OPENWAVE SYSTEMS INC (Form: 10-Q, Received: 05/12/2004 17:26:27)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-16073

OPENWAVE SYSTEMS INC.

(Exact name of registrant as specified in its charter)


Delaware		94-3219054
(State of incorporation or organization)		(I.R.S. Employer Identification No.)

1400 Seaport Blvd.

Redwood City, California 94063

(Address of principal executive offices, including zip code)

(650) 480-8000

(Registrant’s telephone number, including area code)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨

As of April 30, 2004, there were 64,278,658 shares of the registrant’s Common Stock outstanding.

OPENWAVE SYSTEMS INC. AND SUBSIDIARIES

INDEX


PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Balance Sheets as of March 31, 2004 and June 30, 2003 (unaudited)	3
	Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2004 and 2003 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2004 and 2003 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 2.	Changes in Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Submission of Matters to a Vote of Security Holders	45
Item 5.	Other Information	45
Item 6.	Exhibits and Reports on Form 8-K	46

SIGNATURES		46

OPENWAVE SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)


	March 31, 2004			June 30, 2003
Assets
Current Assets:
Cash and cash equivalents	$	228,471		$	139,339
Short-term investments		20,202			33,345
Accounts receivable, net		77,315			62,907
Prepaid and other current assets		13,015			13,218

Total current assets		339,003			248,809
Property and equipment, net		29,932			44,582
Long-term investments, and restricted cash and investments		97,197			61,466
Deposits and other assets		15,812			6,311
Goodwill and intangibles, net		3,637			6,283

	$	485,581		$	367,451

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	2,521		$	3,844
Accrued liabilities		36,924			37,159
Accrued restructuring costs		11,801			18,358
Deferred revenue		57,733			62,786

Total current liabilities		108,979			122,147
Accrued restructuring costs, less current portion		40,650			48,152
Deferred revenue, less current portion		13,075			11,004
Deferred rent obligations		4,566			3,870
Convertible subordinated notes, net		146,336			—

Total liabilities		313,606			185,173

Commitments and contingencies
Stockholders’ equity:
Common stock		64			60
Additional paid-in capital		2,740,284			2,720,994
Deferred stock-based compensation		(2,716	)		(2,185	)
Accumulated other comprehensive income		48			52
Notes receivable from stockholders		(202	)		(254	)
Accumulated deficit		(2,565,503	)		(2,536,389	)

Total stockholders’ equity		171,975			182,278

	$	485,581		$	367,451

See accompanying notes to condensed consolidated financial statements

OPENWAVE SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended March 31,						Nine Months Ended March 31,
	2004			2003			2004			2003
Revenues:
License	$	38,437		$	35,011		$	108,820		$	110,978
Maintenance and support services		20,523			18,494			62,991			56,321
Professional services		14,450			4,933			33,588			19,034
Project		817			5,033			8,570			15,079

Total revenues		74,227			63,471			213,969			201,412

Cost of revenues:
License		1,672			1,600			6,495			6,464
Maintenance and support services		6,435			6,571			18,477			22,264
Professional services		11,439			5,911			27,420			17,160
Project		772			4,381			4,883			13,536

Total cost of revenues		20,318			18,463			57,275			59,424

Gross profit		53,909			45,008			156,694			141,988

Operating expenses:
Research and development		23,625			27,256			72,976			88,323
Sales and marketing		25,479			27,058			74,169			90,418
General and administrative		7,621			9,343			26,071			38,328
Restructuring and other costs		726			—			2,996			83,191
Stock-based compensation*		938			686			2,427			2,780
Amortization and impairment of goodwill and intangible assets		67			67			202			8,248
In-process research and development		—			—			—			400
Merger, acquisition and integration-related costs		—			—			—			386

Total operating expenses		58,456			64,410			178,841			312,074

Operating loss		(4,547	)		(19,402	)		(22,147	)		(170,086	)
Interest and other income, net		1,151			1,385			3,402			5,138
Interest expense		(1,284	)		(13	)		(2,873	)		(27	)
Write-down of nonmarketable equity securities		—			(1,864	)		—			(3,864	)

Loss before provision for income taxes and cumulative effect of change in accounting principle		(4,680	)		(19,894	)		(21,618	)		(168,839	)
Income taxes		1,058			3,320			7,496			7,869

Loss before cumulative effect of change in accounting principle		(5,738	)		(23,214	)		(29,114	)		(176,708	)
Cumulative effect of change in accounting principle		—			—			—			(14,547	)

Net loss	$	(5,738	)	$	(23,214	)	$	(29,114	)	$	(191,255	)

Basic and diluted net loss per share:
Before cumulative effect of change in accounting principle	$	(.09	)	$	(0.39	)	$	(.47	)	$	(2.99	)
Cumulative effect of change in accounting principle		—			—			—			(0.24	)

Basic and diluted net loss per share	$	(.09	)	$	(0.39	)	$	(.47	)	$	(3.23	)

Shares used in computing basic and diluted net loss per share		63,233			59,547			61,756			59,175

*Stock-based compensation by category:
Research and development	$	231		$	28		$	729		$	872
Sales and marketing		191			118			360			372
General and administrative		516			540			1,338			1,536

	$	938		$	686		$	2,427		$	2,780

See accompanying notes to condensed consolidated financial statements

OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Nine Months Ended March 31,
	2004			2003
Cash flows from operating activities:
Net loss	$	(29,114	)	$	(191,255	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		18,871			27,678
Amortization of discount on convertible debt and debt issuance costs		562			—
Amortization of stock-based compensation		2,427			2,780
Loss on sale of property and equipment		332			215
Impairment of non-marketable equity securities		—			3,864
Provision for (recovery of) doubtful accounts		(1,280	)		4,991
Impairment of goodwill and intangible assets		—			8,045
Cumulative effect of change in accounting principle		—			14,547
Impairment of property and equipment - restructuring related		813			12,202
In-process research and development		—			400
Changes in operating assets and liabilities:
Accounts receivable		(13,128	)		18,554
Prepaid expenses and other assets		(8,499	)		4,475
Accounts payable		(1,323	)		(1,618	)
Accrued liabilities		(236	)		(15,274	)
Accrued restructuring costs		(14,059	)		48,420
Deferred revenue		(2,982	)		12,023

Net cash used for operating activities		(47,616	)		(49,953	)

Cash flows from investing activities:
Purchases of property and equipment		(2,763	)		(7,528	)
Proceeds from sale of property and equipment		43			—
Restricted cash and investments		(5,294	)		344
Acquisitions, net of cash acquired		—			(18,973	)
Purchases of short-term investments		(9,900	)		(10,746	)
Proceeds from sales and maturities of short-term investments		35,855			69,551
Purchases of long-term investments		(62,688	)		(33,373	)
Proceeds from sales and maturities of long-term investments		19,435			30,012

Net cash provided by (used for) investing activities		(25,312	)		29,287

Cash flows from financing activities
Proceeds from issuance of common stock, net		16,336			2,069
Repayment of notes receivable from stockholders		52			307
Net proceeds from issuance of convertible debt		145,672			—
Repayment of capital lease obligations and long-term debt		—			(151	)

Net cash provided by financing activities		162,060			2,225

Net increase (decrease) in cash and cash equivalents		89,132			(18,441	)
Cash and cash equivalents at beginning of period		139,339			140,699

Cash and cash equivalents at end of period	$	228,471		$	122,258

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	8,852		$	9,577

Cash paid for interest	$	2,070		$	27

Non-cash investing and financing activities
Common stock issued and options assumed in acquisitions	$	—		$	140

Deferred stock-based compensation, net	$	2,958		$	(1,714	)

Retirement of treasury stock	$	—		$	38,087

Reclass of long-term investments to short-term investments	$	12,933		$	52,998

See accompanying notes to condensed consolidated financial statements

OPENWAVE SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not contain all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of Openwave Systems Inc.’s (the Company’s) management (Management), the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2004 and June 30, 2003, and the results of operations for the three and nine months ended March 31, 2004 and 2003, and cash flows for the nine months ended March 31, 2004 and 2003. The following information should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003.

On October 21, 2003, the Company completed a one-for-three reverse split of its common stock. All share and per share data in the financial statements presented herein have been updated to reflect this change. Additionally, certain amounts in the condensed consolidated financial statements as of June 30, 2003 and the three and nine months ended March 31, 2003 have been reclassified to conform to the presentation as of and for the quarter ended March 31, 2004.

The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results for the full fiscal year or any future period could differ from those estimates.

(2) Revenue Recognition

The Company’s four primary revenue categories are comprised of license, maintenance and support services, professional services and project revenues. As described in Note 4, “Geographic, Segment and Significant Customer Information,” the disaggregated revenue information reviewed on a product category by the CEO includes the licensing of the Company’s application software and related maintenance and support services; the licensing of client software and related maintenance and support services; the licensing of infrastructure software and related maintenance and support services; customer services; and project revenues, which include porting services with partners. The Company licenses its application software and infrastructure software products primarily to communication service providers through its direct sales force and channel partners. The Company licenses its client software products primarily to wireless device manufacturers through its direct sales force. As part of its license arrangements with communication service providers, the Company offers new version coverage, which is an optional program that grants licensees the right to receive minor and major version releases of the product made during the applicable new version coverage term. Customers receive error and bug fix releases as part of their license maintenance and support arrangements.

The Company recognizes revenue in accordance with Statement of Position (SOP) No. 97-2, “ Software Revenue Recognition ,” as amended by SOP No. 98-9, “ Modification of SOP No. 97-2 Software Revenue Recognition, With Respect to Certain Transactions ,” and generally recognizes revenue when all of the following criteria are met as set forth in paragraph 8 of SOP No. 97-2: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable and (4) collectibility is probable. The Company defines each of the four criteria above as follows:

Persuasive evidence of an arrangement exists. The Company’s customary practice is to have a written contract, which is signed by both the customer and the Company, or a purchase order from those customers that have previously negotiated a standard license arrangement with the Company.

Delivery has occurred. The Company’s software may be either physically or electronically delivered to the customer. For those products that are delivered physically, the Company’s standard transfer terms are freight on board (FOB) shipping point. For an electronic delivery of software, delivery is considered to have occurred when the customer has been provided with the access codes that allow the customer to take immediate possession of the software on its hardware. If undelivered products or services exist in an arrangement that are essential to the functionality of the delivered product, delivery is not considered to have occurred until these products or services are delivered. If the Company’s contracts include customer specified acceptance criteria

that the Company has not reliably satisfied at the time of delivery of its software, delivery, for purposes of license, new version coverage, and maintenance and support, revenue recognition, occurs when such acceptance criteria is satisfied assuming that all other revenue recognition criteria have been met; for purposes of professional services revenue recognition in multiple element arrangements with customer specified acceptance criteria, delivery occurs without regard to such specified customer acceptance criteria and revenue will be recognized on the professional services element as services are performed assuming that all other revenue recognition criteria have been met .

The fee is fixed or determinable. The Company’s communication service provider customers generally pay a per subscriber fee or a fee for pre-purchased capacity usage of the Company’s products, which is negotiated at the outset of an arrangement. In these arrangements, the communication service provider generally licenses the right to activate a specified minimum number of its subscribers to use the Company’s software products. Arrangement fees are generally due within one year or less from delivery. Arrangements with payment terms extending beyond these customary payment terms are considered not to be fixed or determinable, and revenue from such arrangements is recognized as payments become due, assuming all other revenue recognition criteria have been met. As the communication service providers activate customers beyond the minimum number specified in the arrangement, additional per-subscriber fees become due.

Collectibility is probable. Collectibility is assessed on a customer-by-customer basis. The Company typically sells to customers for whom there is a history of successful collection. New and existing customers go through an ongoing credit review process, which evaluates the customers’ financial positions, their historical payment history, and ultimately their ability to pay. If it is determined prior to revenue recognition that the collection of an arrangement fee is not probable, arrangement revenue is deferred and recognized at the time collection becomes probable, which is generally upon receipt of cash.

The Company recognizes revenue using the residual method pursuant to the requirements of SOP No. 97-2, as amended by SOP No. 98-9. Under the residual method, revenue is recognized in a multiple element arrangement when Company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one of the delivered elements in the arrangement. The Company allocates revenue to each undelivered element in a multiple element arrangement based on its respective fair value. The Company’s determination of the fair value of each element in a multi-element arrangement is based on vendor-specific objective evidence (VSOE). The Company limits its assessment of VSOE for each element to the price charged when the same element is sold separately. In its multiple-element arrangements for perpetual software licenses, assuming all other revenue recognition criteria are met and the Company has VSOE for all undelivered elements, the Company recognizes revenue as follows: license revenue is recognized upon delivery using the residual method in accordance with SOP No. 98-9; revenue from new version coverage and maintenance and support services is recognized ratably over the period the element is provided; and, revenue from professional services is recognized as services are performed. New version coverage revenue is classified as license revenue in the Company’s Condensed Consolidated Statements of Operations.

For its new version coverage and maintenance and support services elements, the Company has determined that it has sufficient VSOE to allocate revenue to these elements when a substantive renewal rate exists in the arrangement. For its multiple-element arrangements where a substantive renewal rate does not exist for its new version coverage and/or maintenance and support elements, the Company has determined that it does not have sufficient VSOE to allocate revenue to these undelivered elements. In this case, provided that these elements are the only remaining undelivered elements in the arrangement, arrangement fees are recognized ratably over the period that maintenance and support and/or new version covered is provided, assuming all other revenue recognition criteria are satisfied.

Arrangements that include professional services are evaluated to determine whether those services are essential to the functionality of other elements of the arrangement. When services are not considered essential, the revenue allocable to the services is recognized separately from the software, provided VSOE of fair value exists for the services. If the Company provides professional services that are considered essential to the functionality of the software products, both the software product revenue and service revenue are recognized under contract accounting in accordance with the provisions of SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Revenues from these arrangements are recognized under the percentage of completion method based on the ratio of direct labor hours incurred to date to total projected labor costs except in limited circumstances where completion status cannot be reasonably estimated, in which case the completed contract method is used.

For arrangements where services are not essential to the functionality of the software, the Company’s software products are typically fully functional upon delivery and do not require significant modification or alteration. In these arrangements, customers typically purchase professional services from the Company to facilitate the adoption of the Company’s technology, but they may also decide to use their own resources or appoint other professional service organizations to provide these services. Software products are generally billed separately and independently from professional services, which are generally billed on a time-and-materials or milestone-achieved basis. Occasionally, the Company bills one flat fee for licenses and services. For time-and-materials contracts, the Company recognizes revenue as the services are performed. For fixed-fee arrangements, the

Company recognizes revenue as the agreed upon activities are proportionately performed. On these fixed fee professional service arrangements, the Company generally measures progress to completion based on the ratio of hours incurred to total estimated project hours, an input method. If, however, the fixed fee arrangements include substantive customer specified progress milestones, the Company recognizes revenue as such progress milestones are achieved, an output method, as the Company believes this is a more accurate measure of revenue recognition. The Company believes it is able to reasonably estimate, track, and project the status of completion of a project, and considers customer acceptance as the Company’s criteria for substantial completion.

The Company also licenses its client software to wireless device manufacturers through its direct sales force and certain third parties. These license arrangements generally give the customer rights to receive product releases for porting to an unlimited unspecified number of devices for a specified period. In addition, the Company provides technical support services and compliance verification. In these arrangements, all arrangement fees are generally recognized ratably over the contract period, assuming all revenue criteria are satisfied.

The Company also enters into certain perpetual license arrangements where the license revenue is not recognized upon delivery, but rather is recognized as follows, assuming that all other revenue recognition criteria have been met:

•

Contracts where the arrangement fee is not considered fixed or determinable. As discussed above, fees from such arrangements are recognized as revenue as the payments become due.

•

Certain arrangements where the Company agrees to provide the customer with unspecified additional products for a specified term which are not covered by the Company’s new version coverage offering. Perpetual license revenue from such arrangements is recognized ratably over the term the Company is committed to provide such additional products. If such arrangements also provide for fee terms that are not considered to be fixed or determinable, revenue is recognized in an amount that is the lesser of aggregate amounts due or the aggregate ratable amount that would have been recognized had the arrangement fees been considered fixed or determinable.

•

The Company enters into certain multiple-element arrangements in which license fees are sold on a committed basis, but maintenance and support and/or new version coverage fees are payable based on contingent usage. For these arrangements, the Company recognizes license revenue ratably over the period the Company expects to provide maintenance and support and/or new version coverage, and recognizes the contingent usage-based fees for maintenance and support fees and/or new version coverage fees at the time such fees become fixed and determinable.

During the year ended June 30, 2002, the Company entered into a significant contract with a service partner, under which the Company has been porting its software to the service partner’s hardware/software platform in exchange for a predetermined reimbursement rate; the partner resells the Company’s products and engages in other joint activities. The Company recognizes porting services revenues from this contract as project revenues in the Company’s Consolidated Statements of Operations as the agreed upon activities are performed. With the adoption of Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables ,” the Company separates the reseller and porting activities related to the project and recognizes reseller revenues separately as they are earned. Cumulative revenues recognized may be less or greater than cumulative billings at any point in time during the contract’s term. The resulting difference is recognized as unbilled accounts receivable or deferred revenue. In accounting for project revenue the Company recognizes revenue as the services are proportionally performed.

Cost of license revenues is primarily comprised of third-party license and related support fees and amortization of purchased technology and contract intangibles. Cost of maintenance and support services revenues consists of compensation and related overhead costs for personnel engaged in training and support services to communication service providers and wireless device manufacturers. Cost of professional services revenues includes compensation and independent consultant costs for personnel engaged in delivering professional services and related overhead costs. Cost of project revenues includes direct costs incurred in the performance of development services under the arrangement. Cost of project revenues does not include certain sales-related activities required under the arrangement, which are classified as sales and marketing expense.

(3) Recently Issued Accounting Pronouncements

In April 2004, the Financial Accounting Standards Board (FASB) issued Staff Position No. FAS 129-1, “Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure , Relating to Contingently Convertible Securities.” The adoption of FAS 129-1 did not have a material impact on the Company’s consolidated financial position or results of operations. See note 7(e).

In July 2003, the Emerging Issues Task Force (EITF) issued EITF 03-1: “ The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments .” The adoption of EITF 03-1 did not have a material impact on the Company’s consolidated financial position or results of operations.

(4) Geographic, Segment and Significant Customer Information

The Company’s Chief Executive Officer (CEO) is the chief operating decision maker for the Company. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance.

The Company has organized its operations based on a single operating segment: the development and delivery of application software and services, infrastructure software and services, client software and services, and customer services for communication service providers, mobile device manufacturers and other customers. The disaggregated revenue information reviewed on a product category basis by the CEO includes application software and services, infrastructure software and services, client software and services, customer services and project revenues.

•

Application software and related maintenance and support services enable end users to exchange electronic mail and voice mail from PC’s, wireline telephones and mobile devices. The Company’s application software and services also includes, but is not limited to e-mail, IP Voicemail, Messaging Anti-Abuse products and services and other messaging products.

•

Infrastructure software and related maintenance and support services contain the foundation software required to enable Internet connectivity to mobile devices and to build a set of applications for mobile users and includes, but is not limited to, Openwave Mobile Access Gateway, Openwave Location Products, Multimedia Messaging Services (MMS), and Openwave Provisioning Manager.

•

Client software and related maintenance and support services primarily include the Openwave Mobile Browser, which is a microbrowser software that is designed and optimized for wireless devices, Openwave Mobile Messaging Client and Openwave Phone Suite software.

•

Customer services are activities performed by the Company to help customers to install, deploy, manage, maintain and support the Company’s software products and to help design and manage overall implementations. Customer services include professional services and training.

•

Project revenues are fees derived from porting the Company’s software to a service partner’s hardware and software.

The disaggregated information reviewed on a product basis by the CEO for the three and nine months ended March 31, 2004 and 2003 is as follows (in thousands):


	Three Months Ended March 31,				Nine Months Ended March 31,
	2004		2003		2004		2003
Revenues
Application Software	$	13,609	$	22,172	$	45,433	$	61,570
Infrastructure software		31,971		22,008		88,068		79,038
Client software		13,358		9,305		38,219		26,436
Customer services		14,472		4,953		33,679		19,289
Project		817		5,033		8,570		15,079

Total revenues	$	74,227	$	63,471	$	213,969	$	201,412

The Company markets its products primarily from its operations in the United States. International sales are primarily to customers in Japan, other countries in the Asia Pacific region and Europe. Information regarding the Company’s revenues in different geographic regions is as follows (in thousands):


	Three Months Ended March 31,				Nine Months Ended March 31,
	2004		2003		2004		2003
Revenues
Americas	$	32,631	$	35,115	$	99,905	$	101,821
Europe, Middle East and Africa		21,625		8,852		52,404		35,098
Japan and Asia Pacific		19,971		19,504		61,660		64,493

Total revenues	$	74,227	$	63,471	$	213,969	$	201,412


	Three Months Ended March 31,				Nine Months Ended March 31,
	2004		2003		2004		2003
Revenues
United States	$	31,196	$	31,482	$	86,089	$	83,656
Japan		10,558		14,453		36,341		48,873
Other foreign countries		32,473		17,536		91,539		68,883

Total revenues	$	74,227	$	63,471	$	213,969	$	201,412

The Company’s long-lived assets residing in countries other than the United States are not significant and therefore have not been disclosed.

Significant customer information is as follows:


	% of Total Revenue								% of Total Accounts Receivable March 31, 2004
	Three Months Ended March 31,				Nine Months Ended March 31,
	2004		2003		2004		2003
KDDI	5	%	7	%	5	%	12	%	5.6	%
Sprint	7	%	14	%	5	%	14	%	4.0	%

(5) Net Loss Per Share and Stockholders’ Equity

(a) Reverse Stock Split

The Company filed a certificate of amendment to its amended and restated certificate of incorporation to effect a 1 for 3 reverse split of its common stock, effective on October 21, 2003. On the effective date, each three shares of the Company’s outstanding common stock automatically converted into one share of common stock. All share and per share amounts have been restated for all periods presented to reflect this reverse stock split.

(b) Net Loss Per Share

Basic and diluted net loss per common share are presented in conformity with Statement of Financial Accounting Standards (SFAS) No. 128, “ Earnings Per Share,” for all periods presented. In accordance with SFAS No. 128, basic net loss per common share has been computed using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase.

