10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                 Act of 1934 for the fiscal year ended December 31, 2001

o 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 0-20124

NETWORK COMPUTING DEVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware	77-0177255
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
301 Ravendale Drive, Mountain View, California	94043
(Address of principal executive offices)	(Zip Code)

(650) 694-0650
(Registrant’s telephone number, including area code)

Securities registered pursuant to 12(b) of the Act: None

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

Common Stock, $0.001 par value
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ýNo o

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

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on March 29, 2002, as reported on the Nasdaq OTC Bulletin Board, was approximately $5,988,500. Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 29, 2002, 17,613,237 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders of Network Computing Devices, Inc. (the “Proxy Statement”) scheduled to be held on or about June 26, 2002, are incorporated by reference in Part III of this Report on Form 10-K.

PART I

This report includes a number of forward-looking statements, which reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Future Performance and Risk Factors” and elsewhere in this report, that could cause actual results to differ materially from historical results or those currently anticipated. In this report, the words “anticipates,” “believes,” “expects,” “intends,” “future,” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

Item 1.  Business

Recent Development - Sale of Windows-based Terminal Product Line

On March 26, 2002, Network Computing Devices, Inc. (“NCD”), completed the disposition of its ThinSTAR Windows-based Terminal product line to Neoware Systems, Inc. (“Neoware”) in accordance with an Asset Purchase Agreement dated March 22, 2002, between NCD and Neoware. The assets disposed of consisted principally of customer records, the ThinSTAR trademark and other intellectual property, and contract rights used in the business of designing, developing, manufacturing, distributing and selling the Windows-based Terminals marketed under the ThinSTAR brand name.

The ThinSTAR product line will continue to be available from NCD in Europe, the Middle East and Africa (“EME A”) under an OEM agreement with Neoware.  In the Americas, Asia-Pacific and the rest of the world, the ThinSTAR product will be rebranded as “ThinSTAR by Neoware” and will continue to be available through the existing channel of ThinSTAR authorized distributors and resellers. A group of NCD’s sales and support employees joined Neoware following the closing. NCD continues to provide worldwide service and support for the ThinSTAR product line.

The purchase price was $4.25 million, $300,000 of which is being held in an escrow account for a minimum of 120 days from the date of the closing to satisfy indemnification claims and certain obligations of NCD, and $250,000 of which is payable in accordance with an earn-out provision requiring NCD’s satisfaction of cert ain sales targets in the EMEA. Neoware's purchase price included an option to acquire additional assets relating to NCD’s European operations.

Worldwide net revenues and gross profit from the ThinSTAR product line for the year ended December 31, 2001 were approximately $16.5 million and $1.6 million, respectively.  NCD will continue to sell the ThinSTAR product line in the EMEA until such time that Neoware exercises its option to acquire additional assets relating to NCD’s European operations.  In the year ended December 31, 2001, EMEA net revenues and standard gross profit for the ThinSTAR product line were approximately $8.9 million and $.2 million, respectively.

At December 31, 2001, NCD had ThinSTAR inventory and accounts receivable and trade accounts payable relating to its North American sales of the ThinSTAR product line approximating $4.5 million and $2.5 million, respectively.  Neoware’s purchase of the ThinSTAR product line did not include these accounts payable or accounts receivable, which we expect will be liquidated in the normal course of business.  NCD believes that the carrying value of these assets at December 31, 2001 is not in excess of their liquidation value.

General

Historically, NCD has provided thin client hardware and software delivering simultaneous, high-performance, easy-to-manage and cost effective access to all of the information on enterprise intranets and the Internet from thin client, UNIX and PC desktops. Our hardware product lines have included the NCD NC900 network computers and, until recently, NCD ThinSTAR line of Windows-based Terminals. On the software side we offered the NCD ThinPATH family of client and server software, developed to enhance the connectivity, management and features of the NCD thin clients as well as PCs in accessing information and applications on Windows servers. Our thin clients, NCD ThinPATH software, and installation and support services have been a combination delivering a fully integrated desktop solution to companies seeking a low-cost, easy to manage, simple to use, high performance user experience. Since introducing our first product in 1989, we have installed over 1,000,000 thin clients worldwide.

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Going forward, NCD will focus on its worldwide NCD ThinPATH software business while continuing to market its NCD NC900 network computer product line worldwide.  In addition, and as mentioned above, the ThinSTAR product line will continue to be available from NCD in the EMEA under an OEM agreement with Neoware. As a result, NCD’s European operations serving those markets will be essentially unchanged.

Network Computing Devices, Inc. is a Delaware corporation. We were originally incorporated in California in February 1988 and were reincorporated in Delaware in October 1998. Unless the context otherwise requires, the terms “the Company” and “NCD” refer to Network Computing Devices, Inc. and its consolidated subsidiaries.

Industry Background

Thin Client Computing

The original development of thin client computing came in the UNIX environment using the X Windows System (often simply called X or X11). It was followed in the Microsoft Windows environment by Citrix’s Independent Computing Architecture (“ICA”) and then by Microsoft’s Remote Desktop Protocol (“RDP”).  All three technologies allow applications to run on centrally-administered servers, taking advantage of enterprise-level resources. The applications’ graphical user interface (“GUI”) is then sent over the network to the user’s desktop or viewing appliance. This separation of the display of applications from the computing they require enables organizations to deploy, manage and upgrade one or a small number of servers instead of hundreds or thousands of individual personal computers. The result is faster access to new applications, increased system security, higher productivity, longer use of both client and server capital investments, and greatly improved use of information technology staff resources.

Over the last several years, a number of important developments occurred which expanded the potential markets for network computing systems. First, the availability of the powerful Pentium microprocessor enabled the development of complex Windows-based systems. Second, Microsoft NT Server software, combined with Microsoft-authorized multi-user software such as Citrix MetaFrame, became available to support multi-user Windows applications. In September 1998, Microsoft demonstrated its support of the thin client computing model with its introduction of Windows NT 4.0 server, Terminal Server Edition (Windows Terminal Server) and its support of the development of Windows-based Terminals to access these servers. Third, the rapid growth of the Internet and Internet-based computing has popularized the concept of remote computing and created new interest in the thin client computing model.

Information Access and Infrastructure Management Software

Software is key to information access and infrastructure management. The physical connection to the intranet or Internet is relatively easy; but the simple, well managed, cost-effective operation of network-wide computing resources requires sophisticated software.

The market for enterprise information access and infrastructure management software is large and comprised of a number of segments, many of which are expanding rapidly.  There are three key market segments, which NCD is addressing:

•Software for managing thin clients: One of the key benefits of a thin client is the ability to manage the device remotely without having to visit the desktop for configuration or software updates.  NCD offers two different software products for managing two different types of thin clients.  NCD ThinPATH Manager allows the system administrator to manage Windows-based Terminals from a Windows 2000 server, such that a terminal’s software may be upgraded and configured remotely.  NCD also offers similar functionality for its NC900 product line using NCD NCBridge software.

•PC software for accessing remote UNIX systems: UNIX systems continue to be employed even though most users have PCs for accessing information systems.  NCD offers NCD PC-Xware software for accessing UNIX applications from a PC.

•PC software for managing PCs: One of the biggest costs associated with PCs is the technical infrastructure required to support them.  Software that can simplify the PC interface and make it easier to support is in high demand. NCD ThinPATH PC client software is designed to manage PCs as thin clients. The dedicated user interface makes it simple for users to access applications, but it also protects the PC from unapproved desktop changes.  NCD ThinPATH PC is intended to provide a cost effective migration strategy for using existing PCs as a transition toward server-based computing with applications that are available from Microsoft Terminal Services, Citrix MetaFrame or a web server.

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These NCD software offerings provide the tools that allow easy access and management of enterprise information systems.

Markets and Applications

Many companies employ multiple operating environments on their corporate network, including intranet and Internet connectivity. This capability facilitates employee collaboration and allows access to the enormous information resources that exist across the enterprise and around the world. NCD thin clients and NCD ThinPATH software were developed as a means of providing cost-effective, easy to maintain access to all of these resources. The NCD ThinSTAR Windows-based Terminals, the product line sold to Neoware, are optimized to access all resources through Microsoft Windows Terminal Services, while the NCD NC900 network computers are optimized for accessing X11 applications residing on UNIX servers. The NCD ThinPATH family of software provides tools for managing both the ThinSTAR and the PC as well as emulators to permit Windows-based Terminals to access virtually any server on the network. Also, NCD ThinPATH Plus provides support for local peripheral devices on Windows-based Terminals and desktop PCs.  We believe that our ongoing relationship with Neoware will enable us to continue to sell NCD ThinPATH software to support Neoware’s product family.

The NCD network computer products, which were originally called X terminals were developed to allow multiple users to access UNIX applications on servers without the burden of expensive UNIX workstations on their desktop. When Windows applications became a requirement, these users were required to add a bulky and expensive PC to their desk space. In order to maintain a single desktop device we introduced Citrix ICA on our NCD network computer products for accessing Windows NT applications from the already existing X terminal of the UNIX users. With Microsoft Windows NT Server 4.0, Terminal Server Edition (“TSE”), UNIX users could still access Windows applications through the Citrix ICA client.  We continue to serve this legacy NCD or X terminalmarket with our NCD NC900 product line, which offers the only device still marketed as an X terminal.

The market for our new NCD ThinPATH PC software results from the coming together of three domains:  the increased use of server-based applications, the installed base of PCs, and the multiplicity of desktop management systems. NCD’s comprehensive understanding of thin client management along with its ten-year history of employing technologies to solve real customer problems, positions NCD to create a unique system that is dependable, cost effective, and has minimal impact on existing customer systems.  Many corporations use advanced desktop management systems by Microsoft, IBM, Computer Associates and Hewlett-Packard Company, or HP to meet multiple objectives, such as inventory equipment tracking, hardware failure notification, software distribution, and desktop management. However, given the enterprise level architectures required by advanced desktop management systems and the ongoing software and training costs associated with them, many companies never realize the full benefit of these products. While companies may be able to achieve a subset of NCD ThinPATH PC functionality with specialized low-level tools (typically Microsoft or other minimal-cost network tools and technologies), these tools will not accommodate the wide range of desktop hardware suppliers and operating systems deployed in corporate networks.  To implement such an approach also requires that companies have advanced Microsoft-certified support engineers available for the design, implementation, and support of the service.  In contrast, NCD’s vision for NCD ThinPATH PC allows it to seamlessly integrate into corporate networks and improve on the ability to centralize the configuration and management of the installed PCs.  Future expansion of this product also includes support for additional desktop classes, including other manufacturer’s thin client appliances as well as the growing mobile thin client market, which will be accelerated by Microsoft’s “Mira” standard.

Software Products

NCD ThinPATH Software. We offer a family of client-based and server-based software products that deliver capabilities that are important to enterprises deploying the emerging server-based computing model. The series of software modules allows Windows-based Terminals and PCs to emulate virtually any desktop device so that they can access any server on the network, regardless of its operating system. This software is designed to make centralized management and support of the network easier, and to permit support of local printers and other peripheral devices on Windows-based Terminals and PCs without adding protocol software to Microsoft’s Terminal Services.

NCD NCBridge Software. Our NCD NC900 products run NCD NCBridge, which runs on the WindRiver VXWorks  operating system. The NCD NC900 incorporates extensive enhancements to the basic X server software to improve performance, system manageability and robustness.

NCD PC-Xware. NCD PC-Xware is software for Windows PCs that provides connectivity to X Windows applications running on UNIX host systems. We offer versions of NCD PC-Xware for the full range of Microsoft Windows corporate desktops.

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On March 27, 2002, we announced our newest software product, NCD ThinPATH PC client software, which is designed to manage PCs as thin clients. The dedicated user interface makes it simple for users to access applications, but it also protects the PC from unapproved desktop changes.  NCD ThinPATH PC is intended to provide a cost effective migration strategy for using existing PCs as a transition toward server-based computing with applications that are available from Microsoft Terminal Services, Citrix MetaFrame or a web server.

Hardware Products

Historically, we have offered a broad line of thin client products to provide businesses and other enterprises with an open systems approach to network computing based on our Network Computing Architecture. Our thin client devices included NCD ThinSTAR Windows-based Terminals and NCD NC900 network computers.

Windows-based Terminals. Our thin client products are desktop devices that are used to access information and applications residing on computer servers in a local area network or wide area network. As discussed above, the thin clients were initially introduced to access UNIX applications; later the software was added to allow these same devices to access mainframes and other non-UNIX servers. With the growing popularity of Windows environments, we introduced the NCD ThinSTAR Windows-based Terminals and NCD ThinPATH software to optimize access to networked Windows NT servers. As mentioned above, although we sold this product line to Neoware, we are continuing to sell these products in the EMEA pursuant to an OEM agreement with Neoware.

Our NCD NC900 is a high-performance network computer that is targeted at customers who want browser access to the network or who have requirements to access X11 applications on UNIX servers. In June 2000, we introduced the NC900 to be a replacement and upgrade for our earlier X terminal and NC products. This new product is intended to consolidate and simplify our NC product offering while providing improved performance to the user. The NCD NC900 isbased on powerful MIPS processors.

Product Development

We believe that we must enhance our existing line of NCD ThinPATH software products and continue developing new software products that incorporate the latest improvements in technology in order to migrate our business from predominantly a hardware business to a software business.

Our current development programs include:

•Server and client software for making thin client devices and PCs easy to deploy and manage in server-based computing environments including Microsoft Terminal Services and Microsoft .NET;

•Server and client software for connecting thin client devices and PCs to a broad range of applications running on Windows XP and legacy systems; and

•Continued feature enhancements of network computer platforms.

There can be no assurance that any of these development efforts will result in the introduction of new products or that any such products will be commercially successful. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Future Performance and Risk Factors—New Product Development and Timely Introduction of New and Enhanced Products.”

During 2001, 2000 and 1999, the Company’s research and development expenditures were $2,625,000, $8,393,000 and $12,935,000, respectively. The significant decrease in R&D expenses resulted from our reduction in R&D personnel. We expect to spend approximately $1.5 million in R&D in 2002.

The foregoing discussion concerning our product development program includes forward-looking statements. Actual product development results may differ substantially depending upon a variety of factors, including those described under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Future Performance and Risk Factors.”

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Marketing and Sales

We have several marketing and sales objectives. The first is to expand our customer base by using our NCD ThinPATH PC software to better manage PC’s being used as thin clients.  Currently, only about 15% of the devices used to access server-based computing are thin clients; the vast majority are PCs.  These PCs require an ongoing and costly technical support infrastructure.  However, many users still hesitate to replace them with simpler, dedicated thin clients.  We believe that these users represent a very good market for our new PC software that will enable them to capture the economic benefits of remotely managed thin clients without a large investment in equipment, infrastructure and training.

Our second objective is to continue to sell the NCD NC900 as the X terminal of choice to those customers who need to expand their current operation where they have standardized on X terminals or need replacement products for the over 1 million X terminals that have been sold worldwide during the past ten years by various vendors. Third, with the sale of the ThinSTAR Product Line to Neoware, we will begin migrating our NCD ThinPATH software product line from its captive NCD market to users of thin client products offered by Neoware.

International sales represented approximately 45%, 40% and 40% of our net revenues during 2001, 2000 and 1999, respectively. Well over 90% of our international revenues come from the EMEA where we will continue to sell the ThinSTAR product line under an exclusive OEM agreement with Neoware.

Sales to Adtcom represented 11% and 31% and sales to Tech Data represented 10% and 11%, respectively, of net revenue for the years ended December 31, 2001 and 2000, respectively.

Service and Support

We believe that our ability to provide service and support is and will continue to be an important element in the marketing of our products. We maintain in-house repair facilities and also provide telephone and e-mail access to our technical support staff. Our worldwide technical support engineers not only provide assistance in diagnosing problems but work closely with customers to address system integration issues and to assist customers in increasing the efficiency and productivity of their systems. We provide system level software support at no charge to the customer through our factory-based technical maintenance organization and field system engineers, and also offer software update services that allow customers to purchase subsequent releases of our software products. GM3, a leading European service organization, provides repair services for our European customers. Cybersource, a leading Australian service organization, provides certain repair services for our Australian customers.

Competition

The market for thin client products and similar products is characterized by rapidly changing technology and by evolving industry standards. Although we are a major supplier of thin client computing systems and software, we experience significant competition from other thin client manufacturers, suppliers of personal computers and workstations and from software developers.

In the ThinSTAR Windows-based Terminal market, our major competition has come from Wyse Technology, Inc., a larger company with well established channels, and, more recently, Compaq Computer Corp.  As a full-fledged PC and server manufacturer, Compaq has been able to “bundle” its thin clients with other products and services to gain an advantage in certain larger sales opportunities.  To compete, we have relied heavily on our integrated hardware and software offerings, our networking core competency and our recognized product reliability.  We also formed marketing partnerships with other important desktop vendors. As competition in this market has intensified, we have responded by narrowing our focus and selling our Windows-based Terminal product line to Neoware.

Our NCD ThinPATH family of products faces competition primarily from other terminal vendors that continually strive to enhance their  management offerings. While we believe that our product features give us a competitive advantage, we believe the gap is narrowing and thus are seeking to add capabilities to our products to maintain our competitive edge.

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NCD PC-Xware software products face direct competition from several software companies that offer similar products, including Hummingbird Communications, Ltd., a Canadian company, Visionware, a subsidiary of The Santa Cruz Operation, Inc., NetManage, Inc., and Walker, Ritchie, Quinn, a privately-held company.

NCD NC900 family of products face direct competition from PCs that run a local X server, such as from Hummingbird Communications, Ltd.

In general, competition in the thin client computing market has intensified over the past few years, resulting in price reductions, reduced profit margins and increased efforts to maintain market share, which have adversely affected our operating results. In addition, intense competition from alternative desktop computing products, particularly personal computers, has slowed the growth of the thin client computing market. We expect this intense competition to continue. There can be no assurance that we will be able to continue to compete successfully against current and future competitors as the desktop computer market evolves and competition increases.

Manufacturing and Supplies

We conduct certain production activities at our Mountain View, California facility. These operations consist primarily of final reconfiguration of systems and shipping consolidation and logistics. With respect to products that we sell to European customers, we currently ship our product to a third party logistics center located in The Netherlands who in turn ships to our European distributors; however, we are in the process of moving to a different third party logistic center that will be located in Germany.

We currently obtain substantially all of our thin client products from a single supplier located in Thailand. That manufacturer tests our thin clients in a network environment using a NCD internally developed, computer integrated manufacturing (“CIM”) system. In addition, they employ a statistical process control system (“SPC”) to maintain quality control. Going forward, the same supplier will continue to manufacture our remaining network computer products.

Our products incorporate memory components, such as video random access memory chips (“VRAMs”) that are available from multiple sources but have been subject to substantial fluctuations in availability and price. Certain other components, including microprocessors and ASICs, though generally available from multiple sources, are subject to industry-wide demand that could result in limited availability or significant fluctuations in pricing. To date, these fluctuations have not had a material effect on our operating results and we have been able to obtain an adequate supply of such components.

We are currently moving to a model utilizing electronic distribution of our software products, including all documentation.  This operation will be coordinated at our Oregon facility.

Backlog

We schedule the manufacture of our thin client products based upon our projections of near-term demand. Orders from large end-users and OEMs are generally placed by the customer on an as-needed basis, and we typically ship products within 45 days after receipt of a firm purchase order. We do not generally have a significant backlog, and our backlog at any particular time, or fluctuations in backlog from time to time, may not be representative of actual sales for any succeeding period.

Because of the ease of manufacturing software products, we are able to effect the manufacture and shipment of these products quickly in response to customer orders without maintaining significant inventories, and, as a result, have historically had little, if any, backlog at any particular time. We do not, therefore, consider backlog for these products to be a significant measure of actual sales for any succeeding period.

Inventory

We sell our products primarily through channels and thus have placed inventory of our products into distribution. Efforts are made to have the inventory in distribution reflect the expected pattern of near-term demand from reseller partners. We provide our distributors with certain programs including stock rotation and price protection. Under these programs, the distributor, for a limited time may return a limited amount of inventory to us for replacement or obtain credits for inventory still on hand in the event of a price change. In addition, it is possible that the inventory mix will not be correct, causing a delay in the shipment of products to end user customers and possible loss of orders.

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Proprietary Rights and Licenses

We rely primarily on a combination of copyright, trademark and trade secret laws, employee and third-party non-disclosure agreements and other intellectual property protection methods to protect our proprietary technology. We hold ten U.S. patents. Although we intend to pursue a policy of obtaining patents for appropriate inventions, we believe that our success will depend primarily on the innovative skills, technical competence and marketing abilities of our personnel rather than upon the ownership of patents. There can be no assurance that patents will issue from any pending or future patent applications or that any claims allowed will be sufficiently broad to protect our technology. In addition, there can be no assurance that any patents issued to us will not be challenged, invalidated or circumvented, or that any rights granted thereunder will provide adequate protection to us.

Certain technology used in our product is licensed from third parties on a royalty-bearing basis. The costs associated with such royalties were a significant component of total software cost of sales through 1998 and have been minimal since that time. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Generally, such licenses grant to us non-exclusive, worldwide rights with respect to the subject technology and terminate only in the event of material breach.

Our software products are generally licensed on a right-to-use basis. We rely primarily on “shrink wrap” or “break the seal” licenses. Certain provisions of such licenses, including provisions protecting against unauthorized copying and reverse engineering, may not be enforceable under the laws of some jurisdictions. In addition, the laws of some foreign countries in which our software products are distributed do not protect our intellectual property rights to the same extent as U.S. law.

There can be no assurance that third parties will not assert infringement claims against us or our suppliers with respect to current or future products. Although we have historically been able to resolve all asserted claims on terms which have not had a material effect on our operations, there is no assurance that any future claims may not require us to enter into unfavorable royalty arrangements or result in costly litigation.

Employees

As of December 31, 2001, we had 112 full-time employees, of whom 13 were primarily engaged in research and development, 14 in service and technical support, 48 in marketing and sales, 18 in operations and 19 in administration and finance. None of our employees are represented by a collective bargaining agent. We have experienced no work stoppages and believe that our employee relations are good.

In connection with the sale of our Windows-based Terminal product line on March 26, 2002, a total of eleven NCD sales and technical support employees became employees of Neoware.

Competition for employees in the computer and software industries is intense. We believe that our future success will depend, in part, on our ability to continue to attract and retain highly skilled technical, marketing and management personnel.

Executive Officers of the Company

The following sets forth certain information with respect to our executive officers, and their ages as of March 31, 2002:

Name	Age	Position
Dr. Guenther Pfaff	50	President and Chief Executive Officer
Rudolph G. Morin	64	Chief Financial Officer

Dr. Pfaff has served as President and Chief Executive Officer since December 2001 and as a member of our Board of Directors since January 2001.  In 1984, Dr. Pfaff co-founded GTS-GRAL AG, a privately-held company based in Darmstadt, Germany that focuses on system integration for both server and web-based computing architectures for customers throughout Europe.  Dr. Pfaff has served as CEO of GTS-GRAL from its inception until November 2001, when he gave up day-to-day management of the company, after which he has stayed on as Chairman of the Board.  Dr. Pfaff was also the founder of ADTCOM Network Computing AG, a Swiss based distributor for thin-client products, and served as its CEO until June 2000.  From 1979 to 1983, Dr. Pfaff held several scientific research positions.  Dr. Pfaff holds a Ph.D. in computer science from the University in Darmstadt, Germany.

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Mr. Morin has served as our Chief Financial Officer since April 1, 2002 and as a member of our Board of Directors since May 1996.  From August 1999 to December 2001, Mr. Morin served as President and Chief Executive Officer. Prior to that Mr. Morin had served as Executive Vice President, Operations & Finance and Chief Financial Officer since joining us in May 1996. Prior to joining us, Mr. Morin served as Senior Vice President, Finance and Administration for Memorex Telex Corporation from 1993 to 1996. Prior thereto, he worked at Data Switch, where he was Executive Vice President. Mr. Morin’s background also includes more than ten years with Thyssen Bornemisza Inc. as head of corporate development and general manager of several of its subsidiaries. Mr. Morin holds MBAs from INSEAD and Harvard.

Risk Factors

Our future business, operating results and financial condition are subject to various risks and uncertainties, including those described below.

Liquidity

At December 31, 2001, we had a deficit working capital of $2.4 million and we incurred a loss from operations of $8.5 million and used cash in operating activities of $2.7 million for the year then ended.

On March 26, 2002, as previously mentioned, we sold our ThinSTAR product line to Neoware.  We received an initial $3.7 million in cash, of which $1.6 million was used to repay and close our line of credit with SVB.  An additional $1.5 million was paid to SCI as the initial payment in a debt restructuring agreement which is currently being finalized.

Going forward, we will be required to seek additional financing during the next three to six months before we achieve positive cash flow and so we are diligently pursuing both bank financing and potential investors.  However, no assurance can be given that additional financing will be available, or that if available, it will be available on the terms acceptable to us or our shareholders.  If adequate funds are not available to satisfy our short-term or long-term capital requirements we may be required to limit our operations significantly.  In light of the foregoing, our auditors have included a paragraph in their report indicating that substantial doubt exists as to our ability to continue as a going concern.  Our financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Competition

The market for thin client products and similar products that facilitate access to data over networks are characterized by rapidly changing technology and evolving industry standards. We experience significant competition from other network computer manufacturers, suppliers of personal computers and workstations and software developers. Competition within the thin client computing market has intensified over the past several years, particularly as the prices of name brand PCs have fallen well below $1,000 which has offset some of the cost advantages that thin client devices had over PCs, resulting in price reductions and reduced profit margins. We expect this intense competition and pricing pressure to continue, and there can be no assurance that we will be able to compete successfully against current and future competitors as the thin client computing market evolves and competition increases. There is the possibility that competition in the future could come from companies not currently in the market or with greater resources than ours which would adversely affect our operating results.

Fluctuations in Operating Results

Our operating results have varied significantly, particularly on a quarterly basis, as a result of a number of factors, including general economic conditions affecting industry demand for computer products, the timing and market acceptance of new product introductions by us and our competitors, the timing of significant orders from and shipments to large customers, periodic changes in product pricing and discounting due to competitive factors. Our operating results may fluctuate in the future as a result of these and other factors, including our success in developing and introducing new products, our product and customer mix, licensing costs, the level of competition which we experience and our ability to develop and maintain strategic business alliances.

We operate with a relatively small backlog. Revenues and operating results therefore generally depend on the volume and timing of orders received, which are difficult to forecast and which may occur disproportionately during any given quarter or year. Our expense levels are based in part on our forecast of future revenues. If revenues are below expectations, our

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operating results may be adversely affected. Like others in our industry, we experience a disproportionate amount of shipments occurring in the last month of our fiscal quarters. This increases the risk of material quarter-to-quarter fluctuations in our revenues and operating results.

New Product Development and Timely Introduction of New and Enhanced Products

The markets for our products are characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles. Our future results will depend to a considerable extent on our ability to continuously develop, introduce and deliver in quantity new products that offer our customers enhanced performance at competitive prices. The development and introduction of new products is a complex and uncertain process requiring substantial financial resources and high levels of innovation, accurate anticipation of technological and market trends and the successful and timely completion of product development. The introduction of new or enhanced products also requires us to manage the transition from older, displaced products in order to minimize disruption to customer ordering patterns, avoid excessive levels of older product inventories and ensure that adequate supplies of new products can be delivered to meet customer demand. As we are continuously engaged in this product development and transition process, our operating results may be subject to considerable fluctuation, particularly when measured on a quarterly basis. The inability to finance important research and development projects, delays in the introduction of new and enhanced products, the failure of such products to gain market acceptance, or problems associated with new product transitions could adversely affect our operating results.

Reliance on Independent Distributors and Resellers

We rely significantly on independent distributors and resellers for the distribution of our products. There can be no assurance that our distributors and resellers will continue their current relationships with us, not return some products, or not give higher priority to the sale of other competitive products. A reduction in sales effort or discontinuance of sales of our products by our distributors and resellers could lead to reduced sales and could adversely affect our operating results. In addition, there can be no assurance as to the continued viability and financial stability of our distributors and resellers or our ability to add distributors and resellers in the future.

Reliance on Independent Contractors

We rely on independent contractors for virtually all of the manufacture of our thin client computing products and accessories. Our reliance on these independent contractors limits our control over delivery schedules, quality assurance and product costs. In addition, a number of our independent suppliers are located abroad. Our reliance on these foreign suppliers subjects us to risks such as the imposition of unfavorable governmental controls or other trade restrictions, changes in tariffs and political instability. We currently obtain all of our thin client computing products from a single supplier located in Thailand. Any significant interruption in the supply of products from this contractor would have a material, adverse effect on our business and operating results. Disruptions in the provision of components by our other suppliers, or other events that would require us to seek alternate sources of supply, could also lead to supply constraints or delays in delivery of our products and adversely affect our operating results. However, the manufacturing process could be relocated to one of their other factories if necessary within a few weeks. The operations of certain of our foreign suppliers were briefly disrupted during 1992 due to political instability in Thailand.

A number of components and parts used in our products, including certain semiconductor components, also are currently available from single or limited sources of supply. We have no long-term purchase agreements or other guaranteed supply arrangements with suppliers of these single or limited source components. We have generally been able to obtain adequate supplies of parts and components in a timely manner from existing sources under purchase orders and endeavor to maintain inventory levels adequate to guard against interruptions in supplies. However, our inability to obtain sufficient supplies of these parts and components from existing suppliers or to develop alternate supply sources would adversely affect our operating results.

International Sales

Beginning in 2001, all of our international sales have been denominated in U.S. dollars.  Prior to this date, substantially all of our international sales were denominated in Euros. These sales were subject to exchange rate fluctuations, which adversely affected our operating results. International sales and operations may also be subject to risks such as the imposition of governmental controls, export license requirements, restrictions on the export of technology, political instability, trade

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restrictions, changes in tariffs and difficulties in staffing and managing international operations and managing accounts receivable. In addition, the laws of certain countries do not protect our products and intellectual property rights to the same extent as the laws of the United States. There can be no assurance that these factors will not have an adverse effect on our future international sales and, consequently, on our operating results.

The following represents international sales, through our international distribution channels to end-users in each of the following countries:

	2001		2000
France	18	%	20	%
Germany	22	%	17	%
United Kingdom	22	%	12	%
Switzerland	13	%	11	%
Scandinavia	12	%	10	%
Netherlands	6	%	8	%
Australia and New Zealand	4	%	6	%
Other Countries	3	%	16	%
Total	100	%	100	%

Volatility of Stock Price

On March 20, 2001, our Common Stock was delisted from the Nasdaq National Market due to the failure to maintain a minimum bid price of $1.00 per share. Our Common Stock is now trading on the OTC Bulletin Board, which is considered to be less liquid and more volatile than the Nasdaq National Market.

The market price of our common stock has fluctuated significantly over the past several years and is subject to material fluctuations in the future in response to announcements concerning us or our competitors or customers, quarterly variations in operating results, announcements of technological innovations, the introduction of new products or changes in product pricing policies by us or our competitors, general conditions in the computer industry, developments in the financial markets and other factors. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations that have particularly affected the market prices for technology companies and which have been unrelated to the operating performance of the affected companies. Broad market fluctuations of this type may adversely affect the future market price of our common stock.

Item 2.  Properties.

During the second quarter of 2000 we consolidated our principal administrative, marketing, manufacturing and research and development operations to a single location in Mountain View, California. The facility, which comprises 67,000 square feet, is under a lease which provides for an annual gross rent of approximately $651,000 and expires February 2003. During the second quarter of 2000 we also consolidated our software operations to a single location in Portland, Oregon. The facility, which comprises 16,817 square feet, is under a lease which provides for an annual gross rent of approximately $164,000 and expires in October 2003. We believe that our existing facilities are adequate for our present requirements and that suitable additional space will be available as needed.

We are currently in the process of consolidating all of our U.S. operations into the Portland, Oregon facility.  We are also attempting to sublet our Mountain View, California facility.  We have not yet identified a subtenant for that facility, and until we can do so, we will continue to be obligated for the rent payments under our lease for that facility.

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Item 3.  Legal Proceedings

In March 2001, one of our customers, Pencom Systems, Inc., filed a lawsuit against us in the Superior Court of the State of California, County of Santa Clara, alleging among other things, that the products we delivered pursuant to our sales contract did not perform as required by the contract. The complaint sought monetary damages in excess of $250,000.  In January 2002, we entered into a settlement agreement pursuant to which we will pay Pencom $90,000 in the form of a promissory note, payable over 18 months beginning in April 2002.  The note bears no interest.  As part of the settlement, we also agreed to issue to Pencom 75,000 shares of our Common Stock.

Item 4.  Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5.  Market for Registrant’s Common Equity and Related Shareholder Matters

Market Price Data

Our Common Stock was traded on the Nasdaq National Market under the symbol “NCDI” from our initial public offering in June 1992 through March 20, 2001. Our Common Stock is currently traded over-the-counter and is listed on the OTC Bulletin Board. The following table sets forth, for the periods indicated, the high and low sale prices for the Common Stock on such market:

	High		Low
2001:
First Quarter	$	0.55	$	0.13
Second Quarter	0.35		0.11
Third Quarter	0.34		0.12
Fourth Quarter	0.23		0.07
2000:
First Quarter	$	9.63	$	4.75
Second Quarter	5.25		1.09
Third Quarter	2.38		0.75
Fourth Quarter	0.94		0.09

The closing sale price for the Common Stock on March 29, 2002 was $0.34.

As of March 29, 2002, we had 204 holders of record and approximately 4,500 beneficial holders of our Common Stock and 17,613,237 shares of Common Stock were outstanding.

On March 20, 2001, our Common Stock was delisted from the Nasdaq National Market due to the failure to maintain a minimum bid price of $1.00 per share. Our Common Stock is now trading on the OTC Bulletin Board, which is considered to be less liquid and more volatile than the Nasdaq National Market.

The market price of our Common Stock has fluctuated significantly and is subject to significant fluctuations in the future. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Future Performance and Risk Factors.”

