, FL 33309
	Attention :	General Counsel
	Telephone:	(954) 267-3000
	Facsimile:	(954) 267-2862
	with a copy to:
	Testa, Hurwitz & Thibeault, LLP
	125 High Street
	Boston, MA 02110
	Attention:	Steven C. Browne, Esq.
	Telephone:	(617) 248-7000
	Facsimile:	(617) 790-0040
(b)	if to the Company, to:
	Net6, Inc.
	2740 Zanker Road, Suite 201
	San Jose, CA 95134
	Attention:	Chief Executive Officer
	Telephone:	(408) 382-4900
	Facsimile:	(408) 382-4901

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	with a copy to:
	Stradling Yocca Carlson & Rauth
	660 Newport Center Drive, Suite 1600
	Newport Beach, CA 92660
	Attention:	Shivbir S. Grewal
	Telephone:	(949) 725-4000
	Facsimile:	(949) 725-4100
(c)	if to the Stockholder Representative to:
	Name: Tim Guleri
	c/o Sierra Ventures
	2884 Sand Hill Road, Suite 100
	Menlo Park, CA 94025
	Telephone:	(650) 854-1000
	Facsimile:	(650) 854-5593

12.2 Interpretation. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” The word “agreement” when used herein shall be deemed in each case to mean any contract, commitment or other agreement, whether oral or written, that is legally binding. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

12.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart.

12.4 Entire Agreement; Assignment. Except for the Nondisclosure Agreement, this Agreement, the schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) shall not be assigned by operation of Law or otherwise except as otherwise specifically provided, except that Parent and Merger Sub may assign their respective rights and delegate their respective obligations hereunder to their respective Affiliates; provided, however, that Parent may not delegate its obligation to deposit the Merger Consideration with the Payment Agent pursuant to Section 2.8 of this Agreement.

12.5 Severability. In the event that any provision of this Agreement or the application thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other Persons or circumstances will be interpreted so as

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reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the greatest extent possible, the economic, business and other purposes of such void or unenforceable provision.

12.6 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by Law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.

12.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Laws thereof. Each of the parties hereto agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such Persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process.

12.8 Rules of Construction. The parties hereto represent that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any Law or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

12.9 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at Law or in equity.

12.10 Expenses. In the event the Merger is not consummated, all fees and expenses incurred in connection with the Merger, including without limitation all legal, accounting, Tax and financial advisory, consulting, investment banking and all other fees and expenses of third parties incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby shall be the obligation of the party incurring such fees and expenses.

12.11 Parties in Interest. Except as provided in Section 7.14(d), this Agreement shall be binding upon and inure solely to the benefit of each party hereto and its permitted assigns, and nothing in this Agreement, expressed or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, each of Parent, Merger Sub, the Company and the Stockholder Representative has executed this Agreement or have caused this Agreement to be executed by their duly authorized respective officers, all as of the date first written above.

CITRIX SYSTEMS, INC. a Delaware corporation			NET6, INC. a Delaware corporation
By:	/s/    DAVID J. HENSHALL		By:	/S/    MURLI THIRUMALE
	Name:	David J. Henshall		Name:	Murli Thirumale
	Title:	Vice President & Chief Financial Officer		Title:	CEO

STOCKHOLDER REPRESENTATIVE	HAL ACQUISITION CORP. a Delaware corporation
/s/    TIM GULERI	By:	/S/    DAVID J. HENSHALL
Tim Guleri		Name:	David J. Henshall
General Partner Sierra Ventures.		Title:	President

INDEX OF EXHIBITS

Exhibit	Description
Exhibit A	Form of Voting Agreement
Exhibit B	Form of Certificate of Merger
Exhibit C	Amended and Restated Certificate of Incorporation of Merger Sub
Exhibit D	Amended and Restated By-laws of Merger Sub
Exhibit E	Form of Escrow Agreement

Exhibit A

VOTING AGREEMENT

VOTING AGREEMENT (this “Agreement”) between Citrix Systems, Inc., a Delaware corporation (“Parent”), Hal Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and the undersigned stockholder (the “Stockholder”) of Net6, Inc., a Delaware corporation (the “Company”).

WHEREAS, the Stockholder owns of record and/or holds (i) shares of the Company’s capital stock and/or (ii) stock options, convertible securities or warrants (whether or not vested) to acquire shares of the Company’s capital stock, in each case in that number and class of shares of the Company’s capital stock set forth on Schedule A hereto (such options, convertible securities, warrants and/or shares of the Company’s capital stock, together with any other such options, convertible securities, warrants and/or shares of capital stock of the Company acquired by such Stockholder after the date hereof and during the term of this Agreement, being collectively referred to herein as the “Subject Shares”);

WHEREAS, upon the fulfillment of the terms and conditions of an Agreement and Plan of Merger by and among Parent, Merger Sub and the Company dated the date hereof (the “Merger Agreement”), the Merger Sub will be merged with and into the Company (the “Merger”);

WHEREAS, the Stockholder believes that the terms of the Merger and the Merger Agreement are fair and that it is in his, her or its best interest as a stockholder of the Company that the Merger be consummated;

WHEREAS, Parent has advised the Company that Parent is not prepared to execute the Merger Agreement unless Parent believes that it is reasonably likely that the Merger will be consummated, and therefore Parent is requiring that certain stockholders undertake in advance to vote their shares in favor of the Merger; and

WHEREAS, for the above reasons, in order to induce Parent to enter into the Merger and in consideration of the execution of the Merger Agreement by Parent and to enhance the likelihood that the Merger will be consummated, the Stockholder, solely in his, her or its capacity as a stockholder of the Company, agrees to vote the Subject Shares so as to facilitate consummation of the Merger.

NOW, THEREFORE, in consideration of the promises and the covenants and agreements set forth below, the parties agree as follows:

1. Definitions. For purposes of this Agreement, terms not defined herein but used herein and defined in the Merger Agreement shall have the meanings set forth in the Merger Agreement.

2. Transfer of Shares. Subject to Section 7 hereof, the Stockholder agrees that, during the term of this Agreement, the Stockholder shall not cause or permit any Transfer (as defined below) of any of the Subject Shares or enter into any agreement, option or arrangement with respect to a

Transfer. The Stockholder agrees that, during the term of this Agreement, the Stockholder shall not deposit (or permit the deposit of) any Subject Shares in a voting trust or grant any proxy or enter into any voting agreement or similar agreement with respect to any of the Subject Shares or in any way grant any other Person any right whatsoever with respect to the voting or disposition of the Subject Shares. For purposes of this Agreement, a Person shall be deemed to have effected a “Transfer” of a security if such Person directly or indirectly (i) sells, pledges, encumbers, grants an option with respect to, transfers, assigns or otherwise disposes of such security, or any interest in such security; or (ii) enters into an agreement or commitment providing for the sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein.

3. Agreement to Vote Shares. The Stockholder agrees that at any meeting of stockholders of the Company or at any adjournment thereof, in any action by written consent or in any other circumstances upon which the Stockholder’s vote, consent or other approval is sought, the Stockholder shall vote (or cause to be voted) all of the Subject Shares: (i) in favor of the Merger and each of the terms of the Merger Agreement and the transactions and other agreements reflected therein; (ii) against any proposal, amendment or agreement that would in any manner impede, frustrate, prevent or nullify the Merger Agreement, the Merger or this Agreement or change the voting rights of any class of capital stock of the Company and (iii) against any Proposal.

4. Director Matters Excluded. Parent and Merger Sub acknowledge and agree that no provision of this Agreement, including without limitation Sections 9 and 12, shall limit or otherwise restrict the Stockholder with respect to any vote, discussions or negotiations that the Stockholder may make or undertake solely in his or her capacity as a director of the Company with respect to a matter presented to the Company’s board of directors.

5. Irrevocable Proxy.

a. Concurrently with the execution of this Agreement, the Stockholder has executed and delivered to Parent an irrevocable proxy in the form attached hereto as Exhibit A (the “Proxy”), which shall be irrevocable to the fullest extent permissible by law, with respect to the Subject Shares.

b. If for any reason the proxy granted pursuant to this Agreement is not irrevocable, then the Stockholder agrees to vote the Subject Shares in accordance with Section 3 of this Agreement as instructed by Parent in writing.

6. Representations and Warranties of the Stockholder. The Stockholder hereby represents and warrants to Parent, Merger Sub and the Company as follows:

a. The Stockholder (i) is the record and beneficial owner of the shares of the Company’s capital stock and/or stock options, convertible securities or warrants (whether or not vested) to acquire shares of the Company’s capital stock, in each case in that number and class of shares of the Company’s capital stock appearing on Schedule A hereto, free and clear of any liens, adverse claims, charges or other encumbrances of any nature whatsoever, and (ii) does not beneficially own any securities of the Company other than the securities of the Company indicated on Schedule A hereto.

b. Except as set forth on Schedule A, the Stockholder has the sole right to Transfer, vote and direct the voting of the Subject Shares, and none of the Subject Shares are subject to any

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voting trust or other agreement, arrangement or restriction with respect to the Transfer or voting of the Subject Shares, except for the Amended and Restated Voting Agreement dated as of March 4, 2003 or as set forth in this Agreement.

c. The Stockholder (i) is, if not a natural person, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and (ii) has the requisite corporate, company, partnership or other power and authority to execute and deliver this Agreement and the Proxy, consummate the transactions contemplated hereby and thereby and comply with the terms hereof and thereof. The execution and delivery by the Stockholder of this Agreement and the Proxy, consummation by the Stockholder of the transactions contemplated hereby and thereby and compliance by the Stockholder with the provisions hereof and thereof have been duly authorized by all necessary corporate, company, partnership or other action on the part of the Stockholder, and no other corporate, company, partnership or other proceedings on the part of the Stockholder are necessary to authorize this Agreement and the Proxy, consummate the transactions contemplated hereby and thereby or comply with the provisions hereof or thereof.

d. Each of this Agreement and the Proxy has been duly executed and delivered by the Stockholder, constitutes a valid and binding obligation of the Stockholder and is enforceable against the Stockholder in accordance with its terms.

e. The execution and delivery of this Agreement and the Proxy, consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof do not and will not conflict with, result in any violation or breach of or default (with or without notice or lapse of time, or both) under any provision of: (i) the certificate of incorporation or by-laws, partnership agreement or limited liability company agreement (or similar organizational documents) of the Stockholder, if applicable; (ii) any (A) statute, law, ordinance, rule or regulation or (B) judgment, order or decree, in each case applicable to the Stockholder or its properties or assets or (iii) any contract, trust, commitment, agreement, understanding, arrangement or restriction of any kind to which the Stockholder is a party or by which the Stockholder or the Stockholder’s assets are bound.

7. Permitted Transfers. Notwithstanding Section 2 hereof, the Stockholder may Transfer Subject Shares to (i) any family member, (ii) the trustee or trustees of a trust for the benefit of the Stockholder and/or one or more family members, (iii) one or more charitable foundations or organizations or any trustee or trustees of a trust for the benefit thereof, (iv) a partnership of which the Stockholder and/or family members of the Stockholder own all of the partnership interests, (v) a limited liability company of which the Stockholder and/or family members of the Stockholder own all of the limited liability company membership interests or (vi) an Affiliate of such Stockholder; provided, however, that (i) the Stockholder shall provide Parent with at least seven (7)-days prior written notice of any such Transfer, (ii) any such transferee shall, as a condition to such Transfer, execute and deliver to Parent a counterpart signature page to this Agreement whereby such transferee shall become bound to the provisions hereof, (iii) the Stockholder may Transfer Subject Shares to no more than three (3) transferees and (iv) each transferee must acquire at least twenty percent (20%) of the maximum number of Subject Shares that are at any time subject to this Agreement.

8. Termination. This Agreement shall terminate upon the earliest to occur of (i) the termination of the Merger Agreement in accordance with its terms, (ii) the Effective Time and (iii) an amendment of the Merger Agreement which decreases the Merger Consideration or delays the timing of payment of the Merger Consideration for more than fifteen (15) Business Days. In the event of the termination of this Agreement, this Agreement and the Proxy shall forthwith

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become null and void, there shall be no liability on the part of any of the parties and all rights and obligations of each party hereto shall cease; provided, however, that no such termination of this Agreement shall relieve any party hereto from any liability for any breach of any provision of this Agreement prior to termination.

9. Further Covenant and Assurances.

a. The Stockholder shall not (and (x) if the Stockholder is a corporation, the Stockholder’s board of directors and executive officers shall not authorize, instruct, direct or knowingly allow or (y) if the Stockholder is not a corporation, the Stockholder shall not permit, any of its Affiliates, directors, officers, employees, investment bankers, attorneys or other advisors or representatives, to) (i) directly or indirectly solicit, initiate or knowingly encourage the submission of any Proposal or (ii) subject to Section 4, directly or indirectly participate in any discussions or negotiations regarding, furnish to any Person any information with respect to or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, a Proposal. Subject to Section 4, the Stockholder will, from time to time, execute and deliver, or cause to be executed and delivered, such additional or further consents, documents and other instruments as Parent may reasonably request for the purpose of effectively carrying out the provisions of this Agreement and the transactions contemplated hereby.

b. The Stockholder will notify Parent and Merger Sub if any Proposals are received by, information is requested from or negotiations or discussions are sought to be initiated or continued with the Stockholder, or, to the Stockholder’s knowledge, the Company, the Company’s officers, directors, employees, independent contractors, investment bankers, attorneys, accountants or other agents, if any, in each case in connection with any Proposal indicating, in connection with such notice, the name of the Person making such Proposal and the material terms and conditions of such Proposal. Subject to Section 4, the Stockholder agrees that he, she or it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Proposal.

10. Successors, Assigns and Transferees Bound. Without limiting Section 2 hereof in any way, the Stockholder agrees that this Agreement and the obligations hereunder shall attach to the Subject Shares from the date hereof through the termination of this Agreement and shall be binding upon any Person to which legal or beneficial ownership of the Subject Shares shall pass, whether by operation of law or otherwise, including the Stockholder’s heirs, guardians, administrators or successors, and the Stockholder further agrees to take all actions necessary to effectuate the foregoing. Any shares of the Company’s capital stock or any stock options, convertible securities or warrants (whether or not vested) to acquire shares of the Company’s capital stock received by the Stockholder in connection with any stock split, stock dividend, reclassification, merger, reorganization, recapitalization or other change in the capital structure of the Company affecting the capital stock of the Company shall be Subject Shares, and this Agreement and the representations, warranties, covenants, agreements and obligations hereunder shall attach to any such additional Subject Shares.

11. Deposit. The Stockholder shall cause a counterpart of this Agreement to be deposited with the Company at its principal place of business or registered office, where it shall be subject to the same right of examination by a stockholder of the Company, in person or by agent or attorney, as are the books and records of the Company.

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12. Confidentiality. Subject to Section 4, the Stockholder agrees that it will not disclose to any third party (except for such Stockholder’s legal counsel, the Company and the Company’s legal counsel) the existence or nature of this Agreement, the Merger Agreement or the transactions contemplated hereby and thereby without the prior written consent of Parent, which written consent shall not be unreasonably withheld or delayed.

13. Remedies. The Stockholder acknowledges that money damages would be both incalculable and an insufficient remedy for any breach of this Agreement by it and that any such breach would cause Parent irreparable harm. Accordingly, the Stockholder agrees that in the event of any breach or threatened breach of this Agreement, Parent, in addition to any other remedies at law or in equity that it may have, shall be entitled to seek immediate equitable relief, including injunctive relief and specific performance, without the necessity of proving the inadequacy of money damages as a remedy and without the necessity of posting any bond or other security, to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction.

14. Severability. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of any other provision of this Agreement in such jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

15. Entire Agreement / Amendment. This Agreement represents the entire agreement of the parties with respect to the subject matter hereof. This Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed and delivered by the parties hereto.

16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. The Stockholder agrees that process may be served upon him, her or it in any manner authorized by the laws of the State of Delaware for such Persons and waives and covenants not to assert or plead any objection that they might otherwise have to such jurisdiction and process.

17. Counterparts. For the convenience of the parties, this Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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18. Waiver Under 2003 Voting Agreement. [This section only applies to Murli Thirumale, Goutham Rao, John Theis. Russ Lentini. Sierra Ventures VIII – A, L.P.. Sierra Ventures VIII – B, L.P.. Sierra Ventures Associates, L.L.C.. Olympic Venture Partners V, L.P.. OVP V Entrepreneurs Fund, L.P.. BAVP, L.P.]. The Stockholder is a party to that certain Voting Agreement dated March 4, 2003. Section 1(j) of that agreement provides that none of the parties thereto shall subject any shares of the Company’s capital stock to any arrangement or agreement with respect to the voting of such shares of capital stock. The Stockholder hereby waives the requirement of such Section 1(j).

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of this 21^st day of November, 2004.

STOCKHOLDER:
By:
	Name:
	Title:
By:
	Name:
	Title:
Stockholder’s Spouse (if applicable)
Name:
CITRIX SYSTEMS, INC.
By:
	Name:
	Title:
HAL ACQUISITION CORPORATION
By:
	Name:
	Title:

Schedule A

Name and Address of Stockholder Number and Class of Subject Shares Owned of Record or Held or Pursuant to Vested or Unvested Options, Warrants or Convertible Securities

Exhibit A

IRREVOCABLE PROXY

The undersigned stockholder (the “Stockholder”) of Net6, Inc., a Delaware corporation (the “Company”), solely in his, her or its capacity as a stockholder of the Company, hereby irrevocably appoints David Henshall and David Friedman, of Citrix Systems, Inc., a Delaware corporation (“Parent”), and each of them, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and resubstitution, to vote and exercise all voting, consent and similar rights with respect to all of the Subject Shares (as defined in the Voting Agreement (as defined below)) until the Expiration Date (as defined below) as specified below. Upon the undersigned’s execution of this Proxy, any and all prior proxies given by the undersigned with respect to any Subject Shares are hereby revoked and the undersigned agrees not to grant any subsequent proxies with respect to the Subject Shares until after the Expiration Date.

This Proxy is irrevocable, coupled with an interest sufficient in law to support an irrevocable power and made for the benefit of third parties, granted pursuant to that certain Voting Agreement of even date herewith by and among Parent and the undersigned Stockholder (the “Voting Agreement”) and is granted solely in furtherance of the Stockholder’s undertaking to vote the Subject Shares as required by the Voting Agreement contemplated by that certain Agreement and Plan of Merger of even date herewith (the “Merger Agreement”), among Parent, Hal Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and the Company. The Merger Agreement provides for the merger of Merger Sub with and into the Company in accordance with its terms (the “Merger”). As used herein, the term “Expiration Date” shall mean the date of termination of the Voting Agreement in accordance with its terms.