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share amounts):


	Three Months Ended March 31,						Nine Months Ended March 31,
	2004			2003			2004			2003
Weighted average shares of common stock outstanding		63,621			60,070			62,166			59,582
Weighted average shares of restricted stock subject to repurchase		(388	)		(523	)		(410	)		(407	)

Weighted average shares used in computing basic and diluted net loss per common share		63,233			59,547			61,756			59,175
Net loss per share before cumulative effect of change in accounting principle	$	(0.09	)	$	(0.39	)	$	(0.47	)	$	(2.99	)
Cumulative effect of change in accounting principle		—			—			—			(.24	)

Basic and diluted net loss per share	$	(0.09	)	$	(0.39	)	$	(0.47	)	$	(3.23	)

The Company excludes potentially dilutive securities from its diluted net loss per share computation when their effect would be anti-dilutive to the net loss per share computation. The weighted-average number of stock option shares that were outstanding but were not included in the computation of diluted earnings per share because their effect was anti-dilutive, or would have been anti-dilutive had the Company reported net income from continuing operations during the period, are as follows for the three months and nine months ended March 31, 2004 and 2003 (in thousands, except per share amounts):


	Three Months Ended March 31,		Nine Months Ended March 31,
	2004	2003	2004	2003
	Weighted-average Number of shares	Weighted-average Number of shares	Weighted-average Number of shares	Weighted-average Number of shares
Options with an exercise price less than the average fair market value of our common stock during the period	13,356	5,157	10,223	3,563
Options with an exercise price greater than the average fair market value of our common stock during the period	736	12,717	1,050	14,020
Shares of restricted stock subject to repurchase	388	523	410	407
Shares issuable upon conversion of subordinated notes	8,154	—	6,078	—

(c) Stock-based Compensation Plans

As permitted under SFAS No. 123, “ Accounting for Stock-Based Compensation ,” the Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, “ Accounting for Stock Issued to Employees ,” and related interpretations in accounting for stock-based awards to employees. Accordingly, compensation cost for stock options and restricted stock grants is measured as the excess, if any, of the market price of the Company’s common stock at the date of grant over the exercise price. Warrants issued to non-employees are accounted for using the fair value method of accounting as prescribed by SFAS No. 123 and EITF Issue No. 96-18, “ Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” Compensation costs are amortized in a manner consistent with Financial Accounting Standards Board Interpretation (FIN) No. 28, “ Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans .” The Company currently uses the Black-Scholes option pricing model to value options and warrants granted to non-employees.

If the fair value based method had been applied in measuring employee stock-based compensation expense, the pro forma effect on net loss and net loss per share would have been as follows (in thousands, except per share amounts):


	Three months ended March 31,						Nine months ended March 31,
	2004			2003			2004			2003
Net loss, as reported:	$	(5,738	)	$	(23,214	)	$	(29,114	)	$	(191,255	)
Add: stock-based compensation included in net loss, net of tax		938			686			2,427			2,780
Deduct: stock-based compensation expense determined under the fair value method for all awards, net of tax		(13,899	)		(23,601	)		(44,330	)		(97,222	)

Pro forma net loss	$	(18,699	)	$	(46,129	)	$	(71,017	)	$	(285,697	)

Basic and diluted net loss per share:
As reported:	$	(0.09	)	$	(0.39	)	$	(0.47	)	$	(3.23	)
Proforma:	$	(0.30	)	$	(0.77	)	$	(1.15	)	$	(4.83	)

The fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model with no expected dividends and the following weighted-average assumptions:


	Three months ended March 31,				Nine months ended March 31,
	2004		2003		2004		2003
Expected life (years)	2.82		4.14		3.01		4.14
Risk-free interest rate	2.38	%	2.29	%	2.71	%	2.28	%
Volatility	120	%	105	%	130	%	105	%

The weighted-average fair value estimated at the date of grant for restricted stock grants and stock options granted was:


	Three months ended March 31,				Nine months ended March 31,
	2004		2003		2004		2003
Weighted-average fair value of restricted stock grants	$	15.67	$	—	$	13.72	$	3.37
Weighted-average fair value of stock options	$	10.14	$	2.66	$	8.15	$	2.46

(d) Tender Offers

On April 29, 2003, the Company commenced a voluntary stock option exchange program available to certain employees. Only employees who had received options to purchase 10,000 shares or more of common stock granted on or after September 13, 2002 were eligible to participate. All of these employees had been excluded from the March 13, 2003 stock exchange program pursuant to its terms (see discussion of the March 13, 2003 plan below). The following employees were also not eligible: the Company’s CEO, and vice-president level employees or higher who had executed a severance agreement or a transition agreement and had been notified that their jobs would be eliminated. Non-employee members of the Board of Directors were also not eligible to participate. Under the program, eligible employees had the opportunity to surrender previously granted outstanding stock options in exchange for an equal or lesser number of replacement options to be granted at a future date no sooner than December 5, 2003. Options to acquire a total of 2.1 million shares of the Company’s common stock were eligible to be exchanged under the program. As a result of this April 29, 2003 stock option exchange program, options to acquire

approximately 521,000 shares of the Company’s common stock were accepted for exchange, and the Company was obligated to grant replacement options to acquire a maximum of approximately 155,000 shares of the Company’s common stock. On December 5, 2003, the Company granted the replacement options to acquire approximately 155,000 shares of the Company’s common stock. The exercise price of the replacement options was $11.62 per share, which was equal to the market value of the Company’s common stock on the date of grant.

On February 17, 2003, the Company announced a voluntary stock option exchange program that commenced March 13, 2003 for certain employees. The following employees were not eligible: the Company’s CEO, vice-president level employees or higher who had executed a severance agreement or a transition agreement and had been notified that their jobs would be eliminated, employees based in Switzerland and employees who received 10,000 or more options on or after September 13, 2002. Non-employee members of the Board of Directors were not eligible to participate. Under the program, eligible employees had the opportunity to surrender previously granted outstanding stock options in exchange for an equal or lesser number of replacement options to be granted at a future date to be determined by the Compensation Committee of the Board of Directors which was required by the terms of the exchange to be on or between October 25 and November 24, 2003. Options to acquire a total of 12.8 million shares of the Company’s common stock were eligible to be exchanged under the program and 7.0 million shares of the Company’s common stock were accepted for exchange. On October 27, 2003, the Company granted the replacement options to acquire approximately 3.6 million shares of the Company’s common stock. The exercise price of the replacement options was $12.66 per share, which was equal to the market value of the Company’s common stock on the date of grant.

The exchange programs are designed to comply with FIN No. 44 “ Accounting for Certain Transactions Involving Stock Compensation ,” and the Company did not incur any compensation charges as a result of these stock option exchange programs.

(e) Restricted Stock Grants

In January 2004, the Compensation Committee of the Board of Directors granted approximately 100,000 restricted shares of the Company’s common stock to the CEO and certain executive officers and key employees of the Company. The restricted grants were made based upon meeting certain financial performance goals previously set by the Compensation Committee and vest over a three-year period in equal monthly installments from the date of grant through January 2007. The Company recorded approximately $1.6 million of deferred stock-based compensation on the date of grant related to the issuance of restricted shares.

In October 2003, the Compensation Committee of the Board of Directors granted approximately 100,000 restricted shares of the Company’s common stock to the CEO and certain executive officers of the Company. The Company recorded approximately $1.3 million of deferred stock-based compensation on the date of grant related to the issuance of restricted shares. The restricted shares vest monthly over a period of three years from the date of grant through October 2006.

(6) Asset Impairment, Other Intangible Assets and Strategic Investments

The Company has selected the three months ending March 31 as the period in which the required annual impairment test will be performed under SFAS No. 142. During the quarter ended March 31, 2004, the Company completed the annual impairment test and determined that there was no impairment necessary.

The significant decrease in the Company’s market capitalization through September 30, 2002, as well as its announcement during the quarter ended September 30, 2002 of a restructuring, triggered the requirement for an impairment analysis of the Company’s goodwill and long-lived assets under SFAS No. 142, “ Goodwill and Other Intangible Assets ,” and SFAS No. 144, “ Accounting for the Impairment or Disposal of Long-Lived Assets .” Upon completion of the recoverability test under SFAS No. 144, the Company determined that none of its long-lived assets were impaired. The Company concluded it has a single reporting unit under SFAS No. 142, and the fair value of the reporting unit is approximated by market capitalization. Considering the significant decrease in the Company’s market capitalization from the date of the SignalSoft acquisition, all remaining goodwill attributable to the SignalSoft acquisition as of September 30, 2002 was determined to be fully impaired in the amount of $7.3 million. During the quarter ended December 31, 2002, the Company recorded additional SignalSoft goodwill of $758,000 related to the finalization of the purchase price allocation, which was fully impaired that same quarter. During the nine months ended March 31, 2003 the Company fully impaired SignalSoft goodwill in the amount of $8.0 million and is recorded under “Amortization and impairment of goodwill and other intangible assets” in the Company’s Condensed Consolidated Statements of Operations.

Upon adoption of SFAS No. 142 on July 1, 2002, the Company assessed whether goodwill recorded in connection with the acquisition of Ellipsus was impaired. The Company completed step 2 of SFAS No. 142’s transitional goodwill impairment test during the quarter ended December 31, 2002 and recognized a $14.5 million goodwill impairment charge, which was recorded as a “Cumulative effect of change in accounting principle” in the Company’s Condensed Consolidated Statements of Operations.

The Company regularly performs an impairment assessment of its strategic equity investments. In performing an impairment assessment, Management considers the following factors, among others, in connection with the businesses in which investments have been made: the implicit valuation of the business in connection with recently completed financing or similar transactions, the business’ current solvency and its access to future capital. The Company recorded $1.9 million and $3.9 million in impairment charges to nonmarketable equity securities related to the impairment of certain of its investments during the three and nine months ended March 31, 2003, respectively. These impairment charges are recorded within “Write-down of non-marketable equity securities” in the Company’s Condensed Consolidated Statements of Operations. As of March 31, 2004, the remaining book value of the investments in nonmarketable equity securities was approximately $1.1 million within “Deposits and other assets” in the Company’s Condensed Consolidated Balance Sheets.

(7) Balance Sheet Components

(a) Long-term investments and restricted cash and investments

The following summarizes the Company’s long-term investments and restricted cash and investments (in thousands):


	March 31, 2004		June 30, 2003
Unrestricted U.S. Treasury securities and obligations of U.S. government agencies (maturing through year ending June 30, 2006)	$	69,633	$	39,195
Restricted cash and investments		27,564		22,271

	$	97,197	$	61,466

The Company is required to maintain collateralized letters of credit for certain facility leases. The collateral comprised cash equivalents and investments in federal agencies and corporate bonds at June 30, 2003 and certificates of deposit at March 31, 2004. These funds have been classified as restricted cash. The aggregate balance of the collateral was $22.3 million and $17.5 million at June 30, 2003 and March 31, 2004, respectively.

As part of the Company’s Convertible Subordinated Notes, issued on September 9, 2003, see Note 7(e), the Company was required to purchase U.S. government securities sufficient to provide payment for the initial six interest payments totaling $12.1 million. These funds have been classified as restricted cash, the balance of which was $10.1 million at March 31, 2004.

(b) Accounts receivable, net

Accounts receivable, net, was comprised of the following (in thousands):


	March 31, 2004			June 30, 2003
Accounts receivable	$	66,281		$	61,014
Unbilled accounts receivable		17,967			10,243
Allowance for doubtful accounts		(6,933	)		(8,350	)

	$	77,315		$	62,907

Unbilled accounts receivable comprises amounts that have been partially or wholly recognized as revenue, but have not yet been billed because of contractual billing terms.

(c) Goodwill and intangibles, net

Goodwill and intangibles, net were comprised of the following (in thousands):


	2004		2003
Goodwill		723		723
Customer contracts and relationships		895		2,308
Developed and core technology		1,942		3,123
Trademarks		77		129

	$	3,637	$	6,283

Total amortization related to intangible assets is set forth in the table below (in thousands):


	Three Months Ended March 31,				Nine Months Ended March 31,
	2004		2003		2004		2003
Customer contracts and relationships	$	302	$	353	$	1,413	$	2,063
Developed and core technology		393		393		1,181		1,425
Trademarks		17		17		52		53

	$	712	$	763	$	2,646	$	3,541

Included within “Cost of revenues – License” on the Condensed Consolidated Statement of Operations is amortization related to customer contracts and developed and core technology that totals approximately $0.6 million and $0.7 million for the three months and $2.4 million and $3.3 million for the nine months ended March 31, 2004 and 2003, respectively.

The following tables set forth the carrying amount of intangible assets, net (in thousands):


		March 31, 2004
	Amortization Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer contracts and relationships	0-3 yrs	$	4,650	$	(3,755	)	$	895
Developed and core technology	3 yrs		5,020		(3,078	)		1,942
Trademarks	3 yrs		200		(123	)		77

		$	9,870	$	(6,956	)	$	2,914


		June 30, 2003
	Amortization Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer contracts and relationships	0-3 yrs	$	4,650	$	(2,342	)	$	2,308
Developed and core technology	3 yrs		5,020		(1,897	)		3,123
Trademarks	3 yrs		200		(71	)		129

		$	9,870	$	(4,310	)	$	5,560

The following table presents the estimated future amortization of the other intangibles (in thousands):


Fiscal Year	Amortization
2004	$	688
2005		2,168
2006		58

	$	2,914

(d) Deferred revenue

At March 31, 2004 and June 30, 2003, the Company had deferred revenues of $70.8 million and $73.8 million, respectively. Deferred revenues are comprised of license fees, new version coverage and maintenance and support elements and professional services. Deferred revenues represent amounts billed:

•

prior to acceptance of product or service, or

•

for new version coverage and maintenance and support elements prior to the time service is delivered, or

•

for subscriber licenses committed greater than subscriber activated for arrangements being recognized on an subscriber activation basis, or

•

for license arrangements amortized over a specified future period due to the provision of unspecified future products.

Amounts in accounts receivable that have offsetting balances in deferred revenue aggregated approximately $28.8 million and $33.0 million at March 31, 2004 and June 30, 2003, respectively.

(e) Convertible subordinated notes, net

On September 9, 2003, the Company issued $150.0 million aggregate principal amount of its 2 ¾% Convertible Subordinated Notes (the Notes) due September 9, 2008 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, resulting in net proceeds to the Company of approximately $145.7 million. The Notes are recorded on the Company’s Condensed Consolidated Balance Sheet net of a discount of $4.1 million, which is being amortized over five years under the effective interest rate method. Approximately $0.5 million of the discount has been amortized during the nine months ended March 31, 2004. The Company used approximately $12.1 million of the net proceeds to purchase a portfolio of U.S. government securities that has been pledged to secure the payment of the first six scheduled semi-annual interest payments on the Notes. The Notes are otherwise unsecured obligations. The pledged securities have been recorded as restricted cash within the Company’s Condensed Consolidated Balance Sheet at March 31, 2004.

Each note is convertible at any time at the option of the holder thereof. The Notes are convertible at a conversion price of $18.396 per share, which is equal to a conversion rate of 54.3596 shares per $1,000 principal amount of Notes. The conversion rate may be adjusted upon the occurrence of specified events, including payment of certain dividends or other distributions of cash, stock or other assets to holders of our common stock, certain stock splits or combinations, issuances of certain rights or warrants to purchase our common stock and purchases of our common stock pursuant to certain tender or exchange offers, each in accordance with the terms of the indenture governing the Notes (the “Indenture”), but will not be adjusted for accrued interest. The Company may redeem some or all of the Notes for cash at any time on or after September 9, 2006 in accordance with the Indenture if the price of the Company’s common stock exceeds a specified threshold. In addition, the Company has the right to voluntarily reduce the conversion price for specified periods as provided in the Indenture.

In addition, upon specified change in control events relating to the Company, each holder may require the Company to purchase all or a portion of its Notes, as provided in the Indenture. Upon such an event, the Company will have the option to pay the purchase price in cash or, subject to certain conditions, shares of its common stock.

The Notes are subordinated to the Company’s future senior indebtedness and effectively subordinated to all indebtedness and other liabilities of the Company’s subsidiaries. The Company incurred approximately $0.9 million in debt issuance costs which are recorded in “Deposits and other assets” on the Company’s Condensed Consolidated Balance Sheet. The Company is amortizing the debt issuance costs over the life of the Notes using the effective interest method. Consequently, during the nine months ended March 31, 2004, the Company amortized approximately $0.1 million of debt issuance costs.

In addition, on October 7, 2003, the Company filed a registration statement on Form S-3 (Registration No. 333-109547) with respect to the resale of the Notes and the shares of common stock issuable upon conversion of the Notes. The registration statement became effective on March 17, 2004.

(f) Accumulated other comprehensive income

The components of accumulated other comprehensive income are as follows (in thousands):


	March 31, 2004			June 30, 2003
Unrealized gain on marketable securities	$	234			238
Cumulative translation adjustments		(186	)		(186	)

Accumulated other comprehensive income	$	48		$	52

Comprehensive loss is comprised of net loss, change in unrealized gain on marketable securities and change in accumulated foreign currency translation adjustments (in thousands):


	Three Months Ended March 31,						Nine Months Ended March 31,
	2004			2003			2004			2003
Net loss	$	(5,738	)	$	(23,214	)	$	(29,114	)	$	(191,255	)
Other comprehensive loss:
Change in unrealized gain on marketable securities, net of tax		199			(145	)		4			(334	)

	$	(5,539	)	$	(23,359	)	$	(29,110	)	$	(191,589	)

(8) Contingencies

Litigation

IPO securities class action. IPO securities class action. On November 5, 2001, a purported securities fraud class action complaint was filed in the United States District Court for the Southern District of New York. In re Openwave Systems, Inc. (sic) Initial Public Offering Securities Litigation, Civ. No. 01-9744 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.). It is brought purportedly on behalf of all persons who purchased the Company’s common stock from June 11, 1999 through December 6, 2000. The defendants are the Company and five of its present or former officers (the “Openwave Defendants”), and several investment banking firms that served as underwriters of the Company’s initial public offering and secondary public offering. Three of the individual defendants were dismissed without prejudice, subject to a tolling of the statute of limitations. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statements for the offerings did not disclose that: (1) the underwriters had agreed to allow certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also alleges that false analyst reports were issued. No specific damages are claimed. Similar allegations were made in over 300 other lawsuits challenging public offerings conducted in 1999 and 2000, and the cases were consolidated for pretrial purposes.

The Company has accepted a settlement proposal presented to all issuer defendants. Plaintiffs will dismiss and release all claims against the Openwave Defendants, in exchange for a contingent payment by the insurance companies responsible for insuring the issuers, and for the assignment or surrender of control of certain claims the Company may have against the underwriters. The Openwave Defendants will not be required to make any cash payment in the settlement, unless the pro rata amount paid by the insurers in the settlement exceeds the amount of insurance coverage, a circumstance which the Company does not believe will occur. The settlement will require approval of the Court, which cannot be assured, after class members are given the opportunity to object to or opt out of the settlement. In Management’s view, a loss is not probable or estimable. Therefore no amount has been accrued as of March 31, 2004.

Commercial Dispute. A reseller of the Company, Intrado Inc., commenced arbitration proceedings against the Company on August 11, 2003 alleging breach of contract in connection with the performance of certain software and services. The demand for arbitration does not include a specific demand for damages. The Company also has asserted arbitration counterclaims alleging that Intrado used the Company’s technology to develop a competing service. Although the arbitration is in its preliminary stages, the Company believes the claims are without merit, the Company intends to defend the arbitration vigorously, and the Company does not believe that the resolution of this matter will have a material adverse effect on its financial position. In Management’s view, a loss is not probable or estimable. Therefore no amount has been accrued as of March 31, 2004.

(9) Restructuring and Other Costs

As a result of the Company’s change in strategy and its desire to improve its cost structure, the Company announced three separate restructurings during the years ended June 30, 2003 and 2002. These restructurings included the fiscal 2003 fourth quarter restructuring (FY2003 Q4 Restructuring), the fiscal 2003 first quarter restructuring (FY2003 Q1 Restructuring), and the fiscal 2002 restructuring (FY2002 Restructuring).

The following table sets forth the restructuring activity through March 31, 2004 (in thousands):


	FY 02 Restructuring Plan								FY 03, Q1 Restructuring Plan									FY 03, Q4 Restructuring Plan									Total
	Facility			Severance			Other		Facility			Severance			Other			Facility			Severance			Other			Accrual
Accrual balance as of June 30, 2003	$	9,165		$	81		$	—	$	49,599		$	1,002		$	161		$	783		$	5,639		$	80		$	66,510

New charges and adjustments to estimates ⁽¹⁾		506			—			—		(106	)		(185	)		—			634			965			100			1,914
Cash paid		(970	)		(2	)		—		(1,848	)		(127	)		(113	)		(145	)		(3,462	)		(100	)		(6,767	)

Accrual balance as of September 30, 2003	$	8,701		$	79		$	—	$	47,645		$	690		$	48		$	1,272		$	3,142		$	80		$	61,657

New charges and adjustments to estimates		(74	)		—			—		(120	)		(327	)		15			12			112			—			(382	)
Cash paid		(992	)		—			—		(2,050	)		(143	)		(42	)		(354	)		(1,597	)		—			(5,178	)

Accrual balance as of December 31, 2003	$	7,635		$	79		$	—	$	45,475		$	220		$	21		$	930		$	1,657		$	80		$	56,097

New charges and adjustments to estimates		235			—			—		649			—			(21	)		(158	)		47			(26	)		726
Cash paid		(1,039	)		(79	)		—		(1,863	)		(129	)		—			(82	)		(1,126	)		(54	)		(4,372	)

Accrual balance as of March 31, 2004	$	6,831		$	—		$	—	$	44,261		$	91		$	—		$	690		$	578		$	—		$	52,451

Note (1) Total charges for the September 30, 2003 quarter does not include $738,000 of impairment on fixed assets as represented on the Company’s Condensed Consolidated Statements of Operations for the nine months ended March 31, 2004.

Note (2) Total charges for the March 31, 2004 quarter include $75,000 of impairment of fixed assets as represented on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2004.

Facility costs represent the closure and downsizing costs of facilities that were consolidated or eliminated due to the restructurings. Closure and downsizing costs include payments required under lease contracts, less any applicable sublease income after the properties were abandoned, lease buyout costs and restoration costs associated with certain lease arrangements. To determine the lease loss portion of the closure and downsizing costs, certain estimates were made related to: (1) the time period over which the relevant building would remain vacant, (2) sublease terms and (3) sublease rates, including common area charges. The lease loss is an estimate and will be adjusted in the future upon triggering events (such as changes in estimates of time to sublease and actual sublease rates). Since June 30, 2001, 18 sites have been vacated and 8 sites have been selected for downsizing. In addition to the lease contracts accruals, facility’s costs include the impairment of leasehold improvements and furniture and fixtures on the vacated facilities or planned vacated facilities, and accordingly are reclassified against property and equipment.

Severance and employment-related charges consist primarily of severance, health benefits, other termination costs and legal costs as a result of the termination of approximately 400, 480, and 200 employees during the FY2002, FY 2003 Q1, and FY 2003 Q4 Restructuring plans, respectively.

Other charges consist of fees resulting from the impairment of certain acquired software as a result of the related restructuring, termination costs of certain software license arrangements and other fees.

The FY2003 Q4 Restructuring was announced during the three months ended June 30, 2003 and included further reductions in operating expenses in order to better align the Company’s overall costs structure with current revenues. These reductions included a decrease in Company workforce of approximately 200 employees. The Company completed a majority of these reductions by December 31, 2003. In connection with the implementation of the restructuring plan, during the nine months ended March 31, 2004, the Company incurred an additional $0.5 million in facilities charges, $1.1 million in severance and $75,000 in fixed asset impairment charges to bring the total restructuring cost to approximately $10.3 million. The restructuring costs included facility and equipment costs of $1.8 million, severance and employment related charges of $6.7 million, and other restructuring related costs of $1.8 million. The remaining accrual as of March 31, 2004 of $1.3 million consists of $0.7 million we expect to pay during the fourth quarter of fiscal year 2004 and $0.6 million we expect to pay on various dates through June 2008.