Recent Sales of Unregistered Securities

In October 2001, we completed the sale of 530,000 shares of Series C Convertible Preferred Stock ("Series C Preferred") and a warrant to purchase up to 1,200,000 shares of Common Stock to a private investor for $2,000,000. Each share of Series C Preferred is convertible into 10 shares of our Common Stock at any time upon the election of the holder, subject to the amendment of our Certificate of Incorporation to increase our authorized shares of Common Stock. The Series C Preferred is entitled to cumulative dividends of $.23 per share and are payable upon declaration of the board. The warrant has an exercise price of $.50 per share and expires on August 29, 2006. It has no significant fair value relative to the purchase price of the Series C Preferred. This transaction resulted from an introduction made by Dr. Guenther Pfaff, a large stockholder of NCD and a member of its Board of Directors. In connection with this transaction, we have agreed to issue to Dr. Pfaff 220,000 shares of Series B1 Preferred Stock in exchange for a like number of shares of Series B Preferred, resulting in an increase in the annual dividend from $.51 per share to $.55 per share. We have also agreed to amend the warrant currently held by Dr. Pfaff, such that the corresponding exercise price will be reduced from $.75 per share to $.50 per share and the number of shares of Common Stock issuable pursuant to the warrant will be increased from 600,000 shares to 900,000 shares.

Also, in October 2001, in connection with the line of credit we obtained from Silicon Valley Bank (“SVB”), we issued a warrant to SVB to purchase up to 650,000 shares of our Common Stock at a price of $.50 per share. The warrant expires on October 29, 2006 and had no significant fair value at the time of issuance.

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All of the foregoing issuances were deemed exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. No underwriters were involved in any of the foregoing transactions.

Dividend Policy

We have never paid cash dividends on our Common Stock. We currently expect that we will retain our future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future on Common Stock.

We have issued 220,000 shares of Series B Preferred Stock which call for an annual cumulative dividend of $.41 per share. In exchange for those shares, we have agreed to issue 220,000 shares of Series B1 Preferred Stock, which will call for an annual cumulative dividend of $.55 per share. We have also issued 530,000 shares of Series C Preferred Stock which call for an annual cumulative dividend of $.23 per share. Dividends are payable when and as declared by the Board of Directors.  At December 31, 2001, dividends in arrears totaled approximately $111,000.

Item 6.  Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data.”

	Years Ended December 31,
	2001			2000			1999			1998			1997
	(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues	$	36,478		$	49,263		$	109,030		$	105,596		$	133,400
Operating income (loss)	(8,519		)	(32,697		)	(9,707		)	(13,446		)	1,736
Income (loss) before income taxes	(9,674		)	(32,377		)	(9,143		)	(9,761		)	383
Net income (loss)	(9,696		)	(32,652		)	(16,259		)	(9,103		)	268
Net income (loss) per share—basic	(0.55		)	(1.96		)	(1.00		)	(0.56		)	0.16
Net income (loss) per share—diluted	(0.55		)	(1.96		)	(1.00		)	(0.56		)	0.15
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	484		$	1,758		$	8,339		$	21,359		$	31,480
Working capital (deficit)	(2,350		)	3,641			31,052			41,097			53,811
Total assets	16,067			26,852			56,764			75,146			86,514
Capital lease obligations, less current portion	—			—			—			69			160
Total shareholders’ equity	77			7,773			37,876			52,523			60,519

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Item 7.  Managements Discussion and Analysis of Financial Condition and Results of Operations

Overview

This discussion includes forward-looking statements, including but not limited to statements with respect to our future financial performance, operating results, plans and objectives. Actual results may differ materially from those currently anticipated depending upon a variety of factors, including those described below under the sub-heading, “Future Performance and Risk Factors.”

Historically, NCD has provided thin client hardware and software delivering simultaneous, high-performance, easy-to-manage and cost effective access to all of the information on enterprise intranets and the Internet from thin client, UNIX and PC desktops. Our hardware product lines have included the NCD ThinSTAR line of Windows-based Terminals and the NCD NC900 network computers. On the software side we offered the NCD ThinPATH family of client and server software, developed to enhance the connectivity, management and features of the NCD thin clients as well as PCs in accessing information and applications on Windows servers. Our thin clients, NCD ThinPATH software, and installation and support services have been a combination delivering a fully integrated desktop solution to companies seeking a low-cost, easy to manage, simple to use, high performance user experience. Since introducing our first product in 1989, we have installed over 1,000,000 thin clients worldwide.

As a result of our asset sale to Neoware, going forward, NCD will focus on its worldwide NCD ThinPATH software business while continuing to market its NCD NC900 network computer product line worldwide. In addition, and as mentioned above, the ThinSTAR product line will continue to be available from NCD in Europe, the Middle East and Africa ("EMEA'') under an OEM agreement with Neoware.

Acquisitions and Dispositions

In March 2002, we sold our Windows-based Terminal product line to Neoware.  The assets sold consisted principally of customer records, the ThinSTAR trademark and other intellectual property and contract rights used in the business of designing, developing manufacturing, distributing and selling the Windows-based Terminals marketed under the ThinSTAR brand name. The purchase price was $4.25 million, $300,000 of which is being held in an escrow account for a minimum of 120 days from the date of the closing to satisfy indemnification claims and certain obligations of NCD, and $250,000 of which is payable in accordance with an earn-out provision requiring NCD's satisfaction of certain sales targets in the EMEA. In connection with the acquisition, Neoware acquired an option to acquire additional assets relating to NCD's European operations which serve these markets. Furthermore, eleven NCD sales and support personnel joined Neoware following the closing of the agreement.

In January 2000, we acquired the assets of Multiplicity LLC, a privately held developer of advanced server management software for Microsoft’s Windows NT and Windows 2000 operating systems. The acquisition was accounted for using the purchase method. The purchase price was approximately $2.2 million plus a stream of future payments based on revenue for the four-year period following the acquisition. No future payments have been made to date and no future payments are expected to be paid.  $1.8 million of the purchase price was allocated to purchased in-progress research and development and $.4 million was allocated to other intangible assets.

Debt Financing Activities

In October 2001, we obtained a line of credit from Silicon Valley Bank ("SVB").  This line of credit entitled us to borrow amounts up to 60% of our domestic accounts receivable and up to 60% of our foreign accounts receivable from which we had secured credit insurance, in each case subject to certain eligibility requirements and compliance with specified financial covenants. The line of credit was secured by substantially by all of our assets and bore interest at the rate of prime plus 2%. In connection with the line of credit, we issued warrants to SVB to purchase 650,000 shares of our Common Stock at a price of $.50 per share, expiring on October 31, 2006.  The line of credit was terminated in March 2002, and all amounts outstanding thereunder were repaid, in connection with the sale of our Windows-based Terminal product line. As of the date of termination, the total amount outstanding was approximately $1,606,160, including interest and all other fees due at the time of payoff. As of December 31, 2001, the total amount available and outstanding under the line of credit was $2,116,000.

In March 2000 we obtained a line of credit from Foothill Capital. This line of credit provided us with up to $15 million in credit, subject to certain conditions related to our accounts receivable from time to time. As a result of these conditions, the actual amount that was available under the line ranged from $.20 million to $6.0 million.  Borrowings under the line of credit were secured by substantially all of our assets and initially bore interest at a rate of prime plus 0.75%. The line of credit was amended several times prior to its termination. In May 2001, the line of credit was amended to establish new financial

15

covenants and eliminate the maximum ratio of borrowings against foreign accounts receivable.  Additionally, in May 2001, the line of credit was amended to modify the maturity date of the loan from March 30, 2003 to August 15, 2001, raise the interest rate from prime plus 0.75% to prime plus 2.75% and waive the early termination fee. As of June 30, 2001, we were in default of the minimum EBITDA (Earnings Before Income Taxes, Depreciation and Amortization) covenant of $38,000 for the three-month period ended June 30, 2001. In July 2001, the line of credit was further amended to reduce the maximum amount of the credit line from $15.0 million to $3.5 million. In August 2001, the maximum credit line was further reduced to $3.25 million and the maturity date was extended to September 15, 2001 to provide additional time for SVB to complete its due diligence work and make a final determination regarding its preliminary proposal to extend a new revolving credit facility to us.

Our line of credit with Foothill Capital was terminated when we obtained our line of credit from SVB. As of the date of termination, the total amount outstanding under the line of credit was approximately $0.8 million. Prior to its termination, borrowings during the third quarter of 2001 bore interest at a rate of prime plus 6.75%, which included a covenant default rate of 4% for a total of 12.75% at September 30, 2001.

In August 2000, we concluded an agreement with SCI to convert $3.3 million of our accounts payable to SCI into a 13-month convertible note (the “Convertible Note”). The Convertible Note bore interest at 6.5% per annum and each $1.00 of the outstanding principal was convertible into one share of our Common Stock at any time during the term of the Convertible Note.  In August 2001, the Convertible Note was extended for an additional year with an increase in the interest rate to 8% per annum, computed on the unpaid balance beginning October 1, 2001, and the conversion price was reduced to $.62 per share.

In October 2001, we concluded an agreement with SCI to convert an additional $1.0 million of our accounts payable to them into a note, which matures on September 29, 2002 and bears interest at a rate of 8% per annum.

Equity Financing Activities

In October 2001, we received $2,000,000 in capital through a private placement of 530,000 shares of Series C Convertible Preferred Stock (“Series C Preferred”). The Series C Preferred shares were issued on November 13, 2001. The Series C Preferred shares are entitled to dividends of $.23 per annum, and are payable upon declaration by the board.  Each share of the Series C Preferred is convertible into 10 shares of Common Stock at the election of the holder, subject to the amendment of the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock by not less than 5,300,000 shares.  In connection with this private placement, the purchaser also received a warrant to purchase up to 1,200,000 shares of Common Stock at $.50 per share.  The warrant expires on August 29, 2006 and has no significant fair value relative to the purchase price of the Series C Preferred shares.

In December 2000, we raised $1,500,000 in capital through a private placement of 220,000 shares of Series B Convertible Preferred Stock (“Series B Preferred”) with Dr. Guenther Pfaff who was elected a member of the Company’s board of directors on January 11, 2001 and then appointed acting President and Chief Executive Officer on December 5, 2001. The Series B Preferred shares are entitled to dividends of $.41 per annum, and are payable upon declaration by the board. Each share of Series B Preferred is convertible into 10 shares of Common Stock at the election of the holder. In connection with this private placement, Dr. Pfaff also received a warrant to purchase up to 600,000 shares of Common Stock at $.75 per share. The warrant expires on December 28, 2005 and has no significant fair value relative to the purchase price of the Series B Preferred shares. We have since agreed to modify the terms of securities held by Dr. Pfaff in consideration of his having introduced us to the investor who purchased the Series C Preferred. Such modification will include our issuance of 220,000 shares of Series B1 Preferred Stock to Dr. Pfaff in exchange for the 220,000 shares of Series B Preferred Stock he currently holds, resulting in an increase in the annual dividend accruing on Dr. Pfaff's shares from $.41 per share to $.55 per share, and our amendment of the warrant currently held by Dr. Pfaff, such that the corresponding exercise price would be reduced from $.75 per share to $.50 per share and the number of shares of Common Stock issuable pursuant to the warrant would be increased from 600,000 shares to 900,000 shares.

Restructuring Activities

During the third quarter of 2000 we undertook restructuring actions involving a general reduction in workforce affecting all classes of employees, the exiting of certain leased facilities and the discontinuation of development activities related to several product lines. In connection with these actions, we recorded restructuring charges of $1.6 million consisting of cash charges of $1.0 million for employee separation costs and $0.2 million for facility exit costs, and non cash charges of $0.4 million related to the discontinued product lines, including the recognition of an impairment loss of $0.3 million on certain intangibles attributable to our purchase of Multiplicity LLC. During the year ended December 31, 2000 we paid $2.9 million of the accrued restructuring liability, leaving unpaid cash charges of $0.4 million included in accrued liabilities as of December 31, 2000. After a revaluation of the remaining cash liability, a credit to restructuring expense of $0.5 million was recorded in the fourth quarter of 2000.  The remaining $0.4 million balance at December 31, 2000 was utilized throughout 2001 to pay severance of terminated employees.

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In March 2000 we announced a restructuring plan involving a general reduction in workforce affecting all classes of employees and exiting certain leased facilities. In connection with the plan, we recorded a restructuring charge of $2.6 million consisting of $2.4 million for employee separation costs and $0.2 million for facility exit costs.

Other Recent Developments

In March 2001, one of our customers, Pencom Systems, Inc., filed a lawsuit against us in the Superior Court of the State of California, County of Santa Clara, alleging among other things, that the products we delivered pursuant to our sales contract did not perform as required by the contract. The complaint sought monetary damages in excess of $250,000. In January 2002, we entered into a Settlement Agreement pursuant to which we will pay Pencom $90,000 in the form of a promissory note, payable to over 18 months beginning in April 2002.  The note bears no interest. As part of the settlement, we also agreed to issue Pencom 75,000 shares of our Common Stock.

In December 2000, we entered into a mutual settlement of all claims with Tektronix. The claims represented unpaid commitments for both parties. As part of the settlement, we issued 750,000 shares of Common Stock to Tektronix (as a vendor). A gain on the settlement of $821,000 was recorded in December 2000.

In April 2000, we finalized an alliance agreement with HP whereby HP would sell our products through its indirect sales channel and direct sales force worldwide as well as market our network computers and Windows-based terminal products and related software.

Results of Operations

The following table sets forth certain items in our consolidated statements of operations as a percentage of net revenues for the periods indicated. Figures are rounded to the nearest whole percentage, and line items presenting subtotal and total percentages may therefore differ, due to rounding, from the sum of the percentages for each line item.

	Years Ended December 31,
	2001		2000		1999
Net revenues:
Hardware products	87	%	84	%	86	%
Software products	8	%	8	%	8	%
Services	5	%	8	%	6	%
Total net revenues	100	%	100	%	100	%
Cost of revenues:
Hardware products	66	%	73	%	54	%
Software products	3	%	2	%	3	%
Services	2	%	6	%	4	%
Total cost of revenues	71	%	80	%	61	%
Gross profit	29	%	20	%	39	%
Operating expenses:
Research and development	7	%	17	%	12	%
Marketing and selling	32	%	43	%	30	%
General and administrative	13	%	15	%	6	%
Business restructuring	—		7	%	—
Acquired in-process research and development	—		4	%	—
Total operating expenses	52	%	86	%	48	%
Operating loss	(23%	)	(66%	)	(9%	)
Interest income	—		—		1	%
Interest expense	(3%	)	(1%	)	—
Other income, net	—		2	%	—
Loss before income taxes	(27%	)	(66%	)	(8%	)
Provision for income tax benefit	—		—		7	%
Net loss	(27%	)	(66%	)	(15%	)

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Total Net Revenues

Total net revenues for 2001were $36.5 million, which was a decrease of 26% from 2000 net revenues of $49.3 million. Net revenues for 2000 decreased by 55% compared to 1999 net revenues of $109.0 million.  The decline in net revenues is discussed below.

Hardware Revenues

Hardware revenues consist primarily of revenues from the sale of thin client products and related peripheral equipment. In 2001, hardware revenues declined 23% from the prior year, from $41.2 million to $31.7 million due to a 26% reduction in the volume of units shipped because of reduced demand, offset partially by a slight improvement in pricing. Unit volumes were adversely affected by a significant drop in the demand for our network computers, reduced sales of Windows-based Terminals to distributors, and continued decline in sales to IBM under an agreement that terminated in the first quarter of 2000.  In 2000, hardware revenues declined by 55% from the prior year, from $93.5 million to $41.2 million, as a result of a 47% reduction in unit volume and a price reduction to meet increased competition. Furthermore, sales of peripheral equipment declined by $5.1 million offset by a $4.0 million improvement in revenue attributable to an improved product mix. We expect hardware revenues to decline significantly in future periods as a result of the sale our NCD ThinSTAR product line to Neoware in March 2002.

See Note 1. “Description of Business and Significant Accounting Policies,” for a discussion of the impact on hardware revenues from the sale of our ThinSTAR product line.

Software Revenues

Software revenues consist of revenues from the sale of software products. Revenues from software products were $2.8 million, $3.9 million and $8.9 million for the years ended 2001, 2000 and 1999, respectively, representing a decrease of 28% and 55% for 2001 and 2000, respectively.  The decline in 2001 resulted from the drop in demand for our related thin client hardware products.  The decline in 2000 reflected the impact of lower sales of thin client devices and the termination of our OEM relationship with Citrix.

Service Revenues

Services revenues are generated from the sale of hardware service contracts. Service revenues were $2.0 million, $4.1 million and $6.7 million for the years ended 2001, 2000 and 1999, respectively, representing decreases of 52% and 38% for 2001 and 2000, respectively.  Service revenues have declined as a result of the decline in the purchase and/or renewal of long-term service contracts, as more customers are opting to purchase spare units with their initial orders to serve as replacements while damaged units are returned to us for repair under warranty.

Gross Margin on Hardware Revenues

Gross margin on hardware revenues represents revenues less cost of revenues related to hardware products. Our gross margins on hardware revenues were $7.7 million, $5.5 million and $34.2 million for the years ended 2001, 2000 and 1999, respectively and represented 24%, 13% and 37% respectively of hardware revenues for these same years.

Comparing 2000 to 1999, the substantial reduction in shipment volume reduced margins by $19.7 million. Unfavorable variances and period costs reduced margins further by $5.9 million, and pricing pressures plus a modest change in product mix reduced margins by another $3.3 million.

Comparing 2001 to 2000, hardware margins improved slightly as a $3.3 million reduction in unfavorable variances plus a $1.8 million improvement in price and product mix were only partially offset by a $1.8 million reduction in margins due to lower volume.

See Note 1. “Description of Business and Significant Accounting Policies,” for the discussion and pro forma information, which includes a summary of the impact on hardware revenues due to the sale of our ThinSTAR product line to Neoware.

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Gross Margin on Software Revenues

Gross margin on software revenues represents revenues less cost of revenues related to software products. Our gross margins on software revenues were $1.8 million, $2.8 million and $6.0 million for the years ended 2001, 2000 and 1999, respectively.  This decrease was across all product lines and resulted primarily from lower sales volumes. Our gross margin percentages on software revenues were 64%, 72% and 67% for years ended 2001, 2000 and 1999, respectively. The variances in gross margin percentage resulted from the varying level of discounting required to meet competition.

Gross Margin on Service Revenues

Gross margin on service revenues represents revenues less cost of revenues related to services. Our gross margins on service revenues were $1.2 million, $1.3 million and $2.9 million for the years ended 2001, 2000 and 1999, respectively.  Our gross margin percentages were 58%, 33% and 43% for these same periods, respectively.  The improvement in gross margin percentages is due primarily to the expiration of lower margin long-term service contracts.

Research and Development Expenses

Research and development (“R&D”) expenses were $2.6 million, $8.4 million and $12.9 million for the years ended 2001, 2000 and 1999, respectively, and consisted almost exclusively of personnel expenses. The decrease in R&D spending was the result of reduced salary and employee benefit expenses associated with the reduction in our R&D personnel as part of our restructuring and cost containment programs.

Marketing and Selling Expenses

Marketing and selling expenses consist principally of personnel expenses associated with our U.S. and European sales force, as well as a limited amount of marketing and promotional materials.  Marketing and selling expenses were $11.6 million, $21.2 million and $33.0 million for the years ended 2001, 2000 and 1999, respectively, representing a decrease of 45% in 2001 and an increase of 4% in 2000. The decreases resulted from the implementation of cost reduction plans and a significant reduction in our marketing programs.

General and Administrative Expenses

General and administrative expenses (“G&A”) consist of executive, financing, human resources personnel expenses and expenses associated with outside professional services.  G&A expenses were $4.9 million, $7.2 million and $6.9 million for the years ended 2001, 2000 and 1999, respectively, representing decreases of 29% in 2001 and  an increase of 4% in 2000. The decreases during 2001 are due primarily to a reduction in our workforce, associated costs of benefit plans and cost reduction programs. The increase during 2000 was primarily related to the losses on the disposition of equipment of approximately $0.2 million.

G&A expenses include the amortization of goodwill and other intangible assets of $.4 million and $.5 million for the years ended December 2001 and 2000, respectively. The amortization of goodwill and other intangible assets resulted from the acquisition of Network Display Business unit of Tektronix on December 31, 1998.

Charge For Acquired In-Process Research and Development

During 2000, we incurred a charge of $1.8 million of in-process research and development associated with the acquisition of Multiplicity in January 2000. Subsequent to the acquisition, research and development for this business was discontinued. The amount allocated to in-process research and development was determined by an outside consulting firm using established techniques for the high-technology industry.  No such expenses were incurred during 2001.

Interest Expense, Net

Interest expense, net, was $1.2 million and $501,000 for 2001 and 2000, respectively.  During 1999 we had net interest income of $564,000.  The increased expense during 2001 reflects a substantial increase in the interest rates charged by our lenders due to increased risk, substantial loan amendment fees charged due to debt covenant violations, the write off of prepaid loan fees related to the terminated loan and the interest charges on the issuance of a $3.3 million convertible note in September 2000.  Included in interest expense for 2001 is approximately $416,000 of loan amendment and other fees charged by Foothill. Consequently, our effective annual interest rate for 2001 was 18.0% as compared to an effective annual interest rate of 8.2% for 2000.  Further, all short-term investments were liquidated in 2001 to fund operations.

19

Income Taxes

The provision for income taxes for 2001 is primarily for foreign income taxes. We continue to generate tax net operating loss carry forwards for the United States federal and state jurisdictions. However, no deferred tax assets have been recognized in respect of these carry forwards due to the uncertainty continuing losses create regarding our ability to generate sufficient taxable income to realize the related benefits.

Related Party Transactions

See Note 12 to Consolidated Financial Statements for a discussion of related party transactions.

Liquidity and Capital Resources

At December 31, 2001, we had a deficit working capital of $2.4 million and we incurred a loss from operations of $8.5 million and used cash in operating activities of $2.7 million for the year then ended.

As of December 31, 2001, we had $0.5 million in cash and $6.5 million in notes payable, consisting of $2.1 million drawn under a line of credit with Silicon Valley Bank ("SVB"), $3.3 million in a convertible note held by SCI, and $1.0 million in an additional note payable to SCI, both due on September 29, 2002 and $90,000 payable to Pencom over 18 months beginning in April 2002.

Under operating leases for our facilities, we are committed to make lease payments of $1,134,000, $470,000, $42,000 and $9,000 for the years ended December 31, 2002, 2003, 2004 and 2005, respectively. We anticipate that the 2002 and 2003 commitments will be partially offset by sublease rental income of $150,000 and $130,000, respectively.

In January 2002, we violated a covenant with SVB, which stopped further advances under our line of credit.

On March 26, 2002, as previously mentioned, we sold our ThinSTAR product line to Neoware.  We received an initial $3.7 million in cash, of which $1.6 million was used to repay and close our line of credit with SVB.  An additional $1.5 million was paid to SCI as the initial payment in a debt restructuring agreement which is currently being finalized.  The proposed agreement is expected to extend the maturity date of the $3.3 million convertible note to September 2003 to finance our projected working capital requirements.

Going forward, we will be required to seek additional financing during the next three to six months and we are diligently pursuing both bank financing and potential investors.  We believe that we will require additional financing of approximately $1.0 million in order to fund our operations during the next 12 months.  However, no assurance can be given that additional financing will be available, or that if available, it will be available on the terms acceptable to us or our shareholders.  If adequate funds are not available to satisfy our short-term or long-term capital requirements we may be required to limit our operations significantly.  In light of the foregoing, our auditors have included a paragraph in their report indicating that substantial doubt exists as to our ability to continue as a going concern.  Our financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Cash used in operations was $2.7 million for the year ended December 31, 2001 compared to cash used in operations of $11.3 million for the year ended December 31,  2000.  Our reported net loss of $9.7 million in 2001 included non-cash charges for depreciation and amortization of $1.4 million, reducing the negative cash impact of our loss to $8.3 million.  We used additional cash to reduce accrued expenses by $1.7 million and deferred revenue by $1.1 million.  However, these cash requirements were partially offset by management’s cash management initiatives which resulted in reductions in inventory of $2.7 million, accounts receivable of $2.1 million, and prepaid expenses of $1.7 million, plus an increase in accounts payable of $2.3 million. Our net loss of $32.7 million in 2000 included non-cash charges of $4.7 million for depreciation, amortization and acquired in-process research and development.  We used additional cash to reduce accounts payable by $2.3 million, deferred revenue by $2.1 million and accrued expenses by $1.1 million.  The combined total of these cash requirements was partially offset by reductions in accounts receivable of $12.5 million, inventories of $7.4 million and prepaid expenses of $1.9 million.

Cash provided by investing activities of $0.7 million during 2001 resulted from the maturity of short-term investments of $0.3 million and a reduction in other assets of $0.4 million. Cash provided by investing activities of $2.5 million in 2000 resulted from net sales and maturities of short-term investments of totaling $3.2 million less property and equipment purchases of $0.7 million.

Cash provided by financing activities of $1.1 million for the year ended December 31, 2001 resulted from the receipt of $3.5 million for the sale of convertible preferred stock and a conversion of $1.0 million of accounts payable into a note payable offset by the net reduction of the outstanding balance under our lines of credit of $2.4 million.  Cash provided by financing activities of $5.4 million for the year ended December 31, 2000 reflects the proceeds of $4.6 million from borrowings under the line of credit and proceeds of $0.8 million from the issuance of common stock offset by principal payments on capital lease obligations of $0.1 million.

20

Critical Accounting Policies and Estimates

The discussion of our financial condition and results of operations reflect our recognition of generally accepted accounting principles in the United States.  In preparing these financial statements, we are required to make certain estimates which will affect amounts reported. We base our estimates on historical experience as well as other assumptions that we believe are reasonable under the circumstances.  These assumptions may vary from actual results incurred as a result of the passage of time and changing circumstances and conditions.

We believe the following critical accounting policies affect the most significant estimates used in its preparation of our financial statements.

Revenue Recognition

Hardware revenues are recognized when the products are shipped following receipt of a valid purchase order. With respect to sales through certain international distributors, revenue is recognized when the shipment is made available at a third party logistics center and the buyer is notified of the availability.  We warrant our hardware products for defects in materials for a period of three years. During this warranty period, the customer may return defective product to us and at our option we will either repair or replace the defective product.  In the event we are unable to accomplish the repair or replacement of the defective product, we may refund customer the corresponding purchase price. We reduce revenues and cost of sales by an amount representing estimated returns, which we estimate, based upon historical experience factors.  Warranty costs are accrued based upon actual units sold based upon estimates derived from historical experience.

Software revenues are recognized when the software license is sold and the software is delivered.  We do not offer free software upgrades and because we provide 30-day complimentary telephone support for software, there is no undelivered element related to software sales.  Software products that are included in revenue for the periods presented are (i) NCD ThinPATH, (ii) NCD Wincenter, our multi-user Windows NT application server software, (iii) NCD PC-Xware, our thin client software for PCs, and (iv) NCDware, our proprietary thin client software.

Services revenues are generated from the sale of hardware service contracts.  Our Extended Warranty Program extends  our three- year standard warranty, and our Express Exchange Program provides for the shipment of a replacement unit within 24 to 48 hours, upon customer request.  Service revenues are recognized ratably over the term of the hardware service contract.  Our deferred revenue includes all unrecognized service revenue.

Estimated reductions to revenue are recorded thoughout each period for sales and marketing programs including special price quotes, price protection, promotions, marketing development activities, and other volume related incentives. These incentives are subject to change based on market conditions and can result in additional revenue reduction.  Any adjustments are charged to income in the period in which the information that gave rise to the adjustment becomes known.

An allowance for doubtful accounts is maintained for estimated losses that result from customers’ inability to make payments. Any determination in our customers’ financial condition would, of course, require additional allowances.

Warranty

Estimated product warranty costs are recorded at the time revenues are recognized.  While we maintain a quality assurance program to assure delivery of a quality product to our customers, additional warranty reserves may be required should we experience increased product failures.

Inventory

Inventory carrying values are monitored and compared to current market values regularly and any changes in value due to market conditions, obsolescence or marketability of product are recognized at that time.

21

Intangible Assets

Intangibles are evaluated periodically to determine if any impairment to the carrying value has occurred.  Should such carrying value decrease as a result of changing market conditions the carrying value of the intangibles would be adjusted accordingly.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (“FASB”) finalized Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS 141”), and No. 142, “Goodwill and Other Intangible Assets” (“SFAS 141”). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that we recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that we reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires us to identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires us to complete a transitional goodwill impairment test six months from the date of adoption. We are also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The implementation of SFAS 142 will not have a material effect on our financial statements.

In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”  SFAS No. 143 is effective for fiscal years beginning after June 15, 2002.  SFAS No. 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made.

In August 2001, FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS 144”).  SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.  SFAS No. 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations.

We expect that SFAS Nos. 143 and 144 will be adopted on their effective dates and that the adoption will not result in any material effects on our financial statements.

As of December 31, 2001, the net carrying amount of intangibles remaining after the purchase of the Network Displays Business unit of Tektronix in December 1998 was $1.6 million and there were no intangible assets relating to the purchase of Multiplicity in January 2000. Amortization expense during the year ended December 31, 2001 and December 31, 2000 was $403,000 and $480,000, respectively.  We believe there is no impairment at December 31, 2001 and will continue to monitor the value.

Item 7A. Market Risk

Effective January 2001 all of our international sales have been denominated in US dollars. As of December 31, 2001, a small amount of our accounts receivable were denominated in Euros, subjecting us to exchange rate fluctuations.  We do not expect the effect of such fluctuations on our operating results to be material.

We sometimes use bank borrowings to finance operations.  Although we have no bank borrowings at this time, we are subject to interest rate risk on changes in interest rates for future borrowings.

22

Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

23

Report of Independent Certified Public Accountants

To the Board of Directors and Stockholders of
Network Computing Devices, Inc. and Subsidiaries
Mountain View, California

We have audited the accompanying consolidated balance sheets of Network Computing Devices, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. We have also audited the Schedule of Valuation and Qualifying Accounts and Reserves, as listed in Item 14 of Form 10-K. These consolidated financial statements and the Schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the Schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and Schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and Schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Network Computing Devices, Inc. and subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Schedule presents fairly in all material respects the information set forth therein.

As discussed in Note 9 in the consolidated financial statements, the Company has one significant vendor that manufacturers a substantial majority of the Company’s inventory.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has sustained recurring losses from operations and net working capital deficiency at December 31, 2001. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans as to these matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments related to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

/s/  BDO Seidman, LLP

San Francisco, California
March 26, 2002

24

Independent Auditors’ Report

To The Board of Directors and Shareholders
Network Computing Devices, Inc.

We have audited the accompanying consolidated statements of operations, shareholders’ equity, and cash flows for the year ended December 31, 1999.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Network Computing Devices, Inc. and subsidiaries for the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations and has a net working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans as to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

                                                                                                      /s/ KPMG LLP

Mountain View, CA

February 10, 2000

25

NETWORK COMPUTING DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

	December 31,
	2001			2000
Assets:
Current assets:
Cash and cash equivalents	$	484		$	1,419
Short-term investments	—			339
Accounts receivable, net of allowances and reserves of $1,681 and $5,629 as of  December 31, 2001 and 2000, respectively	7,298			9,160
Inventories	4,930			7,635
Prepaid assets	928			2,667
Other current assets	—			1,500
Total current assets	13,640			22,720
Property and equipment, net	649			1,530
Goodwill and other intangible assets	1,613			2,016
Other assets	165			586
Total assets	$	16,067		$	26,852
Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable	$	6,840		$	5,545
Accrued expenses	2,378			4,047
Deferred revenue	194			1,297
Notes payable	6,506			7,947
Income taxes payable	72			243
Total current liabilities	15,990			19,079
Commitments
Shareholders’ equity:
Undesignated Preferred stock:  3,000,000 shares authorized;
Convertible Preferred Stock, Series B, $0.001 par value: 290,000 shares authorized; 220,000 shares issued and outstanding as of December 31, 2001 and 2000, respectively	1,500			1,500
Convertible Preferred Stock, Series C, $0.001 par value; 530,000 shares authorized, issued and outstanding as of December 31, 2001	2,000			—
Common stock, $0.001 par value:  30,000,000 shares authorized; 17,613,237 issued and outstanding as of December 31, 2001 and 2000, respectively	18			18
Capital in excess of par value	91,027			91,027
Treasury stock	(28,647		)	(28,647		)
Accumulated deficit	(65,821		)	(56,125		)
Total shareholders’ equity	77			7,773
Total liabilities and shareholders’ equity	$	16,067		$	26,852

See accompanying notes to consolidated financial statements.

26

NETWORK COMPUTING DEVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

	Years Ended December 31,
	2001			2000			1999
Net revenues:
Hardware products	$	31,699		$	41,238		$	93,496
Software products	2,790			3,897			8,834
Service	1,989			4,128			6,700
Total net revenues	36,478			49,263			109,030
Cost of revenues:
Hardware products	24,019			35,778			59,336
Software products	1,009			1,082			2,872
Services	829			2,786			3,820
Total cost of revenues	25,857			39,646			66,028
Gross profit	10,621			9,617			43,002
Operating expenses:
Research and development	2,625			8,393			12,935
Marketing and selling	11,592			21,245			33,027
General and administrative	4,923			7,197			6,885
Business restructuring	—			3,679			(138		)
Acquired in-process research and development	—			1,800			—
Total operating expenses	19,140			42,314			52,709
Operating loss	(8,519		)	(32,697		)	(9,707		)
Interest income	33			100			564
Interest expense	(1,188		)	(601		)	—
Other income, net	—			821			—
Loss before income taxes	(9,674		)	(32,377		)	(9,143		)
Provision for income taxes	22			275			7,116
Net loss	$	(9,696	)	$	(32,652	)	$	(16,259	)
Basic and diluted earnings per share:
Net loss per share	$	(0.55	)	$	(1.96	)	$	(1.00	)
Weighted average shares used in per share computations	17,613			16,686			16,192

See accompanying notes to consolidated financial statements.

