10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2005

or

¨ 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 0-28030

i2 Technologies, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	75-2294945
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One i2 Place 11701 Luna Road Dallas, Texas	75234
(Address of principal executive offices)	(Zip code)

(469) 357-1000

(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 July 27, 2005, the Registrant had 20,612,529 shares of $0.00025 par value Common Stock outstanding.

i2 TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

June 30, 2005

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	38
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	40
Item 4.	Submission of Matters to a Vote of Security Holders	40
Item 5.	Other Information	41
Item 6.	Exhibits	41
SIGNATURES		42

2

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

i2 TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value or stated value)

(Unaudited)

	June 30, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	125,765		$	133,273
Restricted cash		5,620			7,717
Short-term investments, at fair value		166,961			144,532
Accounts receivable, net		28,365			37,439
Deferred contract costs		311			1,886
Other current assets		18,818			22,034
Total current assets		345,840			346,881
Long-term investments, at fair value		500			—
Premises and equipment, net		16,384			18,987
Intangible assets, net		1,842			2,473
Goodwill		16,620			16,620
Non-current deferred tax asset		4,591			5,712
Total assets	$	385,777		$	390,673
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	12,264		$	13,988
Accrued liabilities		38,374			39,152
Accrued compensation and related expenses		23,179			27,227
Deferred revenue		148,263			165,362
Total current liabilities		222,080			245,729
Non-current deferred tax liability		—			1,177
Long-term debt		316,800			316,800
Total liabilities		538,880			563,706
Commitments and contingencies
Stockholders’ deficit:
Preferred Stock, $0.001 par value, 5,000 shares authorized, none issued and outstanding		—			—
Series A junior participating preferred stock, $0.001 par value, 2,000 shares authorized, none issued and outstanding		—			—
Series B 2.5% convertible preferred stock, $1,000 stated value, 150 shares authorized, 103 and 101 issued and outstanding at June 30, 2005 and December 31, 2004, respectively		98,537			97,045
Common stock, $0.00025 par value, 2,000,000 shares authorized, 20,613 and 18,608 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively		5			5
Additional paid-in capital		10,419,259			10,403,515
Accumulated other comprehensive income		128			3,675
Accumulated deficit		(10,671,032	)		(10,677,273	)
Net stockholders’ deficit		(153,103	)		(173,033	)
Total liabilities and stockholders’ deficit	$	385,777		$	390,673

See accompanying notes to condensed consolidated financial statements.

3

i2 TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenues:
Software licenses	$	15,253		$	12,027		$	28,159		$	24,415
Development services		16,828			9,192			36,893			15,809
Contract		15,343			31,970			18,399			37,940
Services		22,494			24,580			46,317			49,537
Reimbursable expenses		3,139			3,062			5,773			5,748
Maintenance		25,496			29,798			51,314			60,802
Total revenues		98,553			110,629			186,855			194,251
Costs and expenses:
Cost of revenues:
Software licenses		2,201			196			4,904			3,373
Development services		3,318			4,045			7,919			10,651
Contract		1,575			1,025			1,575			1,131
Amortization of acquired technology		—			134			—			279
Reimbursable expenses		3,139			3,062			5,773			5,748
Services and maintenance		22,299			27,207			47,067			56,498
Sales and marketing		15,370			21,591			34,198			41,512
Research and development		11,214			19,115			26,344			38,807
General and administrative		11,592			12,753			37,235			38,214
Amortization of intangibles		—			—			—			39
Restructuring charges and adjustments		(235	)		3,670			11,906			4,245
Total costs and expenses		70,473			92,798			176,921			200,497
Operating income (loss)		28,080			17,831			9,934			(6,246	)
Gain on sale of securities		11,000			—			11,000			—
Other expense, net		(5,028	)		(4,378	)		(9,794	)		(9,469	)
Income (loss) before income taxes		34,052			13,453			11,140			(15,715	)
Income tax expense		1,825			1,296			3,407			2,105
Net income (loss)	$	32,227		$	12,157		$	7,733		$	(17,820	)
Preferred stock dividend and accretion of discount		749			247			1,492			247
Net income (loss) applicable to common shareholders	$	31,478		$	11,910		$	6,241		$	(18,067	)
Net income (loss) per common share:
Basic	$	1.36		$	0.62		$	0.27		$	(1.03	)
Diluted	$	1.33		$	0.62		$	0.26		$	(1.03	)
Weighted-average common shares outstanding:
Basic		23,160			19,223			23,077			17,580
Diluted		23,638			19,682			23,610			17,580
Comprehensive income (loss):
Net income (loss) applicable to common shareholders	$	31,478		$	11,910		$	6,241		$	(18,067	)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities arising during the period		115			(404	)		121			(390	)
Foreign currency translation adjustments		(2,130	)		(1,180	)		(3,626	)		(649	)
Tax effect of other comprehensive income (loss)		(40	)		—			(42	)		—
Total other comprehensive income (loss)		(2,055	)		(1,584	)		(3,547	)		(1,039	)
Total comprehensive income (loss)	$	29,423		$	10,326		$	2,694		$	(19,106	)

See accompanying notes to condensed consolidated financial statements.

4

i2 TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2005			2004
				(as restated, see Note 11)
Cash flows from operating activities:
Net income (loss)	$	7,733		$	(17,820	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		3,959			7,400
Write-down of equipment		745			—
Gain on sale of assets		—			(315	)
Gain on sale of securities		(11,000	)		—
Provision (credit) for bad debts charged to expense		121			(1,412	)
Amortization of deferred compensation		457			789
Deferred income taxes		253			—
Changes in assets and liabilities:
Accounts receivable, net		8,848			5,828
Deferred contract costs		1,580			1,131
Other assets		2,841			7,119
Accounts payable		(1,858	)		(4,495	)
Accrued liabilities		(912	)		(58,059	)
Accrued compensation and related expenses		(4,129	)		4,371
Deferred revenue		(17,617	)		(25,349	)
Net cash used in operating activities		(8,979	)		(80,812	)
Cash flows from investing activities:
Purchase of premises and equipment		(1,527	)		(467	)
Proceeds from sale of assets		—			480
Restrictions released from cash		2,097			6,189
Purchase of short-term investments		(39,200	)		(298,425	)
Proceeds from sale of short-term investments		16,850			274,450
Proceeds from sale of securities		11,000			—
Purchase of long-term investments		(500	)		(26,708	)
Net cash used in investing activities		(11,280	)		(44,481	)
Cash flows from financing activities:
Proceeds from sale of series B preferred stock, net of issuance costs		—			95,325
Proceeds from sale of common stock, net of issuance costs		14,950			19,733
Net proceeds from common stock issuance from options and employee stock purchase plans		337			2,251
Net cash provided by financing activities		15,287			117,309
Effect of exchange rates on cash		(2,536	)		(380	)
Net change in cash and cash equivalents		(7,508	)		(8,364	)
Cash and cash equivalents at beginning of period		133,273			106,822
Cash and cash equivalents at end of period	$	125,765		$	98,458
Supplemental cash flow information
Interest paid	$	8,312		$	9,366
Income taxes paid (net of refunds received)	$	3,457		$	1,637
Schedule of non cash financing activities
Preferred stock dividend and accretion of discount	$	1,492		$	247

See accompanying notes to condensed consolidated financial statements.

5

i2 TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Table dollars in thousands, except per share data)

(Unaudited)

1. Summary of Significant Accounting Policies

Nature of Operations. We are a provider of enterprise supply chain management solutions, including various supply chain software and service offerings. We operate our business in one business segment. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The goals of our solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by managing variability, reducing complexity, improving operational visibility, increasing operating velocity and integrating planning and execution. We also offer master data management technology which is designed to collect, synthesize and distribute critical reference data. Our offerings help customers improve efficiency in relation to sourcing, supply, demand, fulfillment and logistics performance. Our application software is often bundled with other offerings, including content and services we provide such as business optimization and technical consulting, training, solution maintenance, content management, software upgrades and development.

Basis of Presentation. Our unaudited condensed consolidated financial statements have been prepared by management and reflect all adjustments (all of which are normal and recurring in nature, with the exception of certain accruals discussed in Note 5, Restructuring Charges and Adjustments and Note 8, Commitments and Contingencies) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2005. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted under the Securities and Exchange Commission’s (SEC) rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, presented in our Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 16, 2005 with the SEC (2004 Annual Report on Form 10-K) and as amended on Form 10-K/A filed on August 9, 2005.

Stock-Based Compensation Plans. Employee compensation expense under stock option plans is reported only if options are granted below market price at the grant date in accordance with the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Statement of Financial Accountings Standards (SFAS) No. 123, “Accounting for Stock Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”, requires pro forma disclosures of net income and earnings per share for companies not adopting its fair value accounting method for stock-based employee compensation.

Fair values of stock options and employee stock purchase plan (ESPP) shares are estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Stock Options Three Months Ended June 30,				ESPP Shares Three Months Ended June 30,				Stock Options Six Months Ended June 30,				ESPP Shares Six Months Ended June 30,
	2005		2004		2005		2004		2005		2004		2005		2004
Risk-free interest rate	3.79	%	3.27	%	3.77	%	2.93	%	3.77	%	2.93	%	3.64	%	2.82	%
Expected term (years)	4		4		0.5		0.5		4		4		0.5		0.5
Volatility	1.04		1.19		0.76		0.93		1.06		1.2		0.68		0.9
Dividend yield	0	%	0	%	0	%	0	%	0	%	0	%	0	%	0	%

6

i2 TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following pro forma information presents net income (loss) and net income (loss) per common share for the three and six months ended June 30, 2005 and 2004 had the fair value method under SFAS No. 123 been used to measure compensation cost for stock-based compensation plans. For purposes of these pro forma disclosures, the estimated fair value of the options and stock rights is amortized to expense over the related vesting periods and the estimated fair value of the employee stock purchase plans’ shares is amortized to expense over the purchase period. During the second quarter of 2002, we ceased recognizing tax benefits for net operating losses for financial reporting purposes. Accordingly, the pro forma adjustments in the table below have not been tax affected for the three and six months ended June 30, 2005 and 2004.

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income (loss) applicable to common stockholders, as reported	$	31,478		$	11,910		$	6,241		$	(18,067	)
Add: Stock-based employee compensation expense included in reported net income (loss)		269			448			457			789
Less: Total stock-based employee compensation expense determined under fair value based method for all awards		(8,345	)		(11,872	)		(19,324	)		(31,782	)
Pro forma net income (loss)	$	23,402		$	486		$	(12,626	)	$	(49,060	)
Net income (loss) per common share-Basic:
As reported	$	1.36		$	0.62		$	0.27		$	(1.03	)
Pro forma	$	1.01		$	0.03		$	(0.55	)	$	(2.79	)
Net income (loss) per common share-Diluted:
As reported	$	1.33		$	0.62		$	0.26		$	(1.03	)
Pro forma	$	0.99		$	0.03		$	(0.53	)	$	(2.79	)

Allowance For Doubtful Accounts. Our allowance for doubtful accounts was $1.1 million and $1.0 million at June 30, 2005 and December 31, 2004, respectively. The increase in our allowance for doubtful accounts is based on a general reserve computation and not due to a specific collections issue.

Recent Accounting Pronouncements.

EITF 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share”

In November 2004, the Emerging Issues Task Force (EITF) issued EITF 04-8, “Effect of Contingently Convertible Instruments on Diluted Earnings per Share,” which addresses the earnings per share impact of when the conversion feature of contingently convertible shares is based on a market price trigger. This statement requires the inclusion of the effect of such contingently convertible securities in the calculation of diluted earnings per share regardless of whether the market price trigger has been met.

We are required to apply the guidance in this issue for periods ending after December 15, 2004, with comparative periods presented restated to conform to this guidance. As we experienced a loss during our year ended December 31, 2004 and our fiscal quarter ended March 31, 2005, the initial impact of this guidance to our financial statements is in the three and six months ended June 30, 2005. Earnings per share for the three months ended June 30, 2004 has been restated to give effect to the new guidance.

SFAS No. 123(R), “Share-Based Payment”

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which establishes accounting standards for all transactions in which an entity exchanges its equity instruments for goods and

7

i2 TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

services. SFAS No. 123(R) focuses primarily on accounting for transactions with employees, and carries forward without change prior guidance for share-based payments for transactions with non-employees. SFAS No. 123(R) eliminates the intrinsic value measurement objective in APB Opinion 25 and generally requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant.

We are required to apply SFAS No. 123(R) to all awards granted, modified or settled in our first reporting period under U.S. GAAP after June 15, 2005. However, on April 14, 2005, the Securities and Exchange Commission issued a press release (2005-57) that extended the compliance of SFAS 123(R). The SEC’s new rule allows companies to implement Statement No. 123(R) at the beginning of their next fiscal year, instead of the next reporting period after June 15, 2005, which for calendar year end companies would be the first reporting period of 2006.

We have commenced our analysis of the impact of SFAS 123(R), but have not yet decided: (1) whether we will elect to adopt early, (2) if we elect to adopt early, then at what date we would do so, or (3) whether we will use the modified prospective method or elect to use the modified retrospective method. Additionally, we cannot predict with reasonable certainty the number of options that will be unvested and outstanding in 2006.

2. Investment Securities

Short-term time deposits and other liquid investments in debt securities with remaining maturities of less than three months when acquired by us are classified as available for sale and reported as cash and cash equivalents in the condensed consolidated balance sheets. The estimated fair value of these investments approximates their carrying value. Investment securities reported as cash equivalents at June 30, 2005 and December 31, 2004 were as follows:

	June 30, 2005		December 31, 2004
Short-term time deposits	$	31,226	$	28,649
Commercial paper		15,790		23,792
	$	47,016	$	52,441

Investments in debt securities with remaining maturities in excess of three months which are held for purposes of funding our current operations are classified as available for sale and reported as short-term investments in the condensed consolidated balance sheets. A portion of our investments consists of auction rate securities (ARS) which have an interest rate that resets generally every 7 to 28 days. Short-term investments at June 30, 2005 and December 31, 2004 were as follows:

	Amortized Cost		Unrealized Loss			Estimated Fair Value
June 30, 2005
Auction rate securities	$	140,350	$	—		$	140,350
U.S. governmental obligations		26,706		(95	)		26,611
	$	167,056	$	(95	)	$	166,961
December 31, 2004
Auction rate securities	$	118,000	$	—		$	118,000
U.S. governmental obligations		26,706		(174	)		26,532
	$	144,706	$	(174	)	$	144,532

8

i2 TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In addition to our short-term investments, the company holds minority equity investments in several privately-held companies, many of which can still be considered in the start-up or development stages or may no longer be viable or operational. As a result of significant declines in the expected realizable amounts of these investments, in previous periods we wrote off the book value of all these investments as the decline in fair value was considered other than temporary. In June 2005, the company liquidated its ownership in one of these investments, resulting in a gain on sale of securities of $11 million.

3. Leases

We lease our office facilities and certain office equipment under operating leases that expire at various dates through 2011. We have renewal options for most of our operating leases. During the first quarter of 2005, we started the consolidation of our three India facilities to one location. The aggregate future lease payments for the new India facility, which are included in the table below, is approximately $7.1 million. Phase one of the consolidation was completed in the first quarter of 2005 and the second phase was completed in the second quarter of 2005.

Future minimum lease payments under all non-cancellable operating leases, including lease payments for restructured facilities, but excluding estimated sublease income of $2.2 million from restructured facilities (See Note 5, Restructuring Charges and Adjustments for more details) as of June 30, 2005 are as follows:

2005	$	9,825
2006		14,188
2007		9,435
2008		7,279
2009		7,120
Thereafter		3,885
Total	$	51,732

4. Borrowings and Debt Issuance Costs

We have two long-term debt obligations outstanding as of June 30, 2005, which we have recorded as long-term liabilities. The costs incurred for the issuance of these debts are capitalized and amortized over the term of the debt obligation in accordance with SFAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases.” The following table summarizes the long-term debt and related debt issuance cost recorded on our condensed consolidated balance sheet at June 30, 2005 and December 31, 2004.

	June 30, 2005		December 31, 2004
Convertible subordinated notes, 5.25% annual rate payable semi-annually, due December 15, 2006	$	310,000	$	310,000
Non-negotiable promissory note, 5.25% annual rate payable semi-annually, due December 15, 2006		6,800		6,800
	$	316,800	$	316,800
Capitalized bond issuance costs, net	$	1,842	$	2,473

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i2 TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. Restructuring Charges and Adjustments

2005 Restructuring Plan. On March 30, 2005, we implemented a restructuring plan to “resize” our infrastructure and reduce our overhead to improve efficiencies and reduce operating expense. The restructuring included involuntarily terminating 184 employees and closing or partially vacating four office locations. These activities are being accounted for in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” During the first quarter of 2005, we recorded a restructuring charge of $10.4 million for the involuntary terminations and $2.1 million for the office closures.

2004 Restructuring Plan. In response to our operating losses, in March 2004, we initiated a global workforce reduction plan to reduce our operating expenses and bring them in line with our then-current revenue levels. During the first quarter of 2004, 11 employees were involuntarily terminated and we recorded restructuring charges totalling approximately $0.6 million related to the severance payments paid to the 11 employees. During the second quarter of 2004, severance costs of approximately $4.4 million were recorded related to the severance payments of an additional 152 employees involuntarily terminated. No other severance costs were recorded during the remainder of 2004. These activities are being accounted for in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The total cost incurred for the 2004 restructuring plan was $5.0 million.

2002 Restructuring Plan. In July 2002, we initiated a global restructuring plan to reduce our operating expenses and to bring them into alignment with our expected revenue levels. Overall expense reductions were necessary to lower our existing cost structure and to realign and reallocate our resources in a manner commensurate with our new operating plan. Declining revenues, gross margins, losses and other performance measures such as revenue per employee during 2002 precipitated the restructuring plan. The plan included the elimination of certain employee positions and the reduction of office space and related overhead expenses. The restructuring charges recorded in the third and fourth quarters of 2002 primarily consisted of severance and termination costs for the involuntarily terminated employees and office closure costs. The majority of the restructuring activity related to the 2002 restructuring charges occurred during 2002 and the remaining actions, such as additional office closures and consolidations and asset disposals, were completed during 2003. During 2002, we recorded restructuring charges totalling $111.9 million. Of this amount, $56.8 million related to employee severance and termination, $35.2 million related to office closure and consolidation and $19.9 million related to asset disposal losses.

2001 Restructuring Plan. During 2001, we implemented a global restructuring plan to reduce our operating expenses with a goal of improving our financial position. The restructuring plan was initiated in response to poor economic conditions during 2001, which led to increasing net losses and declining gross margins and other performance measures such as revenue per employee. The restructuring plan encompassed terminating employees and reducing office space and related overhead expenses. Charges related to the restructuring plan primarily consisted of severance and termination costs for the involuntarily terminated employees and office closure costs. The majority of the restructuring activity occurred during 2001, with the remaining actions, including closing and consolidating certain offices, completed in 2002. During 2001, we recorded restructuring charges totalling $113.3 million. Of this amount, $60.7 million related to employee severance and termination, $41.6 million related to office closure and consolidation and $11.0 million related to asset disposal losses.

10

i2 TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidated Restructuring Accrual

The following table summarizes the 2005 restructuring related payments and accruals, and the components of the remaining restructuring accruals, included in accrued liabilities, at June 30, 2005 and December 31, 2004:

	Employee Severance and Termination			Office Closure and Consolidation			Total
Beginning accrual balance at January 1, 2005	$	283		$	3,299		$	3,582
2005 restructuring plan expense		10,400			2,132			12,532
Adjustments to 2001 and 2002 restructuring plans		—			(391	)		(391	)
Non-Cash write-off of fixed assets		—			(139	)		(139	)
Cash payments		(2,832	)		(608	)		(3,440	)
Remaining accrual balance at March 31, 2005	$	7,851		$	4,293		$	12,144
Adjustments to 2001, 2002, and 2005 restructuring plans		402			(637	)		(235	)
Non-Cash write-off of fixed assets		—			(24	)		(24	)
Cash payments		(6,341	)		(879	)		(7,220	)
Remaining accrual balance at June 30, 2005	$	1,912		$	2,753		$	4,665

In May 2003, we entered into a lease termination agreement with the owner of one of our headquarters buildings that we vacated in January 2003 as part of our restructuring plan. This lease, originally scheduled to expire in 2011, would have required us to pay approximately $43.4 million through the lease’s original date of termination. In consideration for the early termination of the lease, we paid approximately $7.6 million in cash and issued a $6.8 million non-negotiable promissory note due and payable on December 15, 2006. The note bears interest at a rate of 5.25% per annum, payable semi-annually in arrears.

We expect the remaining accrual for employee severance and termination to be substantially paid by September 30, 2005.

The accrual for office closure and consolidation of $2.8 million at June 30, 2005 represents future payments to be made for facilities that we have exited as part of our 2001, 2002 and 2005 restructuring plans. This accrual is net of estimated sublease income of $2.2 million. The remaining payments related to restructured facilities extends into the third quarter of 2007.

6. Net Income (Loss) Per Common Share

Net Income (Loss) Per Common Share. Basic net income (loss) per common share was computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the reporting period following the two-class method. Under the two class method, participating convertible securities are required to be included in the calculation of basic net income when the effect is dilutive. Accordingly, for the three and six month periods ended June 30, 2005 and the three month period ended June 30, 2004, the effect of the convertible preferred stock is included in the calculation of basic net income per share.

Diluted income (loss) per common share includes the dilutive effect of stock options, share rights awards, and warrants granted using the treasury stock method, and the effect of contingently issuable shares earned during the period and shares issuable under the conversion feature of our convertible debt and convertible preferred stock using the if-converted method. A loss causes all common stock equivalents to be anti-dilutive due

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to an increase of the weighted average shares from the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. Therefore, for the six months ended June 30, 2004 the basic and dilutive loss per common share are the same. As described in Recent Accounting Pronouncements, EITF 04-8 requires the inclusion of the effect of contingently convertible instruments in the calculation of diluted income per share including when the market price of our common stock is below the conversion price of the convertible security. Accordingly, the effect of our convertible debt is included in the calculation of diluted earnings per share. The effect of our convertible preferred stock is included in basic earnings per share under the two-class method per EITF 03-6, “Participating Securities and the Two-Class Method” under FASB Statement No. 128; therefore, it is similarly included in diluted income per share. The effect of the convertible preferred stock in the three and six month periods ended June 30, 2004 has been adjusted to give effect to it being outstanding for one month in both periods.

The following is a reconciliation of the number of shares used in the calculation of basic income (loss) per share under the two-class method and diluted earnings (loss) per share and the number of shares excluded from such computations for the three and six months ended June 30, 2005 and 2004:

	Three Months ended June 30,		Six Months ended June 30,
	2005	2004	2005	2004
Common and common equivalent shares outstanding using two-class method – basic
Weighted average common shares outstanding	18,778	17,783	18,695	17,580
Participating convertible preferred stock	4,382	1,440	4,382	—
Total common and common equivalent shares outstanding using two-class method – basic	23,160	19,223	23,077	17,580
Effect of dilutive securities:
Outstanding stock option and share right awards	152	91	207	—
Convertible debt	326	368	326	—
Weighted average common and common equivalent shares outstanding – diluted	23,638	19,682	23,610	17,580
Anti-dilutive shares excluded from calculation:
Outstanding stock option and share right awards	3,456	3,481	3,218	3,633
Convertible debt	—	—	—	368
Convertible preferred stock	—	—	—	720
Total anti-dilutive shares	3,456	3,481	3,218	4,721

7. Segment Information, International Operations and Customer Concentrations

We operate our business in one segment, supply chain management solutions designed to help enterprises optimize business processes both internally and among trading partners. SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” establishes standards for the reporting of information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, who is our Chief Executive Officer (CEO), in deciding how to allocate resources and in assessing performance.