The FY2003 Q1 Restructuring was announced during the three months ended September 30, 2002 and included the consolidation of products within three core product groups: application software and services, infrastructure software and services, and client software and services. This restructuring plan resulted in a decrease in the Company’s workforce of approximately 480 employees as of June 30, 2003. In connection with the implementation of this restructuring plan, the Company reversed approximately $0.1 million as a result of changes in certain estimates during the nine months ended March 31, 2004 to bring the total restructuring costs to approximately $82.2 million in charges. The restructuring costs included facility and equipment costs of $64.2 million, severance and employment related charges of $17.7 million, and other restructuring related costs of $0.3 million. This restructuring effort lead to approximately $25 to $30 million in cost reductions in total cost savings, of which approximately 26% was realized in cost of revenues, 40% in research and development departments, 23% in sales and marketing departments and 11% in the general and administrative departments. The remaining accrual as of March 31, 2004 is $44.4 million, of which $1.9 million will be paid during the fourth quarter of fiscal year 2004 and $42.5 million will be paid on various dates through April 2013.

The FY 2002 Restructuring was announced during the three months ended December 30, 2001 as a result of Company’s desire to improve its cost structure and profitability. This 2002 restructuring plan resulted in a decrease in the Company’s workforce of approximately 400 employees during the fiscal year-ended June 30, 2002. In connection with the implementation of the restructuring plan, the Company incurred an additional $0.7 million in charges primarily as a result of changes in the estimates of sublease income during the nine months ended March 31, 2004 to bring the total restructuring charge to $38.6 million in restructuring costs and an additional $1.9 million in accelerated depreciation charges related to the planned closing of certain facilities under the restructuring plan. The restructuring costs included facility and equipment costs of $25.5 million, severance and employment-related charges of $10.3 million and other restructuring-related charges of $2.8 million. The restructuring effort led to $25 to $30 million in quarterly cost savings, of which approximately 10% was realized in cost of revenues, 35% was realized in the research and development departments, 30% in the sales and marketing departments and 25% in the general and administrative departments. The remaining accrual as of March 31, 2004 of $6.8 million consists of $1.1 million, which we expect to pay during the fourth quarter of fiscal year 2004, and $5.7 million to be paid on various dates through 2012.

(10) Subsequent Events

On May 10, 2004, the Company announced that it had entered into an agreement to acquire all outstanding shares of Magic4 Limited, a private company incorporated in the United Kingdom, for a total purchase price of approximately $82.6 million, or $75 million net of cash on hand at Magic4. The purchase price will be paid with a combination of cash and stock, with the exact proportion to be determined by Openwave prior to closing. The transaction is expected to close in July 2004 and is subject to customary closing conditions.

Item 2.

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

Forward-Looking Statements

In addition to historical information, this quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements speak only as of the date of this quarterly report and are based upon current expectations and beliefs of our Management and are subject to certain risks and uncertainties, including economic and market variables. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions identify such forward-looking statements. Forward-looking statements include, among other things, the information and expectations concerning our future financial performance and potential or expected growth in our markets and markets in which we expect to compete,

business strategy, projected plans and objectives, anticipated cost savings from restructurings and our estimates with respect to future operating results, including, without limitation, earnings, cash flow and revenue. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Factors which could cause actual results to differ materially include those set forth in the risks discussed below under the subheading “Risk Factors” under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this section below and any subsequently filed reports.

Overview

We are a leading independent provider of open standards software products and services for the communications industry. Our customers are communication service providers, including wireless and wireline operators, and wireless device manufacturers worldwide. Our device software products consist of a number of applications such as messaging clients and phone browsers, as well as a platform for enabling data capable mass-market phones. Our mobile software products, including service enablers and gateways, provide the underlying infrastructure to enable data services such as multi-media messaging, content and information services, media and game downloads, location services, and mobile device management. Our wireline software products consist of email, IP-based voicemail and anti-abuse solutions (i.e. anti-spam and anti-virus) to enable rich communications services for broadband and ISP operators.

As one of the early innovators in mobile data and messaging services, we have been a pioneer in the convergence of the Internet and mobile communications. In 1993, we developed our first e-mail messaging server. In 1995, we developed our initial technology that enables the delivery of mobile data services to mobile phones. In 1996, we introduced and deployed our first gateway and browser products. Last year, we launched new products, including our WAP2 Gateway and Openwave phone software tools Version 7 (V7), designed to bring a better user experience to mobile data applications that emphasize advanced graphics and multi-media messages on color handsets. We also introduced Email Mx 6.0, our next generation email and messaging platform.

The demand for software to launch services such as picture messaging, downloading ringtones, XHMTL browsing and location services has started to gain momentum, which we believe will benefit Openwave. However, the industry must help drive usage of these services to help operators and in turn companies like Openwave increase transaction-based revenues. Openwave’s deep industry experience and relationships with wireless and wireline operators and leading handset manufacturers place us in a unique position to view the market, its challenges and opportunities. Openwave has a team of professionals who work with customers and partners around the world at any stage of developing and implementing services to help identify ways to distinguish and enhance services. Examples include identifying which services are relevant to subscribers, marketing the right services to fuel adoption and sharing best practices.

On the wireline side of our business where we sell email, anti-spam and anti-virus products according to a recent study, broadband global subscribers grew to 101 million in the quarter ended December 31, 2003, up from 89 million in the quarter ended September 30, 2003, led by the addition of 9 million subscribers in DSL,.

We expect growth in broadband and mobile data to continue throughout the year with a greater emphasis on improving the user experience for data services, both on mobile phones and PC email. However, market successes and design wins will not immediately translate into revenue for Openwave. The markets in which we sell are highly competitive and we may experience heavy pricing pressure from competitors who may be short term focused because they are in a financially unstable condition or from competitors who place a primary emphasis on selling other hardware, software or services.

Openwave’s mission is to help customers perfect their user experience for mobile data and wireline services to attract subscribers, build brands and create subscriber loyalty. Openwave delivers this value in three core areas:

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integrating the experience across multiple services, devices and platforms

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enhancing the experience with new features and capabilities

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protecting the experience from spam and viruses.

We deliver this value through products and technologies, which we refer to as “our IP,” deep industry experience and knowledge which we refer to as “our IQ,” and services and partnerships with operators and manufacturers to continuously innovate and deliver differentiated services to subscribers.

We are aggressively working with customers to help them grow their business by driving mobile data usage, delivering an integrated messaging experience and protecting their users against spam and viruses. As such we expect to compete and grow our business in products and partnerships in the areas of services, phone software, infrastructure software and messaging software such as multimedia, IP-voice mail, email, and messaging anti-abuse software. We are focused on delivering IP-based open standards solutions that are compliant with 3GPP, OMA and other relevant standards bodies. Our product development is focused on the following: client software, value-added services solutions for mobile infrastructure and messaging applications built around a flexible messaging platform. Our unique competitive advantage is that we can deliver a complete offering from the client to the server along with services, whereas our competitors have one of these pieces as their key strength and advantage.

We were incorporated in 1994 as a Delaware corporation and completed our initial public offering in 1999. Our principal executive offices are located at 1400 Seaport Boulevard, Redwood City, CA 94063. Our telephone number is (650) 480-8000. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, are available free of charge through our website at www.openwave.com, as soon as reasonably practicable after we file or furnish such material with the SEC. Information contained on our website is not incorporated by reference into this report.

Recent Events

On April 27, 2004, we announced that Ken Denman, chairman of the board and chief executive officer of iPass, was appointed to the Board of Directors. Mr. Denman has more than 20 years of experience in the telecommunications and IT industries and has lead iPass through ten quarters of continuous growth, overseeing that company’s move into wireless and broadband.

Critical Accounting Policies and Judgments

We believe that there are several accounting policies that are critical to understanding our business and prospects for our future performance, as these policies affect the reported amounts of revenue and other significant areas that involve Management’s judgment and estimates. These significant accounting policies are:

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Revenue recognition

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Allowance for doubtful accounts

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Impairment assessment of goodwill and identifiable intangible assets

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Restructuring-related assessments

These policies, and our procedures related to these policies, are described in detail below. In addition, please refer to the Notes to Condensed Consolidated Financial Statements for further discussion of our accounting policies.

Revenue Recognition

We recognize revenue in accordance with Statement of Position (SOP) No. 97-2, “ Software Revenue Recognition,” as amended by SOP No. 98-9, “ Modification of 97-2 Software Revenue Recognition, With Respect to Certain Transactions,” and generally recognize revenue when all of the following criteria are met as set forth in paragraph 8 of SOP No. 97-2: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable and (4) collectibility is probable.

One of the critical judgments that we make is the assessment that “collectibility is probable.” Our recognition of revenue is based on our assessment of the probability of collecting the related accounts receivable balance on a customer-by-customer basis. As a result, the timing or amount of revenue recognition may have been different if different assessments of the probability of collection had been made at the time the transactions were recorded in revenue. In cases where collectibility is not deemed probable, revenue is recognized at the time collection becomes probable, which is generally upon receipt of cash.

Another critical judgment that we make involves the “fixed or determinable” criterion. We consider payment terms where arrangement fees are due within 12 months from delivery to be normal. Payment terms beyond 12 months from delivery are considered extended and not fixed or determinable. For arrangements with extended payment terms arrangement fee revenues are recognized when fees become due, assuming all other revenue recognition criteria have met. In arrangements where fees are due within one year or less from delivery, we consider the entire arrangement fee as “fixed or determinable.”

For contracts accounted for under SOP No. 81-1, we believe we are able to reasonably estimate, track, and project the status of completion of a project, and therefore use the percentage of completion method as our primary method for recognizing revenue as recommended under SOP No. 81-1. We also consider customer acceptance our criteria for substantial completion.

Certain arrangements permit the customer to pay us maintenance and support fees based only on the number of active subscribers using our software product, rather than the number of subscribers to which the customer has committed to purchase under the license agreement. Such arrangements cause an implied maintenance and support obligation for us relating to unactivated subscribers. In these cases, we defer revenue equal to the Vendor Specific Objective Evidence (VSOE) of maintenance and support of the total commitment for the estimated life of the software. This additional deferral of maintenance and support revenue results in a smaller amount of residual license revenues to be recognized upon delivery.

During the year ended June 30, 2002, we entered into a significant contract with a service partner, under which we have been porting our software to the service partner’s hardware/software platform in exchange for a predetermined reimbursement rate; the partner resells our products and engages in other joint activities. We recognize porting services revenues from this contract as project revenues in our Consolidated Statement of Operations as the services are performed. With our adoption of Emerging Issues Task Force (EITF) Issue No. 00-21, “ Revenue Arrangements with Multiple Deliverables,” during the quarter ended December 31, 2002, we separate the reseller and porting activities related to the project and will recognize reseller revenues separately as they are earned. Cumulative revenues recognized may be less or greater than cumulative billings at any point in time during the contract’s term. The resulting difference is recognized as unbilled accounts receivable or deferred revenue.

In certain arrangements we recognize revenue based on information contained in license usage reports provided by our customers. If such reports are not received in a timely manner , we estimate the revenue based on historical reporting trends, if possible.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the anticipated non-payment of contractual obligations to us.

The total allowance for doubtful accounts is comprised of a specific reserve and a general reserve. We regularly review the adequacy of our allowance for doubtful accounts after considering the size of the accounts receivable aging, the age of each invoice, each customer’s expected ability to pay and our collection history with each customer. We review all customer receivables to determine if a specific reserve is needed, based on our knowledge of the customer’s ability to pay. If the financial condition of a customer were to deteriorate, resulting in an impairment of their ability to make payments, a specific allowance would be made. When a customer is specifically identified as uncollectible, the total customer receivable is reduced by the customer’s deferred revenue balance resulting in the net specific identified reserve, and we discontinue recognition of revenue from that arrangement. In addition, we maintain a general reserve for all other receivables not included in the specific reserve by applying various specific percentages of projected uncollectible receivables to the various aging categories. In determining these percentages, we analyze our historical collection experience and current economic trends, as well as determine the average deferred revenue and subsequent collections that are related to accounts receivable.

If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. However, historically the reserve has proven to be adequate.

Impairment Assessments

(a) Goodwill and other intangible assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “ Goodwill and Other Intangible Assets ,” we review the carrying amount of goodwill for impairment on an annual basis. Additionally, we perform an impairment assessment of goodwill and other intangible assets whenever events or changes in circumstances indicate that the carrying value of goodwill and other intangible assets may not be recoverable. Significant changes in circumstances can be both internal to our strategic and financial direction, as well as changes to the competitive and economic landscape. Past changes in circumstances that were considered important for asset impairment include, but are not limited to, decrease in our market capitalization, contraction of the telecommunications industry, reduction or elimination of geographic economic growth, reductions in our forecasted growth and significant changes to operating costs.

As part of our impairment assessment, we examine products, customer base and geography. Based on these criteria, we determine which products we will continue to support and sell and, thereby, determine which assets will continue to have future strategic value and benefit. If indicators suggest the carrying value of our long-lived assets may not be recoverable, we complete an analysis of our long-lived assets under SFAS No. 144, “ Accounting for the Impairment or Disposal of Long-Lived Assets ,” using estimates of undiscounted cash flows in order to determine if any impairment of our fixed assets and other intangibles exists.

With the adoption of SFAS No. 142 on July 1, 2002, we have determined there is a single reporting unit for the purpose of goodwill impairment tests under SFAS No. 142. While we have selected the three months ending March 31 as the period in which the required annual impairment test will be performed, interim impairment tests may be necessary if indicators suggest the carrying value of the goodwill may not be recoverable. For purposes of assessing the impairment of our goodwill, we estimate the value of the reporting unit using our market capitalization as the best evidence of fair value. This fair value is then compared to the carrying value of the reporting unit. During the quarter ended March 31, 2004, the we completed the annual impairment test and determined that there was no impairment necessary.

(b) Strategic investments

We regularly perform an impairment assessment of our strategic equity investments. In performing an impairment assessment, Management considers the following factors, among others, in connection with the businesses in which investments have been made: the implicit valuation of the business indicated by recently completed financing or similar transactions, the business’ current solvency and its access to future capital. As of March 31, 2004, the remaining book value of the investments in nonmarketable equity securities was approximately $1.1 million and is recorded within “Deposits and other assets” in our Consolidated Balance Sheets.

Restructuring–related assessments

Our critical accounting policy and judgment as it relates to restructuring-related assessments includes our estimate of facility costs and severance-related costs. To determine the facility costs, which consist of the loss after our cost recovery efforts from subleasing a building, certain estimates were made related to: (1) the time period over which the relevant building would remain vacant, (2) sublease terms and (3) sublease rates, including common area charges. These estimates will be adjusted in the future upon triggering events (such as changes in estimates of time to sublease or changes in actual sublease rates). We have estimated that the lease loss for the fiscal 2003 and fiscal 2002 restructuring plans could be as much as $25.0 million higher if facilities operating lease rental rates continue to decrease in the applicable markets or if no suitable tenant is found to lease the facility. To determine the severance and employment-related charges, we have made certain estimates as they relate to severance benefits, including the probable number of employees to be terminated and an estimate of the amount to be paid to each terminated employee in accordance with SFAS No. 112, ‘Employers’ Accounting for Postemployment Benefits.”

Results of Operations

Three and Nine Months Ended March 31, 2004 and 2003

Revenues

We generate four different types of revenue. License revenues are primarily associated with the licensing of our software products to communication service providers and wireless device manufacturers; maintenance and support revenues are derived from providing support services to wireless device manufacturers and communication service providers; professional services revenues are primarily a result of providing deployment and integration consulting services to communication service providers; and project revenues are derived from a porting services project. The majority of our revenues have been derived from sales to a limited number of customers and our sales are highly concentrated. Significant customers during the three months and nine months ended March 31, 2004 and 2003 include KDDI and Sprint. Sales to KDDI accounted for 5% and 7% of total revenues during the three months ended March 31, 2004 and 2003, respectively, and 5% and 12% of total revenues during the nine months ended March 31, 2004 and 2003, respectively. Sales to Sprint accounted for 7% and 14% of total revenues during the three months ended March 31, 2004 and 2003, respectively, and 5% and 14% of total revenues during the nine months ended March 31, 2004 and 2003, respectively.

The following table presents selected revenue information for the three and nine months ended March 31, 2004 and 2003, respectively (in thousands):


	Three Months Ended March 31,								Nine Months Ended March 31,
	2004			2003			Percent Change		2004			2003			Percent Change
Revenues
License	$	38,437		$	35,011		9.8	%	$	108,820		$	110,978		(1.9	%)
Maintenance and support		20,523			18,494		11.0	%		62,991			56,321		11.9	%
Professional services		14,450			4,933		192.9	%		33,588			19,034		76.5	%
Project		817			5,033		(83.8	%)		8,570			15,079		(43.2	%)

Total Revenues	$	74,227		$	63,471		16.9	%	$	213,969		$	201,412		6.2	%

Percent of revenues
License		51.8	%		55.2	%	(3.4	%)		50.9	%		55.1	%	(4.2	%)
Maintenance and support		27.6	%		29.1	%	(1.5	%)		29.4	%		28.0	%	1.4	%
Professional services		19.5	%		7.8	%	11.7	%		15.7	%		9.4	%	6.3	%
Project		1.1	%		7.9	%	(6.8	%)		4.0	%		7.5	%	(3.5	%)

Total Revenues		100.0	%		100.0	%				100.0	%		100.0	%

License Revenues

License revenues increased 9.8% for the three months but decreased 1.9% for the nine months ended March 31, 2004, respectively, compared to the respective prior year periods. The overall decrease for the nine months ended March 31, 2004, was partially attributed to the economic downturn that significantly affected the telecommunications market, which resulted in a reduced number and value of new contracts and increased competition. The increase quarter over quarter resulted primarily from an increase in subscriber growth in the March quarter and acceptance of our product upgrades.

Maintenance and Support Services Revenues

Maintenance and support services revenues increased 11.0% and 11.9% for the three and nine months ended March 31, 2004, respectively, compared to the respective prior year periods. The increase is consistent with the growth in the subscriber base of our customers and our ability to maintain contractual renewal rates of existing customer agreements.

Professional Services Revenues

Professional services revenues increased 192.9% and 76.5% for the three and nine months ended March 31, 2004, respectively, compared to the respective prior year periods. The increase was primarily due to an increase in the number of custom and extended solutions projects we have engaged in as well as an increase in services provided in relation to our products upgrades on our existing technology and other value-added services to our customers.

Project Revenues

Project revenues decreased 83.8% and 43.2% for the three and nine months ended March 31, 2004, respectively, compared to the respective prior year periods and represent amounts recognized under our porting services arrangement with a service partner. At this time the porting project is substantially complete. As we complete the final milestones on this project, we anticipate significantly reduced project revenues going forward.

Cost of Revenues

The following table presents cost of revenues as a percentage of related revenue type for the three and nine months ended March 31, 2004 and 2003, respectively (in thousands):


	Three Months Ended March 31,								Nine Months Ended March 31,
	2004			2003			Percent Change		2004			2003			Percent Change
Cost of revenues
License and customer contract intangibles	$	1,672		$	1,600		4.5	%	$	6,495		$	6,464		0.5	%
Maintenance and support		6,435			6,571		(2.1	%)		18,477			22,264		(17.0	%)
Professional services		11,439			5,911		93.5	%		27,420			17,160		59.8	%
Project		772			4,381		(82.4	%)		4,883			13,536		(63.9	%)

Total cost of revenues	$	20,318		$	18,463		10.1	%	$	57,275		$	59,424		(3.6	%)


	Three Months Ended March 31,								Nine Months Ended March 31,
	2004			2003			Percent Change		2004			2003			Percent Change
Gross margin per related revenue
License and customer contract intangibles		95.7	%		95.4	%	0.3	%		94.0	%		94.2	%	(0.2	%)
Maintenance and support		68.6	%		64.5	%	4.1	%		70.7	%		60.5	%	10.2	%
Professional services		20.8	%		(19.8	%)	40.6	%		18.4	%		9.8	%	8.6	%
Project		5.5	%		13.0	%	(7.5	%)		43.0	%		10.2	%	32.8	%
Total Gross Margin		72.6	%		70.9	%	1.7	%		73.2	%		70.5	%	2.7	%

Cost of License Revenues

Cost of license revenues consists of third-party license and related support fees as well as amortization of customer contract and relationship intangibles related to prior acquisitions.

Cost of license revenues during the nine months ended March 31, 2004, as compared to the respective prior year period, was relatively flat with overall increases in royalty costs associated with anti-virus and anti-spam products totaling $1.2 million for which revenue was recognized in the current period, offset by a $0.9 million decrease in amortization of acquisition-related intangibles, and $0.3 million of lower depreciation and other costs. During the respective periods, margins remained relatively flat.

Cost of license revenues during the three months ended March 31, 2004, as compared to the respective prior year period, was relatively flat with $0.1 million increase in royalty costs associated with anti-virus and anti-spam products offset by slight decreases in other costs.

Cost of Maintenance and Support Services Revenues

Cost of maintenance and support services revenues consists of compensation and related overhead costs for personnel engaged in training and support services to wireless device manufacturers and communication service providers.

The decrease in costs of maintenance and support service revenues during the nine months ended March 31, 2004, as compared to the respective prior year period resulted from a decrease in labor, overhead, and other employee costs due to a decrease in our average headcount of 33 employees as a result of our realignment and restructuring efforts. This, along with an increase in revenues due to increased subscriber growth, is responsible for increased margins in this category.

Cost of maintenance and support service revenues during the three months ended March 31, 2004, as compared to the respective prior year period, remained relatively flat with no significant variances as a result of headcount remaining relatively flat.

Cost of Professional Services Revenues

Cost of professional services revenues consists of compensation and independent consultant costs for personnel engaged in performing professional services and related overhead.

Professional services costs increased by $10.3 million for the nine months ended March 31, 2004 as compared to the respective prior year period. During the FY2003 Q1 restructuring, which took place late in the first quarter of fiscal 2003, we reorganized the professional services departments and sales and marketing departments and focused the activities of the professional services staff more specifically towards consulting activities and away from selling activities. Therefore, during the nine months ended March 31, 2003, a larger portion of the costs were allocated to sales and marketing operations as compared to the nine months ended March 31, 2004, increasing the variance between the two respective periods by approximately $2.5 million. Increased demand for our products resulted in an increase of $4.4 million in subcontractor costs, $1.7 million in total travel charges, an increased utilization of the services of our research and development group resulting in $1.9 million in cross-charges, and an increase in other employee related charges of $0.5 million. These charges were offset by an increase of $0.7 million in deferred charges on professional services, which will be expensed in the future as revenue is recognized. Professional services gross margin increased by 9% for the nine months ended March 31, 2004, compared to the respective prior year period primarily due to the prior year having more expenses incurred on projects where revenue is not recognized until the customer payment is received, offset by the realignment of the sales force as discussed above.