27

NETWORK COMPUTING DEVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)

	Preferred Stock			Common Stock				Capital In Excess Of Par		Treasury Stock			Accumulated Deficit			Total Shareholders’ Equity
	Shares	Amount		Shares		Amount
Balances as of December 31, 1998				16,049		$	16	$	87,664	$	(27,943	)	$	(7,214	)	$	52,523
Issuance of common stock under Stock Option Plan and Employee Stock Purchase Plan	—	—		335		—		1,560		—			—			1,560
Sale of common stock	—	—		184		—		756		—			—			756
Repurchase and retirement of common stock for treasury	—	—		(135	)	—		—		(704		)	—			(704		)
Net loss	—	—		—		—		—		—			(16,259		)	(16,259		)
Balances as of December 31, 1999				16,433		16		89,980		(28,647		)	(23,473		)	37,876
Sale of Convertible Preferred B Stock	220	1,500		—		—		—		—			—			1,500
Issuance of common stock under Stock Option Plan and Employee Stock Purchase Plan	—	—		430		1		837		—			—			838
Issuance of common stock in settlement of dispute	—	—		750		1		210		—			—			211
Net loss	—	—		—		—		—		—			(32,652		)	(32,652		)
Balances as of December 31, 2000	220	1,500		17,613		18		91,027		(28,647		)	(56,125		)	7,773
Sale of Convertible Preferred C Stock	530	2,000		—		—		—		—			—			2,000
Net loss	—	—		—		—		—		—			(9,696		)	(9,696		)
Balances as of December 31, 2001	750	$	3,500	17,613		$	18	$	91,027	$	(28,647	)	$	(65,821	)	$	77

See accompanying notes to consolidated financial statements.

28

NETWORK COMPUTING DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Years Ended December 31,
	2001			2000			1999
Cash flows from operating activities:
Net income (loss)	$	(9,696	)	$	(32,652	)	$	(16,259	)
Reconciliation of net income (loss) to net cash provided by (used in) operating activities
Non-cash restructuring charges (credit)	—			389			(138		)
Depreciation	957			2,427			3,215
Amortization of goodwill	403			403			403
Deferred income taxes	—			—			6,622
Gain on settlement	—			(821		)	—
Loss on disposal of fixed assets	—			543			—
Impairment charge on notes receivable	—			—			300
Acquired in-process research and development	—			1,800			—
Provision for doubtful accounts, sales returns and allowances, net	3,948			328			1,751
Changes in:
Accounts receivable, net	(2,086		)	12,499			(2,148		)
Inventories	2,705			7,447			(720		)
Prepaid expenses	1,739			1,865			(71		)
Accounts payable	2,295			(2,342		)	(19		)
Accrued expenses	(1,669		)	(1,081		)	(2,081		)
Deferred revenue	(1,103		)	(2,087		)	(1,765		)
Income taxes payable	(171		)	(34		)	3
Net cash used in operating activities	(2,678		)	(11,316		)	(10,907		)
Cash flows from investing activities:
Purchases of short-term investments	—			(1,359		)	(26,010		)
Sales and maturities of short-term investments	339			4,578			33,760
Changes in other assets	421			—			(135		)
Issuance of notes receivable	—			—			(839		)
Property and equipment purchases	(76		)	(681		)	(2,661		)
Net cash provided by  investing activities	684			2,538			4,121
Cash flows from financing activities:
Principal payments on capital lease obligations	—			(69		)	(90		)
Repurchases of common stock	—			—			(704		)
Proceeds from line of credit	36,635			37,676			—
Payments on line of credit	(39,076		)	(33,029		)	—
Proceeds from issuance of preferred stock	3,500			—			—
Proceeds from issuance of stock, net	—			838			2,316
Net cash provided by  financing activities	1,059			5,416			1,522
Change in cash and cash equivalents	(935		)	(3,362		)	(5,264		)
Cash and cash equivalents:
Beginning of year	1,419			4,781			10,045
End of year	$	484		$	1,419		$	4,781
Non-cash investing and financing activities:
Conversion of accounts payable to note payable	$	1,000		$	3,300		$	—
Issuance of preferred stock	—			1,500			—
Issuance of common stock to extinguish liability	—			221			—
Exchange of inventory for note receivable	—			—			160
Cash paid during the year for:
Interest	$	1,123		$	601		$	13
Income taxes	193			308			496

See accompanying notes to consolidated financial statements.

29

Notes to Consolidated Financial Statements

Note 1.  Description of Business and Significant Accounting Policies

Going Concern Uncertainty. Network Computing Devices, Inc. (the “Company”) has incurred a loss from continuing operations for the year ended December 31, 2001 of approximately $9.7 million and has a working capital deficit of $2.4 million at December 31, 2001. The Company is working on obtaining additional financing, which it believes will be necessary to meet its working capital requirements in 2002.  There is no assurance that the Company will be able to obtain the necessary additional financing, resulting in an adverse effect on the Company’s financial condition. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company is actively marketing its existing and new products, which it believes will ultimately lead to profitable operations. However, no assurance can be given that these available funds will meet the Company’s cash requirements in the future.

Sale of Windows-based Terminal Product Line. In March 2002, the Company sold its ThinSTAR product line to Neoware in exchange for cash. The assets disposed of consisted principally of customer records, the ThinSTAR trademark and other intellectual property, and contract rights used in the business of designing, developing, manufacturing, distributing and selling the Windows-based Terminals marketed under the ThinSTAR brand name. As part of this transaction, Neoware also received an option to acquire additional assets relating to the Company's European operations.  Until such time that Neoware exercises such option, the Company will continue to offer the ThinSTAR product line in Europe, the Middle East and Africa (“EMEA”) pursuant to the OEM agreement with Neoware and will continue to provide worldwide service and support for the ThinSTAR product line.  The sale of the ThinSTAR product line and the alliance with Neoware will allow the Company to focus on  its European operations, worldwide NCD ThinPATH software and NCD NC900 businesses while providing additional cash resources to strengthen its financial position. Proceeds from the sale were used to repay and conclude the Company’s line of credit with SVB.  An additional $1.5 million of the proceeds was paid to SCI as the initial payment in a debt restructuring agreement which is currently being finalized.

Worldwide net revenues and gross profit from the ThinSTAR product line for the year ended December 31, 2001 were approximately $16.5 million and $1.6 million, respectively.  In the year ended December 31, 2001, EMEA net revenues and standard gross profit for the ThinSTAR product line were approximately $8.9 million and $.2 million, respectively.

At December 31, 2001, the Company had ThinSTAR inventory and accounts receivable and trade accounts payable relating to its North American sales of the ThinSTAR product line of approximating $4.5 million and $2.5 million, respectively.  Neoware’s purchase of the ThinSTAR product line did not include these accounts payable or accounts receivable, which the Company expects will be liquidated in the normal course of business.  The Company believes that the carrying value of these assets at December 31, 2001 is not in excess of their liquidation value.

Description of Business Prior to March 26, 2002. The Company was originally incorporated in the State of California on February 17, 1988 and reincorporated in the State of Delaware on October 29, 1998. Historically, the Company has provided thin client hardware and software delivering simultaneous, high-performance, easy-to-manage and cost effective access to all of the information on enterprise intranets and the Internet from thin client, UNIX and PC desktops. The Company's hardware product lines have included the NCD NCD900 network computers, and until recently, NCD ThinSTAR line of Windows-based Terminals. On the software side, the Company offered the NCD ThinPATH family of client and server software, developed to enhance to connectivity, management and features of NCD thin clients as well as PCs in accessing information and applications on Windows servers. The Company's thin clients, NCD ThinPATH software, and installation and support services have been a combination delivering a fully-integrated desktop solution to companies seeking a low-cost, easy to manage, simple to use, high performance user experience.

Consolidation. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The functional currency for the Company and its subsidiaries is the U.S. dollar. All significant inter company balances and transactions have been eliminated in consolidation.

Cash Equivalents. The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Cash equivalents at December 31, 2000 consisted of bank deposits and commercial paper. At times these deposits may exceed the amounts covered by the Federal Deposit Insurance Corporation.  There were no cash equivalents at December 31, 2001.

Short-Term Investments. Short-term investments consist of corporate debt securities. The Company has classified all of its short-term investments as “available-for-sale” securities. The carrying value of such securities equals the fair market value. The fair value of all securities equals the cost basis, consequently, there are no unrealized gains or losses.

30

Inventories. Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market (net realizable value).

Property and Equipment. Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method. Useful lives of two to five years are used for equipment and furniture; demonstration equipment is depreciated over an 18-month period. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the respective assets.

Intangible Assets. Intangible assets include customer lists, workforce in place, non-compete agreements and goodwill associated with acquisitions accounted for under the purchase method. Through December 31, 2001, intangible assets were amortized over the economic life of the asset, which was assumed to be a seven-year period, on a straight-line basis.

The Company commissioned an independent evaluation of the value of the business remaining after the sale of the ThinSTAR product line.  The assumptions used in the valuation report were determined through established valuation techniques in the high technology industry.  The results of that evaluation also helped to substantiate the value of the intangible assets recorded at December 31, 2001.

Revenue Recognition.

Hardware Revenues

As a common practice in the computer distribution business the Company offers its distributors and resellers certain sales incentives such as “price protection” and inventory “stock rotation.”  As a result of changes in price or new model introductions, certain distributors are entitled to receive certain limited rebates and credits for the inventory held by the distributor within specified periods of time as defined by distributor agreements.  In general, once requests for credits are approved the Company decreases the accounts receivable and sales as well as the corresponding cost of good sold.   However, at the end of the reporting period, the Company will estimate the relevant credits based on the quantity of the inventory on hand at the distributor and expected future credits.  Actual results could differ from the Company’s estimated amount.

Hardware revenues consist primarily of revenues from the sale of thin client products and related hardware. Hardware revenues are recognized when the products are shipped following receipt of a valid purchase order.  According to contracts with certain international distributors, revenue is recognized when the shipment is made available at a third party logistics center and the buyer is notified of the availability.  The Company warrants its hardware products for defects in materials for a period of three years. During this warranty period, the customer may return defective product to the Company and at the Company’s option   it will either repair or replace the defective product.  In the event the Company is unable to accomplish the repair or replacement of the defective product, it may refund customer the corresponding purchase price. The Company reduces revenues and cost of sales by an amount representing estimated returns, which is an estimate, based upon historical experience factors.  Warranty costs are accrued based upon actual units sold based upon estimates derived from historical experience.

Software Revenues

Software revenues consist of revenues from the sale of software products. Software revenues are recognized when the software license is sold and the software is delivered, provided that no significant vendor obligations remain outstanding and collection is considered probable.  The Company does not offer free software upgrades and because it provides only a 30-day complimentary telephone support for software, there is no undelivered element related to software sales.  Software products that are included in revenue for the periods presented are (i) NCD ThinPATH, (ii) NCD PC-Xware, the Company’s thin client software for PCs, and (iv) NCDware, the Company’s proprietary thin client operating software.

Service Revenues

Services revenues are generated from the sale of hardware service contracts.  The Company’s Extended Warranty Program extends the three- year standard warranty, and the Express Exchange Program provides for the shipment of a replacement unit within 24 to 48 hours, upon customer request.  Service revenues are recognized ratably over the term of the hardware service contract.  The Company’s deferred revenue includes all unrecognized service revenue.

Research and Development Costs. Research and development costs are charged to expense when incurred. Costs incurred in the development of new software products and enhancements to existing software products are also expensed as incurred until the technological feasibility of the product has been established. Technological feasibility is defined as the establishment of a working model that typically occurs when the beta testing commences. After technological feasibility has been established, any additional costs are capitalized in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86 “Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed.” To date, the Company has been able to release new software products or software enhancements within a relatively short period of time after it has achieved technological feasibility on such software products or software enhancements.  Therefore, software

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development costs qualifying for capitalization have been insignificant.  Accordingly, the Company has not capitalized any software development costs at December 31, 2001.

Income Taxes. Under the asset and liability method of SFAS No. 109, “Accounting for Income Taxes,” deferred tax assets and liabilities are established to recognize the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Use of Estimates. The discussion of the Company’s financial condition and results of operations reflects the Company’s recognition of accounting principles generally accepted in the United States.  In preparing these financial statements, management is required to make certain estimates which will affect amounts reported. Management bases its estimates on historical experience as well as other assumptions that management believes are reasonable under the circumstances.  Among the more significant estimates included in these financial statements are the estimated reserves for sales programs, accounts receivable allowance for doubtful accounts, reserve for obsolete inventory, valuation of intangible assets and the deferred income tax asset allowance. These assumptions may vary from actual results incurred as a result of the passage of time and changing circumstances and conditions.

Fair Value of Financial Instruments. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents- the carrying amount approximates the fair value; Accounts receivable- the carrying amount approximates the fair value; Notes payable- the carrying amount of notes payable approximates fair value due to the short period until maturity and prevailing market rates.  At December 31, 2001 and 2000, the fair value of the Company’s instruments approximate their historical carrying amounts.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. We evaluate our long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future discounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell with fair value typically measured as estimated sales proceeds less disposal costs. Fair value is calculated using discounted future cash flows with a discount rate commensurate with the risks involved with the cash flow stream.

Net Loss Per Share. Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and potential common shares from stock options and warrants outstanding, when dilutive, using the treasury stock method. At December 31, 2001, 2000 and 1999 there were 6,026,892, 4,724,498 and 4,676,490 options and warrants outstanding, respectively, that could potentially dilute earnings per share (“EPS”) in the future that were not included in the computation of diluted EPS because to do so would have been antidilutive for those years.

Stock-based Compensation. The Company accounts for its stock-based compensation plans using the intrinsic value method. As such, compensation expense is recorded on the date of grant if the current market price of the underlying stock exceeded the exercise price.

Recent Accounting Pronouncements. In June 2001, the FASB finalized SFAS No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”. SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognizes acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassifies the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires the Company to identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal

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years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.  The implementation of SFAS 142 will not have a material effect on the Company’s financial statements.

In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”  SFAS No. 143 is effective for fiscal years beginning after June 15, 2002.  SFAS No. 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made.

In August 2001, FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS 144”).  SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.  SFAS No. 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations.

The Company expects that SFAS Nos. 143 and 144 will be adopted on their effective dates and that the adoption will not result in any material effects on the Company’s financial statements.

As of December 31, 2001, the net carrying amount of intangible assets remaining after the purchase of the Network Displays Business unit of Tektronix in December 1998 was $1.6 million and there were no intangible assets relating to the purchase of Multiplicity in January 2000. Amortization expense during the year ended December 31, 2001 and December 31, 2000 was $403,000 and $480,000, respectively.

Reclassifications. Certain prior year amounts have been reclassified to conform with current year presentation.

Note 2.  Acquisitions

On December 31, 1998, the Company acquired Tektronix’ Network Displays Business unit (“NWD”) for $3.0 million in cash and warrants to purchase one million shares of the Company’s common stock over a term of five years at an exercise price of $8.00 per share. The fair value of the warrants issued in the acquisition was calculated using the Black-Scholes pricing model. Direct costs of the acquisition totaled approximately $200,000. The acquisition was accounted for as a purchase business combination with a total purchase price of $5.9 million. The purchase price was allocated to $1.7 million of net assets acquired (primarily inventory), $1.4 million to in-process research and development and $2.8 million to other intangible assets which are being amortized over a 7 year useful life. In addition to acquiring certain assets of NWD, approximately 83 former NWD employees, primarily in sales, marketing and engineering roles, joined NCD.

In January 2000, the Company acquired the assets of Multiplicity LLC, a privately held developer of advanced server management software for Microsoft’s Windows NT and Windows 2000 operating systems. The acquisition has been accounted for using the purchase method. The purchase price was $2.2 million plus a stream of future payments based on revenue for the four-year period following the acquisition. No future payments have been made to date an no future payments are expected to be paid. Of the purchase price, $1.8 million was allocated to purchased in-process research and development and $0.4 million was allocated to other intangible assets. Multiplicity LLC provided strategic performance analysis and capacity planning solutions for networked Windows NT and Windows 2000 servers. These solutions gave customers system measurement and management that enabled troubleshooting, analysis, administration and planning to help IT organizations improve end-user service levels. During the third quarter of 2000, due to a change in strategic direction and cash constraints, the Company discontinued development efforts on the Multiplicity product line and recorded a related restructuring charge to write-off all related purchased intangibles.

Note 3.  Short-Term Investments

The fair value of short-term investments consisted of the following as of December 31 (in thousands):

	2001		2000
Corporate debt securities	$	—	$	339

There were no material unrealized gains or losses at December 31, 2000.

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Note 4: Consolidated Balance Sheet and Statement of Cash Flows Components

Inventories as of December 31 consisted of (in thousands):	2001			2000
Purchased components and sub-assemblies	$	5,838		$	11,767
Work in process	488			776
Finished  goods	4,360			2,963
Reserve for obsolete inventory	(5,756		)	(7,871		)
	$	4,930		$	7,635
Property and equipment as of December 31 consisted of (in thousands):	2001			2000
Office and computer equipment	$	5,448		$	5,558
Machinery and equipment	6,722			6,718
Demonstration equipment	66			66
Furniture and fixtures	1,053			1,052
Leasehold improvements	451			439
	13,740			13,833
Less accumulated depreciation and amortization	13,091			12,303
	$	649		$	1,530
Accrued expenses as of December 31 consisted of (in thousands):	2001			2000
Payroll-related costs	$	903		$	1,388
Royalties	98			234
Warranty	349			493
Restructuring reserve	—			390
Other accrued expenses	1,028			1,542
	$	2,378		$	4,047

Note 5.  Business Restructuring

On December 31, 1998, the Company acquired the Network Displays Business unit of Tektronix, Inc. (“NWD”). As a result of this acquisition, the Company reduced its workforce and discontinued certain activities that were redundant with the acquired business. As a result of the restructuring action, a charge to operations of $1.0 million was recorded for 1998. The restructuring plan included the termination of approximately 40 employees, primarily in sales and engineering roles, and the closure of four of the Company’s offices in the United States. Total cash charges amounted to $900,000, none of which had been paid as of December 31, 1998 and are included in accrued expenses. By the end of 1999 it was determined that the plan was substantially complete, and an operating credit of $138,000 was recorded.

On March 31, 2000, the Company announced a restructuring plan involving a general reduction in workforce affecting all classes of employees and exiting certain leased facilities. Approximately 60 employees were terminated under this plan. In connection with the plan, the Company recorded a restructuring charge of $2.6 million consisting of $2.4 million for employee separation costs and $0.2 million for facility exit costs.

During the third quarter of 2000, the Company undertook additional restructuring actions involving a general reduction in workforce affecting all classes of employees, exiting certain leased facilities and discontinuing development activities related to several product lines. This plan was necessitated by the termination of the Company’s contract with IBM as well as the change in market conditions. Approximately 40 employees were terminated under this plan.  In connection with these actions, the Company recorded restructuring charges of $1.6 million consisting of cash charges of $1.0 million for employee separation costs and $0.2 million for facility exit costs, and non cash charges of $0.4 million related to the discontinued product lines, including the recognition of an impairment loss of $0.3 million on the intangibles attributable to the Company’s purchase of Multiplicity LLC.

During the year ended December 31, 2000, the Company paid $2.9 million of the accrued restructuring liability leaving unpaid cash charges of $0.4 million included in accrued liabilities as of December 31, 2000.  The remaining $0.4 million balance at December 31, 2000 was utilized throughout 2001 to pay severance of terminated employees.  As a result of the

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restructuring, the Company reduced its workforce by over 200 employees and its leased manufacturing and office space in Mountain View, California by approximately 86,000 square feet. The restructuring plan was completed in the fourth quarter of 2001 and there were no remaining restructuring reserves as of December 31, 2001.

Note 6. Notes Payable

Following is a listing of notes payable as of December 31, 2001 and 2000 (in thousands):

	2001		2000
SCI Technology — Convertible Note	$	3,300	$	3,300
SCI Technology — Non-Convertible Note	1,000		—
Silicon Valley Bank	2,116		—
Foothill Capital	—		4,647
Pencom	90		—
	$	6,506	$	7,947

In August 2000, the Company concluded an agreement with SCI Technology, Inc. (“SCI”) to convert $3.3 million of the Company’s accounts payable to SCI into a 13-month convertible note (the “Convertible Note”). The Convertible Note bore interest at 6.5% per annum and each $1.00 of the outstanding principal was convertible into one share of the Company’s Common Stock at any time during the term of the Convertible Note.  In August 2001, the Convertible Note was extended for an additional year with an increase in the interest rate to 8% per annum, computed on the unpaid balance beginning October 1, 2001, and the conversion price was reduced to $.62 per share.

On October 17, 2001, the Company concluded an agreement with SCI to convert $1.0 million of the Company’s accounts payable to SCI into a note, which matures on September 29, 2002 and bears interest at a rate of 8% per annum. This note is not convertible.

On October 29, 2001, the Company secured a $5.0 million line of credit with Silicon Valley Bank (“SVB”).  The line was secured by substantially all of the Company’s assets and bore interest at a rate of prime plus 2%. Based on terms of the financing agreement and assuming that the Company was in compliance with specified financial covenants, we could borrow up to 60% of the eligible domestic accounts receivable and up to 60% of the eligible foreign accounts receivable in which the Company has secured credit insurance. As of December 31, 2001, the total amount available and outstanding to SVB was $2,116,000. In January 2002, the Company violated a covenant with SVB, which stopped further advances until a new agreement was concluded which reduced the maximum amount available to $2.0 million from the existing $5.0 million and reduced the advance rate on eligible domestic and foreign accounts receivable to 50% from the original 60%. Also, in connection with this line of credit, the Company issued a warrant to SVB to purchase up to 650,000 shares of the Company’s Common Stock at a price of $.50 per share. The warrant expires on October 29, 2006, and had no significant fair value at the time of issuance. This note was subsequently paid.  See Note 13.  “Subsequent Events.”

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Our original line of credit obtained from Foothill Capital in March 2000 was terminated in October 2001 when we obtained our line of credit from SVB.  The Foothill Capital line of credit provided the Company with up to $15.0 million in credit, subject to certain conditions related to the Company's accounts receivable from time to time. As a result of these conditions, the actual amount that was available under the line ranged from $.20 million to $6.0 million. Borrowings under the line of credit were secured by substantially all of the Company's assets and initially bore interest at a rate of prime plus 0.75%.  The line of credit was amended several times prior to its termination. In May 2001, the line of credit was amended to establish new financial covenants and eliminate the maximum ratio of borrowings against foreign accounts receivable.  Additionally, in May 2001, the line of credit was amended to modify the maturity date of the loan from March 30, 2003 to August 15, 2001, raise the interest rate from prime plus 0.75% to prime plus 2.75% and waive the early termination fee. As of June 30, 2001, we were in default of the minimum EBITDA (Earnings Before Income Taxes, Depreciation and Amortization) covenant of $38,000 for the three-month period ended June 30, 2001. In July 2001, the line of credit was further amended to reduce the maximum amount of the credit line from $15.0 million to $3.5 million. In August 2001, the maximum credit line was further reduced to $3.25 million and the maturity date was extended to September 15, 2001 to provide additional time for SVB to complete its due diligence work and make a final determination regarding its preliminary proposal to extend a new revolving credit facility to us.  As of the date of termination, the total amount outstanding under the line of credit was approximately $0.8 million. Prior to its termination, our borrowings during the third quarter of 2001 bore interest at a rate of prime plus 6.75%, which included a covenant default rate of 4% for a total of 12.75% at September 30, 2001.  Included in interest expense for 2001 is approximately $416,000 of loan amendment and other fees charged by Foothill. Consequently, our effective annual interest rate for 2001 was 18.0% as compared to an effective annual interest rate of 8.2% for 2000.

As a result of a settlement of a dispute with a customer as discussed in “Subsequent Events,” the Company has agreed to issue the customer a note for $90,000, which calls for quarterly installment payments over 18 months beginning in April 2002.  The note bears no interest and has been recorded in the Company's financial statements at December 31, 2001.

On March 2002, the Company repaid and concluded its line of credit with SVB using a portion of the proceeds from the sale of the Company’s Windows-based terminal product line.

Note 7: Shareholders’ Equity

Convertible Preferred Stock. In December 2000, the Company issued 220,000 shares of Series B Convertible Preferred Stock (the “Series B Preferred”) to Dr. Guenther Pfaff in a private placement, in which the Company raised $1,500,000 in the form of a receivable that was paid on January 2, 2001. On January 11, 2001, Dr. Guenther Pfaff was appointed to the Company’s board of directors and subsequently appointed acting President and Chief Executive Officer on December 5, 2001. The Series B Preferred shares are entitled to cumulative dividends of $.41 per annum and are payable upon declaration by the board.  Each share of Series B Preferred is convertible into 10 shares of Common Stock at the election of the holder. In connection with this private placement, a warrant to purchase up to 600,000 shares of Common Stock at $.75 per share was issued to Dr. Pfaff. The warrant expires on December 28, 2005. The Company has since agreed to modify the terms of the securities held by Dr. Pfaff in consideration of his having introduced us to the investor who purchased the Series C Preferred. Such modification will include our issuance of 220,000 shares of Series B1 Preferred Stock to Dr. Pfaff in exchange for the 220,000 shares of Series B Preferred Stock he currently holds, resulting in an increase in the annual dividend accruing on Dr. Pfaff's shares from $.41 per share to $.55 per share, and our amendment of the warrant currently held by Dr. Pfaff, such that the corresponding exercise price would be reduced from $.75 per share to $.50 per share and the number of shares of Common Stock issuable pursuant to the warrant would be increased from 600,000 shares to 900,000 shares.  The warrant has no significant fair value relative to the purchase price of the Series B Preferred shares.

In October 2001, the Company issued 530,000 shares of Series C Convertible Preferred Stock (the “Series C Preferred”) in a private placement in which the Company raised $2,000,000 from a private investor.  The Series C Preferred shares are entitled to cumulative dividends of $.23 per annum and are payable upon declaration by the board.  Each share of Series C Preferred is convertible into 10 shares of Common Stock at the election of the holder, subject to an amendment to the Company’s  Certificate of Incorporation to increase its authorized Common Stock by at least 5,300,000. In connection with this private placement, a warrant to purchase up to 1,200,000 shares of Common Stock at $.50 per share was issued to the investor. The warrant expires in August 2006 and has no significant fair value relative to the purchase price of the Series C Preferred shares.

Dividends in arrears on the Series B Preferred and the Series C Preferred were approximately $111,000 at December 31, 2001.

Tektronix Settlement. In December 2000, the Company entered into a mutual settlement of all claims with Tektronix. As part of the settlement, the Company issued 750,000 shares of its Common Stock to Tektronix. A gain on the settlement of $821,000 was recorded in December 2000.  The gain resulted from the difference between the value of the shares issued to Tektronix of $211,000 (based upon the closing NASDAQ price of $0.2812 on the date of issuance) and the Company’s previously accrued estimated liability to Tektronix of $1,032,000.

Stock Purchase Plan. The Employee Stock Purchase Plan (“Employee Purchase Plan”) was established in 1992 with an initial 150,000 shares of the Company’s Common Stock reserved for issuance thereunder. To accommodate increasing enrollment in the Employee Purchase Plan, the Company had to amend the Employee Purchase Plan numerous times in order to increase the number of shares of common stock reserved for issuance thereunder.  The Employee Purchase Plan permitted eligible employees to purchase common stock through payroll deductions of up to 10 percent of their base earnings. The purchase price of the stock was equal to the lesser of 85% of the fair market value of such shares at the beginning of each six-month offering period (or the commencement of the employee’s participation, if later) or the end of such offering period. As of December 1, 2000, the Board agreed to suspend the Employee Purchase Plan. As of December 31, 2001, a total of 1,752,507 shares had been issued under this plan from its inception. No shares were issued in 2001.

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No Black-Scholes calculations were performed for 2001 because the Employee Purchase Plan was suspended in 2000 and no activity occurred in 2001.

The per share weighted-average fair value of employee stock purchase rights during 2000 and 1999 was $1.87 and $3.10, respectively, on the date of grant using the Black-Scholes model with the following weighted-average assumptions: 2000 - dividend yield of 0%, expected volatility of 124%, risk-free interest rate of between 5.92% and 6.25%, and an expected life of 1 year; 1999 - dividend yield of 0%, expected volatility of 83%, risk-free interest rate of between 4.53% and 5.99%, and an expected life of 1 year.

Stock Option Plans. As of December 31, 2001, the Company had reserved 1,098,000 shares, 800,000 shares and 300,000 shares of Common Stock for issuance under the 1999 Stock Option Plan, the 1999 Non-Qualified Stock Option Plan and the 1994 Outside Directors’ Stock Option Plan, respectively (“the Plans”). During 1999 the 1989 Stock Option Plan expired and was replaced by the 1999 Stock Option Plan. A total of 548,000 shares that were still available for grant at the time the 1989 Stock Option Plan expired were used to fund the 1999 Stock Option Plan. Under the 1999 Stock Option Plan, options are granted to employees, officers, directors and consultants to purchase shares of the Company’s Common Stock at not less than the fair market value of the Common Stock at the grant date (for incentive stock options) or 85% of the fair market value of such Common Stock (for nonstatutory stock options). Options generally vest and become exercisable to the extent of 25% one-year from grant date with the remainder vesting ratably over the 36-month period thereafter. Prior to August 1994, the options generally expired five years from grant date. Since August 1994, we have generally granted options that expire 10 years from grant date. Under the 1994 Outside Directors’ Stock Option Plan, options are granted to outside directors to purchase shares of the Company’s Common Stock at not less than the fair market value of the Common Stock at the grant date. Options vest and become exercisable to the extent of 25% three months from the grant date, 25% on the first anniversary of the grant date with the remainder vesting ratably over the 24-month period thereafter. As of December 31, 2001, 2,053,298 options were exercisable under the Plans.

The per share weighted-average fair value of stock options granted during 2001, 2000 and 1999 was $1.00, $1.64 and $5.91, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2001 - dividend yield of 0%, expected volatility of 136%, risk-free interest rate of between 3.66% and 4.94%, and an expected life of 5 years; 2000 - dividend yield of 0%, expected volatility of 124%, risk-free interest rate of between 5.17% and 6.69%, and an expected life of 5 years; 1999 - - dividend yield of 0%, expected volatility of 83%, risk-free interest rate of between 4.68% and 6.41%, and an expected life of  5 years.

The Company applies Accounting Principles Board (“APB”) Opinion No. 25 in accounting for its stock options issued to employees and, accordingly, no compensation cost has been recognized for the Company’s stock plans in the accompanying consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant dates for the Plans under SFAS No. 123, its net loss and loss per share would have been changed to the pro forma amounts indicated below:

	2001			2000			1999
Net loss (in thousands):
As reported	$	(9,696	)	$	(32,652	)	$	(16,259	)
Pro forma	(10,339		)	(34,655		)	(19,056		)
Basic and diluted loss per share:
As reported	$	(0.55	)	$	(1.96	)	$	(1.00	)
Pro forma	(0.59		)	(2.08		)	(1.18		)

The effects of applying SFAS No. 123 in this pro forma disclosure is not indicative of the effects on reported results for future years. SFAS No. 123 does not apply to awards prior to 1995, and additional awards in future years are anticipated.

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A summary of option transactions under the Plans follows:

	Options Available For Grant		Options Outstanding		Weighted Average Exercise Price
Balances as of December 31, 1998	358,580		3,757,098		$	5.50
Options authorized	1,098,000		—		—
Options granted	(1,029,400	)	1,029,400		5.91
Options expired	(841,979	)	—		—
Options cancelled	765,259		(765,259	)	7.30
Options exercised	—		(344,749	)	4.17
Balances as of December 31, 1999	350,460		3,676,490		$	5.37
Options authorized	800,000		—		—
Options granted	(1,450,990	)	1,450,990		1.64
Options expired	(885,887	)	—		—
Options cancelled	1,856,732		(1,856,732	)	5.82
Options exercised	—		(146,250	)	4.22
Balances as of December 31, 2000	670,315		3,124,498		$	3.43
Options granted	(93,800	)	93,800		1.00
Options expired	(122,052	)	—		—
Options cancelled	591,906		(641,406	)	3.78
Options exercised	—		—		—
Balances as of December 31, 2001	1,046,369		2,576,892		$	3.18

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The following table summarizes information about options outstanding as of December 31, 2001:

Options Outstanding					Options Exercisable
Range of Exercise Prices	Number	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number	Weighted-Average Exercise Price
$0.88 to 1.00	153,100	9.06	$	0.99	38,626	$	0.98
1.01 to 1.99	737,014	8.70	1.12		410,534	1.11
2.00 to 3.99	1,287,784	4.31	3.53		1,287,784	3.53
4.00 to 5.99	174,114	6.97	5.24		122,391	5.24
6.00 to 7.99	154,840	6.64	7.17		124,314	7.22
8.00 to 9.99	65,140	5.56	9.06		65,140	9.06
10.00 to 10.44	4,900	6.25	10.44		4,509	10.44
$0.88 to 10.44	2,576,892	6.20	$	3.18	2,053,298	$	3.51

Warrants. The Company has a warrant outstanding to purchase up to 1,000,000 shares of the Company's Common Stock at $8.00 per share. This warrant is exercisable until it expires on December 31, 2003. On December 28, 2000, in connection with the sale of 220,000 shares of the Company's Series B Preferred, the Company issued a warrant to purchase up to 600,000 shares of its Common Stock at $.75 per share. As set forth in Note 7 above, the Company has agreed to amend this warrant such that the corresponding exercise price would be reduced from $.75 per share to $.50 per share and the number of shares of Common Stock issuable pursuant to this warrant would be increased from 600,000 to 900,000 shares. This warrant is exercisable until it expires on December 28, 2005. In October 2001, in connection with the sale of 530,00 shares of the Company's Series C Preferred, the Company issued a warrant to purchase up to 530,000 shares of its Common Stock at $.50 per share. The warrant is exercisable until it expires on August 29, 2006. Also in October 2001, in connection with the Company's securing a $5.9 million line of credit with Silicon Valley Bank, the Company issued a warrant to purchase up to 650,000 shares of its Common Stock at $.50 per share. This warrant is exercisable until it expires in October 2006 and had no significant fair value at the time of issuance.