We market our software and services primarily through our worldwide sales organization augmented by other service providers, including both domestic and international systems consulting and integration firms and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

other industry-related partners. Our chief operating decision maker evaluates resource allocation decisions and our performance based on financial information, presented on a consolidated basis, accompanied by disaggregated information by geographic regions. Sales to our customers generally include products from some or all of our product suites. We have not consistently allocated revenues from such sales to individual products for internal or general-purpose financial statements.

Revenues are attributable to regions based on the locations of the customers’ operations. Total revenues by geographic region, as reported to our CEO, were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
United States	$	47,163	$	75,274	$	94,982	$	125,845
Non-U.S. Americas		2,499		2,647		4,665		4,875
EMEA		30,651		17,189		56,762		34,773
Greater Asia Pacific		18,240		15,519		30,446		28,758
	$	98,553	$	110,629	$	186,855	$	194,251

Revenues from international operations totalled $51.4 million and $35.4 million during the three months ended June 30, 2005 and 2004, respectively. Revenues from international operations totalled $91.9 million and $68.4 million during the six months ended June 30, 2005 and 2004, respectively. During the three months ended June 30, 2005, one customer located in EMEA accounted for approximately 15% of total revenues. This pertained to the recognition of contract revenue, which is not indicative of a significant concentration of revenue associated with our on-going operations. During the other periods presented, no individual customer accounted for more than 10% of total revenues.

Long-lived assets by geographic region, as reported to our CEO, were as follows:

	June 30, 2005		December 31, 2004
United States	$	31,795	$	34,523
EMEA		633		995
Greater Asia Pacific		2,418		2,562
Total Long-Lived Assets	$	34,846	$	38,080

8. Commitments and Contingencies

Governmental Investigations and Actions

Beginning in the fall of 2001, we and certain members of our Board of Directors received a series of communications from a former officer containing a variety of allegations generally related to revenue recognition and financial reporting, among other things. Our Board of Directors directed our Audit Committee to conduct an internal investigation of these allegations. In November 2002, we reported to the SEC and publicly disclosed the results of that investigation, as well as certain related allegations made during the fall of 2002 by the former officer and another former officer. Thereafter, the staff of the SEC opened an informal inquiry into these allegations and other matters relating to our financial reporting.

In January 2003, our ongoing investigation turned up information that persuaded management and the Audit Committee that material adjustments to our previously issued financial statements might be required and that our

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

consolidated financial statements for the years ended December 31, 2001 and 2000 should be re-audited. In March 2003, we were advised that the SEC had issued a formal order of investigation to determine whether there had been violations of the federal securities laws by the company and/or others involved with the company in connection with matters relating to the restatement of our consolidated financial statements.

On June 9, 2004, the company settled the SEC enforcement proceedings. Without admitting or denying the SEC’s substantive findings against it, the company consented to a cease-and-desist order requiring future compliance with specific provisions of the federal securities laws and paid a $10.0 million civil penalty.

The settlement of the SEC enforcement proceedings covers the company only. On July 15, 2005, the SEC filed a civil action against three former officers of the company: Gregory A. Brady, William M. Beecher and Reagan L. Lancaster. The complaint relates to events that occurred prior to the restatement of the company’s financial statements in 2003. The SEC’s investigation continues as to other individuals and entities, and the company continues to cooperate with the staff of the SEC in connection with that ongoing investigation. In addition, the company continues to cooperate with the U.S. Attorney’s Office for the Northern District of Texas which is also investigating matters that are the subject of the SEC’s ongoing investigation.

Patent Infringement Suit

On April 12, 2004, a complaint was filed in the United States District Court in Marshall, Texas against the company by Sky Technologies. The complaint alleged that we had infringed upon certain of the patents of Sky Technologies and further alleged that we misappropriated certain of the plaintiff’s trade secrets. The plaintiff claimed an unspecified amount of damages. On March 30, 2005, the parties reached an agreement to resolve all claims and issues between the company and Sky Technologies.

Internal Revenue Service Audit

We are currently being examined by the Internal Revenue Service regarding matters relating to the timing of our remittance of withholding taxes, which were previously remitted, associated with the exercise of certain stock options by employees in the 2000 tax year. We have filed a protest regarding the IRS’s position on the matter and the protest is being reviewed by the IRS. The IRS has not issued an assessment with respect to any monetary penalties claimed to be owed by us. Such penalties could be significant, however, and we presently intend to seek full statutory abatement of any such penalties which might be assessed. Since we do not believe it is possible at this time to estimate the amount of penalties the IRS may assess, no accrual for a loss contingency relating to this matter has been recorded.

India Tax Assessments

On March 29, 2005, we were notified by the Office of the Addl. Commissioner of Income-Tax in India of assessments totaling approximately $2.4 million and interest of approximately $0.9 million related to transfer pricing adjustments between our affiliated companies for the Indian statutory fiscal year ended March 31, 2002. The Office of the Addl. Commissioner of Income-Tax has asserted that intercompany charges from our Indian subsidiaries to our U.S. and Dutch subsidiaries were understated during this period. The assessment of a penalty in an amount up to an additional $2.4 million in the future is possible. We disagree with this position and have appealed the assessments and interest on the basis that the intercompany transactions were conducted at appropriate pricing levels. These assessments have resulted in no effect to our condensed consolidated statement of operations as we have accrued tax contingency reserves for such matters.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Customer Litigation

On September 30, 2004, we were served with a complaint in a suit filed in the District Court of Dallas County, Texas by Kmart Corporation against the company, Sanjiv Sidhu, our current Chairman and former Chief Executive Officer and President, and Gregory Brady, our former Chief Executive Officer and President. The complaint alleges fraudulent inducement, breach of contract, breach of fiduciary duty, rescission and unjust enrichment in relation to the license agreement, dated as of September 29, 2000, between our company and Kmart. The complaint states that Kmart paid in excess of $40.0 million for software and technology and in excess of $10.0 million for implementation services in connection with the license agreement. The prayer for relief requests rescission of the license agreement, actual and punitive damages, fees, costs and other disbursements. We are vigorously defending the company against this action.

Certain Accruals

We have accrued for estimated losses in the accompanying condensed consolidated financial statements for matters where we believe the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable. We are subject to various claims and legal proceedings that arise in the ordinary course of our business from time to time, including claims and legal proceedings that have been asserted against us by former employees and certain customers, and have been in negotiations to settle certain of those contingencies. The adverse resolution of any one or more of those matters or the matters described in this Note 8 over and above the amount, if any, that has been estimated and accrued in our condensed consolidated financial statements could have a material adverse effect on our business, financial condition or results of operations.

Indemnification Agreements

We have entered into indemnification agreements with certain of our officers, directors and employees that may require us, among other things, to indemnify such officers, directors and employees against certain liabilities that may arise by reason of their status or service as directors, officers or employees and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. Pursuant to these agreements, we have advanced fees and expenses incurred by certain current and former directors, officers and employees in connection with the governmental investigations and actions related to the 2003 restatement of our consolidated financial statements and other matters and may continue to do so in the future.

We have also entered into agreements regarding the advancement of costs with certain officers and employees. Pursuant to these agreements, we have advanced fees and expenses incurred by certain officers and employees in connection with the governmental investigations and actions related to the 2003 restatement of our consolidated financial statements and other matters and may continue to do so in the future.

The maximum potential amount of future payments we could be required to make under these indemnification agreements and the agreements for the advancement of costs is unlimited. Additionally, our corporate by-laws allow us to choose to indemnify any employee for certain events or occurrences while the employee is, or was, serving at our request in such capacity. We incurred approximately $1.2 million and $2.0 million of expense for legal fees and expenses for current and former employees during the three and six months ended June 30, 2005, respectively.

9. Reverse Stock Split

All references to common stock and per share amounts for all prior periods presented have been retroactively restated to reflect the 1-for-25 reverse stock split of our common stock, which was effected at 6:01 p.m. EDT on February 16, 2005.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. Related Party Transactions

In June 1998, Michael E. McGrath, our current Chief Executive Officer, President and Director, founded Integrated Development Enterprise, Inc. or IDe, a private company based in Concord, Massachusetts providing integrated software solutions for development chain management. He has served as Chairman of IDe since October 1998. Prior to our hiring of Mr. McGrath as our Chief Executive Officer and President on February 27, 2005, Mr. McGrath had been bound by the terms of an agreement with IDe pursuant to which he was committed to provide approximately 52 days of service per year to IDe, through January 31, 2007. As consideration for the release of Mr. McGrath from that commitment, we entered into a preferred stock purchase agreement with IDe, dated as of February 28, 2005, pursuant to which we agreed to purchase up to $1.0 million of convertible preferred stock of IDe. Q Funding III, L.P., an affiliate of Q Investments and R² Investments, LDC, the holder of all of our outstanding shares of Series B preferred stock, also committed to purchase up to $1.0 million of IDe convertible preferred stock, on identical terms, pursuant to the terms of the same preferred stock purchase agreement. On March 7, 2005, both we and Q Funding purchased half of the preferred stock that each of us committed to acquire. The funding of the balance of commitments under the preferred stock purchase agreement will take place, if at all, on or prior to February 28, 2007, subject to the satisfaction of certain conditions. Mr. McGrath was released from his service obligation to IDe upon execution and delivery of the preferred stock purchase agreement. Mr. McGrath will continue as chairman of IDe. Mr. McGrath and members of his family hold less than 10% of the common stock of IDe on a fully-diluted basis. Our share of the investment is recorded as $0.5 million long-term investment in the condensed consolidated balance sheet at June 30, 2005.

On June 28, 2005, we sold 1,923,077 shares of our common stock to R² Investments, LDC, an affiliate of Q Investments, the holder of all of our outstanding shares of Series B preferred stock. The stock was sold at a price of $7.80 per share, the closing price on June 23, 2005 when our Board of Directors approved the transaction. We received approximately $15.0 million of net proceeds from this sale.

11. Restatement of Financial Statements

We invest in auction-rate securities as part of our cash management strategy. These investments had been historically classified as cash and cash equivalents because of the short duration of their interest rate reset periods. We determined that these investments should not be classified as cash equivalents due to their underlying maturities. As a result, the accompanying Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2004 has been restated to reflect purchases and sales of auction-rate securities as investing cash flows.

In addition, we have determined it is appropriate to classify changes in restricted cash balances as investing activities on our Condensed Consolidated Statement of Cash Flows.

These restatements related to the classification of auction rate securities and changes in restricted cash have no impact on our total current assets, our total assets, or our net income (loss) or net income (loss) per share for any period presented.

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i2 TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Following is a summary of the effects of the change in classification described above (in thousands of U.S. dollars):

Condensed Consolidated Cash Flow Statement Information

	Six Months Ended June 30, 2004
	As Previously Reported		Adjustment		As Restated
Changes in restricted cash	6,189		(6,189	)	—
Net cash used in operating activities	(74,623	)	(6,189	)	(80,812	)
Restrictions released from cash	—		6,189		6,189
Purchase of short-term investments	(30,000	)	(268,425	)	(298,425	)
Sales of short-term investments	5,000		269,450		274,450
Cash flows from investing activities	(51,695	)	7,214		(44,481	)
Net change in cash and cash equivalents	(9,389	)	1,025		(8,364	)
Cash and cash equivalents at beginning of period	288,822		(182,000	)	106,822
Cash and cash equivalents at end of period	279,433		(180,975	)	98,458

12. Subsequent Events

On July 1, 2005, we received notification requiring us to purchase an additional $0.3 million of convertible preferred stock of IDe. This convertible preferred stock will be recorded as a long-term investment in our consolidated balance sheet.

On July 1, 2005, we completed the sale of Trade Service Corporation, our subsidiary, for approximately $3 million. The sale was to a group of investors led by Trade Service Corporation’s current management team.

On July 21, 2005, our common stock was re-listed by The NASDAQ Listing Qualifications Panel and began trading on The NASDAQ National Market under the trading symbol “ITWO.”

On July 28, 2005, we announced the appointment of Michael J. Berry to serve as our Executive Vice President of Finance and Accounting and Chief Financial Officer, effective August 22, 2005. We also announced that Steven Minisini, our Executive Vice President and President, Americas Region, and Kenneth Coulter, our Executive Vice President and President, EMEA Region, were leaving the company. On July 29, 2005, we disclosed that our Board of Directors had appointed Randy Eisenman a director of the company, effective July 26, 2005 to fill a vacancy created by the departure of Pranav Parikh. Mr. Eisenman was designated to replace Mr. Parikh by Q Investments, an affiliate of which holds all of the outstanding shares of Series B Preferred Stock.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical or current facts, including, without limitation, statements about our business strategy, plans, objectives and future prospects, are forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from these expectations, which could have a material adverse effect on our business and thereby cause our stock price to decline. Such risks and uncertainties include, without limitation or ordering as to priority, the following:

• We have experienced substantial negative cash flows and we may not achieve a return to positive cash flow. A failure to rationalize expenses, stabilize or grow revenues and achieve positive cash flows will eventually impair our ability to support our operations and adversely affect our liquidity.

• Our $316.8 million of debt matures in December 2006. Accordingly, we anticipate that we will seek additional private or public debt or equity financing, which could also have a dilutive effect on our stockholders. However, we may not be able to obtain debt or equity financing on satisfactory terms, or at all.

• We face risks related to ongoing governmental investigations and litigation that could have a material adverse effect on our relationships with customers and our business, financial condition and results of operations. We may face additional litigation in the future that could also harm our business and impair our liquidity.

• We may not be competitive and increased competition could seriously harm our business.

• Further loss of key personnel, including customer-facing employees, may negatively affect our operating results and revenues and seriously harm our company.

• Restructuring and reorganization initiatives have recently been executed, and such activities pose risks to our business.

• We have been and continue to be subject to claims pertaining to the quality of our products and services, and questions regarding our financial viability. These claims and perceptions, if unresolved or not addressed, could seriously harm our business and our stock price.

• Our financial results have varied and may continue to vary significantly from quarter to quarter and we may again fail to meet expectations, which might negatively impact the price of our stock.

• Other risks indicated below under the section captioned “Factors that May Affect Future Results” and in our other filings with the SEC.

Many of these risks and uncertainties are beyond our control and, in many cases, we cannot accurately predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. When used in this document, the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “continue,” “may,” “will,” “should” or the negative of such terms and similar expressions as they relate to us, our customers or our management are intended to identify forward-looking statements.

References in this report to the terms “optimal” and “optimization” and words to that effect are not intended to connote the mathematically optimal solution, but may connote near-optimal solutions, which reflect practical considerations such as customer requirements as to response time, precision of the results and other commercial factors.

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Overview

We are a provider of enterprise supply chain management solutions, including various supply chain software and service offerings. We operate our business in one business segment. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The goals of our solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by improving agility, managing variability, reducing complexity, improving operational visibility, increasing operating velocity as well as integrating planning and execution. We also offer master data management technology which is designed to collect, synthesize and distribute critical reference data. Our offerings help customers improve efficiency in relation to sourcing, supply, demand, fulfillment and logistics performance. Our application software is often licensed in conjunction with other offerings including content and services we provide such as business optimization and technical consulting, training, solution maintenance, content management, software upgrades and development.

Application of Critical Accounting Policies and Accounting Estimates

There have been no changes during the second quarter of 2005 to our critical accounting policies as we described in our 2004 Annual Report on Form 10-K filed on March 16, 2005, as amended on Form 10-K/A, filed August 9, 2005.

Revenues

The following table sets forth revenues and the percentages of total revenues of selected items reflected in our condensed consolidated statements of operations and comprehensive income (loss). The period-to-period comparisons of financial results are not necessarily indicative of future results.

	Three Months Ended June 30, 2005		Percent of Total Revenue		Three Months Ended June 30, 2004		Percent of Total Revenue		Six Months Ended June 30, 2005		Percent of Total Revenue		Six Months Ended June 30, 2004		Percent of Total Revenue
	(Dollars in Thousands)
Revenues
Software products	$	3,818	4	%	$	2,833	3	%	$	5,155	3	%	$	6,332	3	%
Subscriptions and other recurring revenue		11,435	12	%		9,194	8	%		23,004	12	%		18,083	9	%
Software licenses	$	15,253	15	%	$	12,027	11	%	$	28,159	15	%	$	24,415	13	%
Development services		16,828	17	%		9,192	8	%		36,893	20	%		15,809	8	%
Contract		15,343	16	%		31,970	29	%		18,399	10	%		37,940	20	%
Services		22,494	23	%		24,580	22	%		46,317	25	%		49,537	26	%
Reimbursable expenses		3,139	3	%		3,062	3	%		5,773	3	%		5,748	3	%
Maintenance		25,496	26	%		29,798	27	%		51,314	27	%		60,802	31	%
Total revenues	$	98,553	100	%	$	110,629	100	%	$	186,855	100	%	$	194,251	100	%

Total revenues decreased $12.1 million, or 11%, for the three months ended June 30, 2005 as compared to the three months ended June 30, 2004. Excluding contract revenue, revenues increased $4.6 million, or 6%, for the three months ended June 30, 2005 as compared to the three months ended June 30, 2004. Total revenues decreased $7.4 million, or 4%, for the six months ended June 30, 2005 as compared to the six months ended June 30, 2004. Excluding contract revenue, revenues increased $12.1 million, or 8%, for the six months ended June 30, 2005 as compared to the six months ended June 30, 2004. Details of our revenues are presented below.

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Software Licenses. Software license revenue includes amounts related to software product sales, content subscriptions and other revenues classified as license revenue. Software license revenue totalled $15.3 million, or 15% of total revenues, for the three months ended June 30, 2005, increasing $3.2 million, or 27%, from the same period in 2004. Software license revenue totalled $28.2 million, or 15% of total revenues, for the six months ended June 30, 2005, increasing $3.7 million, or 15% from the same period in 2004.

Revenue from software product licenses totalled $3.8 million, or 25% of our total software license revenue, for the three months ended June 30, 2005. Software product license revenue increased $1.0 million, or 35%, for the three months ended June 30, 2005 as compared to the three months ended June 30, 2004. For the six months ended June 30, 2005, revenue from software product licenses totalled $5.2 million, or 18% of our total license revenue. This represented a decrease of $1.2 million, or 19%, compared to the six months ended June 30, 2004. We have experienced variability in the timing of recognition of revenue from software product licenses and expect this variability to continue. This variability is caused by the timing of contract execution, delivery of localized versions of software products, and cash receipts for arrangements where significant uncertainty exists regarding collectibility of license fees. Another source of variability for software product license revenue is our focus on selling new products where there is a high likelihood of providing essential services associated with the new products. License fees received for these arrangements, together with fees for the essential services, are classified as development services over the period in which the services are performed instead of being recognized as software product license revenue upon delivery of the software.

Revenue from subscriptions and other recurring revenue classified as software license revenue increased $2.2 million, or 24%, for the three months ended June 30, 2005 versus the comparable period in 2004 and increased $4.9 million, or 27%, for the six months ended June 30, 2005 versus the comparable period in 2004. The increase in revenue is primarily attributable to four supply chain leader transactions executed in 2004 that resulted in recurring revenue of $3.1 million and $6.2 million for the three and six months ended June 30, 2005, respectively. These transactions, which each have terms of three years or more, include rights to certain current and future products that may become available during the term of each respective contract. These increases related to supply chain leader transactions were partially offset by a decline in revenue from content subscriptions resulting from lower content subscription renewals. In the three months ended June 30, 2005, we entered into a transaction with Dassault Systèmes and received $10 million in connection with the transaction. This transaction included the sale of a license to certain software and a competency center for the development of sourcing solutions for collaborative PLM. This amount will be recognized as subscription revenue over the eight-year term of the agreement. The revenues related to our subscription arrangements are recognized ratably over the term of the arrangement.

Development Services. Development services revenue includes license and services fees related to transactions that involve or are likely to involve our provision of essential services. We consider essential services to be customizations or enhancements needed for a customer’s intended use of the software, as well as implementation services associated with software products that are new and have not been widely implemented in the marketplace and therefore have a higher likelihood of requiring our provision of essential services than more mature software products.

Revenue from development services projects increased $7.6 million, or 83%, during the three months ended June 30, 2005 over the comparable period in 2004, and increased $21.1 million, or 133%, during the six months ended June 30, 2005 over the comparable period in 2004. The increase for the six month period includes $8.5 million related to the termination of an agreement with Shell Global Solutions International B.V., which is considered a one-time event. Excluding the effect of this one-time event, revenue from development services projects increased $12.6 million, or 80%, during the six months ended June 30, 2005 over the comparable period in 2004. The increase in revenue from development services is a result of an increase in demand for customizations and enhancements of our software along with increased sales of new technologies that are more likely to involve essential services. Based on our historical trends, we expect development services to continue to fluctuate on a quarterly basis due to the timing of revenue recognition on these projects. However, we do not

20

expect the trend to increase, in the near term, as it did in the three and six months ended June 30, 2005 as several projects were completed by June 30, 2005. In any period, development services revenue is dependent upon a variety of factors, including:

• the volume of development services transactions booked during the current and preceding periods;

• the number and availability of development or services resources actively engaged on billable projects;

• the timing of milestone acceptance for engagements contractually requiring customer sign-off;

• the timing of cash payments when collectibility is uncertain; and

• the inclusion of new products in license agreements that are more likely to involve our provision of essential services.

Contract. Contract revenue consists of license, service, and maintenance fees associated with certain license arrangements for which we determined to change the accounting to contract accounting under SOP 81-1 in connection with the 2003 restatement of our consolidated financial statements. Although contract revenue recognition is not indicative of the current operations of our business, certain contracts that were deferred at the time of the restatement have generated additional fees paid to us after the restatement that have also been deferred pending resolution of the outstanding obligations of the specific contract. During the three months ended June 30, 2005, we resolved the outstanding contractual obligations associated with one customer that triggered the recognition of $14.3 million of contract revenue. Prior to the resolution of this matter, including during the three and six month periods ended June 30, 2005 and 2004, we had been required to defer approximately $0.5 million per quarter of revenue which would have otherwise been recognizable as maintenance revenue. Such historical amounts are included in the $14.3 million of recognized contract revenue for this transaction, which is consistent with the historical treatment of similar contract revenue items. For the remainder of this customer’s maintenance term, this $0.5 million quarterly amount will be recognized as maintenance revenue. None of the remaining deferred transactions are resulting in the deferral of current operating revenues.

Contract revenues decreased $16.6 million, or 52%, for the three months ended June 30, 2005 compared to the same period in 2004 and decreased $19.5 million, or 52% for the six months ended June 30, 2005 compared to the same period in 2004. The decrease in contract revenue during the 2005 periods is a result of the lower level of deferred contract revenue and decreased number of deferred transactions remaining to be recognized and the occurrence of fewer events which would allow the recognition of these revenues. In the future, we continue to expect significantly reduced contract revenue due to the fact that the revenue deferred from prior periods has substantially decreased. As of June 30, 2005, the deferred contract revenue balance was $31.8 million, comprised of five deferred transactions. Due to the limited number of deferred transactions, we expect contract revenues to continue to fluctuate significantly on a quarterly basis due to the timing of revenue recognition events.