The attorneys and proxies named above, and each of them, are hereby authorized and empowered by the undersigned, at any time prior to the Expiration Date, to act as the undersigned’s attorney and proxy to vote the Subject Shares and to exercise all voting, consent and similar rights of the undersigned with respect to the Subject Shares (including, without limitation, the power to execute and deliver written consents) at every annual, special or adjourned meeting of stockholders of the Company and in every written consent in lieu of such meeting: (i) in favor of the Merger and each of the terms of the Merger Agreement and the transactions and other agreements reflected therein; (ii) against any proposal, amendment or agreement that would in any manner impede, frustrate, prevent or nullify the Merger Agreement, the Merger or the Voting Agreement or change the voting rights of any class of capital stock of the Company and (iii) against any Proposal (as defined in the Merger Agreement). Stockholder may vote the Subject Shares on all other matters not referred to in this Proxy, and the attorneys and proxies named above may not exercise this Proxy with respect to such other matters.

Any obligation of the undersigned hereunder shall be binding upon the successors and assigns of the undersigned.

This Proxy shall terminate, and be of no further force and effect, automatically upon the Expiration Date.

STOCKHOLDER:
By:
	Name:
	Title:
By:
	Name:
	Title:
Stockholder’s Spouse (if applicable)
Name:
Dated: November 21, 2004

Exhibit B

CERTIFICATE OF MERGER

MERGING

HAL ACQUISITION CORPORATION

(a Delaware corporation)

WITH AND INTO

NET6, INC.

(a Delaware corporation)

Pursuant to Section 251 of the General Corporation Law of the State of Delaware, the undersigned corporation, which is organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify that:

FIRST: The name and state of incorporation of the constituent corporations are: (a) Net6, Inc., a corporation organized and existing under the laws of the State of Delaware (“Net6”), and (b) Hal Acquisition Corporation, a corporation organized and existing under the laws of the State of Delaware (collectively, the “Constituent Corporations”).

SECOND: An Agreement and Plan of Merger by and among Citrix Systems, Inc., a Delaware corporation, the Constituent Corporations and [Tim Guleri] as stockholder representative dated as of [November     , 2004] (the “Merger Agreement”) has been approved, adopted, certified, executed and acknowledged by each of the Constituent Corporations in accordance with the requirements of Section 251(c) of the General Corporation Law of the State of Delaware.

THIRD: The name of the surviving corporation is Net6, Inc. (the “Surviving Corporation”).

FOURTH: The Certificate of Incorporation of the Surviving Corporation is amended and restated in its entirety to read as set forth in Exhibit A hereto.

FIFTH: The executed Merger Agreement is on file at the principal place of business of the Surviving Corporation at 125 High Street, Boston, MA 02110.

SIXTH: A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of either Constituent Corporation.

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IN WITNESS WHEREOF, the undersigned has caused this Certificate of Merger to be executed as of the              day of December, 2004.

NET6, INC.
By:	/s/    MURLI THIRUMALE
Its:	President and Chief Executive Officer

Exhibit C

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

NET6, INC.

* * * * * *

FIRST. The name of the corporation is Net6, Inc. (the “Corporation”).

SECOND. The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH. The total number of shares of stock which the Corporation shall have authority to issue is 1,000 shares of Common Stock with a par value of one cent ($.001) per share.

A description of the respective classes of stock and a statement of the designations, powers, preferences and rights, and the qualifications, limitations and restrictions of the Common Stock are as follows:

A. COMMON STOCK

1. Voting Rights. Except as otherwise required by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation.

2. Dividends. The holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation

which are by law available therefor, dividends payable either in cash, in property or in shares of capital stock.

3. Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, holders of Common Stock shall be entitled, unless otherwise provided by law or this Certificate of Incorporation, to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively.

FIFTH. The corporation is to have perpetual existence.

SIXTH. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware:

1. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation.

2. Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide.

3. The books of the Corporation may be kept at such place within or without the State of Delaware as the By-Laws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation.

SEVENTH.

1. Actions, Suits and Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), 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 (including any employee benefit plan) (all such persons being referred to hereafter as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all 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, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 6 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation.

2. Actions of Suits by or in the Right of the Corporation. The Corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor 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 (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees) 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,

if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action of suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys’ fees) which the Court of Chancery of Delaware of such other court shall deem proper.

3. Indemnification for Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys’ fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purpose hereof to have been wholly successful with respect thereto.

4. Notification and Defense of Claim. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume

the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above.

5. Advance of Expenses. Subject to the provisions of Section 6 below, in the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys’ fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, provided, however, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article.

Such undertaking may be accepted without reference to the financial ability of such person to make such repayment.

6. Procedure for Indemnification. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of the directors of the Corporation who are not at that time parties to the action, suit or proceeding in question (“disinterested directors”), even though less than a quorum, (b) if there are no such disinterested directors, or if such disinterested directors so direct, by independent legal counsel (who may be regular legal counsel to the corporation) in a written opinion, (c) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, or (d) the Delaware Court of Chancery.

7. Remedies. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6. Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances

because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee’s expenses (including attorneys’ fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation.

8. Subsequent Amendment. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of the State of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.

9. Other Rights. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, 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.

10. Partial Indemnification. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including

attorneys’ fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys’ fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled.

11. Insurance. The Corporation may purchase and 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 (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.

12. Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation.

13. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by an applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law.

14. Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of the State of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i).

15. Subsequent Legislation. If the General Corporation Law of the State of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended.

EIGHTH. The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation.

Exhibit D

AMENDED & RESTATED

BY-LAWS

OF

NET6, INC.

A DELAWARE CORPORATION

Dated: December     , 2004

ARTICLE I – MEETINGS OF STOCKHOLDERS		1
Section 1.	Place of Meetings	1
Section 2.	Annual Meeting	1
Section 3.	Special Meetings	1
Section 4.	Notice of Meetings	2
Section 5.	Voting List	2
Section 6.	Quorum	2
Section 7.	Adjournments	2
Section 8.	Action at Meetings	3
Section 9.	Voting and Proxies	3
Section 10.	Action Without Meeting	3
ARTICLE II – DIRECTORS		4
Section 1.	Number, Election, Tenure and Qualification	4
Section 2.	Enlargement	4
Section 3.	Vacancies	4
Section 4.	Resignation and Removal	4
Section 5.	General Powers	5
Section 6.	Chairman of the Board	5
Section 7.	Place of Meetings	5
Section 8.	Regular Meetings	5
Section 9.	Special Meetings	5
Section 10.	Quorum, Action at Meeting, Adjournments	5
Section 11.	Action by Consent	6
Section 12.	Telephonic Meetings	6
Section 13.	Committees	6
Section 14.	Compensation	6
ARTICLE III – OFFICERS		7
Section 1.	Enumeration	7
Section 2.	Election	7
Section 3.	Tenure	7
Section 4.	President	7
Section 5.	Vice-Presidents	7
Section 6.	Secretary	8
Section 7.	Assistant Secretaries	8
Section 8.	Treasurer	8
Section 9.	Assistant Treasurers	9
Section 10.	Bond	9
ARTICLE IV – NOTICES		9
Section 1.	Delivery	9
Section 2.	Waiver of Notice	9
ARTICLE V – CAPITAL STOCK		10
Section 1.	Certificates of Stock	10

Section 2.	Lost Certificates	10
Section 3.	Transfer of Stock	10
Section 4.	Record Date	10
Section 5.	Registered Stockholders	11
ARTICLE VI – CERTAIN TRANSACTIONS		11
Section 1.	Transactions with Interested Parties	11
Section 2.	Quorum	12
ARTICLE VII – GENERAL PROVISIONS		12
Section 1.	Dividends	12
Section 2.	Reserves	12
Section 3.	Checks	12
Section 4.	Fiscal Year	12
Section 5.	Seal	12
ARTICLE XIII – AMENDMENTS		13
Addendum
Register of Amendments to the By-Laws

(ii)

AMENDED & RESTATED

BY-LAWS

OF

NET6, INC. (The “Corporation”)

ARTICLE I

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings. All meetings of the stockholders may be held at such place within or without the State of Delaware as may be fixed from time to time by the Board of Directors or the Chief Executive Officer, or if not so designated, at the registered office of the Corporation. Notwithstanding the foregoing, the Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of Delaware. If so authorized, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication, participate in a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.

Section 2. Annual Meeting. Unless directors are elected by written consent in lieu of an annual meeting as permitted by law and these By-Laws, an annual meeting of stockholders may be held at such date and time, and by such means of remote communication, if any, as shall be designated from time to time by the Board of Directors or the Chief Executive Officer, at which meeting the stockholders shall elect by a plurality vote a board of directors and shall transact such other business as may be properly brought before the meeting. If no annual meeting is held in accordance with the foregoing provisions, the Board of Directors shall cause the meeting to be held as soon thereafter as convenient, which meeting shall be designated a special meeting in lieu of annual meeting.

Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may, unless otherwise prescribed by statute or by the certificate of incorporation, be called by the Board of Directors or the Chief Executive Officer and shall be called by the Chief

Executive Officer or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.

Section 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, annual or special, stating the place, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting.

Section 5. Voting List. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list 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 (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) at the Corporation’s principal place of business. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall 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. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

Section 6. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or by remote communication, or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute, the certificate of incorporation or these By-Laws. Where a separate vote by a class or classes is required, one-third of the outstanding shares of such class or classes, present in person or by remote communication, or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. If no quorum shall be present or represented at any meeting of stockholders, such meeting may be adjourned in accordance with Section 7 hereof, until a quorum shall be present or represented.

Section 7. Adjournments. Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these By-Laws, which time and place shall be announced at the meeting, by a majority of the stockholders present in person or by remote communication, or represented by proxy at the

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meeting and entitled to vote (whether or not a quorum is present), or, if no stockholder is present or represented by proxy, by any officer entitled to preside at or to act as Secretary of such meeting, without notice other than announcement at the meeting. At such adjourned meeting, any business may be transacted which might have been transacted at the original meeting, provided that a quorum either was present at the original meeting or is present at the adjourned meeting. If the adjournment is for more than thirty 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 the meeting.

Section 8. Action at Meetings. When a quorum is present at any meeting, the affirmative vote of the holders of a majority of the stock present in person or by remote communication, or represented by proxy, entitled to vote and voting on the matter (or where a separate vote by a class or classes is required, the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting) shall decide any matter (other than the election of Directors) brought before such meeting, unless the matter is one upon which by express provision of law, the certificate of incorporation or these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such matter. The stock of holders who abstain from voting on any matter shall be deemed not to have been voted on such matter. Directors shall be elected by a plurality of the votes of the shares present in person or by remote communication, or represented by proxy at the meeting, entitled to vote and voting on the election of Directors.

Section 9. Voting and Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote for each share of capital stock having voting power held of record by such stockholder. Each stockholder entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.

Section 10. Action Without Meeting. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such 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 and dated 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. 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. A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes herein, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (A) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (B) the date on which such stockholder or proxyholder or authorized person or

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persons transmitted such telegram, cablegram or other electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered in accordance with Section 228 of the General Corporation Law of Delaware, to the Corporation by delivery to its registered office in Delaware, 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. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all such purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

ARTICLE II

DIRECTORS

Section 1. Number, Election, Tenure and Qualification. The number of Directors which shall constitute the whole board shall be not less than one. Within such limit, the number of Directors shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting or at any special meeting of stockholders. The directors shall be elected at the annual meeting or at any special meeting of stockholders, or by written consent in lieu of an annual or special meeting of the stockholders (provided, however, that if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action), except as provided in section 3 of this Article, and each director elected shall hold office until his successor is elected and qualified, unless sooner displaced. Directors need not be stockholders.

Section 2. Enlargement. The number of the Board of Directors may be increased at any time by vote of a majority of the Directors then in office.

Section 3. Vacancies. Vacancies and newly created Directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, though less than a quorum, or by a sole remaining director, and the Directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no Directors in office, then an election of Directors may be held in the manner provided by statute. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law or these By-Laws, may exercise the powers of the full board until the vacancy is filled.

Section 4. Resignation and Removal. Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation at its principal place of business or to the Chief Executive Officer or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some

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other event. 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, unless otherwise specified by law or the certificate of incorporation.

Section 5. General Powers. The business and affairs of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these By-Laws directed or required to be exercised or done by the stockholders.

Section 6. Chairman of the Board. If the Board of Directors appoints a chairman of the board, he shall, when present, preside at all meetings of the stockholders and the Board of Directors. He shall perform such duties and possess such powers as are customarily vested in the office of the chairman of the board or as may be vested in him by the Board of Directors.

Section 7. Place of Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware.

Section 8. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board; provided that any director who is absent when such a determination is made shall be given prompt notice of such determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.

Section 9. Special Meetings. Special meetings of the board may be called by the Chief Executive Officer, Secretary, or on the written request of two (2) or more Directors, or by one director in the event that there is only one director in office. Two (2) days’ notice to each director, either personally or by telegram, cable, telecopy, electronic mail, commercial delivery service, telex or similar means sent to his business or home address, or three (3) days’ notice by written notice deposited in the mail, shall be given to each director by the Secretary or by the officer or one of the Directors calling the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting.

Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of the board a majority of Directors then in office, but in no event less than one third of the entire board, shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law or by the certificate of incorporation. For purposes of this section, the term “entire board” shall mean the number of Directors last fixed by the stockholders or Directors, as the case may be, in accordance with law and these By-Laws; provided, however, that if less than all the number so fixed of Directors were elected, the “entire board” shall mean the greatest number of Directors so elected to hold office at any one time pursuant to such authorization. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

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Section 11. Action by Consent. Unless otherwise restricted by the certificate of incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing or electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 12. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these By-Laws, members of the Board of Directors or of any committee thereof may participate in a meeting of the Board of Directors or of any committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

Section 13. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (a) adopting, amending or repealing the By-Laws of the Corporation or any of them or (b) approving or adopting, or recommending to the stockholders any action or matter expressly required by law to be submitted to stockholders for approval. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and make such reports to the Board of Directors as the Board of Directors may request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By-Laws for the conduct of its business by the Board of Directors.

Section 14. Compensation. Unless otherwise restricted by the certificate of incorporation or these By-Laws, the Board of Directors shall have the authority to fix from time to time the compensation of Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and the performance of their responsibilities as Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the Corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The Board of Directors may also allow compensation for members of special or standing committees for service on such committees.

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ARTICLE III

OFFICERS

Section 1. Enumeration. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer and such other officers with such titles, terms of office and duties as the Board of Directors may from time to time determine, including a Chairman of the Board, one or more Vice-Presidents, and one or more Assistant Secretaries and Assistant Treasurers. If authorized by resolution of the Board of Directors, the Chief Executive Officer may be empowered to appoint from time to time Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide.

Section 2. Election. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a President, a Secretary and a Treasurer. Other officers may be appointed by the Board of Directors at such meeting, at any other meeting, or by written consent.

Section 3. Tenure. The officers of the Corporation shall hold office until their successors are chosen and qualify, unless a different term is specified in the vote choosing or appointing him, or until his earlier death, resignation or removal. Any officer elected or appointed by the Board of Directors or by the Chief Executive Officer may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board of Directors or a committee duly authorized to do so, except that any officer appointed by the Chief Executive Officer may also be removed at any time, with or without cause, by the Chief Executive Officer. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors, at its discretion. Any officer may resign by delivering his written resignation to the Corporation at its principal place of business or to the Chief Executive Officer or the Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

Section 4. President. The President shall be the Chief Operating Officer of the Corporation. He shall also be the Chief Executive Officer unless the Board of Directors otherwise provides. If no Chief Executive Officer shall have been appointed by the Board of Directors, all references herein to the “Chief Executive Officer” shall be to the President. The President shall, unless the Board of Directors provides otherwise in a specific instance or generally, preside at all meetings of the stockholders and the Board of Directors, have general and active management of the business of the Corporation and see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute bonds, mortgages, and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.

Section 5. Vice-Presidents. In the absence of the President or in the event of his or her inability or refusal to act, the Vice-President, or if there be more than one Vice-President, the

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Vice-Presidents in the order designated by the Board of Directors or the Chief Executive Officer (or in the absence of any designation, then in the order determined by their tenure in office) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-Presidents shall perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe.

Section 6. Secretary. The Secretary shall have such powers and perform such duties as are incident to the office of Secretary. The Secretary shall maintain a stock ledger and prepare lists of stockholders and their addresses as required and shall be the custodian of corporate records. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the Stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be from time to time prescribed by the Board of Directors or Chief Executive Officer, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or an assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature.

Section 7. Assistant Secretaries. The assistant Secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors, the Chief Executive Officer or the Secretary (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer or the Secretary may from time to time prescribe. In the absence of the Secretary or any assistant Secretary at any meeting of stockholders or Directors, the person presiding at the meeting shall designate a temporary or acting Secretary to keep a record of the meeting.

Section 8. Treasurer. The Treasurer shall perform such duties and shall have such powers as may be assigned to him or her by the Board of Directors or the Chief Executive Officer. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board of Directors, when the Chief Executive Officer or Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation.

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Section 9. Assistant Treasurers. The assistant Treasurer, or if there shall be more than one, the assistant Treasurers in the order determined by the Board of Directors, the Chief Executive Officer or the Treasurer (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the Treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer or the Treasurer may from time to time prescribe.

Section 10. Bond. If required by the Board of Directors, any officer shall give the Corporation a bond in such sum and with such surety or sureties and upon such terms and conditions as shall be satisfactory to the Board of Directors, including without limitation a bond for the faithful performance of the duties of his office and for the restoration to the Corporation of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control and belonging to the Corporation.

ARTICLE IV

NOTICES

Section 1. Delivery. Whenever, under the provisions of law, or of the Certificate of Incorporation or these By-Laws, notice is required to be given to any person, such notice may be given by mail, addressed to such person, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Unless written notice by mail is required by law, notice may also be given by telegram, cable, telecopy, commercial delivery service, telex or similar means, addressed to such person at his address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such transmission, the transmission charge to be paid by the Corporation or the person sending such notice and not by the addressee. Notice may also be given to stockholders by a form of electronic transmission in accordance with and subject to the provisions of Section 232 of the General Corporation Law of Delaware. Oral notice or other in-hand delivery (in person or by telephone) shall be deemed given at the time it is actually given.

Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of law or of the certificate of incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

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ARTICLE V

CAPITAL STOCK

Section 1. Certificates of Stock. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the chairman or Vice-chairman of the Board of Directors, or the President or a Vice-President and the Treasurer or an assistant Treasurer, or the Secretary or an assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified.

Section 2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give reasonable evidence of such loss, theft or destruction, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate.

Section 3. Transfer of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and proper evidence of compliance with other conditions to rightful 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 4. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty days nor less then ten days before the date of such meeting. 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. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is

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held. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date is fixed, 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 required by statute, 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 as provided in Section 10 of Article I. If no record date is fixed and prior action by the Board of Directors is required, 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 date on which the Board of Directors adopts the resolution taking such prior action. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted, and which shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.

Section 5. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VI

CERTAIN TRANSACTIONS

Section 1. Transactions with Interested Parties. No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers are Directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if:

(a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the

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affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or

(b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or

(c) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders.

Section 2. Quorum. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

ARTICLE VII

GENERAL PROVISIONS

Section 1. Dividends. Dividends upon the capital stock of the corporation, if any, may be declared by the Board of Directors at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation.

Section 2. Reserves. The Directors may set apart out of any funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.

Section 3. Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Section 4. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.

Section 5. Seal. The Board of Directors may, by resolution, adopt a corporate seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the word “Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. The seal may be altered from time to time by the Board of Directors.

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ARTICLE XIII

AMENDMENTS

These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors provided, however, that in the case of a regular or special meeting of stockholders, notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting.

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Register of Amendments to the By-Laws

Date Section Affected Change

Exhibit E

ESCROW AGREEMENT

This ESCROW AGREEMENT (this “Agreement”) is entered into as of this [____] day of December, 2004, by and among Citrix Systems, Inc., a Delaware corporation (“Parent”), Net6, Inc., a Delaware corporation (the “Company”), Tim Guleri (the “Stockholder Representative”) and JPMorgan Chase Bank, N.A., a New York State Charter Bank (the “Escrow Agent”).

RECITALS

WHEREAS, Parent, Hal Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), the Company and the Stockholder Representative have entered into that certain Agreement and Plan of Merger dated as of November 21, 2004 (the “Merger Agreement;” capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Merger Agreement), pursuant to which, among other things, Merger Sub will be merged with and into the Company (the “Merger”), with the Company to be the surviving corporation of the Merger;

WHEREAS, pursuant to Section 2.6(e) of the Merger Agreement, (i) a portion of the Merger Consideration equal to $6,000,000 in cash (the “Indemnity Escrow Amount”) is to be paid by Parent, on behalf of the Stockholders, to the Escrow Agent and held in escrow for the purpose of funding claims for indemnification by any Indemnified Party pursuant to Article X of the Merger Agreement and (ii) a portion of the Merger Consideration equal to $750,000 in cash (the “Working Capital Escrow Amount”) is to be paid by Parent, on behalf of the Stockholders, to the Escrow Agent and held in escrow for the purpose of funding any Working Capital Deficiency pursuant to Section 2.6(c)(vii) of the Merger Agreement; and

WHEREAS, pursuant to the Merger Agreement, the Stockholders have appointed the Stockholder Representative to represent them for all purposes in connection with this Agreement and the indemnification and merger consideration provisions of the Merger Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual obligations and covenants set forth herein, the parties hereto agree as follows:

1. Appointment of Escrow Agent. The parties hereto hereby constitute and appoint the Escrow Agent as, and the Escrow Agent hereby agrees to assume and perform the duties of, the escrow agent pursuant to this Agreement.

2. Receipt of Escrow Amounts. By its signature below, the Escrow Agent acknowledges receipt of the Indemnity Escrow Amount and the Working Capital Escrow Amount. The Indemnity Escrow Amount shall be held by the Escrow Agent as a trust fund in a separate account (the “Indemnity Escrow Account”) maintained for the purposes, and on the terms and subject to the conditions, set forth in this Agreement. The Working Capital Escrow Amount shall be held by the Escrow Agent as a trust fund in a separate account (the “Working Capital Escrow Account” and, together with the Indemnity Escrow Account, the “Escrow

Accounts”) maintained for the purposes, and on the terms and subject to the conditions, set forth in this Agreement.

3. Investment of Escrow Amounts.

(a) During the term of this Agreement, the Indemnity Escrow Amount and the Working Capital Escrow Amount and all interest thereon shall be invested and reinvested by the Escrow Agent in the investment(s) indicated on Schedule 1. All investment orders involving U.S. Treasury obligations, commercial paper and other direct investments will be executed through JPMorgan Fleming Asset Management (“JPMFAM”), in the investment management division of JPMorgan Chase. Subject to principles of best execution, transactions are effected on behalf of the Escrow Accounts through broker-dealers selected by JPMFAM. In this regard, JPMFAM seeks to attain the best overall result for the Escrow Accounts, taking into consideration quality of service and reliability. An agency fee will be assessed in connection with each transaction. The Escrow Agent shall have the right to liquidate any investments held in order to provide funds necessary to make required payments under this Agreement. The Escrow Agent shall have no liability for any loss sustained as a result of (i) any investment in an investment indicated on Schedule 1, (ii) any investment made pursuant to the instructions of the parties hereto, (iii) any liquidation of any investment prior to its maturity or (iv) the failure of the parties to give the Escrow Agent instructions to reinvest the Indemnity Escrow Amount or the Working Capital Escrow Amount.

(b) If the Escrow Agent has not received joint written instructions of Parent and the Stockholder Representative (“Joint Written Instructions”) at any time that an investment decision must be made, the Escrow Agent shall invest the Indemnity Escrow Amount or the Working Capital Escrow Amount, as applicable, and all interest thereon, in the investment(s) indicated on Schedule 1. All interest and other income earned on the Indemnity Escrow Amount through the Indemnity Escrow Termination Date (as defined below) shall not become part of the Indemnity Escrow Amount. For tax purposes, all interest and other income earned on the Indemnity Escrow Amount shall be reported as taxable income of Parent, and the Escrow Agent and Parent shall file applicable tax forms consistent with such treatment. The Escrow Agent shall pay to EquiServe, Inc., a Delaware corporation, and its fully owned subsidiary EquiServe Trust Company, N.A., a national banking association (collectively, the “Payment Agent”) from the Indemnity Escrow Account annually, no later than thirty (30) days after the end of each calendar year, the amount of such interest and other income earned during such calendar year for distribution to the Stockholders in accordance with the Merger Agreement.

(c) All interest and other income earned on the Working Capital Escrow Amount through the Working Capital Escrow Termination Date (as defined below) shall not become part of the Working Capital Escrow Amount. For tax purposes, all interest and other income earned on the Working Capital Escrow Amount shall be reported as taxable income of Parent, and the Escrow Agent and Parent shall file applicable tax forms consistent with such treatment. The Escrow Agent shall disburse to the Payment Agent from the Working Capital Escrow Account, no later than two (2) Business Days after the Working Capital Escrow Termination Date, the amount of such interest and other income for distribution to the Stockholders in accordance with the Merger Agreement.

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(d) Within five (5) Business Days after the end of each calendar month prior to the Working Capital Escrow Termination Date, the Escrow Agent shall deliver to Parent a monthly statement of interest and any other income earned on the Working Capital Escrow Amount during such calendar month and for the calendar year to date. Within five (5) Business Days after the end of each calendar month prior to the Indemnity Escrow Termination Date, the Escrow Agent shall deliver to Parent a monthly statement of interest and any other income earned on the Indemnity Escrow Amount during such calendar month and for the calendar year to date.

(e) The correct taxpayer identification numbers of Parent and each of the Stockholders are set forth on Schedule 2. The Escrow Agent shall be provided with a fully completed and executed Internal Revenue Service Form W-8 or W-9, as applicable, from each of Parent, the Company and the Stockholder Representative at the time of closing. The Escrow Agent shall file such reports and withhold such taxes as it determines is required by law or regulation. It is expressly agreed and understood that the Escrow Accounts shall be treated as grantor trusts of Parent for tax purposes and Parent shall be responsible for filing any applicable tax returns with respect to the interest and other income earned on the Indemnity Escrow Amount and the Working Capital Escrow Amount.

4. Release of Escrow Amounts.

(a) On each occasion on which Parent determines that any Indemnified Party may be entitled to indemnification for any amount pursuant to Article X of the Merger Agreement, Parent may deliver to the Stockholder Representative and the Escrow Agent a Claim Certificate for the payment of such amount pursuant to Section 10.4(a) of the Merger Agreement.

(b) Within thirty (30) days after receipt by the Stockholder Representative of a Claim Certificate, the Stockholder Representative may deliver to Parent and the Escrow Agent a written objection to all or any part of the Claim Certificate (an “Objection”). The Objection shall set forth in detail the basis of the Stockholder Representative’s objection to the Claim Certificate and the amount in dispute.

(c) If the Stockholder Representative fails to deliver an Objection to Parent and the Escrow Agent by 5:00 p.m. Eastern Time on the thirtieth (30th) day following the receipt by the Stockholder Representative of a Claim Certificate, the Escrow Agent shall pay to the Indemnified Parties out of the Indemnity Escrow Account an amount equal to the amount requested in the Claim Certificate (up to a maximum of the Indemnity Escrow Amount). Any such payment shall be made on or before the second (2nd) Business Day following the expiration of such thirty (30)-day period. The Escrow Agent shall continue to hold any amounts remaining in the Indemnity Escrow Account following the payment of any Claim Certificate in accordance with the terms of this Agreement.

(d) If the Stockholder Representative properly delivers a timely Objection with respect to all or any portion of a Claim Certificate, the Escrow Agent shall not disburse, and shall continue to hold in the Indemnity Escrow Account, the amount requested in the Claim Certificate or the disputed portion thereof, as applicable, pending receipt of either (i) payment instructions signed by Parent and the Stockholder Representative, specifying the agreement of

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the parties as to the action to be taken by the Escrow Agent in respect of such Claim Certificate (“Joint Payment Instructions”) or (ii) a notice from either Parent or the Stockholder Representative stating that either (A) such Claim Certificate has been submitted to a court of competent jurisdiction for judgment and that a judgment with respect to such matters has been rendered or (B) such Claim Certificate has been submitted to a panel of arbitrators with proper jurisdiction and that a final nonappealable award with respect to such arbitration has been rendered (in each case, a “Judgment Notice”), which Judgment Notice shall be accompanied by a copy of a final, nonappealable order of such court or such arbitration panel, as applicable (each an “Order”), pursuant to which such court or arbitration panel has determined whether and to what extent the Indemnified Parties are entitled to the amount requested in the Claim Certificate. Upon receipt of Joint Payment Instructions or a Judgment Notice, as applicable, the Escrow Agent shall thereafter act in accordance with Section 4(e) or 4(f) below, as applicable. A copy of any Judgment Notice or Order shall be delivered to each party at the same time as it is delivered to the Escrow Agent.

(e) Upon receipt by the Escrow Agent of Joint Payment Instructions, if such Joint Payment Instructions indicate that any Indemnified Parties are entitled to payment in respect of all or any portion of the Claim Certificate, then the Escrow Agent shall release from the Indemnity Escrow Account and pay to the Indemnified Parties the amount indicated in such Joint Payment Instructions (up to a maximum of the Indemnity Escrow Amount). Such payment shall be made on or before the second (2nd) Business Day following the date on which such Joint Payment Instructions are received by the Escrow Agent. If such Joint Payment Instructions indicate that the Indemnified Parties are not entitled to all or any portion of the amount claimed in such Claim Certificate (a “Discharge Notice”), then the Escrow Agent shall continue to hold such amount in the Indemnity Escrow Account in accordance with the terms of this Agreement until such amounts are to be disbursed: (i) to the Payment Agent, pursuant to Sections 4(i) or 4(j), for distribution to the Stockholders in accordance with the Merger Agreement; (ii) to any Indemnified Parties in respect of another Claim Certificate pursuant to Sections 4(c), 4(e) or 4(f), or (iii) to any Person pursuant to Section 4(m).

(f) If the Escrow Agent has received a Judgment Notice with respect to any Claim Certificate, then the Escrow Agent shall release from the Indemnity Escrow Account and pay to the Indemnified Parties an amount equal to the amount due the Indemnified Parties. Such payment shall be made on or before the second (2nd) Business Day following the date on which the Escrow Agent received such Judgment Notice. If the Order accompanying such Judgment Notice indicates that the Indemnified Parties are not entitled to all or any portion of the amount claimed in the Claim Certificate (a “Determination Discharge”), then the Escrow Agent shall continue to hold such amount to which the Indemnified Parties were determined not to be entitled in accordance with the terms of this Agreement until such amounts are to be disbursed: (i) to the Payment Agent, pursuant to Sections 4(i) or 4(j), for distribution to the Stockholders in accordance with the Merger Agreement; (ii) to any Indemnified Parties in respect of another Claim Certificate pursuant to Sections 4(c), 4(e) or 4(f), or (iii) to any Person pursuant to Section 4(m).

(g) (1) Upon receipt by the Escrow Agent of written instructions from Parent on or after the Final Determination Date (“Written Instructions”), if such Written Instructions indicate that the Closing Working Capital is less than the Estimated Working Capital, then the Escrow Agent shall release from the Working Capital Escrow Account and transfer to Parent: (i) an amount in cash equal to the

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Working Capital Deficiency; or (ii) if such Written Instructions indicate that the Working Capital Deficiency is greater than the Working Capital Escrow Amount, then the Escrow Agent shall release from the Working Capital Escrow Account and distribute to Parent an amount in cash equal to the entire Working Capital Escrow Amount. Such disbursement shall be made on or before the second (2nd) Business Day following the date on which such Written Instructions are received by the Escrow Agent.

(2) Upon receipt by the Escrow Agent of Written Instructions, if such Written Instructions indicate that the Working Capital Deficiency is greater than the Working Capital Escrow Amount, then the Escrow Agent shall, after releasing the Working Capital Escrow Amount to Parent pursuant to Section 4(g)(1), release from the Indemnity Escrow Account and distribute to Parent the Working Capital Indemnity Amount. Such disbursement shall be made on or before the second (2nd) Business Day following the date on which such Written Instructions are received by the Escrow Agent.

(3) Upon receipt by the Escrow Agent of Written Instructions, if such Written Instructions indicate that the Working Capital Deficiency is less than the Working Capital Escrow Amount, then the Escrow Agent shall release from the Working Capital Escrow Account and disburse to the Payment Agent, after making the disbursement of the Working Capital Deficiency specified in Section 4(g)(1), the balance of the Working Capital Escrow Amount for distribution to the Stockholders in accordance with the Merger Agreement. Such disbursement shall be made on or before the second (2nd) Business Day following the date on which such Written Instructions are received by the Escrow Agent.

(h) Upon receipt by the Escrow Agent of Written Instructions, if such Written Instructions indicate that the Closing Working Capital equals or exceeds the Estimated Working Capital, then the Escrow Agent shall release from the Working Capital Escrow Account and disburse to the Payment Agent the entire Working Capital Escrow Amount for distribution to the Stockholders in accordance with the Merger Agreement. Such disbursement shall be made on or before the second (2nd) Business Day following the date on which such Written Instructions are received by the Escrow Agent.

(i) The twelve (12) month anniversary of the Closing Date is referred to herein as the “Initial Reduction Date.” On the Initial Reduction Date, the Indemnity Escrow Amount shall automatically be reduced by an amount equal to the excess (if any) of (x) the balance of the Indemnity Escrow Amount on the Initial Reduction Date over (y) $1,500,000 (such excess being referred to as the “Initial Indemnity Escrow Disbursement”). On or before the second (2^nd) Business Day following the receipt of Joint Written Instructions by the Escrow Agent notifying the Escrow Agent of the Initial Reduction Date, subject to the provisions of the following sentence, the Escrow Agent shall pay to the Payment Agent the Initial Indemnity Escrow Disbursement for distribution to the Stockholders in accordance with the Merger Agreement. If, however, the Escrow Agent shall have received on or before the Initial Reduction Date one or more Claim Certificates that have not been paid in accordance with Section 4(c) as of the Initial Reduction Date and as to which, on the Initial Reduction Date, the Escrow Agent has not received and fully acted upon Joint Payment Instructions or a Judgment Notice, nor received a Discharge Notice or a Determination Discharge (any such Claim Certificate being referred to as an “Initial Outstanding Claim”), the Escrow Agent shall retain and continue to hold in accordance with the terms hereof an amount equal to the amount requested in all such Initial Outstanding Claims (the “Initial Retained Amount”) but shall pay to the Payment Agent an

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amount equal to the excess, if any, of the Initial Indemnity Escrow Disbursement over the Initial Retained Amount for distribution to the Stockholders in accordance with the Merger Agreement; and, thereafter, the Escrow Agent shall release from the Indemnity Escrow Account all or portions of the Initial Retained Amount to Parent and/or the Payment Agent for distribution to the Stockholders in accordance with the Merger Agreement, as applicable, as and when it receives Joint Payment Instructions, Judgment Notices, Discharge Notices or Determination Discharges, as applicable, related to the Initial Outstanding Claims. Following the Initial Reduction Date, in the event that the Initial Retained Amount at any time exceeds the amount of all Initial Outstanding Claims that have not been paid to the Indemnified Parties or that are not subject to a Discharge Notice or Determination Discharge, the Escrow Agent shall pay to the Payment Agent within five (5) Business Days of the Stockholder Representative’s written request for such payment, an amount equal to such excess for distribution to the Stockholders in accordance with the Merger Agreement. The balance of the Indemnity Escrow Amount shall be held in escrow to fund claims for indemnification by any Indemnified Party pursuant to Article X of the Merger Agreement.