Note 8. Income Taxes

The components of the Company’s provision for income taxes (income tax benefit) for the years ended December 31 are as follows (in thousands):

	2001		2000		1999
Current:
State and other	$	22	$	275	$	494
Total current	22		275		494
Deferred:
Federal	—		—		5,433
State and other	—		—		1,189
Total deferred	—		—		6,622
	$	22	$	275	$	7,116

Total income tax expense (benefit) differs from the expected tax expense (benefit) (computed by applying the U.S. federal income tax rate of 34% to loss before income taxes) as follows (in thousands):

39

	2001			2000			1999
Tax expense (benefit at federal statutory rate)	$	(3,289	)	$	(11,102	)	$	(3,109	)
State income taxes, net of federal benefit	8			20			805
Research and development credit	—			(37		)	(342		)
Net operating losses and temporary differences for which no tax benefit is recognized	3,396			11,419			9,799
Other	(93		)	(25		)	(37		)
	$	22		$	275		$	7,116

The tax affects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of December 31 are as follows (in thousands):

	2001		2000
Deferred tax assets:
Accruals, allowances and reserves	$	3,247	$	6,017
Net operating loss and tax credit carryforwards	25,999		22,391
Property and equipment, principally due to differences in depreciation and capitalized leases	—		182
Intangible assets	721		674
Total gross deferred tax assets	29,967		29,264
Less valuation allowance	29,967		29,264
Deferred tax asset, net	—		—
Deferred tax liabilities	—		—
Net deferred tax assets	$	—	$	—

In light of the Company’s recent history of operating losses, the Company continues to provide a valuation allowance for all of its deferred tax assets as it is unable to conclude that it is more likely than not that the deferred tax assets will be realized. Accordingly, the deferred tax valuation allowance increased by $0.7 million from 2000. As of December 31, 2001, the Company has a net operating loss carryover for federal and California income tax purposes of approximately $57.6 million and $18.6 million, respectively. In addition, the Company has federal and California research and development credit carryforwards of $1.7 million and $1.7 million, respectively. The Company’s federal net operating loss and research and development credit carryforwards will expire in the years 2015 through 2021 if not utilized. The Company’s California net operating loss carryovers will expire in the years 2002 through 2006. The California research and development credit can be carried forward indefinitely. Pursuant to Federal income tax rules and regulations, utilization of the tax net operating loss carryovers may also subject to annual limitation due to any greater than 50% change in ownership of the Company within a three year period.

Note 9. Credit and Other Concentrations

Concentrations of credit risk with respect to trade receivables have increased as the Company has moved to a two-tier distribution model. Four customers, Adtcom (23%), Alternative Technology (14%), GTS Gral (10%) and, Ingram Micro (10%) comprise approximately 57% of the Company’s gross trade receivables as of December 31, 2001.

A majority of the Company’s manufacturing is performed by SCI Inc., Thailand. Under the terms of the agreement between the Company and SCI, should SCI breach its performance requirements or otherwise decide to stop manufacturing product for the Company, the Company could be adversely affected and unable to deliver its products.

40

Note 10. Commitments and Contingencies

The Company leases its principal facilities under noncancellable operating lease agreements that expire through 2003. The Company also leases office facilities in several locations in the United States, and in locations in  the Netherlands, France, Germany and the United Kingdom, which are used as sales offices. During 2001, the Company closed its offices in Australia and Sweden as well as numerous sites in the United States.  Rent expense was approximately $1,382,000, $2,607,000 and $2,440,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

As of December 31, 2001, minimum lease payments under all noncancellable lease agreements were as follows (in thousands):

2002	$	1,134
2003	470
2004	42
2005	9
Total minimum lease payments	$	1,665

The above future operating lease payments are anticipated to be offset by the following sublease contract income:

2002	$	150
2003	130
Total sublease income	$	280

Note 11.  Segment Reporting and Geographic Information

The Company has adopted the provisions of SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas and major customers. The method for determining what information to report is based on the way management organizes data for making operating decisions and assessing financial performance. The Company’s chief operating decision maker is considered to be its executive staff, consisting of the Chief Executive Officer and the Chief Financial Officer. Primarily because the Company operates in one industry, thin client computing, including related hardware and software, the executive staff reviews financial information presented on a basis consistent with that presented in the Consolidated Statements of Operations. Accordingly, the Company has only one segment for financial reporting purposes.

Sales to Adtcom represented 11% and 31% and sales to Tech Data represented 10% and 11%, respectively, of net revenue for the years ended December 31, 2001 and 2000, respectively.

Original Equipment Manufacturers (OEM) sales represented approximately 10%, 12% and 9% of the Company’s net revenues for the years ended December 31, 2001, 2000 and 1999, respectively.

Export sales to the Company’s international customers outside North America, primarily Europe, comprised approximately 45%, 40% and 40% of net revenues for the years ended December 31, 2001, 2000 and 1999, respectively. International revenues by country are as follows as a percentage of total international revenues:

	2001		2000		1999
Germany*	31	%	63	%	51	%
United Kingdom	12	%	4	%	12	%
Netherlands	15	%	1	%	3	%
Australia	8	%	4	%	7	%
Sweden	6	%	5	%	5	%
France	8	%	4	%	16	%
Other	20	%	19	%	6	%
Total	100	%	100	%	100	%

*Includes sales to Adtcom, our largest European distributor.

41

Net property and equipment by region are as follows:

	2001		2000
United States	$	308	$	1,154
Europe	326		348
Other	15		28
Total	$	649	$	1,530

Note 12. Related Party Transactions

On December 28, 2000, in a private placement, Dr. Guenther Pfaff purchased 220,000 shares of the Company's Series B Preferred for an aggregate price of $1.5 million. Each share of the Company's Series B Preferred is convertible into 10 shares of Common Stock and is entitled to cumulative dividends of $.41, which are payable upon declaration by the board.  In connection with this purchase, Dr. Pfaff was issued a warrant to acquire up to 600,000 shares of the Company's Common Stock at $.75 per share. As noted previously, the Company has since agreed to modify the terms of the securities held by Dr. Pfaff in consideration of his having introduced us to the investor who purchased the Series C Preferred. See Note 7 for additional information. As the value of the warrant was not significant, the entire proceeds of $1.5 million were allocated to the Series B Preferred. The warrant expires on December 28, 2005.

Dr. Pfaff was appointed to the Board of Directors on January 6, 2001.  He served on the Board until May 30, 2001, the date of the Company’s Annual Shareholders’ Meeting, at which he did not stand for election. On November 6, 2001, he was re-appointed to the Board, and shortly thereafter, on December 5, 2001, he was appointed acting President and Chief Executive Officer.

Dr. Pfaff is the principal owner of GTS Gral which is one of several resellers to which the Company’s products are sold through its major European distributors. In the year ended December 31, 2001, sales to GTS Gral accounted for 7.5% of the Company’s total net revenue. Management believes that all transactions between the Company and GTS Gral are done on an arms’-length  basis.

Note 13.  Subsequent Events

Sale of Windows-based Terminal Product Line. In March 2002, the Company sold its ThinSTAR product line to Neoware in exchange for cash. The assets disposed of consisted principally of customer records, the ThinSTAR trademark and other intellectual property, and contract rights used in the business of designing, developing, manufacturing, distributing and selling the Windows-based Terminals marketed under the ThinSTAR brand name. The Company will continue to offer the ThinSTAR product line in Europe, the Middle East and Africa (“EMEA”) under an OEM agreement with Neoware. It will also continue to provide worldwide service and support for the ThinSTAR product line.   The sale of the ThinSTAR product line and the alliance with Neoware will allow the Company to focus on its European operations, worldwide NCD ThinPATH software and NCD NC900 businesses while providing additional cash resources to strengthen its financial position. Proceeds from the sale were used to repay and conclude the Company’s line of credit with SVB.  An additional $1.5 million of the proceeds was paid to SCI as the initial payment in a debt restructuring agreement, which is currently being finalized. See Note 6 for additional information.

In March 2001, a customer, Pencom Systems, Inc., filed a lawsuit against the Company in the Superior Court of the State of California, County of Santa Clara, alleging among other things, that the products the Company delivered pursuant to its sales contract did not perform as required by the contract. Their complaint sought monetary damages in excess of $250,000.  In January 2002, the Company entered into a settlement agreement pursuant to which the Company will pay Pencom $90,000 pursuant to a promissory note, payable over 18 months beginning in April 2002.  The note bears no interest and is recorded in the accompanying consolidated financial statements as of December 31, 2001. As part of the settlement, the Company also agreed to issue to Pencom 75,000 shares of its Common Stock.

42

Quarterly Financial Data
(Unaudited - in thousands, except per share data)

                                                                                                                                                     &# 160;                                                                                                                                                              

	Quarters Ended
	March 31			June 30			September 30			December 31
2001
Hardware products	$	8,679		$	10,225		$	7,172		$	5,623
Software products	787			713			809			481
Services	1,013			308			406			262
Total net revenues	10,479			11,246			8,387			6,366
Gross profit	3,344			3,921			1,660			1,696
Operating loss	(1,676		)	(1,266		)	(2,658		)	(2,919		)
Loss before income taxes	(1,821		)	(1,447		)	(3,206		)	(3,200		)
Net loss	(1,828		)	(1,494		)	(3,227		)	(3,147		)
Net loss per share (1): Basic and diluted	(0.10		)	(0.08		)	(0.18		)	(0.18		)
Shares used in per share computations:
Basic and diluted weighted average	17,613			17,613			17,613			17,613
2000
Hardware products	$	11,671		$	11,139		$	8,973		$	9,455
Software products	685			927			1,292			993
Services	1,391			1,087			813			837
Total net revenues	13,747			13,153			11,078			11,285
Gross profit	1,168			3,292			3,168			1,989
Operating loss	(16,960		)	(7,379		)	(5,584		)	(1,890		)
Loss before income taxes	(16,951		)	(7,511		)	(5,775		)	(2,140		)
Net loss	(17,194		)	(7,619		)	(5,872		)	(1,967		)
Net loss per shares (1): Basic and diluted	(1.00		)	(0.46		)	(0.35		)	(0.12		)
Shares used in per share computations:
Basic and diluted weighed average	17,233			16,667			16,710			16,927

(1) Loss per share is computed independently for each quarter presented. The sum of the quarterly loss in 2001 and 2000 do not equal the total computed for the year because the weighted average shares are specific to each quarter.

43

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information with respect to the Company’s directors is incorporated by reference to the information under the caption “Election of Directors — Nominees” in the Company’s Proxy Statement.

Information with respect to the Company’s executive officers is set forth in “Item 1. Business — Executive Officers” in this Annual Report on Form 10-K.

Information required by Item 405 of Regulation S-K is incorporated by reference to the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement.

Item 11. Executive Compensation.

The information required by this Item is incorporated by reference to the information under the captions “Executive Compensation — Summary of Cash and Certain other Compensation,” Executive Compensation — Stock Option Grants, “ “Executive Compensation — Option Exercises and Year-End Holdings,” Executive Compensation — Compensation Directors” and “Executive Compensation — Employment, Severance and Change of Control Arrangements’ contained in the Company’s Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information required by this Item is incorporated by reference to the information under the caption “Principal Shareholders and Share Ownership by Management” contained in the Company’s Proxy Statement.

Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference to the information under the caption “Executive Compensation — Employment, Severance and Change of Control Agreements” and “Certain Transactions” contained in the Company’s Proxy Statement.

44

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

        (a)   The following documents are filed as a part of this Report:

(1)Financial Statements:

               See Index to Consolidated Financial Statements at page 24 of this Report.

(2)Financial Statement Schedule:

Page	Schedule	Title
S-1	II	Valuation and Qualifying Accounts and Reserves

All other financial statement schedules are omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements and Notes thereto which are included herein.

                (3)   Exhibits:

The exhibits listed on the accompanying Exhibit Index are filed as part of, or are incorporated by reference into, this Report.

        (b)   Reports on Form 8-K during the quarter ended December 31, 2001:

On December 13, 2001, the Company filed a Report on Form 8-K reporting the resignation of Rudolph G. Morin as its Chief Executive Officer and the appointment of Guenther Pfaff as acting President and Chief Executive Officer.

45

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Network Computing Devices, Inc.
By:	/s/Guenther Pfaff
	Guenther Pfaff
	President and Chief Executive Officer

Dated: April 29, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Guenther Pfaff	President, Chief Executive Officer and Director	April 29, 2002
Guenther Pfaff	(Principal Executive Officer)
/s/ Rudolph G. Morin	Chief Financial Officer, Secretary and Director	April 29, 2002
Rudolph G. Morin	(Principal Financial and Accounting Officer)
/s/ Robert G. Gilbertson	Chairman of the Board of Directors	April 29, 2002
Robert G. Gilbertson
/s/ Douglas Klein	Director	April 29, 2002
Douglas Klein
/s/ Michael Ledbetter	Director	April 29, 2002
Michael Ledbetter

46

INDEX TO EXHIBITS

Exhibit Number	Description
2.1†	Asset Purchase Agreement, dated March 22, 2002, by and between Network Computing Devices, Inc. and Neoware Systems, Inc.
3.1(1)	Certificate of Incorporation of Registrant.
3.2(1)	Bylaws of Registrant.
4.1(15)	Amended and Restated Convertible Promissory Note, dated August 31, 2001, by and between Network Computing Devices, Inc. and SCI Technology, Inc.
4.2(15)	Amended and Restated Registration Rights Agreement, dated August 29, 2001, by and among Network Computing Devices, Inc., SCI Technology, Inc., Guenther Pfaff and Hofmann & Co.
4.3	Amended Certificate of Designations, Preferences and Rights of the Series B and Series C Preferred Stock.
4.4(16)	Warrant, dated August 29, 2001, issued to Hofmann & Co.
4.5	Warrant, dated October 29, 2001, issued to Silicon Valley Bank.
10.8(3)	Lease Agreement dated August 18, 1988, as amended, between Registrant and Mountain View Industrial Associates for premises at 350-360 North Bernardo Avenue, Mountain View, California.
10.9(3)	Lease Agreement dated September 21, 1989, as amended, between Registrant and Mountain View Industrial Associates for premises at 380 North Bernardo Avenue, Mountain View, California.
10.11(4)*	1989 Stock Option Plan, as amended.
10.12(3)*	Form of Stock Option Agreements for use with the 1989 Stock Option Plan.
10.13(3)*	Employee Stock Purchase Plan (revised).
10.14(3)*	Form of Indemnification Agreement between the Registrant and its officers and directors.
10.15(3)*	Registrant’s 401(k) Retirement Plan.
10.23(3)	Form of Registrant’s standard purchase order.
10.24(6)*	Registrant’s Incentive Bonus Plan.
10.31(4)*	1994 Outside Directors Stock Option Plan.
10.32(4)*	Form of Nonstatutory Stock Option Agreement for Outside Directors.
10.34(5)	Lease agreement by and between Registrant and Ravendale Investments dated September 20, 1995.

47

10.48(9)	Asset Purchase Agreement dated December 31, 1998 between Registrant and Tektronix, Inc.
10.49(10)	Asset Purchase Agreement dated January 7, 2000 by and between the Registrant and Multiplicity LLC
10.50(10)	Global Procurement Agreement dated January 30, 2000 by and between Registrant and Hitachi
10.51(10)*	Incentive Stock Option Agreement.
10.52(10)*	1999 Stock Option Plan.
10.53(11)	Loan and Security Agreement by and between Network Computing Devices, Inc. and Foothill Capital Corporation dated as of March 31, 2000, Copyright Security Agreement, General Continuing Guarantee, Guarantor Security Agreement, Intercompany Subordination Agreement, Patent Security Agreement, Stock Pledge Agreement and Trademark Security Agreement.
10.54(12)	Convertible Promissory Note dated August 31, 2000 with SCI Technology, Inc. (Reference is made to Exhibit 4.1)
10.55(12)	Registration Rights Agreement dated August 31, 2000 with SCI Technology, Inc. (Reference is made to Exhibit 4.2)
10.56(13)	Tektronix Settlement Agreement and Mutual Release dated December 8, 2000
10.57(13)	Tektronix—Amendment 1 to Registration Rights Agreement dated December 8, 2000
10.58(13)	Securities Purchase Agreement with Dr. Guenther Pfaff dated December 28, 2000
10.59(13)	Warrant Agreement with Dr. Guenther Pfaff dated December 28, 2000
10.60(15)	Amended and Restated Registration Rights Agreement, dated August 29, 2001, by and among Network Computing Devices, Inc., SCI Technology, Inc., Guenther Pfaff and Hofmann & Co. (Reference is made to Exhibit 4.2)
10.61(14)	Amendment No. 1 to the Loan and Security Agreement, dated January 2001, by and between Network Computing Devices, Inc. and Foothill Capital Corporation.
10.62(14)	Amendment No. 2 to the Loan and Security Agreement, dated May 2001, by and between Network Computing Devices, Inc. and Foothill Capital Corporation.
10.63(14)	Amendment No. 3 to the Loan and Security Agreement, dated May 31, 2001, by and between Network Computing Devices, Inc. and Foothill Capital Corporation.

48

10.64(14)	Amendment No. 4 to the Loan and Security Agreement, dated July 2001, by and between Network Computing Devices, Inc. and Foothill Capital Corporation.
10.65(14)	Amendment No. 5 to the Loan and Security Agreement, dated August 9, 2001, by and between Network Computing Devices, Inc. and Foothill Capital Corporation.
10.67(15)	Securities Purchase Agreement, dated August 29, 2001, by and between Network Computing Devices, Inc. and Hofmann & Co.
10.68(16)	Warrant, dated August 29, 2001, issued to Hofmann & Co. (Reference is made to Exhibit 4.4)
10.69(15)	Amended and Restated Convertible Promissory Note, dated August 31, 2001, by and between Network Computing Devices, Inc. and SCI Technology, Inc. (Reference is made to Exhibit 4.1)
10.70(15)	Amendment No. 6 to the Loan and Security Agreement, dated September 14, 2001, by and between Network Computing Devices, Inc. and Foothill Capital Corporation.
10.71	Loan and Security Agreement, dated October 29, 2001, by and between Network Computing Devices and Silicon Valley Bank.
10.72	Limited Waiver and Amendment to Loan Documents, dated March 4, 2002, by and between Network Computing Devices, Inc. and Silicon Valley Bank.
10.73†	Asset Purchase Agreement, dated March 22, 2002, by and between Network Computing Devices, Inc. and Neoware Systems, Inc.  (Reference is made to Exhibit 2.1)
10.74†	OEM Supply Agreement, dated March 22, 2002, by and between Network Computing Devices, Inc. and Neoware Systems, Inc.
10.75	Non-Competition and Confidentiality Agreement, dated March 22, 2002, by and between Network Computing Devices, Inc. and Neoware Systems, Inc.
11.1	Statement Regarding Computation of Shares
21.1 (13)	List of subsidiaries of Registrant.
23.1	Consent of BDO Seidman, LLP.
23.2	Consent of KPMG LLP

*Constitutes a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K.

†      Confidential treatment has been requested as to a portion of this exhibit.

(1)Incorporated by reference to identically numbered exhibit to Registrant’s Form 8-A Registration Statement filed on January 14, 1999.

(2)Incorporated by reference to identically numbered exhibit to Registrant’s Form S-1 Registration Statement (No. 33-47246) which became effective on June 4, 1992 (the “1992 Registration Statement”).

49

(3)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-K Report for the year ended December 31, 1993.

(4)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-K Report for the year ended December 31, 1994.

(5)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-K Report for the year ended December 31, 1995.

(6)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-K Report for the year ended December 31, 1996.

(7)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-K Report for the year ended December 31, 1997.

(8)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-Q Report for the quarter ended March 31, 1998.

(9)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-K Report for the year ended December 31, 1998.

(10)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-K Report for the year ended December 31, 1999.

(11)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-Q Report for the quarter ended March 31, 2000.

(12)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-Q Report for the quarter ended September 30, 2000.

(13)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-K Report for the year ended December 31, 2000.

(14)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-Q Report for the quarter ended June 30, 2001.

(15)Incorporated by reference to identically numbered exhibit to Registrant’s Form 10-Q Report for the quarter ended September 30, 2001.

(16)Incorporated by reference to exhibit number 4.3 to Registrant’s Form 10-Q Report for the quarter ended September 30, 2001.

50

EX-2.1

EXHIBIT 2.1

*** PORTIONS OF CERTAIN EXHIBITS TO THIS EXHIBIT HAVE BEEN DELETED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.  THE CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

ASSET PURCHASE AGREEMENT

BETWEEN

NEOWARE SYSTEMS, INC.

AND

NETWORK COMPUTING DEVICES, INC.

MARCH 22, 2002

TABLE OF CONTENTS

ARTICLE I – Definitions
ARTICLE II – PURCHASE AND SALE OF ASSETS
2.1	Purchase and Sale of Assets.
	(a)	Personal Property.
	(b)	Contract Rights.
	(c)	Intellectual Property.
	(d)	Governmental Licenses, Permits and Approvals.
	(e)	Books and Records
2.2	Excluded Assets.
	(a)	Inventory.
	(b)	Accounts Receivable.
	(c)	ThinPATH Software.
2.3	Purchase Price.
2.4	Payment of Purchase Price.
	(a)	Closing Payment and Escrow.
	(b)	Earn-Out.
2.5	Closing.
2.6	Ad Valorem Tax Adjustment.
2.7	Allocation of Purchase Price.
2.8	Assumed Liabilities.
2.9	Retained Liabilities.
2.10	Purchase Price Adjustment.
ARTICLE III – Representations and Warranties of Seller
3.1	Organization and Good Standing.
3.2	Authorization and Effect of Agreement.
3.3	No Restrictions Against Sale of the Assets.
3.4	Financial Statements.
3.5	Operation of the Product Line Since the Balance Sheet Date.
3.6	Title to Assets; Licenses.
3.7	No Litigation.
3.8	Income and Other Taxes.
3.9	Employee Benefit Matters.
3.10	Governmental Approvals.
3.11	Assumed Contracts.
3.12	Employee and Labor Matters.
3.13	Principal Customers and Suppliers.
3.14	Compliance with Law.
3.15	Product Warranties.
3.16	Intellectual Property.

	(a)	Title.
	(b)	Transfer.
	(c)	No Infringement.
	(d)	Licensing Arrangements.
	(e)	No Intellectual Property Litigation.
	(f)	Due Registration, Etc.
	(g)	Use of Name and Mark.
	(h)	Protection of Information.
3.17	Operation of the Product Line.
3.18	Insurance.
3.19	Brokers’ Fees.
3.20	Disclosure.
3.21	Knowledge.
3.22	Transactions with Affiliates.
3.23	No Liquidation, Fraudulent Transfers, Winding-Up.
3.24	Shipment of Inventory.
3.25	Capitalization.
ARTICLE IV – Representations and Warranties of Purchaser
4.1	Organization and Good Standing.
4.2	Execution and Delivery.
4.3	No Conflicts.
4.4	Compliance with Law.
4.5	No restrictions Against Purchase of the Assets.
ARTICLE V – Operation of Product Line Pending Closing
5.1	Conduct of Seller.
5.2	Tax Assessments and Audits.
ARTICLE VI – Additional Covenants
6.1	Covenants of  Seller.
6.2	Covenants of Purchaser.
6.3	Access and Information.
6.4	Expenses.
6.5	Certain Notifications.
6.6	Publicity; Employee Communications.
6.7	Further Assurances.
6.8	Competing Offers.
6.9	Inconsistent Action.
6.10	Employee Matters.
6.11	Assignments; Consents.
6.12	Sufficiency of Assets.
ARTICLE VII – Conditions Precedent to Closing
7.1	Conditions of Purchaser.

7.2	Conditions of Seller.
ARTICLE VIII – Post-Closing Obligations
8.1	Seller-Assumed Warranty Obligations.
8.2	Audited Financial Statements.
8.3	Purchaser and Seller ThinStar Brand Purchases.
8.4	Seller-Assumed Support Services Obligations.
8.5	Termination of License Fees.
8.6	Obsolete Product Returns.
8.7	Continued Operations; No Bankruptcy.
ARTICLE IX – Termination, Amendment and Waiver
9.1	Termination.
9.2	Effect of Termination.
9.3	Amendment.
9.4	Waiver.
ARTICLE X – Indemnification
10.1	Survival of Representations and Warranties.
10.2	Indemnification.
10.3	Procedures.
10.4	Third Party Claims.
10.5	Indemnification Non Exclusive.
10.6	Limitation on Amount.
ARTICLE XI  – Rebate and Marketing Programs
11.1	List of Programs.
11.2	Payments.
11.3	Marketing Rights.
ARTICLE XII – General Provisions
12.1	Notices.
12.2	Severability.
12.3	Entire Agreement.
12.4	Successors and Assigns.
12.5	Counterparts.
12.6	Recitals, Schedules, Exhibits and Annexes.
12.7	Construction.
12.8	Governing Law.
12.9	Arbitration.
12.10	Passage of Title and Risk of Loss.
12.11	Bulk Sales.

INDEX OF EXHIBITS
Exhibit A	Escrow Agreement
Exhibit B	Seller’s Counsel’s Opinion
Exhibit C	Form of Non-Competition Agreement
Exhibit D	Form of ThinPATH License Agreement
Exhibit E	Form of Transitional Supply Agreement
Exhibit F	Employees
Exhibit G	Neoware Systems, Inc. Form of Non-Solicitation and Confidentiality Agreement
Exhibit H	OEM Supply Agreement
Exhibit I	Warranties
Exhibit J	Support Services

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is entered into as of March 22, 2002 between NEOWARE SYSTEMS, INC., a Delaware corporation (“Purchaser”), and NETWORK COMPUTING DEVICES, INC., a Delaware Corporation (“Seller”).

RECITALS

A.            Seller is presently engaged in the business of designing, developing, manufacturing, distributing and selling server and thin client management software marketed under the ThinPath and Thinfrastructure brand names, and thin client products, including Network Computers marketed under the NC900 brand name, and Windows-based thin client devices marketed under the ThinStar brand name.

B.            Seller desires to Transfer (as hereinafter defined) to Purchaser, and Purchaser desires to purchase from Seller, all of the assets owned or held by Seller or used by Seller in connection with designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name (referred to herein as the “Products” or the “Product Line”), other than the Excluded Assets (as hereinafter defined), on the terms and subject to the conditions set forth in this Agreement.

C.            Seller desires to delegate to Purchaser, and Purchaser is willing to assume from Seller, the Assumed Liabilities (as hereinafter defined), on the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

Unless otherwise defined herein or the context otherwise requires, the terms defined in this Article I shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms herein defined. Unless otherwise indicated, any reference herein to a Section, Article, Exhibit or Schedule shall mean the applicable section, article, annex or schedule of or to this Agreement. All accounting terms used in this Agreement not defined in this Article I shall, except as otherwise provided for herein, be construed in accordance with generally accepted accounting principles, consistently applied.

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“Action” shall mean any actual or threatened claim, action, suit, arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by or before any Governmental Entity or arbitrator and any appeal from any of the foregoing.

“Affiliate” of a Person shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, the indicated Person.

“Agreement” shall mean this Asset Purchase Agreement, together with all Schedules and Exhibits hereto.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Damages” shall mean any and all losses, liabilities, obligations, costs, expenses, damages or judgments of any kind or nature whatsoever (including reasonable attorneys’, accountants’ and experts’ fees, disbursements of counsel, and other costs and expenses incurred pursuing indemnification claims under Article IX hereof).

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

“ERISA Affiliate” shall mean any Person which is (or at any relevant time was) a member of a controlled group of corporations within the meaning of Code Section 414(b), all trades or businesses under common control within the meaning of Code Section 414(c), and all affiliated service groups within the meaning of Code Section 414(m), of which Seller is (or at any relevant time was) a member.

“Governmental Entity” shall mean any local, state, federal or foreign (i) court, (ii) government or (iii) governmental department, commission, instrumentality, board, agency or authority, including, without limitation, the IRS and other taxing authorities.

“Legal Requirement” shall mean any statute, law, ordinance, rule, regulation, permit, order, writ, judgment, injunction, decree or award issued, enacted or promulgated by any Governmental Entity or any arbitrator.

“Lien” shall mean all liens (including judgment and mechanics’ liens, regardless of whether liquidated), mortgages, assessments, security interests, easements, claims, pledges, trusts (constructive or other), deeds of trust, options or other charges, encumbrances or restrictions.

“Ordinary Course” shall mean, when used with reference to Seller, the ordinary and normal course of the operation of the Product Line, consistent with past practices.

“Permitted Liens” shall mean Liens listed or described on Schedule 3.6(a).

“Person” shall mean all natural persons, corporations, business trusts, associations, companies, partnerships and joint ventures.

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“Plan” shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA and any other written or oral employee plan (other than arrangements merely involving the payment of wages) which are or at any time have been established, maintained, or contributed to by Seller or any ERISA Affiliate for the benefit of current or former employees, with respect to which Seller or an ERISA Affiliate has or may in the future have any liability or obligation to contribute or make payments of any kind.

“Subsidiary of a Person” shall mean any corporation, partnership, limited liability company, association or other business entity at least 50% of the outstanding voting power of which is at the time owned or controlled directly or indirectly by such Person or by one or more of such subsidiary entities, or both.

“Tax” shall mean all taxes, including without limitation all Federal, state, local or foreign income, gross receipts, license, payroll, unemployment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including, without limitation, taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), employment, disability, real property, personal property, ad valorem, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated tax or other tax, assessment or charge of any kind whatsoever, and any interest, fine, penalty or addition thereto, whether disputed or not.

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

ARTICLE II

PURCHASE AND SALE OF ASSETS

2.1           Purchase and Sale of Assets.  On the terms and subject to the conditions hereof, at the Closing (as defined in Section 2.5), Seller will sell, transfer, grant, convey, assign and deliver (“Transfer”) to Purchaser, and Purchaser will purchase and accept from Seller, the following rights, properties and assets owned, held or used by Seller in connection with the operation of the Product Line (collectively the “Assets”):

(a)           Personal Property.  The software, files, plants, fixtures, furnishings, furniture, equipment, supplies, computers, printers and other tangible personal property owned or held by Seller in connection with the operation of the Product Line, that are  set forth on Schedule 2.1(a) (collectively, the “Owned Tangible Personal Property”);

(b)           Contract Rights.  The rights and incidents of interest of Seller existing as of the date hereof or acquired by Seller between the date hereof and the Closing Date in, to or under all licenses, leases, agreements, customer orders, contracts, written or verbal (including product warranty claims, rebates and indemnity or other rights of action against any person arising out of acts, omissions or occurrences before, at or after the Closing), prepaid items, deposits and refunds relating to the Product Line, that are listed on Schedule 2.1(a) (collectively, the “Contracts”);

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(c)           Intellectual Property.  The entire right, title and interest of Seller existing as of the date hereof or acquired by Seller between the date hereof and the Closing Date in connection with the operation of the Product Line or used by Seller in connection with the operation of the Product Line in, to or under (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof, (ii) all software, licenses, inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and copies of customer lists other than in Europe, the Middle East and Africa (“EMEA”), and all documentation relating to any of the foregoing, (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world, (iv) all industrial designs and any registrations and applications therefor, (v) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor, (vi) all databases and data collections and all rights therein, (vii) Seller’s list of customer prospects pertaining to the Product Line, other than in EMEA, (viii) all moral and economic rights of authors and inventors, however denominated, and (ix) any similar or equivalent rights to any of the foregoing (as applicable), to the extent such rights are listed on Schedule 2.1(c) (collectively, the “Intellectual Property”);

(d)           Governmental Licenses, Permits and Approvals.  To the extent Transferable, all rights and incidents of interest of Seller existing as of the date hereof or acquired by Seller between the date hereof and the Closing Date in, to or under all licenses, permits and authorizations (collectively, the “Approvals”) issued or requested to be issued by any Governmental Entity in connection with the operation of the Product Line, that are listed or described on Schedule 2.1(d);

(e)           Books and Records.  The rights to copy all books, records, ledgers, files, documents, correspondence, studies, reports and other documents of Seller relating to the Product Line or the Assets.

2.2           Excluded Assets.  Notwithstanding anything contained in this Agreement to the contrary, the following rights, properties and assets (collectively, the “Excluded Assets”) will not be included in the Assets:

(a)           Inventory.  All raw material, works-in-progress and finished goods inventories relating to the Product Line.

(b)           Accounts Receivable.  All accounts receivable arising from the conduct of the Product Line.

(c)           ThinPATH Software.  The ThinPATH software listed on Schedule 2.2(c).

2.3           Purchase Price.  Purchaser will pay for the Assets a purchase price in the amount of Four Million Two Hundred Fifty Thousand Dollars ($4,250,000), subject to adjustment as provided in Sections 2.6 and 2.10 (the “Purchase Price”).

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2.4           Payment of Purchase Price.

(a)           Closing Payment and Escrow.  At the Closing (as defined in Section 2.5):

(i)            Purchaser shall pay to Seller an amount equal to Three Million Seven Hundred Thousand Dollars ($3,700,000), subject to adjustment, as provided in Sections 2.6 and 2.10, in the event that the adjustment is for an aggregate amount of at least $100,000 (the “Closing Payment”); and

(ii)           Purchaser shall deposit into an escrow account (the “Escrow Account”) Three Hundred Thousand Dollars ($300,000) (the “Escrow Amount”), to be held and disbursed by First Union National Bank (or if First Union National Bank is unable to serve, by another party appointed by the parties), as escrow agent (the “Escrow Agent”).  The Escrow Amount shall be held by the Escrow Agent pursuant to an escrow and security agreement (the “Escrow Agreement”), in the form of Exhibit A.  The Escrow Amount will be subject to set-off for any indemnification claims arising during the one year plus 75–day period commencing on the Closing Date (the “Escrow Period”), subject to earlier termination as set forth below, for adjustments as provided in Sections 2.6 and 2.10, unless such adjustments have reduced the amount of the Closing Payment, and as otherwise provided herein and in the Escrow Agreement.