Services. Services revenue decreased $2.1 million, or 8%, for the three months ended June 30, 2005 compared to the same period in 2004, and decreased $3.2 million, or 7%, for the six months ended June 30, 2005 compared to the same period in 2004. The decrease in services revenue was primarily due to the lower volume of license sales, which led to fewer implementations. Our volume of upgrade projects has also declined as many of our customers have already migrated to the newest versions of our products. Additionally, as we focus on new technologies that may involve providing essential services associated with the software, fees received in conjunction with providing those services are classified as development services revenue as described above.

The market for information technology consulting services is challenging and we are affected by these market conditions. Although we have recently experienced increases in our services rates and margins, services revenue may continue to decline unless and until we experience a sustained increase in our software product licenses and maintain adequate resource capacity and capabilities. We also expect that services revenue will continue to fluctuate on a quarter-to-quarter basis, as revenue from the implementation of software is not

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generally recognized in the same period as the related license revenue. In any period, services revenue is dependent on a variety of factors, including:

• the volume of license transactions closed during the current and preceding periods;

• our customers upgrading to more recent software versions;

• customer decisions regarding implementations of licensed software, including utilization of internal resources or third-party systems integration firms;

• the number and availability of our internal service providers and consultants actively engaged on billable projects;

• the timing of milestone acceptance for engagements contractually requiring customer sign-off; and

• the timing of cash payments when collectibility is uncertain.

Reimbursable Expenses. Reimbursable expenses revenue was comparable in the three and six month periods ended June 30, 2005 and 2004. These revenues and associated costs will generally fluctuate in direct relation to our services revenue.

Maintenance. Maintenance revenue decreased $4.3 million, or 14%, during the three months ended June 30, 2005 compared to the same period in 2004, and decreased $9.5 million, or 16%, during the six months ended June 30, 2005 as compared to the same period in 2004. The decrease in maintenance revenue during the 2005 periods resulted from a continued decline in maintenance renewals by our customers, decreases in license bookings and less favorable renewal terms. In addition, we executed four supply chain leader transactions in 2004. These transactions were with customers who previously utilized our software through perpetual license agreements with annual maintenance contracts, and are being recorded as license subscription revenue. There can be no assurance that maintenance revenues will improve, or even remain at current levels.

International Revenue. Our international revenues, included in the categories discussed above, are primarily generated from customers located in Europe, Greater Asia and Canada. International revenue totalled $51.4 million, or 52% of total revenue, during the three months ended June 30, 2005 and $35.4 million, or 32% of total revenue, during the comparable period in 2004. International revenue totalled $91.9 million, or 49% of total revenue, during the six months ended June 30, 2005 and $68.4 million, or 35% of total revenue, during the comparable period in 2004. The increase in international revenue during the three months ended June 30, 2005 compared to the same period in 2004 was due mainly to the $14.3 million of contract revenue recognized related to one international customer. The increase in international revenue during the six months ended June 30, 2005 compared to the same period in 2004 was primarily due to the contract revenue recognized and $8.5 million of revenue recognized under the agreement we reached with Shell Global Solutions International B.V. for the settlement of outstanding contract disputes.

Customer Concentration. During the three months ended June 30, 2005, one customer located in EMEA accounted for 15% of our total revenue. This related to the recognition of contract revenue, which does not represent a significant concentration of revenues associated with on-going operations. During the other periods presented, no individual customer accounted for more than 10% of total revenues.

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Costs of Revenues

The following table sets forth cost of revenues and the gross margins of selected items reflected in our condensed consolidated statements of operations and comprehensive income (loss). The period-to-period comparisons of financial results are not necessarily indicative of future results.

	Three Months Ended June 30, 2005		Gross Margin		Three Months Ended June 30, 2004		Gross Margin		Six Months Ended June 30, 2005		Gross Margin		Six Months Ended June 30, 2004		Gross Margin
	(Dollars in Thousands)
Software licenses	$	2,201	86	%	$	196	98	%	$	4,904	83	%	$	3,373	86	%
Development services		3,318	80	%		4,045	56	%		7,919	89	%		10,651	33	%
Contract		1,575	90	%		1,025	97	%		1,575	91	%		1,131	97	%
Amortization of acquired technology		—				134				—				279
Reimbursable expenses		3,139	0	%		3,062	0	%		5,773	0	%		5,748	0	%
Services and maintenance		22,299	54	%		27,207	50	%		47,067	52	%		56,498	49	%
Total cost of revenues	$	32,532			$	35,669			$	67,238			$	77,680

Cost of Software Licenses. Cost of software licenses consists of:

• Commissions paid to non-customer third parties in connection with joint marketing and other related agreements. Such commissions are expensed when the associated revenue transactions are recognized;

• Royalty fees associated with third-party software utilized with our technology. Such royalties are generally expensed when the products are shipped; however, royalties associated with fixed cost arrangements are generally expensed over the period of the arrangement;

• Annual maintenance fees based on customer usage of third-party software;

• Costs related to user documentation;

• Costs related to translation of products into other languages;

• Costs related to reproduction and delivery of software; and

• Provisions to our reserve for estimated costs to service customer claims. We accrue for customer claims on a case-by-case basis.

Cost of software licenses increased $2.0 million during the three months ended June 30, 2005 and increased $1.5 million during the six months ended June 30, 2005 compared to the same periods in 2004. In the second quarter of 2004, we reversed costs of approximately $3.2 million related to customer claim accruals that were no longer necessary as we did not expect to, nor did we, make payments related to those claims. Excluding the impact of this expense reversal, cost of software licenses decreased $1.2 million and $1.7 million for the three and six month periods ended June 30, 2005 compared to the same periods of 2004. The decrease in cost of software license, net of the expense reversal, is due to renegotiated prepaid third party royalty agreements and lower sales of product licenses requiring usage-based royalty fees, resulting in a lower expense run rate in 2005 than we experienced in 2004.

Cost of Development Services. Cost of development services decreased $0.7 million, or 18%, for the three months ended June 30, 2005 compared to the same period in 2004. Cost of development services decreased $2.7 million, or 26%, for the six months ended June 30, 2005 compared to the same period in 2004. The costs for the six months ended June 30, 2005 include $2.3 million related to services incurred on the Shell arrangement which was resolved and the related revenues were recognized in the three months ended March 31, 2005. Excluding the costs associated with this arrangement, cost of development services decreased $5.0 million, or 47% for the six months ended June 30, 2005. The gross margin on this business will vary as a result of the timing of revenue

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recognition, which in some arrangements is impacted by the attainment of contractual milestones. The increases in gross margin experienced in the 2005 periods as compared to 2004 were primarily the result of the timing of milestone sign-offs and, during the 2004 period, our performance of certain strategic development services projects at a lower margin to offset the cost of our planned product development and pressures on the rates for our services. Additionally, since development services revenue includes fees for both licenses and services in projects that involve essential services, the margin of development services is also impacted by the mix of license and services included in arrangements, since licenses generally yield a significantly higher margin than services.

Cost of Contract. Cost of contract increased $0.6 million, or 54%, for the three months ended June 30, 2005 compared to the same period in 2004. Cost of contract increased $0.4 million, or 39% for the six months ended June 30, 2005 compared to the same period of 2004. Because contract expenses are recorded when the corresponding contract revenue is recognized, we expect cost of contract to vary significantly. As of June 30, 2005, we have $0.3 million remaining in deferred contract costs associated with one deferred transaction.

Amortization of Acquired Technology. Amortization of acquired technology decreased $0.1 million and $0.3 million, or 100% during the three and six month periods ended June 30, 2005 compared to the same periods in 2004. Our acquired technology from 2001 and 2000 acquisitions was fully amortized in the third quarter of 2004, resulting in no expense in the three and six months ended June 30, 2005.

Cost of Services and Maintenance. The total cost of services and maintenance decreased $4.9 million, or 18%, for the three months ended June 30, 2005 compared to the same period in 2004. Cost of services and maintenance decreased $9.4 million, or 17%, for the six months ended June 30, 2005 compared to the same period in 2004. The decreases in cost were primarily the result of a 24% decrease in the number of our service and maintenance personnel at June 30, 2005 compared to June 30, 2004.

Operating Expenses

The following table sets forth operating expenses and the percentages of total revenue for those operating expenses in our condensed consolidated statements of operations and comprehensive income (loss). The period-to-period comparisons of financial results are not necessarily indicative of future results.

	Three Months Ended June 30, 2005		Percent of Total Revenue		Three Months Ended June 30, 2004		Percent of Total Revenue		Six Months Ended June 30, 2005		Percent of Total Revenue		Six Months Ended June 30, 2004		Percent of Total Revenue
	(Dollars in Thousands)
Sales and marketing	$	15,370	16	%	$	21,591	20	%	$	34,198	18	%	$	41,512	21	%
Research and development		11,214	11	%		19,115	17	%		26,344	14	%		38,807	20	%
General and administrative		11,592	12	%		12,753	12	%		37,235	20	%		38,214	20	%
Amortization of intangibles		—	0	%		—	0	%		—	0	%		39	0	%
Total operating expenses	$	38,716			$	53,459			$	97,777			$	118,572

Sales and Marketing Expense. Sales and marketing expense consists primarily of personnel costs, commissions, office facilities, travel, and promotional events such as trade shows, seminars, technical conferences, advertising and public relations programs. Sales and marketing expense decreased $6.2 million, or 29%, for the three months ended June 30, 2005 compared to the same period in 2004. Sales and marketing expense decreased $7.3 million, or 18%, for the six months ended June 30, 2005 compared to the same period in 2004. The decrease was primarily due to reductions in headcount. We had a 39% decrease in the number of sales and marketing personnel between June 30, 2004 and June 30, 2005.

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Research and Development Expense. Research and development expenses decreased $7.9 million, or 41%, for the three months ended June 30, 2005 compared to the same period in 2004, and decreased 12.5 million, or 32%, for the six months ended June 30, 2005 compared to the same period in 2004. The decreases were primarily caused by a 44% decrease in the number of our research and development personnel between June 30, 2004 and June 30, 2005, the continuation of our initiative to have the majority of our development personnel located in India, and a reduction in the usage of third-party contractors. As of June 30, 2005, approximately 69% of our research and development employees were located in India.

General and Administrative Expense. General and administrative expense includes the personnel and other costs of our finance, legal, accounting, human resources, information systems and executive departments. General and administrative expense decreased $1.2 million, or 9%, for the three months ended June 30, 2005 compared to the same period in 2004, and decreased $1.0 million, or 3%, for the six months ended June 30, 2005 compared to the same period in 2004. The decreases were primarily due to a 24% decrease in the number of our general and administrative personnel between June 30, 2004 and June 30, 2005, partially offset by the increased cost of our executive department and increased legal fees. Over the near term and perhaps for much longer, and regardless of the outcome, we expect to incur significant fees and expenses relating to the governmental investigations currently being conducted and our ongoing litigation.

Non-operating Expense, Net

Non-operating expense, net, was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
	(In Thousands)						(In Thousands)
Interest income	$	1,732		$	890		$	3,136		$	1,660
Interest expenses		(4,153	)		(4,705	)		(8,311	)		(9,388	)
Foreign currency hedge and transaction losses, net		(2,003	)		(773	)		(3,504	)		(1,252	)
Other expense, net		(604	)		210			(1,115	)		(489	)
Total non-operating expense, net	$	(5,028	)	$	(4,378	)	$	(9,794	)	$	(9,469	)

The increase in interest income over the comparable periods is primarily the result of the higher average balances of invested funds and higher market interest rates. The decrease in interest expense during the 2005 periods as compared to 2004 resulted from the early retirement of $40.0 million of convertible debt in August 2004.

Provision (Benefit) for Income Taxes

We recognized income tax expense, primarily foreign taxes, of $1.8 million and $1.3 million during the three months ended June 30, 2005 and 2004, respectively, representing effective income tax rates of 5.4% in the 2005 period and 9.6% in the 2004 period. We recognized income tax expense of $3.4 million and $2.1 million during the six months ended June 30, 2005 and 2004, respectively, representing effective income tax rates of 30.6% in the 2005 period and (13.4)% in the 2004 period. The effective tax rates vary from the statutory rate predominately due to fluctuations in our valuation allowance.

As part of the process of preparing unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pretax income can impact our effective tax rate. This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets. To the extent recovery of deferred tax assets is not likely based on our estimation of future taxable income in each jurisdiction, a valuation allowance is established. Tax liabilities can involve complex issues and may require an extended period to resolve.

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Contractual Obligations

During the three months ended June 30, 2005, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in our 2004 Annual Report on Form 10-K/A, as amended on August 9, 2005, except for the consolidation of our three India facilities into one location. The aggregate future lease payments for the new India facility is approximately $7.1 million. See Note 3 – Leases in our condensed consolidated financial statements.

Off-Balance-Sheet Arrangements

As of June 30, 2005, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Liquidity and Capital Resources

The following liquidity and capital resources discussion has been updated for the effects of the restatement discussed in Note 11 to the unaudited condensed consolidated financial statements.

Historically, we have financed our operations and met our capital expenditure requirements primarily through cash flows provided from operations, long-term borrowings and sales of equity securities. Our working capital was $123.8 million at June 30, 2005 compared to working capital of $101.2 million at December 31, 2004, an increase of $22.6 million or 22%. The increase in working capital was primarily the result of a $23.6 million decrease in current liabilities. The most significant changes in current liabilities were a $17.1 million decrease in deferred revenue and a $4 million decrease in accrued compensation.

Cash and cash equivalents were $125.8 million at June 30, 2005, a decrease of $7.5 million from December 31, 2004. The decrease was the result of $9.0 million of cash used in operating activities and $11.3 million of cash used in investing activities, partially offset by $15.3 million of cash provided by financing activities, notably the sale of $15.0 million of common stock. Investing activities included $22.9 million of net purchases of short and long-term investments and capital expenditures of $1.5 million, partially offset by $11 million received from the sale of securities. At June 30, 2005, restricted cash totalled $5.6 million, all of which was pledged as collateral for outstanding letters of credit. At December 31, 2004, restricted cash totalled $7.7 million, of which $7.2 million was pledged as collateral for outstanding letters of credit and $0.5 million was pledged as collateral for outstanding foreign currency exchange contracts.

In addition to our cash and cash equivalents, we also maintain a portfolio of short and long-term investment securities to supplement our liquidity needs. Short-term investments totaled $167.0 million and $144.5 million at June 30, 2005 and December 31, 2004, respectively. Short-term investments consist primarily of highly-rated auction rate securities and obligations of agencies of the U.S. government. The carrying values of investments in common stock and warrants of public companies were not significant at June 30, 2005 or December 31, 2004.

On a combined basis, cash and cash equivalents, restricted cash and short and long-term investments totalled $298.8 million at June 30, 2005 compared to $285.5 million at December 31, 2004.

The most significant adjustments to reconcile net income to net cash used in operations during the six months ended June 30, 2005 were the $11 million gain on sale of securities and the $24.5 million decrease in current liabilities, partially offset by the decrease in accounts receivable of $8.8 million and depreciation and amortization expense of $4.0 million.

The most significant use of net cash in investing activities during the six months ended June 30, 2005 was the $22.9 million net purchase of short and long-term investments, partially offset by $11 million received from the sale of securities.

The primary source of cash provided by financing activities during the six months ended June 30, 2005 was $15.0 million related to proceeds from the sale of common stock.

Accounts receivable, net of allowance for doubtful accounts, decreased 24% during the six months ended June 30, 2005. Day’s sales outstanding (DSO’s) in receivables decreased to 26 days as of June 30, 2005 from 41 days as of December 31, 2004.

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$310.0 million of outstanding convertible subordinated notes are due to mature on December 15, 2006 and bear interest at a rate of 5.25% per annum, which is payable semi-annually. The notes are convertible at the option of the holder into shares of our common stock at a conversion price of $950 per share at any time prior to maturity. Since December 20, 2002, we have had the option to redeem, in cash, all or a portion of the notes that have not been previously converted. We may also, from time to time, seek to retire the notes through cash repurchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

In March 2005, we recorded a restructuring charge of $12.5 million (See Note 5, Restructuring Charges and Adjustments in our Notes to Condensed Consolidated Financial Statements) to “resize” our infrastructure. Our cash outflows related to restructuring totaled $10.7 million in the six months ended June 30, 2005, which exceeds the $9.0 million of net cash used in operations during the same period by $1.7 million.

We maintain a $15.0 million letter of credit line and as of June 30, 2005, $4.4 million in letters of credit were outstanding under this line and $5.6 million in restricted cash was pledged as collateral.

We have experienced substantial negative cash flows during the four years ended December 31, 2004 and the first six months of 2005, primarily due to sharp declines in our revenues and our inability to reduce our expenses to a level at or below the level of our revenues. Although we initiated restructuring activities in March 2005 focused on, among other things, further reducing our workforce and decreasing development of the functionality for certain of our products, a failure to achieve expense targets, stabilize or grow revenues and achieve positive cash flows will eventually impair our ability to support our operations and adversely affect our liquidity.

Although our cash and cash equivalents and short-term investments position increased in the six months ended June 30, 2005 partially due to an $11 million sale of securities, a $15 million sale of common stock and a $10 million transaction with Dassault Systèmes, our cash and cash equivalents and short-term investments position may continue to decline, primarily due to cash outflows associated with our restructuring activities, our operations and our debt service obligations. We are obligated to pay approximately $16.6 million of interest annually on our $316.8 million of outstanding indebtedness. Additionally, all of such indebtedness will mature and become due and payable in December 2006. We anticipate that we will seek additional equity or debt financing in order to support our operations and enable us to repay or refinance the $310.0 million of convertible subordinated notes and the $6.8 million non-negotiable promissory note that remain outstanding. We may not be able to obtain equity or debt financing on satisfactory terms, or at all. If we are unable to refinance our outstanding convertible subordinated notes, our failure to repay all amounts due and payable thereon at maturity in December 2006 will cause a default under the indenture governing the convertible subordinated notes.

Although we expect that existing cash, cash equivalents and short-term investment balances will satisfy our working capital and capital expenditure requirements for at least the next 12 months, there can be no assurance that in the longer term we will be successful in obtaining or maintaining an adequate level of cash resources. We may be forced to act more aggressively in the future in the area of expense reduction in order to conserve cash as we look for alternative liquidity solutions.

Sensitivity to Market Risks

Foreign Currency Risk. Revenues originating outside of the United States totalled 52% and 49% of total revenues for the three and six months ended June 30, 2005 and 32% and 35% for the three and six months ended June 30, 2004. Since we conduct business on a global basis in various foreign currencies, we are exposed to adverse movements in foreign currency exchange rates. In January 2001, we established a foreign currency hedging program utilizing foreign currency forward exchange contracts to hedge various nonfunctional currency exposures. The objective of this program is to reduce the effect of changes in foreign currency exchange rates on our results of operations. Furthermore, our goal is to offset foreign currency transaction gains and losses recorded

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for accounting purposes with gains and losses realized on the forward contracts. Our hedging activities cannot completely protect us from the risk of foreign currency losses as our currency exposures are constantly changing and not all of these exposures are hedged.

Interest Rate Risk. Our investments are subject to interest rate risk. Interest rate risk is the risk that our financial condition and results of operations could be adversely affected due to movements in interest rates. We invest our cash in a variety of interest-earning financial instruments, including bank time deposits, money market funds and taxable and tax-exempt variable-rate and fixed-rate obligations of corporations, municipalities and local, state and national governmental entities and agencies. These investments are primarily denominated in U.S. Dollars. Cash balances in foreign currencies overseas are primarily operating balances and are generally invested in short-term time deposits of the local operating bank.

Due to the demand nature of our money market funds and the short-term nature of our time deposits and debt securities portfolio, these assets are particularly sensitive to changes in interest rates. The Federal Reserve Board influences the general direction of market interest rates. The Federal Reserve Board increased the discount rate by 100 basis points between December 31, 2004 and June 30, 2005. As of June 30, 2005, the weighted-average yield on time deposits and debt securities we held was 2.94% compared to 2.21% as of December 31, 2004. Based on the short-term nature of our investment holdings as of June 30, 2005, the fair market value of the portfolio would not be significantly impacted by changes in market interest rates.

Credit Risk. Financial assets that potentially subject us to a concentration of credit risk consist principally of investments and accounts receivable. Cash on deposit is held with financial institutions with high credit standings. Debt security investments are generally in highly-rated corporations and municipalities as well as agencies of the U.S. government; however, a significant portion of these investments are in corporate debt securities, which carry a higher level of risk compared to municipal and U.S. government-backed securities. Our customer base consists of large numbers of geographically diverse enterprises dispersed across many industries. As a result, concentration of credit risk with respect to accounts receivable is not significant. However, we periodically perform credit evaluations for most of our customers and maintain reserves for potential losses. In certain situations we may seek letters of credit to be issued on behalf of some customers to mitigate our exposure to credit risk. We currently use foreign exchange contracts to hedge the risk associated with receivables denominated in foreign currencies. Risk of non-performance by counterparties to such contracts is minimal due to the size and credit standings of the financial institutions involved.

Market Price Risk. In addition to investments in debt securities, we maintain minority equity investments in various publicly traded companies for business and strategic purposes. We have realized no gain or loss on these investments during the three and six months ended June 30, 2005 and 2004. The remaining carrying value of minority equity investments was zero at June 30, 2005.

We have also invested in several privately held companies, many of which can still be considered in the start-up or development stages or may no longer be viable or operational. As a result of significant declines in the expected realizable amounts of these investments, in previous periods we wrote off the book value of all these investments as the decline in fair value was considered other than temporary. During the three months ended June 30, 2005, we liquidated one such investment for cash, resulting in a gain on sale of securities of $11 million.

Factors That May Affect Future Results

Any investment in our company will be subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks described below together with all of the other information included in this report. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties that we are not aware of or focused on or that we currently deem immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.

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If any of the following risks actually occur, they could materially adversely affect our business, financial condition, liquidity or results of operations. In that case, the trading price of our securities could decline and you may lose all or part of your investment.

Risks Related To Our Business

We Have Experienced Substantial Negative Cash Flows And May Continue To Experience Such Negative Cash Flows, Which Would Have A Further Significant Adverse Effect On Our Business, Impair Our Ability To Support Our Operations And Adversely Affect Our Liquidity.

We have experienced substantial negative cash flows during the four years ended December 31, 2004 and the first six months of 2005, primarily due to sharp declines in our revenues and our inability to reduce our expenses to a level at or below the level of our revenues. Although we recently initiated additional restructuring activities focused on, among other things, further reducing our workforce and decreasing continued development of the functionality of certain of our products, a failure to achieve expense targets, stabilize or grow revenues and achieve positive cash flows will impair our ability to support our operations, adversely affect our liquidity and, eventually, threaten our solvency and our ability to repay our debts when they come due, which would have a material adverse effect on our business, results of operations and financial condition as well as our stock price. Additionally, we continue to be obligated to pay approximately $16.6 million annually in interest on our $310.0 million of convertible subordinated notes and $6.8 million non-negotiable promissory note, all maturing in December 2006. Continued negative cash flows and the adverse market perception associated therewith may continue to negatively affect our ability to sell our products and may adversely affect our ability to obtain additional debt or equity financing on advantageous terms. There can be no assurance that we will be successful in obtaining or maintaining an adequate level of cash resources and we may be forced to act more aggressively in the future in the area of expense reduction in order to conserve cash resources.