Professional services costs increased by $5.5 million for the three months ended March 31, 2004 as compared to the respective prior year period. The increased demand for our products resulted in an increase of $2.9 million in sub-contractor costs, $1.3 million in total travel charges, an increase in the utilization of the services of our research and development group resulting in $1.4 million in cross charges, and $0.8 million in other employee related charges. These increases were offset by an increase of $0.9 million in deferred charges on professional services, which will be expensed in accordance with revenue recognized.

Professional services gross margin increased by 41% for the three months ended March 31, 2004, compared to the respective prior year period primarily due to the timing of revenue recognition on multiple-element arrangements.

Cost of Project Revenues

The cost of project revenues includes direct costs incurred in the performance of porting services for an arrangement with a service partner.

Cost of Project revenues for the three and nine months ended March 31, 2004 decreased by 82.4% and 63.9%, respectively, as compared with the same periods last year. As the porting project nears completion, we are dedicating fewer resources in this area, resulting in lower costs and revenues with this project. The current year nine month period was impacted by the recognition of revenue in the September quarter 2003 as a result of our ability to reach certain project milestones, which had previously been deferred. Without the impact of this event, margins would have remained relatively flat.

Operating Expenses

We have reduced costs and expenses to better align our resources with revenue opportunities anticipated in the current information technology market. In the fiscal year ended June 30, 2003, we announced two separate restructurings that reduced our workforce by approximately 14% and 24%, respectively. The reduced costs associated with the restructurings were primarily recognized during the latter part of fiscal 2003. Therefore, average overall headcount decreased by 216 and 408 people during the three and nine months ended March 31, 2004 compared to the three and nine months ended March 31, 2003. In addition to the restructurings, we also reduced variable costs across the company as a result of enhancing discretionary spending controls. The impact of these cost-cutting measures resulted in an overall decrease of 9.2% and 42.7% for the three and nine month periods ended March 31, 2004 as compared to 2003, respectively.

The following table represents operating expenses for the three and nine months ended March 31, 2004 and 2003, respectively (in thousands):


	Three Months Ended March 31,								Nine Months Ended March 31,
	2004			2003			Percent Change		2004			2003			Percent Change
Operating Expenses:
Research and development	$	23,625		$	27,256		(13.3	%)	$	72,976		$	88,323		(17.4	%)
Sales and marketing		25,479			27,058		(5.8	%)		74,169			90,418		(18.0	%)
General and administrative		7,621			9,343		(18.4	%)		26,071			38,328		(32.0	%)
Restructuring and other related costs		726			—		100.0	%		2,996			83,191		(96.4	%)
Stock-based compensation		938			686		36.7	%		2,427			2,780		(12.7	%)
Amortization of goodwill and intangible assets*		67			67		—			202			9,034		(97.8	%)

Total Operating Expenses	$	58,456		$	64,410		(9.2	%)	$	178,841		$	312,074		(42.7	%)

Percent of Revenues
Research and development		31.8	%		42.9	%	(11.1	%)		34.1	%		43.9	%	(9.8	%)
Sales and marketing		34.3	%		42.6	%	(8.3	%)		34.7	%		65.5	%	(30.8	%)
General and administrative		10.3	%		14.7	%	(4.4	%)		12.2	%		27.8	%	(15.6	%)

*	Includes in-process research and development and merger costs

Research and Development Expenses

Research and development expenses consist principally of salary and benefit expenses for software developers, contracted development efforts, related facilities costs, and expenses associated with computer equipment used in software development. We believe that investments in research and development are critical to remain competitive in the market place and are directly related to continued timely development of new and enhanced products. While we continue to focus our attention on research and development, we undertook initiatives during our restructuring efforts to redistribute some of our research and development work offshore as well as increase our utilization of other outside consultants.

As a result of our restructuring efforts, average research and development headcount decreased by 171 employees for the nine months ended March 31, 2004, compared to the respective prior year period. The decrease in the headcount resulted in a $13.0 million decrease in salaries and other salary-related costs for the prior year comparative period. We also incurred lower bonuses of $0.8 million as a result lower headcount in the current period and we had additional retention bonuses charged during the prior year period due to acquisitions. In addition, there were lower overall telecommunication charges of $0.8 million due to the renegotiation of our agreements with outside vendors and other cost saving measures, offset by other increases of $0.8 million. Depreciation costs decreased by $2.4 million for the current period as compared to the prior year fiscal period as a result of lower overall headcount and continues to decrease as existing assets become fully depreciated. Allocation costs also decreased by $6.2 million during the current year period, as compared to the respective prior fiscal period due to a $4.4 million decrease in costs allocated in as a result of lower headcount and overhead from restructuring efforts as well as lower depreciation and IT costs, and an increase in allocated costs out primarily to the Professional Services organization of $1.8 million for services provided on extended and custom solutions projects. The overall decrease was partially offset by an increase in our dependence on contractors leading to a $2.0 million increase in contingent workers expense due primarily to the use of contractors as a short term solution to meet customer commitments and an overall decrease in the allocation of certain employee expenses out to other departments of $5.1 million in the nine months ended March 31, 2004, compared to the respective prior year period and are comprised primarily of those costs associated with project revenues.

As a result of our restructuring efforts, average research and development headcount decreased by 116 employees for the three months ended March 31, 2004, as compared to the respective prior year period. The decrease in the headcount resulted in a $2.6 million decrease in salaries and other salary-related costs for the comparative periods. Depreciation costs decreased by $0.9 million for the current year period as compared to the prior year fiscal period as a result of lower overall headcount and continues to decrease as existing assets become fully depreciated. Allocation costs also decreased by $2.7 million, during the current year period, as compared to the respective prior year fiscal period due to a $1.1 million decrease in costs allocated in as a result of lower headcount and overhead from restructuring efforts as well as lower depreciation and IT costs, and an increase in allocated costs out to the Professional Services organization of $1.6 million for services provided on extended and custom solutions projects. The overall decrease was partially offset by an increase in our dependence on contractors leading to a $0.6 million increase in contingent workers expense due primarily to use of contractors as a short term solution to meet customer commitments and an overall increase in the allocation of certain employee expenses out to other departments of $2.0 million in the three months ended March 31, 2004, compared to the respective prior year period and are comprised primarily of those costs associated with project revenues.

Sales and Marketing Expenses

Sales and marketing expenses include salary and benefit expenses, sales commissions, travel expenses, and related facility costs for our sales and marketing personnel. Sales and marketing expenses also include the costs of trade shows, public relations, promotional materials, redeployed professional service employees and other market development programs.

As a result of our restructuring efforts, average sales and marketing headcount decreased by 142 employees for the nine months ended March 31, 2004, as compared to the respective prior year period, resulting in a $12.2 million decrease in salaries and other salary-related costs. In addition, we had lower bonus costs of $0.8 million, as compared to the prior respective period. Additional cost savings efforts lead to an overall decrease in marketing expenses by $0.4 million, and lower depreciation expense of $0.6 million, for the current year period as compared to the respective prior year period. Finally, during the current period, as compared to the prior year period, we also reduced our overall telecom and connectivity costs by $1.3 million, and had lower travel and entertainment costs of $2.5 million due to lower overall headcount. Overall decreases in allocations for the current year period as compared with the prior year respective period were comprised of decreases in allocated consulting costs of $2.9 million primarily related to reductions in allocated professional service costs as a result of our restructuring efforts to focus that group’s work more specifically on consulting activities as opposed to other development functions, as discussed within Cost of Professional Services Revenues. Additionally, overall overhead allocations decreased by $3.4 million as a result of overall lower headcount and other cost savings efforts. The overall decrease was partially offset by an increase in Commissions expense for the current year period as compared to the prior fiscal year period. Commissions increased by $6.7 million, as a result of changes in the sales compensation plans and the meeting of key sales objectives. Other increases for the same comparative periods included $0.4 million for contingent workers resulting from increased work on process related and other operational improvements and $0.7 million for professional fees primarily as a result of increases for outside services relating to the marketing communications for new product offerings and corporate sales training.

As a result of our restructuring efforts, average sales and marketing headcount decreased by 75 employees for the three months ended March 31, 2004, compared to the respective prior year period, resulting in a $1.6 million decrease in salaries and other salary-related costs. In addition, we had lower bonus costs of $0.6 million as compared to the prior respective period. Additional savings from our cost saving efforts lead to an overall decrease in marketing expenses by $0.3 million and lower depreciation expense of $0.3 million for the three months ended March 31, 2004 as compared to the respective prior year period. We also had other overall decreases of $0.8 million as a result of lower headcount and other cost savings efforts. The overall decrease was partially offset by an increase in Commissions expense for the three months ended March 31, 2004 as compared to the prior fiscal year period. Commissions increased by $0.9 million as a result of changes in the sales compensation plans and the meeting of key sales objectives. Other increases for the same comparative periods included $0.6 million and for contingent workers resulting from increased work on process related and other operational improvements and $0.5 million for professional fees primarily as a result of increases for outside services relating to the marketing communications for new product offerings and corporate sales training.

General and Administrative Expenses

General and administrative expenses consist principally of salary and benefit expenses, travel expenses, and related facility costs for our finance, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for doubtful accounts, and expenses associated with computer equipment and software used in administration of the business.

As a result of our restructuring efforts, average general and administrative headcount decreased by 44 employees for the nine months ended March 31, 2004, as compared to the respective prior year period. The decrease in headcount resulted in a $3.5 million decrease in salaries and other salary-related costs for the year compared to the prior fiscal period. Bonus costs also decreased by $2.6 million as a result of not reaching certain incentive targets in the current period and the reduction in executive retention bonuses paid in the prior year period. We recognized additional savings from restructuring efforts leading to a decrease in employee staffing and recruiting costs of $0.8 million, lower facilities costs of $3.6 million, and a reduction in costs for outside service costs of $1.7 million, primarily relating to reduction in IT and facilities outside service providers and maintenance contracts, which were renegotiated as part of the overall cost savings effort. Depreciation costs decreased by $5.0 million for the current year period as a result of lower overall headcount and continues to decrease as existing assets become fully depreciated. The provision for doubtful accounts also decreased by $6.3 million as a result of improved cash collections and the collection of several accounts that had previously been written off. We also had a decrease in our dependence on contractors leading to a decrease in outside consulting costs of $0.9 million, lower overall travel and entertainment of $0.6 million and lower telecom and connectivity costs of $1.8 million primarily a result of our restructuring and costs cutting efforts. The overall decrease was

partially offset by an increase in the cost variance as a result of a decrease in allocations out to other departments and other costs. Reduction in allocations out to other departments and other costs of $14.5 million, related primarily to lower facility costs of $8.9 million, lower overall IT costs of $2.8 million as a result of our overall restructuring and cost cutting efforts. In addition we had an increase in allocated costs into G&A of $0.6 million, which relate primarily to increased support from IT for financial systems upgrades, enhancements and dedicated support. Other expenses overall also decreased by $2.2 million related to other cost cutting efforts.

As a result of our restructuring efforts, average general and administrative headcount decreased by 25 employees for the three months ended March 31, 2004, respectively, compared to the respective prior year period. The decrease in headcount resulted in a $0.6 million decrease in salaries and other salary-related costs for the year compared to the prior fiscal period. Bonus costs also decreased by $2.0 million as a result the reduction in executive retention bonuses paid in the prior year period. We recognized additional savings from restructuring efforts leading to a decrease in employee staffing and recruiting costs of $0.3 million, lower facilities costs of $0.3 million, and a reduction in costs for outside service costs of $0.5 million primarily relating to reduction in IT and facilities outside service providers and maintenance contracts, which were renegotiated as part of the overall cost savings effort. Depreciation costs decreased by $1.3 million for the current year period as a result of lower overall headcount and continues to decrease as existing assets become fully depreciated. The provision for doubtful accounts also decreased by $1.0 million as a result of improved cash collections and the collection of several accounts that had previously been written off. The overall decrease was partially offset by a decrease in allocations out to other departments and other costs. The reduction in allocations out to other departments and other costs of $4.3 million related primarily to lower facility costs of $1.6 million lower overall IT costs of $0.9 million as a result of our overall restructuring and cost cutting efforts. In addition we had an increase in allocated costs into G&A of $0.5 million, and lower other expenses of $1.3 million related to our other cost cutting efforts.

Restructuring and other related costs

As a result of our change in strategy and our desire to improve our cost structure, we announced three separate restructurings during the years ended June 30, 2003 and 2002. (See also Restructuring-related assessments under Critical Accounting Policies.) These restructurings included the fiscal year 2003 fourth quarter restructuring (FY2003 Q4 Restructuring), the fiscal year 2003 first quarter restructuring (FY2003 Q1 Restructuring), and the fiscal year 2002 restructuring (FY2002 Restructuring.)

Restructuring and other charges totaled $0.7 million for the three months ended March 31, 2004 and $3.0 million and $83.2 million for the nine months ended March 31, 2004 and 2003, respectively.

Restructuring charges and other related costs of $3.0 million for the nine months ended March 31, 2004 related primarily to additional costs associated with the FY2003 Q4 Restructuring initiated in the June 2003. Costs for the nine months ended March 31, 2004 related primarily to facility and severance costs of approximately $1.6 million and $0.6 million, respectively, and other related costs of $0.8 million primarily related to the impairment of fixed assets.

Restructuring charges for the three months ended March 31, 2004 were $0.7 million and primarily resulted from changes in the estimates of sublease income.

The following table summarizes the future payments on the remaining restructuring liabilities, net of estimated sub-lease income (in thousands):


Year ending June 30,	Net Cash Payable
2004	$	3,692
2005		10,240
2006		7,553
2007		6,372
2008		5,047
Thereafter		19,547

	$	52,451

Stock-Based Compensation

All stock-based compensation is being amortized in a manner consistent with Financial Accounting Standards Board Interpretation (FIN) No. 28, “ Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans .” Stock-based compensation consists of continued amortization of the deferred stock-based compensation related to acquisitions, as well as options issued to non-employees and restricted stock granted to executives and other employees at exercise prices below the current fair value of our stock. The following table summarizes stock-based compensation by category (in thousands):


	Three Months Ended March 31,				Percent Change		Nine Months Ended March 31,				Percent Change
	2004		2003		Percent Change		2004		2003		Percent Change
Stock-based compensation by category
Research and development	$	231	$	28	725	%	$	729	$	872	(16.4	%)
Sales and marketing		191		118	61.9	%		360		372	(3.2	%)
General and administrative		516		540	(4.4	%)		1,338		1,536	(12.9	%)

Total stock-based compensation	$	938	$	686	36.7	%	$	2,427	$	2,780	(12.7	%)

During the three and nine months ended March 31, 2003, we reversed approximately $0.5 million and $1.7 million in research and development stock-based compensation related to employees who have left the Company. Excluding the reversal, total stock-based compensation decreased approximately $0.3 million and $2.1 million during the three and nine months ended March 31, 2004, as compared to the respective prior year period due to continued amortization of deferred stock-based compensation.

Amortization and Impairment of Goodwill and Intangible Assets and In-process Research and Development

The following table presents the total amortization and impairment of goodwill and intangible assets (in thousands):


	Three Months Ended March 31,				Nine Months Ended March 31,
	2004		2003		2004		2003
Amortization of acquisition-related contract intangibles ^(a)	$	252	$	303	$	1,263	$	1,913
Amortization of developed and core technology ^(a)		393		393		1,181		1,425
Amortization of other intangibles assets		67		67		202		203
Impairment of goodwill		—		—		—		8,045
In-process research and development		—		—		—		400

	$	712	$	763	$	2,646	$	11,986

^(a)	Amortization of acquisition-related contract intangibles and developed and core technology is included in Cost of Revenues – License in our Condensed Consolidated Statements of Operations. We amortize the contract intangible assets in relation to the related contractual revenues.

The decrease in amortization and impairment of goodwill and other intangible assets for the three and nine months ended March 31, 2004, as compared to the respective prior fiscal periods, was primarily due to the impairment of goodwill. Prior to our adoption of SFAS No. 142 on July 1, 2002, we were amortizing goodwill and other intangible assets on a straight-line basis over a three- to five-year period. Due to a decline in our market capitalization, we performed an impairment analysis during the three months ended September 30, 2002 and impaired $7.3 million of goodwill related to the SignalSoft acquisition. During the quarter ended December 31, 2002, we recorded additional SignalSoft goodwill of $0.8 million related to the finalization of the purchase price allocation, which was fully impaired during the same quarter. The impairment of the SignalSoft goodwill resulted in impairment charges of $8.0 million for the nine months ended March 31, 2003 under “Amortization and impairment of goodwill and other intangible assets” in our Condensed Consolidated Statement of Operations.

In addition to the discussion above regarding the impairment of goodwill and intangible assets, see “Critical Accounting Policies and Judgments – Impairment Assessments” for further discussion.

Merger, Acquisition and Integration-Related Costs

As a result of the SignalSoft acquisition, we recorded merger, acquisition and integration-related costs in the amount of $0.4 million for the nine months ended March 31, 2003 relating to retention bonuses for employees and other costs incurred solely as a result of the integration.

Interest Income and Other, net

Interest income and other, net totaled approximately $1.2 million and $1.4 million for the three months ended March 31, 2004 and 2003, respectively, and totaled $3.4 million and $5.1 million for nine months ended March 31, 2004 and 2003, respectively. Although our overall cash and investments balance increased from $242.5 million at March 31, 2003 to $345.9 million at March 31, 2004 due to cash proceeds from the convertible subordinated notes issued on September 9, 2003, interest income decreased due to a decease in the average interest rates obtained on the invested balances and lower overall average cash balances during the first quarter ended September 30, 2003.

Included in “Interest income and other, net” is foreign exchange gain (losses), which totaled ($36,000) and $0.3 million for the three and nine months ended March 31, 2004 compared with $0.2 million and $0.4 million for the three and nine months ended March 31, 2003, respectively. These fluctuations are the result of our exposure to movements in foreign currency rate changes. We use hedges to limit our exposure to these types of movements.

Interest Expense

We incurred interest expense during the three and nine months ended March 31, 2004 totaling $1.3 million and $2.9 million, respectively, due to the amortization of the discount and debt issuance costs, as well as an interest accrual of 2.75% per annum on the convertible subordinated notes issued September 9, 2003.

Income Taxes

Income tax expense totaled $1.1 million and $3.3 million for the three months ended March 31, 2004 and 2003, respectively, and $7.5 million and $7.9 million for the nine months ended March 31, 2004 and 2003, respectively. Income taxes in all periods presented consisted primarily of foreign withholding and foreign income taxes. During the nine months ended March 31, 2004, we incurred a one time charge of $1.3 million related to a foreign jurisdiction tax audit of one of our customers.

During the quarter ended March 31, 2004, we recognized $1.1 million deferred tax asset related to our operations in a foreign jurisdiction, as we concluded that it is more likely than not the deferred tax benefit will be realized in the foreign jurisdiction. Recording this deferred tax asset produced a $1.1 million income tax benefit in the quarter ended March 31, 2004. Foreign withholding taxes fluctuate from year to year based on both the geographical mix of our revenue, as well as the timing of the revenue recognized. We expect to incur withholding and foreign corporate income taxes on an ongoing basis of approximately 1% to 4% of revenues.

In light of our recent history of operating losses, we recorded a valuation allowance for substantially all of our net deferred tax assets in tax jurisdictions other than the United Kingdom and Japan, as we are presently unable to conclude that it is more likely than not that the deferred tax assets in excess of deferred tax liabilities will be realized.

As of June 30, 2003, we had net operating loss carryforwards for federal and state income tax purposes of approximately $1.1 billion and $402.0 million, respectively.

Cumulative Effect of Change in Accounting Principle

During the nine months ended March 31, 2003, we recognized a transitional impairment of $14.5 million upon adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” which was reported as a “Cumulative effect of change in accounting principle” on our Consolidated Statements of Operations.

Liquidity and Capital Resources

Operating Lease Obligations, Off-Balance Sheet Arrangements and Contractual Obligations

Our restricted cash and investments increased by $5.3 million during the nine months ended March 31, 2004 to $27.6 million primarily due to the restriction of $10.1 million in cash for interest payments as a result of the convertible debt issuance, offset by a $4.8 million decrease in worldwide collateral obligations as they relate to our principle commitments on operating leases.

During the quarter ended September 30, 2003, we renegotiated the security obligation requirements on our operating lease agreements to remove the stipulation of 125% on the letter of credit be restricted and to replace it with a stipulation that only 100% of the letter of credit be restricted with the addition that the collateral needed to be invested in certificates of deposits. As of March 31, 2004, our principal commitments consisted of obligations outstanding under operating leases, as well as our convertible debt obligations.

In March 2000, we entered into a lease for approximately 280,000 square feet of office space in Redwood City, California (Redwood City Lease). The Redwood City Lease terms commenced in April 2001, and required a base rent of $3.25 per square foot per month increasing by 3.5% annually on the anniversary of the initial month of the commencement of the lease. The lease is for a period of 12 years from the commencement date. The agreement required that we provide a letter of credit in the amount of $16.5 million. In addition we have $1.0 million in letters of credits primarily related to facilities located outside of the Redwood City headquarters. The restricted cash on the operating lease commitments are earning an annual interest rate of approximately 1.88% as of March 31, 2004, and the resulting income earned is not subject to any restrictions.

In addition, during the quarter ended September 30, 2003, we issued $150 million in 2.75% convertible subordinated notes. As part of the debt issuance, we were required to place in escrow treasury strips at face value whose principal and related interest earned would be used to pay the first six semi-annual payments. The restricted cash and investments held in escrow under these agreements total $10.1 million and are earning an annual interest rate of approximately 1.55% as of March 31, 2004, and the resulting income earned is restricted.

Except for the operating lease obligations discussed above, we do not have any off-balance sheet arrangements as of March 31, 2004.

The following table discloses our gross contractual obligations as of March 31, 2004 (in thousands):


	Payments due during the year ended June 30,
	Total			2004			2005			2006			2007			2008			Thereafter
Contractual obligation:
Gross Operating lease obligations	$	203,602		$	27,316		$	25,426		$	21,533		$	20,366		$	19,235		$	89,726
Less: Sublease income	$	(8,432	)	$	(3,208	)	$	(2,970	)	$	(925	)	$	(772	)	$	(557	)		—

Net Operating lease obligations	$	195,170		$	24,108		$	22,456		$	20,608		$	19,594		$	18,678		$	89,726
Convertible subordinated Debt	$	170,625		$	2,063		$	4,125		$	4,125			4,125		$	4,125		$	152,062
Third Party Royalty Obligations	$	2,624		$	1,207		$	1,417			—			—			—			—

Working Capital and Cash Flows

The following table presents selected financial information and statistics as of March 31, 2004 and June 30, 2003, respectively (in thousands):


	March 31, 2004		June 30, 2003		Percent Change
Working capital	$	230,024	$	126,662	81.6	%
Cash and cash investments:
Cash and cash equivalents		228,471		139,339	64.0	%
Short-term investments		20,202		33,345	(39.4	%)
Long-term investments		69,633		39,195	77.7	%
Restricted cash		27,564		22,271	23.8	%

Total cash and cash investments	$	345,870	$	234,150	47.7	%


	Nine Months Ended March 31,
	2004			2003
Cash used for operating activities	$	(47,616	)	$	(49,953	)
Cash (used) provided by investing activities	$	(25,312	)	$	29,287
Cash provided by financing activities	$	162,060		$	2,225

We obtained a majority of our cash and investments through prior public offerings. We intend to use cash provided by such financing activities for general corporate purposes, including potential future acquisitions or other transactions. In addition, we issued $150 million in convertible subordinated notes during the three months ended September 30, 2003. While we believe that our current working capital and its anticipated cash flows from operations will be adequate to meet our cash needs for daily operations and capital expenditures for at least the next 12 months, we may elect to raise additional capital through the sale of additional equity or debt securities, obtain a credit facility or sell certain assets. If additional funds are raised through the issuance of additional debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and terms of any debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders, and additional financing may not be available in amounts or on terms acceptable to us. If additional financing is necessary and we are unable to obtain the additional financing, we may be required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial condition and operating results. In the mean time, we will continue to manage our cash portfolios in a manner designed to ensure that we have adequate cash and cash equivalents to fund our operations as well as future acquisitions, if any.