The Escrow Agreement shall terminate at the close of business on the last day of the Escrow Period (the “Escrow Termination Date”), unless there are any unresolved indemnification or other claims on such date pursuant to which Purchaser may be entitled to all or a portion of the Escrow Amount, provided, however, that if Seller has satisfied its purchase obligations, if any, under Section 8.3 prior to the Escrow Termination Date, the Escrow Agreement shall terminate on such date, provided that the termination shall not occur earlier than 120 days after the Closing.  In the event of any such unresolved claims or disputes, the Escrow Agreement will continue in force, but any portion of the Escrow Amount which exceeds the amount for which a claim has been made or a dispute exists shall be released to Seller, except as provided in the Escrow Agreement.  Seller’s liability for the claims identified in this Section 2.4(b), or any other claims of Purchaser hereunder, shall not be limited to the Escrow Amount.

(b)           Earn-Out.  Purchaser shall pay to Seller an aggregate of $250,000 (the “Earn-Out”) if certain purchases and sales are made by Seller’s EMEA Operations (as defined in the OEM Supply Agreement) during the periods set forth herein (collectively, the “Earn-Out Periods):

(i)            If during the period from the Closing Date until June 30, 2002, Seller purchases in excess of $2,000,000 of the Products (as defined in the OEM Supply Agreement) and sells such Products to end user customers in EMEA, $125,000 shall be paid to Seller.

(ii)           If during the period from July 1, 2002 until September 30, 2002, Seller purchases in excess of $3,000,000 of the Products (as defined in the OEM Supply

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Agreement) and sells such Products to end-user customers in EMEA, $125,000 shall be paid to Seller.

(iii)          The Earn-Out shall be paid within thirty (30) days after receipt by Purchaser of Seller’s sales-out reports, as required in Section 4.10 of the OEM Supply Agreement.

(iv)          Nothing contained in this Section 2.4(c) or any other action on the part of Purchaser or Seller pursuant to the provisions of this Section shall in any way prejudice, or constitute a waiver of, any of the rights of Purchaser with respect to Seller’s representations and warranties, covenants or indemnification obligations contained in this Agreement.

2.5           Closing.  The purchase and sale of the Assets and the consummation of the other transactions contemplated by this Agreement (the “Closing”) shall occur at 10:00 a.m., local time, on March 22, 2002 at the offices of Neoware or at such other time or on such other date as shall be agreed by Seller and Purchaser upon fulfillment of all conditions precedent to the Closing, such hour and date being herein generally referred to as the “Closing Date.  At the Closing:

(a)           Seller shall deliver or cause to be delivered to Purchaser, against payment by Purchaser to Seller of the Closing Payment:

(i)            all of the agreements, documents, certificates and instruments required to be delivered by Seller pursuant to Section 7.1 hereof.

(b)           Purchaser shall deliver or cause to be delivered to Seller against delivery of the agreements, documents, certificates and instruments required to be delivered by Seller pursuant to Section 7.1:

(i)            a wire transfer of immediately available funds to an account designated in writing by Seller in an amount representing the Closing Payment; and

(ii)           all of the documents, if any, required to be delivered by Purchaser pursuant to Section 7.2 hereof.

2.6           Ad Valorem Tax Adjustment.  All ad valorem Taxes imposed by any taxing authority upon the Assets will be prorated between Seller and Purchaser as of the Closing Date based on the most current available tax rates and assessed values (such prorations to be adjusted when final rates and assessed values are established).  All such Taxes attributable to the period up to the Closing Date and which remain unpaid as of the Closing Date shall be deducted from the Purchase Price.  All such Taxes, if any, attributable to the period following the Closing Date and which have been paid by Seller prior to the Closing Date shall be added to the Purchase Price.  All adjustments to the Purchase Price will be calculated as of 11:59 p.m. on the Closing Date.

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2.7           Allocation of Purchase Price.  The Purchase Price represents the amount agreed upon by Purchaser and Seller to be the aggregate fair market value of the Assets.  Purchaser and Seller have agreed that the Purchase Price will be allocated among the Assets in the manner set forth in Schedule 2.7.  Purchaser and Seller will allocate the Purchase Price to the Assets in such manner consistently for all purposes, including in connection with all federal, foreign, state, local and other Tax Returns and reports prepared and filed by or for either of Purchaser or Seller.

2.8           Assumed Liabilities.  On the terms and subject to the conditions hereof, as of the Closing, Purchaser will assume only and thereafter in due course pay, perform and discharge the following, and only the following, liabilities and obligations of Seller (the “Assumed Liabilities”)

(a)           all liabilities and obligations of Seller arising under the terms of the Contracts that are included in the Assets and listed or described on Schedule 3.11(a) (the “Assumed Contracts”), but only to the extent such liabilities and obligations arise after the Closing Date (and are not based on events occurring on or prior to the Closing Date) under the terms of such Assumed Contracts, provided, however, that Purchaser will not assume or be responsible for any such liabilities or obligations which arise under or in relation to any Plan or from any breach or default by Seller under any Contract, all of which liabilities and obligations will constitute Retained Liabilities (as defined in Section 2.9); and

(b)           such liabilities and obligations as are listed on Schedule 2.8(b).

2.9           Retained Liabilities.  Except as provided in Section 2.8, Seller will retain, and Purchaser will not assume or be responsible or liable with respect to, any liabilities or obligations of Seller or its Affiliates or their respective predecessors-in-interest, whether or not arising out of or relating to the operation of the Product Line or associated with or arising from any of the Assets or any other rights, properties or assets used in or associated with the Product Line at any time, and whether fixed or contingent or known or unknown, including, but not limited to, liabilities relating to warranties and service obligations relating to the operation of the Product Line by the Seller, liabilities for Taxes relating to the sale of the Assets and liabilities with respect to any of Seller’s employees (collectively the “Retained Liabilities”). Except for the Assumed Liabilities, Seller agrees to pay or discharge when due any and all liabilities of Seller.

2.10         Purchase Price Adjustment.  If the Value (as defined herein) of Seller’s inventory of Products consisting only of units of ThinStar 332, ThinStar 500 and ThinStar Voyager (the “Adjustment Inventory”) in the worldwide distribution channel and in transit to distributors worldwide as of the Closing Date is greater than Six Hundred Fifty Thousand Dollars ($650,000.00), the Purchase Price shall be reduced by the amount equal to the value of the Adjustment Inventory in excess of Six Hundred Fifty Thousand Dollars ($650,000.00) multiplied by 0.35 (the “Purchase Price Adjustment”), provided that Seller shall fulfill its obligations under Section 8.6.  “Value” shall mean the aggregate of the actual sales price of the units of the Adjustment Inventory from Seller to its distributors.  Seller shall provide Purchaser a detailed schedule setting forth the calculation of the amount and the type of inventory in the distribution channel as of the Closing Date, together with a certification of Seller’s chief financial officer that

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said schedule is true and complete, within ten (10) business days after the Closing Date.  Purchaser shall have the right to inspect the books, records, ledgers, files, documents, correspondence, reports and any other documents of Seller to verify the Purchase Price Adjustment.  If Purchaser disputes the Purchase Price Adjustment calculated by Seller, Purchaser and Seller shall resolve the dispute in accordance with Section 11 of the Escrow Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to, and covenants and agrees with, Purchaser that as of the date hereof and as of the Closing Date:

3.1           Organization and Good Standing.

(a)           Each of Seller and its Subsidiaries has been duly organized and is existing as a corporation in good standing under the laws of the jurisdiction of its incorporation with full power and authority (corporate and other) to own and lease its assets and properties and to conduct its business and the operation of the Product Line as currently conducted. Each of Seller and its Subsidiaries has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction set forth on Schedule 3.1(a), such jurisdictions comprising all jurisdictions in which Seller or any of its Subsidiaries owns or leases any property, or conducts any business, so as to require such qualification, except where any failure to qualify would not have a Material Adverse Effect.

(b)           Except as set forth in Schedule 3.1(b), Seller has no Subsidiary nor owns or controls, or has any other equity investment or other interest in, directly or indirectly, any corporation, joint venture, partnership, association or other entity.

3.2           Authorization and Effect of Agreement.  Seller has the requisite corporate power to execute and deliver this Agreement and to perform the transactions contemplated hereby to be performed by Seller.  The execution and delivery by Seller of this Agreement and the performance by Seller of the transactions contemplated hereby to be performed by Seller has been duly authorized by all necessary action on the part of Seller’s board of directors and, if applicable, stockholders and holders of the Seller’s indebtedness.  This Agreement has been duly executed and delivered by Seller and, assuming the due execution and delivery of this Agreement by Purchaser, constitutes a valid and binding obligation of Seller enforceable in accordance with its terms.

3.3           No Restrictions Against Sale of the Assets.  Except as listed or described on Schedule 3.3, the execution and delivery of this Agreement by Seller does not, and the performance by Seller of the transactions contemplated hereby to be performed by it will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, (a) the certificate of incorporation or bylaws of Seller, (b) any Legal Requirement to which Seller or any of the Assets is subject, (c) any Contract

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or other material agreement, instrument or obligation of Seller, or (d) any licenses of Seller.  No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to Seller under any Legal Requirement in connection with the execution and delivery of this Agreement by Seller or the performance by Seller of the transactions contemplated hereby to be performed by it.

3.4           Financial Statements.

(a)           Schedule 3.4 hereto contains true and complete copies of (i) the unaudited balance sheet (the “Balance Sheet”) of Seller at December 31, 2001 (the “Balance Sheet Date”), and the related audited statements of income for the year then ended (the “2001 Unaudited Financial Statements”), and (ii) the audited balance sheet of Seller at December 31, 2000 and the related statements of income, shareholders’ equity and cash flow for the fiscal year then ended (the financial statements described in clause (i) and (ii) above are collectively referred to as the “Financial Statements”).

(b)           The Financial Statements present fairly the financial condition of the Seller as of the dates indicated therein and the results of operations and changes in financial position of the Seller for the periods specified therein, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods covered thereby and prior periods, have been derived from the accounting records of Seller and represent only actual, bona fide transactions. The Financial Statements do not contain any untrue statement of a material fact or omit to state a material fact.

(c)           Seller’s audited financial statements for the year ended December 31, 2001 will be the same as the 2001 Unaudited Financial Statements, other than immaterial adjustments (excluding adjustments for goodwill), taken as a whole.

3.5           Operation of the Product Line Since the Balance Sheet Date.  Except as described on Schedule 3.5, since the Balance Sheet Date, Seller has conducted the operation of the Product Line in the Ordinary Course, and no change has occurred which materially and adversely affects the Assets or the condition (financial or otherwise), results of operations or prospects of the Product Line, nor, to Seller’s knowledge, have any events occurred nor do there exist any circumstances which might reasonably be expected to result, either before or after the Closing Date, in any such change.

3.6           Title to Assets; Licenses.

(a)           Seller has, and immediately prior to the Closing will have, good, marketable and exclusive title to all of the Assets reflected on the Balance Sheet as owned by Seller and all of the Assets acquired by Seller since the Balance Sheet Date, in each case free and clear of all Liens except (i) as set forth on Schedule 3.6(a) and (ii) Permitted Liens.  Seller has the valid and enforceable power and unqualified right to use and Transfer to Purchaser, the Assets.

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(b)           Schedule 3.6(b) contains a list of all licenses relating to the Product Line under which Seller is the licensee, together with (i) the nature of each of the licensed Assets, (ii) the termination date of each such license, (iii) the name of the licensor, (iv) all payments made or required to be made for the fiscal years ended December 31, 2000 and December 31, 2001, and (v) all prepaid payments made thereunder.  All licenses pursuant to which Seller licenses from others property are valid, subsisting in full force and effect in accordance with their respective terms, and there is not, under any license, any existing default or event of default (or event that, with notice or passage of time, or both, would constitute a default, or would constitute a basis of force majeure or other claim of excusable delay or nonperformance).  Seller has the valid and enforceable right to use and Transfer to Purchaser Seller’s rights in and to the licensed Assets.  True and complete copies of all licenses listed on Schedule 3.6(b) have been delivered to Purchaser heretofore.  Except as set forth on Schedule 3.6(b), no such license will require the consent of the licensor to, or as a result of, the consummation of the transactions contemplated by this Agreement.

(c)           The delivery to Purchaser at Closing of the instruments of Transfer contemplated by this Agreement will vest in Purchaser good, marketable and exclusive title to the Assets, free and clear of all Liens, except for (i) Liens listed or described on Schedule 3.6(c) or (ii) Permitted Liens.

(d)           Except as set forth in Schedule 3.6(d), no Person, other than Seller, has any rights or interests in the Assets or the Product Line.

(e)           The Assets include all of the assets, property and rights, tangible or intangible, required by Purchaser to operate the Product Line, as currently operated, and to produce, sell, distribute, maintain, design, enhance and license, and design and develop derivatives of, the Products, or derivatives thereof.

3.7           No Litigation.  Except as set forth on Schedule 3.7, there is no outstanding judgment, order, decree, award, stipulation or injunction of any Governmental Entity or arbitrator against or Action pending against Seller (i) relating to the Product Line or the Assets or affecting Seller’s ability to perform its obligations under this Agreement or under any agreement or instrument contemplated by this Agreement.  Any Action for defective or allegedly defective products or workmanship pending or threatened against Seller, and the details of such Action, are described on Schedule 3.7.

3.8           Income and Other Taxes.  Except as set forth on Schedule 3.8:

(a)           All Tax Returns required to be filed through and including the date hereof in connection with the operations of the Seller’s business are true, complete and correct in all respects and have been properly and timely filed. Seller has not requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed. No Liens have been imposed on or asserted against any of the Assets as a result of or in connection with any failure to pay any Taxes;

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(b)           All Taxes required to be paid or withheld and deposited through and including the date hereof in connection with the Product Line have been duly and timely paid or deposited by Seller. Seller has properly withheld or collected all amounts required by law for income Taxes and employment Taxes relating to its employees, creditors, independent contractors and other third parties, and for sales Taxes on sales, and has properly and timely remitted such withheld or collected amounts to the appropriate Governmental Entity. Seller has no liabilities for any Taxes for any taxable period ending prior to or coincident with the Closing Date; and

(c)           No Tax Return of Seller is currently being audited or is the subject of other Action by any Governmental Entity. Seller has not received any notice from any Governmental Entity of any pending examination or any proposed deficiency, addition, assessment, demand for payment or adjustment relating to or affecting Seller, the Product Line or the Total Assets and Seller has no reason to believe that any Governmental Entity may assess (or threaten to assess) any Taxes for any periods ending on or prior to the Closing Date.

3.9           Employee Benefit Matters. Schedule 3.9 contains a complete list of all Plans. Each Plan and related trust, annuity, or other funding agreement complies and has been maintained in compliance with all applicable Legal Requirements. Purchaser is not assuming, and shall not be subject to, any liabilities or obligations to Seller’s employees as a result of the consummation of the transactions contemplated by this Agreement. All contributions, premiums, and other payments, including, without limitation, employer contributions and employee salary reduction contributions, have been paid when due or accrued in accordance with the past custom and practice of Seller and any ERISA Affiliate.  There are no pending or, to Seller’s knowledge, threatened Actions (other than routine claims for benefits) asserted or instituted against any Plan or the assets of any Plan, or against Seller, or ERISA Affiliate, trustee, administrator, or fiduciary of such Plan, and Seller has no knowledge of any facts that could form the basis of any such Action. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will constitute a termination of employment or other event entitling any Person to any additional or other benefits, or that would otherwise modify benefits or the vesting of benefits, provided under any Plan.  No event has occurred which could subject Seller or any ERISA Affiliate to any material liability (i) under any Legal Requirement relating to any Plan, or (ii) resulting from any obligation of Seller or an ERISA Affiliate to indemnify any Person against liability incurred with respect to or in connection with any Plan.

3.10         Governmental Approvals.

(a)           Seller possesses, and is operating in compliance with, all approvals material to the operation of the Product Line (“Approvals”).  Schedule 3.10(a) contains a true and complete list of all Approvals.  Each Approval has been lawfully and validly issued, and no proceeding is pending or, to Seller’s knowledge, threatened looking toward the revocation, suspension or limitation of any Approval.  Each of the Approvals is in full force and effect, and Seller is in compliance with all of the provisions of the Approvals.

(b)           Except as set forth on Schedule 3.10(b), each of the Approvals (i) is

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assignable by Seller to Purchaser as contemplated by the Agreement and (ii) will be Transferred to Purchaser by Seller’s delivery to Purchaser at Closing of the instruments of Transfer contemplated by this Agreement and will thereafter remain in full force and effect.  Except as set forth on Schedule 3.10(b), no notice to or consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or other third party is required to be obtained or made in connection with the Transfer to Purchaser of the Approvals.

(c)           The Approvals are all of the rights and authorizations required by Legal Requirements for the operation of the Product Line.  All of the Approvals are owned or held by Seller free and clear of all Liens or other encumbrances of any nature whatsoever.

(d)           To Seller’s knowledge, Seller or Purchaser would be able to renew all such Approvals by the terms thereof or in the ordinary course of business without the need to comply with any special qualifications procedures or to pay any amounts other than regular fees prescribed by law.

3.11         Assumed Contracts.

(a)           Schedule 3.11(a) contains a true and complete list and description of all Assumed Contracts, other than the Plans.  True and complete copies of all such Assumed Contracts have been delivered to Purchaser heretofore.

(b)           Except as described in Schedule 3.11(b):

(i)            each Contract is legal, valid, binding, enforceable and in full force and effect;

(ii)           no event or condition has occurred or become known to Seller or is alleged to have occurred that constitutes or, with notice or the passage of time, or both, would constitute a default or a basis of force majeure or other claim of excusable delay, termination, nonperformance or accelerated or increased rights by Seller or any other Person under any of the Contracts;

(iii)          no person with whom Seller has a Contract  is in default thereunder or has failed to perform fully thereunder by reason of force majeure or other claim of excusable delay, termination or nonperformance thereunder;

(iv)          none of the Contracts currently is subject to renegotiation, either in whole or in part;

(v)           no consent of any third party is required under any Contract as a result of or in connection with, and the enforceability of any Contract will not be affected in any manner by, the execution, delivery and performance of this Agreement;

(vi)          no Contract has materially impaired or will materially impair the

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ability of Seller to perform its obligations under this  Agreement; and

(vii)         no Assumed Contract which is a license contains any minimum quantity commitments.

3.12         Employee and Labor Matters.

(a)           Schedule 3.12(a) contains a true and complete list of all labor, collective bargaining, union and similar agreements under or by which Seller is obligated, and true and complete copies of all such agreements have been delivered to Purchaser heretofore.

(b)           Except as set forth on Schedules 3.12(a) and 3.12(b), neither Purchaser nor Seller will have any responsibility for continuing any person in the employ (or retaining any person as a consultant) from and after the Closing or have any liability for any severance payments to or similar arrangements with any such Person.

(c)           There is not occurring or, to Seller’s knowledge, threatened, any strike, slow down, picket, work stoppage or other concerted action by any union or other group of employees or other persons against Seller or its products. Except for activities by the unions that are parties to any of the agreements listed on Schedule 3.12(a) with respect to the existing members of such unions, to Seller’s knowledge, no union or other labor organization has attempted to organize any of the employees of Seller engaged in the Product Line.

(d)           Seller has complied with all Legal Requirements relating to employment and labor, and, to Seller’s knowledge, no facts or circumstances exist that could provide a reasonable basis for a claim of wrongful termination by any current or former employee of Seller engaged in the Product Line.

(e)           Schedule 3.12(e) contains a complete list of all of the current employees of Seller who are employed in connection with the Product Line (“Employees”) and, for each Employee, his or her current title, current annual base salary or wages and date of hire.  None of the Employees listed on Schedule 3.12(e) is a member of any collective bargaining unit or is a party to any employment agreement with Seller.

3.13         Principal Customers and Suppliers.

(a)           Schedule 3.13(a) contains a true and complete list of the name and address of each customer that purchased in excess of 5% of Seller’s sales of goods or services of the Product Line during the twelve months ended on December 31, 2001, and since that date no such customer has terminated its relationship with or adversely curtailed its purchases from Seller or indicated (for any reason) its intention so to terminate its relationship or curtail its purchases.

(b)           Schedule 3.13(b) contains a true and complete list of each supplier from whom Seller purchased in excess of 5% of Seller’s purchases of goods or services of the Product Line during the twelve months ended on December 31, 2001 and since that date no such supplier

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has terminated its relationship with or adversely curtailed its accommodations, sales or services to Seller or indicated (for any reason) its intention to terminate such relationship or curtail its accommodations, sales or services.

(c)           Except as set forth on Schedule 3.13(c), Seller is not involved in any claim or controversy with any of the customers or suppliers who are listed on Schedule 3.13(a) or 3.13(b).

3.14         Compliance with Law.  Through and including the date hereof, Seller (i) has not violated or operated the Product Line in violation of, and has not used the Assets in violation of, any Legal Requirement, (ii) to Seller’s knowledge, has not been alleged to be in violation of any Legal Requirement, and (iii) has not received any notice of any alleged violation of, or any citation for noncompliance with, any Legal Requirement.

3.15         Product Warranties.  Except as set forth in Schedule 3.15, (a) there are no warranties express or implied, written or oral, with respect to the Product Line and (b) there are no pending or threatened claims with respect to any such warranty, and Seller has no liability with respect to any such warranty, whether known or unknown, absolute, accrued, contingent or otherwise and whether due or to become due.

3.16         Intellectual Property.

(a)           Title.  Schedule 3.16(a) contains a complete and correct list of all Intellectual Property that is owned by Seller and primarily related to, used in, held for use in connection with, or necessary for the conduct of, or otherwise material to the Product Line (the “Owned Intellectual Property”).  Seller owns or has the right to use pursuant to license, sublicense, agreement or permission all Intellectual Property, free from any Liens (other than Permitted Liens) and free from any requirement of any past, present or future royalty payments, license fees, charges or other payments, or conditions or restrictions whatsoever.  The Intellectual Property comprises all of the Intellectual Property necessary for Purchaser to conduct and operate the Product Line as now being conducted by Seller.

(b)           Transfer.  Immediately after the Closing, Purchaser will own all of the Owned Intellectual Property and will have a right to use all other Intellectual Property, free from any Liens (other than Permitted Liens) and on the same terms and conditions as in effect prior to the Closing.

(c)           No Infringement.  The operation of the Product Line does not infringe or otherwise conflict with any rights of any Person in respect of any Intellectual Property.  To Seller’s knowledge after due inquiry, none of the Intellectual Property is being infringed or otherwise used or available for use, by any other Person.

(d)           Licensing Arrangements.  Schedule 3.16(d) sets forth all agreements, arrangements or laws (i) pursuant to which Seller has licensed Intellectual Property to, or the use of Intellectual Property is otherwise permitted (through non-assertion, settlement or similar

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agreements or otherwise) by, any other Person and (ii) pursuant to which Seller has had Intellectual Property licensed to it, or has otherwise been permitted to use Intellectual Property (through non-assertion, settlement or similar agreements or otherwise).  All of the agreements or arrangements set forth on Schedule 3.16(d)(x) are in full force and effect in accordance with their terms and no default exists thereunder by Seller, or to the knowledge of Seller after due inquiry, by any other party thereto, (y) are free and clear of all Liens, and (z) do not contain any change in control or other terms or conditions that will become applicable or inapplicable as a result of the consummation of the transactions contemplated by this Agreement.  The consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination or suspension of such arrangements and agreements.  Seller has delivered to Purchaser true and complete copies of all licenses and arrangements (including amendments) set forth on Schedule 3.16(d).  All royalties, license fees, charges and other amounts payable by, on behalf of, to, or for the account of, the Seller in respect of any Intellectual Property are disclosed in the Financial Statements.

(e)           No Intellectual Property Litigation.  No claim or demand of any Person has been made nor is there any proceeding that is pending, or to the knowledge of Seller after due inquiry, threatened, nor is there a reasonable basis therefor, which (i) challenges the rights of Seller in respect of any Intellectual Property, (ii) asserts that Seller is infringing or otherwise in conflict with, or is, except as set forth in Schedule 3.16(e), required to pay any royalty, license fee, charge or other amount with regard to, any Intellectual Property, or (iii) claims that any default exists under any agreement or arrangement listed on Schedule 3.16(e).  None of the Intellectual Property is subject to any outstanding order, ruling, decree, judgment or stipulation by or with any court, arbitrator, or administrative agency, or has been the subject of any litigation within the last five years, whether or not resolved in favor of Seller.

(f)            Due Registration, Etc.  To the extent deemed necessary or appropriate by Seller, the Owned Intellectual Property has been duly registered with, filed in or issued by, as the case may be, the United States Patent and Trademark Office, United States Copyright Office or such other filing offices, domestic or foreign, and Seller has taken such other actions, to the extent deemed necessary or appropriate by Seller, to ensure full protection under any applicable laws or regulations, and such registrations, filings, issuances and other actions remain in full force and effect, in each case to the extent material to the Product Line.

(g)           Use of Name and Mark.  Except as set forth in Schedule 3.16(g), there are, and immediately after the Closing will be, no contractual restriction or limitations pursuant to any orders, decisions, injunctions, judgments, awards or decrees of any Governmental Authority on the Purchaser’s right to use the names and marks “ThinStar” in the conduct of the Product Line as presently carried on by Seller or as such Product Line may be extended by Purchaser.

(h)           Protection of Information.  Seller has taken reasonable steps to protect Seller’s rights in Seller’s confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to Seller relating to the Product Line, and, without limiting the foregoing, Seller has and uses its best efforts to enforce a policy requiring each employee and contractor engaged in the Product Line to execute a proprietary

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information/confidentiality agreement substantially in the form provided to Seller and all current and former employees and contractors of Seller engaged in the Product Line have executed such an agreement, except where the failure to do so is not reasonably expected to be material to the Product Line.

3.17         Operation of the Product Line.  Except as set forth in Schedule 3.17, (a) Seller has operated the Product Line only through Seller and not through any other divisions or any direct or indirect subsidiary or affiliate of Seller and (b) no part of the operation of the Product Line is operated by or through any entity other than Seller.

3.18         Insurance.  Schedule 3.18 contains a true and complete list of all insurance policies and bonds and self insurance arrangements currently in force that cover or purport to cover risks or losses to or associated with the Product Line, the Assets, employees and agents relating to the Product Line and sets forth, with respect to each such policy, bond and self insurance arrangement, a description of the insured loss coverage, the expiration date and time of coverage, the dollar limitations of coverage, a general description of each deductible feature and principal exclusion and the premiums paid and to be paid prior to expiration. The insurance policies, bonds and arrangements described on Schedule 3.18 (the “Policies”) provide such coverage against such risk of loss and in such amounts as are customary for corporations of established reputation engaged in the same or similar operations as the Product Line.

3.19         Brokers’ Fees.  No broker, finder or similar agent has been employed by or on behalf of Seller in connection with this Agreement or the transactions contemplated hereby, and Seller has not entered into any agreement or understanding of any kind with any person or entity for the payment of any brokerage commission, finder’s fee or any similar compensation in connection with this Agreement or the transactions contemplated hereby.

3.20         Disclosure.  No representation or warranty of Seller in this Agreement and no information contained in any Schedule or other writing delivered pursuant to this Agreement or at the Closing contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to make the statements herein or therein not misleading.

3.21         Knowledge.  To the extent that any representation or warranty in this Article III is qualified to Seller’s “knowledge,” Seller represents and warrants that it has made a reasonable investigation sufficient to express an informed view concerning the matters to which such representation or warranty relates, including diligent inquiries of Seller’s officers, directors and employees.

3.22         Transactions with Affiliates.  Except as set forth on Schedule 3.22, there are no written or oral contracts or agreements between Seller and its Affiliates relating to the Product Line.

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3.23         No Liquidation or Winding-Up; Fairness of Consideration.

(a)           No order has been made, resolution passed or, to Seller’s knowledge, petition presented, for the winding-up or liquidation of Seller and there is not outstanding:  (i) any order or, to Seller’s knowledge, petition for the winding-up of Seller; (ii) any appointment of a receiver over the whole or part of the undertaking of assets of Seller;  (iii) any order or, to Seller’s knowledge, petition for administration of Seller;  (iv) any voluntary arrangement between Seller and any of its creditors; (v) any distress or execution or other process levied in respect of Seller which remains undischarged; or (vi) any unfulfilled or unsatisfied judgment or court order against Seller relating to the Product Line or the Assets.

(b)           To Seller’s knowledge, or as set forth on Schedule 3.23(b), there are no circumstances which would entitle any Person to present a petition for the winding-up or administration of Seller or to appoint a receiver over the whole or any part of the Assets of Seller.

(c)           Neither the execution and delivery of this Agreement nor the performance of the transactions contemplated hereby will result in a transfer which is fraudulent under 6 Del. C. §§1304 or 1305.

(d)           The operations of Seller have not been terminated.

(e)           The consideration paid by Purchaser under this Agreement for the Assets represents reasonably equivalent value for the Assets.  Seller is not entering into this Agreement with the intent to defraud, delay or hinder its creditors and the consummation of the transactions contemplated by this Agreement will not have any such effect.

3.24         Shipment of Inventory.  Except as set forth on Schedule 3.24, Seller has not shipped any units of the Products to customers since March 15, 2002.

3.25         Capitalization of Seller.  The authorized capital stock of Seller consists of 30,000,000 shares of common stock, of which 17,613,237 shares are issued sand outstanding, and 3,000,000 shares of Preferred Stock, consisting of 0 shares of Series A stock which are issued and outstanding, 220,000 shares of Series B stock which are issued and outstanding and 530,000 shares of Series C stock which are issued and outstanding.  An additional 2,503,421 shares of the capital stock are issuable upon the exercise of outstanding options and 8,750,000 shares are issuable upon the exercise of outstanding warrants or other rights.  Schedule 3.25 sets forth the names of the holders of the Preferred Stock, options (other than employee options), warrants and other rights exercisable for, or convertible into, shares of Seller’s capital stock and the number of shares of Seller’s capital stock so issuable.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to, and covenants and agrees with, Seller that:

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4.1           Organization and Good Standing.  Purchaser has been duly organized and is existing as a corporation in good standing under the laws of the State of Delaware with full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

4.2           Execution and Delivery.  This Agreement has been duly authorized by all necessary corporate action on the part of Purchaser, has been duly executed and delivered by Purchaser and constitutes the legal, valid and binding agreement of Purchaser enforceable against Purchaser in accordance with its terms.

4.3           No Conflicts.  The execution, delivery and performance of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby will not conflict with or result in the violation of the provisions of the Certificate of Incorporation or Bylaws of Purchaser.

4.4           Compliance with Law.  Through and including the date hereof, Purchaser (i) to Purchaser’s knowledge, has not been alleged to be in violation of any Legal Requirement, and (ii) has not received any notice of any alleged violation of, or any citation for noncompliance with, any Legal Requirement.

4.5           No Restrictions Against Purchase of Assets.  Except as listed or described on Schedule 4.5, the execution and delivery of this Agreement by Purchaser does not and the performance by Seller of the transactions contemplated hereby to be performed by it will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, (a) the certificate of incorporation or bylaws of Purchaser, (b) any Legal Requirement to which Purchaser is subject, (c) any material agreement of Purchaser, or (d) any material licenses of Purchaser.  No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to Purchaser under any Legal Requirement in connection with the execution and delivery of this Agreement by Purchaser or the performance by Purchaser of the transactions contemplated hereby to be performed by it.

ARTICLE V

OPERATION OF PRODUCT LINE PENDING CLOSING

5.1           Conduct of Seller.  Without the prior written consent of Purchaser, between the date hereof and the Closing Date, Seller covenants and agrees that it shall:

(a)           not, except as required or permitted pursuant to the terms hereof, make any change in the operation of the Product Line or the Assets or enter into any transaction with respect to the Product Line other than in the Ordinary Course;

(b)           continue to operate the Product Line in the Ordinary Course consistent with past practice, provided, however, that Purchaser will not (i) acquire or dispose of,

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or grant a license with respect to any of the Assets, (ii)  enter into, amend or terminate any other agreement affecting or relating to the Product Line or the Assets, (iii) make any capital expenditure, (iv) award any bonuses or salary increases, (v) pay any dividends or make any distributions to the holders of its capital stock, or (vi) act in any manner which would adversely affect its existing business relationships associated with the Product Line.

(c)           maintain the Assets in good operating condition and repair;

(d)           preserve, protect and promote the Product Line;

(e)           perform all obligations under the Contracts;

(f)            use its best efforts to retain its Employees and maintain its relationships with suppliers, customers and others having business relationships with it;

(g)           pay accounts payable and other obligations of the operation of the Product Line when they become due and payable in the Ordinary Course consistent with past practices;

(h)           comply promptly with all Legal Requirements applicable to it and the operation of the Product Line and with respect to the transactions contemplated by this Agreement, and cooperate promptly with, and furnish information to, Purchaser in connection with any such requirements imposed upon Seller, or upon any of its Affiliates, in connection therewith or herewith;

(i)            not sell, transfer, license, lease or otherwise dispose of, or suffer or cause the encumbrance by any Lien upon, any of the Assets or any interest therein, except for sales of Inventory in the Ordinary Course;

(j)            not terminate or modify, or commit or cause or suffer to be committed any act that will result in breach or violation of any term of or (with or without notice or passage of time, or both) constitute a default under or otherwise give any person a basis for non-performance under, any of the Contracts;

(k)           maintain adequate property damage, liability and other insurance in full force and effect and not do, permit or willingly allow to be done any act by which any of the insurance policies may be suspended, impaired or cancelled;

(l)            maintain in full force and effect, and comply with, all Permits;

(m)          not enter into or assume any contract, agreement, obligation or instrument relating to the Product Line or the Assets in an amount in excess of $10,000, or any sales orders with customers in excess of $100,000, or enter into or permit any material amendment, supplement, waiver or other modification in respect thereof;

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(n)           not grant (or commit to grant) any increase in the compensation (including incentive or bonus compensation) of any Employee, or adopt or amend any Plan;

(o)           not take any action or omit to take any action which would result in a breach of  any of the representations and warranties set forth in Section 3;

(p)           maintain the Inventory in such volume and quality as is consistent with the past practices of Seller in connection with the operation of the Product Line, provided, however, that during the period commencing on the date hereof and continuing through the Closing Date, Seller shall not ship any units of Products to customers, provided further, that this agreement shall not prohibit Seller from soliciting orders and accepting orders and otherwise operating in the Ordinary Course;

(q)           make any capital expenditure;

(r)            not cancel, compromise, release or discharge any claim of Seller upon any person or waive any right of Seller of material value, and not discharge any Lien (other than Permitted Liens) upon any of the Assets or pay or settle any debts;

(s)           pay any dividends or make any distributions to the holders of its capital stock; and

(t)            not institute, settle or agree to settle any Action before any Governmental Entity.