(j) The twenty-four (24)-month anniversary of the Closing Date is referred to herein as the “Final Reduction Date.” On the Final Reduction Date, the Indemnity Escrow Amount shall be reduced by an amount equal to the excess (if any) of (x) the balance of the Indemnity Escrow Amount on the Final Reduction Date over (y) the portion of the Initial Retained Amount not previously disbursed as provided in Section 4(i) hereof (the “Final Disbursement Amount”). On or before the second (2^nd) Business Day following the receipt of Joint Written Instructions by the Escrow Agent notifying the Escrow Agent of the Final Reduction Date, subject to the provisions of the following sentence, the Escrow Agent shall pay to the Payment Agent from the Indemnity Escrow Account the Final Disbursement Amount for distribution to the Stockholders in accordance with the Merger Agreement. If, however, the Escrow Agent shall have received on or before the Final Reduction Date one or more Claim Certificates that have not been paid in accordance with Section 4(c) as of the Final Reduction Date and that were not included in determining the Initial Retained Amount and as to which, on the Final Reduction Date, the Escrow Agent has not received and fully acted upon Joint Payment Instructions or a Judgment Notice, nor received a Discharge Notice or a Determination Discharge (all such Claim Certificates, together with the Initial Outstanding Claims, the “Final Outstanding Claims”), the Escrow Agent shall retain and continue to hold in accordance with the terms hereof an amount equal to the amount requested in all such Final Outstanding Claims (all such amounts, together with any portion of the Initial Retained Amount not previously disbursed as provided in Section 4(i), the “Final Retained Amount”) but shall pay to the Payment Agent an amount equal to the excess, if any, of the Final Disbursement Amount over the Final Retained Amount for distribution to the Stockholders in accordance with the Merger Agreement; and, thereafter, the Escrow Agent shall release from the Indemnity Escrow Account to Parent and/or the Payment Agent for distribution to the Stockholders in accordance with the Merger Agreement, as applicable, all or portions of the Final Retained Amount as and when it receives Joint Payment Instructions, Judgment Notices, Discharge Notices or Determination Discharges, as applicable, related to the Final Outstanding Claims. Following the Final Reduction Date, in the event that the Final Retained Amount at anytime exceeds the amount of all Final Outstanding Claims that have not been paid to the Indemnified Parties or that are not subject to a Discharge Notice or Determination Discharge, the Escrow Agent shall pay to the Payment Agent within

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two (2) Business Days of the Stockholder Representative’s written request for such payment, an amount equal to such excess for distribution to the Stockholders in accordance with the Merger Agreement.

(k) Upon receipt of written instructions signed by the Stockholder Representative indicating that the Stockholder Representative has incurred reasonable expenses in connection with the performance of its duties under this Agreement or the Merger Agreement, the Escrow Agent shall promptly reimburse the Stockholder Representative for the amount of (i) any reasonable expenses related to costs and charges of the Accounting Referee’s review and report, from the Working Capital Escrow Account and (ii) any other reasonable expenses, from the Indemnity Escrow Account.

(l) As promptly as practicable following the disbursement of any funds from the Indemnity Escrow Account or the Working Capital Escrow Account, the Escrow Agent shall send a written statement to the Stockholder Representative and Parent stating the amount of the disbursement and the amounts remaining in the Indemnity Escrow Account or the Working Capital Escrow Account, as applicable.

(m) Notwithstanding the foregoing, if at any time the Escrow Agent shall receive Joint Written Instructions to release all or a portion of the Indemnity Escrow Amount or the Working Capital Escrow Amount, then within two (2) Business Days after receipt of such Joint Written Instructions, the Escrow Agent shall release the Indemnity Escrow Amount or the Working Capital Escrow Amount, as applicable, in accordance with such Joint Written Instructions. The parties will cooperate in good faith in executing such Joint Written Instructions whenever reasonably necessary to ensure distributions of escrowed funds to the party entitled thereto under the terms of the Merger Agreement. The date on which the entire Indemnity Escrow Amount has been disbursed from the Indemnity Escrow Account shall be referred to herein as the “Indemnity Escrow Termination Date.” The date on which the entire Working Capital Escrow Amount has been disbursed from the Working Capital Escrow Account shall be referred to herein as the “Working Capital Escrow Termination Date.”

5. Duties of the Escrow Agent.

(a) Duties in General.

(1) The Escrow Agent undertakes to perform only such duties as are expressly set forth herein (and required by applicable law), which the parties agree are ministerial in nature, and no duties shall be implied. If in doubt as to its duties and responsibilities hereunder, the Escrow Agent may consult with legal counsel of its choice and shall be protected in any action taken or omitted in connection with the advice or opinion of such legal counsel.

(2) If the Escrow Agent becomes involved in litigation with respect to this Agreement for any reason, it is hereby authorized to: (i) deposit the Indemnity Escrow Amount and the Working Capital Escrow Amount with the clerk of such court in which such litigation is pending or (ii) interplead all interested parties in any court of competent jurisdiction and deposit with the clerk of such court the Indemnity Escrow Amount and the Working Capital

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Escrow Amount. Upon the happening of either (i) or (ii) above, the Escrow Agent shall be fully relieved and discharged of any further duties hereunder.

(3) If the Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive instructions, claims or demands from any party hereto that, in its opinion, conflict with any of the provisions of this Agreement, it shall be entitled to refrain from taking any action, and its sole obligation shall be to keep safely all property held in escrow until it shall be directed otherwise by Joint Written Instructions or by a final order or judgment of a court of competent jurisdiction. In addition, if the Escrow Agent should at any time be confronted with inconsistent claims or demands by the parties hereto, the Escrow Agent shall also have the right to interplead such parties in any state or federal court located in the State of Delaware (or if such court does not have jurisdiction, any other court of competent jurisdiction), to deposit the Indemnity Escrow Amount and the Working Capital Escrow Amount with the clerk of such court and to request that such court determine the respective rights of the parties under this Agreement, and, upon doing so, the Escrow Agent automatically shall be released from any obligations or liability as a consequence of any claims or demands hereunder.

(b) Exculpation. Except for the Escrow Agent’s own willful misconduct or gross negligence, (i) the Escrow Agent shall have no liability of any kind whatsoever for its performance of, or from having refrained from performing, any duties imposed upon the Escrow Agent under this Agreement or for any of its acts or omissions hereunder; (ii) the Escrow Agent shall not be responsible for any of the acts or omissions of the parties hereto; (iii) the Escrow Agent shall not be liable to anyone for damages, losses or expenses arising out of this Agreement; (iv) the Escrow Agent may rely and/or act upon any written instrument, document or request believed by the Escrow Agent in good faith to be genuine and to be executed and delivered by the proper Person, may assume in good faith the authenticity, validity and effectiveness thereof and shall not be obligated to make any investigation or determination as to the truth and accuracy of any information contained therein and (v) the Escrow Agent shall have no liability of any kind whatsoever for anything done, suffered or omitted in good faith by it in accordance with the advice or opinion of legal counsel, accountants or other skilled persons to be selected and retained by it. Anything in this Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.

(c) No Additional Duties. The Escrow Agent shall have no duties except those that are expressly set forth herein, and it shall not be bound by any notice of a claim or demand hereunder or any waiver, modification, amendment, termination or rescission of this Agreement, unless received by it in writing.

(d) Miscellaneous. The Escrow Agent may execute any of its powers or responsibilities hereunder and exercise any rights hereunder either directly or by or through its agents or attorneys. The Escrow Agent shall not be responsible for and shall not be under a duty to examine or pass upon the validity, binding effect, execution or sufficiency of this Agreement or of any agreement amendatory or supplemental hereto.

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6. Indemnity. The Stockholders and Parent shall jointly and severally indemnify, defend and save harmless the Escrow Agent and its directors, officers, agents and employees (the “Indemnitees”) from all loss, liability or expense (including the fees and expenses of legal counsel) arising out of or in connection with (i) the Escrow Agent’s execution and performance of this Agreement, except in the case of any Indemnitee to the extent that such loss, liability or expense is due to the gross negligence or willful misconduct of such Indemnitee or (ii) the Escrow Agent following any instructions or other directions from Parent and the Stockholder Representative, except to the extent that following any such instruction or direction is expressly forbidden by the terms of this Agreement. The parties hereto acknowledge that the foregoing indemnities shall survive the resignation or removal of the Escrow Agent or the termination of this Agreement.

7. Resignation of the Escrow Agent; Acquisition of the Escrow Agent. The Escrow Agent, and any successor Escrow Agent, may resign at any time as the Escrow Agent hereunder by giving at least fifteen (15) Business Days written notice to the parties. Upon such resignation and the appointment of a successor Escrow Agent, the resigning Escrow Agent shall be absolved from any further duties as the Escrow Agent hereunder. Upon their receipt of notice of resignation from the Escrow Agent, Parent and the Stockholder Representative shall use their reasonable best efforts jointly to designate a successor Escrow Agent. If Parent and the Stockholder Representative do not agree upon a successor Escrow Agent within fifteen (15) Business Days after the receipt by the parties of the Escrow Agent’s resignation notice, the Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent or other appropriate relief and any such resulting appointment shall be binding upon all parties hereto. By mutual agreement, Parent and the Stockholder Representative shall have the right at any time upon not less than seven (7) Business Days written notice to terminate their appointment of the Escrow Agent, or any successor Escrow Agent, as the Escrow Agent hereunder. Notwithstanding anything to the contrary in the foregoing, the Escrow Agent or any successor Escrow Agent shall continue to act as the Escrow Agent until a successor is appointed and qualified to act as the Escrow Agent.

Any corporation or association into which the Escrow Agent may be merged or converted or with which it may be consolidated, or any corporation or association to which all or substantially all of the escrow business of the Escrow Agent’s corporate trust line of business may be transferred, shall be the Escrow Agent under this Agreement without further act, and the Escrow Agent shall notify the other parties hereto of such occurrence.

8. Fees and Expenses of the Escrow Agent. The fees and the expenses of the Escrow Agent for its services hereunder shall be paid by Parent in accordance with Schedule 3. The provisions of this Section 8 shall survive any termination of this Agreement and removal or resignation of the Escrow Agent.

9. Notices. All notices and other communications required or permitted pursuant to this Agreement shall be in writing and addressed to such party for whom such communication is intended at the applicable address set forth below. Such notice shall be deemed to have been duly given (i), with regard to the Escrow Agent, when actually received by the Escrow Agent and (ii), with regard to any other party hereto, when delivered personally (which shall include

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delivery by Federal Express or other nationally recognized, reputable overnight courier service that issues a receipt or other confirmation of delivery) to the party for whom such communication is intended or two (2) Business Days after the date mailed by certified mail, return receipt requested, postage prepaid, as follows:

If to Parent:

Citrix Systems, Inc.

851 West Cypress Creek Road

Fort Lauderdale, FL 33309

Attention: General Counsel

Telephone: (954) 267-3000

Facsimile: (954) 267-2862

with a copy to:

Testa, Hurwitz & Thibeault, LLP

125 High Street

Boston, MA 02110

Attention: Steven C. Browne

Telephone: (617) 248-7000

Facsimile: (617) 248-7100

If to the Stockholder Representative:

Tim Guleri

c/o Sierra Ventures

2884 Sand Hill Road, Suite 100

Menlo Park, CA 94025

Telephone: (650) 854-1000

Facsimile: (650) 854-5593

with a copy to:

Stradling Yocca Carlson & Rauth

660 Newport Center Drive, Suite 1600

Newport Beach, CA 92660

Attention: Shivbir S. Grewal

Telephone: (949) 725-4000

Facsimile: (949) 725-4100

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If to the Escrow Agent:

JPMorgan Chase Bank

4 New York Plaza, 21^st Floor

New York, NY 10004

Attention: Audrey Mohan

Telephone: (212) 623-5087

Facsimile: (212) 623-6168

or to such other address as such party shall specify by written notice to the other parties hereto. Any notice sent to the Escrow Agent shall also be sent to the other parties to this Agreement.

10. Assignment. Parent may assign its rights and obligations under this Agreement to the same extent it is permitted to assign its rights and obligations under the Merger Agreement.

11. Security Procedures. In the event funds transfer instructions are given (other than in writing at the time of execution of this Agreement), whether in writing, by telecopier or otherwise, the Escrow Agent is authorized to seek confirmation of such instructions by telephone call-back to the person or persons designated on Schedule 4, and the Escrow Agent may rely upon the confirmation of anyone purporting to be the person or persons so designated. The persons and telephone numbers for call-backs may be changed only in a writing actually received and acknowledged by the Escrow Agent. The Escrow Agent and the beneficiary’s bank in any funds transfer may rely solely upon any account numbers or similar identifying numbers provided by Parent or the Stockholder Representative to identify (i) the beneficiary, (ii) the beneficiary’s bank or (iii) an intermediary bank. The Escrow Agent may apply any of the escrowed funds for any payment order it executes using any such identifying number, even when its use may result in a person other than the beneficiary being paid, or the transfer of funds to a bank other than the beneficiary’s bank or an intermediary bank designated. The parties to this Escrow Agreement acknowledge that these security procedures are commercially reasonable.

12. Miscellaneous. This Agreement and, with respect to Parent, the Company and the Stockholder Representative, the Merger Agreement embody the entire agreement and understanding of the parties concerning the Indemnity Escrow Amount and the Working Capital Escrow Amount and, in the event of any inconsistency between this Agreement and the Merger Agreement, this Agreement shall control. This Agreement may be amended only by a writing signed by the party against whom enforcement is sought. The headings in this Agreement are intended solely for convenience or reference and shall be given no effect in the construction or interpretation of this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, except the choice of law rules utilized in that state. This Agreement shall bind and inure to the benefit of the parties hereto and their respective, heirs, personal representatives, successors and permitted assigns. Each party hereto irrevocably waives any objection on the grounds of venue, forum non-conveniens or any similar grounds, irrevocably consents to service of process by mail or in any other manner permitted by applicable law and consents to the jurisdiction of the courts located in the State of Delaware. The parties further hereby waive any right to a trial by jury with respect to any lawsuit or judicial

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proceeding arising out of or relating to this Agreement. The Escrow Agent shall not be liable to any other party for losses due to, or if it is unable to perform its obligations under the terms of this Agreement because of, acts of God, fire, floods, strikes, equipment or transmission failure or other causes reasonably beyond its control. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and same instrument. All signatures of the parties to this Agreement may be transmitted by facsimile, and such facsimile will, for all purposes, be deemed to be the original signature of such party whose signature it reproduces and will be binding upon such party.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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To evidence their agreement, the parties have caused this Agreement to be executed on the date first written above.

CITRIX SYSTEMS, INC.
By:
	Name:
	Title:

NET6, INC.
By:
	Name:
	Title:

Name:	Tim Guleri
Title:	Stockholder Representative

JPMORGAN CHASE BANK, N.A.
By:
	Name:	Jo Anne Osborn
	Title:	Vice President

The following Exhibits and Schedules to the Agreement and Plan of Merger have been omitted or partially omitted in accordance with Item 601(b)(2) of Regulation S-K.

EXHIBITS
Exhibit B	Exhibit A to Form of Certificate of Merger
Exhibit D	Schedules to Form of Escrow Agreement

SCHEDULES
Schedule 1	Persons Executing Voting Agreement
Schedules 3.1 - 8.1	Company Disclosure Schedules
Schedule 9.3(j)	Stockholders and Others to Approve Agreement

Citrix Systems, Inc. will furnish supplementally a copy of any omitted or partially omitted schedule or exhibit to the Securities and Exchange Commission upon request; provided, however, that Citrix Systems, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.

EX-10.7

Exhibit 10.7

AMENDED AND RESTATED

2000 STOCK INCENTIVE PLAN OF NET6, INC.

a subsidiary of Citrix Systems, Inc.

This AMENDED AND RESTATED 2000 STOCK INCENTIVE PLAN OF NET6, INC. (a subsidiary of Citrix Systems, Inc.) (the “Plan”) is hereby established by WebUnwired, Inc., a Delaware corporation and predecessor to Net6, Inc. (the “Company”), and adopted by its Board of Directors as of the 25th day of October, 2000 (the “Effective Date”).

ARTICLE 1

PURPOSES OF THE PLAN

1.1 Purposes. The purposes of the Plan are (a) to enhance the Company’s ability to attract and retain the services of qualified employees, officers and directors (including non-employee officers and directors), and consultants and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company’s business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company.

ARTICLE 2

DEFINITIONS

For purposes of this Plan, the following terms shall have the meanings indicated:

2.1 Administrator. “Administrator” means the Board or, if the Board delegates responsibility for any matter to the Committee, the term Administrator shall mean the Committee.

2.2 Affiliated Company. “Affiliated Company” means any “parent corporation” or “subsidiary corporation” of the Company, whether now existing or hereafter created or acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code, respectively.

2.3 Board. “Board” means the Board of Directors of the Company.

2.4 Cause. “Cause” means, with respect to a Participant’s Continuous Service, the termination by the Company of such Continuous Service for any of the following reasons:

(a) The continued, unreasonable refusal or omission by the Participant to perform any material duties required of him by the Company if such duties are consistent with duties customary for the position held with the Company;

(b) Any material act or omission by the Participant involving malfeasance or gross negligence in the performance of Participant’s duties to, or material deviation from any of the policies or directives of, the Company;

(c) Conduct on the part of Participant which constitutes the breach of any statutory or common law duty of loyalty to the Company; or

(d) Any illegal act by Participant which materially and adversely affects the business of the Company or any felony committed by Participant, as evidenced by conviction thereof, provided that the Company may suspend Participant with pay while any allegation of such illegal or felonious act is investigated.

2.5 Change in Control. “Change in Control” shall mean (i) the acquisition, directly or indirectly, by any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of all outstanding securities of the Company; (ii) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (iii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; (iv) a complete liquidation or dissolution of the Company; or (v) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such merger.

2.6 Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.7 Committee. “Committee” means a committee of two or more members of the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.

2.8 Common Stock. “Common Stock” means the Common Stock, $.001 par value of the Company, subject to adjustment pursuant to Section 4.2 hereof.

2.9 Continuous Service. “Continuous Service” means (i) employment by either the Company or any Affiliated Company, or by a corporation or a parent or subsidiary of a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, which is uninterrupted except for vacations, illness (except for permanent disability, as defined in Section 22(e)(3) of the Code), or leaves of absence which are approved in writing by the Company or any of such other employer corporations, if applicable, (ii) service as a member of the Board of Directors of the Company or an Affiliated Company until Participant resigns, is removed from office, or Participant’s term of office expires and he or she is not reelected, or (iii) so long as Participant is engaged as a consultant or service provider to the Company or other corporation referred to in clause (i) above. For purposes of this Section 2.9, the determination of which entity constitutes a parent or subsidiary corporation of the Company, or an Affiliated Company, shall be made at the time of the determination of Continuous Service.

2.10 Disability. “Disability” means permanent and total disability as defined in Section 22(e)(3) of the Code. The Administrator’s determination of a Disability or the absence thereof shall be conclusive and binding on all interested parties.

2.11 Effective Date. “Effective Date” means the date on which the Plan is adopted by the Board, as set forth on the first page hereof.

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2.12 Exercise Price. “Exercise Price” means the purchase price per share of Common Stock payable upon exercise of an Option.

2.13 Fair Market Value. “Fair Market Value” on any given date means the value of one share of Common Stock, determined as follows:

(a) If the Common Stock is then listed or admitted to trading on a Nasdaq market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on such Nasdaq market system or principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no closing sale price is quoted on such day, then the Fair Market Value shall be the closing sale price of the Common Stock on such Nasdaq market system or such exchange on the next preceding day on which a closing sale price is quoted.