(a) Working Capital

The increase in working capital of 81.6% as of March 31,2004 as compared to the fiscal year ended June 30, 2003, was primarily a result of the issuance of convertible debt, which lead to an increase in cash and cash equivalents and short-term investments.

(b) Cash used for operating activities

Cash used for operating activities decreased by $2.3 million. During the nine months ended March 31, 2004 and 2003, we incurred charges related to our restructuring to improve our cost structure and profitability, and to change our strategy. The restructuring resulted in $16.3 million and $22.9 million of cash used in operations for the nine months ended March 31, 2004 and 2003. Furthermore, we received a settlement that resulted in a $3.6 million prepayment of sublease rental income during the nine months ended March 31, 2004. Excluding restructuring and the prepaid rental income, the cash flows used for operating activities totaled $34.9 million and $27.1 million for the nine months ended March 31, 2004 and 2003, respectively. Although we had an average of 408 more employees during the nine months ended March 31, 2003, total cash used for operations increased by $7.8 million during the nine months ended March 31, 2004 primarily due to $10.3 million of prepaid contract expenses related to a contract for which revenue will be recognized ratably over a 32 month period, offset by higher cash collections during the nine months ended March 31, 2003.

(c) Cash provided by (used for) investing activities

Cash flow provided by (used for) investing activities decreased by $54.6 million for the nine months ended March 31, 2004 as compared to the same period last year primarily as a result of receiving $72.8 million fewer net proceeds from the sales of short-term and long-term investments needed to fund our operations during the nine months ended March 31, 2004 as compared to the respective prior year period and a $5.3 million increase in restricted cash and investments primarily related to the debt offering discussed above under Operating Lease Obligations/Off-Balance Sheet Arrangements in the current year, offset by cash paid for the acquisition of Signalsoft of $19.0 million and higher purchases of property and equipment of $4.8 million in the prior year fiscal period.

(d) Cash flows provided by financing activities

During the nine months ended March 31, 2004, cash flows provided by financing activities increased by $159.8 million primarily due to the issuance of convertible debt for net proceeds of $145.7 million during the current year and a net increase of $14.3 million in proceeds from the exercises of employee stock options compared to the respective prior year period. The Company pays interest on the convertible subordinated Notes at 2.75% annually with the first payment due March 2004 and the principal due in full in September 2008, unless the Notes are converted per the terms of the Indenture. See the gross contractual obligation schedule in section “Operating Lease Obligations, Off-Balance Sheet Arrangements and Contractual Obligations” for the schedule of payments.

Risk Factors

You should carefully consider the following risks, as well as the other information contained in our 2003 Annual Report, before investing in our securities. If any of the following risks actually occurs, our business could be harmed. You should refer to the other information set forth in this report on Form 10-Q or incorporated by reference in our annual report for the year ended June 30, 2003, including our consolidated financial statements and the related notes incorporated by reference herein and therein.

We have a history of losses and we may not achieve or maintain profitability.

We have incurred losses since our inception, including losses of approximately $29.1 million during the nine months ended March 31, 2004. As of March 31, 2004, we had an accumulated deficit of approximately $2.6 billion, which includes approximately $2 billion of goodwill impairment and amortization. We currently have net losses and negative cash flows and expect to continue to spend significant amounts to develop or enhance our products, services and technologies and to enhance sales and operational capabilities. We may not achieve profitability in accordance with our expectations or at all. We will need to generate increases in revenue as well as reduce costs to achieve profitability. We face a number of risks including:

•

our ability to upgrade, develop and maintain our products and effectively respond to the rapid technology change in wireless and broadband communications;

•

our ability to anticipate and respond to the announcement or introduction of new or enhanced products or services by our competitors;

•

the rate of growth, if any, in end-user purchases of data-enabled handsets, use of our products, and the growth of wireless data networks generally;

•

the growth of mobile data usage by our customers’ subscribers;

•

the volume of sales of our products and services by our strategic partners, distribution partners and resellers; and

•

general economic market conditions and their affect on our operations and the operations of our customers.

In addition, our customer base consists of a limited number of communication service providers and mobile device manufacturers. Our ability to achieve or maintain profitability depends in large part on our continued ability to introduce reliable and robust products that meet the demanding needs of these customers and their willingness to launch, maintain and market commercial services utilizing our products. As a result, our business strategy may not be successful, and we may not successfully address these risks.

We issued $150 million of senior convertible notes due September 2008, which we may not be able to repay in cash and could result in dilution of our earnings per share.

In September 2003, we issued $150 million of 2¾% senior convertible notes due September 9, 2008. The notes are convertible into our common stock at a conversion price of $18.396 per share, which would result in an aggregate of approximately 8.1 million shares, subject to adjustment upon the occurrence of specified events. Therefore, each $1,000 principal amount of the notes will initially be convertible into 54.3596 shares of our common stock prior to September 9, 2008 if the sale price of our common stock issuable upon conversion of the notes reaches a specified threshold or specified corporate transactions have

occurred. We may be required to repurchase all of the notes following a fundamental change of the Company, such as a change of control, prior to maturity. Following a fundamental change of the Company, we may choose to pay the purchase price of the notes in cash or shares of our common stock. We may not have enough cash on hand or have the ability to access cash to pay the notes if presented on a fundamental change or at maturity. In addition, the purchase of our notes with shares of our common stock or the conversion of the notes into our common stock could result in dilution of our earnings per share.

Our operating results are subject to significant fluctuations, and this may cause our stock price to decline in future periods.

Our operating results have fluctuated in the past and may do so in the future. Our revenue, particularly our licensing revenue, is difficult to forecast and is likely to fluctuate from quarter to quarter. Factors that may lead to significant fluctuation in our operating results include, but are not limited to:

•

the financial performance of, introduction of new products or services by, acquisitions or strategic alliances by and changes in pricing policies by us or our competitors;

•

delays in development, launches, market acceptance or implementation by our customers of our products and services;

•

purchasing patterns of and changes in demand by our customers for our products and services and the lack of visibility into the timing of our customers’ purchasing decisions;

•

our concentrated target market and the potentially substantial effect on total revenues that may result from the gain or loss of business from each incremental customer; and

•

potential slowdowns or quality deficiencies in the introduction of new telecommunication networks or improved handsets;

Our operating results could also be affected by disputes or litigation with other parties, acts of terrorism and war, general industry factors, including a slowdown in capital spending or growth in the telecommunications industry, either temporary or otherwise, general political and economic factors, including a further economic slowdown or recession and health crises or disease outbreaks.

Most of our expenses, such as compensation for current employees and lease payments for facilities and equipment, are relatively fixed. In addition, our expense levels are based, in part, on our expectations regarding future revenues. As a result, any shortfall in revenues relative to our expectations could cause significant changes in our operating results from period to period. Due to the foregoing factors, we believe period-to-period comparisons of our revenue levels and operating results may be of limited use. From time to time we may be unable to meet our internal projections or the projections of securities analysts and investors that follow us. To the extent that we are unable to do so, we expect that the trading price of our stock could fall dramatically. These fluctuations may be exaggerated if the trading volume of our common stock is low.

We rely on sales to a small number of customers, and the failure to retain these customers or add new customers may harm our business.

To date, a significant portion of our revenues in any particular period has been attributable to a limited number of customers, comprised primarily of communication service providers. Significant customers for the three and nine months ended March 31, 2004 include KDDI and Sprint. Sales to KDDI accounted for approximately 5% and 5% of total revenues during the three and nine months ended March 31, 2004, respectively. Sales to Sprint accounted for approximately 7% and 5% of total revenues during the three and nine months ended March 31, 2004, respectively. Any of these customers may not continue to generate significant revenues for us and we may be unable to replace these customers may not continue to generate significant revenues for us and we may unable to replace these customers with new ones on a timely basis or at all.

We believe that we will continue to rely upon a limited number of customers for a significant portion of our revenues from each period for the forseeable future, and any failure by us to capture a significant share of these customers could materially harm our business. We believe that the telecommunications industry is entering a period of consolidation. To the extent that our customer base consolidates, we will have increased dependence on a few customers who may be able to exert increased pressure on our prices and contractual terms in general.

If handsets are not widely adopted for mobile delivery of data services, our business could suffer.

We have focused a significant amount of our efforts on mass-market handsets as the principal means of delivery of data services using our products. If handsets are not widely adopted for mobile delivery of data services, our business could suffer materially. End-users currently use many competing products, such as portable computers and smart phones, to remotely access the Internet and e-mail. These products generally are designed for the visual presentation of data, while, until recently, handsets historically have been limited in this regard. In addition, the development and proliferation of many types of competing products capable of the mobile delivery of data service in a rapidly evolving industry represents a significant risk to a primary standard emerging. If end-users do not adopt mobile phones or other wireless devices containing our browser or client middleware platform as a means of accessing data services, our business could suffer materially.

Our success depends on continued acceptance of our products and services by communication service providers, their subscribers, and by wireless device manufacturers.

Our future success depends on our ability to increase revenues from sales of our software and services to communication service providers and other customers. To date, only a limited number of communication service providers and other customers have implemented and deployed services based on our products. In addition, many of these customers are large telecommunications companies who may be able to exert significant influence over our relationship with them. Furthermore, we are dependent upon our customers having growth in subscriber adoption for additional purchases as well as future versions of our products. Some of our customers have purchased license seats exceeding their current needs and may not have additional purchases, if any, until they utilize all of their current purchased licenses. Communication service providers and other partners may not widely deploy or successfully market services based on our products, and large numbers of subscribers might not use these services. The failure to do so could harm our operating results.

Our operating results are dependent on the level of technology spending by our customers.

Our sales and operating results are highly dependent on:

•

the rate of growth in end-user purchases of data enabled handsets, use of our products and the growth of wireless data networks generally; and

•

our customers’ willingness to incur the costs necessary to buy third-party hardware and software required to use our software products and any related price concessions on our product that our customers demand as a result.

Information technology spending on these items have substantially declined in the past, may deteriorate further or may not increase in accordance with our expectations, which would have a negative impact on our sales and operating results.

The market for our products and services is highly competitive. We may be unable to successfully compete which may decrease our market share and harm our operating results.

The market for our products and services is highly competitive. Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we have. Their greater financial resources have enabled, and may continue to enable, them to aggressively price, finance and bundle certain of their product offerings to attempt to gain market adoption or to increase market share. These activities have increased price pressure on us and increased the need for us to partner with larger resellers with broader product offerings and financing capabilities, both of which may negatively affect our market share and financial performance.

If our competitors offer deep discounts on certain products in an effort to gain market share or to sell other products or services, we may then need to lower prices, change our pricing models, or offer other favorable terms in order to compete successfully. Any such changes would be likely to reduce margins and could adversely affect operating results and constrain prices we can charge our customers in the future.

We expect that we will continue to compete primarily on the basis of quality, breadth of product and service offerings, functionality, price and time to market. Our current and potential competitors include the following:

•

wireless equipment manufacturers, such as Ericsson, Nokia, Qualcomm and Nortel;

•

wireless messaging software providers, such as Comverse, Nokia, LogicaCMG and Ericsson;

•

special software providers, such as 7.24 Solutions and Critical Path;

•

service providers, such as E-Commerce Solutions;

•

client technology competitors, such as Qualcomm, Access, Symbian and Teleca;

•

computer system companies such as Microsoft and Sun; and

•

providers of Internet software applications and content, electronic messaging applications and personal information management software solutions.

Nokia also competes directly with us by offering WAP servers, client software and messaging (offering end-to-end solutions based on its proprietary smart messaging protocol and on MMS) to communication service providers. Nokia also markets its WAP server to corporate customers and content providers, which if successful, could undermine the need of communication service providers to provide their own WAP gateways (since these WAP servers directly access applications and services rather than through WAP gateways).

Qualcomm’s end-to-end proprietary system called “BREW” ^TM does not use our technology and offers wireless device manufacturers an alternative method for installing applications. Qualcomm’s strong market position in CDMA with its chipsets technology provides them with the competitive position to build the BREW system with CDMA operators. If Qualcomm’s BREW system is widely adopted it could undermine the need for wireless device manufacturers to install our client software and reduce our ability to sell gateways and wireless applications to communication service providers.

The market for the delivery of Internet-based services is rapidly evolving, and we may not be able to adequately address this market.

The market for the delivery of Internet-based services is rapidly evolving. As a result, the life cycle of our products is difficult to estimate. We may not be able to develop and introduce new products, services and enhancements that respond to technological changes or evolving industry standards on a timely basis, in which case our business would suffer. In addition, we cannot predict the rate of adoption by wireless subscribers of these services or the price they will be willing to pay for these services. As a result, it is extremely difficult to predict the pricing of these services and the future size and growth rate of this market.

Our communication service provider customers face implementation and support challenges in introducing Internet-based services, which may slow their rate of adoption or implementation of the services our products enable. Historically, communication service providers have been relatively slow to implement new complex services such as data services. In addition, communication service providers may encounter greater customer service demands to support data services via handsets than they do for their traditional voice services. We have limited or no control over the pace at which communication service providers implement these new services. The failure of communication service providers to introduce and support services utilizing our products in a timely and effective manner could harm our business.

Our intellectual property could be misappropriated, which could force us to become involved in expensive and time-consuming litigation.

Our ability to compete and continue to provide technological innovation is substantially dependent upon internally-developed technology. We rely on a combination of patent, copyright, and trade secret laws to protect our intellectual property or proprietary rights in such technology, although we believe that other factors such as the technological and creative skills of our personnel, new product developments, frequent product and feature enhancements and reliable product support and maintenance are more essential to maintaining a technology leadership position. We also rely on trademark law to protect the value of our corporate brand and reputation.

We generally enter into confidentiality and nondisclosure agreements with our employees, consultants, prospective customers, licensees and corporate partners. In addition, we control access to and distribution of our software, documentation and other proprietary information. Except for our browser product and certain limited escrow arrangements with respect to some of our other products, we generally do not provide customers with access to the source code for our products. Despite our efforts to

protect our intellectual property and proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products, technology or trademarks. Effectively policing the unauthorized use of our products, technology and trademarks is time consuming and costly, and there can be no assurance that the steps taken by us will prevent infringement of our intellectual property or proprietary rights in our products, technology and trademarks, particularly in foreign countries where in many instances the local laws or legal systems do not offer the same level of protection as in the United States.

If others claim that our products infringe their intellectual property rights, we may be forced to seek expensive licenses, re-engineer our products, engage in expensive and time-consuming litigation or stop marketing and licensing our products.

We attempt to avoid infringing intellectual property rights of third-parties in the operation of our business. However, we do not regularly conduct comprehensive patent searches to determine whether the technology used in our products infringes patents held by third-parties. Because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to our products. In addition, our competitors and other companies as well as research and academic institutions have conducted research for many years in the electronic messaging field, and this research could lead to the filing of further patent applications. If we were to discover that our products violated or potentially violated third-party intellectual property rights, we might not be able to obtain licenses, in which case we might not be able to continue offering those products without substantial reengineering. Any reengineering effort may not be successful, nor can we be certain that any licenses would be available on commercially reasonable terms.

Substantial litigation regarding intellectual property rights exists in the software industry, and we expect that software products may be increasingly subject to third-party infringement claims as the number of competitors in our industry segments grow and the functionality of software products in different industry segments overlaps. In addition, from time to time, we or our customers may become aware of certain third party patents that may relate to our products. If a patent infringement claim is asserted against us, it could be time consuming to defend, result in costly litigation, divert Management’s attention and resources, cause product and service delays or require us to enter into royalty or licensing agreements. Any royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all. A successful claim of infringement against us and our failure or inability to license the infringing or similar technology could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, the proliferation and evolution of operating system software in smartphones, a market segment backed by corporations with resources greater than ours, such as Microsoft and Nokia, may threaten the incumbency of our client software offerings as other software becomes more competitive in price.

We may not be successful in obtaining complete license usage reports from our customers on a timely basis, which could impact our reported results.

Although our customers are contractually obligated to provide license usage reports, we are sometimes unable to obtain such reports in a timely manner. In addition, the reports may not completely reflect actual usage. We assist customers in complying with this obligation by providing a software measurement tool, installing the measurement tool whenever possible and customizing that tool where appropriate. The measurement tool, however, currently is not installed with all of our customers, does not measure the use of all of our products and has other limitations that we are continuing to attempt to address by refining the tool. In addition, we may be unable to install our measurement tool with all of our customers or we may be unable to overcome all of the limitations currently within the tool. The inability to obtain accurate license usage reports on all of our customers could have an adverse impact on the revenues that we realize and could, accordingly, negatively affect our financial performance.

We rely on estimates to determine arrangement fee revenue recognition for a particular reporting period. If our estimates change, future expected revenues could adversely change.

For certain fixed fee solutions-based arrangements, we apply the percentage of completion method to recognize revenue. Applying the percentage of completion method, we estimate progress on our professional services projects, which determines license and professional service revenues for a particular period. If, in a particular period, our estimates to project completion change and we estimate project overruns, revenue recognition for such projects in the period may be less than expected or even negative.

Certain arrangements have refundability and penalty provisions that, if triggered, could adversely impact future operating results.

In certain of our solution-based arrangements, customers have refundability rights and can invoke penalties should we not perform against certain contractual obligations. If these refundability provisions or penalty clauses are invoked, certain deferred revenues may not be recognizable as revenue, negative revenues may be recorded, and certain deferred charges and penalty expenses may be recognized as expenses at such time.

Our business depends on continued growth in use and improvement of the Internet and customers ability to operate their systems effectively.

The infrastructure, products and services necessary to maintain and expand the Internet may not be developed, and the Internet may not continue to be a viable medium for secure and reliable personal and business communication, in which case our business, financial condition and operating results could be harmed. Because we are in the business of providing Internet infrastructure software and services, our future success depends on the continued expansion of, and reliance of consumers and businesses on, the Internet for communications and other services. The Internet may not be able to support an increased number of users or an increase in the volume of data transmitted over it. As a result, the performance or reliability of the Internet in response to increased demands will require timely improvement of the high speed modems and other communications equipment that form the Internet’s infrastructure. The Internet has, in the past, experienced temporary outages and delays as a result of damage to portions of its infrastructure. The effectiveness of the Internet may also decline due to delays in the development or adoption of new technical standards and protocols designed to support increased levels of activity and due to the transmission of computer viruses.

In addition to problems that may affect the Internet as a whole, our customers have in the past experienced some interruptions in providing their Internet-related services, including services related to our software products. We believe that these interruptions will continue to occur from time to time. Our revenues depend substantially upon the number of subscribers who use the services provided by our customers. Our business may suffer if our customers experience frequent or long system interruptions that result in the unavailability or reduced performance of their systems or networks or reduce their ability to provide services to their subscribers.

In addition, to increase the growth in use and improvement of the Internet requires that handset or other wireless device manufacturers produce new handsets that contain updated software and functionality that are compatible with our software. There can be no assurance that handset or wireless device manufactures will produce enough handsets, meet delivery dates, or produce devices that work properly and are not subject to a high level of recalls. In addition, there can be no assurance that consumers will purchase handsets or wireless devices that contain updated software and functionality that are compatible with our software.

Our business depends on continued investment and improvement in communication networks and our customers’ ability to operate their systems effectively.

Many of our customers and other communication service providers have made major investments in 3rd generation networks that are intended to support more complex applications and to provide end users with a more satisfying user experience. If communication service providers delay their deployment of networks or fail to roll such networks out successfully, there could be less demand for our products and services and our business could suffer. In addition, if communication service providers fail to continue to make investments in their networks or invest at a slower pace in the future, there may be less demand for our products and services and our business could suffer.

Our restructuring of operations may not achieve the results we intend and may harm our business.

In October 2001, September 2002 and June 2003, we initiated plans to streamline operations and reduce expenses, which included cuts in discretionary spending, reductions in capital expenditures, reductions in the work force and consolidation of certain office locations, as well as other steps to reduce expenses. In connection with the restructurings, we were and continue to be required to make certain product and product development tradeoffs with limited information regarding the future demand for our various products. There can be no assurance that in connection with the restructurings we are pursuing the correct product offerings to take advantage of future market opportunities. Furthermore, the implementation of our restructuring plans has placed, and may continue to place, a significant strain on our managerial, operational, financial, employee and other resources. Additionally, the restructurings may negatively affect our employee turnover as well as recruiting and retention of important employees. These

reductions could impair our marketing, sales and customer support efforts or alter our product development plans. If we experience difficulties in carrying out the restructuring plans, our expenses could increase more quickly than we expect. If we find that our planned restructurings do not achieve our objectives, it may be necessary to implement further reduction of our expenses, to perform additional reductions in our headcount, or to undertake additional restructurings of our business. In addition, our restructuring may not result in anticipated cost-savings, which could harm our future operating results.

We may be unable to successfully integrate acquisitions of other businesses and technologies into our business or achieve the expected benefits of such acquisitions or business combinations.

To date, we have acquired or combined with numerous companies and technologies and may acquire additional companies or technologies or enter into additional business combinations in the future. Our past acquisitions and combinations have resulted in a variety of challenges, including the ability to successfully assimilate the personnel, operations and customers of these businesses and integrate their technology with our existing technology, products and services.

We may acquire or enter into business combinations in the future. Entering into any business combination entails many risks, any of which could materially harm our business. These risks include:

•

diversion of Management’s attention from other business concerns;

•

failure to assimilate the acquired or combined businesses or technologies with pre-existing businesses and technologies;

•

potential loss of key employees from either our pre-existing business or the acquired or merged business;

•

impact of any negative customer relationships acquired;

•

dilution of our existing stockholders as a result of issuing equity securities; and

•

assumption of liabilities of the acquired or merged company, business, or technology.

Additionally, we may fail to achieve the anticipated synergies from such acquisitions, including product integration, marketing, product development, distribution and other operating synergies.

We may not be successful in forming or maintaining strategic alliances with other companies, which could negatively affect our product offerings and sales, and could result in deterioration of our sales channels.