We Anticipate That We Will Seek Private Or Public Debt Or Equity Financing, Which Could Have A Dilutive Effect On The Holdings Of Existing Stockholders. Such Financing May Only Be Available On Disadvantageous Terms, Or May Not Be Available At All, Circumstances Which Could Threaten Our Solvency And Our Ability To Repay Our Debts When They Come Due.

Our cash position may continue to decline in the future, primarily due to cash outflows associated with our operations, our debt service obligations and our restructuring activities. Unless we are able to rationalize expenses, stabilize or grow revenues and achieve consistent positive cash flows, our ability to support our operations and our liquidity will be further impaired. There can be no assurance that we will be successful in obtaining or maintaining an adequate level of cash resources. Our $316.8 million of debt, which bears interest of approximately $16.6 million per year, payable semi-annually in June and December, matures in December 2006.

We anticipate that we will seek private or public debt or equity financing in order to support our operations and enable us to repay or refinance our outstanding indebtedness. However, we may not be able to obtain debt or equity financing on satisfactory terms or at all, and any new financing could have a dilutive effect on our existing stockholders. If we are unable to refinance our outstanding convertible subordinated notes, our failure to repay all amounts due and payable thereon at maturity in December 2006 will cause a default under the indenture governing the convertible subordinated notes.

We Face Risks Related To Ongoing Governmental Investigations And Litigation That Could Have A Material Adverse Effect On Our Relationships With Customers And Our Business, Financial Condition And Results Of Operations And We May Face Additional Litigation In The Future That Could Also Harm Our Business.

In March 2003, the SEC issued a formal order of investigation to determine whether there had been violations of the federal securities laws by us and/or others involved with us in connection with matters relating to the 2003 restatement of our consolidated financial statements. The settlement of the SEC enforcement proceedings, announced on June 9, 2004 and described in Note 8 – Commitments and Contingencies in our Notes

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to Condensed Consolidated Financial Statements, covers the company only. On July 15, 2005, the SEC filed a civil action against three former officers of the company: Gregory A. Brady, William M. Beecher and Reagan L. Lancaster. The complaint relates to events that occurred prior to the restatement of the company’s financial statements in 2003. The SEC’s investigation continues as to other individuals and entities, and the company continues to cooperate with the U.S. Attorney’s Office for the Northern District of Texas which has also been investigating matters that are the subject of the SEC’s ongoing investigation.

We currently face a lawsuit recently brought against us by Kmart and a potential assessment by the Internal Revenue Service relating to the timing of the company’s remittance of withholding taxes associated with the exercise of stock options by employees in the 2000 tax year. We may face additional litigation in the future that could harm our business and impair our liquidity.

We are generally obligated, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in some of these lawsuits. Defending against existing and potential litigation and other proceedings may continue to require significant attention and resources of our management. We cannot assure you that the significant time and effort spent will not adversely affect our business, financial condition and results of operations.

We May Not Be Competitive, And Increased Competition Could Seriously Harm Our Business.

Relative to us, many of our competitors have one or more of the following advantages:

• Longer operating history.

• Greater financial, technical, marketing, sales and other resources.

• Consistent positive cash flows.

• Profitable operations.

• Superior product functionality in certain areas.

• Greater name recognition.

• A broader range of products to offer.

• Better software performance.

• A larger installed base of customers.

Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to enhance their products, which may result in increased competition. In addition, we expect to experience increasing price competition as we compete for market share. We understand that some competitors are offering enterprise application software at no charge as components of product bundles. Further, traditional enterprise resource planning vendors have focused more resources on the development and marketing of enterprise application software, particularly in the product and industry segments in which we compete and, increasingly, corporate information technology departments are undertaking internal development efforts. As a result of these and other factors, we may be unable to compete successfully with our existing or new competitors.

The Loss Of Certain Of Our Key Personnel And Any Future Potential Losses Of Key Personnel Or Our Failure To Attract Additional Personnel Could Seriously Harm Our Company.

We rely upon the continued service of a relatively small number of key technical, sales and senior management personnel. We have lost a number of key personnel as a result of our performance and our restructurings, among other reasons, and we believe our voluntary attrition rate is generally higher than the software industry’s average. Our workforce reductions have impacted employees directly responsible for sales, which may affect our ability to close revenue transactions with our customers and prospects, and consulting,

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which may affect customer satisfaction. Our future success depends on retaining our key employees and our ability to retain, attract and train other highly qualified technical, sales and managerial personnel, which may be increasingly difficult given our recent financial performance and employee layoffs.

Further, additional restructuring initiatives are currently being executed that may result in further voluntary and involuntary attrition and loss of key personnel. Our employees can typically resign with little or no prior notice. Our loss of any more of our key technical, sales and senior management personnel, and the intellectual capital that they possess, or our inability to retain, attract and train additional qualified personnel could have a material adverse effect on our business, results of operations and financial condition.

Restructuring and Reorganization Initiatives Have Been Executed, And Such Activities Pose Significant Risks To Our Business.

Restructuring initiatives were recently executed by us in an effort to achieve our profitability objectives. This restructuring involved, among other things, reducing our workforce and decreasing continued development of functionality for certain of our products. These activities pose significant risks to our business, including the risk that terminated employees will disparage the company, file legal claims against us related to their termination of employment, become employed by competitors or share our intellectual property or other sensitive information with others and that the reorganization will not achieve targeted efficiencies. The failure to retain and effectively manage our remaining employees or achieve our targeted efficiencies through the reorganization could increase our costs, adversely affect our development efforts and impact the quality of our products and customer service. If customers become dissatisfied with our products or service, our maintenance renewals may decrease, our customers may take legal action against us and our sales to existing customers could decline, leading to reduced revenues. Additionally, on July 14, 2005, we announced the reorganization of our operating structure from primarily geographic to primarily industry-focused groups. Failure to achieve the desired results of our strategic initiatives would harm our business, results of operations and financial condition.

We Have Been And Continue To Be Subject To Claims Pertaining To The Quality Of Our Products And Services, And Questions Regarding Our Financial Viability, Which Claims And Perceptions, If Unresolved Or Not Addressed, Could Continue To Seriously Harm Our Business And Our Stock Price.

From time to time, customers make claims pertaining to the quality and performance of our software and services, citing a variety of issues. Our recent operating performance, the long-term decline in our stock price, and the existing and potential litigation and other proceedings against us have led to questions in the market regarding our financial viability. Whether customer claims regarding the quality and performance of our products and services or concerns about our financial viability are founded or unfounded, if such claims and perceptions are not resolved in a manner favorable to us they may continue to adversely impact customer demand and affect the market perception of our company, our products and our services. Any such damage to our reputation could have a material adverse effect on our business, results of operations and financial condition, and could negatively affect the price of our stock.

Our Financial Results Have Varied And May Continue To Vary Significantly From Quarter To Quarter And We May Again Fail To Meet Expectations, Which Might Negatively Impact The Price Of Our Stock.

Our operating results have varied significantly from quarter to quarter in the past, and we expect our operating results to continue to vary from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. Although our revenues are subject to fluctuation, significant portions of our expenses are not variable in the short term, such as our annual debt servicing expense of approximately $16.6 million, and we cannot reduce expenses quickly to respond to decreases in revenues. Therefore, if revenues are below expectations, this shortfall is likely to adversely and disproportionately affect our operating results. These factors have caused our operating results to be below the expectations of securities analysts and investors in the past and may do so again in the future. Our failure to meet or exceed analyst and investor expectations might negatively affect the price of our common stock.

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If We Are Unable To Develop And Generate Demand For Our Products, Additional Serious Harm Could Result To Our Business.

We have invested significant resources in developing and marketing our products and services. The demand for, and market acceptance of, our products and services are subject to a high level of uncertainty. Adoption of software solutions, particularly by those individuals and enterprises that have historically relied upon traditional means of commerce and communication, requires a broad acceptance of substantially different methods of conducting business and exchanging information. Our products and services are often considered complex and may involve a new approach to the conduct of business by our customers. As a result, intensive marketing and sales efforts may be necessary to educate prospective customers regarding the uses and benefits of these products and services in order to generate demand. The market for our products and services may continue to weaken, competitors may develop superior products and services or we may fail to develop acceptable solutions to address new market conditions. Any one of these events could have a material adverse effect on our business, results of operations and financial condition.

Because Our Software Products Are Intended To Work Within Complex Business Processes, Implementation Or Upgrades Of Our Products Can Be Difficult, Time-Consuming And Expensive, And Customers May Be Unable To Implement Or Upgrade Our Products Successfully Or Otherwise Achieve The Benefits Attributable To Our Products. This May Result In Customer Dissatisfaction, Harm To Our Reputation And Cause Non-Payment Issues.

Our products typically must integrate with the many existing computer systems and software programs of our customers. This can be complex, time-consuming and expensive, and may cause delays in the deployment of our products. As a result, some customers may have difficulty implementing our products successfully or otherwise achieving the benefits attributable to our products. Delayed or ineffective implementation or upgrades of our software and services may limit our sales opportunities, result in customer dissatisfaction and harm to our reputation, or cause non-payment issues.

Continued Decreased Levels Of Demand For Our Enterprise Products And Services Could Significantly Reduce Our Revenues.

Historically, we have derived a substantial portion of our revenues from licenses of our enterprise products and related services. Our enterprise products principally include solutions to address supply and demand management, transportation and distribution management, fulfillment and sourcing. We expect license revenues and maintenance and consulting contracts related to our enterprise products to continue to account for a substantial portion of our revenues for the foreseeable future. We have experienced a sharp decrease in the demand for our enterprise products and related services due to a number of factors, including sales execution, product competitiveness and questions regarding our viability, which have led to a decline in our revenues. Other factors, such as competition and technological change and the existing and potential litigation and other proceedings against us, could also adversely impact demand for, or market acceptance of, these applications.

Failure To Complete Development Services Projects As Planned Could Harm Our Operating Results And Create Business Distractions And Negative Publicity That Could Harm Our Business.

Risks associated with our development services projects include, but are not limited to:

• Customers may withhold cash payments or cancel contracts if we fail to meet our delivery commitments, the customers have financial difficulties or change strategy, or the functionality delivered is not acceptable to the customers. We are particularly susceptible to this with respect to arrangements where payments are scheduled to occur later in the engagement.

• The cancellation or scaling back of one or more of our larger development services projects could have a material adverse impact on future development services revenues.

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• We may be unable to recognize revenue associated with development services projects in accordance with expectations. We generally recognize revenue from custom software development projects over time using the contract method of accounting. Failure to complete project phases in accordance with the overall project plan can create variability in our expected revenue streams if we are not able to recognize revenues related to particular projects because of delays in development.

• Many of our development services projects are fixed-price arrangements. If we fail to accurately estimate the resources required for a fixed-price project or the customer attempts to change the scope of the project, the profit, if any, realized from the project would be adversely affected to the extent that we have to add additional resources to complete the project.

If We Fail To Adequately Protect Our Intellectual Property Rights Or Face A Claim Of Intellectual Property Infringement By A Third Party, We Could Lose Our Intellectual Property Rights Or Be Liable For Significant Damages.

We rely primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary rights. However, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property. This is particularly true in India, where a significant portion of our Solutions Operations are located, and other foreign countries such as China and Russia where the laws do not protect proprietary rights to the same extent as the laws of the United States and may not provide us with an effective remedy against piracy. The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. Any litigation to defend our intellectual property rights could be time-consuming and costly.

There has been a substantial amount of litigation in the software industry regarding intellectual property rights. As a result, we may be subject to claims of intellectual property infringement. Although we are not aware that any of our products infringe upon the proprietary rights of third parties, third parties may claim infringement by us with respect to current or future products. Any infringement claims, with or without merit, could be time-consuming, result in costly litigation or damages, cause product shipment delays or the loss or deferral of sales, or require us to enter into royalty or licensing agreements. If we enter into royalty or licensing agreements in settlement of any litigation or claims, these agreements may not be on terms favorable to us. Unfavorable royalty and licensing agreements could have a material adverse effect on our business, results of operations and financial condition.

Certain Of Our Customers Purchase Our Software, But Delay Or Terminate Its Implementation. If This Type Of Activity Becomes Significant, It Could Harm Our Ability To Sell To Existing Customers And Impact Our Maintenance and Services Revenues.

Certain of our existing customers delay or terminate implementations of our software due to budgetary constraints related to economic uncertainty, dissatisfaction with product quality, the difficulty of prioritizing a surplus of information technology projects, changes in business strategy, personnel or priorities or for other reasons. Such customers may be less likely to invest in additional software in the future and to continue to pay for software maintenance. Since our business relies to a large extent upon sales to existing customers and since maintenance and services revenues are key elements of our revenue base, any reduction in these sales or these maintenance and services payments could have a material adverse effect on our business, results of operations and financial condition.

Our Software May Contain Errors Which Could Result In The Loss Of Customers And Reputation, Adverse Publicity, Loss Of Revenues, Delays In Market Acceptance, Diversion of Development Resources And Claims Against Us By Customers.

Our software programs may contain errors. Although we conduct testing and quality assurance through a release management process, we may not discover errors until our customers install and use a given product or

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until the volume of services that a product provides increases. On occasion, we have experienced delays in the scheduled introduction of new and enhanced products because of errors. Errors could result in loss of customers and reputation, adverse publicity, loss of revenues, delays in market acceptance, diversion of development and consulting resources and claims against us by customers.

Failure Or Circumvention Of Our Controls And Procedures Or Failure To Comply With Regulations Related To Controls And Procedures Could Seriously Harm Our Business.

We have made significant changes over time in and may consider making additional changes to our internal controls, our disclosure controls and procedures, and our corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, and not absolute, assurances that the objectives of the system are met. Any failure of our controls, policies and procedures could have a material adverse effect on our business, results of operations and financial condition.

We May Have Difficulty Obtaining And Maintaining Cost-Effective Insurance, Which May Have A Material Adverse Effect On Our Business, Results Of Operations and Financial Condition.

We obtain insurance to cover a variety of potential risks and liabilities. In the future, it may become more difficult to maintain insurance coverage at reasonable levels, or if such coverage is available, the cost to obtain or maintain it may increase substantially. This may result in our being forced to bear the burden of an increased portion of risks for which we have traditionally been covered by insurance, which could have a material adverse effect on our business, results of operations and financial condition.

We May Not Be Successful In Convincing Customers To Migrate To Current Or Future Releases Of Our Products, Which May Lead To Reduced Consulting And Maintenance Revenues And Less Future Business From Existing Customers.

Our customers may not be willing to incur the costs or invest the resources necessary to complete upgrades to current or future releases of our products. This may lead to our loss of consulting and maintenance revenues and future business from customers that continue to operate prior versions of our products or choose to no longer use our products.

If We Fail To Derive Benefits From Our Existing And Future Strategic Relationships, Our Business Will Suffer.

From time to time, we have collaborated with other companies in areas such as marketing, distribution or implementation. Maintaining these and other relationships is a meaningful part of our business strategy. However, some of our current and potential strategic partners are either actual or potential competitors, which may impair the viability of these relationships. In addition, some of our relationships have failed to meet expectations and may fail to meet expectations in the future. A failure by us to maintain existing strategic relationships or enter into successful new strategic relationships in the future could have a material adverse effect on our business, results of operations and financial condition.

Serious Harm To Our Business Could Result If Our Encryption Technology Fails To Ensure The Security Of Our Customers’ Online Transactions.

The secure exchange of confidential information over public networks is a significant concern of consumers engaging in on-line transactions and interaction. Some of our software applications use encryption technology to provide the security necessary to effect the secure exchange of valuable and confidential information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the algorithms that these applications use to protect customer transaction data. If any compromise or breach were to occur, it could have a material adverse affect on our business, results of operation and financial condition.

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We Are Dependent On Third-Party Software That We Incorporate Into And Include With Our Products And Solutions And Impaired Relations With These Third Parties, Defects In Third-Party Software Or The Inability To Enhance Their Software Over Time Could Harm Our Business.

We incorporate and include third-party software into and with certain of our products and solutions. Additionally, we may incorporate and include additional third-party software into and with our products and solutions in future product offerings. The operation of our products could be impaired if errors occur in the third-party software that we utilize. It may be more difficult for us to correct any defects in third-party software because the development and maintenance of the software is not within our control. Accordingly, our business could be adversely affected in the event of any errors in this software. There can be no assurance that these third parties will continue to make their software available to us on acceptable terms, to invest the appropriate levels of resources in their products and services to maintain and enhance the software capabilities, or to remain in business.

Further, it may be difficult for us to replace any third-party software if a vendor seeks to terminate our license to the software or our ability to license the software to customers. Any impairment in our relationship with these third parties could have a material adverse effect on our business, results of operations and financial condition.

We Face Risks Associated With International Sales And Operations That Could Harm Our Company.

International revenues accounted for approximately 52% of our total revenues during the quarter ended June 30, 2005, and we expect to continue to generate a significant portion of our revenues from international sales in the future. Our international operations are subject to risks inherent in international business activities, including the tendency of markets outside of the U.S. to be more volatile and difficult to forecast than the U.S. market. Any of the following factors, among other things, could adversely affect the success of our international operations:

• Difficulties and costs of staffing and managing geographically disparate operations.

• Extended accounts receivable collection cycles in certain countries.

• Compliance with a variety of foreign laws and regulations.

• Overlap of different tax structures and regimes.

• Meeting import and export licensing requirements.

• Trade restrictions.

• Changes in tariff rates.

• Changes in general economic and political conditions in international markets.

The Expansion Of Our Operations In India Poses Significant Risks That Could Impair Our Ability To Develop Our Products, Implement Our Products Or Put Our Products At A Competitive Disadvantage.

We have shifted a large portion of our development and services capacity to India. However, we may not fully achieve the cost savings and other benefits that we anticipate from this program and we may not be able to attract or retain sufficient numbers of developers and consultants with the necessary skill sets in India to meet our needs. The distributed nature of our development and consulting resources could create further operational challenges and complications. Additionally, we have a heightened risk exposure to changes in the economic, security and political conditions of India. Operational issues, recruiting and retention issues, ability to obtain work permits, economic and political instability, military actions and other unforeseen occurrences in India could impair our ability to develop and introduce new software applications and functionality in a timely manner, or hinder our ability to provide cost-competitive services, either of which could put our products at a competitive disadvantage and cause us to lose existing customers or fail to attract new customers.

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We May Not Successfully Integrate The Products, Technologies Or Businesses From, Or Realize The Intended Benefits Of, Acquisitions, And We May Make Future Acquisitions Or Enter Into Joint Ventures That Are Not Successful, Which Could Seriously Harm Our Business.

Historically, although not recently, we have acquired technology or businesses to supplement and expand our product offerings. In the future, we could acquire additional products, technologies or businesses, or enter into joint venture arrangements for the purpose of complementing or expanding our business. Negotiation of potential acquisitions or joint ventures and our integration of acquired products, technologies or businesses could divert management’s time and resources. Future acquisitions could cause us to issue equity securities that would dilute your ownership of us, incur debt or contingent liabilities, amortize intangible assets, or write off in-process research and development and other acquisition-related expenses that could have a material adverse affect on our business, results of operation and our financial condition. We may not be able to properly integrate acquired products, technologies or businesses with our existing products and operations, train, retain and motivate personnel from the acquired businesses, or combine potentially different corporate cultures. Failure to do so could deprive us of the intended benefits of those acquisitions. In addition, we may be required to write-off acquired research and development if further development of purchased technology becomes unfeasible, which may adversely affect our business, results of operation and our financial condition.

Changes In The Value Of The U.S. Dollar, As Compared To The Currencies Of Foreign Countries Where We Transact Business, Could Harm Our Operating Results.

To date, our international revenues have been denominated primarily in U.S. Dollars. However, the majority of our international expenses, including the wages of approximately 63% of our employees, have been denominated in currencies other than the U.S. Dollar. Therefore, changes in the value of the U.S. Dollar as compared to these other currencies may adversely affect our operating results. We have implemented limited hedging programs to mitigate our exposure to currency fluctuations affecting international accounts receivable, cash balances and intercompany accounts, but we do not hedge our exposure to currency fluctuations affecting future international revenues and expenses and other commitments. For the foregoing reasons, currency exchange rate fluctuations have caused, and likely will continue to cause, variability in our foreign currency denominated revenue streams and our cost to settle foreign currency denominated liabilities.

We May Become Subject To Product Liability Claims That Could Seriously Harm Our Business.

Our software products generally are used by our customers in mission-critical applications where component failures could cause significant damages. To mitigate this exposure, our license agreements typically seek to limit our exposure to product liability claims from our customers. However, these contract provisions may not preclude all potential claims. Additionally, our insurance policies may be inadequate to protect us from all liability that we may face. Product liability claims could require us to spend significant time and money in litigation or to pay significant damages. As a result, any claim, whether or not successful, could harm our reputation and have a material adverse effect on our business, results of operations and financial condition.

We May Not Be Able to Fully Realize The Benefits Of Our Deferred Tax Assets.

If we do not achieve sufficient federal taxable income in future years to utilize all or some of our net operating loss carryforwards, they will expire, and we will be unable to fully realize the benefits of our deferred tax assets.

Risks Related To Our Industry

If Our Products Are Not Able To Deliver Fast, Demonstrable Value To Our Customers, Our Business Could Be Seriously Harmed.

Enterprises are requiring their application software vendors to provide faster time to value on their technology investments. We must continue to improve the speed of our implementations and the pace at which

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our products deliver value or our competitors may gain important strategic advantages over us. If we cannot successfully respond to these market demands, or if our competitors do so more effectively than we do, our business, results of operations and financial condition could be materially and adversely affected.

Releases Of And Problems With New Products May Cause Purchasing Delays, Which Would Harm Our Revenues.

Our practice and the practice in the industry is to periodically develop and release new products and enhancements. As a result, customers may delay their purchasing decisions in anticipation of our new or enhanced products, or products of competitors. Delays in customer purchasing decisions could seriously harm our business and operating results. Moreover, significant delays in the general availability of new releases, significant problems in the installation or implementation of new releases, or customer dissatisfaction with new releases could have a material adverse effect on our business, results of operations and financial condition.

Risks Related To Our Stock

If We Are Unsuccessful In Maintaining The Listing Of Our Common Stock On The NASDAQ National Market, Our Business Reputation May Be Harmed and Our Ability To Raise Funds In The Capital Markets Might Be Adversely Affected.

On July 21, 2005, our common stock was re-listed by The NASDAQ Listing Qualifications Panel and began trading on The NASDAQ National Market. In the future, our common stock price may decline to levels that would again cause us not to comply with NASDAQ listing standards. Any failure to maintain the listing of our common stock on The NASDAQ National Market might harm our general business reputation and be a consideration for investors when considering an investment in us, which could have a material adverse effect on our business, results of operations and financial condition.

Our Executive Officers And Directors, In Particular Sanjiv Sidhu, And An Affiliate Of Q Investments Have Significant Influence Over Stockholder Votes.

As of July 27, 2005, our current executive officers and directors together beneficially owned slightly more than 22% of the total voting power of our company, approximately 22% of which was beneficially owned by Sanjiv Sidhu, our current Chairman and former Chief Executive Officer and President, and entities that he controls. Further, an affiliate of Q Investments beneficially owns approximately 30% of the voting power of the company, and has the right to appoint two directors to our Board of Directors. Accordingly, Mr. Sidhu, the Q Investments affiliate and our officers and directors holding or controlling holdings of stock in our company have had and will have significant influence in determining the composition of our Board of Directors and other significant matters requiring stockholder approval or acquiescence, including amendments to our certificate of incorporation, a substantial sale of assets, a merger or similar corporate transaction or a non-negotiated takeover attempt. Such concentration of ownership may discourage a potential acquirer from making an offer to buy our company that other stockholders might find favorable, which in turn could adversely affect the market price of our common stock.