5.2           Tax Assessments and Audits.  Seller shall furnish promptly to Purchaser a copy of all notices of proposed assessment or similar notices or reports that are received from any taxing authority and which relate to the Product Line or the Assets for periods ending on or prior to the Closing Date.

ARTICLE VI

ADDITIONAL COVENANTS

6.1           Covenants of  Seller.  Except as otherwise provided under this Agreement, during the period from the date hereof through the Closing Date, Seller agrees to:

(a)           comply promptly with all requirements that applicable Legal Requirements may impose upon it with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, Purchaser in connection with any such requirements imposed upon Purchaser or upon any of its affiliates in connection therewith or herewith;

(b)           use its reasonable best efforts to obtain (and to cooperate with Purchaser in obtaining) any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by Seller in connection with the transactions contemplated by this Agreement;

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(c)           use its reasonable best efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Article VII of this Agreement;

(d)           deliver to Purchaser prior to the Closing a written statement disclosing any untrue statement in this Agreement or any Schedule hereto (or supplement thereto) or document furnished pursuant hereto, or any omission to state any material fact required to make the statements herein or therein contained complete and not misleading, promptly upon the discovery of such untrue statement or omission, accompanied by a written supplement to any Schedule to this Agreement that may be affected thereby; provided, however, that the disclosure of such untrue statement or omission shall not prevent Purchaser from terminating this Agreement pursuant to Section 9.1 hereof at any time at or prior to the Closing in respect of any original untrue or misleading statement;

(e)           (i) maintain the present quality of Seller’s operations of the Product Line; (ii) preserve the value of the Product Line; (iii) preserve intact Seller’s Product Line organizations; and (iv) preserve Seller’s existing relationships with employees, suppliers and customers;

(f)            promptly, and in any event within two business days of Seller obtaining knowledge thereof, notify Purchaser in writing of:

(i)            any breach of any term or provision of this Agreement on the part of Seller, whether or not any requirement for notice or lapse of time or other condition precedent has been satisfied, which is then continuing, together with a certificate of Seller specifying the details thereof and the action which Seller has taken or proposes to take with respect thereto;

(ii)           any pending or threatened Action, challenging this Agreement or any of the transactions contemplated hereby;

(iii)          any notice or other communication from any third party alleging that the consent of such party is or may be required in connection with the transactions contemplated by this Agreement;

(iv)          any other development which would prevent or raise a substantial doubt regarding the possibility of the satisfaction of any condition set forth in Section 7.1 of this Agreement; and

(v)           any notice or other communication from any Governmental Entity, the approval or consent of which is being sought in connection with the transactions contemplated by this Agreement.

6.2           Covenants of Purchaser.  During the period from the date hereof to the Closing Date, Purchaser shall:

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(a)           comply promptly with all requirements that applicable Legal Requirements may impose upon it with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, Seller in connection with any such requirements imposed upon Seller or upon any of Seller’s Affiliates in connection therewith or herewith;

(b)           use its best efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 7.2 of this Agreement.

6.3           Access and Information.

(a)           During the period commencing on the date hereof and continuing through the Closing Date, Seller shall afford to Purchaser and to Purchaser’s accountants, counsel, investment bankers, consultants, engineers and other representatives, reasonable access to all of its properties, including without limitation to the books, contracts, Assets, commitments, records and personnel and, during such period, to furnish promptly to Purchaser all information concerning the Product Line and the Assets and such items as Purchaser may reasonably request.  In addition, during such period, Seller shall afford to Purchaser and its counsel, consultants, engineers and other representatives the right to inspect, investigate, review and perform tests on the Assets, provided such does not materially interfere with the normal business activities of Seller.

(b)           Except to the extent permitted by the provisions of Section 6.6 hereof, Purchaser shall hold in confidence, and shall use reasonable efforts to ensure that its employees and representatives hold in confidence, all such information supplied to it by Seller concerning Seller and shall not disclose such information to any third party except as may be required by any Legal Requirement and except for information that (i) is or becomes generally available to the public other than as a result of disclosure by Purchaser or its representatives, (ii) becomes available to Purchaser or its representatives from a third party other than Seller, and Purchaser or its representatives have no reason to believe that such third party is not entitled to disclose such information, (iii) is known to Purchaser or its representatives on a nonconfidential basis prior to its disclosure by Seller or (iv) is made available by Seller to any other Person on a nonrestricted basis. Purchaser’s obligations under the foregoing sentence shall expire on the Closing Date or, if the Closing does not occur, two years after the date hereof.

(c)           Except to the extent permitted by the provisions of Section 6.6 hereof, Seller shall hold in confidence, and shall use reasonable efforts to ensure that its employees and representatives hold in confidence, all such information supplied to it by Purchaser concerning Purchaser and shall not disclose such information to any third party except as may be required by any Legal Requirement and except for information that (i) is or becomes generally available to the public other than as a result of disclosure by Seller or its representatives, (ii) becomes available to Seller or its representatives from a third party other than Purchaser, and Seller or its representatives have no reason to believe that such third party is not entitled to disclose such information, (iii) is known to Seller or its representatives on a nonconfidential basis prior to its disclosure by Purchaser or (iv) is made available by Purchaser to any other Person on a

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nonrestricted basis.  Seller’s obligations under the foregoing sentence shall expire on the Closing Date or, if the Closing does not occur, two years after the date hereof.

6.4           Expenses.  All costs and expenses (including, without limitation, all legal fees and expenses and fees and expenses of any brokers, finders or similar agents) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring the same.

6.5           Certain Notifications.  At all times from the date hereof to the Closing Date, each party shall promptly notify the others in writing of the occurrence of any event that will or may result in the failure to satisfy any of the conditions specified in Article VII hereof.

6.6           Publicity; Employee Communications.  At all times prior to the Closing Date, each party shall obtain the consent of all other parties hereto prior to issuing, or permitting any of its directors, officers, employees or agents to issue, any press release or other information to the press, employees of Seller or any third party with respect to this Agreement or the transactions contemplated hereby; provided, however, that no party shall be prohibited from supplying any information to any of is representatives, agents, attorneys, advisors, financing sources and others to the extent necessary to complete the transactions contemplated hereby so long as such representatives, agents, attorneys, advisors, financing sources and others are made aware of the terms of this Section 6.6.  Nothing contained in this Agreement shall prevent any party to this Agreement at any time from furnishing any required information to any Governmental Entity or authority pursuant to a Legal Requirement or from complying with its legal or contractual obligations.

6.7           Further Assurances.

(a)           Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action, and to do, or cause to  be done, all things necessary, proper or advisable under applicable Legal Requirements, to consummate and make effective the transactions contemplated by this Agreement.

(b)           If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, Seller and Purchaser, and the proper officers or directors of Seller and Purchaser, as the case may be, shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation.

6.8           Competing Offers.  Until any termination of this Agreement under Section 9.1, Seller agrees that it will not, directly or indirectly, through any officer, director, agent, or otherwise, solicit, initiate or encourage the submissions of bids, offers or proposals by, any Person with respect to an acquisition of the Assets or the Product Line, and Seller will not engage any broker, financial adviser or consultant with an incentive to initiate or encourage proposals or offers from other parties. Furthermore, Seller shall not, directly or indirectly, through any officer, director, agent or otherwise, engage in negotiations concerning any such transaction with, or

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provide information to, any Person other than Purchaser and its representatives with a view to engaging, or preparing to engage, that Person with respect to any matters in this Section. Seller shall not sell, transfer or otherwise dispose of, create any lien upon, other than a Permitted Lien, or transfer any interest in, any Asset.

6.9           Inconsistent Action.  Seller shall not take or cause or suffer to be taken, any action that would cause any of the representations or warranties of Seller in this Agreement to be untrue, incorrect, incomplete or misleading.

6.10         Employee Matters.

(a)           Seller acknowledges and agrees that after the Closing (a) except as set forth on Schedule 6.10(a), neither Purchaser nor Seller shall be required to employ or retain any employee of Seller or any other Person, and (b) Purchaser, in its sole and absolute discretion, may hire all, some, or none of the Employees.  Schedule 6.10(a) contains a list of the employees which Purchaser may desire to hire after the Closing.  Seller agrees not to terminate the employment of any such employees unless such employee engages in willful or grossly negligent misconduct to the detriment of Seller or the Product Line.  Seller shall not be required to maintain the employment of any employee who does not desire to remain employed by Seller or Purchaser.

(b)           Except to the extent expressly included in Assumed Liabilities or in another paragraph of this Section 6.10, Purchaser does not, and shall not, assume or be responsible for any obligation or liability arising out of any employment relationship of Seller, and without limiting the foregoing, Purchaser shall have no liability or obligation in connection with current or former employees or agents of Seller or any dependent or beneficiary of any of them by reason of their relationship to Seller.  Without limiting the foregoing, Seller shall remain liable for, and shall pay on or before the Closing, the following in connection with the employees of Seller listed on Schedule 6.10a) (or any dependent or beneficiary of them):

(i)            unpaid wages, salaries or other compensation;

(ii)           contributions to or payments under employee benefit plans, programs, policies, arrangements or understandings;

(iii)          accrued, but unused, holiday, sick leave and severance pay, if any;

(iv)          liabilities or obligations under any collective bargaining agreement or bargaining relationship; or

(v)           claims, demands, administrative proceedings or suits arising out of, or in connection with, alleged unlawful employment practices of Seller.

(c)           Seller shall remain responsible for all liabilities and obligations in connection with claims for post-employment medical, vision and dental benefits that may be

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required under IRC Section 4980B made by or in respect of any employee of Seller whose employment terminated on or prior to the Closing Date and any “qualified beneficiary” (within the meaning of IRC Section 4980B) of any such employee who is receiving post-employment medical and dental benefits or whose “qualifying event” (within the meaning of IRC Section 4980B) entitling such individual to such benefits occurred on or before the Closing Date.

(d)           Seller shall be responsible for giving any notice that may be required by the Worker Adjustment and Retraining Notification Act (“WARN”), or any similar state or local statue or ordinance, as a result of the purchase of the Product Line both as to (i) layoffs or facility closings ordered prior to the Closing Date, including layoff of employees who are not employed or retained by Purchaser, or (ii) decisions to layoff employees employed or retained by Purchaser made within 90 days after the Closing Date.  Purchaser agrees to give Seller notice of any decision to layoff employees employed or retained by Purchaser made within 90 days after the Closing Date.

6.11         Assignments; Consents.  To the extent that the assignment of any Contract, license or other agreement or arrangement or any claim, right or benefit arising thereunder or resulting therefrom is not permitted without the consent of a third party, this Agreement shall constitute an agreement to assign such Contract, license or other agreement or arrangement, subject only to such consent; and any transfer or assignment to Purchaser by Seller of any interest under any such Contract, license or other agreement or arrangement that requires the consent of a third party shall be made subject to such consent or approval being obtained.  In the event any such consent or approval is not obtained on or prior to the Closing Date, Seller shall continue to use its best efforts to obtain any such approval or consent after the Closing Date until such time as such consent or approval has been obtained, and Seller will cooperate with Purchaser in any lawful and economically feasible arrangement to provide that Purchaser shall receive the interest of Seller in the benefits under any such Contract, license or other agreement or arrangement, including performance by Seller, as agent, if economically feasible, provided that Purchaser shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent Purchaser would have been responsible therefor hereunder if such consent or approval had been obtained.  Seller shall pay and discharge, and shall indemnify and hold Purchaser harmless from and against, any and all out-of-pocket costs of seeking to obtain or obtaining any such consent or approval whether before or after the Closing Date.  Nothing in this Section 6.11 shall be deemed a waiver by Purchaser of its right to have received on or before the Closing an effective assignment of all of the Assets nor shall this Section 6.11 be deemed to constitute an agreement to exclude from Purchaser any of the Assets described under Section 2.1.

6.12         Sufficiency of Assets.  Following the Closing, if Purchaser determines that Seller has failed to Transfer to Purchaser any assets, properties or rights, tangible or intangible, except for the Excluded Assets, necessary for Purchaser to operate the Product Line as currently operated, and to produce, sell, distribute, maintain, design, enhance and license, and design and develop derivatives of, the Products, or derivatives thereof, Seller shall promptly take all actions as shall be necessary, or otherwise reasonably requested by Purchaser, to transfer such assets, properties and rights to Purchaser.

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ARTICLE VII

CONDITIONS PRECEDENT TO CLOSING

7.1           Conditions of Purchaser.  Notwithstanding any other provision of this Agreement, the obligations of Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction, at or prior to the Closing Date, of the following conditions:

(a)           There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby or (ii) seeking to prohibit the direct or indirect ownership or operation by Purchaser of all or a material portion of the Product Line or Assets, or to compel Purchaser or Seller to dispose of or hold separate all or a material portion of the Product Line or Assets of Seller or Purchaser;

(b)           The representations and warranties of Seller in this Agreement shall be true and correct in all material respects (or in all respects in the case of any representation or warranty containing any materiality qualification) on and as of the Closing Date with the same effect as if made on the Closing Date, except (i) for changes contemplated by this Agreement and (ii) for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date) and Seller shall have complied with all covenants and agreements and satisfied all conditions on Seller’s part to be performed or satisfied on or prior to the Closing Date;

(c)           Purchaser shall have received from counsel for Seller, a written opinion dated the Closing Date and addressed to Purchaser, in substantially the form attached as Exhibit B hereto;

(d)           Purchaser shall have received from the President of Seller a certificate dated the Closing Date to the effect that the conditions set forth in Section 7.1(b) have been satisfied and that Seller’s Board of Directors and, if required, the stockholders of Seller have approved the Agreement and the transactions contemplated hereby;

(e)           Purchaser will have received such bills of sale, assignments, certificates of title and other instruments of transfer (the “Transfer Documents”) duly executed by Seller, in such forms and covering such matters as Purchaser may reasonably request, Transferring the Assets to Purchaser;

(f)            Seller shall have entered into and delivered to Purchaser a Non-Competition Agreement in substantially the form attached as Exhibit C hereto.

(g)           Seller and Purchaser shall have entered into a License Agreement in substantially the form attached as Exhibit D hereto;

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(h)           Seller and Purchaser shall have entered into a Transitional Supply Agreement in substantially the form attached as Exhibit E hereto;

(i)            Employees identified by Purchaser in Exhibit F hereto shall have entered into non-solicitation and confidentiality agreements with Purchaser in substantially the form attached hereto as Exhibit G;

(j)            All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to Purchaser and its counsel;

(k)           All consents and assignments from third parties, including from any Governmental Entity or other Person, relating to the Contracts or the conduct and operation of the Product Line as currently conducted and operated, shall have been obtained, except where failure to obtain such consent or assignment would not have a Material Adverse Effect;

(l)            No act, event or condition shall have occurred after the date hereof which  has had or could have a Material Adverse Effect;

(m)          Seller and Purchaser shall have entered into a OEM Supply Agreement in substantially the form attached as Exhibit H hereto;

(n)           Seller, Purchaser and the Escrow Agent shall have entered into the Escrow Agreement; and

(o)           Purchaser will have received consents to the Transfer and releases of claims related to this transaction against Purchaser from Guenther Pfaff and Hofmann & Co.

7.2           Conditions of Seller.  Notwithstanding any other provision of this Agreement, and except as set forth below, the obligations of Seller to consummate the transactions contemplated hereby shall be subject to the satisfaction, at or prior to the Closing, of the conditions set forth in  subsections (a), (f), (g), (h), (m) and (n) of Section 7.1 of this Agreement, and the condition that the representations and warranties of Purchaser in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and Purchaser shall have complied with all covenants and agreements and satisfied all conditions on its part to be performed or satisfied on or prior to the Closing Date.

ARTICLE VIII

POST-CLOSING OBLIGATIONS

8.1           Seller-Assumed Warranty Obligations.  Notwithstanding, and not in limitation of, any other provision herein, Seller shall assume, commencing at the Closing, all

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obligations and liabilities of any nature whatsoever arising out of, relating to, or in connection with the matters set forth in this Section 8.1.

(a)           Seller shall retain sole responsibility for, and shall bear the cost of complying with, all warranties (the “Warranties”) in existence on the Closing Date with respect to Products sold by Seller on or prior to the Closing Date until the expiration of such Warranties.  Seller shall also provide such warranty services as required pursuant to, and in accordance with the terms and conditions of, the Supply Agreement.

(b)           Exhibit I hereto sets forth the Warranties.

(c)           Seller agrees to provide all services required to correct, repair or replace Products or parts thereof covered by the Warranties in accordance with the terms of the Warranties.  Such services shall be consistent, in all material respects, with the quality and manner of performance of similar services provided by or made available to under the Warranties prior to the Closing Date.  Seller shall use business practices, standards and internal controls that are substantially the same as those used by Seller prior to the Closing Date and consistent with past practices, with only such changes as are agreed to between Seller and Purchaser.  Not in limitation of the foregoing, Seller shall repair or replace and ship at least 95% of units of Products returned pursuant to the terms of the Warranties in accordance with the following time schedule:

(i)            within 5 days after receipt of the Products, for Products that were in production in the 12 calendar month period prior to the return;

(ii)           within 10 days after receipt of the Products, for Products that were in production in the 13 to 24 calendar month period prior to the return; and

(iii)          within 15 days after receipt of the Products, for Products that were in production in the 25 to 36 calendar month period prior to the return.

8.2           Audited Financial Statements.  In the event that Purchaser is required under Rule 3-05 of Regulation S-X to file with the Securities and Exchange Commission audited financial statements of the Product Line in connection with the acquisition of the Assets, Seller agrees to have such financial statements prepared by its independent accountants and shall provide such financial statements to Purchaser on or prior to May 15, 2002.  If Seller has not timely satisfied its obligation to Purchaser under this Section 8.2, Seller shall pay to Purchaser, within five (5) business days after demand by Purchaser, an amount equal to $100,000.  If Seller fails to pay such amount in a timely manner, Purchaser shall notify Seller and the Escrow Agent and direct the Escrow Agent to pay such amount to Purchaser from the Escrow Account within fifteen (15) days of Purchaser’s notice.

8.3           Purchaser and Seller ThinStar Brand Purchases.  Purchaser will continue to offer to sell the ThinStar brand until Seller’s and Seller’s suppliers’ existing inventory at Closing, including units subject to Seller’s outstanding or to be issued purchase orders (up to a total of a maximum of 10,000 units, plus units shipped during the period from the Closing until March 31, 2000)

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has been consumed.  Purchaser will only be obligated to purchase such inventory at such time that Purchaser makes sales of such products, provided, however, that if Purchaser has not purchased a total of a maximum of 10,000 of Seller’s and Seller’s suppliers’ existing ThinStar brand inventory by March    , 2003, Purchaser shall purchase the number of remaining complete units of the inventory equal to the number of such units, that when aggregated with units previously purchased under this Section, does not exceed the maximum number of units set forth in this Section 8.3.  In the event that Purchaser purchases such remaining units, Seller shall purchase an equal number of units from Purchaser under the OEM Supply Agreement on March     , 2003.  Purchaser and Seller agree that each of SCI Technology, Inc. and SCI Systems (Thailand) Ltd. shall be an intended third party beneficiary of Purchaser’s purchase obligation set forth in this Section 8.3.  Seller and Purchaser agree that they shall not amend Purchaser’s obligations under this Section 8.3 without the prior written consent of SCI Technology, Inc.

8.4           Seller-Assumed Support Services Obligations.  Notwithstanding any other provision herein to the contrary, Seller shall assume, commencing at the Closing, all obligations and liabilities of any nature whatsoever arising out of, relating to, or in connection with the matters set forth in this Section 8.4.

(a)           Seller shall have the responsibility for and shall bear the cost of providing technical support services with respect to the Products as are set forth in Exhibit J hereto.  Such services shall be provided on behalf of Purchaser to customers who purchased the Products from Seller on or prior to the Closing Date or who purchase the Products from Purchaser after the Closing Date.  Services provided by Seller under this Section 8.4(a) shall be consistent, in all material respects, with the quality and manner of performance of similar services provided by or made available to support the Products in connection with Seller’s operations prior to the Closing Date.  Seller shall use business practices, standards and internal controls that are substantially the same as those used by Seller prior to the Closing Date and consistent with past practices, with only such changes as are agreed to between Seller and Purchaser.

(b)           Seller shall designate at least one contact person within Seller who is knowledgeable and experienced in the design, workings, capabilities and use of the Products who will be responsible for initially responding to inquiries relating to the support services to be provided on behalf of Purchaser.

8.5           Termination of License Fees.  In the event that Seller (i) ceases to provide the support services required by Section 8.1 or 8.4, (ii) fails to take any actions required to be taken under Section 6.12, or (iii) fails to make payments to Purchaser under the OEM Supply Agreement within 60 days of the date of the invoices, unless otherwise agreed upon in writing by Purchaser and Seller, the license fees to be paid by Purchaser under the ThinPath License Agreement, attached as Exhibit D, shall be offset by the sum of the cost incurred by Purchaser in providing such services under Section 8.1 and 8.4, the damages suffered by Purchaser from Seller’s failure to take the actions required under Section 6.12 and the outstanding amount of the unpaid invoices under the OEM Supply Agreement.

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8.6           Obsolete Product Returns.  Seller agrees that it will accept for return and for full credit, at any time upon a customer’s request, any and all units of obsolete ThinStar Products (all inventory except units of ThinStar 332, ThinStar 500 and ThinStar Voyager) that are in the worldwide distribution channel on the Closing Date.

8.7.          Continued Operations; No Bankruptcy.  Seller intends to continue its operations consistent with its past practices after the Closing Date, other than as contemplated by this Agreement.  As of the date hereof and as of the Closing Date, Seller does not intend or expect to file or seek relief under the United States Bankruptcy Code or any other insolvency or similar law after the Closing Date. Seller intends to use its commercially reasonable best efforts to discourage and avoid any involuntary petition by creditors or others to place Seller in any bankruptcy case or proceeding under the United States Bankruptcy Code or any other insolvency law or similar law.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

9.1           Termination.  This Agreement may be terminated at any time prior to the Closing:

(a)           by mutual consent of Purchaser and Seller;

(b)           by Purchaser if any of the conditions precedent to Closing set forth in Section 7.1 have not been met on the Closing Date, and, in each case, Purchaser is not then in material default of its obligations hereunder;

(c)           by Seller if any of the conditions precedent to Closing set forth in Section 7.2 have not been met on the Closing Date, and, in each case, Seller is then not in material default of its obligations hereunder; or

(d)           by Purchaser if the Closing has not been completed by the close of business on March 22, 2002 unless the failure of the Closing to occur by such time resulted from a breach of this Agreement by Purchaser; or

(e)           by Seller if the Closing has not been completed by the close of business on April 7, 2002 unless the failure of the Closing to occur by such time resulted from a breach of this Agreement by Seller.

9.2           Effect of Termination.

(a)           In the case of any termination of this Agreement, the provisions of Sections 6.3 and 6.4 shall remain in full force and effect.

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(b)           Upon termination of this Agreement as provided in Section 9.1(a) or (d), except as stated in Section 9.2(a) above, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any party hereto or their respective directors, officers, employees, agents or other representatives.

(c)           In the event of termination of this Agreement as provided in Section 9.1(b) or (c) hereof, such termination shall be without prejudice to any rights that the terminating party or parties may have against the breaching party or parties or any other person under the terms of this Agreement or otherwise.

9.3           Amendment.  This Agreement may be amended at any time by a written instrument executed by Purchaser and Seller.  Any amendment effected pursuant to this Section 9.3 shall be binding upon all parties hereto.

9.4           Waiver.  Any term or provision of this Agreement may be waived in writing at any time by the party or parties entitled to the benefits thereof. Any waiver effected pursuant to this Section 9.4 shall be binding upon all parties hereto.  No failure to exercise and no delay in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude the exercise of any other right, power or privilege.  No waiver of any breach of any covenant or agreement hereunder shall be deemed a waiver of any preceding or subsequent breach of the same or any other covenant or agreement.  The rights and remedies of each party under this Agreement are in addition to all other rights and remedies, at law or in equity, that such party may have against the other parties.

ARTICLE X

INDEMNIFICATION

10.1         Survival of Representations and Warranties.  Notwithstanding any investigation conducted at any time with regard thereto by or on behalf of Purchaser, the representations and warranties of Seller hereto contained in this Agreement or in any Exhibit or Schedule hereto shall survive the Closing and the consummation of the transactions contemplated hereby (and any examination or investigation by or on behalf of any party hereto); provided, however, that (i) the representations and warranties contained in Sections 3.1, 3.3 and 3.6, and the related claims for indemnification, shall survive until the fifth anniversary of the Closing Date; (ii) the representations and warranties contained in Section 3.8, and the related claims for indemnification, shall survive until sixty (60) days after the expiration of the applicable statute of limitations, (iii) all other representations and warranties, and related claims for indemnification, shall survive until the second anniversary of the Closing Date.

10.2         Indemnification.  Seller covenants and agrees to defend, indemnify and hold harmless Purchaser and each Person who controls Purchaser from and against any Damages arising out of or resulting from: (i) any inaccuracy in or breach of any representation or warranty made by Seller in this Agreement or in any writing delivered pursuant to this Agreement or at the Closing; or (ii) the failure of Seller to perform or observe fully any covenant, agreement or provision to be performed or observed by Seller pursuant to this Agreement.

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10.3         Procedures.  If Purchaser seeks indemnification under this Article X, it shall give notice to Seller of the basis of the claim (the “Claim”) (i) within a reasonable time after discovery of the facts and (ii) in any event, within the time periods set forth in Section 10.1.  Seller shall give notice to Purchaser within thirty (30) days after receipt of the notice requested by this Section 10.3 advising whether it (i) acknowledges its obligation to indemnify Purchaser or (ii) disputes its obligation to indemnify Purchaser.  If Seller acknowledges its indemnification obligation with respect to the Claim, and (i) such Claim is based upon an asserted liability or obligation to a person or entity that is not a party to this Agreement (a “Third Party Claim”), Seller shall have the right to defend or settle such Third Party Claim or (ii) if such Claim is not a Third Party Claim, Purchaser shall be entitled to immediate satisfaction of such Claim.

10.4         Third Party Claims.

(a)           If Purchaser receives notice of the assertion by a Third Party Claim with respect to which Seller is or may be obligated to provide indemnification, Purchaser shall promptly notify Seller in writing (the “Claim Notice”) of the Claim; provided, that the failure to provide such notice shall not relieve or otherwise affect the obligation of Seller to provide indemnification hereunder, except to the extent that Seller is materially adversely prejudiced by such failure.

(b)           Seller shall have thirty days after receipt of the Claim Notice to undertake, conduct and control, through counsel satisfactory to Purchaser, and at Seller’s expense, the settlement or defense thereof, and Purchaser shall cooperate with Seller in connection therewith; provided, that (i) Seller shall permit Purchaser to participate in such settlement or defense through counsel chosen by Purchaser, provided that the fees and expenses of such counsel shall not be borne by Seller, and (ii) Seller shall not settle any Third Party Claim without Purchaser’s consent.  So long as Seller is vigorously contesting any such Third Party Claim in good faith, Purchaser shall not pay or settle such claim without Seller’s consent, which consent shall not be unreasonably withheld.

(c)           If Seller does not notify Purchaser within thirty days after receipt of the Claim Notice that it elects to undertake the defense of the Third Party Claim described therein, Purchaser shall have the right to contest, settle or compromise the Third Party Claim in the exercise of its reasonable discretion, on behalf of and for the account and risk of Seller; provided that Purchaser shall notify Seller of any compromise or settlement of any such Third Party Claim.

(d)           Seller shall not be entitled to assume the defense for any Third Party Claim (and shall be liable for the reasonable fees and expenses incurred by Purchaser in defending such claim) if the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against Purchaser which Purchaser determines, after conferring with its counsel, cannot be separated from any related claim for money damages and which, if successful, would adversely affect the Assets or the Product Line, properties or prospects of the Product Line.

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10.5         Indemnification Non Exclusive.  Except as provided herein, the foregoing indemnification provisions shall be the sole and exclusive remedy after the Closing Date for money damages available to Purchaser for breach of any representations, warranties or covenants contained herein, but shall not limit any other remedy to which Purchaser may be entitled.  Nothing in this Agreement shall be construed as limiting in any way the remedies that may be available to Purchaser in the event of fraud relating to the representations, warranties or covenants made by Seller in this Agreement.

10.6         Limitation on Amount.  Seller shall not be liable for claims made under this Article X until the aggregate amount of the Damages incurred by Purchaser shall exceed $50,000, in which event the indemnification obligations of Seller shall apply to the amount of all claims made under this Article X, provided, however, that any amount recoverable by Purchaser in accordance with Sections 2.6, 2.10 or 8.2 hereof shall not be subject to the $50,000 threshold, and further provided, however, that Seller shall not be liable in the aggregate pursuant to this Article X for an amount in excess of $4,000,000, plus the amount, if any, of the Earn-Out paid to Seller.

ARTICLE XI

REBATE AND MARKETING PROGRAMS

11.1         List of Programs.  Schedule 11.1 contains a true and complete list and description of, and amounts that Purchaser may be contingently obligated to pay under, all market development fund (“MDF”), marketing and rebate programs. Purchaser shall assume no liability or obligations for any such claims under Seller’s MDF, marketing or rebate programs except for the items specifically set forth on Schedule 11.1.  In particular, but not in limitation of the foregoing, Purchaser shall not assume any liability or obligations for Seller’s special price quote (“SPQ”) program with regard to inventory of the Products in the worldwide distribution channel and in transit to distributors worldwide on the Closing Date. Any claims arising under Seller’s SPQ program from customers will be directed to Seller.

11.2         Payments.  Seller agrees to pay to Purchaser, within thirty (30) days of the date of invoice by Purchaser, the amounts of any and all claims made to Purchaser arising under Seller’s MDF, marketing or rebate programs for which Seller is responsible under Section 11.1, provided that Purchaser provides Seller with a copy of the claim made to Purchaser, Seller reasonably concludes such claim is a valid obligation of the Seller as determined in accordance with this Article XI and Purchaser makes appropriate payments to the customer.

11.3         Marketing Rights.  Seller shall provide a prominent link, with the content approved by Purchaser, from the main page of Seller’s website at www.ncd.com, from the products page at www.ncd.com/products/hardware/thinstar and such other pages as Purchaser may reasonably request to Purchaser’s website at www.neoware.com for a two-year period commencing on the Closing Date.

ARTICLE XII

GENERAL PROVISIONS

12.1         Notices.  All notices and other communications under or in connection with this

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Agreement shall be in writing and shall be deemed given (a) if delivered personally (including by overnight express or messenger), upon delivery, (b) if delivered by registered or certified mail (return receipt requested), upon the earlier of actual delivery or three days after being mailed, or (c) if given by telecopy, upon confirmation of transmission by telecopy, in each case to the parties at the following addresses:

(a)           If to the Purchaser, addressed to:

Neoware Systems, Inc.

400 Feheley Drive

King of Prussia, Pennsylvania 19406

Attention:  Michael G. Kantrowitz, President and Chief Executive Officer

Telecopy:   (610) 275-5739

With a copy to:

McCausland, Keen & Buckman

Radnor Court, Suite 160

259 N. Radnor-Chester Road

Radnor, Pennsylvania 19087

Attention:  Nancy D. Weisberg, Esquire

Telecopy:  (610) 341-1099

(b)           If to Seller, addressed to:

Network Computing Devices, Inc.

301 Ravendale Avenue

Mountain View, California 94043

Attn:  Dr. Guenther Pfaff, CEO

Telecopy:  (650) 691-2754

With a copy to:

Gray Cary Ware & Freidenrich LLP

400 Hamilton Avenue

Palo Alto, California 94301-1825

Attention:  Paul Blumenstein, Esquire

Telephone:  650-833-2000

Telecopier:  650-327-3699

12.2         Severability.  If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable such term or provision in any other jurisdiction, the remaining terms and provisions of this Agreement or the application of

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such terms and provisions to circumstances other than those as to which it is held invalid or enforceable.

12.3         Entire Agreement.  This Agreement, including the annexes and schedules attached hereto and other documents referred to herein, contains the entire understanding of the parties hereto in respect of its subject matter and supersedes all prior and contemporaneous agreements and understandings, oral and written, between the parties with respect to such subject matter.

12.4         Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of Purchaser and Seller and their respective successors, heirs and assigns; provided, however, that Seller shall not directly or indirectly transfer or assign any of Seller’s rights or obligations hereunder in whole or in part without the prior written consent of Purchaser, provided further that, upon the sale of Seller, Seller shall be permitted to assign its obligation to indemnify Purchaser under Article X if all other obligations of Seller to Purchaser hereunder have been satisfied or terminated.  Subject to the foregoing, this Agreement is not intended to benefit, and shall not run to the benefit of or be enforceable by, any other person or entity other than the parties hereto and their permitted successors and assigns.

12.5         Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same Agreement.

12.6         Recitals, Schedules, Exhibits and Annexes.  The recitals, schedules, exhibits and annexes to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully set forth at length herein.

12.7         Construction.

(a)           The article, section and subsection headings used herein are inserted for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

(b)           As used in this Agreement, the masculine, feminine or neuter gender, and the singular or plural, shall be deemed to include the others whenever and wherever the context so requires.

(c)           For the purposes of this Agreement, unless the context clearly requires, “or” is not exclusive.