Our business is becoming increasingly dependent on forming or maintaining strategic alliances with other companies, and we may not be able to form alliances that are important to ensure that our products are compatible with third-party products, to enable us to license our software into potential new customers and into potential new markets, and to enable us to continue to enter into new license agreements with our existing customers. There can be no assurance that we will identify the best alliances for our business or that we will be able to maintain existing relationships with other companies or enter into new alliances with other companies on acceptable terms or at all. The failure to maintain or establish successful strategic alliances could have a material adverse effect on our business or financial results. If we cannot form and maintain significant strategic alliances with other companies as our target markets and technology evolves, the sales channels for our products could deteriorate.

Our technology depends on the adoption of standards such as WAP. If such standards are not effectively established our business could suffer. Use of open industry standards may also make us more vulnerable to competition.

We promote open standards in our technology in order to support open competition and interoperability. We aim to achieve this through working together with customers, suppliers and industry participants regarding standardization issues. Through open standards, specifications and interoperability, we hope that the mobile data market achieves enhanced interoperability. We do not exercise control over many aspects of the development of open standards. Our products are integrated with communication service providers’ systems and handsets. If we are unable to continue to successfully integrate our platform products with these third-party technologies, our business could suffer. For example Qualcomm’s BREW ^™ system is a proprietary standard that could create impediments to the integration of our platform products. Failure or delay in the creation of open, global specifications could have an adverse effect on the mobile data market in general and a negative impact on our sales and operating

results. In addition, a number of our competitors, including Nokia, have announced or are expected to announce enhanced features and functionality both as proprietary extensions to the WAP standard and in the area of messaging platforms. Finally, infrastructure providers like Nokia and Ericsson may leverage installed technology and/or wireless device sales to sell end-to-end solutions.

The widespread adoption of open industry standards, however, may make it easier for new market entrants and existing competitors to introduce products that compete with our software products.

We may not be successful in our strategic investments, which could harm our operating results.

We have made, and in the future, we may continue to make strategic investments in other companies. These investments have been made in, and future investments will likely be made in, immature businesses with unproven track records and technologies. Such investments have a high degree of risk, with the possibility that we may lose the total amount of our investments. We may not be able to identify suitable investment candidates, and even if we do, we may not be able to make those investments on acceptable terms, or at all. In addition, even if we make investments, we may not gain strategic benefits from those investments, and therefore, we may need to record an impairment charge of the strategic investments to our operations.

Our sales cycle is long and our stock price could decline if sales are delayed or cancelled.

Fluctuations in our operating performance are exacerbated by our sales cycle, which is lengthy, typically between six months and twelve months, and unpredictable due to the lengthy education and customer approval process for our products, including internal reviews and capital expenditure approvals. Further, the emerging and evolving nature of the market for data services via handsets may lead prospective customers to postpone their purchasing decisions. Any delay in sales of our products could cause our operating results to vary significantly from projected results, which could cause our stock price to decline.

We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets which could result in write-offs in excess of amounts reserved for credit exposure.

Since the cost of developing new technology is high, there are many companies that are experiencing difficulties in obtaining the necessary financing to continue in business. A portion of our sales are derived through customers who tend to have access to more limited financial resources than others and, therefore, represent potential sources of increased credit risk. In addition, under current market conditions, it has become increasingly difficult for telecommunication and technology companies, such as our existing and potential new customers, to obtain the necessary financing to continue in business. Although we have programs in place to monitor and mitigate the credit risk associated with our existing customers, there can be no assurance that such programs will be effective in reducing our credit risk. We also continue to monitor increased credit exposures from weakened financial conditions in certain geographic regions, and the impact that such conditions may have on the worldwide economy. We have recently experienced losses due to customers failing to meet their obligations, primarily as a result of the weakened financial state of the wireless and telecommunications industry. Future losses, if incurred, could harm our business and have a material adverse effect on our operating results and financial condition.

If widespread integration of browser technology does not occur in handsets, our business could suffer.

All of our agreements with wireless device manufacturers are nonexclusive, so they may choose to embed a browser other than ours in their handsets. We may not succeed in maintaining and developing relationships with wireless device manufacturers, and any arrangements may be terminated early or not renewed at expiration. In addition, wireless device manufacturers may not produce products using our browser in a timely manner, in sufficient quantities, or with sufficient quality, if at all.

We depend substantially on the sale of international product licenses. A slow-down in international sales could harm our operating results.

International sale of product licenses and services accounted for 58% and 60% of our total revenues for the three and nine months ended March 31, 2004, respectively. Risks inherent in conducting business internationally include:

•

failure by us and/or third-parties to develop localized content and applications that are used with our products;

•

fluctuations in currency exchange rates and any imposition of currency exchange controls;

•

unexpected changes in regulatory requirements applicable to the Internet or our business;

•

differing technology standards and pace of adoption;

•

export restrictions on encryption and other technologies;

•

difficulties in collecting accounts receivable and longer collection periods; and

•

differences in foreign laws and regulations, including foreign tax, intellectual property, labor and contract law.

Any of these factors could harm our international operations and, consequently, our operating results.

Our software products may contain defects or errors, which could result in rejection of our products, delays in shipment of our products, damage to our reputation, product liability and lost revenues.

The software we develop is complex and must meet the stringent technical requirements of our customers. We must develop our products quickly to keep pace with the rapidly changing Internet software and telecommunications markets. Software products and services as complex as ours are likely to contain undetected errors or defects, especially when first introduced or when new versions are released. We have in the past experienced delays in releasing some versions of our products until software problems were corrected. Our products may not be free from errors or defects after commercial shipments have begun, which could result in the rejection of our products and damage to our reputation, as well as lost revenues, diverted development resources and increased service and warranty costs, any of which could harm our business.

We depend on recruiting and retaining key management and technical personnel with telecommunications and Internet software experience which are integral in developing, marketing and selling our products.

Because of the technical nature of our products and the dynamic market in which we compete, our performance depends on attracting and retaining key employees. In particular, our future success depends in part on the continued services of many of our current executive officers and other key employees. Competition for qualified personnel in the telecommunications, Internet software and Internet messaging industries is significant. We believe that there are only a limited number of persons with the requisite skills to serve in many key positions, and it is difficult to hire and retain these persons. Furthermore it may become more difficult to hire and retain key persons as a result of our past restructuring, any future restructurings, and as a result our past stock performance. Competitors and others have in the past, and may in the future, attempt to recruit our employees.

Our success depends in part on our ability to maintain and expand our distribution channels.

Our success depends in part on our ability to increase sales of our products and services through value-added resellers and systems integrators and to expand our indirect distribution channels. If we are unable to maintain the relationships that we have with our existing distribution partners, increase revenues derived from sales through our indirect distribution channels, or increase the number of distribution partners with whom we have relationships, then we may not be able to increase our revenues or achieve profitability.

We expect that many communication service providers, especially in international markets will require that our products and support services be supplied through value-added resellers and systems integrators. Thus, we expect that a significant portion of sales will be made through value-added resellers and systems integrators, and the success of our operations will depend on our ability to maintain productive relationships with value-added resellers and systems integrators.

In addition, our agreements with our distribution partners generally do not restrict the sale by them of products and services that are competitive with our products and services, and each of our partners generally can cease marketing our products and services at their option and, in some circumstances, with little notice and with little or no penalty.

We depend on others to provide content and develop applications for handsets.

In order to increase the value to customers of our product platform and encourage subscriber demand for Internet-based services via handsets, we must successfully promote the development of Internet-based applications and content for this market. If content providers and application developers fail to create sufficient applications and content for Internet-based services via handsets, our business could suffer materially. Our success in motivating content providers and application developers to create and support content and applications that subscribers find useful and compelling will depend, in part, on our ability to develop a customer base of communication service providers and wireless device manufacturers large enough to justify significant and continued investments in these endeavors. In addition, we depend on the wireless device manufacturers to provide quality user-friendly handsets that enable the wireless Internet.

The security provided by our products could be breached, in which case our reputation, business, financial condition and operating results could suffer.

The occurrence or perception of security breaches could harm our business, financial condition and operating results. A fundamental requirement for online communications is the secure transmission of confidential information over the Internet. Third-parties may attempt to breach the security provided by our products, or the security of our customers’ internal systems. If they are successful, they could obtain confidential information about our customers’ end users, including their passwords, financial account information, credit card numbers or other personal information. Our customers or their end users may file suits against us for any breach in security, which could result in costly litigation or harm our reputation. The perception of security risks, whether or not valid, could inhibit market acceptance of our products. Despite our implementation of security measures, our software is vulnerable to computer viruses, electronic break-ins, intentional overloading of servers and other sabotage, and similar disruptions, which could lead to interruptions, delays, or loss of data.

Our stock price may be volatile, exposing us to expensive and time-consuming securities class action litigation.

The stock market in general, and the stock prices of companies in our industry in particular, have recently experienced extreme volatility, which has often been unrelated to the operating performance of any particular company or companies. If market or industry-based fluctuations continue, our stock price could decline below current levels regardless of our actual operating performance. Therefore, if a large number of shares of our stock are sold in a short period of time, our stock price will decline. In the past, securities class action litigation has often been brought against companies following periods of volatility in their stock prices. We have in the past and may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert our Management’s time and resources, which could harm our business, financial condition, and operating results.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

(a) Foreign Currency Risk

We operate internationally and thus are exposed to potentially adverse movements in foreign currency rate changes. We have entered into foreign exchange forward contracts to reduce our exposure to foreign currency rate changes on receivables, payables and inter-company balances denominated in a nonfunctional currency. The objective of these contracts is to neutralize the impact of foreign currency exchange rate movements on our operating results. These contracts require us to exchange currencies at rates agreed upon at the inception of the contracts. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses of the foreign exchange forward contracts. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the underlying items being hedged, these financial instruments help alleviate the risk that might otherwise result from changes in currency exchange rates. We do not designate our foreign exchange forward contracts as hedges and, accordingly, we adjust these instruments to fair value through earnings in the period of change in their fair value. Net foreign exchange transaction gains (losses) included in other income, net in the accompanying condensed consolidated statements of operations were $(36,000) and $0.3 million for the three and nine months ended March 31, 2004. As of March 31, 2004, we have put option contracts outstanding that have a total notional amount of Euro 3.0 million and GBP 4.0 million and forward contracts in the amount of Euro 2.0 million and GBP 2.0 million that expire during the June 30, 2004 quarter.

(b) Interest Rate Risk

As of March 31, 2004, we had cash and cash equivalents, short-term and long-term investments, and restricted cash and investments of $345.9 million. Our exposure to market risks for changes in interest rates relates primarily to corporate debt securities, U.S. Treasury Notes and certificates of deposit. We place our investments with high credit quality issuers that have a rating by Moody’s of A1 or higher and Standard & Poor’s of P-1 or higher, and, by policy, limit the amount of the credit exposure to any one issuer. Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of less than three months at the date of purchase are considered to be cash equivalents; all investments with maturities of three months or greater are classified as available-for-sale and considered to be short-term investments; all investments with maturities of greater than one year and less than two years are classified as available-for-sale and considered to be long-term investments. We do not purchase investments with a maturity date greater than two years from the date of purchase.

The following is a chart of the principal amounts of short-term investments and long-term investments by expected maturity at March 31, 2004 (in thousands):


	Expected maturity date for the year ending June 30,											Cost Value March 31, 2004 Total		Fair Value March 31, 2004 Total
	2004			2005		2006		2007		2008		Cost Value March 31, 2004 Total		Fair Value March 31, 2004 Total
Corporate bonds	$	1,001		$	10,628	$	6,213	$	—	$	—	$	17,842	$	17,850
Federal agencies		—			27,721		44,038		—		—		71,759		71,985

	$	1,001		$	38,349	$	50,251	$	—	$	—	$	89,601	$	89,835

Weighted-average interest rate		1.29	%

Additionally, we have $27.6 million of restricted investments included within restricted cash and investments on the consolidated balance sheet as of March 31, 2004. $17.5 million of the restricted investments comprise a certificate of deposit to collateralize letters of credit for facility leases. The remaining $10.1 million consists of U.S. government securities pledged for payment of the remaining five semi-annual interest payments due under the terms of the convertible subordinated notes indenture. The weighted average interest rate of the restricted investments was 1.71% as of March 31, 2004.

Item 4.

Controls and Procedures

(a) Disclosure Controls and Procedures

The Company’s Management, with the participation of the Company’s Chief Executive Officer (CEO) and Chief Accounting Officer (CAO) have evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Joshua Pace, our CAO, performs similar functions as a Chief Financial Officer (CFO). We believe that there are always limitations on the effectiveness of any control system, no matter how well conceived and operated. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are being met. Therefore, the CEO and CAO do not expect that our disclosure controls will prevent all error and all fraud. Based on the evaluation performed, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting on a timely basis to information required to be disclosed by the Company in our reports filed or submitted under the Exchange Act.

(b) Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II Other Information

Item 1.

Legal Proceedings

Item 2.

Changes in Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Submission of Matters to a vote of Security Holders

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits and Reports on Form 8-K

(a) Exhibits


Exhibit Number		Description

3(ii)		Amended and Restated Bylaws of the Company, adopted as of April 15, 2004

10.1		Amended and Restated Employment Terms by and between the Company and Allen Snyder dated February 6, 2004.

10.2		Summary of Stock Option Grants Made to Independent Directors in January, April and May of 2004.

10.3		Form of US Stock Option Agreement

10.4		Form of International Stock Option Agreement

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Accounting Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On May 11, 2004 we filed a Current Report on Form 8-K announcing that we entered into an agreement to acquire all outstanding shares of Magic4 Limited, a private company incorporated in the United Kingdom.

On April 28, 2004 we filed a Current Report on Form 8-K to furnish our financial results for the second fiscal quarter ended March 31, 2004.

On April 28, 2004 we filed a Current Report on Form 8-K announcing the election of a new director, Ken Denman, to our board of directors.

On January 21, 2004 we filed a Current Report on Form 8-K to furnish our financial results for the first fiscal quarter ended December 31, 2003.

SIGNATURE

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.

Date: May 12, 2004


O PENWAVE S YSTEMS I NC .

By:		/s/ J OSHUA P ACE

		Joshua Pace Vice President of Finance and Chief Accounting Officer

Exhibit 3(ii)

AMENDED AND RESTATED

BYLAWS

OPENWAVE SYSTEMS INC.

As Amended April 15, 2004

TABLE OF CONTENTS


		Page
ARTICLE I - CORPORATE OFFICES		1

1.1 Registered Office		1
1.2 Other Offices		1

ARTICLE II - MEETINGS OF STOCKHOLDERS		1

2.1 Place of Meetings		1
2.4 Manner of Giving Notice; Affidavit of Notice		3
2.5 Advance Notice of Stockholder Nominees		3
2.6 Quorum		4
2.7 Adjourned Meeting; Notice		4
2.8 Conduct of Business		4
2.9 Voting		5
2.10 Waiver of Notice		5
2.11 Record Date for Stockholder Notice; Voting		5
2.12 Proxies		6

ARTICLE III - DIRECTOR		6

3.1 Powers		6
3.2 Number of Directors		6
3.3 Election, Qualification and Term of Office of Directors		6
3.4 Resignation and Vacancies		6
3.5 Place of Meetings; Meetings by Telephone		7
3.6 Regular Meetings		8
3.7 Special Meetings; Notice		8
3.8 Quorum		8
3.9 Waiver of Notice		8
3.10 Board Action by Written Consent without a Meeting		9
3.11 Fees and Compensation of Directors		9
3.12 Approval of Loans to Officers		9
3.13 Removal of Directors		9
3.14 Chairman of the Board of Directors		10

ARTICLE IV - COMMITTEES		10

4.1 Committees of Directors		10
4.2 Committee Minutes		11
4.3 Meetings and Action of Committees		11

ARTICLE V - OFFICERS		11

5.1 Officers		11
5.2 Appointment of Officers		11
5.3 Subordinate Officers		11

TABLE OF CONTENTS

(continued)


		Page
5.4 Removal and Resignation of Officers		12
5.5 Vacancies in Offices		12
5.6 Chief Executive Officer		12
5.7 President		12
5.8 Vice Presidents		12
5.9 Secretary		13
5.10 Chief Financial Officer		13
5.11 Representation of Shares of Other Corporations		13
5.12 Authority and Duties of Officers		14

ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS		14

6.1 Indemnification of Directors and Officers		14
6.2 Indemnification of Others		14
6.3 Payment of Expenses in Advance		15
6.4 Indemnity Not Exclusive		15
6.5 Insurance		15
6.6 Conflicts		15

ARTICLE VII - RECORDS AND REPORTS		16

7.1 Maintenance and Inspection of Records		16
7.2 Inspection by Directors		16
7.3 Annual Statement to Stockholders		16

ARTICLE VIII - GENERAL MATTERS		16

8.1 Checks		16
8.2 Execution of Corporate Contracts and Instruments		17
8.3 Stock Certificates; Partly Paid Shares		17
8.4 Special Designation on Certificates		17
8.5 Lost Certificates		18
8.6 Construction; Definitions		18
8.7 Dividends		18
8.8 Fiscal Year		18
8.9 Seal		19
8.10 Transfer of Stock		19
8.11 Stock Transfer Agreements		19
8.12 Registered Stockholders		19

ARTICLE IX - AMENDMENTS		19

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AMENDED AND RESTATED

BYLAWS

OPENWAVE SYSTEMS INC.

ARTICLE I

CORPORATE OFFICES

1.1

Registered Office .

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, County of New Castle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc.

1.2

Other Offices .

The Board of Directors may at any time establish other offices at any place or places where the Corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1

Place of Meetings .

Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders’ meetings shall be held at the registered office of the Corporation.

2.2

Annual Meeting .

(a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board of Directors. At the meeting, directors shall be elected and any other proper business may be transacted.

(b) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be transacted by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice with respect to such meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 2.2,

who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 2.2.

(c) In addition to the requirements of Section 2.5, for nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation and such business must be a proper matter for stockholder action under the General Corporation Law of Delaware. To be timely, a stockholder’s notice shall be delivered to the secretary at the principal executive offices of the Corporation not less than 20 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is more than 30 days prior to or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 20th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such stockholder’s notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of such business, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner and (B) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.

(d) Only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.2. The chairman of the meeting shall determine whether a nomination or any business proposed to be transacted by the stockholders has been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for stockholder action at the meeting.

(e) For purposes of this Section 2.2, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service.

(f) Nothing in this Section 2.2 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

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2.3

Special Meeting .

(a) A special meeting of the stockholders may be called at any time by the Board of Directors, or by the chairman of the board, or by the president.

(b) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to such notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in Section 2.5, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in Section 2.5.

2.4

Notice of Stockholder’s Meetings; Affidavit of Notice .

All notices of meetings of stockholders shall be in writing or given by electronic transmission in the manner provided in Section 232 of the General Corporation Law of Delaware, and shall be sent or otherwise given in accordance with this Section 2.4 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting (or such longer or shorter time as is required by Section 2.5 of these Bylaws, if applicable). The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

2.5

Advance Notice of Stockholder Nominees .

Only persons who are nominated in accordance with the procedures set forth in this Section 2.5 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.5. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 60 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person,

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(iii) the class and number of shares of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation’s books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the Corporation that information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.5. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

2.6

Quorum .

The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

2.7

Adjourned Meeting; Notice .

When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

2.8

Conduct of Business .

The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business.

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2.9

Voting .

(a) The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).

(b) Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

2.10

Waiver of Notice .

Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.

2.11

Record Date for Stockholder Notice; Voting .

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 or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the Board of Directors does not so fix a record date:

(a) 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 next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

(b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

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2.12

Proxies .

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware.

ARTICLE III

DIRECTORS

3.1

Powers .

Subject to the provisions of the General Corporation Law of Delaware and any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

3.2

Number of Directors .

The number of directors constituting the entire Board of Directors shall be seven.

3.3

Election, Qualification and Term of Office of Directors .

Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the Certificate of Incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.

Elections of directors need not be by written ballot.

3.4

Resignation and Vacancies .

Any director may resign at any time upon written notice to the attention of the secretary of the Corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. A vacancy created by the

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removal of a director by the vote of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the quorum. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified.

Unless otherwise provided in the Certificate of Incorporation or these Bylaws:

(a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

(b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board of Directors (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.

3.5

Place of Meetings; Meetings by Telephone .

The Board of Directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware.

Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in

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the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.6

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 of Directors.

3.7

Special Meetings; Notice .

Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors.

Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation.

3.8

Quorum .

At all meetings of the Board of Directors, a majority of the authorized number of directors 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 statute or by the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

3.9

Waiver of Notice .

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express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.

3.10

Board Action by Written Consent without a Meeting .

Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, 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 of Directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original.

3.11

Fees and Compensation of Directors .

Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

3.12

Approval of Loans to Officers .

The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.

3.13

Removal of Directors .

Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the Corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.

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No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

3.14

Chairman of the Board of Directors .

The Corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the Corporation.

ARTICLE IV

COMMITTEES

4.1

Committees of Directors .

The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the Bylaws of the Corporation, 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 that may require it; but no such committee shall have the power or authority to (a) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (b) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (c) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, (d) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware.

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4.2

Committee Minutes .

Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

4.3

Meetings and Action of Committees .

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

ARTICLE V

OFFICERS

5.1

Officers .

The officers of the Corporation shall be a chief executive officer, a president, a secretary, and a chief financial officer. The Corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person.

5.2

Appointment of Officers .

The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.

5.3

Subordinate Officers .

The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.

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5.4

Removal and Resignation of Officers .

Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the Board of Directors or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.

Any officer may resign at any time by giving written notice to the attention of the secretary of the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.

5.5

Vacancies in Offices .

Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.

5.6

Chief Executive Officer .

Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

5.7

President .

Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the Corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

5.8

Vice Presidents .

In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as

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from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board.

5.9

Secretary .

The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.

The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation’s transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.

5.10

Chief Financial Officer .

The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.

The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws.

5.11

Representation of Shares of Other Corporations .

The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this

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Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.

5.12

Authority and Duties of Officers .

In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors or the stockholders.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS

6.1

Indemnification of Directors and Officers .

The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.1, a “director” or “officer” of the Corporation includes any person (a) who is or was a director or officer of the Corporation, (b) who is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a Corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

6.2

Indemnification of Others .

The Corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.2, an “employee” or “agent” of the Corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the Corporation, (b) who is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

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6.3

Payment of Expenses in Advance .

Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the Corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI.

6.4

Indemnity Not Exclusive .

The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Certificate of Incorporation

6.5

Insurance .

The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.

6.6

Conflicts .

No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:

(a) That it would be inconsistent with a provision of the Certificate of Incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

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ARTICLE VII

RECORDS AND REPORTS

7.1

Maintenance and Inspection of Records .

The Corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business.

7.2

Inspection by Directors .

Any director shall have the right to examine the Corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

7.3

Annual Statement to Stockholders .

The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation.

ARTICLE VIII

GENERAL MATTERS

8.1

Checks .

From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money,

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notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments.

8.2

Execution of Corporate Contracts and Instruments .

The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

8.3

Stock Certificates; Partly Paid Shares .

The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

8.4

Special Designation on Certificates .