Our Charter And Bylaws Have Anti-Takeover Provisions And We Have A Stockholder Rights Plan Which, In Combination, Effectively Inhibit A Non-Negotiated Merger Or Business Combination.

Provisions of our certificate of incorporation and our bylaws, Delaware law and our stockholder rights plan could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with interested stockholders. The combination of these provisions effectively inhibits a non-negotiated merger or other business combination.

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Our Stock Price Historically Has Been Volatile, Which May Make It More Difficult To Resell Common Stock At Attractive Prices.

The market price of our common stock has been highly volatile in the past, and may continue to be volatile in the future. The following factors could significantly affect the market price of our common stock:

• Negative cash flows.

• Additional equity or debt financing transactions.

• Continued quarterly variations in our results of operations.

• The market or system on which our common stock trades.

• Announcement of new customers, new products, product enhancements, joint ventures and other alliances by our competitors or us.

• Technological innovations by our competitors or us.

• Stock valuations or performance of our competitors.

• General market conditions, geopolitical events or market conditions specific to particular industries.

• Perceptions in the marketplace of performance problems involving our products and services.

In particular, the stock prices of many companies in the technology and emerging growth sectors have fluctuated widely, often due to events unrelated to their operating performance. These fluctuations may harm the market price of our common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is included in the section captioned “Sensitivity to Market Risks,” included in Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer, carried out an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” as of the end of the period covered by this report. As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures of our company that are designed to ensure that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is accumulated and communicated to our company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We formed a disclosure committee in 2002 that includes senior financial, operational and legal personnel charged with assisting our Chief Executive Officer and Chief Financial Officer in overseeing the accuracy and timeliness of our periodic reports filed under the Exchange Act and in evaluating regularly our disclosure controls and procedures.

Based on this evaluation, our management, including our Chief Executive Officer, has concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report in that they were reasonably designed to ensure that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. It should be noted that any system of controls, however well designed and operated, is based in part upon certain assumptions and can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

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Changes in Internal Control over Financial Reporting. As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the second quarter of 2005, our Chief Financial Officer resigned. Although all of the control processes formerly performed by our Chief Financial Officer were transitioned to and performed by other individuals, including our Chief Executive Officer who served as interim Chief Financial Officer, we believe this is a significant change in internal control during the quarter. As previously announced, we have hired a replacement Chief Financial Officer whose employment is effective August 22, 2005.

Other than the departure of our Chief Financial Officer, based on our evaluation, during our most recent fiscal quarter there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 8 – Commitments and Contingencies in our Notes to Condensed Consolidated Financial Statements is incorporated herein by reference.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On June 28, 2005, we sold 1,923,077 shares of our common stock to R² Investments, LDC, an affiliate of Q Investments. The common stock was offered and sold without registration under the Securities Act of 1933, as amended, in reliance upon the exemption provided by Rule 506 of Regulation D under the Securities Act of 1933, as amended. We received approximately $15.0 million of net proceeds from this sale.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

On May 19, 2005, we held an annual meeting of our stockholders for the following purposes:

1. To elect (i) Harvey B. Cash, Michael E. McGrath and Lloyd G. Waterhouse as Class II directors to serve until the annual stockholders’ meeting in 2008, (ii) Jackson L. Wilson, Jr. as a Class III director to serve until the annual stockholders’ meeting in 2006, and (iii) Stephen P. Bradley as a Class I director to serve until the annual stockholders’ meeting in 2007, or until their respective successors have been elected and qualified.

2. To approve an amendment to the 1995 Stock Option/Stock Issuance Plan (i) increasing the number of shares for which an individual may receive options, stock appreciation rights and other stock-based awards in his or her initial year of hire to 1,000,000; (ii) increasing the initial option grant to 6,000 shares and the annual option grant to 4,250 shares for each eligible non-employee Board member under the Automatic Option Grant Program of our 1995 Plan; and (iii) shortening the vesting period for option grants to eligible non-employee Board members under the Automatic Grant Program to three equal annual installments, with the first such installment vesting one year from the option grant date.

Mr. Cash was elected with 16,904,035 common shares voting for his election, all outstanding Series B preferred shares voting for his election, 122,782 common shares withholding their vote, no Series B preferred shares withholding their vote, and no shares abstaining or broker non-votes. Mr. McGrath was elected with 16,584,128 common shares voting for his election, all outstanding Series B preferred shares voting for his election, 442,689 common shares withholding their vote and no shares abstaining or broker non-votes. Mr. Waterhouse was elected with 16,926,663 common shares voting for his election, all outstanding Series B preferred shares voting for his election, 100,154 common shares withholding their vote, no Series B preferred shares withholding their vote, and no shares abstaining or broker non-votes. Mr. Wilson was elected with 16,974,306 common shares voting for his election, all outstanding Series B preferred shares voting for his election, 52,511 common shares withholding their vote, no Series B preferred shares withholding their vote, and no shares abstaining or broker non-votes. Mr. Bradley was elected with 16,973,483 common shares voting for his election, all outstanding Series B preferred shares voting for his election, 53,334 common shares withholding their vote, no Series B preferred shares withholding their vote, and no shares abstaining or broker non-votes. The terms of office of Pranav V. Parikh, Richard L. Clemmer and Michael S. Diament, all Class I directors, and Robert L. Crandall and Sanjiv S. Sidhu, both Class III directors, continued after the meeting.

The proposal to amend our 1995 Plan was approved with 7,155,016 common shares voting for the proposal, all outstanding Series B preferred shares voting for the proposal, 1,756,403 common shares voting against the proposal, no Series B preferred shares voting against the proposal, 5,354 common shares abstaining and no broker non-votes.

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ITEM 5. OTHER INFORMATION

On July 21, 2005, our common stock was re-listed by The NASDAQ Listing Qualifications Panel and began trading on The NASDAQ National Market under the trading symbol “ITWO.”

On July 28, 2005, we announced the appointment of Michael J. Berry to serve as our Executive Vice President of Finance and Accounting and Chief Financial Officer, effective August 22, 2005. We also announced that Steven Minisini, our Executive Vice President and President, Americas Region, and Kenneth Coulter, our Executive Vice President and President, EMEA Region, were leaving the company. On July 29, 2005, we disclosed that our Board of Directors had appointed Randy Eisenman a director of the company, effective July 26, 2005.

ITEM 6. EXHIBITS.

(a) Exhibits

Exhibit Number	Description
10.1	— LLC Interest Purchase Agreement
31.1	— Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Michael E. McGrath, Chief Executive Officer and President (Principal Executive Officer and Principal Accounting and Financial Officer) of i2.
32.1	— Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Michael E. McGrath, Chief Executive Officer and President (Principal Executive Officer and Principal Accounting and Financial Officer) of i2.

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SIGNATURES

Pursuant to the requirements 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.

	i2 TECHNOLOGIES, INC.
August 9, 2005	By:	/s/ MICHAEL E. MCGRATH
		Michael E. McGrath
		Chief Executive Officer and President
		(Principal Executive Officer and Principal
		Accounting and Financial Officer)

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EX-10.1

Exhibit 10.1

EXECUTION COPY

LLC INTEREST PURCHASE AGREEMENT

Dated as of May 9, 2005

Between

ENOVIA CORP.,

SoftSRM, LLC,

i2 TECHNOLOGIES US, INC.

and

i2 TECHNOLOGIES, INC.

LLC INTEREST PURCHASE AGREEMENT

This LLC Interest Purchase Agreement dated as of May 9, 2005 (as amended or otherwise modified, the “Agreement”) is between ENOVIA CORP., a Delaware corporation (the “Buyer”), SoftSRM, LLC, a Delaware limited liability company (the “Company”), i2 TECHNOLOGIES US, INC., a Nevada corporation (the “Seller”) and i2 TECHNOLOGIES, INC., a Delaware corporation (“Seller Parent”).

RECITALS

WHEREAS, Seller Parent, through the Seller, organized the Company for the purpose of developing, together with Dassault Systèmes SA, a French corporation (“DS Parent”), Sourcing for Direct Material (“SDM”) solutions by integrating relevant parts of DS Parent’s Products Lifecycle Management (“PLM”) solutions with Seller Parent’s Supply Relationship Management (“SRM”) solution to create SDM solutions;

WHEREAS, DS Parent, Seller and the Company have entered into a Perpetual Source Code License Agreement dated even date herewith (the “License Agreement”) and a Maintenance and Support Agreement also dated even date herewith (the “Support Agreement”) to govern such relationship and such agreement represents a substantial portion of the value of the Company to the Buyer;

WHEREAS, the Seller is the record and beneficial owner of all of the outstanding limited liability company interests of the Company (the “Purchased Interests”); and

WHEREAS, the Buyer desires to purchase from the Seller, and the Seller desires to sell to the Buyer, all of the Purchased Interests upon the terms and subject to the conditions set forth in this Agreement.

NOW THEREFORE, in consideration of the premises and mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Buyer, the Company, the Seller and Seller Parent hereby agree as follows:

1. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.

As used herein, the following terms will have the following meanings:

“Action” means any claim, action, cause of action or suit (whether in contract or tort or otherwise), litigation (whether at law or in equity, whether civil or criminal), controversy, assessment, arbitration, investigation, hearing, charge, complaint, demand, notice or proceeding to, from, by or before any Governmental Authority.

“Acquired Companies” means, collectively, the Company and DevCo.

“Affiliate” with respect to any specified Person at any time means, (a) each Person directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person at such time, (b) each Person who is at such time an officer or director of, or

direct or indirect beneficial holder of at least 20% of any class of the Equity Interests of, such specified Person, (c) each Person that is managed by a common group of executive officers and/or directors as such specified Person, (d) the Members of the Immediate Family (i) of each officer, director or holder described in clause (b) and (ii) if such specified Person is an individual, of such specified Person and (e) each Person of which such specified Person or an Affiliate (as defined in clauses (a) through (d)) thereof will, directly or indirectly, beneficially own at least 20% of any class of Equity Interests at such time.

“Ancillary Agreements” means the License Agreement, the Support Agreement, the Contractor Agreements, and the Intercompany Agreement.

“Budget” means the expense budget agreed to between the parties and attached hereto as Schedule 1.1 with respect to the organization of the Company and its operating expenses prior to the Closing Date.

“Business” means the design, development, marketing and sale of integrated SRM (Supplier Relationship Management) and PLM (Product Lifecycle Management) software applications.

“Business Day” means any weekday other than a weekday on which banks in Dallas, Texas, Paris, France, or Bangalore, India are authorized or required to be closed.

“Buyer Expenses” means the expenses with respect to the organization of the Company and its operation prior to the Closing Date actually incurred and documented by DS Parent and its Subsidiaries in accordance with the Budget but shall not include any such expenses that exceed the amounts set forth in the Budget or any such expenses invoiced to and paid by an Acquired Company.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Company Technology” means any and all inventions, works, discoveries, innovations, know-how, information (including ideas, research and development, know-how, formulas, compositions, processes and techniques, data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, business and marketing plans and proposals, documentation and manuals), computer software, firmware, computer hardware, integrated circuits and integrated circuit masks, electronic, electrical and mechanical equipment and all other forms of technology, including improvements, modifications, works in process, derivatives or changes, whether tangible or intangible, embodied in any form, whether or not protectible or protected by patent, copyright, mask work right, trade secret law or otherwise, and all documents and other materials recording any of the foregoing used or useful in connection with the Business and any and all Intellectual Property in any and all such technology.

“Compensation” means, with respect to any Person, all salaries, compensation, remuneration, bonuses or benefits of any kind or character whatever (including issuances or grants of Equity Interests), made directly or indirectly by an Acquired Company to such Person or Affiliates of such Person.

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“Contemplated Transactions” means, collectively, the transactions contemplated by this Agreement, including (a) the sale and purchase of the Purchased Interests and (b) the execution, delivery and performance of the Ancillary Agreements.

“Contractor Agreements” means the form of Vendor Services Agreement and attached Statement of Work between i2 India and Newco and the form of Vendor Services Agreement and attached Statement of Work between the Seller and Newco substantially in the forms of Exhibits 1.1.1 (a) and 1.1.1(b) with the individuals identified on Schedule 3.18(a) as being contracted by i2 India or the Seller, as the case may be, to Newco.

“Contractual Obligation” means, with respect to any Person, any contract, agreement, deed, mortgage, lease, license, commitment, promise, undertaking, arrangement or understanding, whether written or oral and whether express or implied, or other document or instrument (including any document or instrument evidencing or otherwise relating to any Debt,) to which or by which such Person is a party or otherwise subject or bound or to which or by which any property, business, operation or right of such Person is subject or bound.

“Debt” means, with respect to any Person, all obligations (including all obligations in respect of principal, accrued interest, penalties, fees and premiums) of such Person (a) for borrowed money (including overdraft facilities), (b) evidenced by notes, bonds, debentures or similar Contractual Obligations, (c) for the deferred purchase price of property, goods or services (other than trade payables or accruals incurred in the Ordinary Course of Business), (d) under capital leases (in accordance with GAAP), (e) in respect of letters of credit and bankers’ acceptances, (f) for Contractual Obligations relating to interest rate protection, swap agreements and collar agreements and (g) in the nature of Guarantees of the obligations described in clauses (a) through (f) above of any other Person.

“DevCo” means SoftSRM Development India Private Ltd., an Indian corporation and a wholly-owned Subsidiary of the Company organized under the laws of the State of Karnataka.

“Encumbrance” means any charge, claim, community or other marital property interest, condition, equitable interest, lien, license, option, pledge, security interest, mortgage, right of way, easement, encroachment, servitude, right of first offer or first refusal, buy/sell agreement and any other restriction or covenant with respect to, or condition governing the use, construction, voting (in the case of any security or equity interest), transfer, receipt of income or exercise of any other attribute of ownership.

“Enforceable” means, with respect to any Contractual Obligation stated to be Enforceable by or against any Person, that such Contractual Obligation is a legal, valid and binding obligation of such Person enforceable by or against such Person in accordance with its terms, except to the extent that enforcement of the rights and remedies created thereby is subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application affecting the rights and remedies of creditors and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

“Equity Interests” means (a) any capital stock, share, partnership or membership interest, unit of participation or other similar interest (however designated) in any Person and (b) any option,

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warrant, purchase right, conversion right, exchange rights or other Contractual Obligation which would entitle any Person to acquire any such interest in such Person or otherwise entitle any Person to share in the equity, profit, earnings, losses or gains of such Person (including stock appreciation, phantom stock, profit participation or other similar rights).

“ERISA” means the federal Employee Retirement Income Security Act of 1974.

“GAAP” means generally accepted accounting principles in the United States as in effect from time to time.

“Government Order” means any order, writ, judgment, injunction, decree, stipulation, ruling, determination or award entered by or with any Governmental Authority.

“Governmental Authority” means any United States federal, state or local or any foreign government, or political subdivision thereof, or any multinational organization or authority or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, any court or tribunal (or any department, bureau or division thereof), or any arbitrator or arbitral body.

“Guarantee” means, with respect to any Person, (a) any guarantee of the payment or performance of, or any contingent obligation in respect of, any Debt or other Liability of any other Person, (b) any other arrangement whereby credit is extended to any obligor (other than such Person) on the basis of any promise or undertaking of such Person (i) to pay the Debt or other Liability of such obligor, (ii) to purchase any obligation owed by such obligor, (iii) to purchase or lease assets under circumstances that are designed to enable such obligor to discharge one or more of its obligations or (iv) to maintain the capital, working capital, solvency or general financial condition of such obligor and (c) any liability as a general partner of a partnership or as a venturer in a joint venture in respect of Debt or other obligations of such partnership or venture.

“i2 India” means i2 Technologies India Private Ltd., an Indian corporation and an indirect wholly-owned subsidiary of Seller Parent organized under the laws of the State of Karnataka.

“Indemnity Claim” means a claim for indemnity under Section 10.1 or 10.2, as the case may be.

“Indemnified Party” means, with respect to any Indemnity Claim, the party asserting such claim under Section 10.1 or 10.2, as the case may be.

“Indemnifying Party” means, with respect to any Indemnity Claims, the Buyer Indemnified Person or the Seller Indemnified Person under Section 10.1 or 10.2, as the case may be, against whom such claim is asserted.

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“Intellectual Property” means the entire right, title and interest in and to all proprietary rights of every kind and nature, including all rights and interests pertaining to or deriving from:

(a) patents, copyrights, mask work rights, technology, know-how, processes, trade secrets, algorithms, inventions, works, proprietary data, databases, formulae, research and development data and computer software or firmware;

(b) trademarks, trade names, service marks, service names, brands, trade dress and logos, and the goodwill and activities associated therewith;

(c) domain names, rights of privacy and publicity, moral rights, and proprietary rights of any kind or nature, however denominated, throughout the world in all media now known or hereafter created;

(d) any and all registrations, applications, recordings, licenses, common-law rights and Contractual Obligations relating to any of the foregoing; and

(e) all Actions and rights to sue at law or in equity for any past or future infringement or other impairment of any of the foregoing, including the right to receive all proceeds and damages therefrom, and all rights to obtain renewals, continuations, divisions or other extensions of legal protections pertaining thereto.

“Intercompany Agreement” means the Intercompany Agreement between Newco and DevCo substantially in the form of Exhibit 1.1.1(c).

“Interests” means the limited liability company membership interests of the Company.

“Liability” means, with respect to any Person, any liability or obligation of such Person whether known or unknown, whether asserted or unasserted, whether determined, determinable or otherwise, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether incurred or consequential, whether due or to become due and whether or not required under GAAP to be accrued on the financial statements of such Person.

“Licenses” means any license, sublicense or other Contractual Obligation pursuant to which an Acquired Company uses Company Technology that is owned by any Person besides an Acquired Company.

“Material Adverse Effect” means any change in, or effect on, the Business, operations, Assets, prospects or condition (financial or otherwise) of the Acquired Companies which, when considered either individually or in the aggregate together with all other adverse changes or effects with respect to which such phrase is used in this Agreement, is, or is reasonably likely to be, materially adverse to the Business, operations, Assets, prospects or condition (financial or otherwise) of the Acquired Companies, taken as a whole, including, without limitation, any such change in or effect on Seller or Seller Parent.

“Organizational Documents” means, with respect to any Person (other than an individual), (a) the certificate or articles of incorporation or organization and any joint venture, limited liability company, operating or partnership agreement and other similar documents adopted or

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filed in connection with the creation, formation or organization of such Person and (b) all by-laws, voting agreements and similar documents, instruments or agreements relating to the organization or governance of such Person, in each case, as amended or supplemented.

“Permits” means, with respect to any Person, any license, franchise, permit, consent, approval, right, privilege, certificate or other similar authorization issued by, or otherwise granted by, any Governmental Authority or any other Person to which or by which such Person is subject or bound or to which or by which any property, business, operation or right of such Person is subject or bound.

“Permitted Encumbrance” means (a) statutory Liens for current Taxes, special assessments or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP, (b) mechanics’, materialmen’s, carriers’, workers’, repairers’ and similar statutory liens arising or incurred in the ordinary course of business which liens have not had and are not reasonably likely to have a Material Adverse Effect, (c) deposits or pledges made in connection with, or to secure payment of, worker’s compensation, unemployment insurance, old age pension programs mandated under applicable laws, rules or regulations or other social security and (d) restrictions on the transfer of securities arising under federal and state securities laws.

“Person” means any individual or corporation, association, partnership, limited liability company, joint venture, joint stock or other company, business trust, trust, organization, Governmental Authority or other entity of any kind.

“Representative” means, with respect to any Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors.

“Seller Expenses” means the expenses with respect to the organization of the Company and its operation prior to the Closing Date actually incurred and documented by Seller Parent and its Subsidiaries (including the Company and including any Buyer Expense invoiced to and paid by any Acquired Company) in accordance with the Budget (from which certain amounts as indicated in the Budget shall be deducted), it being understood that Seller Expenses shall not include any such expenses that exceed the amounts set forth in the Current Expenditure Plan table in the Budget.

“Seller’s Knowledge” means the actual knowledge, after reasonable investigation, of the Seller, the officers of the Acquired Companies and such other employees of the Acquired Companies who would be reasonably expected to have knowledge of the matter in question.

“Subsidiary” means, with respect to any specified person, any other Person of which such specified Person will, at the time, directly or indirectly through one or more Subsidiaries, (a) own at least 50% of the outstanding capital stock (or other shares of beneficial interest) entitled to vote generally, (b) hold at least 50% of the partnership, limited liability company, joint venture or similar interests or (c) be a general partner, managing member or joint venturer.

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“Tax” or “Taxes” means (a) any and all federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar, including FICA), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind or any charge of any kind in the nature of (or similar to) taxes whatsoever, including any interest, penalty, or addition thereto, whether disputed or not and (b) any liability for the payment of any amounts of the type described in clause (a) of this definition as a result of being a member of an affiliated, consolidated, combined or unitary group for any period, as a result of any tax sharing or tax allocation agreement, arrangement or understanding, or as a result of being liable for another person’s taxes as a transferee or successor, by contract or otherwise.

“Tax Return” means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Treasury Regulations” means the regulations promulgated under the Code.

Except as otherwise explicitly specified to the contrary, (a) references to a Section, Article, Exhibit or Schedule means a Section or Article of, or Schedule or Exhibit to this Agreement, unless another agreement is specified, (b) the word “including” will be construed as “including without limitation,” (c) references to a particular statute or regulation include all rules and regulations thereunder and any predecessor or successor statute, rules or regulation, in each case as amended or otherwise modified from time to time, (d) words in the singular or plural form include the plural and singular form, respectively and (e) references to a particular Person include such Person’s successors and assigns to the extent not prohibited by this Agreement.

Each of the following terms is defined in the Section of this Agreement set forth opposite such term:

Term	Section
Assets	3.8
Buyer Indemnified Person	10.1
Closing	2.2
Closing Date	2.2
Company Plan	3.14.2
Current Liability Policies	3.21
Disclosed Contract	3.15
Documentation	2.4
Drop Dead Date	9.1
Employee	3.18
Employee Plan	3.14.1
Independent Expert	2.4
Liability Policies	3.21
License Agreement	Recitals
Losses	10.1
Notice of Objection	2.4
Purchased Interests	Recitals
Purchase Price	2.1.1
Real Property	3.9.1
Seller Indemnified Person	10.2
SRM	Recitals
Statement	2.4
Support Agreement	Recitals
Termination Date	9.1
Third Party Claim	10.4.1

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2. PURCHASE AND SALE OF PURCHASED INTERESTS.

2.1. Purchase and Sale of Purchased Interests. At the Closing, subject to the terms and conditions of this Agreement, the Seller will sell, transfer and deliver to the Buyer, and the Buyer will purchase from the Seller, the Purchased Interests.

2.1.1 Purchase Price. The aggregate consideration for all of the Purchased Interests in the Company will be US $10,000,000 plus an amount equal to all Seller Expenses (the “Purchase Price”). The Purchase Price will be subject to adjustment in accordance with Section 2.4.

2.2. The Closing. The purchase and sale of the Purchased Interests (the “Closing”) will take place at the offices of Ropes & Gray LLP at 45 Rockefeller Plaza, New York, New York on June 13, 2005 or at such other place and on such other date as the Buyer and the Seller may agree in writing (the “Closing Date”), in each case, subject to the satisfaction of the conditions set forth in Sections 7 and 8 which can be satisfied prior to closing. Except as otherwise provided in Section 9, the failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place specified herein will not relieve any party to this Agreement of any obligation under this Agreement.