(b) If the Common Stock is not then listed or admitted to trading on a Nasdaq market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid and asked prices of the Common Stock in the over-the-counter market on the date of valuation.

(c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Administrator in good faith using any reasonable method of evaluation, which determination shall be conclusive and binding on all interested parties.

2.14 Good Reason. “Good Reason” means with respect to a Participant’s voluntary termination of Continuous Service if such termination is the result of any of the following:

(a) A reduction in the amount of his base compensation pay in effect at the time of a Change in Control;

(b) The taking of any action by the Company that would substantially diminish the aggregate value of the benefits provided the Participant under the Participant’s medical, health, accident, disability insurance, life insurance, thrift and retirement plans in which he was participating on the date of a Change in Control, other than any such reduction which is (i) required by law, (ii) implemented in connection with a general concessionary arrangement affecting all employees or affecting the group of employees (of which the Participant is a member) or (iii) generally applicable to all beneficiaries of such plans;

(c) A reduction in duties and responsibilities which results in the Participant no longer having duties customary for the position held with the Company at the time of a Change in Control; or

(d) The Company materially breaches any provision of the Participant’s Stock Option Agreement or Stock Purchase Agreement.

2.15 Incentive Option. “Incentive Option” means any Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

2.16 Incentive Option Agreement. “Incentive Option Agreement” means an Option Agreement with respect to an Incentive Option.

2.17 [Reserved.]

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2.18 Nonqualified Option. “Nonqualified Option” means any Option that is not an Incentive Option. To the extent that any Option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a 10% Shareholder or because it exceeds the annual limit provided for in Section 5.6 below, it shall to that extent constitute a Nonqualified Option.

2.19 Nonqualified Option Agreement. “Nonqualified Option Agreement” means an Option Agreement with respect to a Nonqualified Option.

2.20 Offeree. “Offeree” means a Participant to whom a Right to Purchase has been offered or who has acquired Restricted Stock under the Plan.

2.21 Option. “Option” means any option to purchase Common Stock granted pursuant to the Plan.

2.22 Option Agreement. “Option Agreement” means the written agreement entered into between the Company and the Optionee with respect to an Option granted under the Plan.

2.23 Optionee. “Optionee” means a Participant who holds an Option.

2.24 Participant. “Participant” means an individual or entity who holds an Option, a Right to Purchase or Restricted Stock under the Plan.

2.25 Purchase Price. “Purchase Price” means the purchase price per share of Restricted Stock payable upon acceptance of a Right to Purchase.

2.26 Restricted Stock. “Restricted Stock” means shares of Common Stock issued pursuant to Article 6 hereof, subject to any restrictions and conditions as are established pursuant to such Article 6.

2.27 Right to Purchase. “Right to Purchase” means a right to purchase Restricted Stock granted to an Offeree pursuant to Article 6 hereof.

2.28 Service Provider. “Service Provider” means a consultant or other person or entity who provides services to the Company or an Affiliated Company and who the Administrator authorizes to become a Participant in the Plan.

2.29 Stock Purchase Agreement. “Stock Purchase Agreement” means the written agreement entered into between the Company and the Offeree with respect to a Right to Purchase offered under the Plan.

2.30 10% Shareholder. “10% Shareholder” means a person who, as of a relevant date, owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of an Affiliated Company.

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ARTICLE 3

ELIGIBILITY

3.1 Incentive Options. Officers and other key employees of the Company or of an Affiliated Company (including members of the Board if they are employees of the Company or of an Affiliated Company) are eligible to receive Incentive Options under the Plan.

3.2 Nonqualified Options and Rights to Purchase. Officers and other key employees of the Company or of an Affiliated Company, members of the Board (whether or not employed by the Company or an Affiliated Company), and Service Providers are eligible to receive Nonqualified Options or Rights to Purchase under the Plan.

3.3 Limitation on Shares. In no event shall any Participant be granted Rights to Purchase or Options in any one calendar year pursuant to which the aggregate number of shares of Common Stock that may be acquired thereunder exceeds 37,300 shares.

ARTICLE 4

PLAN SHARES

4.1 Shares Subject to the Plan. A total of 167,850 shares of Common Stock may be issued under the Plan, subject to adjustment as to the number and kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation, in the event that (a) all or any portion of any Option or Right to Purchase granted or offered under the Plan can no longer under any circumstances be exercised, or (b) any shares of Common Stock are reacquired by the Company pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or Stock Purchase Agreement, the shares of Common Stock allocable to the unexercised portion of such Option or such Right to Purchase, or the shares so reacquired, shall again be available for grant or issuance under the Plan.

4.2 Changes in Capital Structure. In the event that the outstanding shares of Common Stock are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend, or other similar change in the capital structure of the Company, then appropriate adjustments shall be made by the Administrator to the aggregate number and kind of shares subject to this Plan, and the number and kind of shares and the price per share subject to outstanding Option Agreements, Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly as practical, but not to increase, the benefits to Participants.

ARTICLE 5

OPTIONS

5.1 Option Agreement. Each Option granted pursuant to this Plan shall be evidenced by an Option Agreement which shall specify the number of shares subject thereto, the Exercise Price per share, and whether the Option is an Incentive Option or Nonqualified Option. As soon as is practical following the grant of an Option, an Option Agreement shall be duly executed and delivered by or on behalf of the Company to the Optionee to whom such Option was granted. Each Option Agreement shall be in such form and contain such additional terms and conditions, not inconsistent with the

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provisions of this Plan, as the Administrator shall, from time to time, deem desirable, including, without limitation, the imposition of any rights of first refusal and resale obligations upon any shares of Common Stock acquired pursuant to an Option Agreement. Each Option Agreement may be different from each other Option Agreement.

5.2 Exercise Price. The Exercise Price per share of Common Stock covered by each Option shall be determined by the Administrator, subject to the following: (a) the Exercise Price of an Incentive Option shall not be less than 100% of Fair Market Value on the date the Incentive Option is granted, (b) the Exercise Price of a Nonqualified Option shall not be less than 85% of Fair Market Value on the date the Nonqualified Option is granted, and (c) if the person to whom an Incentive Option is granted is a 10% Shareholder on the date of grant, the Exercise Price shall not be less than 110% of Fair Market Value on the date the Option is granted.

5.3 Payment of Exercise Price. Payment of the Exercise Price shall be made upon exercise of an Option and may be made, in the discretion of the Administrator, subject to any legal restrictions, by: (a) cash; (b) check; or (c) any combination of the foregoing methods of payment.

5.4 Term and Termination of Options. The term and termination of each Option shall be as fixed by the Administrator, but no Option may be exercisable more than ten (10) years after the date it is granted. An Incentive Option granted to a person who is a 10% Shareholder on the date of grant shall not be exercisable more than five (5) years after the date it is granted.

5.5 Vesting and Exercise of Options. Each Option shall vest and be exercisable in one or more installments at such time or times and subject to such conditions, including without limitation the achievement of specified performance goals or objectives, as shall be determined by the Administrator.

5.6 Annual Limit on Incentive Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock shall not, with respect to which Incentive Options granted under this Plan and any other plan of the Company or any Affiliated Company become exercisable for the first time by an Optionee during any calendar year, exceed $100,000.

5.7 Limited Transferability. Except as otherwise provided in this Section 5.7, the Options shall neither be transferable nor assignable by the Optionee. The Option may be transferred or assigned in the following manner, without the consent of the Company or the Administrator: (1) by Will or the laws of descent and distribution following the Optionee’s death; (2) to a charitable organization described in Internal Revenue Code Section 170(c); (3) to an irrevocable trust created by the Optionee qualifying as a grantor retained annuity trust under the terms of Internal Revenue Code Section 2702; (4) to a revocable or irrevocable trust from the benefit of such Optionee and/or such Optionee’s spouse or issue, or a partnership, limited liability company or corporation, a majority of the interests in which are owned by such persons; and (5) to the Optionee’s issue including, but not limited to, the children or grandchildren of the Optionee, or an irrevocable trust created for the benefit of such issue. In each of the permitted transfers provided in this Section 5.7, only the permitted transferee may exercise such Option, without the consent of the Company or the Administrator. If the Option is designated as an Incentive Stock Option, the Option is instead only transferable as provided under the Code.

5.8 Rights as Shareholder. An Optionee or permitted transferee of an Option shall have no rights or privileges as a shareholder with respect to any shares covered by an Option until such Option has been duly exercised and certificates representing shares purchased upon such exercise have been issued to such person.

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5.9 Company’s Repurchase Right. In the event of termination of a Participant’s Continuous Service for any reason whatsoever (including death or disability), the Option Agreement may provide, in the discretion of the Administrator, that the Company, or its assignee, shall have the right, exercisable at the discretion of the Administrator, to repurchase shares of Common Stock acquired pursuant to the exercise of an Option at any time prior to the consummation of the Company’s initial public offering of securities in an offering registered under the Securities Act of 1933, as amended, and at the price equal to the Fair Market Value per share of Common Stock as of the date of termination of Optionee’s employment. The repurchase right provided in this Section 5.9 shall terminate and be of no further force or effect following the consummation of an underwritten public offering of the Company’s Common Stock.

In any event, the right to repurchase must be exercised within twelve (12) months of the termination of Participant’s Continuous Service (or in the case of Common Stock issued upon exercise of Options after the date of termination, within twelve (12) months after the date of the exercise) and may be paid by the Company, or its assignee, by cash, check, or cancellation of indebtedness within thirty (30) days of the exercise of the right to repurchase.

5.10 Restrictions on Underlying Shares of Common Stock. Shares of Common Stock issued pursuant to the exercise of an Option may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided in the Option Agreement.

ARTICLE 6

RIGHTS TO PURCHASE

6.1 Nature of Right to Purchase. A Right to Purchase granted to an Offeree entitles the Offeree to purchase, for a Purchase Price determined by the Administrator, shares of Common Stock subject to such terms, restrictions and conditions as the Administrator may determine at the time of grant (“Restricted Stock”). Such conditions may include, but are not limited to, continued employment or the achievement of specified performance goals or objectives.

6.2 Acceptance of Right to Purchase. An Offeree shall have no rights with respect to the Restricted Stock subject to a Right to Purchase unless the Offeree shall have accepted the Right to Purchase within ten (10) days (or such longer or shorter period as the Administrator may specify) following the grant of the Right to Purchase by making payment of the full Purchase Price to the Company in the manner set forth in Section 6.3 hereof and by executing and delivering to the Company a Stock Purchase Agreement. Each Stock Purchase Agreement shall be in such form, and shall set forth the Purchase Price and such other terms, conditions and restrictions of the Restricted Stock, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable. Each Stock Purchase Agreement may be different from each other Stock Purchase Agreement.

6.3 Payment of Purchase Price. Subject to any legal restrictions, payment of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock may be made, in the discretion of the Administrator, by: (a) cash; (b) check; (c) the surrender of shares of Common Stock owned by the Offeree other than shares acquired pursuant to the exercise of an option or purchased

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pursuant to a Right to Purchase less than six (6) months prior to the exercise, which surrendered shares shall be valued at Fair Market Value as of the date of such exercise; (d) the Offeree’s promissory note in a form and on terms acceptable to the Administrator; (e) the cancellation of indebtedness of the Company to the Offeree; (f) the waiver of compensation due or accrued to the Offeree for services rendered; or (g) any combination of the foregoing methods of payment or any other consideration or method of payment as shall be permitted by applicable corporate law.

6.4 Rights as a Shareholder. Upon complying with the provisions of Section 6.2 hereof, an Offeree shall have the rights of a shareholder with respect to the Restricted Stock purchased pursuant to the Right to Purchase, including voting and dividend rights, subject to the terms, restrictions and conditions as are set forth in the Stock Purchase Agreement. Unless the Administrator shall determine otherwise, certificates evidencing shares of Restricted Stock shall remain in the possession of the Company in accordance with the terms of the Stock Purchase Agreement.

6.5 Restrictions. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided in the Stock Purchase Agreement or by the Administrator. In the event of termination of a Participant’s employment, service as a director of the Company or Service Provider status for any reason whatsoever (including death or disability), the Stock Purchase Agreement may provide, in the discretion of the Administrator, that the Company shall have the right, exercisable at the discretion of the Administrator, to repurchase (i) at the original Purchase Price, any shares of Restricted Stock which have not vested as of the date of termination, and (ii) at Fair Market Value, any shares of Restricted Stock which have vested as of such date, on such terms as may be provided in the Stock Purchase Agreement.

6.6 Vesting of Restricted Stock. The Stock Purchase Agreement shall specify the date or dates, the performance goals or objectives which must be achieved, and any other conditions on which the Restricted Stock may vest.

6.7 Dividends. If payment for shares of Restricted Stock is made by promissory note, any cash dividends paid with respect to the Restricted Stock may be applied, in the discretion of the Administrator, to repayment of such note.

6.8 Nonassignability of Rights. No Right to Purchase shall be assignable or transferable except by will or the laws of descent and distribution or as otherwise provided by the Administrator.

ARTICLE 7

ADMINISTRATION OF THE PLAN

7.1 Administrator. Authority to control and manage the operation and administration of the Plan shall be vested in the Board, which may delegate such responsibilities in whole or in part to a committee consisting of two (2) or more members of the Board (the “Committee”). Members of the Committee may be appointed from time to time by, and shall serve at the pleasure of, the Board. As used herein, the term “Administrator” means the Board or, with respect to any matter as to which responsibility has been delegated to the Committee, the term Administrator shall mean the Committee.

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7.2 Powers of the Administrator. In addition to any other powers or authority conferred upon the Administrator elsewhere in the Plan or by law, the Administrator shall have full power and authority: (a) to determine the persons to whom, and the time or times at which, Incentive Options or Nonqualified Options shall be granted and Rights to Purchase shall be offered, the number of shares to be represented by each Option and Right to Purchase and the consideration to be received by the Company upon the exercise thereof; (b) to interpret the Plan; (c) to create, amend or rescind rules and regulations relating to the Plan; (d) to determine the terms, conditions and restrictions contained in, and the form of, Option Agreements and Stock Purchase Agreements; (e) to determine the identity or capacity of any persons who may be entitled to exercise a Participant’s rights under any Option or Right to Purchase under the Plan; (f) to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option Agreement or Stock Purchase Agreement; (g) to accelerate the vesting of any Option or release or waive any repurchase rights of the Company with respect to Restricted Stock; (h) to extend the exercise date of any Option or acceptance date of any Right to Purchase; (i) to provide for rights of first refusal and/or repurchase rights; (j) to amend outstanding Option Agreements and Stock Purchase Agreements to provide for, among other things, any change or modification which the Administrator could have provided for upon the grant of an Option or Right to Purchase or in furtherance of the powers provided for herein; and (k) to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Any action, decision, interpretation or determination made in good faith by the Administrator in the exercise of its authority conferred upon it under the Plan shall be final and binding on the Company and all Participants.

7.3 Limitation on Liability. No employee of the Company or member of the Board or Committee shall be subject to any liability with respect to duties under the Plan unless the person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall indemnify each member of the Board or Committee, and any employee of the Company with duties under the Plan, who was or is a party, or is threatened to be made a party, to any threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative, by reason of such person’s conduct in the performance of duties under the Plan.

ARTICLE 8

CHANGE IN CONTROL

8.1 Change in Control. In order to preserve a Participant’s rights in the event of a Change in Control of the Company, (i) the time period relating to the exercise or realization of all outstanding Options, Rights to Purchase and Restricted Stock held by Participants who have been engaged in Continuous Service for at least one year on the date of the Change in Control shall automatically accelerate immediately prior to the consummation of such Change in Control, if the Administrator does not take the action described in subitem (C) of this Section 8.1, and if such action is taken, such automatic acceleration shall then occur if within twelve (12) months of the consummation of a Change in Control a Participant’s Continuous Service is terminated without Cause or pursuant to the Participant’s voluntary termination for Good Reason and such Participant has been engaged in Continuous Service for at least one (1) year on the date of such termination of the Continuous Service, and (ii) with respect to Options and Rights to Purchase, the Administrator in its discretion may, at any time an Option or Right to Purchase is granted, or at any time thereafter, take one or more of the following actions: (A) provide for the purchase or exchange of each Option or Right to Purchase for an amount of cash or other property having a value equal to the difference,

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or spread, between (x) the value of the cash or other property that the Participant would have received pursuant to such Change in Control transaction in exchange for the shares issuable upon exercise of the Option or Right to Purchase had the Option or Right to Purchase been exercised immediately prior to such Change in Control transaction and (y) the Exercise Price of such Option or the Purchase Price under such Right to Purchase, (B) adjust the terms of the Options and Rights to Purchase in a manner determined by the Administrator to reflect the Change in Control, (C) cause the Options and Rights to Purchase to be assumed, or new rights substituted therefor, by another entity, through the continuance of the Plan and the assumption of outstanding Options and Rights to Purchase, or the substitution for such Options and Rights to Purchase of new options and new rights to purchase of comparable value covering shares of a successor corporation, with appropriate adjustments as to the number and kind of shares and Exercise Prices, in which event the Plan and such Options and Rights to Purchase, or the new options and rights to purchase substituted therefor, shall continue in the manner and under the terms so provided, or (D) make such other provision as the Administrator may consider equitable. If the Administrator does not take any of the forgoing actions, all Options and Rights to Purchase shall terminate upon the consummation of the Change in Control and the Administrator shall cause written notice of the proposed transaction to be given to all Participants not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction.

ARTICLE 9

AMENDMENT AND TERMINATION OF THE PLAN

9.1 Amendments. The Board may from time to time alter, amend, suspend or terminate the Plan in such respects as the Board may deem advisable. No such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any Participant under an outstanding Option Agreement or Stock Purchase Agreement without such Participant’s consent. The Board may alter or amend the Plan to comply with requirements under the Code relating to Incentive Options or other types of options which give Optionee more favorable tax treatment than that applicable to Options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, any outstanding Option granted hereunder may, if the Administrator so determines and if permitted by applicable law, be subject to the more favorable tax treatment afforded to an Optionee pursuant to such terms and conditions. Notwithstanding the foregoing, the Board may not at any time amend, or waive the terms of, Section 11.5 hereof without the prior affirmative vote of a majority of the shares of stock of Citrix Systems, Inc. (“Citrix”) present at a stockholders’ meeting in person or by proxy and entitled to vote thereon.