If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full

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or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

8.5

Lost Certificates .

Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and canceled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

8.6

Construction; Definitions .

Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

8.7

Dividends .

The directors of the Corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the Corporation’s capital stock.

The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.

8.8

Fiscal Year .

The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.

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8.9

Seal .

The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.

8.10

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, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.

8.11

Stock Transfer Agreements .

The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.

8.12

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, shall be entitled to hold liable for calls and assessments the 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 another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE IX

AMENDMENTS

The Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.

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Exhibit 10.1

1400 Seaport Boulevard

Redwood City

California 94063

U.S.A.

main +1 650 562 0200

fax +1 650 817 1499

www.openwave.com

February 6, 2004

Allen Snyder

1400 Seaport Boulevard

Redwood City, CA 94063

Re: Amended and Restated Employment Terms

Dear Al:

This letter sets forth the terms of your employment at Openwave Systems Inc. (the “Company”) and memorializes that to which we previously agreed. This letter supersedes all prior agreements relating to the terms of your employment, except for the Change of Control Severance Agreement dated October 12, 2001, between you and the Company (the “Change of Control Agreement”) and the Confidentiality and Invention Assignment Agreement dated September 1, 2002 (the “Confidentiality and Invention Assignment Agreement”). As we previously agreed, the terms set forth below are effective as of January 1, 2004. Capitalized terms used in this letter have the meanings set forth on the attached

Your title will continue to be Senior Vice President, Worldwide Customer Operations and you will continue to report to me. Your monthly base salary is $25,830 per month or $310,000 on an annualized basis. Under the 2004 Worldwide Customer Operations (WCO) Management Variable Pay Plan in effect for the period from January 1, 2004 through December 31, 2004, you are eligible for a quarterly bonus targeted at 25% of your annual base salary, but your actual bonus payment, if any, may be higher or lower based upon your achievement of your quarterly objectives and in accordance with the terms of the WCO Management Variable Pay Plan. Your quarterly objectives shall be established by the CEO in consultation with you and the Compensation Committee of the Board of Directors. Any quarterly bonus amounts due shall be paid within 45 days following the end of the corresponding quarter.

If your employment is terminated other than for Cause before January 1, 2005, you will receive (a) severance payments equal to 12 months of your base salary (currently, equal to $310,000), (b) 12 months of target incentive pay, and (c) 12 months of COBRA payments to maintain health insurance coverage as then in force for you and your immediate family members insured under the Company’s health insurance policy. If your employment is terminated other than for Cause, after January 1, 2005, you will receive severance payments and COBRA benefits in accordance with the Executive Severance Policy as then in effect.

Severance benefits (excluding the payment of any of the remaining retention bonus payments listed above) payable under this letter agreement shall coordinate with any severance, change of control, or termination benefits payable to you under any other agreement, policy, practice or arrangement of the Company to which you are entitled, including with the Change of Control Severance Agreement and the Executive Severance Policy. This means that if you become entitled to cash payments, or any other benefits from the Company in connection with the occurrence of a change of control or the termination of your employment, then the severance benefits received by you under this letter agreement shall be reduced by the like-kind (more specifically, cash severance payments based upon your base salary, cash severance based upon our target incentive compensation, and COBRA payments) benefits received by you from the Company under such other plans, programs, arrangements or agreements (or vice versa, depending upon the order of their occurrence).

As an employee, you will also continue to be eligible to receive our standard employee benefits except for matters that this letter provides you with more valuable benefits than the Company’s standard policies.

You should be aware that your employment with the Company is for no specified period and constitutes “at will” employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, subject to the severance obligations under this letter.

In consideration of the foregoing, you hereby reconfirm your obligations under the Confidentiality and Invention Assignment Agreement.

Please review these terms to make sure they are consistent with your understanding. If so, please send the original signed offer letter in the provided envelope to Doug Solomon no later than five days after your receipt of this letter.


				Accepted by:

/s/ Don Listwin				/s/ Allen Snyder

Don Listwin				Allen Snyder
President and CEO

EXHIBIT A

DEFINED TERMS

“Cause” shall mean (i) gross negligence or willful misconduct in the performance of your duties to the Company; (ii) repeated unexplained or unjustified absences from the Company; (iii) a material and willful violation of any federal or state law which if made public would injure the business or reputation of the Company as reasonably determined by the Board of Directors of the Company; (iv) refusal or willful failure to act in accordance with any specific lawful direction or order of the Company or stated written policy of the Company; (v) commission of any act of fraud with respect to the Company; or (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as reasonably determined by the Board of Directors of the Company.

“Change of Control” shall mean the occurrence of any of the following events:

(i) The sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that will continue the business of the Company in the future;

(ii) A merger or consolidation involving the Company in which the voting securities of the Company owned by the shareholders of the Company immediately prior to such merger or consolidation do not represent, after conversion if applicable, more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such merger or consolidation; provided that any person who (1) was a beneficial owner (within the meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange Act) of the voting securities of the Company immediately prior to such merger or consolidation, and (2) is a beneficial owner of more than 20% of the securities of the Company immediately after such merger or consolidation, shall be excluded from the list of “shareholders of the Company immediately prior to such merger or consolidation” for purposes of the preceding calculation); or

(iii) The direct or indirect acquisition of beneficial ownership of at least fifty percent (50%) of the voting securities of the Company by a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act); provided, that “person or group of related persons” shall not include the Company, a subsidiary of the Company, or an employee benefit plan sponsored by the Company or a subsidiary of the Company (including any trustee of such plan acting as trustee).

Exhibit 10.2

Summary of Stock Option Grants Made to Independent Directors in January, April and May of 2004.

The following non-discretionary annual grants were made under the 1999 Directors’ Stock Option Plan using the form of 1999 Directors’ Nonstatutory Stock Option Agreement filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2002 filed on May 15, 2002.


Participant	Grant Date	Shares	Vesting Schedule

Covert, Harold L.	1/12/04	12,000	1/48 ^th of the shares vest monthly beginning on 2/12/04

Hedfors, Bo Christer	1/12/04	12,000	1/48 ^th of the shares vest monthly beginning on 2/12/04

Puckett, Bernard	1/12/04	12,000	1/48 ^th of the shares vest monthly beginning on 2/12/04

The following grants were made under the 1996 Stock Plan using the form of US Stock Option Agreement filed as Exhibit 10.3 to the Company’s current Quarterly Report on Form 10-Q.


Participant	Grant Date	Shares	Vesting Schedule

Denman, Kenneth D.	4/23/04	20,000	25% vest on 4/23/05 and 1/48 ^th of the shares monthly beginning on 5/23/05

Covert, Harold L.	5/6/04	18,000	1/48 ^th of the shares vest monthly beginning on 6/6/04

Denman, Kenneth D.	5/6/04	30,000	25% vest on 5/6/05 and 1/48 ^th of the shares monthly beginning on 6/6/05

Hedfors, Bo Christer	5/6/04	18,000	1/48 ^th of the shares vest monthly beginning on 6/6/04

Jabbar, Masood	5/6/04	30,000	1/48 ^th of the shares vest monthly beginning on 6/6/04

Puckett, Bernard	5/6/04	18,000	1/48 ^th of the shares vest monthly beginning on 6/6/04

Exhibit 10.3

OPENWAVE SYSTEMS INC.

STOCK OPTION AGREEMENT

(U.S. Optionees)

1. Grant of Option . Openwave Systems Inc., a Delaware corporation (the “Company”), hereby grants to Optionee (“Optionee”) named in the corresponding Notice of Stock Option Grant (including any exhibits thereto, the “Notice”), an option (the “Option”) to purchase a total number of shares of Common Stock (the “Shares”) set forth in the Notice, at the exercise price per share (the “Exercise Price”) set forth in the Notice, subject to the terms, definitions and provisions of the Plan (as defined in the Notice), which is incorporated herein by reference, and the terms of this Stock Option Agreement (including any exhibits hereto, the “Agreement”). Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail.

2. Exercise of Option . The Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice so long as Optionee continues as an Employee, Director or Consultant, as the case may be, and with the provisions of the Plan as set forth below. A change in status of Optionee from his or her status at the time of grant or during the term of the Option (e.g. Optionee is a Consultant at the time of grant and who subsequently becomes an Employee or (ii) Optionee is an Employee at the time of grant and who subsequently becomes a Consultant) shall be deemed a termination of employment or service with the Company at the time of such change in status; provided, however, that a change in status of Optionee from his or her status at the time of grant or during the term of the Option whereby (i) Optionee is an Employee and a Director and who subsequently becomes a non-Employee Director or (ii) Optionee is a non-Employee Director and who subsequently becomes an Employee and a Director shall not be deemed a termination of employment or service with the Company. Upon a termination of employment or service, unless otherwise provided by the Administrator in its sole discretion, vesting of the Shares shall immediately cease in full.

(a) Right to Exercise .

(i) The Option may not be exercised for a fraction of a Share.

(ii) In the event of Optionee’s death, disability or other termination of employment or service with the Company, the exercisability of the Option is governed by Sections 5, 6, and 7 below, subject to the limitation contained in subsection 2(a)(i).

(iii) In no event may the Option be exercised after the Expiration Date as set forth in the Notice.

(iv) If this Option is designated as an Incentive Stock Option in the Notice, in the event that the Shares subject to the Option (and all other Incentive Stock Options granted to Optionee by the Company or any Parent or Subsidiary) that become exercisable in any calendar year have an aggregate Fair Market Value (determined for each Share as of the Date of Grant of the option covering such Share) in excess of $100,000, the Shares in excess of $100,000 shall be treated as subject to a Nonstatutory Stock Option, in accordance with the terms of the Plan. An “Incentive Stock Option”

is a stock option that is intended, as such intention is designated in the Notice, to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(b) Method of Exercise .

(i) The Option shall be exercisable by (i) delivery of a written notice (in the form attached hereto as Exhibit A ) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan or (ii) if permitted by the Company in its sole discretion, by executing a “cashless exercise” through the Company’s designated broker. The written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the stock option administrator of the Company and shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. The Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by such aggregate Exercise Price or, if permitted by the Company, by Optionee’s execution of a “cashless” exercise with the Company’s designated broker.

(ii) As a condition to the exercise of the Option, Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the exercise of the Option or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise.

(iii) No Shares will be issued pursuant to the exercise of the Option unless such issuance and such exercise shall comply with all relevant provisions of Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Exercised Shares.

3. Method of Payment . Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of Optionee:

(i) cash;

(ii) check;

(iii) surrender of other Shares which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (B) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which the Option is being exercised; or

(iv) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the aggregate Exercise Price.

4. Restrictions on Exercise . The Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such Shares would constitute a

violation of any Applicable Laws. Furthermore, the Company, in its sole discretion, may prohibit you from executing a cashless exercise with respect to the Option regardless of any other provision of this Agreement or the related Notice or other agreement or document relating to this Option.

5. Termination of Relationship .

(i) In the event of the termination of Optionee’s employment or service with the Company (including a change in status that is deemed a termination of employment or service as described in Section 2 above), Optionee may, to the extent otherwise so entitled at the date of such termination (the “Termination Date”), exercise the Option during the Termination Period set out in the Notice. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise the Option within the time specified herein, the Option shall terminate.

(ii) In the event of a change in status that is not deemed to be a termination of employment or service with the Company (in accordance with Section 2 above), this Option shall continue in full force and effect, and the Shares subject to this Option shall continue to vest in accordance with the Vesting Schedule set out in the Notice.

6. Disability of Optionee .

(i) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee’s employment or service with the Company as a result of Optionee’s Disability, Optionee may, but only within twelve (12) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in Section 9 below), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise the Option within the time specified herein, the Option shall terminate.

(ii) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee’s employment or service with the Company as a result of any disability other than a Disability, Optionee may, but only within six (6) months from the date of such termination (but in no event later than the Expiration Date, subject to the terms set forth in Section 9 below), exercise the Option to the extent Optionee was entitled to exercise it at the date of such termination; provided, however, that if this Option qualifies as an Incentive Stock Option, and if Optionee fails to exercise this Option within three (3) months from the date of termination of employment, this Option shall be treated for federal income tax purposes as a Nonstatutory Stock Option. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise the Option within the time specified herein, the Option shall terminate.

7. Death of Optionee . In the event of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of Optionee’s death (but in no event later than the date of expiration of the term of the Option as set forth in Section 9 below), by Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, or by the laws of descent and distribution or by a beneficiary designated to exercise the Option upon Optionee’s death pursuant to Section 8, but only to the extent Optionee could exercise the Option at the date of death. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee’s

estate or the person who acquired the right to exercise the Option by bequest, inheritance or the laws of descent and distribution, or pursuant to Optionee’s designation of a beneficiary (pursuant to Section 8 below), does not exercise the Option within the time specified herein, the Option shall terminate.

8. Non-Transferability of Option . The Option may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. Notwithstanding the foregoing, Optionee may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a beneficiary who, in the event of the death of Optionee, shall thereafter be entitled to exercise the Option. The terms of the Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee.

9. Term of Option . The Option may be exercised only within the term set out in the Notice, and may be exercised during such term only in accordance with the Plan and the terms of this Agreement. If this Option is designated in the Notice as Incentive Stock Option, this Option shall be subject to any applicable limitations on its term as imposed under the Plan or the Applicable Laws.

10. Corporate Transactions . In the event of a proposed merger of the Company with or into another corporation or a sale of all or substantially all of the Company’s assets (either such transaction, a “Corporate Transaction”), this Option shall be treated as set forth on Exhibit B .

11. Tax Consequences . Set forth below is a brief summary as of the date of the Option of certain United States federal tax consequences of exercise of the Option and disposition of the Shares under the laws in effect as of the Date of Grant. THIS SUMMARY DOES NOT ADDRESS SPECIFIC STATE, LOCAL OR FOREIGN TAX CONSEQUENCES THAT MAY BE APPLICABLE TO OPTIONEE. OPTIONEE IS RESPONSIBLE FOR CONSULTING A TAX ADVISER AS TO THE APPLICABLE TAX LAWS OF THE JURISDICTION(S) IN WHICH OPTIONEE RESIDES OR MAY BE SUBJECT TO TAX BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.

(i) Exercise of Incentive Stock Option . If the Option qualifies as an Incentive Stock Option, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise.

(ii) Exercise of Nonstatutory Stock Option . If the Option does not qualify as an Incentive Stock Option, there may be a regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee or former employee of the Company, the Company will be required to withhold from Optionee’s compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.

(iii) Disposition of Shares . In the case of a Nonstatutory Stock Option, if Shares are held for more than one year after the date of exercise, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for more than one year after the date of exercise and are disposed of more than two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an Incentive Stock Option are disposed of before the end of either of the two holding periods, Optionee will recognize ordinary income at the time of the disposition in an amount equal to the excess of (i) the Fair Market Value of the Shares on the exercise date over (ii) the lower of the Exercise Price and the sale price. Any additional gain recognized upon the disqualifying disposition will be capital gain, which will be long-term if the Shares have been held for more than one year following the exercise date of the Option.

(iv) Notice of Disqualifying Disposition of Incentive Stock Option Shares . If the Option granted to Optionee herein is an Incentive Stock Option, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company, on the compensation income recognized by Optionee from the early disposition by payment in cash or out of the current earnings paid to Optionee.

12. Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the state of California.

13. Whole Agreement . The Plan and Notice are hereby incorporated by reference and made a part hereof. The Option and this Agreement shall be subject to all terms and conditions of the Plan and the Notice. Optionee acknowledges that the Notice, this Agreement and the Plan set forth the entire understanding between Optionee and the Company regarding the terms and conditions of this Option and supersede all prior oral and written agreements on the subjects set forth herein, except as, and only to the extent that, such other agreements are expressly incorporated by reference herein.

14. Amendments . This Agreement may be amended or modified at any time only by an instrument in writing signed by each of the parties hereto.

15. Rights as a Stockholder . Neither Optionee nor any of Optionee’s successors in interest shall have any rights as a stockholder of the Company with respect to any Shares subject to the Option until the date of issuance of a stock certificate for such Shares or the date the Shares are electronically delivered to Optionee’s brokerage account.

The signatures of the Company and Optionee on the Notice bind each such party to the terms of this Agreement.

EXHIBIT A

OPENWAVE SYSTEMS INC. EXERCISE NOTICE



		Optionee Name:						Social Security #:

		Home Address:						Daytime Phone Number:

Option(s) Exercised:

Plan

Grant

Number

Grant Date

NQ** or ISO?

(1) x

Grant Price

Per Share

(2) =

Number of Shares

To be exercised

(3)

Total Exercise

Option Price

Subtotal:

** Total NQ Taxes Due:

Totals

Payment and Issuance Instructions:

Attached is my check # in the amount of $ to pay for the exercise of my stock option as listed above.

Issue the shares as designated below:



¨ My E*Trade account		OR ¨ Mail a certificate to my home address

Account #: __________________________________________

¨ My Credit Suisse First Boston account

Account #: __________________________________________

Representations:


_____ Initial		I do NOT have access to, nor am I aware of, any material non-public information regarding Openwave Systems Inc., which could or has influenced my decision to purchase and/or sell this stock.

_____ Initial		I hereby agree to notify Openwave Systems Inc. upon the transfer/sale of my shares acquired under any ISO exercise and agree to hold harmless Openwave Systems Inc. regarding the reporting of income subject to the transfer/sale of these shares. I am not relying on Openwave Systems Inc. or E*TRADE Business Solutions Group for any tax advice.

FOR EXECUTIVE OFFICERS AND DIRECTORS ONLY

I AM an executive officer and/or director of Openwave Systems Inc. and I (initial for each response):


________________		have reviewed my transactions relative to Section 16.

________________		have held this option 6 months from the Date of Grant.

________________		wish/wish not to file an 83 (b) Election.

________________		am required to sell pursuant to Rule 144 & have filed the necessary documentation.

________________		understand that I am required to file a Form 4 within two business days after this transaction.

The undersigned holder of the stock option(s) described above irrevocably exercises such option(s) as set forth and herewith makes payment therefore, all at the price and on the terms and conditions specified in the stock option agreement(s) pertaining to the option(s) exercised.

INSTRUCTIONS : Mail this completed exercise form and check, made payable to:

Openwave Systems Inc. at 1400 Seaport Blvd., Redwood City, CA 94063, Attn: Stock Administration Dept.





Optionee Signature				Date

EXHIBIT B

TREATMENT UPON A CORPORATE TRANSACTION

In the event of a Corporate Transaction, this Option will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation, unless the successor corporation does not agree to assume this Option or to substitute an equivalent option, in which case this Option will terminate upon the consummation of the Corporate Transaction.

Without limiting the preceding paragraph, and except as otherwise explicitly set forth below, if the Company consummates a Corporate Transaction that constitutes a Change of Control (as defined below), and if at any time during the period commencing one (1) month prior to the effective time of such Change of Control and ending twelve (12) months after the effective time of such Change of Control, Optionee’s service with the Company (or the successor thereto) terminates either (i) due to an involuntary termination by the Company (or the successor thereto) of Optionee’s service relationship with the Company (or the successor thereto) without “Cause” (as defined below), or (ii) due to a voluntary termination of Optionee’s service relationship with the Company by Optionee within three (3) months of the occurrence of an event constituting “Good Reason” (as defined below), then, subject to Optionee’s timely execution and delivery of an effective release of all claims in favor of the Company (and the successor thereto), as of the date of termination of service (and provided that, at such time, this Option continues in full force or the successor has assumed this Option or substituted an equivalent award), 100% of the unvested portion of the Option shall become fully vested and exercisable to the extent not previously vested or exercisable. In no event shall a termination of employment or other service relationship on account of death or Disability constitute a termination without Cause or a voluntary termination with Good Reason.

Notwithstanding the foregoing, if this Option is, as of the Date of Grant, subject to an individual employment agreement, severance plan or employee benefit policy that provides for accelerated vesting of this Option in connection with a Corporate Transaction which constitutes a Change of Control (any such understanding or agreement, each an “Acceleration Agreement,” is incorporated by reference herein) on terms more favorable to Optionee than those set forth in this Exhibit B , and provided such Acceleration Agreement continues in full force and effect as of the day immediately prior to the effective date of the Change of Control, this Option shall be subject to acceleration of vesting only as provided in the Acceleration Agreement. If the Acceleration Agreement provides for the acceleration of vesting of this Option upon a Change of Control on terms (the “Terms”) equal to or less favorable than the terms set forth in this Exhibit B , then the terms set forth in this Exhibit B shall supersede and replace in their entirety the Terms. In no event will this Option be subject to acceleration of vesting upon a termination of Optionee’s service relationship with the Company in connection with a Change of Control pursuant to both Exhibit B and the Acceleration Agreement.

In the event that any amount of compensation related to the accelerated vesting of the Option (“Option Acceleration”) pursuant to this Exhibit B would (i) constitute a “parachute payment” (“Parachute Payment”) within the meaning of Section 280G of the Code and (ii) contribute to the Optionee becoming subject to the excise tax imposed by Section 4999 of the Code, or any comparable federal, state, local or foreign excise tax (such excise tax, together with any interest and penalties, is hereinafter referred to as the “Excise Tax”), then, subject to the provisions of the following paragraph, either (A) a percentage of the unvested portion of the Option shall not vest and shall not be exercisable,

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or (B) 100% of the unvested portion of the Option shall vest in full and become fully exercisable to the extent not previously vested or exercisable, whichever of the foregoing amounts, taking into account the applicable federal, state, local and foreign income, employment and other taxes and the Excise Tax (including, without limitation, any interest or penalties on such taxes), results in the receipt by Optionee, on an after-tax basis, of the greatest amount of Option Acceleration hereunder, notwithstanding that all or some portion of the Option Acceleration may be subject to the Excise Tax. Unless the Company and Optionee otherwise agree in writing, any determination required under this paragraph shall be made by independent tax accountants or counsel designated by the Company in its reasonable discretion (“Independent Tax Counsel’), whose determination shall be conclusive and binding upon Optionee and the Company for all purposes. For purposes of making the calculations required under this paragraph, Independent Tax Counsel may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Optionee shall furnish to Independent Tax Counsel such information and documents as Independent Tax Counsel may reasonably request in order to make a determination under this paragraph. The Company shall bear all costs that Independent Tax Counsel may reasonably incur in connection with any calculations contemplated by this paragraph. In the event that a portion of any Option shall not vest and shall not be exercisable, then based on the information provided to Optionee and the Company by Independent Tax Counsel, the unvested portion of an Option which shall not vest and which shall not be exercisable shall be that portion of an Option (or Options) that will generate the greatest amount of Parachute Payment. If the Internal Revenue Service (the “IRS”) determines that Option Acceleration is subject to the Excise Tax, then the provisions of the next paragraph hereof shall apply, and the enforcement of such provisions shall be the exclusive remedy to the Company.