2.3. Closing Deliveries. At the Closing, the Buyer will deliver to the Seller cash in the amount of US $10,000,000 by wire transfer of immediately available federal funds to the accounts designated in writing not fewer than two Business Days prior to the scheduled Closing Date.

2.4. Post-Closing Adjustment. (a) Within ten (10) days after the Closing Date, the Seller shall provide to the Buyer, a statement as to the computation of the Seller Expenses (the “Statement”) together with documentation (the “Documentation”) as to the Seller Expenses in accordance with Schedule 1.1. Unless the Buyer notifies the Seller in writing within thirty (30) days after the Buyer’s receipt of the Documentation of any objections to the computation of the Seller Expenses (the “Notice of Objection”), the Seller’s computation shall become final and binding.

(b) During such 30-day period, Buyer and its representatives shall be permitted to review the working papers of the Seller and the Seller’s accountants relating to the Statement, and the Seller shall provide the Buyer and its representatives any

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information reasonably requested and shall provide them access at all reasonable times to the Seller’s personnel, properties, books and records relating to the Business for such purpose. Any Notice of Objection shall specify in reasonable detail the basis for the objections set forth therein.

(c) If the Buyer provides the Notice of Objection to the Seller within such 30-day period, the Buyer and the Seller shall, during the 30-day period following the Buyer’s receipt of the Notice of Objection, attempt in good faith to resolve the Buyer’s objections. During such 30-day period, the Seller and its representatives shall be permitted to review the working papers of the Buyer and the Buyer’s accountants relating to the Notice of Objection and the basis therefor. If the Buyer and the Seller are unable to resolve all such objections within such 30-day period, the matters remaining in dispute shall be submitted to Citrin Cooperman & Co., LLP (such selected firm being the “Independent Expert”). The parties shall instruct the Independent Expert to render its written decision as promptly as practicable but in no event later than 60 days after its selection. The resolution of disputed items by the Independent Expert shall be final and binding, and the determination of the Independent Expert shall constitute an arbitral award that is final, binding and non-appealable and upon which a judgment may be entered by a court having jurisdiction thereover. The fees and expenses of the Independent Expert shall be allocated equally between the Buyer and the Seller.

(d) Within 10 days after the Statement has become final and binding in accordance with this Section 2.4, the Buyer shall pay to the Seller an amount in cash equal to the Seller Expenses. Any such payment hereunder shall be made by wire transfer of immediately available funds to an account designated in writing by the Seller.

2.5. Allocation of Purchase Price. The Purchase Price shall be allocated among the Assets of the Company in a manner to be determined by the Buyer and consented to by the Seller (which consent shall not be unreasonably withheld) on or prior to the Closing Date. Each of the Seller and the Buyer agrees to adhere to such allocation for all Tax purposes. The portion of the Purchase Price allocated to the Licenses shall be treated by the Seller as royalty income and by the Buyer as deductible royalty payments in respect of such Licenses for all Tax purposes. Each of Seller and Buyer shall prepare and file, or cause to be prepared and filed, all Tax Returns (including any related information statements and documents) with all appropriate taxing authorities on a basis consistent with this Section 2.5.

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3. REPRESENTATIONS AND WARRANTIES REGARDING THE ACQUIRED COMPANIES.

In order to induce the Buyer to enter into and perform this Agreement and to consummate the Contemplated Transactions, the Company and the Seller and Seller Parent hereby jointly and severally represent and warrant to the Buyer as follows:

3.1. Organization; No Activities.

3.1.1 Organization. Schedule 3.1.1 sets forth for each Acquired Company its name, jurisdiction and date of organization. Each Acquired Company is (or, in the case of DevCo, prior to the Closing Date will be) (a) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and (b) duly qualified to do business and in good standing in each jurisdiction in which it owns or leases Real Property and in each other jurisdiction in which the failure to so qualify has not had, and is not reasonably likely to have, a Material Adverse Effect. The Seller has (or, in the case of DevCo, prior to the Closing Date will have) delivered to the Buyer true, accurate and complete copies of (x) the Organizational Documents of each Acquired Company and (y) the minute books of each Acquired Company which contain records of all meetings held of, and other corporate actions taken by, its membership interestholders or stockholders, as the case may be, Board of Directors and any committees appointed by its Board of Directors.

3.1.2 No Activities. Prior to the date of this Agreement, neither of the Acquired Companies has engaged in any activities other than those related to its organization.

3.2. Power and Authorization.

3.2.1 Contemplated Transaction. The execution, delivery and performance by each Acquired Company of this Agreement and each Ancillary Agreement to which it is (or will be) a party and the consummation of the Contemplated Transactions are within the power and authority of each Acquired Company and have been duly authorized by all necessary action on the part of each Acquired Company. This Agreement and each Ancillary Agreement to which each Acquired Company is (or will be) a party (a) has been (or, in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) duly executed and delivered by each Acquired Company and (b) is (or, in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) a legal, valid and binding obligation of such Acquired Company, enforceable against each such Acquired Company in accordance with its terms.

3.2.2 Capital Contribution. The Seller, in granting the license under Section 5.1.1(a) of the License Agreement made such grant as a contribution to the capital of Newco and properly reflected such contribution to capital in the records of the Seller and Newco.

3.2.3 Conduct of Business. Each Acquired Company has the full power and authority necessary to own and use its Assets and carry on its business.

3.3. Authorization of Governmental Authorities. Except as disclosed on Schedule 3.3, no action by (including any authorization, consent or approval), or in respect of, or filing with, any Governmental Authority is required for, or in connection with, the valid and lawful (a) authorization, execution, delivery and performance by any Acquired Company of this Agreement and each Ancillary Agreement to which it is (or will be) a party or (b) the consummation of the Contemplated Transactions by each Acquired Company.

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3.4. Noncontravention. Neither the execution, delivery and performance by an Acquired Company or the Seller of this Agreement or any Ancillary Agreement to which it is (or will be) a party nor the consummation of the Contemplated Transactions will: (a) assuming the taking of any action by (including any authorization, consent or approval), or in respect of, or any filing with, any Governmental Authority, in each case, as disclosed on Schedule 3.4, violate any law, rule or regulation applicable to an Acquired Company; (b) result in a breach or violation of, or default under, any Contractual Obligation of any Acquired Company; (c) require any action by (including any authorization, consent or approval) or in respect of (including notice to), any Person under any Contractual Obligation of any Acquired Company; (d) result in the creation or imposition of an Encumbrance upon, or the forfeiture of, any Asset; or (e) result in a breach or violation of, or default under, the Organizational Documents of any Acquired Company.

3.5. Capitalization of the Acquired Companies.

3.5.1 Outstanding Capital Stock. As of the date of this Agreement (or, in the case of DevCo, as of the Closing Date), the entire authorized capital of each Acquired Company is as set forth on Schedule 3.5. All of the outstanding membership interests or shares of capital stock, as the case may be, of each Acquired Company have been (or, in the case of DevCo, as of the Closing Date will have been) duly authorized, validly issued, and are or will be, as the case may be, fully paid and non-assessable.

3.5.2 Ownership. The Company holds no membership interests in its treasury. All of the outstanding Equity Interests of the Company and DevCo, respectively, are held of record and beneficially owned by the Seller and the Company, respectively. The Seller has delivered or made available to the Buyer true, accurate and complete copies of the stock ledger or equivalent of each Acquired Company which reflects all issuances, transfers, repurchases and cancellations of shares of its membership interests or capital stock, as the case may be.

3.5.3 Subsidiaries. On the Closing Date, the Company will have no Subsidiaries other than DevCo. All of the outstanding Equity Interests in DevCo on the Closing Date are set forth on Schedule 3.5 and will, on the Closing Date, be validly issued, fully paid and non-assessable. On the Closing Date, the Company will be beneficial owner of all of the Equity Interests in DevCo and hold such Equity Interests free and clear of all Encumbrances except as are imposed by applicable securities laws. Neither Acquired Company controls, directly or indirectly, or owns any Equity Interest in any other Person (except for the Company’s ownership interest in DevCo).

3.5.4 Encumbrances, etc. (a) There are no preemptive rights or other similar rights in respect of any Equity Interests in either Acquired Company, (b) except as imposed by applicable securities laws, there are no Encumbrances on, or other contractual obligations relating to, the ownership, transfer or voting of any Equity Interests in either Acquired Company, or otherwise affecting the rights of any holder of the Equity Interests in either Acquired Company, and (c) except for the Contemplated Transactions, there is no Contractual Obligation, or provision in the Organizational Documents of either Acquired Company which obligates it to purchase, redeem or

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otherwise acquire, or make any payment (including any dividend or distribution) in respect of, any Equity Interests in either Acquired Company.

3.6. Absence of Liabilities. Other than as provided in the Budget, neither Acquired Company has any Liabilities.

3.7. Absence of Certain Developments. Since the Company’s and DevCo’s organization, the Business has been conducted in the ordinary course of business and, except for the matters disclosed Schedule 3.7 (which matters have not had, and are not reasonably likely to have, a Material Adverse Effect):

(a) neither Acquired Company has (i) amended its Organizational Documents, (ii) amended any term of its outstanding Equity Interests or other securities or (iii) issued, sold, granted, or otherwise disposed of, its Equity Interests or other securities;

(b) neither Acquired Company has permitted any of its Assets to become subject to an Encumbrance other than a Permitted Encumbrance;

(c) neither Acquired Company has (i) made any declaration, setting aside or payment of any dividend or other distribution with respect to, or any repurchase, redemption or other acquisition of, any of its capital stock or other Equity Interests or (ii) entered into, or performed, any transaction with, or for the benefit of, the Seller or any Affiliate of any Seller (other than payments made to officers, directors and employees in the ordinary course of business);

(d) there has been no material loss, destruction, damage or eminent domain taking (in each case, whether or not insured) affecting the Business or any material Asset;

(e) neither Acquired Company has adopted any Employee Plan which provides for any non-statutory payments or benefits;

(f) neither Acquired Company has entered into any Contractual Obligation to do any of the things referred to elsewhere in this Section 3.7; and

(g) neither event or circumstance has occurred which has had, or is reasonably likely to have, a Material Adverse Effect.

3.8. Ownership of Assets. Each Acquired Company has good and marketable title to, or, in the case of property held under a Contractual Obligation, an Enforceable leasehold interest in, or right to use, all of its properties, rights and assets, whether real or personal and whether tangible or intangible which consist solely of the assets set forth on Schedule 3.8 (collectively, the “Assets”). Except as disclosed on Schedule 3.8, none of the Assets is subject to any Encumbrance other than Permitted Encumbrances.

3.9. Real Property.

3.9.1 Neither of the Acquired Companies owns or leases any real property.

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3.10. [RESERVED]

3.11. Intellectual Property.

3.11.1 The Acquired Companies are the sole owners of or have the right to use all Company Technology, and none of the Company Technology is in the possession, custody, or control of any Person other than the Acquired Companies.

3.11.2 (a) Neither the Seller nor either of the Acquired Companies (i) has, directly or indirectly, interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of any third party or (ii) has received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that a Person must license or refrain from using any Intellectual Property rights of any third party in connection with the conduct of the Business or the use of the Company Technology) and (b) neither the manufacture, use, sale or distribution of any of the Company Technology has directly or indirectly interfered with, infringed upon or otherwise come into conflict with any Intellectual Property rights of any third party. To Seller’s knowledge, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Company Technology.

3.11.3 The Seller hereby repeats for the benefit of the Buyer as if set forth herein each of the representations and warranties set forth in Sections 12.1A of the License Agreement and Section 13A of the Support Agreement.

3.11.4 Schedule 3.11.4 identifies each License. Except as disclosed on Schedule 3.11, there are no royalties due to any third parties for the use of the Company Technology.

3.11.5 Except as disclosed on Schedule 3.11.5, none of the Company Technology constitutes or is dependent on or incorporates any open source computer code, and none of the Company Technology is subject to any License or other Contractual Obligation that would require the Company to divulge to any Person any source code or trade secret that is part of the Company Technology.

3.11.6 Except as disclosed on Schedule 3.11.6, each item of Intellectual Property owned or used by each Acquired Company immediately before the Closing Date will be owned or available for use by the Acquired Company on identical terms and conditions immediately subsequent to the Closing Date and such ownership or right to use will remain in effect without adverse change after the Closing Date. Each Acquired Company has taken all necessary action to maintain and protect each item of Intellectual Property that it owns or uses.

3.11.7 The binding Settlement and License Term Sheet dated March 29, 2005, between Sky Technologies, Ltd and i2 Inc. and any binding agreement that implements such term sheet does not and will not adversely affect the Seller’s ability to perform under the License Agreement or the Support Agreement.

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3.12. Legal Compliance; Illegal Payments; Permits.

3.12.1 Compliance. Neither Acquired Company is in breach or violation of, or default under (a) its Organizational Documents nor, to the Seller’s Knowledge, is there a basis which could constitute such a breach, violation or default; or (b) any material law, rule or regulation applicable to it or the Business nor, to Seller’s Knowledge, is there a basis which could constitute such a breach, violation or default, except for breaches, violation or defaults which have not had, and are not reasonably likely to have, a Material Adverse Effect.

3.12.2 Illegal Payments, etc. In the conduct of the Business, no Acquired Company nor any of its directors, officers, employees, sub-contractors or agents, has (a) directly or indirectly, given, or agreed to give, any illegal gift, contribution, payment or similar benefit to any supplier, customer, governmental official or employee or other Person who was, is or may be in a position to help or hinder an Acquired Company (or assist in connection with any actual or proposed transaction) or made, or agreed to make, any illegal contribution, or reimbursed any illegal political gift or contribution made by any other Person, to any candidate for federal, state, local or foreign public office or (b) established or maintained any unrecorded fund or asset or made any false entries on any books or records for any purpose.

3.12.3 Permits. Each Acquired Company has been (or, in the case of DevCo, prior to the Closing, will have been) duly granted all Permits under all laws, rules or regulations necessary for the conduct of the Business. Schedule 3.12.3 describes each Permit affecting, or relating to, the Assets or the Business together with the Governmental Authority or other Person responsible for issuing such Permit. The Permits are valid and in full force and effect, no Acquired Company is in breach or violation of, or default under, any such Permit, and, to the Seller’s Knowledge, no basis exists which, with notice or lapse of time or both, would constitute any such breach, violation nor default and the Permits will continue to be valid and in full force and effect, on identical terms following the consummation of the Contemplated Transactions.

3.13. Tax Matters.

3.13.1 Each Acquired Company has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it in accordance with all Legal Requirements. All such Tax Returns were true, correct and complete in all respects. All Taxes owed by each Acquired Company (whether or not shown on any Tax Return) have been timely paid in full. There are no Encumbrances with respect to Taxes upon any Asset other than Permitted Encumbrances for current Taxes not yet due and payable.

3.13.2 Each Acquired Company has deducted, withheld and timely paid to the appropriate Governmental Authority all Taxes required to be deducted, withheld or paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, and each Acquired Company has complied with all reporting and recordkeeping requirements.

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3.13.3 No Acquired Company is a party to any Contractual Obligation relating to Tax sharing or Tax allocation. No Acquired Company has any Liability for the Taxes of any Person (other than an Acquired Company) under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise.

3.13.4 No Acquired Company owns any property of a character, the indirect transfer of which, pursuant to this Agreement, would give rise to any documentary, stamp, or other transfer Tax.

3.13.5 The Company has, at all times since its organization, been disregarded as an entity separate from its owner for U.S. federal, state and local income tax purposes.

3.14. Employee Benefit Plans.

3.14.1 For purposes of this Agreement, “Employee Plan” means any plan, program, agreement, policy or arrangement, whether or not reduced to writing, and whether covering a single individual or a group of individuals, that is (a) a welfare plan within the meaning of Section 3(1) of ERISA, (b) a pension benefit plan within the meaning of Section 3(2) of ERISA, (c) a stock bonus, stock purchase, stock option, restricted stock, stock appreciation right or similar equity-based plan or (d) any other deferred-compensation, retirement, welfare-benefit, bonus, incentive or fringe-benefit plan, program or arrangement.

3.14.2 Schedule 3.14 lists all Employee Plans as to which an Acquired Company sponsors, maintains, contributes or is obligated to contribute, or under which an Acquired Company has or may have any Liability, or which benefits any current or former employee, director, consultant or independent contractor of an Acquired Company or the beneficiaries or dependents of any such Person (each a “Company Plan”). With respect to each Company Plan, the Seller has delivered to the Buyer true, accurate and complete copies of each of the following: (a) if the plan has been reduced to writing, the plan document together with all amendments thereto, (b) if the plan has not been reduced to writing, a written summary of all material plan terms, (c) copies of any summary plan descriptions, employee handbooks or similar employee communications.

3.14.3 No Acquired Company or any other Person that would be considered a single employer with an Acquired Company under the Code or ERISA has ever maintained a plan subject to Title IV of ERISA or Code Section 412, including any “multiemployer plan” as defined in Section 4001(a)(8) of ERISA. Except as required under Section 601 et seq. of ERISA, no Company Plan provides severance or salary continuation benefits or benefits or coverage in the nature of health, life or disability insurance following retirement or other termination of employment. Nothing has occurred with respect to any Company Plan that has subjected or could subject an Acquired Company to a penalty under ERISA or other Liability (other than a Liability for contributions, premiums or benefits payable in the normal course and in accordance with the terms of the Company Plan) or to an excise tax under the Code, or that has subjected

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or could subject any participant in, or beneficiary of, a Company Plan to a tax under Chapter 43 of the Code.

3.14.4 None of the Company Plans is sponsored by, or maintained solely by, the Acquired Companies or any of them, and upon consummation of the Contemplated Transactions will cease to be liable for any contributions, premiums or benefits under, and except to the extent required by Section 601 et seq. of ERISA all employees of the Acquired Companies will cease to participate actively in and will cease accruing additional benefits under, the Company Plans.

3.15. Contracts. Except for the Ancillary Agreements and as disclosed on Schedule 3.15, neither Acquired Company is bound by or a party to any Contractual Obligation. The Seller has delivered or made available to the Buyer true, accurate and complete copies of each written Contractual Obligation listed on Schedule 3.15, in each case, as amended or otherwise modified and in effect.

3.15.1 Enforceability, etc. To the Seller’s Knowledge, each Contractual Obligation required to be disclosed on Schedule 3.14 (Employee Plans), Schedule 3.15 (Contracts), or Schedule 3.21 (Insurance) (each, a “Disclosed Contract”) is Enforceable against each party to such Contractual Obligation (other than DS Parent or any of its Subsidiaries as to which the Seller and Seller Parent make no representation or warranty), and is in full force and effect, and, subject to obtaining any necessary consents disclosed in Schedule 3.3, will continue to be so Enforceable and in full force and effect on identical terms following the consummation of the Contemplated Transactions.

3.15.2 Breach, etc. No Acquired Company or, to the Seller’s Knowledge, any other party to any Contractual Obligation (other than DS Parent or any of its Subsidiaries as to which the Seller and Seller Parent make no representation or warranty) is in breach or violation of, or default under, or has repudiated any provision of, any Contractual Obligation.

3.16. Affiliate Transactions. Neither the Seller nor any of its Affiliates is an officer, director, employee, consultant, competitor, creditor, debtor, customer, distributor, supplier or vendor of, or is a party to any Contractual Obligation with, an Acquired Company. Neither the Seller nor any of its Affiliates owns any Asset used in, or necessary to, the Business.

3.17. Suppliers. Schedule 3.17 sets forth a complete and accurate list of all suppliers of materials, products or services to the Acquired Companies. The relationships of the Acquired Companies with its suppliers are good commercial working relationships and none of such suppliers has canceled, terminated or otherwise materially altered or notified an Acquired Company of any intention to do any of the foregoing or otherwise threatened in writing to cancel, terminate or materially alter its relationship with an Acquired Company.

3.18. Employees.

(a) Schedule 3.18(a) (which was previously delivered to the Buyer) sets forth a complete list of each individual that is, on the date hereof, or is expected, at the Closing Date, to be employed by Newco or DevCo either on a full-time, part-time, or

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contractor basis (each, an “Employee”), describes the nature of such relationship and sets forth the annual Compensation owed to such Employee. Schedule 3.18(a) shall identify groups of Employees as follows: employees of i2 India who shall be contracted to one of the Acquired Companies; employees of i2 India who shall be employed by DevCo and based in India; employees of i2 India who shall be employed by DevCo and based in the United States; and employees of the Seller who shall be contracted to Newco and based in the United States.

(b) Schedule 3.18(b) shall include the execution copy of each Contractor Agreement entered into prior to the date hereof and shall be updated prior to the Closing with any Contractor Agreement entered into prior thereto.

(c) There are no labor troubles (including any work slowdown, lockout, stoppage, picketing or strike) pending, or to the Seller’s Knowledge, threatened between an Acquired Company, on the one hand, and its employees, on the other hand, and there have been no such troubles since the Acquired Companies were organized. No employee of an Acquired Company is represented by a labor union, neither Acquired Company is a party to, or otherwise subject to, any collective bargaining agreement or other labor union contract, no petition has been filed or proceedings instituted by an employee or group of employees of either Acquired Company with any labor relations board seeking recognition of a bargaining representative and there is no organizational effort currently being made or threatened by, or on behalf of, any labor union to organize employees of either Acquired Company and no demand for recognition of employees of an Acquired Company has been made by, or on behalf of, any labor union. No executive officer’s or other key employee’s employment with the Acquired Companies has been terminated for any reason nor has any such officer or employee notified the Company of his or her intention to resign or retire.

(d) Each of the Acquired Companies is in compliance in form and operation with all applicable labor laws. Each of the Acquired Companies and its contractors is in full and formal compliance with all laws applicable to deployment and usage of contract labor. All contributions (including all employer contributions and employee salary reduction contributions) that are due under any applicable labor laws have been paid and all contributions for any period ending on or before the Closing Date that are not yet due will be paid on a timely basis. No employee of DevCo has been entitled to receive workmen’s compensation under the Workmen’s Compensation Act, 1923 or to claim benefits under the Employees State Insurance Act, 1948. There are no current plans or obligations to pay any of the Acquired Companies’ employees for loss of office or redundancy. There are no pending claims for back wages, dues or payments in any other form demanded by any of the Acquired Companies’ past or present employees or workmen. There are no labor or employment related disputes pending against either Acquired Company before any labor courts, arbitral tribunals, courts, or other judicial or quasi-judicial authority. There has not been any instance of disciplinary proceedings or claims taken out against any worker or employee of either Acquired Company and there is no outstanding dispute or claim against either Acquired Company in this regard. Neither of the Acquired Companies is providing

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non-statutory pension or superannuation schemes to any of its employees or workmen.

3.19. Litigation; Governmental Orders.

3.19.1 Litigation. There is no Action to which an Acquired Company is a party (either as plaintiff or defendant) or to which its Assets are subject pending, or to the Seller’s Knowledge, threatened, which may affect an Acquired Company or its ownership of, or interest in, any Asset or the use or exercise by the Acquired Companies of any Asset. There is no Action to which an Acquired Company is a party (either as plaintiff or defendant) or to which its Assets are subject pending, or to the Seller’s Knowledge, threatened, which (a) in any manner challenges or seeks the rescission of, or seeks to prevent, enjoin, alter or materially delay the consummation of, or otherwise relates to, this Agreement and the Contemplated Transactions, or (b) may result in any change in the current equity ownership of any Acquired Company, nor, to the Seller’s Knowledge, is there any basis for any of the foregoing. There is no Action which an Acquired Company presently intends to initiate.