9.2 Plan Termination. Unless the Plan shall theretofore have been terminated, the Plan shall terminate on the tenth (10th) anniversary of the Effective Date and no Options or Rights to Purchase may be granted under the Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to Purchase then outstanding shall continue in effect in accordance with their respective terms.

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ARTICLE 10

TAX WITHHOLDING

10.1 Withholding. The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy any applicable Federal, state, and local tax withholding requirements with respect to any Options exercised or Restricted Stock issued under the Plan. To the extent permissible under applicable tax, securities and other laws, the Administrator may, in its sole discretion and upon such terms and conditions as it may deem appropriate, permit a Participant to satisfy his or her obligation to pay any such tax, in whole or in part, up to an amount determined on the basis of the highest marginal tax rate applicable to such Participant, by (a) directing the Company to apply shares of Common Stock to which the Participant is entitled as a result of the exercise of an Option or as a result of the purchase of or lapse of restrictions on Restricted Stock or (b) delivering to the Company shares of Common Stock owned by the Participant. The shares of Common Stock so applied or delivered in satisfaction of the Participant’s tax withholding obligation shall be valued at their Fair Market Value as of the date of measurement of the amount of income subject to withholding.

ARTICLE 11

MISCELLANEOUS

11.1 Benefits Not Alienable. Other than as provided above, benefits under the Plan may not be assigned or alienated, whether voluntarily or involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other disposition shall be without effect.

11.2 No Enlargement of Employee Rights. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Participant to be consideration for, or an inducement to, or a condition of, the employment of any Participant. Nothing contained in the Plan shall be deemed to give the right to any Participant to be retained as an employee of the Company or any Affiliated Company or to interfere with the right of the Company or any Affiliated Company to discharge any Participant at any time.

11.3 Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Option Agreements and Stock Purchase Agreements, except as otherwise provided herein, will be used for general corporate purposes.

11.4 No Further Grants. Upon consummation of the merger (the “Merger”) of the Company with a wholly-owned subsidiary of Citrix, with the Company surviving as a wholly-owned subsidiary of Citrix, no further or additional grants of Options, Restricted Stock or Rights to Purchase shall be granted under the Plan.

11.5 No Repricing of Options, Restricted Stock or Rights to Purchase. Upon consummation of the Merger, no Options, Restricted Stock or Rights to Purchase granted under the Plan shall be repriced, or terminated and subsequently regranted, at a lower exercise price per share than that applicable to the original grant (as adjusted pursuant to the Agreement and Plan of Merger by and among the Company, a wholly-owned subsidiary of Citrix and Citrix) without the prior affirmative vote of a majority of the shares of stock of Citrix present at a stockholders’ meeting in person or by proxy and entitled to vote thereon.

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EX-10.8

Exhibit 10.8

AMENDED AND RESTATED

2003 STOCK INCENTIVE PLAN OF NET6, INC.

a subsidiary of Citrix Systems, Inc.

This AMENDED AND RESTATED 2003 STOCK INCENTIVE PLAN OF NET6, INC. (a subsidiary of Citrix Systems, Inc.) (the “Plan”) is hereby established by Net6, Inc., a Delaware corporation (the “Company”), and adopted by its Board of Directors as of May 16, 2003 (the “Effective Date”).

ARTICLE 1.

PURPOSES OF THE PLAN

1.1 Purposes. The purposes of the Plan are (a) to enhance the Company’s ability to attract and retain the services of qualified employees, officers and directors (including non-employee officers and directors), and consultants and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company’s business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company.

ARTICLE 2.

DEFINITIONS

For purposes of this Plan, the following terms shall have the meanings indicated:

2.1 Administrator. “Administrator” means the Board or, if the Board delegates responsibility for any matter to the Committee, the term Administrator shall mean the Committee.

2.2 Affiliated Company. “Affiliated Company” means any “parent corporation” or “subsidiary corporation” of the Company, whether now existing or hereafter created or acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code, respectively.

2.3 Board. “Board” means the Board of Directors of the Company.

2.4 Change in Control. “Change in Control” means:

(a) The acquisition, directly or indirectly, in one transaction or a series of related transactions, by any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of all outstanding securities of the Company;

(b) A merger or consolidation in which the Company is not the surviving entity, except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such merger or consolidation hold as a result of holding Company securities prior to such transaction, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the surviving entity (or the parent of the surviving entity) immediately after such merger or consolidation;

(c) A reverse merger in which the Company is the surviving entity but in which the holders of the outstanding voting securities of the Company immediately prior to such merger hold, in the aggregate, securities possessing less than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the Company or of the acquiring entity immediately after such merger;

(d) The sale, transfer or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such transaction(s) receive as a distribution with respect to securities of the Company, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the acquiring entity immediately after such transaction(s); or

(e) The approval by the stockholders of a plan or proposal for the liquidation or dissolution of the Company.

2.5 Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.6 Committee. “Committee” means a committee of two or more members of the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.

2.7 Common Stock. “Common Stock” means the Common Stock of the Company, subject to adjustment pursuant to Section 4.2 hereof.

2.8 Consultant. “Consultant” means any consultant or advisor if: (i) the consultant or advisor renders bona fide services to the Company or any Affiliated Company; (ii) the services rendered by the consultant or advisor are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) the consultant or advisor is a natural person who has contracted directly with the Company or any Affiliated Company to render such services.

2.9 Covered Employee. “Covered Employee” means the chief executive officer of the Company (or the individual acting in such capacity) and the four (4) other individuals that are the highest compensated officers of the Company for the relevant taxable year for whom total compensation is required to be reported to stockholders under the Exchange Act. Provisions in this Plan making reference to a Covered Employee shall apply only at such time that the Company is Publicly Held.

2.10 Disability. “Disability” means permanent and total disability as defined in Section 22(e)(3) of the Code. The Administrator’s determination of a Disability or the absence thereof shall be conclusive and binding on all interested parties.

2.11 Effective Date. “Effective Date” means the date on which the Plan is adopted by the Board, as set forth on the first page hereof.

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2.12 Exchange Act. “Exchange Act” means the Securities and Exchange Act of 1934, as amended.

2.13 Exercise Price. “Exercise Price” means the purchase price per share of Common Stock payable upon exercise of an Option.

2.14 Fair Market Value. “Fair Market Value” on any given date means the value of one share of Common Stock, determined as follows:

(a) If the Common Stock is then listed or admitted to trading on a Nasdaq market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on such Nasdaq market system or principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no closing sale price is quoted on such day, then the Fair Market Value shall be the closing sale price of the Common Stock on such Nasdaq market system or such exchange on the next preceding day for which a closing sale price is reported.

(b) If the Common Stock is not then listed or admitted to trading on a Nasdaq market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid and asked prices of the Common Stock in the over-the-counter market on the date of valuation.

(c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Administrator in good faith using any reasonable method of evaluation, which determination shall be conclusive and binding on all interested parties.

2.15 Incentive Option. “Incentive Option” means any Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

2.16 Incentive Option Agreement. “Incentive Option Agreement” means an Option Agreement with respect to an Incentive Option.

2.17 [Reserved.]

2.18 Nonqualified Option. “Nonqualified Option” means any Option that is not an Incentive Option. To the extent that any Option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a 10% Stockholder or because it exceeds the annual limit provided for in Section 5.6 below, it shall to that extent constitute a Nonqualified Option.

2.19 Nonqualified Option Agreement. “Nonqualified Option Agreement” means an Option Agreement with respect to a Nonqualified Option.

2.20 Option. “Option” means any option to purchase Common Stock granted pursuant to the Plan.

2.21 Option Agreement. “Option Agreement” means the written agreement entered into between the Company and the Optionee with respect to an Option granted under the Plan.

2.22 Optionee. “Optionee” means a Participant who holds an Option.

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2.23 Participant. “Participant” means an individual or entity who holds an Option or Restricted Stock under the Plan.

2.24 Publicly Held. “Publicly Held” means, with respect to the Company, any point in time in which any class of common equity securities of the Company are required to be registered under Section 12 of the Exchange Act.

2.25 Purchase Price. “Purchase Price” means the purchase price per share of Restricted Stock.

2.26 Restricted Stock. “Restricted Stock” means shares of Common Stock issued pursuant to Article 6 hereof, subject to any restrictions and conditions as are established pursuant to such Article 6.

2.27 Service Provider. “Service Provider” means a Consultant or other natural person the Administrator authorizes to become a Participant in the Plan and who provides services to (i) the Company, (ii) an Affiliated Company, or (iii) any other business venture designated by the Administrator in which the Company (or any entity that is a successor to the Company) or an Affiliated Company has a significant ownership interest.

2.28 Stock Purchase Agreement. “Stock Purchase Agreement” means the written agreement entered into between the Company and a Participant with respect to the purchase of Restricted Stock under the Plan.

2.29 10% Stockholder. “10% Stockholder” means a person who, as of a relevant date, owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of an Affiliated Company.

ARTICLE 3.

ELIGIBILITY

3.1 Incentive Options. Only employees of the Company or of an Affiliated Company (including officers of the Company and members of the Board if they are employees of the Company or of an Affiliated Company) are eligible to receive Incentive Options under the Plan.

3.2 Nonqualified Options and Restricted Stock. Employees of the Company or of an Affiliated Company, officers of the Company and members of the Board (whether or not employed by the Company or an Affiliated Company), and Service Providers are eligible to receive Nonqualified Options or acquire Restricted Stock under the Plan.

3.3 Section 162(m) Limitation. Subject to the provisions of Section 4.2, no employee of the Company or of an Affiliated Company shall be eligible to be granted Options covering more than 55,950 shares of Common Stock during any calendar year. The foregoing shall not apply, however, until the first date upon which the Company is Publicly Held, and following the date that the Company is Publicly Held, this Section 3.3 shall not apply until such time as required by Section 162(m) of the Code and the rules and regulations thereunder.

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ARTICLE 4. PLAN SHARES

4.1 Shares Subject to the Plan. A total of 102,575 shares of Common Stock may be issued under the Plan, subject to adjustment as to the number and kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation, in the event that (a) all or any portion of any Option or Restricted Stock granted or offered under the Plan can no longer under any circumstances be exercised, or (b) any shares of Common Stock are reacquired by the Company which were initially the subject of an Incentive Option Agreement, Nonqualified Option Agreement or Stock Purchase Agreement, the shares of Common Stock allocable to the unexercised portion of such Option or such Stock Purchase Agreement, or the shares so reacquired, shall again be available for grant or issuance under the Plan.

4.2 Changes in Capital Structure. In the event that the outstanding shares of Common Stock are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, reverse stock split, combination of shares, reclassification, stock dividend, or other similar change in the capital structure of the Company, then appropriate adjustments shall be made by the Administrator to the aggregate number and kind of shares subject to this Plan, the number and kind of shares and the price per share subject to outstanding Option Agreements and Stock Purchase Agreements and the limit on the number of shares under Section 3.3, all in order to preserve, as nearly as practical, but not to increase, the benefits to Participants.

ARTICLE 5.

OPTIONS

5.1 Option Agreement. Each Option granted pursuant to this Plan shall be evidenced by an Option Agreement that shall specify the number of shares subject thereto, the Exercise Price per share, and whether the Option is an Incentive Option or Nonqualified Option. As soon as is practical following the grant of an Option, an Option Agreement shall be duly executed and delivered by or on behalf of the Company to the Optionee to whom such Option was granted. Each Option Agreement shall be in such form and contain such additional terms and conditions, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable, including, without limitation, the imposition of any rights of first refusal and resale obligations upon any shares of Common Stock acquired pursuant to an Option Agreement. Each Option Agreement may be different from each other Option Agreement.

5.2 Exercise Price. The Exercise Price per share of Common Stock covered by each Option shall be determined by the Administrator, subject to the following: (a) the Exercise Price of an Incentive Option shall not be less than 100% of Fair Market Value on the date the Incentive Option is granted, (b) the Exercise Price for Nonqualified Options granted to Covered Employees shall not be less than 100% of Fair Market Value at the time the Option is granted, and (c) if the person to whom an Incentive Option is granted is a 10% Stockholder on the date of grant, the Exercise Price shall not be less than 110% of Fair Market Value on the date the Option is granted. However, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424 of the Code.

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5.3 Payment of Exercise Price. Payment of the Exercise Price shall be made upon exercise of an Option and may be made, in the discretion of the Administrator, subject to any legal restrictions, by: (a) cash; (b) check; or (c) any combination of the foregoing methods of payment.

5.4 Term and Termination of Options. The term and provisions for termination of each Option shall be as fixed by the Administrator, but no Option may be exercisable more than ten (10) years after the date it is granted. An Incentive Option granted to a person who is a 10% Stockholder on the date of grant shall not be exercisable more than five (5) years after the date it is granted.

5.5 Vesting and Exercise of Options. Each Option shall vest and become exercisable in one or more installments at such time or times and subject to such conditions, including without limitation the achievement of specified performance goals or objectives, as shall be determined by the Administrator.

5.6 Annual Limit on Incentive Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock shall not, with respect to which Incentive Options granted under this Plan and any other plan of the Company or any Affiliated Company become exercisable for the first time by an Optionee during any calendar year, exceed $100,000.

5.7 Limited Transferability of Options. Except as otherwise provided in this Section 5.7, the Options shall neither be transferable nor assignable by the Optionee. The Option may be transferred or assigned in the following manner, without the consent of the Company or the Administrator: (1) by Will or the laws of descent and distribution following the Optionee’s death; (2) to an irrevocable trust created by the Optionee qualifying as a grantor retained annuity trust under the terms of Internal Revenue Code Section 2702; (3) to a revocable or irrevocable trust for the benefit of such Optionee and/or such Optionee’s spouse or issue, or a partnership, limited liability company or corporation, a majority of the interests in which are owned by such persons; and (4) to the Optionee’s issue including, but not limited to, the children or grandchildren of the Optionee, or an irrevocable trust created for the benefit of such issue. In each of the permitted transfers provided in this Section 5.7, only the permitted transferee may exercise such Option, without the consent of the Company or the Administrator. If the Option is designated as an Incentive Stock Option, the Option is instead only transferable as provided under the Code.

5.8 Rights as Stockholder. An Optionee or permitted transferee of an Option shall have no rights or privileges as a stockholder with respect to any shares covered by an Option until such Option has been duly exercised and certificates representing shares purchased upon such exercise have been issued to such person.

5.9 Company’s Repurchase Right. In the event of termination of a Participant’s Continuous Service for any reason whatsoever (including death or disability), the Option Agreement may provide, in the discretion of the Administrator, that the Company, or its assignee, shall have the right, exercisable at the discretion of the Administrator, to repurchase shares of Common Stock acquired pursuant to the exercise of an Option at any time prior to the consummation of the Company’s initial public offering of securities in an offering registered under the Securities Act of 1933, as amended, and at the price equal to the Fair Market Value per share of Common Stock as of the date of termination of Optionee’s employment. The repurchase right provided in this Section 5.9 shall terminate and be of no further force or effect following the consummation of an underwritten public offering of the Company’s Common Stock.

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In any event, the right to repurchase must be exercised within twelve (12) months of the termination of Participant’s Continuous Service (or in the case of Common Stock issued upon exercise of Options after the date of termination, within twelve (12) months after the date of the exercise) and may be paid by the Company, or its assignee, by cash, check, or cancellation of indebtedness within thirty (30) days of the expiration of the right to exercise.

5.10 Unvested Shares. The Administrator shall have the discretion to grant Options which are exercisable for unvested shares of Common Stock. Should the Optionee cease being an employee, a Service Provider, an officer, director or Consultant of the Company while owning such unvested shares, the Company shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Administrator and set forth in the document evidencing such repurchase right.

ARTICLE 6.

RESTRICTED STOCK

6.1 Issuance and Sale of Restricted Stock. The Administrator shall have the right to issue, at a Purchase Price determined by the Administrator (provided that such Purchase Price shall not be less than Fair Market Value for shares issued to a Covered Employee), shares of Common Stock subject to such terms, restrictions and conditions as the Administrator may determine at the time of grant (“Restricted Stock”). Such conditions may include, but are not limited to, continued employment or the achievement of specified performance goals or objectives.

6.2 Restricted Stock Purchase Agreements. A Participant shall have no rights with respect to the shares of Restricted Stock covered by a Stock Purchase Agreement until the Participant has paid the full Purchase Price to the Company in the manner set forth in Section 6.3 hereof and has executed and delivered to the Company the Stock Purchase Agreement. Each Stock Purchase Agreement shall be in such form, and shall set forth the Purchase Price and such other terms, conditions and restrictions of the Restricted Stock, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable. Each Stock Purchase Agreement may be different from each other Stock Purchase Agreement.

6.3 Payment of Purchase Price. Subject to any legal restrictions, payment of the Purchase Price may be made, in the discretion of the Administrator, by: (a) cash; (b) check; (c) the surrender of shares of Common Stock owned by the Participant that have been held by the Participant for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes, which surrendered shares shall be valued at Fair Market Value as of the date of such acceptance; (d) the Participant’s promissory note in a form and on terms acceptable to the Administrator; (e) the cancellation of indebtedness of the Company to the Participant; (f) the waiver of compensation due or accrued to the Participant for services rendered; or (g) any combination of the foregoing methods of payment or any other consideration or method of payment as shall be permitted by applicable corporate law.

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6.4 Rights as a Stockholder. Upon complying with the provisions of Section 6.2 hereof, a Participant shall have the rights of a stockholder with respect to the Restricted Stock purchased pursuant to a Stock Purchase Agreement, including voting and dividend rights, subject to the terms, restrictions and conditions as are set forth in such Stock Purchase Agreement. Unless the Administrator shall determine otherwise, certificates evidencing shares of Restricted Stock shall remain in the possession of the Company until such shares have vested in accordance with the terms of the Stock Purchase Agreement.

6.5 Restrictions. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided in the Stock Purchase Agreement. In the event of termination of a Participant’s employment, service as a director of the Company or Service Provider status for any reason whatsoever (including death or disability), the Stock Purchase Agreement may provide, in the discretion of the Administrator, that the Company shall have the right, exercisable at the discretion of the Administrator, to repurchase (i) at the original Purchase Price, any shares of Restricted Stock which have not vested as of the date of termination, and (ii) at Fair Market Value, any shares of Restricted Stock which have vested as of such date, on such terms as may be provided in the Stock Purchase Agreement.

6.6 Vesting of Restricted Stock. Subject to Section 6.5 above, the Stock Purchase Agreement shall specify the date or dates, the performance goals or objectives which must be achieved, and any other conditions on which the Restricted Stock may vest.