(d)           For purposes of this Agreement, “Material Adverse Effect” means any event, change or effect that is (or could reasonably be expected to be) materially adverse to the Assets or the Product Line or to Purchaser’s ability to continue to operate the Product Line as operated prior to the Closing, provided that none of the following shall be deemed, either alone or in combination, to constitute a Material Adverse Change:  (i) a decline in the stock price of Seller; (ii) a failure by Seller to meet its internal projections or the projections of equity analysts,

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provided further that these Sections 11.7(d)(i) and (ii) shall not exclude any underlying change, effect, event, occurrence, state of facts or developments which resulted in such change in the stock price or such failure to meet such projections; or (iii) conditions affecting the computer industry or the economy in general.

12.8         Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the Commonwealth of Pennsylvania.

12.9         Arbitration.  In the event of any dispute between Purchaser and Seller pursuant to this Agreement, which Purchaser and Seller are unable to resolve, such dispute shall be settled by arbitration to be held in Philadelphia, Pennsylvania in accordance with the rules of the American Arbitration Association then obtaining, and the rules of civil procedure of the Commonwealth of Pennsylvania as to discovery issues shall also apply.  The determination of the arbitrator(s) shall be delivered in writing to Purchaser and Seller and shall be final, binding and conclusive upon all the parties.  The award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

12.10       Passage of Title and Risk of Loss.  Legal title, equitable title and risk of loss with respect to the Assets will not pass to Purchaser until such Assets are Transferred at the Closing, which transfer, once it has occurred, will be deemed effective for tax, accounting and other computational purposes as of 11:59 P.M. (Eastern Time) on the Closing Date.

12.11       Bulk Sales.  Purchaser hereby waives compliance by Seller with the provisions of the bulk sales laws of any jurisdiction, if applicable, provided that Seller agrees to indemnify Purchaser for claims of creditors of Seller with respect to liabilities not expressly assumed by Purchaser pursuant to this Agreement.

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or has caused this Agreement to be executed on its behalf by a representative duly authorized, all as of the date first above set forth.

NEOWARE SYSTEMS, INC.
By:	/s/ Michael Kantrowitz
Name:			Michael Kantrowitz
Title:		Chief Executive Officer
NETWORK COMPUTING DEVICES, INC.
By:	/s/ Guenther Pfaff
Name:			Guenther Pfaff
Title:		Chief Executive Officer

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Schedule 2.8 (b)

Liabilities and Obligations

None

Schedule 4.5

Restrictions Against Purchase Of Assets

None

Exhibit A

Escrow Agreement

ESCROW AND SECURITY AGREEMENT

THIS ESCROW AND SECURITY AGREEMENT (the Agreement”) is made this         day of March   , 2002 between and among NEOWARE SYSTEMS, INC., a Delaware corporation (“Neoware”), NETWORK COMPUTING DEVICES, INC.,a Delaware corporation (“NCD”) and First Union National Bank (the “Escrow Agent”).

RECITALS

WHEREAS, Neoware and NCD are parties to an Asset Purchase Agreement, dated as of March   , 2002 (the “Asset Purchase Agreement”), pursuant to which Neoware will acquire certain assets of NCD in exchange for cash. Pursuant to the provisions of Article X of the Asset Purchase Agreement, NCD has agreed to indemnify and reimburse Neoware for certain liabilities, damages, losses, claims, demands, costs and expenses arising after the Closing Date (as defined in the Asset Purchase Agreement) and to deliver to Neoware the portion of the Escrow Amount (as defined herein) equal to any adjustments in the Purchase Price;

WHEREAS, the Asset Purchase Agreement provides that Three Hundred Thousand Dollars ($300,000.00) of the Purchase Price (the “Escrow Amount”) will be deposited in a deposit account (the “Deposit Account”) with the Escrow Agent to (i) satisfy claims of Neoware that arise pursuant to Section 10.2 of the Asset Purchase Agreement, (ii) fund any adjustments to the Purchase Price payable to NCD pursuant to Sections 2.6 and 2.10 of the Asset Purchase Agreement; (iii) satisfy any amounts that NCD has failed to pay Neoware under the OEM Supply Agreement (as hereinafter defined) within sixty (60) days of any invoice date, unless otherwise agreed upon in writing by Neoware and NCD, as provided in Section 2.2 of the OEM Supply Agreement; (iv) satisfy any amounts that NCD has failed to pay Neoware under the OEM Supply Agreement, as provided in Section 8.3 of the Asset Purchase Agreement; and (v) satisfy any  amounts that NCD has failed to pay Neoware in connection with its failure to deliver audited financial statements to Neoware, as provided in Section 8.2 of the Asset Purchase Agreement;

WHEREAS, Neoware and NCD are parties to an OEM Supply Agreement, dated as of March   , 2002 (“OEM Supply Agreement”), pursuant to which NCD agreed to purchase  Neoware’s ThinStar products, and Neoware agreed to supply NCD with such ThinStar products;

WHEREAS, as a condition to entering into the Asset Purchase Agreement and the OEM Supply Agreement, and as security for the payment and performance by NCD under the OEM Supply Agreement, Neoware has required NCD to grant to Neoware a security interest in the Escrow Amount deposited with the Escrow Agent; and

WHEREAS, capitalized terms used and not defined herein shall have the meanings set forth in the Asset Purchase Agreement;

NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:

Section 1.               Acknowledgement of Receipt of the Asset Purchase Agreement.  The Escrow Agent hereby acknowledges receipt of a copy of the Asset Purchase Agreement, solely for reference purposes to determine the meanings of certain terms not defined herein.  Escrow Agent is not charged with any duties or responsibilities under the Asset Purchase Agreement.

Section 2.               Escrow.  The Deposit Account shall be held and controlled by the Escrow Agent in escrow subject to the terms and conditions hereinafter set forth and to the direction of Neoware.

Section 3.               Deposit Account.

(a)               On the date hereof, Neoware has deposited the Escrow Amount with the Escrow Agent on behalf of Neoware and NCD, which Escrow Amount will be held in escrow in the Deposit Account by the Escrow Agent.

(b)              The Deposit Account constitutes a “Deposit Account” as such term is defined in the Pennsylvania Uniform Commercial Code as amended from time to time (the “UCC”).

(c)               NCD shall be responsible for any tax liability arising from the deposit of the Escrow Amount in the Deposit Account and the payment of any interest or other amounts payable to NCD with respect to the Deposit Account.

(d)              Neither the Deposit Account nor the Escrow Amount (or any interest therein) may be assigned or transferred, including by operation of law, by NCD nor taken or reached by any legal or equitable process in satisfaction of any debt or other liability of NCD, prior to the delivery to NCD of the Escrow Amount (or any portion thereof) by the Escrow Agent.

Section 4.               Grant of Security Interest.  NCD hereby grants to Neoware, and its successors and assigns, as security for the full and timely payment and performance of NCD’s obligations under the OEM Supply Agreement, a security interest in and lien on the Deposit Account.

Section 5.               Agreement for Control.

(a)               This Agreement constitutes written notification to all parties, pursuant to Article 9 of the UCC, of Neoware’s security interest in the Deposit Account.

(b)              Neoware, NCD and the Escrow Agent are entering into this Agreement, among other things, to perfect Neoware’s security interest in the Deposit Account.

(c)               The Escrow Agent shall comply with notices signed by Neoware issued in compliance with this Agreement and directing the Escrow Agent to transfer or distribute the Escrow Amount or any portion thereof in the event that any of the following occurs: (i) NCD has

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failed to pay Neoware amounts due under the OEM Supply Agreement within sixty (60) days of the invoice date, unless otherwise agreed upon in writing by Neoware and NCD, as provided in Section 2.2 of the OEM Supply Agreement; (ii) NCD has failed to pay Neoware amounts due under the OEM Supply Agreement, as provided in Section 8.3 of the Asset Purchase Agreement; or (iii) NCD has failed to pay Neoware the amount due in connection with its failure to deliver audited financial statements to Neoware, as provided in Section 8.2 of the Asset Purchase Agreement.

Section 6.               Representations and Warranties.

(a)               NCD represents and warrants as follows:

(1)                The security interest granted and assigned herein is valid and enforceable.

(2)                The execution and delivery of this Agreement by NCD, and the performance by NCD of its obligations hereunder (i) does not and will not require any approval or consent of, the giving of notice to, the registration with, or the taking of any other action with respect to any federal, state or other governmental commission, authority or agency, (ii) does not and will not violate the terms of any indenture, mortgage, deed of trust, loan, credit agreement, note or bond purchase agreement, lease, license or other agreement to which it is a party or by which it is bound, or (iii) does not and will not contravene any law, judgment, governmental rule, regulation or order applicable to or binding on it or any of its properties.

(3)                Except for the security interest in favor of Neoware granted and the rights of NCD hereunder, no person or entity has any right, title, claim, lien, encumbrance, charge, or other interest in, against or to the Deposit Account and, upon acceptance, acknowledgement and delivery of this Agreement to Neoware, the security interest granted to Neoware hereunder will constitute a first priority perfected security interest in the Deposit Account in favor of Neoware.

(b)              Neoware represents and warrants as follows:

(1)                The execution and delivery of this Agreement by Neoware, and the performance by Neoware of its obligations hereunder (i) does not and will not require any approval or consent of, the giving of notice to, the registration with, or the taking of any other action with respect to any federal, state or other governmental commission, authority or agency, (ii) does not and will not violate the terms of any indenture, mortgage, deed of trust, loan, credit agreement, note or bond purchase agreement, lease, license or other agreement to which it is a party or by which it is bound, or (iii) does not and will not contravene any law, judgment, governmental rule, regulation or order applicable to or binding on it or any of its properties.

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(2)                Except for the security interest in favor of Neoware granted and the rights of NCD hereunder, no person or entity has any right, title, claim, lien, encumbrance, charge, or other interest in, against or to the Deposit.

Section 7.               Covenants.  NCD and Neoware covenant as follows:

(a)               Each of NCD and Neoware will appear in and defend any action or proceeding arising under, occurring out of, or in any manner connected with, this Agreement or the obligations, duties or liabilities of NCD or Neoware, respectively, hereunder as required by this Agreement or by the Asset Purchase Agreement.

(b)              Neither NCD nor Neoware will directly or indirectly purport to surrender, sell, assign, transfer or otherwise dispose of all or any portion of the Deposit Account, or create or suffer to exist any lien, security interest or other charge with respect to any part of the Deposit Account, except as permitted by the terms hereof.

(c)               NCD, at the request of Neoware during the pendency of any bankruptcy case of NCD, will enter into a consent order with Neoware confirming the terms and conditions afforded Neoware hereunder and, in connection therewith, NCD will file and vigorously prosecute all appropriate motions, present all appropriate testimony and exhibits and provide appropriate notes as may be reasonably required by Neoware.  Neoware, at the request of NCD during the pendency of any bankruptcy case of Neoware, will enter into a consent order with NCD confirming the terms and conditions offered and afforded NCD hereunder and, in connection therewith, Neoware will file and vigorously prosecute all appropriate motions, present all appropriate testimony and exhibits and provide appropriate notes as may be reasonably required by NCD.

Section 8.               Indemnity.  The terms, conditions, covenants and provisions of Article X of the Asset Purchase Agreement regarding the indemnification obligations of NCD are hereby incorporated in full by reference herein.

Section 9.               Conditions of Indemnification.  The obligations of NCD under Article X of the Asset Purchase Agreement and this Agreement shall be subject to the following terms and conditions:

(a)               If Neoware shall in good faith have any claim for Damages, it shall give notice thereof to NCD and the Escrow Agent, within a reasonable time after discovery of the facts, in each case including the basis of the Claim.  Within thirty (30) days after its receipt of the notice of the Claim, NCD shall give notice to Neoware and the Escrow Agent advising whether it acknowledges its obligation to indemnify Neoware or disputes its obligation. If NCD acknowledges its indemnification obligation with respect to a Claim, and the Claim is based upon an asserted liability or obligation that is not a Third Party Claim, the Escrow Agent shall, within three (3) business days after receipt of the acknowledgement from NCD, distribute to Neoware a portion of the Escrow Amount having an aggregate value equal to the amount of the Damages.  If NCD disputes its indemnification obligation, or the Claim is a Third Party Claim, the Escrow Agent shall, within three (3) business days after a final judgment or order of a court

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of equity of competent jurisdiction or one or more arbitrators selected in accordance with the Asset Purchase Agreement to determine the amount of Damages, or after a final settlement or agreement as to the amount of the Damages, distribute to Neoware a portion of the Escrow Amount having an aggregate value equal to the amount of such Damages.

(b)              No claim for indemnification hereunder shall be made unless asserted by a written notice pursuant to Section 9(a) hereof, given to NCD on or prior to June   , 2003, or such earlier date after July   , 2002 if Neoware and NCD have satisfied their respective purchase obligations under Section 8.3 of the Asset Purchase Agreement (the “Termination Date”).

Section 10.             Adjustment of Purchase Price.  If the Purchase Price is adjusted pursuant to the terms of Section 2.6 or 2.10 of the Asset Purchase Agreement and Neoware is entitled thereunder to look to the Escrow Amount for satisfaction of such adjustment, the Escrow Agent shall, within three (3) business days after receipt of notice from NCD and Neoware, if the adjustment is agreed to by NCD and Neoware, or from the Accounting Firm (as hereinafter defined) if the adjustment is determined by the Accounting Firm, distribute to Neoware the portion of the Escrow Amount equal to the amount of the adjustment to the Purchase Price.

(a)               If Neoware disputes the Purchase Price Adjustment calculated by NCD, it shall notify NCD in writing, within fifteen (15) business days after receipt of notice from NCD of the Purchase Price Adjustment, that Neoware disputes the Purchase Price Adjustment; such notice shall specify in reasonable detail the nature of the dispute.

(b)              During the fifteen (15) business day period following the receipt of such notice disputing the Purchase Price Adjustment, NCD and Neoware shall attempt to resolve such dispute and to determine the appropriateness of the Purchase Price Adjustment.

(c)               If, within such fifteen (15) business day period, NCD and Neoware shall fail to resolve all of their disputes, any unresolved disputes shall be referred immediately to an independent accounting firm that is mutually acceptable to Neoware and NCD (the “Accounting Firm”).  The Accounting Firm shall accept such documentary and oral evidence from the parties as it shall reasonably determine and, in any event, shall render a final determination in writing as to the appropriate amount of the Purchase Price Adjustment within thirty (30) days after referral of any disputes, and both NCD and Neoware shall be bound by the final determination of the Accounting Firm and shall have no right of objection or appeal thereto.  The fees and expenses of the Accounting Firm in acting pursuant to this subsection (c) shall be paid one-half by NCD and one-half by Neoware, except that if, with respect to any dispute relative to the Purchase Price Adjustment that in the judgment of the Accounting Firm, one party has adopted a position or positions with respect to the calculations of the Purchase Price Adjustment that is frivolous or clearly without merit, the Accounting Firm may, in its discretion, assign a greater portion of any such fees and expenses to such party, up to and including all of such fees and expenses.

(d)              If the Purchase Price is adjusted pursuant to the terms of this Section 10, Neoware and NCD, if the Purchase Price Adjustment is agreed to by the parties, or the Accounting Firm, if the Purchase Price Adjustment is determined by the Accounting Firm, shall immediately notify the Escrow Agent of the adjustment of the Purchase Price and instruct the

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Escrow Agent to distribute to Neoware the portion of the Deposit Account equal to the amount of the adjustment to the Purchase Price, which amount shall be recoverable by Neoware in accordance with the terms of this Section 10.

Section 11.             Failure to Deliver Audited Financial Statements.  If NCD has failed to deliver to Neoware audited financial statements or pay Neoware One Hundred Thousand Dollars ($100,000.00), in accordance with Section 8.2 of the Asset Purchase Agreement, Neoware shall notify NCD and the Escrow Agent of such failure and shall direct the Escrow Agent to pay such amount to Neoware from the Escrow Amount.  The Escrow Agent shall, within fifteen (15) days after receipt of such notice from Neoware, distribute to Neoware an amount equal to One Hundred Thousand Dollars ($100,000.00).

Section 12.             Termination.

(a)               On the Termination Date, the Escrow Agent shall distribute to NCD, the portion of the Escrow Amount (“Remaining Escrow Amount”) that  remains in the Deposit Account after payment of all amounts required to be paid from the Deposit Account pursuant to Sections 9, 10 and 11 hereof, except for an amount equal to the full amount of all pending claims made by Neoware hereunder (including estimated Damages arising from such claims if the exact amount of such Damages has not been determined); provided, however, that if Neoware notifies the Escrow Agent in the manner provided in Section 5(c), the Escrow Agent shall distribute to Neoware that portion of the Remaining Escrow Amount equal to the sum of the following:  (i) the amount that NCD has failed to pay to Neoware in accordance with the terms of the OEM Supply Agreement, unless otherwise agreed upon in writing by Neoware and NCD, as provided in Section 2.2 of the OEM Supply Agreement; and (ii) the amount that NCD has failed to pay to Neoware under the OEM Supply Agreement, as provided in Section 8.3 of the Asset Purchase Agreement.

(b)              The Escrow Amount applicable to each pending claim not so distributed pursuant to Section 12(a) hereof shall be retained by the Escrow Agent until such pending claim is resolved and all of the Escrow Amount deliverable to Neoware as a result thereof, if any, shall have been delivered to Neoware, whereupon the entire Remaining Escrow Amount applicable to such claim, if any, shall be distributed to NCD, unless Neoware shall otherwise instruct the Escrow Agent as set forth in Section 12(a) hereof.

Section 13.             Fees.  Except as provided in Sections 14, 15, 16 and 17, the fees of the Escrow Agent shall be paid by Neoware in accordance with the Escrow Agent’s standard fee agreement and such fees shall not be considered Damages for any purpose whatsoever.

Section 14.             Escrow Agent’s Responsibilities and Protection.

(a)               The Escrow Agent has agreed to act hereunder as a depository only, according to the terms, provisions and conditions set forth herein, and has executed this Agreement solely for the purpose of signifying the Escrow Agent’s acceptance of its appointment as an escrow agent pursuant to such terms, provisions and conditions.  The duties of the Escrow Agent shall be limited to the safekeeping of the Deposit Account hereunder and disbursement of

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same according to the provisions hereof.  The Escrow Agent undertakes to perform only such duties as are expressly set forth herein, and no duties or obligations shall be read into or implied from this Agreement with respect to the Escrow Agent.  Upon the Escrow Agent’s disbursement of all funds deposited in the Deposit Account in accordance with the provisions hereof, the Escrow Agent’s duties and responsibilities with respect to the Escrow Agent shall cease and the Escrow Agent shall thereafter be released of all liability hereunder in connection therewith.

(b)              In taking any action whatsoever hereunder, the Escrow Agent shall be protected in relying upon any notice, or other document reasonably believed by the Escrow Agent to be genuine, or upon any evidence reasonably deemed by it to be sufficient.  The Escrow Agent shall not be liable to Neoware or NCD for any act performed or omitted to be performed by it in good faith and shall be liable only in case of its own bad faith or willful misconduct or gross negligence.  The Escrow Agent may consult with counsel in connection with its duties hereunder and shall be fully protected in any act taken, suffered hereunder or permitted by it in good faith in accordance with the advice of counsel.  The Escrow Agent shall not be responsible for determining or verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement.

Section 15.             Controversies.  If any controversy arises among the parties to this Agreement, or with any other party concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it.  The Escrow Agent may hold all documents and funds, and may wait for settlement of any such controversy by binding arbitration pursuant to Section 12.9 of the Asset Purchase Agreement or other means.  In such event, the Escrow Agent will not be liable for interest or damages.  Furthermore, the Escrow Agent shall have the right to file an action for interpleader or for declaratory relief in any court of competent jurisdiction to determine the rights of the parties.

Section 16.             Resignation of Escrow Agent.  The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to Neoware and NCD; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent shall be accomplished.  Neoware and NCD shall use their best efforts to agree on a successor or escrow agent within thirty (30) days after receiving such notice.  If Neoware and NCD fail to agree on a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent authorized to do business as a trust company in the Commonwealth of Pennsylvania or request a court of valid jurisdiction to appoint such an agent.  The successor escrow agent shall execute and deliver to the Escrow Agent an instrument accepting such appointment and it shall, without further acts, be vested with all the rights, powers and duties of the predecessor escrow agent as if originally named as the escrow agent.  Then, the Escrow Agent shall be discharged from any further duties and liability under this Agreement.

Section 17.             Indemnification of Escrow Agent.  Neoware and NCD shall jointly and on an equal basis (except as provided in Section 13 above) reimburse, indemnify and hold harmless the Escrow Agent, its employees and agents (referred to in this Section 17 collectively and individually as the “Escrow Agent”), from and against any loss, damage, liability or claim

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suffered, incurred by, or asserted against the Escrow Agent (including any amounts paid in settlement of any action, suit, proceeding, or claim brought or threatened to be brought and including expenses of legal counsel; provided, however, that the Escrow Agent shall not settle any such action, suit, proceeding or claim without first obtaining the written consent of Neoware and NCD (which consents will not be unreasonably withheld), arising out of, in connection with or based upon any act or omission by the Escrow Agent relating in any way to this Agreement or its services hereunder, so long as the Escrow Agent has acted in good faith and without gross negligence.  If the Escrow Agent incurs any such loss, damage, liability or claim in connection with the Escrow Agent’s performance of its duties and obligations under this Agreement, except resulting from its failure to comply with its duties and obligations under this Agreement, the Escrow Agent shall be entitled to reimburse itself for 50% of any such loss, damage, liability or claim out of the Escrow Amount, and Neoware shall reimburse the Escrow Agent for the remaining 50%.

Neoware and NCD may participate at their own expense in the defense of any claim or action which may be asserted against the Escrow Agent, and if Neoware so elects, Neoware may assume the defense of such claim or action; provided, however, that if there exists a conflict of interest which would make it inappropriate for the same counsel to represent both Neoware and the Escrow Agent, retention of separate counsel by Escrow Agent shall be reimbursable as hereinabove provided; and provided, further, that Neoware shall not settle or compromise any such claim or action without the consent of NCD, which consent shall not be unreasonably withheld, conditioned or delayed.  The right of the Escrow Agent to indemnification hereunder shall survive its resignation or removal as Escrow Agent and shall survive the termination of this Agreement by lapse of time or otherwise.

Section 18.             Expenses for Enforcement.  All expenses, including reasonable attorneys fees and collector’s fees and expenses, which Neoware may reasonably incur in protecting, enforcing or exercising its valid interests, rights or remedies hereunder in connection with that portion of the Escrow Amount securing NCD’s obligations under the OEM Supply Agreement as provided herein, shall be paid by NCD to Neoware within thirty (30) days after written demand, all of which obligations may be paid from the Escrow Amount in accordance with the terms of this Agreement and are equally secured hereby.

Section 19.             Distributions; Investments.  Pending disbursement of the Escrow Amount, the Escrow Agent shall invest the Escrow Amount in Permitted Investments (as defined below).  All interest, dividends and other income earned on the Escrow Amount shall be retained by the Escrow Agent as part of the Escrow Amount.  For purposes of this Escrow Agreement, “Permitted Investments” shall mean (i) money market funds consisting of short-term U.S. Treasury securities, (ii) obligations of or guaranteed by the United States of America or any agency thereof, either outright or in connection with repurchase agreements covering such obligations with a maturity not later than one year from the date of investment, and (iii) such other investments as may be specified from time to time to the Escrow Agent by joint written instructions of Neoware and NCD. If no such written instructions are received by the Escrow Agent, the Escrow Amount is to be invested into First Union National Bank’s Evergreen Institutional U.S. Government Money Market Fund #836.

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Section 20.             Address for Notices.  All notices and other communications under or in connection with this Agreement shall be in writing and shall be deemed given (a) if delivered personally (including overnight express or messenger), upon delivery, (b) if delivered by registered or certified mail (return receipt requested), upon the earlier of actual delivery or three (3) days after being mailed, or (c) if given by telecopy, upon confirmation of transmission by telecopy, in each case to the parties at the following addresses:

(a)               If to Neoware:

Neoware Systems, Inc.

400 Feheley Drive

King of Prussia, Pennsylvania 19406

Attention:  Michael G. Kantrowitz, President and Chief Executive Officer

Telecopy:  (610) 275-5739

with a copy to:

McCausland, Keen & Buckman

Radnor Court, Suite 160

259 N. Radnor-Chester Road

Radnor, Pennsylvania 19087-5240

Attention:  Nancy D. Weisberg, Esquire

Telecopy:  (610) 341-1099

(b)              If to NCD:

Network Computing Devices, Inc.

301 Ravendale Avenue

Mountain View, California 94043

Attention:  Dr. Guenther Pfaff, CEO

Telecopy: (650) 691-2754

with a copy to:

Gray Cary Ware & Freidenrich LLP

400 Hamilton Avenue

Palo Alto, California 94301-1825

Attention: Paul Blumenstein, Esquire

Telephone: (650) 833-2000

Telecopier: (650) 327-3699

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(c)               If to the Escrow Agent:

First Union National Bank

123 South Broad Street

Philadelphia, Pennsylvania 19109-1199

Attention:  Jerry Arleth, CCTS

Telecopy:  (215) 670-6340

Any of the addresses set forth above may be changed from time to time by written notice from the party requesting the change.

Section 21.             Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their respective heirs, executors, administrators, successors and assigns; provided, however, that any heirs, executors, administrators, successors and assigns shall only be liable for any liabilities hereunder to the extent of the value of the property or assets received from their respective predecessors in interest.

Section 22.             Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the internal laws (and not the law of conflicts) of the Commonwealth of Pennsylvania.

Section 23.             Non-Exclusive Rights.  The rights of the parties hereunder are cumulative and are not exclusive of any other rights a party may have under the Asset Purchase Agreement or otherwise.

Section 24.             Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of such counterparts together shall constitute but one and the same agreement.

IN WITNESS WHEREOF, Neoware, NCD, and the Escrow Agent have caused this Agreement to be duly executed on the day and year first set forth above.

NEOWARE SYSTEMS, INC.	NETWORK COMPUTING DEVICES, INC.
By:	By:
Name:	Name:
Title:	Title:
ESCROW AGENT
By:
Name:
Title:

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Exhibit B

Seller’s Counsel’s Opinion

[Form of Seller’s Counsel’s Opinion]

March    , 2002

Based upon and subject to the foregoing, and subject to the further assumptions, limitations, qualifications and exceptions set forth herein, we are of the opinion that:

1.             Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.  Except as provided in the Disclosure Schedule, Seller is qualified to do business as a foreign corporation, and is in good standing, under the laws of the states of Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Virginia and Washington .  Seller has all requisite corporate power to execute and perform the Agreements.

2.             The execution and delivery by Seller of the Agreements and the performance of the transactions contemplated thereby to be performed by Seller have been duly authorized by all necessary corporate action on the part of Seller

3.             The Purchase Agreement is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms.

4.             Each of the Agreements has been duly executed and delivered by Seller.

5.             Except as listed or described on Schedule 3.3 to the Purchase Agreement, the execution and delivery of the Agreements by Seller does not, and the performance by Seller of the transactions contemplated thereby to be performed by it will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, (a) the certificate of incorporation or bylaws of Seller, (b) to our knowledge, any Legal Requirement to which Seller or any of the Assets is subject, or, (c) to our knowledge, any Contract or material license of Seller.

6.             To our knowledge, there is no outstanding judgment, order, decree, award, stipulation or injunction of any Governmental Entity or arbitrator against or any Action pending against Seller relating to the Product Line or the Assets or affecting Seller’s ability to perform its obligations under the Agreements or under any agreement or instrument contemplated by the Agreements.

This opinion is rendered as of the date first written above solely for your benefit in connection with the Purchase Agreement and may not be delivered to, quoted or relied upon by any person other than you, or for any other purpose, without our prior written consent.  Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to Seller.  We assume no obligation to

advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinions expressed herein.

Sincerely,

GRAY CARY WARE & FREIDENRICH, LLP

Exhibit C

Form of Non-Competition Agreement

NON-COMPETITION AND CONFIDENTIALITY AGREEMENT

THIS AGREEMENT is made as of  March __, 2002, among NETWORK COMPUTING DEVICES, INC., a Delaware Corporation (“NCD”) and NEOWARE SYSTEMS, INC., a Delaware corporation (“Neoware”). As used in Sections 2 and 3 herein, the term “NCD” includes, in addition to NCD, each Person (as defined in the Purchase Agreement) 50% or more of the equity interests of which is beneficially owned by NCD or that is otherwise controlled by NCD.

W I T N E S S E T H :

WHEREAS, contemporaneously with the execution and delivery hereof, Neoware is acquiring the goodwill and certain assets used or useful by NCD in designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name (the “Product Line”), pursuant to an Asset Purchase Agreement, dated as of March __, 2002, to which Neoware and NCD are parties (the “Purchase Agreement”); and

WHEREAS, execution by NCD of this Agreement is a condition precedent to Neoware’s obligation to perform under the Purchase Agreement; and

WHEREAS, by virtue of the purchase of the Product Line, Neoware is and will be engaged throughout the Area in the Thin Client Business which was, in part, formerly conducted by NCD; and

WHEREAS, competition by NCD with Neoware or disclosure by NCD, of certain confidential and proprietary information of NCD will result directly in damage to Neoware and its business, properties, assets, and goodwill and will cause the loss by Neoware of the benefit of its bargain with NCD;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

1.Definitions.  The following terms shall have the definitions set forth below:

(a)           “Affiliate” of a person shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, the indicated Person.

(b)           “Area” shall mean anywhere within any state of the United States of America or any other country in which Neoware or it Affiliates, directly or indirectly, at any time carries on or engages in the Thin Client Business.

(c)           “Closing Date” shall mean the date of this Agreement.

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(d)           “Confidential Information” shall mean all of the following materials and information (whether or not reduced to writing and whether or not patentable) pertaining to Product Line;

(1)           All items of information relating to the Product Line that could be classified as a trade secret pursuant to law;

(2)           The names and addresses of the customers of the Product Line and the nature and amount of business done with such customers;

(3)           The names and addresses of employees, with respect to the Product Line;

(4)           The discoveries, concepts and ideas, whether patentable or not, related to the nature and results of research and development activities, processes and techniques related to research and development, designs, drawings and specifications of NCD relating to the Product Line;

(5)           Source and object codes, flow charts, algorithms, coding sheets, design concept and related documentation and manuals of NCD which relate to the Product Line;

(7)           Production processes, marketing tech­niques, purchasing information, price lists, pricing policies, quoting procedures, financial information, customer names and requirements, customer data and other materials or information relating to NCD’s manner of doing business with respect to the Product Line, excluding customer names and requirements and customer data relating to customers in Europe, the Middle East or Africa; and

(8)           Any other materials or information related to the Product Line which are not generally known to others engaged in similar business activities.

Neoware’s or NCD’s failure to make and keep any of the foregoing confidential shall not affect its status as part of the Confidential Information under the terms of this Agreement.

(e)           “Thin Client Services” shall mean the designing, developing, manufacturing, distributing and selling, directly or indirectly, any thin client devices using embedded operating systems, browsers, terminal emulators, or RDP or ICA protocols, or remotely displaying applications from Unix, Windows or mainframe computers or from the Internet, excluding NCD’s existing NC900 products, as described below (“Thin Client Devices”).  As used in this Agreement, NCD’s existing NC900 products shall consist of the NC900 X Window terminal product line, which is based upon the QED RM5231 processor and supports the X11R6 and ICA3 protocols, as it exists on the date of this Agreement.  NCD may replace end-of-life components of the NC900 products, except for the processor itself, and perform minor bug fixes thereto.

.

(g)           “ThinPath Products” shall mean those products listed in Exhibit A to the ThinPath License and Distribution Agreement between the parties, dated the date hereof, as well as enhancements to and replacements thereof.

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(h)           “Thin Client Business” shall mean any business, person or entity which is engaged in providing Thin Client Services.

2.             NCD covenants that it shall, for a period of five (5) years from and after Closing Date, observe the following separate and independent covenants:

(a)           Agreement Not to Compete.  Except as set forth in this Agreement, NCD shall not, on its own behalf or in the service or on behalf of others (i) provide Thin Client Services, except with respect to NCD activities pursuant to the OEM Supply Agreement (as defined in the Purchase Agreement); or (ii) use, or become financially interested in (other than as a holder of less than five percent of the outstanding securities of any entity whose voting securities are listed on a national securities exchange or on the Nasdaq Stock Market), or render any services to as a consultant, partner or in any other relationship whatsoever, any business, person or entity that uses NCD’s ThinPath Products to support Thin Client Devices developed, designed, manufactured, sold or distributed by the vendors who are direct competitors of Neoware who are designated on Appendix A hereto or by such additional vendors who are direct competitors of Neoware whose names may be added to Appendix A on a quarterly basis during the five-year period upon the consent of the parties, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, (i) the agreement not to compete set forth in this Section 2(a) does not apply to the supply of TS500 and 332 units to be supplied to Neoware under the OEM Supply Agreement, and (ii) in the event that NCD upgrades the ICA client in its NC900 product, as it exists on the date of this Agreement, and ships at least one such upgraded unit to one of its customers, NCD will pay to Neoware $10 for each unit of NC900, whether or not containing the foregoing upgrade, thereafter shipped by NCD to its customers worldwide, payment to be made within sixty (60) days of the date of shipment.  NCD agrees that if it is obligated to make payments to Neoware under clause (ii) herein, NCD shall maintain true and accurate records containing the data reasonably required for verification of amounts to be paid, and Neoware shall have the right, during normal business hours upon reasonable prior notice to NCD, to inspect the relevant records of NCD to verify compliance with the provisions of clause (ii) herein.

(b)           Agreement Not to Solicit Customers.  NCD shall not, either directly or indirectly, on its own behalf or in the service or on behalf of others, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Thin Client Business, any person or entity whose account was sold or serviced by or under the direction or supervision of NCD at any time prior to the Closing Date.

(c)           Agreement Not to Solicit Employees.  NCD shall not, either directly or indirectly, on its own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert, or hire away, to any Thin Client Business, any person employed by Neoware, whether or not such employee is a full-time employee or a temporary employee of Neoware and whether or not such employment is pursuant to written agreement and whether or not such employment is for a determined period or is at will.

(d)           Non-Interference with Third-Party Relationships.  NCD shall not, in addition to the covenants contained in Sections 2(a), (b) and (c), intentionally interfere with, or intentionally

3

 disrupt the relationship between Neoware and any third party, including without limitation, any customer, supplier, distributor or employee of Neoware.