3.19.2 Governmental Orders. No Governmental Order has been issued which is applicable to, or otherwise affects, an Acquired Company or its Assets or the Business.

3.20. Products. Other than software development activity undertaken in furtherance of the License Agreement and the Support Agreement, neither of the Companies has manufactured, sold, leased, licensed, delivered or installed any products.

3.21. Insurance. Schedule 3.21 sets forth a list of insurance policies, including policies by which the Acquired Companies, or any of their Assets, employees, officers or directors or the Business has been insured since their organization (the “Liability Policies”) and their respective expiration dates. The list includes for each Liability Policy the type of policy, form of coverage, policy number and name of insurer. The Seller has made available to the Buyer true, accurate and complete copies of all Liability Policies, in each case, as amended or otherwise modified and in effect. Schedule 3.21 describes any self-insurance arrangements affecting the Acquired Companies. The Acquired Companies have since their organization maintained in full force and effect with financially sound and reputable insurers insurance with respect to their Assets and the Business, in such amounts and against such losses and risks as is customarily carried by Persons engaged in the same or similar business and as is required under the terms of any applicable Real Property Leases or other Contractual Obligations. No insurer (a) has questioned, denied or disputed (or otherwise reserved its rights with respect to) the coverage of any claim pending under any Liability Policy or (b) has threatened to cancel any Liability Policy. To the Seller’s Knowledge, no insurer plans to raise the premiums for, or materially alter the coverage under, any Current Liability Policy. Except as disclosed on Schedule 3.21, the Acquired Companies will after the Closing continue to have coverage under all of the Liability Policies with respect to events occurring prior to the Closing.

3.22. Banking Facilities. Schedule 3.22 sets forth a true, correct and complete list of: (a) each bank, savings and loan or similar financial institution with which an Acquired

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Company has an account or safety deposit box or other arrangement, and any numbers or other identifying codes of such accounts, safety deposit boxes or such other arrangements maintained by an Acquired Company thereat; (b) the names of all Persons authorized to draw on any such account or to have access to any such safety deposit box facility or such other arrangement; and (c) any outstanding powers of attorney executed by or on behalf of an Acquired Company.

3.23. Powers of Attorney. No Acquired Company has general or special powers of attorney outstanding (whether as grantor or grantee thereof).

3.24. No Brokers. Neither Acquired Company has any Liability of any kind to, or is subject to any claim of, any broker, finder or agent in connection with the Contemplated Transactions other than those which will be borne by the Seller.

4. REPRESENTATIONS AND WARRANTIES OF THE SELLER.

The Seller hereby represents and warrants to the Buyer that:

4.1. Organization. The Seller is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.

4.2. Power and Authorization. The execution, delivery and performance by the Seller of this Agreement and each Ancillary Agreement to which it is (or will be) a party and the consummation of the Contemplated Transactions are within the power and authority of the Seller and, if applicable, have been duly authorized by all necessary action on the part of the Seller. This Agreement and each Ancillary Agreement to which the Seller is (or will be) a party (a) has been (or, in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) duly executed and delivered by such Seller and (b) is (or in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms.

4.3. Authorization of Governmental Authorities. Except as disclosed on Schedule 4.3, no action by (including any authorization, consent or approval), or in respect of, or filing with, any Governmental Authority is required for, or in connection with, the valid and lawful (a) authorization, execution, delivery and performance by the Seller of this Agreement and each Ancillary Agreement to which it is (or will be) a party or (b) the consummation of the Contemplated Transactions by the Seller.

4.4. Noncontravention. Neither the execution, delivery and performance by the Seller of this Agreement or any Ancillary Agreement to which the Seller is (or will be) a party nor the consummation of the Contemplated Transactions will (a) assuming the taking of any action by (including any authorization, consent or approval) or in respect of, or any filing with, any Governmental Authority, in each case, as disclosed on Schedule 4.3, violate any provision of any law, rule or regulation applicable to the Seller; (b) result in a breach or violation of, or default under, any Contractual Obligation of the Seller; (c) require any action by (including any authorization, consent or approval) or in respect of (including notice to), any Person under any Contractual Obligation; or (d) result in a breach or violation of, or default under, the Seller’s Organizational Documents.

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4.5. Title. The Seller is the record and beneficial owner of the Purchased Interests, and has good and marketable title to such Purchased Interests, free and clear of all Encumbrances except as are imposed by applicable securities laws. The Seller has full right, power and authority to transfer and deliver to the Buyer valid title to the Purchased Interests held by the Seller, free and clear of all Encumbrances. Immediately following the Closing, the Buyer will be the record and beneficial owner of such Purchased Interests, and have good and marketable title to such Purchased Interests, free and clear of all Encumbrances except as are imposed by applicable securities laws or created by the Buyer. Except pursuant to this Agreement, there is no Contractual Obligation pursuant to which the Seller has, directly or indirectly, granted any option, warrant or other right to any Person to acquire the Purchased Interests or other Equity Interests in an Acquired Company.

4.6. No Brokers. The Seller has no Liability of any kind to any broker, finder or agent with respect to the Contemplated Transactions for which the Buyer could be liable.

5. REPRESENTATIONS AND WARRANTIES OF THE BUYER.

The Buyer represents and warrants to the Seller and Seller Parent that:

5.1. Organization. The Buyer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.

5.2. Power and Authorization. The execution, delivery and performance by the Buyer of this Agreement and each Ancillary Agreement to which it is (or will be) a party and the consummation of the Contemplated Transactions are within the power and authority of the Buyer and have been duly authorized by all necessary action on the part of the Buyer. This Agreement and each Ancillary Agreement to which the Buyer is (or will be) a party (a) has been (or, in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) duly executed and delivered by the Buyer and (b) is (or in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) a legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms.

5.3. Authorization of Governmental Authorities. No action by (including any authorization, consent or approval), or in respect of, or filing with, any Governmental Authority is required for, or in connection with, the valid and lawful (a) authorization, execution, delivery and performance by the Buyer of this Agreement and each Ancillary Agreement to which it is (or will be) a party or (b) the consummation of the Contemplated Transactions by the Buyer.

5.4. Noncontravention. Neither the execution, delivery and performance by the Buyer of this Agreement or any Ancillary Agreement to which it is (or will be) a party nor the consummation of the Contemplated Transactions will (a) assuming the taking of any action by (including any authorization, consent or approval) or in respect of, or any filing with, any Governmental Authority violate any provision of any law, rule or regulation applicable to the Buyer; (b) result in a breach or violation of, or default under, any Contractual Obligation of the Buyer; (c) require any action by (including any authorization, consent or approval) or in

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respect of (including notice to), any Person under any Contractual Obligation; or (d) result in a breach or violation of, or default under, the Buyer’s Organizational Documents.

5.5. No Brokers. The Buyer has no Liability of any kind to any broker, finder or agent with respect to the Contemplated Transactions for which the Seller could be Liable.

6. COVENANTS.

6.1. Closing. The Seller will, and will cause the Acquired Companies to take all of the actions and deliver all the various certificates, documents and instruments described in Section 7 as being performed or delivered by the Seller or the Acquired Companies.

6.2. Operation of Business.

6.2.1 Conduct of Business. From the date of this Agreement until the Closing Date, the Company will and the Seller will cause the Acquired Companies to:

(a) conduct the Business only in the ordinary course of business;

(b) maintain the value of the Business as a going concern;

(c) preserve intact its business organization and relationships with third parties (including lessors, licensors, suppliers, distributors and customers) and employees; and

(d) consult with the Buyer prior to taking any action or entering into any transaction that may be of strategic importance to an Acquired Company.

6.2.2 Buyer’s Consent. Without limiting the generality of Section 6.2.1, without the written consent of the Buyer, the Company will not, and the Seller will cause the Acquired Companies not to:

(a) take or omit to take any action that would cause the representations and warranties in Section 3 to be untrue at, or as of any time prior to, the Closing Date;

(b) either (i) amend its Organizational Documents, (ii) amend any term of its outstanding Equity Interests or other securities or (iii) issue, sell, grant, or otherwise disposed of, its Equity Interests or other securities;

(c) become liable in respect of any Guarantee or incur, assume or otherwise become liable in respect of any Debt;

(d) permit any of its Assets to become subject to an Encumbrance other than a Permitted Encumbrance;

(e) either (i) make any declaration, setting aside or payment of any dividend or other distribution with respect to, or any repurchase, redemption or other acquisition of, any of its capital stock or other Equity Interests or (ii) enter into, or perform, any

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transaction with, or for the benefit of, the Seller or any Affiliate of any Seller (other than payments made to officers, directors and employees in the ordinary course of business);

(f) increase the Compensation payable or paid, whether conditionally or otherwise, to any officer, director, employee, consultant or agent above such amounts set forth in Schedule 3.18(a);

(g) enter into any Contractual Obligation providing for the employment or consultancy of any Person on a full-time, part-time, consulting sub-contractor or other basis or otherwise providing Compensation or other benefits to any officer, director, employee, contractor, sub-contractor or consultant (other than an Employee set forth on Schedule 3.18(a) or 3.18(b) as such Schedule may be amended from time to time with the consent of the Buyer);

(h) make, change or revoke any material Tax election, elect or change any method of accounting for Tax purposes, settle any Action in respect of Taxes or enter into any Contractual Obligation in respect of Taxes with any Governmental Authority;

(i) terminate or close any facility, business or operation;

(j) except as set forth in Schedule 3.7, adopt any Employee Plan;

(k) write up or write down any of its material Assets or revalue its inventory;

(l) incur any expense not included in the Budget; or

(m) enter into any Contractual Obligation to do any of the things referred to elsewhere in this Section 6.2.2.

6.3. Notices and Consents.

6.3.1 Acquired Companies. The Seller will cause the Acquired Companies to give all notices to, make all filings with and use their commercially reasonable efforts to obtain all authorizations, consents or approvals from, any Governmental Authority or other Person that are set forth on Schedule 3.3 and Schedule 3.4 or as otherwise reasonably requested by the Buyer.

6.3.2 Seller. The Seller will give all notices to, make all filings with and use its commercially reasonable efforts to obtain all authorizations, consents or approvals from, any Governmental Authority or other Person that are set forth on Schedule 4.3 and Schedule 4.4 or as otherwise reasonably requested by the Buyer.

6.3.3 Buyer. The Buyer will give all notices to, make all filings with and use its commercially reasonable efforts to obtain all authorizations, consents or approvals from, any Governmental Authority or other Person that are set forth on Schedule 5.3 and Schedule 5.4 or as otherwise reasonably requested by the Company.

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6.4. [RESERVED]

6.5. Notice of Developments. From the date of the Agreement until the Closing Date, the Company and the Seller will give the Buyer prompt written notice upon becoming aware of any material development affecting the Assets, Liabilities, Business, Employees, financial condition, operations or prospects of an Acquired Company, or any event or circumstance that could reasonably be expected to result in a breach of any of the Company’s or the Seller’s representations and warranties; provided, however, that no such disclosure will be deemed to prevent or cure any such breach of, amend or supplement any Schedule to, or otherwise disclose any exception to, any of the representations and warranties set forth in this Agreement.

6.6. Seller’s Release. Effective as of the Closing, the Seller hereby releases, remises and forever discharges any and all rights and claims that it has had, now has or might now have against the Acquired Companies except for (a) rights and claims arising from or in connection with this Agreement and the Ancillary Agreements and (b) rights and claims arising from or in connection with claims asserted against such Seller by third parties for which the Buyer Indemnified Persons are not entitled to indemnification by the Seller pursuant to Section 10.2.

6.7. Confidentiality.

6.7.1 Confidentiality of the Seller.

(a) The Seller acknowledges that the success of the Acquired Companies after the Closing depends upon the continued preservation of the confidentiality of certain information possessed by the Seller, that the preservation of the confidentiality of such information by the Seller is an essential premise of the bargain between the Seller and the Buyer, and that the Buyer would be unwilling to enter into this Agreement in the absence of this Section 6.7.1(a). Accordingly, the Seller hereby agrees with the Buyer that the Seller and its Representatives will not, and will cause its Affiliates not to, at any time on or after the Closing Date, directly or indirectly, without the prior written consent of the Buyer, disclose or use, any confidential or proprietary information involving or relating to the Business or an Acquired Company; provided, however, that the information subject to the foregoing provisions of this sentence will not include any information (i) generally available to, or known by, the public (other than as a result of disclosure in violation hereof) or (ii) that is required by any applicable Legal Requirement to be disclosed (in which case the Seller will provide the Buyer with the opportunity to review in advance the disclosure); and provided, further, that the provisions of this Section 6.7.1(a) will not prohibit any retention of copies of records or disclosure (a) required by any applicable Legal Requirement so long as reasonable prior notice is given of such disclosure and a reasonable opportunity is afforded to contest the same or (b) made in connection with the enforcement of any right or remedy relating to this Agreement or the Contemplated Transactions. The Seller agrees that it will be responsible for any breach or violation of the provisions of this Section 6.7.1(a) by any of its Representatives.

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(b) Notwithstanding the foregoing, the Seller and each of its Representatives may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the you relating to such tax treatment and tax structure, all as contemplated by Treasury Regulation Section 1.6011-4(b)(3)(iii).

6.8. Publicity. No public announcement or disclosure will be made by any party with respect to the subject matter of this Agreement or the Contemplated Transactions without the prior written consent of the Buyer and the Seller; provided, however, that the provisions of this Section 6.8 will not prohibit (a) any disclosure required by any applicable Legal Requirements (in which case the disclosing party will provide the other parties with the opportunity to review in advance the disclosure) or (b) any disclosure made in connection with the enforcement of any right or remedy relating to this Agreement or the Contemplated Transactions.

6.9. Noncompetition and Nonsolicitation. The parties acknowledge and agree that they are subject to the non-competition covenants set forth in the License Agreement and the Support Agreement. Except as otherwise provided in the Contractor Agreements, for a period of two years from and after the Closing Date, neither the Seller, nor any of its Affiliates will recruit, offer employment, employ, engage as a consultant, lure or entice away, or in any other manner persuade or attempt to persuade, any Employee to leave the employ of the Acquired Companies. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 6.9 is invalid or unenforceable, the parties hereto agree that the court making the determination of invalidity or unenforceability will have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement will be enforceable as so modified after the expiration of the time within which the judgment may be appealed.

6.10. Further Assurances. From and after the Closing Date, upon the request of the Seller or the Buyer, each of the parties hereto will do, execute, acknowledge and deliver all such further acts, assurances, deeds, assignments, transfers, conveyances and other instruments and papers as may be reasonably required or appropriate to carry out the Contemplated Transactions. The Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, supplier, distributor or customer of an Acquired Company or other Person with whom an Acquired Company has a relationship from maintaining the same relationship with the Acquired Company after the Closing as it maintained prior to the Closing. The Seller will refer all customer inquiries relating to the Business to the Buyer, or an Acquired Company, as appropriate, from and after the Closing.

6.11. Employees.

(a) The Seller shall cause Newco or DevCo, as the case may be, on or prior to the Closing Date, to enter into the Contractor Agreements with respect to the persons set forth on Schedule 3.18(a) and to hire the Employees in the capacities and on the

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terms set forth on Schedule 3.18(a) (as such Schedule may be amended from time to time prior to the Closing with the Buyer’s consent).

(b) The parties hereto acknowledge that it is preferable that each Employee be hired by Newco or DevCo, as the case may be, as a full-time employee but that, in the case of certain of the Employees, certain Legal Requirements or other circumstances make such arrangement impracticable at the date hereof. As soon as practicable following such time as such Legal Requirements or other circumstances are satisfied or resolved (whether before or after the Closing Date), the parties hereto will use their commercially reasonable efforts to cause such Employees to be hired by Newco or DevCo, as the case may be, as full-time employees.

(c) The parties hereto acknowledge that the Seller and Seller Parent uniquely possess the know-how for the development of the SRM Intellectual Property. Accordingly, in the event that any Employee leaves the employment of the Buyer Newco or DevCo (either voluntarily or such Employee is terminated by the Buyer, Newco or DevCo because such Employee’s performance is not reasonably satisfactory to the Buyer) during the 12-month period following the Closing Date, the Seller and Seller Parent shall use their commercially reasonable efforts to identify and make available to the Buyer, Newco or DevCo, as the case may be, suitable full-time replacement employee(s) or, at the Buyer’s option, provide reasonably adequate training on the Seller’s software at the Seller’s standard rates for such training for any such replacement employee hired by the Buyer, Newco or DevCo.

6.12. Source Code. The Seller shall, on or prior to the Closing Date, deliver to the Buyer and the Company a current version, as of the Closing Date, of all Source Code and Source Code Documentation (as such terms are defined in the License Agreement) as required by the terms of the License Agreement.

7. CONDITIONS TO THE BUYER’S OBLIGATIONS AT THE CLOSING.

The obligations of the Buyer to consummate the Closing is subject to the fulfillment of each of the following conditions:

7.1. Representations and Warranties. The representations and warranties of the Company and the Seller contained in this Agreement and in any document, instrument or certificate delivered hereunder (a) that are not qualified by materiality or Material Adverse Effect will be true and correct in all material respects at and as of the Closing with the same force and effect as if made as of the Closing and (b) that are qualified by materiality or Material Adverse Effect will be true and correct in all respects at and as of the Closing with the same force and effect as if made as of the Closing, in each case, other than representations and warranties that expressly speak only as of a specific date or time, which will be true and correct as of such specified date or time.

7.2. Performance. Each Acquired Company and the Seller will have performed and complied in all respects, with all agreements, obligations and covenants contained in this

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Agreement that are required to be performed or complied with by them at or prior to the Closing.

7.3. LLC Interests. The Seller will have delivered to the Buyer a duly executed LLC interest transfer power evidencing the transfer all of the Purchased Interests (which are uncertificated).

7.4. DevCo. DevCo shall have been duly organized and be validly existing under applicable law and shall possess all valid authorizations, permits and licenses to enable it to conduct its operations as contemplated by this Agreement.

7.5. Compliance Certificate. The Company and the Seller will have delivered to the Buyer a certificate substantially in the form of Exhibit 7.5.

7.6. Absence of Litigation. No Action will be pending or threatened in writing which may result in a Governmental Order (nor will there be any Governmental Order in effect) (a) which would prevent consummation of any of the Contemplated Transactions, (b) which would result in any of the Contemplated Transactions being rescinded following consummation, (c) which would limit or otherwise adversely affect the right of the Buyer to own the Purchased Interests (including the right to vote the Purchased Interests), to control the Acquired Companies, or to operate all or any material portion of either the Business or Assets or of the business or assets of the Buyer or any of its Affiliates or (d) would compel the Buyer or any of its Affiliates to dispose of all or any material portion of either the Business or Assets or the business or assets of the Buyer or any of its Affiliates.

7.7. Consents, etc. All actions by (including any authorization, consent or approval) or in respect of (including notice to), or filings with, any Governmental Authority or other Person that are required to consummate the Contemplated Transactions, as disclosed in Schedule 3.3, Schedule 3.4, Schedule 4.3, and Schedule 4.4 or as otherwise reasonably requested by the Buyer, will have been obtained or made, in a manner reasonably satisfactory in form and substance to the Buyer, and no such authorization, consent or approval will have been revoked.

7.8. Proceedings and Documents. All corporate and other proceedings in connection with the Contemplated Transactions and all documents incident thereto will be reasonably satisfactory in form and substance to the Buyer and its counsel, and they will have received all such counterpart original and certified or other copies of such documents as they may reasonably request.

7.9. Ancillary Agreements. Each of the Ancillary Agreements will have been executed and delivered to the Buyer by each of the other parties thereto and shall be in full force and effect.

7.10. No Material Adverse Change. Since the date of this Agreement, there will have occurred no events nor will there exist circumstances which singly or in the aggregate have resulted in a Material Adverse Effect.

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7.11. Employees. Each of the following tests shall have been satisfied:

(a) At least 24 of the Employees set forth on Schedule 3.18(a) (as such Schedule may be amended from time to time prior to the Closing with the Buyer’s consent) shall be hired by Newco or DevCo, as the case may be, in the capacities and on the terms set forth on such Schedule and the Seller shall have delivered to the Buyer evidence of such employment reasonably satisfactory to the Buyer; provided that each of the individuals previously identified by the Buyer to the Seller shall be included in such group of 24.

(b) At least 20 of the 26 employees identified on Schedule 3.18(a) as (i) “DI” or “IC” or (ii) being employed by DevCo shall be hired by Newco or DevCo, as the case may be, in the capacities and on the terms set forth on such Schedule and the Seller shall have delivered to the Buyer evidence of such employment reasonably satisfactory to the Buyer.

(c) At least six (6) of the ten (10) Employees identified on Schedule 3.18(a) as “IC” shall be contracted to Newco or DevCo on the terms set forth on such Schedule.

(d) Each of the individuals identified on Schedule 3.18(a) with a single asterisk (*) shall be hired by Newco or DevCo, as the case may be, in the capacities and on the terms set forth on such Schedule and the Seller shall have delivered to the Buyer evidence of such employment reasonably satisfactory to the Buyer.

(e) At least three (3) of the four (4) individuals identified on Schedule 3.18(a) with a double asterisk (**) shall be hired by Newco or DevCo, as the case may be, in the capacities and on the terms set forth on such Schedule and the Seller shall have delivered to the Buyer evidence of such employment reasonably satisfactory to the Buyer.

7.12. Source Code. The Seller shall have delivered to the Buyer and the Company a current version, as of the Closing Date, of all Source Code and Source Code Documentation (as such terms are defined in the License Agreement) as required by the terms of the License Agreement and the acceptance tests required by Section 4 of the License Agreement shall have been successfully completed.

7.13. Diligence. The Buyer shall have completed to its satisfaction an operational, financial and legal diligence investigation of the Acquired Companies.

7.14. Budget. The actual aggregate monthly cost of the Employees shall be as set forth in Schedule 3.18(a), such amounts to be confirmed by reference to the terms of the Employment Agreements and the Contractor Agreements.

8. CONDITIONS TO THE SELLER’S OBLIGATIONS AT THE CLOSING.

The obligation of the Seller to consummate the Closing is subject to the fulfillment of each of the following conditions (unless waived by the Seller in accordance with Section 12.3):

8.1. Representations and Warranties. The representations and warranties of the Buyer contained in this Agreement and in any document, instrument or certificate delivered hereunder (a) that are not qualified by materiality or Material Adverse Effect will be true and correct in all material respects at and as of the Closing with the same force and effect as if made as of the Closing and (b) that are qualified by materiality or Material Adverse Effect

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will be true and correct in all respects at and as of the Closing with the same force and effect as if made as of the Closing, in each case, other than representations and warranties that expressly speak only as of a specific date or time, which will be true and correct as of such specified date or time and the Buyer shall have delivered to the Seller a certificate to such effect.

8.2. Performance. The Buyer will have performed and complied with, in all respects, all agreements, obligations and covenants contained in this Agreement that are required to be performed or complied with by the Buyer at or prior to the Closing.