6.7 Dividends. If payment for shares of Restricted Stock is made by promissory note, any cash dividends paid with respect to the Restricted Stock may be applied, in the discretion of the Administrator, to repayment of such note.

ARTICLE 7.

ADMINISTRATION OF THE PLAN

7.1 Administrator. Authority to control and manage the operation and administration of the Plan shall be vested in the Board, which may delegate such responsibilities in whole or in part to a committee consisting of two (2) or more members of the Board (the “Committee”). Members of the Committee may be appointed from time to time by, and shall serve at the pleasure of, the Board. The Board may limit the composition of the Committee to those persons necessary to comply with the requirements of Section 162(m) of the Code and Section 16 of the Exchange Act. As used herein, the term “Administrator” means the Board or, with respect to any matter as to which responsibility has been delegated to the Committee, the term Administrator shall mean the Committee.

7.2 Powers of the Administrator. In addition to any other powers or authority conferred upon the Administrator elsewhere in the Plan or by law, the Administrator shall have full power and authority: (a) to determine the persons to whom, and the time or times at which, Incentive Options or Nonqualified Options or rights to purchase Restricted Stock shall be granted, the number of shares to be represented by each Option and the number of shares of Restricted Stock to be offered, and the consideration to be received by the Company upon the exercise of such Options or sale of such Restricted Stock; (b) to interpret the Plan; (c) to create, amend or rescind rules and regulations relating to the Plan; (d) to determine the terms, conditions and restrictions contained in, and the form of, Option Agreements and Stock Purchase Agreements; (e) to determine the identity or

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capacity of any persons who may be entitled to exercise a Participant’s rights under any Option or Stock Purchase Agreement under the Plan; (f) to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option Agreement or Stock Purchase Agreement; (g) to accelerate the vesting of any Option or release or waive any repurchase rights of the Company with respect to Restricted Stock; (h) to extend the exercise date of any Option or acceptance date of any Restricted Stock; (i) to provide for rights of first refusal and/or repurchase rights; (j) to amend outstanding Option Agreements and Stock Purchase Agreements to provide for, among other things, any change or modification which the Administrator could have included in the original Agreement or in furtherance of the powers provided for herein; and (k) to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Any action, decision, interpretation or determination made in good faith by the Administrator in the exercise of its authority conferred upon it under the Plan shall be final and binding on the Company and all Participants.

7.3 Limitation on Liability. No employee of the Company or member of the Board or Committee shall be subject to any liability with respect to duties under the Plan unless the person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall indemnify each member of the Board or Committee, and any employee of the Company with duties under the Plan, who was or is a party, or is threatened to be made a party, to any threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative, by reason of such person’s conduct in the performance of duties under the Plan.

ARTICLE 8.

CHANGE IN CONTROL

8.1 Change in Control. In order to preserve a Participant’s rights in the event of a Change in Control of the Company:

(a) The Administrator shall have the discretion to provide in each Option Agreement or Stock Purchase Agreement the terms and conditions that relate to (i) vesting of such Option or Restricted Stock in the event of a Change in Control, and (ii) assumption of such Options or Stock Purchase Agreements or issuance of comparable securities or New Incentives in the event of a Change in Control. The aforementioned terms and conditions may vary in each Option Agreement and Stock Purchase Agreement.

(b) If the terms of an outstanding Option Agreement provide for accelerated vesting in the event of a Change in Control, or to the extent that an Option is vested and not yet exercised, the Administrator in its discretion may provide, in connection with the Change in Control transaction, for the purchase or exchange of each Option for an amount of cash or other property having a value equal to the difference (or “spread”) between: (x) the value of the cash or other property that the Participant would have received pursuant to the Change in Control transaction in exchange for the shares issuable upon exercise of the Option had the Option been exercised immediately prior to the Change in Control, and (y) the Exercise Price of the Option.

(c) Outstanding Options shall terminate and cease to be exercisable upon consummation of a Change in Control except to the extent that the Options are assumed by the successor entity (or parent thereof) pursuant to the terms of the Change in Control transaction.

C-9

(d) The Administrator shall cause written notice of a proposed Change in Control transaction to be given to Participants not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction.

ARTICLE 9.

AMENDMENT AND TERMINATION OF THE PLAN

9.1 Amendments. The Board may from time to time alter, amend, suspend or terminate the Plan in such respects as the Board may deem advisable. No such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any Participant under an outstanding Option Agreement or Stock Purchase Agreement without such Participant’s consent. The Board may alter or amend the Plan to comply with requirements under the Code relating to Incentive Options or other types of options which give Optionees more favorable tax treatment than that applicable to Options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, any outstanding Option granted hereunder may, if the Administrator so determines and if permitted by applicable law, be subject to the more favorable tax treatment afforded to an Optionee pursuant to such terms and conditions. Notwithstanding the foregoing, the Board may not at any time amend, or waive the terms of, Section 11.5 hereof without the prior affirmative vote of a majority of the shares of stock of Citrix Systems, Inc. (“Citrix”) present at a stockholders’ meeting in person or by proxy and entitled to vote thereon.

9.2 Plan Termination. Unless the Plan shall theretofore have been terminated, the Plan shall terminate on the tenth (10th) anniversary of the Effective Date and no Options or Restricted Stock may be granted under the Plan thereafter, but Option Agreements and Stock Purchase Agreements then outstanding shall continue in effect in accordance with their respective terms.

ARTICLE 10.

TAX WITHHOLDING

10.1 Withholding. The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy any applicable Federal, state, and local tax withholding requirements with respect to any Options exercised or Restricted Stock issued under the Plan. To the extent permissible under applicable tax, securities and other laws, the Administrator may, in its sole discretion and upon such terms and conditions as it may deem appropriate, permit a Participant to satisfy his or her obligation to pay any such tax, in whole or in part, up to an amount determined on the basis of the highest marginal tax rate applicable to such Participant, by (a) directing the Company to apply shares of Common Stock to which the Participant is entitled as a result of the exercise of an Option or as a result of the purchase of or lapse of restrictions on Restricted Stock or (b) delivering to the Company shares of Common Stock owned by the Participant. The shares of Common Stock so applied or delivered in satisfaction of the Participant’s tax withholding obligation shall be valued at their Fair Market Value as of the date of measurement of the amount of income subject to withholding.

C-10

ARTICLE 11.

MISCELLANEOUS

11.1 Benefits Not Alienable. Other than as provided above, benefits under the Plan may not be assigned or alienated, whether voluntarily or involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other disposition shall be without effect.

11.2 No Enlargement of Employee Rights. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Participant to be consideration for, or an inducement to, or a condition of, the employment of any Participant. Nothing contained in the Plan shall be deemed to give the right to any Participant to be retained as an employee of the Company or any Affiliated Company or to limit the right of the Company or any Affiliated Company to discharge any Participant at any time.

11.3 Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Option Agreements and Stock Purchase Agreements, except as otherwise provided herein, will be used for general corporate purposes.

11.4 Stockholder Approval. The Company shall obtain stockholder approval of the Plan within twelve (12) months before or after the adoption of the Plan by the Board of Directors.

11.5 No Further Grants. Upon consummation of the merger (the “Merger”) of the Company with a wholly-owned subsidiary of Citrix, with the Company surviving as a wholly-owned subsidiary of Citrix, no further or additional grants of Options or Restricted Stock shall be granted under the Plan.

11.6 No Repricing of Options or Restricted Stock. Upon consummation of the Merger, no Options or Restricted Stock granted under the Plan shall be repriced, or terminated and subsequently regranted, at a lower exercise price per share than that applicable to the original grant (as adjusted pursuant to the Agreement and Plan of Merger by and among the Company, a wholly-owned subsidiary of Citrix and Citrix) without the prior affirmative vote of a majority of the shares of stock of Citrix present at a stockholders’ meeting in person or by proxy and entitled to vote thereon.”

C-11

EX-10.11

Exhibit 10.11

MICROSOFT MASTER SOURCE CODE AGREEMENT

This Master Source Code Agreement is an agreement between Microsoft Corporation (“Microsoft”) and Citrix Systems, Inc. (“You”). It becomes effective on December 16, 2004 (“Master Source Code Agreement Effective Date”).

INTRODUCTION

This Master Source Code Agreement describes a framework for licensing source code from Microsoft, including information You obtain from or about the source code. These things are collectively called “Source Code.” This Master Source Code Agreement describes terms that always apply. It also comes with a License Form which describes what Source Code You get, what You can do with it and how long You can use it. The Master Source Code Agreement and any License Forms together become the Master Agreement (“Master Agreement”). You do not have a license to any Source Code until You and Microsoft sign both this Master Source Code Agreement and a License Form. Over time, You and Microsoft may sign additional License Forms for additional Source Code or additional rights to use Source Code.

1. PROTECTING CONFIDENTIAL INFORMATION

1.1 The Source Code is confidential information and a trade secret of Microsoft. When You get Source Code, You agree to:

• never disclose it to anyone else (unless a court or the government orders You to)

• keep it secret as You would Your most sensitive confidential information

• provide access to Your employees only on a need to know basis

• use it only as described in the Master Agreement

• have agreements in place with Your employees that protect its secrecy

1.2 If a court or the government orders You to disclose Source Code, You must give Microsoft prompt notice of the order so that Microsoft can seek an appropriate protective order (or equivalent).

1.3 Microsoft does not consider all information about the Source Code to be confidential or a trade secret. If You legally received information from someone other than Microsoft, and that person was entitled to share the information with You and did not obligate You to keep it secret, You do not need to keep that information secret. The same holds true for information Microsoft disclosed to You or someone else without obligation to keep it secret or information that You develop independently.

2. LICENSE GRANTS. This Section describes license grants You may obtain for Source Code. The License Form, once signed by You and Microsoft, specifies which license grant applies to Source Code specified in the License Form.

2.1 Reference Grant. A “Reference Grant” permits You to use Source Code as a reference, in “read only” form, for the purpose specified in the License Form. You may use the Source Code in printed or digital form or view it within a debugger.

Page 1 of 6 Master Source Agreement -Microsoft Confidential Version 11.2001

2.2 Debugging Grant. A “Debugging Grant” includes all of the rights of a Reference Grant and also permits You to make temporary modifications to the Source Code to assist in debugging Your products for the purpose specified in the License Form. If You need to modify, assemble, compile or link the Source Code and execute the resulting derivative binary code on a temporary basis to debug Your products, You may do so for that limited purpose.

2.3 Derivatives Grant. A “Derivatives Grant” includes all of the rights of Reference and Debugging Grants and also permits You to create derivative works of the Source Code for the purpose specified in the License Form.

2.4 Condition to License Grants. As a condition of each license grant, You will not take any action that would (a) create, or purport to create, obligations for Microsoft with respect to the Source Code or derivative work thereof; or (b) grant, or purport to grant, to any third party any rights or immunities under Microsoft’s intellectual property or proprietary rights in the Source Code or derivative work thereof. For example, You shall not incorporate into or combine with the Source Code, or use in the development of a derivative work of the Source Code, any software subject to the General Public License (“GPL”) or Lesser General Public License (“LGPL”).

2.5 Assignment of Rights. Assignment of rights for any derivative works to the Source Code that You make will be addressed in each applicable License Form. Any such assignment shall survive termination of this Agreement.

2.6 No Other Licenses. You acknowledge that use of unpublished interfaces within the Source Code is unsupported and may create additional support burdens for You and Microsoft and may adversely affect the user experience with Microsoft’s products and products created for a Microsoft platform. Accordingly, You have no right to use the Source Code under the Master Agreement for the purpose of discovering and/or using interfaces (e.g. functions, protocols, on-disk or in-memory storage structures) other than those published by Microsoft and made publicly available (e.g., via Software Development Kits, Driver Development Kits, Microsoft Developer Network). All rights not expressly granted are reserved by Microsoft.

2.7 Comments and Suggestions. Microsoft welcomes Your comments and suggestions on the Source Code. If You give Microsoft comments and suggestions regarding bug fixes, enhancements or other modifications to the Source Code, Microsoft may, in connection with Microsoft products and services use, disclose or otherwise commercialize in any manner, Your comments and suggestions in any way it wants, entirely without any obligation or restriction based on intellectual property rights or otherwise.

Page 2 of 6 Master Source Agreement -Microsoft Confidential Version 11.2001

3. NO WARRANTY. MICROSOFT PROVIDES SOURCE CODE TO YOU WITHOUT ANY EXPRESS, IMPLIED OR STATUTORY WARRANTY, NOT EVEN THE IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THE WARRANTY OF TITLE OR NON-INFRINGEMENT.

4. LIMITATION OF LIABILITY. YOU AGREE THAT MICROSOFT WILL NOT BE LIABLE UNDER THIS MASTER AGREEMENT FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL OR PUNITIVE DAMAGES.

5. TERM & TERMINATION

5.1 Term. This Master Source Code Agreement is in effect for five (5) years from the Effective Date. The term of a license grant for Source Code is specified in a License Form. The term of a License Form may be shorter than this Master Source Code Agreement but can never be longer. In addition, this Master Source Code Agreement and any License Form may end earlier as described below.

5.2 Ending. Microsoft may end this Master Source Code Agreement or any License Form in its sole discretion. Microsoft may terminate this Master Source Code Agreement pursuant to Section 10 of this Master Source Code Agreement. If Microsoft ends this Master Source Code Agreement, all License Forms end too. If Microsoft only ends a particular License Form, this Master Source Code Agreement and other License Forms, if any, are not affected. If Microsoft terminates a License Form without cause, Microsoft will refund a pro rata portion of the license fee paid by You for that license, if any, after You have complied with the terms of the Master Agreement. The refund will be based on the number of days left in the term of the license from the date of termination.

5.3 Surviving Terms. Even if this Master Agreement ends, the following terms remain in effect: Sections 1, 2.5, 2.6, 2.7, 4, 5, 7 and 8. In addition, in the event You grant Microsoft any licenses under any License Form, such licenses shall survive even if this Master Agreement ends.

5.4 Returning Items. When Your license to any Source Code ends, You must immediately return to Microsoft or destroy all copies of that Source Code. If we ask, You agree that an executive of Your company will provide Microsoft with a letter stating that all copies of the Source Code have been returned or destroyed.

6. NOTICES

6.1 If You or Microsoft need to send a notice under the Master Agreement, the notice will be considered given when delivered to a commercial courier service or deposited in the United States of America mails, postage prepaid, certified or registered, return receipt requested. All notices must be addressed as follows:

Page 3 of 6 Master Source Agreement -Microsoft Confidential Version 11.2001

To You:	To Microsoft:
Citrix Systems, Inc.	Microsoft Corporation
851 West Cypress Creek Road	One Microsoft Way
Fort Lauderdale, FL 33309	Redmond, WA 98052-6399 USA

Attention: General Counsel	Attention:	Platforms Business Management
Phone: +001 (954) 267-2392	Phone:	+001 (425) 882-8080
Fax: +001 (954) 267-2862	Fax:	+001 (425) 706-7329
Email: david.friedman@citrix.com	Email:	pslteam@microsoft.com
Copy to: Testa, Hurwitz & Thibeault, LLP	Copy to:	Law & Corporate Affairs
125 High Street	Fax:	+001 (425) 706-7409
Boston, MA 02110
Attention: Steven C. Browne
Fax: +001 (617) 248-7100

6.2 Either You or Microsoft may change these addresses by giving notice of the change.

7. GOVERNING LAW/VENUE/ATTORNEY FEES. The Master Agreement shall be governed by the laws of the State of Washington, excluding its conflicts of laws, of the United States of America. You agree that all claims You bring relating to the Master Agreement shall be brought exclusively in the federal courts in King County, Washington, unless no federal subject matter jurisdiction exists, in which case You consent to exclusive jurisdiction and venue in the Superior Court of King County, Washington. You agree that the United Nations Convention on Contracts for the International Sales of Goods will not apply. If either You or Microsoft use attorneys to enforce rights relating to the Master Agreement, the prevailing party shall be entitled to recover its reasonable attorney fees, costs and other expenses.

8. SUBSIDIARY USE OF SOURCE CODE.

8.1 The subsidiaries listed in each applicable License Form (“Listed Subsidiaries”) shall have the same rights and obligations as You have under the Master Agreement with respect to the subject matter of such License Form, provided that each Listed Subsidiary signs the License Form and agrees to abide by the same terms You do under this Master Source Code Agreement.

8.2 You, and each of Your Listed Subsidiaries, shall be fully liable for the full compliance of each Listed Subsidiary with all obligations under the Master Agreement as they apply to such License Form.

9. OUTCOME IF SOME SECTIONS ARE INVALID. If a part of the Master Agreement, other than Sections 1, 2.4, 2.7, 3, 4, 10 or 11, is held by a competent court to be unenforceable, the rest shall remain in effect. If Sections 1, 2.4, 2.7, 3, 4, 10 or 11 are held by a competent court to be unenforceable, the Master Agreement ends immediately.

10. YOU CANNOT ASSIGN THE MASTER AGREEMENT. If You attempt to assign the Master Agreement for any reason, the Master Agreement ends immediately. As used in the Master Agreement, the term “assign” includes: (a) any change of ownership of beneficial interest in Your company where

Page 4 of 6 Master Source Agreement -Microsoft Confidential Version 11.2001

greater than a twenty percent (20%) interest is transferred (whether in a single or a series of transactions); (b) a merger of Your company with another party, whether or not Your company is the surviving entity; (c) the acquisition of more than twenty percent (20%) of any class of Your company’s voting stock (or any class of non-voting security convertible into voting stock) by another party (whether in a single or a series of transactions); or (d) the sale of more than fifty percent (50%) of Your company’s assets (whether in a single transaction or series of transactions).

11. GOVERNMENT APPROVALS AND RESTRICTED RIGHTS.

11.1 You must, at Your expense, obtain and maintain any government approvals, consents, licenses, authorizations, declarations, filings, and registrations as may be necessary or advisable for Your performance under the Master Agreement. You must also pay (and indemnify Microsoft if it gets charged) for any sales taxes, use taxes and any other taxes imposed by any jurisdiction as a result of the entry into this Master Agreement, the performance of any of its provisions, or the transfer of any property or rights under it.

11.2 Any software provided to the U.S. Government pursuant to solicitations issued on or after December 1, 1995 is provided with the rights and restrictions described elsewhere herein. Any software provided to the U.S. Government pursuant to solicitations issued prior to December 1, 1995 is provided with “Restricted Rights” as provided for in FAR, 48 CFR 52.227-14 (JUNE 1987) or DFAR, 48 CFR 252.227-7013 (OCT 1988), as applicable. You are responsible for ensuring that any Source Code You get under this Master Agreement is marked with the “Restricted Rights Notice” or “Restricted Rights Legend,” as required.