If, notwithstanding the fact that a percentage of the unvested portion of the Option shall not vest and shall not be exercisable in accordance with the terms of the preceding paragraph (or in the absence of any such reduction), the IRS determines that Optionee is liable for the Excise Tax as a result of the receipt of Option Acceleration, then Optionee shall be obligated to pay back to the Company, within 30 days after a final IRS determination, an amount of such Option Acceleration equal to the “Repayment Amount.” The Repayment Amount with respect to such Option Acceleration shall be the smallest such amount, if any, as shall be required to be paid to the Company so that Optionee’s net proceeds with respect to such Option Acceleration (after taking into account the payment of the Excise Tax imposed on such Option Acceleration) shall be maximized. Notwithstanding the foregoing, the Repayment Amount with respect to such Option Acceleration shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax imposed on such Option Acceleration. If the Excise Tax is not eliminated pursuant to this paragraph, Optionee shall pay the Excise Tax.

As used in this Exhibit B, the following terms have the following meanings:

“Cause” shall mean (i) persistent or gross negligence or willful misconduct in the performance of Optionee’s duties to the Company; (ii) repeated unexplained or unjustified absences from the Company; (iii) a material and willful violation of any federal or state law which if made public would injure the business or reputation of the Company as reasonably determined by the Company; (iv) refusal or willful failure to act in accordance with any specific lawful direction or order of the Company or stated written policy of the Company; (v) commission of any act of fraud with respect to the Company; or (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as reasonably determined by the Company.

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“Change of Control” means the occurrence of any of the following events:

(i) The sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) that will continue the business of the Company in the future;

“Good Reason” means that one or more of the following are undertaken by the Company without Optionee’s written consent: (i) the significant reduction of Optionee’s duties, authority or responsibilities relative to Optionee’s duties, authority or responsibilities as in effect immediately prior to such reduction, or the assignment to Optionee of such reduced duties, authority or responsibilities; provided, however , that a mere change in Optionee’s title or reporting relationships shall not provide the basis for a voluntary termination with Good Reason; (ii) a reduction by the Company in the base salary of the Optionee as in effect immediately prior to such reduction, except as part of a one-time proportional reduction of the base salaries of all or substantially all of the Company’s employees that does not exceed ten (10) percent; (iii) a material reduction by the Company in the kind or level of health and welfare, retirement and similar employee benefits, to which Optionee was entitled immediately prior to such reduction (hereinafter referred to as “Benefit Plans”), or a material increase in Optionee’s cost for the Benefit Plans (except an annual increase that is applicable to substantially all employees of the Company which does not exceed twenty-five (25) percent), with the result that Optionee’s overall benefits package is significantly reduced; provided, however, that Good Reason shall not be deemed to have occurred if the Company provides for Optionee’s participation in benefit plans and programs that, taken as a whole, are comparable to the Benefit Plans; (iv) the relocation of Optionee to a facility or a location more than twenty-five (25) miles from Optionee’s then present location without Optionee’s consent; or (v) a material breach by the Company of any provision of the Plan or any other material agreement between Optionee and the Company concerning the terms and conditions of Optionee’s employment that the Company fails to cure within ten (10) business days of receiving written notice from Optionee.

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Exhibit 10.4

OPENWAVE SYSTEMS INC.

STOCK OPTION AGREEMENT

(Non-U.S. Optionees)

(a) Right to Exercise .

(i) The Option may not be exercised for a fraction of a Share.

(iii) In no event may the Option be exercised after the Expiration Date as set forth in the Notice.

is a stock option that is intended, as such intention is designated in the Notice, to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(b) Method of Exercise .

3. Method of Payment . Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of Optionee:

(i) cash;

(ii) check;

4. Restrictions on Exercise . The Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such Shares would constitute a

5. Termination of Relationship .

6. Disability of Optionee .

12. Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the state of California.

14. Amendments . This Agreement may be amended or modified at any time only by an instrument in writing signed by each of the parties hereto.

The signatures of the Company and Optionee on the Notice bind each such party to the terms of this Agreement.

EXHIBIT A

OPENWAVE SYSTEMS INC. EXERCISE NOTICE


Optionee Name: ________________________________________		Social Security #: _______________________________
Home Address: ________________________________________		Daytime Phone Number: _______________________________

Option(s) Exercised:

Plan

Grant

Number

Grant Date

NQ** or ISO?

(1) x

Grant Price

Per Share

(2) =

Number of Shares

To be exercised

(3)

Total Exercise

Option Price

Subtotal:

** Total NQ Taxes Due:

Totals

Payment and Issuance Instructions:

Attached is my check # in the amount of $ to pay for the exercise of my stock option as listed above.

Issue the shares as designated below:



¨ My E*Trade account		OR ¨ Mail a certificate to my home address

Account #: __________________________________________

¨ My Credit Suisse First Boston account

Account #: __________________________________________

Representations:


_____ Initial		I do NOT have access to, nor am I aware of, any material non-public information regarding Openwave Systems Inc., which could or has influenced my decision to purchase and/or sell this stock.

_____ Initial		I hereby agree to notify Openwave Systems Inc. upon the transfer/sale of my shares acquired under any ISO exercise and agree to hold harmless Openwave Systems Inc. regarding the reporting of income subject to the transfer/sale of these shares. I am not relying on Openwave Systems Inc. or E*TRADE Business Solutions Group for any tax advice.

FOR EXECUTIVE OFFICERS AND DIRECTORS ONLY

I AM an executive officer and/or director of Openwave Systems Inc. and I (initial for each response):


________________		have reviewed my transactions relative to Section 16.

________________		have held this option 6 months from the Date of Grant.

________________		wish/wish not to file an 83 (b) Election.

________________		am required to sell pursuant to Rule 144 & have filed the necessary documentation.

________________		understand that I am required to file a Form 4 within two business days after this transaction.

INSTRUCTIONS : Mail this completed exercise form and check, made payable to:

Openwave Systems Inc. at 1400 Seaport Blvd., Redwood City, CA 94063, Attn: Stock Administration Dept.





Optionee Signature				Date

EXHIBIT B

TREATMENT UPON A CORPORATE TRANSACTION

Without limiting the preceding paragraph, if this Option is, as of the Date of Grant, subject to an individual employment agreement, severance plan or employee benefit policy that provides for accelerated vesting of this Option in connection with a Corporate Transaction (any such understanding or agreement, an “Acceleration Agreement”), and provided such Acceleration Agreement continues in full force and effect as of the day immediately prior to the effective date of the Corporate Transaction, this Option shall be subject to acceleration of vesting only as provided in the Acceleration Agreement.

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EXHIBIT C

COUNTRY-SPECIFIC PROVISIONS

(International Optionees)

If you reside in any country named below, your option grant is subject to the further terms provided below for that particular country. These terms are in addition to the terms stated in the Stock Option Agreement.

The information contained in this exhibit is based on the laws concerning stock options in effect in the countries named below as of August 2003, it is general in nature and does not discuss all of the various laws, rules and regulations which may apply to your particular situation. Accordingly, you are advised to seek appropriate professional advice as to how the tax or other laws in your country apply to your specific situation.

Argentina

Due to the recent financial crisis in Argentina and the uncertainty of the exchange control restrictions that would apply, your Option is exercisable only on a “Cashless/Same-day Sale” basis. There are two types of Cashless/Same-day Sale exercises: “Full Cashless/Same-day Sale” and “Partial Cashless/Same-day Sale.” If you elect to do a “Full Cashless/Same-day Sale” exercise, you will: (a) sell all of the Shares that you are entitled to at exercise; and (b) receive the sale proceeds in cash less deductions for the Exercise Price, withholding taxes and brokerage fees, if any. If you elect to do a “Partial Cashless/Same-day Sale” exercise, you will: (a) sell only enough Shares to cover the Exercise Price, withholding taxes and brokerage fees, if any; and (b) instruct the broker to hold the remaining Shares on your behalf.

The Option granted to you under the Plan and the Shares to be purchased pursuant to the Option are offered as a private transaction. This offer is not subject to supervision by the Argentine governmental authority. This grant is being made by the Company on behalf of your employer.

Australia

Your Option is granted pursuant to the Australian Addendum which is an addendum to the Plan and therefore, your Option is subject to the terms and conditions as stated in both the Australian Addendum and the Plan.

In addition, you may be responsible for reporting cash transactions inbound and/or outbound that exceed a certain amount. You will be responsible for reporting inbound and/or outbound international fund transfers of any value, which do not involve a local bank.

You are advised to seek appropriate professional advice as to how the exchange control regulations, tax or other laws in your country apply to your specific situation. Please note that laws and regulations change frequently and occasionally on a retroactive basis.

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Brazil

Due to Brazilian foreign exchange laws, your Option is exercisable only on a “Cashless/Same-day Sale” basis. There are two types of Cashless/Same-day Sale exercises: “Full Cashless/Same-day Sale” and “Partial Cashless/Same-day Sale.” If you elect to do a “Full Cashless/Same-day Sale” exercise, you will: (a) sell all of the Shares that you are entitled to at exercise; and (b) receive the sale proceeds in cash less deductions for the Exercise Price, withholding taxes and brokerage fees, if any. If you elect to do a “Partial Cashless/Same-day Sale” exercise, you will: (a) sell only enough Shares to cover the Exercise Price, withholding taxes and brokerage fees, if any; and (b) instruct the broker to hold the remaining Shares on your behalf.

Also, by accepting this Option, you agree to comply with applicable Brazilian laws and pay any and all applicable taxes associated with the exercise of the Option, sale of Shares obtained pursuant to exercise of the Option, and receipt of dividends, if any.

Canada

You are permitted to sell the Shares acquired upon the exercise of an Option through the designated broker appointed under the Plan, provided the resale of Shares acquired under the Plan takes place outside of Canada through the facilities of the stock exchange in which the Shares were listed. The Shares are currently listed on the NASDAQ.

For Quebec Employees

The parties acknowledge that it is their express wish that the present agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.

Les parties reconnaissent avoir exigé la rédaction en anglais de la présente convention, ainsi que de tous documents exécutés, avis donnés et proćedures judiciares intentées, directement ou indirectement, relativement á ou suite á la présente convention.

China

Due to Chinese exchange control regulations, your Option is exercisable only on a “Full Cashless/Same-day Sale” basis. Under a “Full Cashless/Same-day Sale”, you will: (a) sell all of the Shares that you are entitled to at exercise; and (b) receive the sale proceeds in cash less deductions for the Exercise Price, withholding taxes and brokerage fees, if any. It is not possible to exercise your Option by paying the Exercise Price in cash. You are not entitled to hold Shares of Openwave common stock after the exercise of your Option.

France

You must declare to the customs and excise authorities any cash and securities you import or export without the use of a financial institution when the value of such cash or securities exceeds a certain amount. Please check with your professional advisor.

In addition, if you are a French resident, you may hold stock outside France provided you declare all foreign bank and brokerage accounts on an annual basis (including the accounts that were open and those that were closed during the tax year) on a specific form in your income tax return.

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Germany

Certain cross-border payments must be reported monthly. When reporting is required, the bank will make the report if you use a German bank to affect a cross-border payment in connection with the purchase or sale of securities or the payment of dividends related to certain securities. In which case, you will not have to report the transaction. In addition, you may be required to report on a monthly basis any receivables or payables or debts in foreign currency that exceed a certain amount. Finally, you must also report on an annual basis, in the unlikely event, that you hold Shares exceeding 10% of the total voting capital of the Company.

U.S. law applies to the grant of options pursuant to the Plan.

Ireland

This Option is granted pursuant to the Plan and the Shares, which may be purchased on exercise of the Option are offered in a private transaction. This is not an offer to the public.

If you are a director, shadow director or secretary of an Irish subsidiary of the Company, you are subject to certain notification requirements under the Companies Act, 1990. These requirements include an obligation to notify the Irish subsidiary in writing when you receive an interest ( e.g. , Options, Shares) in the Company and the number and class of shares or rights to which the interest relates. In addition, you must notify the Irish subsidiary when you sell Shares acquired through the exercise of Options. You must notify the Irish subsidiary of the acquisition or disposal of an interest in Shares within five days following the day of acquisition or disposal of the interest in Shares. These notification requirements also apply to any rights or Shares acquired by your spouse or child(ren) (under the age of 18). Please contact the Company to obtain a copy of the notification form.

If you are a director, shadow director or secretary, you are advised to seek appropriate professional advice as to your reporting obligations under the Companies Act, 1990.

Italy

To participate in the Plan, you must comply with exchange control regulations in Italy. Transfer of funds in excess of a certain amount to or from Italy in connection with your participation in the Plan without using a bank must be reported in your individual tax return. Furthermore, Shares you hold of Openwave stock in excess of a certain value must be reported on your individual tax return.

C-3

To obtain favorable tax treatment, your Option has been granted with an Exercise Price equal to the higher of (1) the average stock price over the month preceding the date of grant or (2) the stock price on the date of the grant.

U.S. law applies to the grant of options pursuant to the Plan.

You acknowledge that you have read and specifically and expressly approve the following clauses of this Agreement: (i) Section 2 – Exercise of Option; (ii) Section 4 – Restrictions on Exercise; (iii) Section 8 – Non-Transferability of Option; (iv) Notice of Stock Option Grant and Exhibit A thereto (Representations and Warranties (International Optionees)); and (v) Exhibit A – Country Specific Provisions (International Optionees).





Optionee				Date

Japan

Under certain circumstance, you may be required to file a report with the Ministry of Finance through the Bank of Japan if you intend to acquire Shares whose value exceeds a certain amount. The reporting, if required, is due within 20 days from the purchase of the Shares (however, if you acquire such Shares through a securities company in Japan, such requirement will not be imposed). Please note that the reporting requirements vary depending on whether or not the relevant payment is made through a bank in Japan.

Korea

When you exercise an Option, your remittance of funds must be “confirmed” by a foreign exchange bank in Korea. This procedure does not require approval of the remittance from the bank. You must submit the following documents to the bank with a confirmation application available from the bank: (i) the Notice; (ii) the Plan document; (iii) the Stock Option Agreement indicating the type of shares to be acquired and the number shares; and (iv) a certificate of employment from your employer.

Under the exchange control laws, Korean residents who realize proceeds in excess of a certain amount from the sale of are required repatriate the proceeds back to Korea within six months of the sale.

C-4

You are advised to seek appropriate professional advice as to how the exchange control regulations, tax or other laws in your country apply to your specific situation. Please note that laws and regulations laws change frequently and occasionally on a retroactive basis.

Mexico

The invitation the Company is making under the Plan is unilateral and discretionary and, therefore, the Company reserves the absolute right to amend it and discontinue it at any time without any liability to you.

This invitation and, in your case, the acquisition of Shares does not, in any way, establish a labor relationship between you and the Company, and it does not establish any rights between you and your employer.

The difference between the fair market value of the Shares at the time you exercise the Option and the Exercise Price is a fringe benefit paid to you directly by the employer and not by the Company.

La invitación que hace en relación con el Plan es unilateral y discrecional, por lo tanto, la Empresa se reserva el derecho absoluto para modificar o terminar el mismo, sin ninguna responsabilidad para usted.

Esta invitación y, en su caso, la adquisición de acciones, de ninguna manera establecen relación laboral alguna entre usted y la Empresa y tampoco establece derecho alguno entre usted y su empleador.

La diferencia entre el Valor de Mercado de las acciones al momento del ejercicio de la Opción y el precio del ejercicio es un beneficio que será pagado por el Patrón directamente al Beneficiario y no por la Empresa.

Netherlands

You will be limited to the “Full Cashless/Same-day Sale” form of exercise. Under a “Full Cashless/Same-day Sale”, you will: (a) sell all of the Shares that you are entitled to at exercise; and (b) receive the sale proceeds in cash less deductions for the Exercise Price, withholding taxes and brokerage fees, if any. It is not possible to exercise your Option by paying the Exercise Price in cash. You are not entitled to hold Shares of Openwave common stock after the exercise of your Option.

In addition, exchange control laws require that the transfer of funds to or from a foreign country in excess of a certain amount must be reported to the Nederlandsche Bank. If a Dutch bank is involved in sending or receiving the payment, the bank will report the transaction.

You are advised to seek appropriate professional advice as to how the exchange control regulations, tax or other laws in your country apply to your specific situation. Please note that laws and regulations laws change frequently and occasionally on a retroactive basis.

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Singapore

If you are a director, associate director or shadow director of a Singapore subsidiary or affiliate of the Company, you are subject to certain notification requirements under the Singapore Companies Act. Among these requirements is an obligation to notify the Singaporean subsidiary or affiliate in writing when you receive an interest ( e.g. , Options, Shares) in the Company or any related companies. Please contact the Company to obtain a copy of the notification form. In addition, you must notify the Singapore affiliate when Employee sells Shares of Company or any related company (including when Employee sell Shares acquired through exercise of your Option). These notifications must be made within two days of acquiring or disposing of any interest in the Company or any related company. In addition, a notification must be made of your interests in the Company or any related company within two days of becoming a director.

If you are a director, associate director or shadow director, you are advised to seek appropriate professional advice as to your reporting obligations under the Singapore Companies Act.

Spain

To participate in the Plan, you must comply with exchange control regulations in Spain. The purchase of Shares of the Company must be declared for statistical purposes to the Spanish Direccion General de Comercio e Inversiones of the Ministerio de Economia (the “DGCI”). If you purchase Shares through the use of a Spanish financial institution, that institution will automatically make the declaration to the DGCI for you. Otherwise, you make the declaration by filing the appropriate form with the DGCI.

When receiving foreign currency payments derived from the ownership of Openwave Shares ( i.e., as a result of the sale of the Shares or receipt of dividends), you must inform the financial institution receiving the payment, the basis upon which such payment is made. You will need to provide the institution with the following information: (i) your name, address, and fiscal identification number; (ii) the name and corporate domicile of the Company; (iii) the amount of the payment; (iv) the currency used; (v) the country of origin; (vi) the reasons for the payment; and (vii) any additional information that may be required.

If you wish to import the ownership title of the Openwave Shares ( i.e., share certificates) into Spain, you must declare the importation of such securities to the DGCI.

The income recognized when you exercise your Option likely will be considered compensation in-kind subject to payment on account. The amount of the payment on account payable at the time of exercise, if any, will be charged to you. This amount will be withheld from the proceeds of sale if the “Full Cashless/Same-day Sale” method of exercise is used. If the “Partial Cashless/Same-day Sale” method of exercise is used, you will be responsible for ensuring that you either sell enough Shares to cover the payment on account or that you take the steps described in the following sentence for the cash purchase method of exercise. If the cash purchase method of exercise is used, you must pay the payment on account to your employer, or you must agree to have the appropriate amounts withheld from your normal pay. As a result, you will be entitled to deduct the payment on account and obtain a tax credit from your income tax obligation.

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You further understand that the Company has unilaterally, gratuitously, and discretionally decided to distribute Options to individuals who may be employees of the Company or of its Subsidiaries and Affiliates throughout the world. The decision is a temporary decision that is entered into upon the express assumption and condition that any grant will not economically or otherwise bind the Company or any of its Subsidiaries and Affiliates presently or in the future. Consequently you understand that any grant is given on the assumption and condition that it shall not become a part of any employment contract (either with the Company or any of its Affiliates) and shall not be considered a mandatory benefit, salary for any purpose (including severance compensation), or any other right whatsoever. Further, you understand and freely accept that the Company does not guarantee that any benefit whatsoever shall arise from any gratuitous and discretionary grant since the future value of the Option and Shares is unknown and unpredictable.

Finally, you understand that the Company would not be making this grant but for the assumptions and conditions referred to above; thus, you expressly acknowledge and freely accept that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then any grant of the Option shall be null and void and the Plan shall not have any effect whatsoever.

This offer is considered a private placement outside of the scope of Spanish law on public offerings and issuances.

Sweden

Foreign and local banks or financial institutions (including brokers) engaged in cross-border transactions are generally required to report any payments to or from a foreign country exceeding a certain amount to The National Tax Board, which receives the information on behalf of the Swedish Central Bank ( Sw.Riksbanken ). This requirement applies if you have a brokerage account with a foreign broker.

Taiwan

If you are a Taiwanese resident, there is an annual limit on the amounts of foreign currency you may acquire and remit out of Taiwan and vice versa without justification. If you are an expatriate employee who does not have an Alien Resident Certificate, there is a limitation on the amount of foreign exchange you may acquire and remit out of Taiwan that applies to each remittance. There is generally no annual limit on remittances made by expatriates. Remittance of funds for the purchase of shares should be made through an authorized foreign exchange bank.

You are advised to seek appropriate professional advice as to how the exchange control regulations, tax or other laws in your country apply to your specific situation. Please note that laws and regulations laws change frequently and occasionally on a retroactive basis.

United Kingdom

Where, in relation to this Option, the Company or any Subsidiary or Affiliate is liable to account to the Inland Revenue for any sum in respect of any income tax under the UK Pay As You Earn system, you hereby agree that the Company or any Subsidiary or Affiliate shall be entitled to withhold, in the manner indicated below, any tax payable within 90 days after the exercise,

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assignment, release or cancellation of the Option, or disposition of Shares (a “Taxable Event”). In the event that the Company or your Employer is unable to withhold or collect any Tax-Related Items due within 90 days after the Taxable Event, the Company, your Employer and you hereby agree that the amount of the uncollected tax shall constitute a loan you owe to your Employer, effective on the 90th day after the date of the Taxable Event. You agree that the loan will be immediately repayable and the Company or your employer may recover it at any time thereafter by any of the means referred to above. You also authorize the Company to withhold the transfer of any Shares unless and until the loan is repaid in full.

You hereby agree to accept any liability for secondary Class 1 National Insurance Contributions which may be payable by the Company or any Subsidiary or Affiliate in respect of the exercise, assignment, release or cancellation of the Option (“ Employer NICs ”). You agree that the Company or any Subsidiary or Affiliate may collect the Employer NICs in the manner set out below. You further agree that if any additional consents or formal elections are required to accomplish such transfer of NICs liability, you will provide them promptly upon request, failing which the Option will lapse.

The Company or any Subsidiary or Affiliate may withhold or collect any tax and Employer NICs:

(i) by deduction from salary or any other payment payable to you at any time on or after the date of exercise, assignment, release or cancellation of the Option, or

(ii) directly from you by payment in cleared funds, or

(iii) by arranging for the sale of some of the Shares which you are entitled to receive on the exercise of the Option.

You also authorize the Company to withhold the transfer of any Shares unless payment is received within the requisite period.

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Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Don Listwin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Openwave Systems Inc.;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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)) for the registrant and 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 quarterly report is being prepared;

b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly 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 quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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 registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 12, 2004

/s/ Don Listwin

Don Listwin

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF THE CHIEF ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Joshua Pace, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Openwave Systems Inc.;

b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

b) any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 12, 2004

/s/ Joshua Pace

Joshua Pace

Vice President of Finance and Chief Accounting Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF

ACCOUNTING OFFICER

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 Quarterly Report of Openwave Systems Inc. on Form 10-Q for the quarterly period ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Don Listwin, as Chief Executive Officer and Joshua Pace, as Chief Accounting Officer of Openwave Systems Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to their knowledge that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents in all material respects the financial condition and results of operations of Openwave Systems Inc.



May 12, 2004	By:	/s/ Don Listwin

		Don Listwin Vice Chairman, President and Chief Executive Officer



May 12, 2004	By:	/s/ Joshua Pace

		Joshua Pace Vice President of Finance and Chief Accounting Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.