9. TERMINATION.

9.1. Termination of Agreement.

(a) This Agreement may be terminated (the date on which the Agreement is terminated, the “Termination Date”) at any time prior to the Closing:

(i) by mutual written consent of the Buyer and the Seller;

(ii) by either the Buyer or the Seller by providing written notice to the other at any time after June 30, 2005 (the “Drop Dead Date”) if the Closing will not have occurred by reason of the failure of any condition set forth in Section 7, in the case of the Buyer, or Section 8, in the case of the Seller, to be satisfied (unless such failure is the result of one or more breaches or violations of any covenant, agreement, representation or warranty of this Agreement by the terminating party);

(iii) by either the Buyer or the Seller if a final, nonappealable Governmental Order permanently enjoining, restraining or otherwise prohibiting the Closing will have been issued by a Governmental Authority of competent jurisdiction;

(iv) by the Buyer if either (i) there will be a breach of any representation or warranty of the Company or the Seller contained in this Agreement as of the date of this Agreement or as of any subsequent date (other than representations or warranties that expressly speak only as of a specific date or time, with respect to which the Buyer’s right to terminate will arise only in the event of a breach of such representation or warranty as of such specified date or time) or (ii) the Company or the Seller will have breached or violated in any material respect any of their respective covenants and agreements contained in this Agreement, which breach or violation would give rise, or could reasonably be expected to give rise, to a failure of a condition set forth in Section 7 and cannot be or has not been cured on or before the earlier of five Business Days before the Drop Dead Date or ten Business Days after the Buyer notifies the Company of such breach or violation; or

(v) by the Seller if either (i) there will be a breach of any representation or warranty of the Buyer contained in this Agreement as of the date of this Agreement or as of any subsequent date (other than representations or warranties

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that expressly speak only as of a specific date or time, with respect to which the Seller’s right to terminate will arise only in the event of a breach of such representation or warranty as of such specified date or time) or (ii) the Buyer will have breached or violated in any material respect any of its covenants and agreements contained in this Agreement, which breach or violation would give rise, or could reasonably be expected to give rise, to a failure of the condition set forth in Section 8 and cannot be or has not been cured on or before the earlier of five Business Days before the Drop Dead Date or ten Business Days after the Seller notifies the Company of such breach or violation.

(b) This Agreement shall automatically terminate without action, by any party hereto if the License Agreement or the Support Agreement shall have been terminated prior to the Closing having occurred.

9.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 9.1, this Agreement – other than the provisions of Sections 3.24, 4.6 and 5.5 (No Brokers), 6.7 (Confidentiality), 6.8 (Publicity), 10 (Indemnification) 12.10 (Governing Law) and 12.11 (Jurisdiction) 12.13 (Waiver of Jury Trial) – will then be null and void and have no further force and effect and all other rights and Liabilities of the parties hereunder will terminate without any Liability of any party to any other party, except for Liabilities arising in respect of breaches under this Agreement by any party on or prior to the Termination Date; provided, however, that if (i) the Buyer terminates this Agreement pursuant to Section 9.1(a)(ii) or (iv), or if this Agreement shall have terminated pursuant to Section 9.01(b) due to the breach by the Seller or the Company of the License Agreement or the Support Agreement or the insolvency of the Company or the Seller, the Buyer shall, within ten (10) days after the Termination Date, provide to the Seller documentation as to the Buyer Expenses and the Seller shall, within thirty (30) days after the Termination Date, pay to the Buyer an amount in cash equal to the Buyer Expenses and (ii) if the Seller terminates this Agreement pursuant to Section 9.1(a)(ii) or (v), or if this Agreement shall have terminated pursuant to Section 9.1(b) due to the breach by the Buyer of the License Agreement or the Support Agreement or the insolvency of the Buyer, the Seller shall, within ten (10) days after the Termination Date, provide to the Buyer documentation as to the Seller Expenses and the Buyer shall, within thirty (30) days after the Termination Date, pay to the Seller an amount in cash equal to the Seller Expenses. The procedure set forth in Section 2.4 with regard to the resolution of disputes concerning the calculation of Seller Expenses shall apply to the resolution of disputes concerning calculation of Buyer Expenses and Seller Expenses under the proviso to this Section 9.2.

10. INDEMNIFICATION.

10.1. Indemnification by the Seller.

10.1.1 Indemnification. Subject to the limitations set forth in this Section 10, the Seller will indemnify and hold harmless the Buyer and each of its Affiliates (including, following the Closing, each Acquired Company), and the Representatives and Affiliates of each of the foregoing Persons (each, a “Buyer Indemnified Person”), from, against and in respect of any and all Actions, Liabilities, Governmental Orders, Encumbrances,

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losses, damages, bonds, dues, assessments, fines, penalties, Taxes, fees, costs (including costs of investigation, defense and enforcement of this Agreement), expenses or amounts paid in settlement (in each case, including reasonable attorneys’ and experts fees and expenses), whether or not involving a Third Party Claim (collectively, “Losses”), incurred or suffered by the Buyer Indemnified Persons or any of them as a result of, arising out of or directly or indirectly relating to:

(a) any fraud of the Seller or the Company or any breach of any representation or warranty made by the Company or the Seller or any of them in this Agreement (other than in Section 4), any Ancillary Agreement or in any document, Schedule, instrument or certificate required to be delivered pursuant to this Agreement;

(b) any breach or violation of any covenant or agreement of the Company to the extent required to be performed or complied with by the Company prior to the Closing in or pursuant to this Agreement or any Ancillary Agreement;

(c) any breach of any representation or warranty made by the Seller in Section 4, any Ancillary Agreement or in any document, Schedule, instrument or certificate required to be delivered pursuant to this Agreement (in each case, as such representation or warranty would read if all qualifications as to Seller’s Knowledge and materiality, including each reference to the defined term “Material Adverse Effect,” were deleted therefrom);

(d) any breach or violation of any covenant or agreement of the Seller (including under this Section 10) in or pursuant to this Agreement or any Ancillary Agreement; or

(e) any accrued and unpaid expense or liability of Newco or DevCo as of the Closing that exceeds the amount of the particular Seller Expenses set forth in the Budget (other than Buyer Expenses invoiced to an Acquired Company).

10.1.2 Monetary Limitations. The Seller will have no obligation to indemnify the Buyer Indemnified Persons pursuant to Sections 10.1.1(a) and 10.1.1(c) in respect of Losses arising from the breach of any representation or warranty described therein unless the aggregate amount of all such Losses incurred or suffered by the Buyer Indemnified Persons exceeds $100,000 (at which point the Seller will indemnify the Buyer Indemnified Persons for all such Losses), and the Seller’s aggregate liability in respect of claims for indemnification pursuant to Sections 10.1.1(a) will not exceed the Purchase Price; provided, however, that, subject to Section 10.2A, the Seller’s aggregate liability in respect of claims for indemnification pursuant to Section 10.1.1(a) in respect of breaches of representations and warranties set forth in Section 3.11 (Intellectual Property) (except as provided below) will not exceed the aggregate of the Purchase Price and the fees paid by Newco to the Seller under the License Agreement and the Support Agreement during the twelve (12) month period immediately preceding the date a claim is made; and provided, further, however, that the foregoing limitations will not apply to (a) claims for indemnification pursuant to Sections 10.1.1(a) and 10.1.1(c) in respect of breaches of representations and warranties set forth in Sections 3.1.1 (Organization; No Activities),

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3.11 (Intellectual Property) to the extent such claim relates to a third-party infringement claim, 4.1 (Organization) or 4.5 (Title) or (b) claims based upon fraud or intentional misrepresentation.

10.2. Indemnity by the Buyer.

10.2.1 Indemnification. Subject to the limitations set forth in this Section 10, the Buyer will indemnify and hold harmless each the Seller and the Seller’s Affiliates (including, prior to the Closing, each Acquired Company), and the Representatives and Affiliates of each of the foregoing Persons (each, a “Seller Indemnified Person”), from, against and in respect of any and all Losses incurred or suffered by the Seller Indemnified Persons or any of them as a result of, arising out of or relating to, directly or indirectly:

(a) any fraud of the Buyer or any breach of any representation or warranty made by the Buyer in this Agreement any Ancillary Agreement or in any document, Schedule, instrument or certificate required to be delivered pursuant to this Agreement;

(b) any breach or violation of any covenant or agreement of the Buyer (including under this Section 10) or any covenant or agreement of the Company to the extent required to be performed or complied with by the Company after the Closing, in either case in or pursuant to this Agreement or any Ancillary Agreement; or

(c) any breach or violation of any covenant or agreement of the Buyer (including under this Section 10) in or pursuant to this Agreement.

10.2.2 Monetary Limitations. The Buyer will have no obligation to indemnify the Seller Indemnified Persons pursuant to Section 10.2.1(a) in respect of Losses arising from the breach of any representation or warranty described therein unless and until the aggregate amount of all such Losses incurred or suffered by the Seller Indemnified Persons exceeds $100,000 (at which point the Buyer will indemnify the Seller Indemnified Persons for all such Losses), and the Buyer’s aggregate liability in respect of claims for indemnification pursuant to Section 10.2.1(a) will not exceed the Purchase Price; provided, however, that foregoing limitations will not apply to (a) claims for indemnification pursuant to Section 10.2.1(a) in respect of breaches of representations and warranties set forth in Section 5.1 (Organization) or (b) claims based upon fraud or intentional misrepresentation.

10.2A No Multiple Recovery. Notwithstanding that a fact or set of facts could give rise to a claim under this Agreement, the License Agreement and/or the Support Agreement, no party to this Agreement shall be entitled to more than a single recovery in connection with such facts or set of facts. Nothing herein or in the License Agreement or the Support Agreement, however, shall limit the ability of a party to bring an action under one or more of such agreements

10.3. Time for Claims. No claim may be made or suit instituted seeking indemnification pursuant to Section 10.1.1(a) or 10.2.1(a) for any breach of any representation or warranty unless a written notice describing such breach in reasonable detail

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in light of the circumstances then known to the Indemnified Party, is provided to the Indemnifying Party:

(a) at any time, in the case of any breach of the representations and warranties set forth in Sections 3.1.1 (Organization), 3.2 (Power and Authorization), 3.4 (Breach of Organizational Documents), 3.5 (Capitalization), 3.24 (No Brokers), 4.1 (Organization), 4.2 (Power and Authorization), 4.4 (No Breach of Organizational Documents of Seller), 4.5 (Title), 4.6 (No Brokers), 5.1 (Organization), 5.2 (Power and Authorization), 5.4 (Breach of Organizational Documents) or 5.5 (No Brokers);

(b) at any time, in the case of any claim or suit based upon violations of law, fraud or intentional misrepresentation;

(c) at any time prior to the thirtieth day after the expiration of the applicable statute of limitations (taking into account any tolling periods and other extensions) in the case of any breach of the representations and warranties set forth in Sections 3.13 (Tax Matters), 3.12.1 (Compliance with Legal Requirements), 3.12.2 (No Illegal Payments, Etc.) or 3.14 (Employee Benefit Plans);

(d) at any time prior to the seventh anniversary of the Closing Date in the case of any breach of the representations set forth in Section 3.11 (Intellectual Property); and

(e) at any time prior to August 15, 2006, in the case of any breach of any other representation and warranty in this Agreement.

10.4. Third Party Claims.

10.4.1 Notice of Claim. If any third party shall notify an Indemnified Party with respect to any matter (a “Third Party Claim”) which may give rise to an Indemnified Claim against an Indemnifying Party under this Section 10, then the Indemnified Party will promptly give written notice to the Indemnifying Party; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party will relieve the Indemnifying Party from any obligation under this Section 10, except to the extent such delay actually and materially prejudices the Indemnifying Party.

10.4.2 Assumption of Defense, etc. The Indemnifying Party will be entitled to participate in the defense of any Third Party Claim that is the subject of a notice given by the Indemnified Party pursuant to Section 10.4.1. In addition, the Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (a) the Indemnifying Party gives written notice to the Indemnified Party within fifteen days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against the entirety of any and all Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (b) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have adequate financial resources to defend against the Third

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Party Claim and fulfill its indemnification obligations hereunder, (c) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief against the Indemnified Party, (d) the Indemnified Party has not been advised by counsel that an actual or potential conflict exists between the Indemnified Party and the Indemnifying Party in connection with the defense of the Third Party Claim, (e) the Third Party Claim does not relate to or otherwise arise in connection with Taxes or any criminal or regulatory enforcement Action, (f) settlement of, an adverse judgment with respect to or the Indemnifying Party’s conduct of the defense of the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to be adverse to the Indemnified Party’s reputation or continuing business interests (including its relationships with current or potential customers, suppliers or other parties material to the conduct of its business) and (g) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. The Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim; provided, however, that the Indemnifying Party will pay the fees and expenses of separate co-counsel retained by the Indemnified Party that are incurred prior to Indemnifying Party’s assumption of control of the defense of the Third Party Claim.

10.4.3 Limitations on Indemnifying Party. The Indemnifying Party will not consent to the entry of any judgment or enter into any compromise or settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party unless such judgment, compromise or settlement (a) provides for the payment by the Indemnifying Party of money as sole relief for the claimant, (b) results in the full and general release of the Buyer Indemnified Persons or Seller Indemnified Persons, as applicable, from all liabilities arising or relating to, or in connection with, the Third Party Claim and (c) involves no finding or admission of any violation of Legal Requirements or the rights of any Person and no effect on any other claims that may be made against the Indemnified Party.

10.4.4 Indemnified Party’s Control. If the Indemnifying Party does not deliver the notice contemplated by clause (a), or the evidence contemplated by clause (b), of Section 10.4.2 within 15 days after the Indemnified Party has given notice of the Third Party Claim, or otherwise at any time fails to conduct the defense of the Third Party Claim actively and diligently, the Indemnified Party may defend, and may consent to the entry of any judgment or enter into any compromise or settlement with respect to, the Third Party Claim in any manner it may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, the Indemnifying Party in connection therewith). If such notice and evidence is given on a timely basis and the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently but any of the other conditions in Section 10.4.2 is or becomes unsatisfied, the Indemnified Party may defend, and may consent to the entry of any judgment or enter into any compromise or settlement with respect to, the Third Party Claim; provided, however, that the Indemnifying Party will not be bound by the entry of any such judgment consented to, or any such compromise or settlement effected, without its prior written consent (which consent will not be unreasonably withheld or delayed). In the event that the Indemnified Party conducts the defense of the Third Party Claim pursuant to this Section 10.4.4, the Indemnifying Party will (a) advance the Indemnified Party promptly and periodically for

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the costs of defending against the Third Party Claim (including reasonable attorneys’ fees and expenses) and (b) remain responsible for any and all other Losses that the Indemnified Party may incur or suffer resulting from, arising out of, relating to, in the nature of or caused by the Third Party Claim to the fullest extent provided in this Section 10.

10.4.5 Consent to Jurisdiction Regarding Third Party Claim. The Buyer and the Seller, each in its capacity as an Indemnifying Party, hereby consents to the non-exclusive jurisdiction of any court in which any Third Party Claim may brought against any Indemnified Party for purposes of any claim which such Indemnified Party may have against such Indemnifying Party pursuant to this Agreement in connection with such Third Party Claim, and in furtherance thereof, the provisions of Section 12.11 are incorporated herein by reference, mutatis mutandis.

10.5. Remedies Cumulative. The rights of each Buyer Indemnified Person and Seller Indemnified Person under this Section 10 are cumulative, and each Buyer Indemnified Person and Seller Indemnified Person, as the case may be, will have the right in any particular circumstance, in its sole discretion, to enforce any provision of this Section 10 without regard to the availability of a remedy under any other provision of this Section 10.

10.6. Exclusive Remedy. The parties hereto acknowledge and agree that, in the absence of fraud or intentional misrepresentation, the remedies provided for in this Agreement shall be the parties’ sole and exclusive remedy with respect to the subject matter of this Agreement; provided that the foregoing shall not be construed as limiting in any way to the right of a party to seek injunctive relief in accordance with Section 12.12 or to pursue its remedies as set forth in the Ancillary Agreements.

11. TAX MATTERS

11.1. Certain Taxes and Fees. All transfer, documentary, sales, use stamp, registration and other such Taxes, and any conveyance fees or recording charges incurred in connection with the Contemplated Transactions, will be paid by the Seller when due. The Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes, fees and charges and, if required by applicable law, the Buyer will (and will cause its Affiliates to) join in the execution of any such Tax Returns and other documentation.

11.2. Cooperation on Tax Matters. The Buyer, the Acquired Companies, and the Seller will cooperate fully, as and to the extent reasonably requested by the other party, in connection with any Tax matters relating to the Acquired Companies (including by the provision of reasonably relevant records or information). The party requesting such cooperation will pay the reasonable out-of-pocket expenses of the other party.

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12. MISCELLANEOUS

12.1. Notices. All notices, requests, demands, claims and other communications required or permitted to be delivered, given or otherwise provided under this Agreement must be in writing and must be delivered, given or otherwise provided:

(a) by hand (in which case, it will be effective upon delivery);

(b) by facsimile (in which case, it will be effective upon receipt of confirmation of good transmission); or

(c) by overnight delivery by a nationally recognized courier service (in which case, it will be effective on the Business Day after being deposited with such courier service);

in each case, to the address (or facsimile number) listed below:

If to the Buyer, to it at:

Enovia Corp.

10330 David Taylor Drive

Charlotte, NC 28262

Telephone number: (704) 264-8779

Facsimile number: (704) 264-8822

Attention: Martine Wallimann

with a copy to:

Ropes & Gray LLP 45

Rockefeller Plaza

New York, New York 10111

Telephone number: (212) 841-5700

Facsimile number: (212) 841-5725

Attention: Jonathan P. Cramer

If to the Company, the Seller and Seller Parent, to it at:

11701 Luna Road

Dallas, TX 75234

Telephone number: (469) 357-1000

Facsimile number: (469) 357-6566

Attention: General Counsel

Each of the parties to this Agreement may specify different address or facsimile number by giving notice in accordance with this Section 12.1 to each of the other parties hereto.

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12.2. Succession and Assignment; No Third-Party Beneficiary. Subject to the immediately following sentence, this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, each of which such successors and permitted assigns will be deemed to be a party hereto for all purposes hereof. No party may assign, delegate or otherwise transfer either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other parties; provided, however, that the Buyer may (a) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (b) designate one or more of its Affiliates to perform its obligations hereunder, in each case, so long as Buyer is not relieved of any Liability hereunder. Except as expressly provided herein, this Agreement is for the sole benefit of the parties and their permitted successors and assignees and nothing herein expressed or implied will give or be construed to give any Person, other than the parties and such successors and assignees, any legal or equitable rights hereunder.

12.3. Amendments and Waivers. No amendment or waiver of any provision of this Agreement will be valid and binding unless it is in writing and signed, in the case of an amendment, by the Buyer, the Company, the Seller and Seller Parent, or in the case of a waiver, by the party against whom the waiver is to be effective. No waiver by any party of any breach or violation or, default under any representation, warranty or covenant hereunder, whether intentional or not, will be deemed to extend to any prior or subsequent breach, violation, default of any such representation, warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. No delay or omission on the part of any party in exercising any right, power or remedy under this Agreement will operate as a waiver thereof.

12.4. Entire Agreement. This Agreement, together with the other Ancillary Agreements and any documents, instruments and certificates explicitly referred to herein, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes any and all prior discussions, negotiations, proposals, undertakings, understandings and agreements, whether written or oral, with respect thereto.

12.5. Schedules; Listed Documents, etc. Neither the listing nor description of any item, matter or document in any Schedule hereto nor the furnishing or availability for review of any document will be construed to modify, qualify or disclose an exception to any representation or warranty of any party made herein or in connection herewith, except to the extent that such representation or warranty specifically refers to such Schedule and such modification, qualification or exception is clearly described in such Schedule.

12.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute but one and the same instrument. This Agreement will become effective when duly executed by each party hereto.

12.7. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction will not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. In the event that any

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provision hereof would, under applicable law, be invalid or unenforceable in any respect, each party hereto intends that such provision will be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law.

12.8. Headings. The headings contained in this Agreement are for convenience purposes only and will not in any way affect the meaning or interpretation hereof.

12.9. Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. The parties intend that each representation, warranty and covenant contained herein will have independent significance. If any party has breached or violated any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached or violated will not detract from or mitigate the fact that the party has breached or violated the first representation, warranty or covenant.

12.10. Governing Law. This Agreement, the rights of the parties and all Actions arising in whole or in part under or in connection herewith, will be governed by and construed in accordance with the domestic substantive laws of the State of New York, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction.

12.11. Jurisdiction; Venue; Service of Process.

12.11.1 Jurisdiction. Subject to the provisions of Section 10.4.5, each party to this Agreement, by its execution hereof, (a) hereby irrevocably submits to the exclusive jurisdiction of the state courts of the State of New York or the United States District Court located in the Southern District of the State of New York for the purpose of any Action between the parties arising in whole or in part under or in connection with this Agreement, (b) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such Action brought in one of the above-named courts should be dismissed on grounds of forum non conveniens, should be transferred or removed to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other proceeding in any other court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by such court and (c) hereby agrees not to commence any such Action other than before one of the above-named courts. Notwithstanding the previous sentence a party may commence any Action in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts.

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12.11.2 Venue. Each party agrees that for any Action between the parties arising in whole or in part under or in connection with this Agreement, such party bring Actions only in the Borough of Manhattan. Each party further waives any claim and will not assert that venue should properly lie in any other location within the selected jurisdiction.

12.11.3 Service of Process. Each party hereby (a) consents to service of process in any Action between the parties arising in whole or in part under or in connection with this Agreement in any manner permitted by New York law, (b) agrees that service of process made in accordance with clause (a) or made by registered or certified mail, return receipt requested, at its address specified pursuant to Section 12.1, will constitute good and valid service of process in any such Action and (c) waives and agrees not to assert (by way of motion, as a defense, or otherwise) in any such Action any claim that service of process made in accordance with clause (a) or (b) does not constitute good and valid service of process.

12.12. Specific Performance. Each of the parties acknowledges and agrees that the other parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached or violated. Accordingly, each of the parties agrees that, without posting bond or other undertaking, the other parties will be entitled to an injunction or injunctions to prevent breaches or violations of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any Action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity. Each party further agrees that, in the event of any action for specific performance in respect of such breach or violation, it will not assert that the defense that a remedy at law would be adequate.

12.13. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

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IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as an agreement under seal as of the date first above written.

THE BUYER:	ENOVIA CORP.
	By:	/s/ JOEL R. LEMKE
		Name:	Joel R. Lemke
		Title:	CEO
THE COMPANY:	SOFTSRM, LLC
	By:	/s/ SAMIR BHARGAVA
		Name:	Samir Bhargava
		Title:	President
THE SELLER:	i2 TECHNOLOGIES U.S. INC.
	By:	/s/ MICHAEL E. MCGRATH
		Name:	Michael E. McGrath
		Title:	CEO and President
THE SELLER PARENT:	i2 TECHNOLOGIES, INC.
	By:	/s/ MICHAEL E. MCGRATH
		Name:	Michael E. McGrath
		Title:	CEO and President

[Signature Page to LLC Interest Purchase Agreement]

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Michael E. McGrath, certify that:

1. I have reviewed this quarterly report on Form 10-Q of i2 Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Dated: August 9, 2005	By:	/s/ MICHAEL E. MCGRATH
	Name:	Michael E. McGrath
	Title:	Chief Executive Officer and President
		(Principal Executive Officer and Principal
		Accounting and Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of i2 Technologies, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael E. McGrath, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

/s/ MICHAEL E. MCGRATH

Michael E. McGrath

Chief Executive Officer and President

(Principal Executive Officer and Principal

Accounting and Financial Officer)

August 9, 2005

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.