12. EXPORT RESTRICTIONS. The Source Code is of United States-origin. You must comply with all applicable international and national laws that apply to it, including the United States Export Administration Regulations, as well as end-user, end-use and country destination restrictions issued by United States and other governments. For information on exporting Microsoft products, see http://www.microsoft.com/exporting/.

13. ENTIRE AGREEMENT. The Master Agreement, including any executed License Form, is the only agreement between You and Microsoft covering the subject matter of this Master Agreement. It supersedes all other prior and contemporaneous agreements and communications on the subject, including without limitation Master Source Code Agreement between the parties dated May 15, 2002 and all License Forms thereto, which Master Source Code Agreement and License Forms are hereby superseded in their entirety by this Master Agreement and all License Forms hereto. If there is a conflict between this Master Source Code Agreement and a License Form to this Agreement, the terms of the License Form shall prevail with regard to the subject matter in the applicable License Form. The Master Agreement shall not be modified unless You and Microsoft sign an amendment

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after the Effective Date. Neither You nor Microsoft waives the right to claim breach of contract unless the waiver is in a signed, written document. A waiver only applies to things described in that document; it does not apply to other breaches of contract.

We agree to everything in the Master Agreement.

MICROSOFT CORPORATION	CITRIX SYSTEMS, INC.
	Company
/s/ Robert L. Muglia	/s/ David J. Henshall
By	By
Robert L. Muglia	David J. Henshall
Name (print)	Name (print)
Sr. Vice President	Chief Financial Officer
Title	Title
12/16/04	12/16/04
Date	Date

Page 6 of 6 Master Source Agreement -Microsoft Confidential Version 11.2001

EX-10.12

Exhibit 10.12

[CONFIDENTIAL TREATMENT REQUESTED BY CITRIX SYSTEMS, INC.]

/*/ INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 C.F.R. §200.83.

LICENSE FORM

(Master Source Code Agreement Effective Date of December 16, 2004)

This is a License Form. Microsoft is entering into this License Form in consideration of the parties’ obligations and covenants under the Technology Collaboration and License Agreement between the parties dated December 16, 2004 (the “Collaboration Agreement”). This License Form describes a specific instance of a Source Code license between You and Microsoft. When executed by You, any applicable subsidiaries and Microsoft, this License Form becomes part of the Master Agreement. Capitalized terms not defined in this License Form shall have (i) the meaning ascribed to them in the Master Agreement, or (ii) if no meaning is ascribed to them in the Master Agreement, the meaning ascribed to them in the Collaboration Agreement.

A. Microsoft gives You the following License Grant to the Source Code as described in the Master Agreement: Derivative Grant. Notwithstanding the description of “Derivative Grant” in the Master Source Code Agreement, You acknowledge that the License Grant in this License Form does not include a Debugging Grant.

B. Microsoft licenses only the following specific Source Code to You under this License Form: (i) the private interfaces and header files for Windows Server 2000 and Windows Server 2003 (including all versions of Windows Server 2003 that are released by Microsoft, but excluding Longhorn Server or its successors (as used herein, “Pre-Longhorn Windows Server”)) files referenced in Exhibit A or specified in Exhibit B, and (ii) the Windows Server 2000 and Windows Server 2003 (as further described above) files specified in Exhibit B.

C. You may access the licensed Source Code through MSDN Code Center Premium or other means as determined by Microsoft.

D. You can use the Source Code only at Your facilities listed in Exhibit C and only for the sole purposes of developing source code files by following the build instructions in Exhibit A, and compiling the Source Code files referenced in Exhibit A or specified in Exhibit B, and for debugging, optimization, and end-user support of (1) Your Citrix Terminal Services Products that (y) run on Microsoft Windows server operating system products, and (z) are not designed to run on Longhorn or its successors, and (2) solely with respect to Source Code specified in Exhibit B, Your client software products (and bug fixes and minor updates to such software products that You have released) that run on any operating systems released by Microsoft prior to Longhorn (collectively, Your “Applications”).

E. You may reproduce and distribute worldwide an unlimited number of copies of derivative works You create in exercising the Derivative Grant specified above, provided that (a) You distribute the derivative works only in conjunction with and as a part of Your Applications; (b) Your Applications add significant and primary functionality to the derivative works; (c) You distribute Your Applications containing the derivative works pursuant to an End-User License Agreement (which may be “break-the-seal,” “click wrap,” or signed), with terms no

Page 1 of 9 License Form – Microsoft Confidential Version 03.2001

less protective of Microsoft than those contained herein; (d) You do not permit further redistribution of the derivative works by Your end user customers, other than a full transfer of the Application license, including all rights and obligations; (e) You do not use Microsoft’s name, logo, or trademarks to market Your Applications; (f) You include a valid copyright notice on Your Applications; and (g) You agree to indemnify, hold harmless, and defend Microsoft from and against any claims or lawsuits, including attorneys’ fees, that arise or result from the use or distribution of Your Applications.

F. Per section 2.6 of the Master Agreement, You are not permitted to use the Source Code to assist in the use of unsupported interfaces (e.g. functions, in-memory or on-disk structures, protocols). If You believe that You do need to make use of an unsupported interface You agree to submit an exception request to Microsoft prior to use. Microsoft will review the request and at its sole discretion will approve (which approval will be timely and will not be unreasonably withheld) or reject based on the following criteria:

1. There is no published interface or combination of published interfaces that provides equivalent functionality.

2. Microsoft determines that Your use of the unsupported interface does not degrade user experience, cause system instability, create any security or privacy issues, or replace integral operating system functionality.

3. If Microsoft provides a published method in the future that provides equivalent functionality, You agree to update Your software designed to run on Pre-Longhorn Windows Server in its next release following actual notice of the method published by Microsoft to make use of the published method (unless such release occurs within 90 days of Your receipt of such notice, in which case You may postpone such update to the next following release). You also agree to use commercially reasonable efforts to promptly provide Your customers with updates to the deployed versions of Your software designed to run on Pre-Longhorn Windows Server that use the unsupported interface.

4. You will apply for the latest “Designed for Windows” logo for Your software for which the unpublished interface is to be used and will meet, to the best of Your knowledge, the requirements of such Designed for Windows logo program prior to shipment of the Application.

5. You acknowledge that Microsoft may modify unsupported interfaces at any time and that You accept all responsibility (including support obligations) for Your use of the unsupported interface.

Microsoft further agrees to the following limited exception as requested by you with respect to this Paragraph F. You may use the Source Code files referenced in Exhibit A or specified in Exhibit B to assist You in the use, within in your Applications (including in Applications You develop or release during the term of this License Form), of unsupported interfaces, but only with respect to unsupported interfaces used by Your Applications that have been commercially released or are in beta testing as of the date of the Master Source Code Agreement. You may also use the tools and certificates that Microsoft has previously delivered for purposes of signing any plug-in module that requires signing in order to accomplish the purpose of this License Form, but only if alternatives do not exist.

Page 2 of 9 License Form – Microsoft Confidential Version 03.2001

G. If You fail to perform or comply with any material provision of the Master Source Code Agreement or of this License Form, or any material provision of any other License Form, then Microsoft may end this License Form by giving You thirty days’ prior written notice specifying such breach and an opportunity to cure (except in the event of a breach of the Confidentiality provisions of the Master Source Code Agreement, in which case Microsoft may end this License Form immediately). If You receive such a notice from Microsoft, and Your breach is not remedied prior to the expiration of the thirty day period, then this License Form will end immediately.

H. Notwithstanding Section 5.2 of the Master Source Code Agreement, Microsoft agrees not to terminate this License Form prior to expiration of the Master Source Code Agreement except under the circumstances described in Paragraph G above or Section 10 of the Master Source Code Agreement.

I. The license fee for the rights granted to You by Microsoft in this License Form is $0. The rights to use Your derivative works You make under the Derivative Grant are otherwise fully paid up and royalty-free.

J. You understand that Microsoft may require users of the terminal services component of and subsequent releases to obtain certain licenses to utilize such terminal services, and Your use of the Source Code referenced in Exhibit A in Your products (“Terminal Services Products”) requires that users of Your Applications in connection with a Microsoft Windows operating system product be licensed users of Microsoft terminal services. You will provide the following conspicuous notice to users in the end user license agreement of the next release of Your Terminal Services Product, or such other reasonable notice as Microsoft may elect from time to time in its sole discretion: “If you access terminal server functionality provided by Microsoft operating system products, you need to purchase additional licenses to use such products. Consult the license agreements for the Microsoft operating system products you are using to determine which licenses you must acquire.”

K. During the time which Your employees have access to the Source Code and for one year following the date they last accessed the Source Code, You agree not to allow Your employees to contribute to the development of an operating system other than a Microsoft operating system. This does not restrict Your employees from using, developing stand alone applications for, or providing end-user support of other operating systems. These restrictions only apply to Your employees who have accessed the Source Code. This section still applies, even if the License Form or the Master Source Code Agreement ends.

L. This License Form is effective until five (5) years from the effective date of the Master Source Code Agreement; it may end earlier, however, as explained in the Master Source Code Agreement and this License Form. Notwithstanding any provision in the Master Agreement, Microsoft acknowledges that the license granted to You in this License Form with respect to versions of Your products first shipped to customers prior to the expiration or termination of this License Form shall survive, subject to the restrictions set forth in this License Form.

Page 3 of 9 License Form – Microsoft Confidential Version 03.2001

M. The parties agree that nothing in this License Form or the Master Source Code Agreement will be deemed to limit in any way the effectiveness of the Collaboration Agreement. Further, the parties agree that notwithstanding anything to the contrary in Section L of the Derivative Grant License Form associated with the previous Master Source Code Agreement dated May 15, 2002 (the “Prior Derivative License Form”), all licenses granted by Microsoft under such Prior Derivative License Form are hereby terminated in their entirety.

N. The parties agree that the subject matter of the License, Development and Marketing Agreement dated as of May 9, 1997 between Microsoft and You (the “1997 License Agreement”) is outside the scope of the subject matter of this License Form and the Master Source Code Agreement and that any surviving provisions of the 1997 License Agreement, are not modified, contradicted or superseded in any way by this License Form or the Master Source Code Agreement.

O. For purposes of clarification, the term “assign” (as used in Section 10 of the Master Source Code Agreement) does not include a change of ownership of beneficial interest in Your company or the acquisition of any class of Your company’s voting stock (or any class of non-voting security convertible into voting stock) if such change of ownership or acquisition is the result of normal market trading activities on any securities exchange on which Your securities are traded. Microsoft will consider, but shall have no obligation to approve, proposals that You may prepare in advance of an assignment in order to request Microsoft’s approval of arrangements that You may desire to implement in order to obtain Microsoft’s consent to such assignment of this Agreement in whole or in part.

SIGNATURE OF PRIMARY PARTIES:

We agree to everything in this License Form.

MICROSOFT CORPORATION	CITRIX SYSTEMS, INC.
/s/ Robert L. Muglia	/s/ David J. Henshall
By	By
Robert L. Muglia	David J. Henshall
Name (Print)	Name (Print)
Sr. Vice President	Chief Financial Officer
Title	Title
12/16/04	12/16/04
Date	Date

Page 4 of 9 License Form – Microsoft Confidential Version 03.2001

SIGNATURE OF SUBSIDIARIES:

We agree to everything in this License Form and we agree to be bound by the terms and conditions of the Master Agreement to the same extent that our parent company named above is bound.

CITRIX SYSTEMS (RESEARCH & DEVELOPMENT LTD.)	CITRIX SYSTEMS JAPAN KK
/s/ David J. Henshall	/s/ David J. Henshall
By	By
David J. Henshall	David J. Henshall
Name (Print)	Name (Print)
Director	Director
Title	Title
12/16/04	12/16/04
Date	Date
CITRIX SYSTEMS UK LTD.	CITRIX SYSTEMS AUSTRALASIA R&D PTY LTD
/s/ David J. Henshall	/s/ David J. Henshall
By	By
David J. Henshall	David J. Henshall
Name (Print)	Name (Print)
Director	Director
Title	Title
12/16/04	12/16/04
Date	Date
CITRIX ONLINE LLC	NET6, INC.
/s/ David Friedman	/s/ David J. Henshall
By	By
David Friedman	David J. Henshall
Name (Print)	Name (Print)
Vice President & Secretary	President
Title	Title
12/16/04	12/16/04
Date	Date

Page 5 of 9 License Form – Microsoft Confidential Version 03.2001

EXHIBIT A

[CONFIDENTIAL TREATMENT REQUESTED BY CITRIX SYSTEMS, INC.] /*/

Such other files as the parties mutually agree in writing to effectuate the purposes of the attached license form.

Page 6 of 9 License Form – Microsoft Confidential Version 03.2001

EXHIBIT B

[CONFIDENTIAL TREATMENT REQUESTED BY CITRIX SYSTEMS, INC.] /*/

Such other files as the parties mutually agree in writing to effectuate the purposes of the attached license form.

Page 7 of 9 License Form – Microsoft Confidential Version 03.2001

Exhibit B, continued

1. Additional files for inclusion in Section 1 of this Exhibit B with reference to Windows 2000 Server:

[CONFIDENTIAL TREATMENT REQUESTED BY CITRIX SYSTEMS, INC.] /*/

2. Additional files for inclusion in Section 2 of this Exhibit B with reference to .NET Server:

[CONFIDENTIAL TREATMENT REQUESTED BY CITRIX SYSTEMS, INC.] /*/

3. Notwithstanding anything to the contrary in the prior pages of this Exhibit B, the following source code files (with reference to .NET Server) are hereby deleted from this Exhibit B:

[CONFIDENTIAL TREATMENT REQUESTED BY CITRIX SYSTEMS, INC.] /*/

Page 8 of 9 License Form – Microsoft Confidential Version 03.2001

Exhibit C

FACILITIES

Cambourne, UK

Chalfont Park, UK

Santa Barbara, CA

San Jose, CA

Fort Lauderdale, FL, USA

Redmond, WA, USA

Sydney, Australia

Tokyo, Japan

Page 9 of 9 License Form – Microsoft Confidential Version 03.2001

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES

1	Citrix Capital Corp.	Nevada
2	Citrix Cayman Finance Group, Ltd.	Cayman Islands
3	Citrix Cayman Investments, Ltd.	Cayman Islands
4	Citrix Development Corp.	Delaware
5	Citrix Gateways, Inc.	Delaware
6	Citrix Offshore Investments, Ltd. (Cayman)*	Cayman Islands
7	Citrix Online LLC	Delaware
8	Citrix Sistemas de Argentina, S.R.L.	Argentina
9	Citrix Sistemas de Chile Limitada	Chile
10	Citrix Sistemas de Mexico S. de RL de CV	Mexico
11	Citrix Sistemas do Brasil Ltda.	Brazil
12	Citrix Systems (Research & Development) Ltd.	United Kingdom
13	Citrix Systems Asia Pacific Pty Ltd.*	Australia
14	Citrix Systems Australasia R&D Pty, Ltd.	Australia
15	Citrix Systems Belgium S.A.R.L.*	Belgium
16	Citrix Systems Canada, Inc.	Ontario
17	Citrix Systems Capital & SARL Finance	Luxembourg
18	Citrix Systems Denmark ApS*	Denmark
19	Citrix Systems Finland Oy*	Finland
20	Citrix Systems France SARL*	France
21	Citrix Systems GmbH*	Austria
22	Citrix Systems GmbH*	Germany
23	Citrix Systems Holding LLC	Delaware
24	Citrix Systems Hong Kong Limited*	Hong Kong
25	Citrix Systems India Private Limited*	India
26	Citrix Systems International GmbH	Switzerland
27	Citrix Systems Ireland Ltd*	Ireland
28	Citrix Systems Italia S.r.L.*	Italy
29	Citrix Systems Japan Kabushiki Kaisha*	Japan
30	Citrix Systems Netherlands, B.V.*	Netherlands
31	Citrix Systems Norway AS.*	Norway
32	Citrix Systems Overseas Holding GmbH (Switz)	Switzerland
33	Citrix Systems Poland Sp. Zo.o*	Poland
34	Citrix Systems RoW (Switz)	Switzerland
35	Citrix Systems Singapore Pte Ltd.*	Singapore
36	Citrix Systems South Africa (Pty) Ltd.*	South Africa
37	Citrix Systems Spain, SL*	Spain
38	Citrix Systems Sweden AB*	Sweden
39	Citrix Systems Switzerland GmbH	Switzerland
40	Citrix Systems UK Limited*	United Kingdom
41	Kong B.V.	Netherlands
42	NF 32 (Cayman) Limited	Cayman Islands
43	NF 36 (Cayman) Limited	Cayman Islands
44	Sequoia Software Corporation	Maryland
45	Viewsoft, Inc.	Delaware

* Wholly-owned subsidiaries of Citrix Systems International GmbH

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-61520) pertaining to the Amended and Restated 1995 Stock Plan and the 2000 Director and Officer Stock Option and Incentive Plan of Citrix Systems, Inc., the Registration Statement (Form S-8 No. 333-80201) pertaining to the Amended and Restated 1995 Stock Plan, the Second Amended and Restated 1995 Non-Employee Director Stock Option Plan and the Second Amended and Restated 1995 Employee Stock Purchase Plan of Citrix Systems, Inc., and the Registration Statement (Form S-8 No. 333-121420) pertaining to the Amended and Restated 2000 Stock Incentive Plan and the Amended and Restated 2003 Stock Incentive Plan of Net6, Inc. of our reports dated March 10, 2005, with respect to the consolidated financial statements and schedule of Citrix Systems, Inc., Citrix Systems, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Citrix Systems, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2004.

/s/Ernst & Young LLP

Certified Public Accountants

West Palm Beach, Florida

March 10, 2005

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Mark B. Templeton, certify that:

1. I have reviewed this annual report on Form 10-K of Citrix Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/S/    MARK B. TEMPLETON
	Mark B. Templeton President and Chief Executive Officer (Principal Executive Officer)

Date: March 11, 2005

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, David J. Henshall, certify that:

1. I have reviewed this annual report on Form 10-K of Citrix Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/S/    DAVID J. HENSHALL
	David J. Henshall Chief Financial Officer (Principal Financial Officer)

Date: March 11, 2005

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Citrix Systems, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Mark B. Templeton, Chief Executive Officer of the Company, and David J. Henshall, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    MARK B. TEMPLETON        

Mark B. Templeton

Chief Executive Officer

/S/    DAVID J. HENSHALL        

David J. Henshall

Chief Financial Officer

March 11, 2005