3.             Ownership and Non-Disclosure and Non-Use of Confidential Information.  NCD acknowledges and agrees that all Confidential Information, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of Neoware, provided, however, that NCD shall continue to jointly own, and have the right to use, such Confidential Information solely for the purpose of manufacturing, selling and distributing its existing NC900 products.  NCD agrees that it will not (i) disclose or make available any Confidential Information to any person or entity; or (ii) make or cause to be made, or permit, either on its own behalf or in the service or on behalf of others, any use of such Confidential Information.

4.             Acknowledgment.  NCD acknowledges that it has been for many years, and that Neoware is now, engaged in the Thin Client Business throughout the Area, that the within and foregoing covenants are made by it in consequence of and as an inducement to Neoware to acquire the Product Line and to protect and preserve to Neoware the benefit of its bargain in the acquisition of the Product Line, including, particularly, the goodwill associated therewith; that each of the above and foregoing covenants is reasonable and necessary to protect and preserve the benefits of such purchase; and that irreparable loss and injury would result should NCD breach any of the foregoing covenants.

5.             Severability.  Each of the covenants hereinabove contained shall be deemed separate, severable, and independent covenants, and in the event any covenant shall be declared invalid by any court of competent jurisdiction, such invalidity shall not in any manner affect or impair the validity or enforceability of any other part or provision of such covenant or of any other covenant contained herein.

6.             Partial Enforcement.  If any of the covenants contained in Section 2, or any part thereof, is held to be unenforceable because of the duration of such provision or the scope of the subject matter thereof or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration, scope and/or area of such provision and, in its reduced form, said provision shall then be enforceable.

7.             Enforcement.  In addition to all other remedies provided at law or in equity, Neoware shall be entitled to both preliminary and permanent injunctions against NCD to prevent a breach or contemplated or threatened breach by NCD of any of the foregoing covenants, without the necessity of proving actual damages; and the existence of any claim, demand, cause of action, or action of NCD against Neoware, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by Neoware of any such covenants.  In the event of an actual breach of any of the foregoing covenants, Neoware shall have the right to recover damages for all losses, actual and contingent.  In the event of an actual breach of any of the foregoing covenants, Neoware shall have the right to recover damages for all losses, actual and contingent, and the right to require NCD to account for and pay over to Neoware all profits or other benefits (collectively “Benefits”) derived or received by NCD as a result of any transactions constituting such breach, and NCD hereby agrees to account for and pay over such Benefits to Neoware.  Each of the rights and remedies enumerated

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above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to Neoware at law or equity.

8.             Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania.

9.             Counterparts.  This Agreement may be executed and delivered in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall together constitute one and the same agreement.

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

NETWORK COMPUTING DEVICES, INC.

By:

Name:

Title:

NEOWARE SYSTEMS, INC.

By:

Name:

Title:

6

Appendix A

Direct Competitors of Neoware

Wyse Technology

Vendors who sell any products produced by Wyse Technology under OEM labels, such as Compaq Computer Corporation

Exhibit D

Form of ThinPath License Agreement

*** PORTIONS OF THIS EXHIBIT HAVE BEEN DELETED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.  THE CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

THINPATH LICENSE AND DISTRIBUTION AGREEMENT

This ThinPath License and Distribution Agreement (the “Agreement”) is entered into this           day of March, 2002 (the “Effective Date”), by and between NETWORK COMPUTING DEVICES, INC. (“NCD”), having its place of business at 301 Ravendale Drive, Mountain View, California 94043, and NEOWARE SYSTEMS, INC. (“Company”), having its principal place of business at 400 Feheley Drive, King of Prussia, Pennsylvania 19406.

Background

Contemporaneously with the execution and delivery hereof, Company is acquiring the goodwill and certain assets used or useful in NCD’s business of designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name pursuant to an Asset Purchase Agreement, dated as of March      , 2002, to which Neoware and NCD are parties (the “Purchase Agreement”).

NOW THEREFORE, in consideration of the mutual promises contained herein, the parties agree to the following:

1.             DEFINITIONS.

(a)           “Intellectual Property Rights” means all copyright, trademark, trade secret, trade name, know-how, mask work and moral rights and all rights related to issued and pending patents and all patent registrations and applications for registrations (including patent reissues, divisions, continuations, continuations-in-part, renewals and extensions).

(b)           “NCD Software” means the NCD ThinPATH® Plus, ThinPATH® Desktop Mirror, ThinPath® Load Balancing, NCD ThinPATH® Manager ThinPath® Portal and ThinPath® PC client software, and products incorporating all of the foregoing ThinPATH software, as they exist as of the Effective Date, as well as updates and enhancements thereto, as described in Exhibit A, in Source Code and Object Code form, and the related documentation.

(c)           “Object Code” means the object code (machine readable version) of the NCD Software.

(d)           “Source Code” means the source code (human readable version) of the NCD Software.

2.             LICENSE & OWNERSHIP.

(a)           License.  NCD grants to Company a nonexclusive, non-transferable, worldwide, perpetual (except as it may be terminated in accordance with the provisions of Section 11(c)) license to (i) use, reproduce, modify and create derivative works of the NCD Software for the purpose of creating, developing, manufacturing, using, marketing, licensing and distributing the Object Code and derivative works of the NCD Software in Object Code; and (ii)

sublicense the Object Code and license derivative works of the NCD Software (1) only in Object Code form, (2) subject to an end user license agreement with terms no less restrictive than those in Exhibit B attached hereto and (3) worldwide excluding Europe, the Middle East and Africa.  Company shall use commercially reasonable efforts to require that its licensees and sublicensees abide by the terms of such end user license agreement.  NCD hereby agrees that the NCD Software constitutes “Intellectual Property” as such term is defined in Title 11 of the U.S. Code (the “Bankruptcy Code”) and, as such, are subject to Section 365(n) of the Bankruptcy Code.

(b)           Restrictions.  Company shall not escrow the Source Code.

(c)           Trademarks & Copyrights.  Company is not granted any right or license to display or otherwise use NCD’s trademarks under this Agreement.  Company shall, however, display the following language:

“Includes NCD ThinPATHÒ technology, under license from Network Computing Devices, Inc.

©2002 Network Computing Devices, Inc.  All Rights Reserved.”

in all copyright notices in product labels, source code, help screens, manuals and all other documentation and in the “about” window that may be activated on a user’s computer screen when using the NCD Software and derivative works thereof.

(d)           Ownership.  NCD retains all right, title and interest, including all Intellectual Property Rights, in the NCD Software and any part thereof, and in any derivative works of the NCD Software created by or on behalf of Company.  Company shall provide to NCD all derivative works of the NCD Software (both Object Code derivatives and Source Code derivatives) created by Company within thirty (30) days of the completion of any such derivative works.

3.             LICENSE FEES.    Company shall pay to NCD the license fees as specified in Exhibit A (“License Fees”).  The License Fees will terminate immediately in the event either of the following occurs: (i) NCD ceases to actively market the NCD Software or (ii) NCD dissolves or liquidates.  In the event that NCD fails to perform its obligations under Sections 8.1 or 8.4 of the Purchase Agreement, fails to take any actions required to be taken under Section 6.12 of the Purchase Agreement or fails to make payments to Neoware under the OEM Supply Agreement within 60 days of the date of the invoices, unless otherwise agreed upon in writing by Company and NCD, the amount of the License Fees shall be offset by the sum of the cost incurred by Neoware in providing such services under Section 8.1 and 8.4 of the Purchase Agreement, the damages suffered by Company from NCD’s failure to take actions required under Section 6.12 and the outstanding amount of the unpaid invoices under the OEM Supply Agreement.

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4.             TRAINING & SUPPORT SERVICES.      NCD shall provide all necessary manpower, documentation, training and services to port the NCD Software for three full days at no additional cost and additional training for new releases as necessary.

5.             INDEMNIFICATION.

(a)           Indemnification by Company.  Company shall indemnify, defend and hold NCD harmless from any and all liability, loss, cost, damage, judgment or expense (including reasonable attorneys’ and expert witnesses’ fees and costs) resulting from or arising out of (i) any material breach by Company of any of the terms of this Agreement, or (ii) any use or modification of the NCD Software other than as permitted in this Agreement which causes damage or liability to NCD or results in infringement of any third party’s Intellectual Property Rights.  This obligation is subject to NCD notifying Company promptly in writing of the claim, giving Company exclusive control of the defense and settlement thereof (provided that any settlement that concerns NCD or the NCD Software must be approved by NCD in advance), and providing reasonable assistance and authority necessary to perform Company’s obligations hereunder.

(b)           Indemnification by NCD.  NCD shall indemnify, defend and hold Company harmless from any and all liability, loss, cost, damage, judgment or expense (including reasonable attorneys’ fees and costs) resulting from or arising out of (i) any material breach by NCD of any of the terms of this Agreement, or (ii) any claim by a third party that the NCD Software or any part thereof infringes any third party Intellectual Property Rights.  The foregoing obligation of NCD does not apply with respect to claims relating solely to (a) NCD Software which is modified after shipment by NCD, if the alleged infringement would have been avoided but for such modification or (b) NCD Software which is combined with other products, processes or materials where the alleged infringement would have been avoided but for such combination.  This obligation is subject to Company notifying NCD promptly in writing of the claim, giving NCD exclusive control of the defense and settlement thereof (provided that any settlement that concerns Company or any derivative works of the NCD Software created by Company must be approved by Company in advance), and providing reasonable assistance and authority necessary to perform NCD’s obligations hereunder.  If use of the NCD Software becomes, or in NCD’s reasonable opinion is likely to become, the subject of a claim of infringement as outlined above, NCD will at its option and expense: (i) obtain the continuing right to use the NCD Software for Company; (ii) modify the NCD Software so that it no longer infringes; or (iii) replace it with a functionally equivalent product that does not infringe.  If none of the foregoing is commercially reasonable in NCD’s reasonable opinion, then the licenses granted in Section 2(a) shall terminate upon the refund to Neoware of any prepaid License Fees paid by Neoware not required to be applied against fees due under this Agreement, if any.

(c)           Entire Indemnification.  The provisions of this Section 6 set forth the entire indemnification obligations of each party to the other and the sole remedies of each party with respect to indemnification.

6.             LIMITED WARRANTY AND DISCLAIMER.  NCD warrants that (a) NCD has taken all necessary corporate and other actions to authorize it to enter into and perform its

3

obligations under this Agreement; and (b) to the best of NCD’s knowledge, Company’s exercise of its license rights hereunder will not violate any Intellectual Property Rights of any third party. EXCEPT AS SET FORTH HEREIN, THE NCD SOFTWARE IS PROVIDED “AS IS” AND WITHOUT WARRANTY OF ANY KIND.  NCD DOES NOT WARRANT THE PERFORMANCE OR RESULTS FROM ANY USE OF THE NCD SOFTWARE.  EXCEPT AS SET FORTH HEREIN, NCD MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITYOR FITNESS FOR A PARTICULAR PURPOSE.

7.             LIMITATION OF LIABILITY.  To the maximum extent permitted by law, neither party shall be liable to the other party or its customers for any consequential or incidental damages, including any lost profits or lost savings arising out of the NCD Software, even if NCD or Company has been advised of the possibility of such damages.  In no event shall either party’s total liability to the other party for all damages, losses, attorneys’ fees and court costs, and causes of action (whether in contract, tort including negligence or otherwise) exceed the amount paid by Company to NCD for the NCD Software pursuant to this Agreement.

8.             INJUNCTIVE RELIEF.  NCD and Company each acknowledges and agrees that a breach of the confidentiality restrictions contained in Section 10 shall cause irreparable injury to the aggrieved party for which such party shall not have an adequate remedy at law.  In addition to any other relief to which the aggrieved party might be entitled, the party shall be entitled to equitable relief in court, including, but not limited to, temporary restraining orders, preliminary injunctions, and permanent injunctions.  Company and NCD hereby expressly waive any requirement that the aggrieved party first post a bond or security before obtaining such relief.

9.             DELIVERY, ACCEPTANCE & PUBLICITY.

(a)           Delivery & Acceptance.  The NCD Software shall be delivered to the Company at the address stated above, unless provided otherwise.  The NCD Software shall be deemed accepted by the Company upon delivery, unless the Company otherwise notifies NCD in writing.  Any and all updates and/or enhancements, including alpha and beta releases, to the NCD Software shall be delivered to Company in Source Code and Object Code forms within 48 hours of release to any third party.

(b)           Publicity.  Neither party may disclose the terms of this Agreement or the subject matter thereof without the prior written consent of the other party, unless required by law.

10.           CONFIDENTIAL INFORMATION.

(a)           Confidential Information.  By virtue of this Agreement, either party may have access to the other party’s Confidential Information (as defined below).  Each party agrees to use the other party’s Confidential Information solely for purposes of this Agreement and will hold the other party’s Confidential Information in confidence during the term of this Agreement and after termination.  Each party further agrees that, unless required by law, it will not make the other party’s Confidential Information available in any form to any third party for a period of five (5) years following termination of this Agreement other than (i) its own employees and/or

4

contractors who need to know or use such Confidential Information for purposes of implementing this Agreement,  (ii) its licensees as limited in Section 2(a) of this Agreement, or (iii) pursuant to a valid court order provided the disclosing party provides the other party with prompt written notice of such requirement so that the other party may seek a protective order or other appropriate remedy. Each party shall take all reasonable precautions to prevent the disclosure, distribution or use of the Confidential Information of the other party by its employees, agents, or contractors in violation of the terms of this Agreement.

(b)           Definition.  “Confidential Information” means the NCD Software, the terms and conditions of this Agreement, and non-public information provided by one party to the other under this Agreement that is identified in writing as confidential.

(c)           Exclusions.  Confidential Information does not include information that (i) is or becomes publicly available through no act or omission of the receiving party; (ii) is rightfully received by the receiving party from a third party without restriction on disclosure and without breach of a nondisclosure obligation; (iii) is independently developed by the receiving party without reference to, or use of, the Confidential Information; or (iv) is previously rightfully known to the receiving party.

11.           TERM & TERMINATION.

(a)           Term.  The Agreement begins on the Effective Date and continues unless and until it is terminated pursuant to Section 11(b).

(b)           Termination.  Either party may terminate this Agreement upon thirty (30) days written notice of a material breach of this Agreement by the other party if such breach is not cured within such thirty (30) day period.

(c)           Rights Upon Termination.  Upon termination of this Agreement, all licenses granted to Company under this Agreement, except as described in this Section, shall immediately terminate, Company shall cease all use, reproduction and distribution of the NCD Software and any part or derivative work thereof, and Company will destroy all copies of the NCD Software and any part thereof in the Company’s possession or under its control within ten (10) days following the termination date, except that Company may retain one (1) copy of the NCD Software to be used solely for end-user support purposes for up to two (2) years after termination of this Agreement.  Upon termination, the sublicenses granted to third parties for the NCD Software may continue unless the third parties are in default of the terms specified in Section 2(a) (“License”).

12.           GOVERNMENT RESTRICTIONS.  For NCD Software and documentation delivered to an agency or instrumentality of the United States government, Company shall identify the NCD Software and documentation as “commercial computer software” and “commercial computer software documentation” and, pursuant to FAR 12.212 and/or DFARS 227.7202 (and their successors, as applicable), shall restrict the government’s right to use, reproduce and/or disclose such NCD Software and documentation in accordance with the terms of Company’s then-current standard end user license agreement.

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13.           GENERAL.

(a)           Notice.  Any notices to be given hereunder will be given in writing via postage prepaid, return receipt requested certified mail (or an equivalent method under the laws of the country where mailed), courier service or facsimile transmission to the address of each party set forth in the purchase order acknowledgment or to such other address as either party may substitute by written notice to the other as provided herein.  Notices shall be effective two (2) days after official confirmation of delivery to the intended recipient by return receipt or the equivalent or, in the case of facsimile, one (1) day after confirmation of transmission.

(b)           Waiver.  Failure by either party to exercise any of its rights hereunder shall not constitute or be deemed a waiver or forfeiture of such rights.

(c)           Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.  The United Nations Convention on Contracts for the International Sale of Goods (1980) is specifically excluded from application to this Agreement.

(d)           Severability.  If any provision of this Agreement is unenforceable or invalid under applicable law, such provision shall be changed and interpreted to best accomplish the objectives of the original provision to the fullest extent allowed by law and the remaining provisions of this Agreement shall remain in full force and effect.

(e)           Export.  Company shall be fully and solely responsible for securing any and all permits and licenses in order to export the Company Products containing the Source Code.  If Company exports the Company Products, Company must include with such Company Products all appropriate translations of the end-user terms described in Section 2(a) (“License”).

(f)            Attorney’s Fees.  In the event any proceeding or lawsuit is brought by either party to enforce its rights hereunder, the prevailing party shall be entitled to recover its costs, including expert witness fees and reasonable attorneys’ fees.

(g)           Headings.  Headings are used in this Agreement for convenience only and shall not affect any construction or interpretation of this Agreement.

(h)           Assignment.  Company shall not assign this Agreement or any portion hereof without NCD’s prior written consent, and any attempted assignment in violation of this provision shall be void, except that without NCD’s prior written consent, Company may assign this Agreement to any of its subsidiaries or to any successor-in-interest to Company’s line of business concerning the subject matter of this Agreement by reason of merger or acquisition or otherwise by operation of law.  NCD may freely assign this Agreement provided that any assignee of NCD shall be specifically required and obligated to perform all of NCD’s obligations hereunder.

(i)            Entire Agreement.  This Agreement, including the exhibits attached hereto, is the complete agreement between NCD and Company and supersedes any prior

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agreements between NCD and Company relating to the subject matter hereof.  This Agreement shall not be modified except by a properly executed written agreement.

(j)            Survival.  The provisions of Sections 2(d) (“Ownership”), 5 (“Indemnification”), 6 (“Disclaimer of Warranty”), 7 (“Limitation of Liability”), 8 (“Injunctive Relief”), 10 (“Confidential Information”), 11(c) (“Rights Upon Termination”) and 13 (“General”) shall survive termination or expiration of this Agreement.

(k)           Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument.

IN WITNESS WHEREOF, NCD and Company have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

NETWORK COMPUTING	NEOWARE SYSTEMS, INC.
DEVICES, INC.
By:	By:
Name:	Name:
Title:	Title:

7

EXHIBIT A

NCD Software

The NCD ThinPATHÒ Manager software allows an administrator to centrally define, update and deploy the configuration, appearance, and behavior of a collection of thin client devices.  Furthermore, this software allows administrators to remotely view the status of a thin client device and modify its configuration, whether in use by an end-user or not.  ThinPATHÒ Manager controls parameters associated with all aspects of the thin client’s lifecycle, from booting, to initial user interface, to which functions are permitted to the end user, to which actions to initiate or connections to make to particular application or server, and what to do when an end user is finished.  ThinPATHÒ Manager consists of “server” and “client” software modules that work together to perform Manager’s functions. The server module runs on a host computer and contains graphical user interface and database management modules for configuring and deploying the various parameters as well as for remotely monitoring and manipulating the operation of the client.  The client modules run on the user device and handle communications with the server modules, allowing the specified configuration, appearance, and behavior to be downloaded and implemented.

NCD ThinPATH Professional is a combination of the following individual NCD ThinPATH products:

(1)           NCD ThinPATHÒ Plus enables peripherals attached to thin clients to be used with server-based applications running on Windows NT Server 4.0, Terminal Server Edition and Windows 2000 Server platforms.  The software provides connectivity for specific serial devices, parallel printers, audio output speakers, audio input microphones, and client file storage media.  It offers both private (per-session) and public (accessible by anybody) usage of peripheral devices.  It can be used with Microsoft RDP or Citrix.

(2)           The NCD ThinPATHÒ Desktop Mirror software allows one or more remote users, such as systems administrators or help-desk personnel, to view and control the screen of a remote device.  The software consists of “viewer” and “device” software modules that work together to perform Mirror’s functions. The viewer module runs on one or more remote computers or thin client devices and contains a graphical user interface tool that, among other functions, is used to select the device whose screen should be remotely seen. The device module runs inside the user device whose screen is to be manipulated; it transmits graphics and user input over the network to the remote viewers.

(3)           ThinPATH Load Balancing. The NCD ThinPATH Load Balancing software allows multiple Windows Terminal Servers or Windows 2000 Servers with Terminal Services enabled to be grouped together in a Server Farm and share information with each other regarding their current load. The client portion of the Load Balancing software then contacts any one of the servers in the farm and direct a connection using either Microsoft RDP or Citrix ICA Software (if installed) to the least busy server in the group.

ThinPATH PC Client

The ThinPATH PC Software when installed to a PC replaces the Microsoft Explorer Shell of the Operating System with an NCD replacement giving the PC the look and feel of a Windows Based Terminal. This software is still in development.

ThinPATH Portal

The ThinPATH Portal Software replaces the ThinSTAR Management Services and ThinPATH Manager with a Web Based User Interface and database allowing an administrator to define Software packages and configuration information for a ThinSTAR or ThinPATH PC centrally ready for deployment using traditional file transfer mechanisms. The Portal makes use of the Microsoft Server Appliance Kit Framework, Internet Information Server and Windows 2000 or above. This software is still in development.

License and Maintenance Fees

•       ThinPATH Portal Access License (TP-PAL) (including ThinPath Manager)

•       ThinPATH Portal Professional Access License (including TP-PAL, ThinPATH Plus, ThinPATH Desktop Mirror and ThinPATH Load Balancing) (TP-PPAL)

•       ThinPATH PC Client (TP-PC)

•       ThinPATH Management Portal (TP-MP), including 15 TP-PAL

•       ThinPATH Portal Professional Upgrade License from TP-PAL to TP-PPAL (TP-PPAL-U)

In addition there is a Subscription Plus option which grants product updates and an email-based support service for these products  Use annotation xxx-SP, if purchased in conjunction with the license and xxx-SP-SA if purchased separately

Product	List Price per unit		Neoware OEM Price per unit
TP-PAL	$	***	$	***
TP-PAL-SP	$	***	$	***
TP-PAL-SP-SA	$	***	$	***
TP-PAL	$	***	$	***
TP-PPAL-SP	$	***	$	***
TP-PPAL-SP-SA	$	***	$	***
TP-PPU	$	***	$	***
TP-PPAL-U-SP	$	***	$	***
TP-PC	$	***	$	***
TP-PC-SP	$	***	$	***
TP-PC-SP-SA	$	***	$	***
TP-MP	$	***	$	***

2

Notwithstanding the foregoing listed fees, the License Fees payable by Neoware shall not exceed the lowest fees charged by NCD to any other customer, except for OEM sales with purchase quantities greater than 100,000 licenses in any 12-month period.  Additionally, notwithstanding the foregoing listed license fees, with respect to the maximum of 10,000units of the Products (as defined in the Transitional Supply Agreement between the parties) being supplied under the Transitional Supply Agreement, NCD will provide the above products, except for the ThinPATH PC Client, ThinPATH Management Portal and ThinPATH Portal Professional Upgrade License, at no additional cost to Neoware or its customers, if NCD has done so in the past, to support Neoware’s efforts to sell the 10,000 units.

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EXHIBIT B

Minimum Terms and Conditions for Company’s End User Agreement

1.             Network Computing Devices, Inc. (“NCD”), located at 301 Ravendale Road, Mountain View, California 94043, is a third party beneficiary to this agreement to the extent that this Agreement contains provisions that relate to Licensee’s use of any NCD software.  Such provisions are made expressly for the benefit of NCD and are enforceable by NCD in addition to Licensor.

2.             Licensor grants Licensee a nonexclusive sublicense to use the NCD Software provided by NCD to Licensor.  Licensee may assign its right under this agreement to an assignee (licensee) of all of Licensee’s right and interest to the NCD Software provided that the Licensee transfers all copies of the NCD Software and the transferee agrees to be bound by all terms and conditions of this Agreement.

3.             Licensee agrees not to alter, reverse engineer or disassemble the NCD Software.  Licensee will not copy the NCD Software except as necessary to use it on the designated system.  Licensee shall not remove any proprietary notices which appear on and in the original copy of the NCD Software.

4.             Except as stated above, this Agreement does not grant Licensee any right (whether by license, ownership or otherwise) in the NCD Software.  Title to and ownership of the NCD Software and related documentation and any reproduction thereof shall remain with NCD.

5.             Licensee will not export or re-export the NCD Software from the United States without the appropriate United States or foreign government licenses.

6.             If Licensee is an agency or instrumentality of the United States government, the NCD Software and documentation are “commercial computer software” and “commercial computer software documentation” and pursuant to FAR 12.212 and/or DFARS 227.7202 (and their successors, as applicable) any and all use, reproduction and disclosure of the NCD Software and documentation are governed by the terms of this Agreement.

The foregoing terms may be included in a shrink-wrap license only in foreign countries where such a license is adequate to protect NCD’s rights. Otherwise the agreement must be in writing.

Exhibit E

Form of Transitional Supply Agreement

*** PORTIONS OF THIS EXHIBIT HAVE BEEN DELETED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.  THE CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

TRANSITIONAL SUPPLY AGREEMENT

This Transitional Supply Agreement (the “Agreement”) is entered as of March     , 2002, by and between NETWORK COMPUTING DEVICES, INC. (“NCD”), a Delaware corporation, with its principal place of business at 301 Ravendale Avenue, Mountain View, California  94043, and NEOWARE SYSTEMS, INC. (“Neoware”), a Delaware corporation, with its principal place of business at 400 Feheley Drive, King of Prussia, Pennsylvania  19406.

WHEREAS, NCD is presently engaged in the business of designing, developing, manufacturing distributing and selling server and thin client management software marketed under the ThinPath and Thinfrastructure brand names, and thin client products, including network computers marketed under the NC900 brand name, and Windows-based thin client devices marketed under the ThinStar brand name;

WHEREAS, contemporaneously with the execution and delivery hereof, Neoware is acquiring the goodwill and certain assets used or useful in NCD’s business of designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name pursuant to an Asset Purchase Agreement, dated as of March     , 2002, to which Neoware and NCD are parties (the “Purchase Agreement”); and

WHEREAS, NCD wishes to supply ThinStar products to Neoware, and Neoware is willing to purchase such products from NCD.

NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants set forth below, NCD and Neoware mutually agree as follows:

ARTICLE I

SALE AND PURCHASE OF PRODUCTS

1.1           Sale and Purchase.  NCD, within the limitations contained in this Article, agrees to sell to Neoware such quantities, as is set forth in Section 8.3 of the Purchase Agreement, of the products, which are described in Attachment A hereto (the “Products”).  Neoware shall not be obligated to purchase any stated quantities except as is set forth in Section 8.3 of the Purchase Agreement and as may be designated in separate purchase orders (the “Purchase Orders”) executed by Neoware and accepted by NCD.  Purchase Orders shall be numbered and dated and reference this Agreement.  The terms and conditions of this Agreement shall control the rights and obligations of the parties regarding all Purchase Orders issued by Neoware for the Products, provided, however, that the terms on the Purchase Orders as to quantity, delivery dates, and shipping instructions shall control for purposes of that order, provided, however, that in the event of any inconsistency between either this Agreement or the Purchase Order, on the one hand, and the Purchase Agreement, on the other hand, the Purchase Agreement shall control.

1.2           NCD Supply of Products; NCD Sale of Obsolete Products.

(a)           NCD shall supply the Products exclusively to Neoware.  NCD may sell a limited number of obsolete ThinStar products, not to exceed the configurations and quantities outlined in Attachment B hereto, provided that NCD must pay Neoware *** ($***) for each ThinStar unit shipped and *** ($***) for each ThinStar Token Ring unit shipped, within sixty (60) days of the shipment date for each such ThinStar unit and each such ThinStar Token Ring Unit.

(b)           The inventory for units of the Products that NCD does not own at Closing that NCD will be required to manufacture, will be manufactured by NCD by using SCI Sanmina Systems and other existing suppliers, or new suppliers currently used by NCD, if a lower cost can be obtained, provided that quality control techniques similar to those used prior to the Closing (as defined in the Purchase Agreement) are used and that the quality and failure rates for the units delivered hereunder are consistent with historical rates for such products prior to the Closing.

1.3           Delivery.

(a)           All Products delivered to Neoware shall be F.O.B. NCD’s applicable warehouse.  Products will be shipped to Neoware or Neoware’s customers in accordance with Neoware’s Purchase Orders.  Purchase Orders will state the number of units to be shipped and delivery dates.  Product Lead Times shall be no longer than NCD’s standard lead times to end-user customers, resellers and distributors in effect prior to Closing, as set forth in Attachment C hereto, and in no event longer than four weeks from Neoware’s Purchase Order date in the first two months of each quarter, and no more than two weeks from Neoware’s Purchase Order date in the last month of each quarter.  NCD shall deliver the Products on the applicable delivery dates specified in the Purchase Orders.  NCD shall assist Neoware in arranging any desired insurance (in amounts that Neoware shall determine) and transportation to any destinations specified in writing from time to time by Neoware.  All customs, duties, costs, taxes, insurance premiums, and other expenses relating to such transportation and delivery shall be at Neoware’s expense.

(b)           NCD shall package, handle and label the Products so as to protect the Products from loss or damage, in conformance with good commercial practice, Neoware’s specifications, government regulations, or other applicable standards. NCD shall be responsible for loss or damage from such non-conformance.

(c)           Upon delivery to Neoware’s designated carrier, title and risk of loss for all Product(s) shall pass to Neoware.  NCD shall use Neoware’s specified carriers as identified on Neoware’s Purchase Orders.  If Neoware does not specify a carrier, NCD shall select a carrier of its choice.  In the event of loss or damage, Neoware shall notify the carrier and the insurer for the purpose of filing a claim.  NCD will provide reasonable assistance to Neoware in establishing any such claim.

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1.4           Rejection of Product.

(a)           Neoware may reject without penalty (i) any over-shipment; (ii) incorrect shipment; (iii) receipt of a D.O.A. (Dead on Arrival) unit; (iv) any shipment of a Product which is not conforming with the product specifications contained in Attachment A hereto; or (v) any shipment which is not shipped complete within ten days of the delivery dates set forth in the Purchase Orders.

(b)           In order to reject a shipment or portion of a shipment, Neoware shall give notice to NCD of Neoware’s rejection of the shipment within twenty (20) days of receipt together with a written indication of the reasons for such rejection.  If no such notice of intent to reject is timely received, Neoware shall be deemed to have accepted such delivery of Product, provided, however, that in the case of Products having latent defects which upon diligent examination by Neoware upon receipt could not have been discovered, Neoware must give notice of its intent to reject within thirty (30) days after discovery of such defects, provided that such notice may in no event be given later than 90 days after receipt of the shipment.

(c)           In the event that Neoware rejects a shipment due to NCD’s failure to comply with Section 1.4(a)(iv) and such rejection is not disputed by NCD, Neoware shall not be obligated to make payment for such rejected shipment.

(d)           Upon receipt of a notice of rejection for any reason other than NCD’s failure to comply with Sections 1.4(a)(i) or 1.4(a)(iv), NCD shall use its reasonable commercial efforts, at Neoware’s request, to provide replacement Products to Neoware.

(e)           Neoware shall, upon receipt of NCD’s request for return, forward such Product to NCD, at NCD’s cost.

1.5           NCD’s Obligations.

(a)           NCD shall provide technical support services with respect to the Products as set forth in Section 8.4 of the Purchase Agreement and in Attachment D hereto.

(b)           NCD shall be responsible for obtaining, at its sole cost and expense, any required approvals relative to any customer related changes.

(c)           NCD shall perform in-line audits on all Products.  In-line audits shall

include cosmetic inspection, labeling identification (including serialization), and power-up test.  In-line audits are performed as an off-line process prior to packaging.

(d)           NCD shall perform out of box audits on one percent (1%) of all Products shipped to Neoware, following the following steps:

1.  Remove the Product from the box.

2.  Match the unit serial number to the serial tag on the Product unit box.

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3.  Write serial number in out of box audit log sheets.

4.  Inspect Product unit for cosmetic damages and missing hardware.

5.  Plug in monitor cable and AC line cord into Product unit.

6.  Verify the Product unit powers up.

7.  Vibe the Product unit with the Vibe table to insure the unit does not lose video, power or have any abnormalities.

8.  Remove all cables and place the Product unit back in the box, seal it using the tape machine on the pack line, and forward it to inventory ready for shipment.

ARTICLE II

PRICE AND PAYMENTS

2.1           Price.  NCD shall supply the Products to Neoware at a fixed price that represents NCD’s direct cost of materials.  Prices payable by Neoware are those set forth in Attachment E hereto.

2.2           Commissions to NCD.  Upon receipt by Neoware of payments in excess of $*** for orders shipped during the period from Closing until March 31, 2002, Neoware shall promptly pay to NCD a commission equal to ***.

2.3           Method of Payment.  Subject to Section 1.5(c), all payments due hereunder to NCD shall be paid to NCD in United States dollars not later than sixty (60) days following the date of the applicable invoice, unless otherwise agreed to in writing by NCD and Neoware.

ARTICLE III

TERMINATION, RIGHTS AND OBLIGATONS UPON
TERMINATION

3.1           Term.  The term of this Agreement shall commence as of the date hereof (the “Effective Date”) and shall continue until such time as Neoware shall have purchased all of the Products required to be purchased hereunder, or until this Agreement is otherwise terminated pursuant to the terms hereof.

3.2           Termination by Mutual Agreement.  This Agreement may be terminated upon mutual written agreement of the parties.

3.3           Termination upon Default.  This Agreement may be terminated by either party if the other party materially breaches this Agreement and fails to cure the default within thirty (30) days after receipt of written notice of termination from the other party specifying such breach, or fails to reach agreement with the party providing notice within such thirty (30) day period to cure the breach in accordance with such agreement.

3.4           Termination for Insolvency.   If either party becomes insolvent or seeks protection under, or becomes the subject of, any bankruptcy, receivership, creditor’s arrangement or comparable proceeding, the other party may, at its option, by written notice, immediately terminate this Agreement.

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3.5           Termination upon Termination of Business.  If either party ceases to do business, or otherwise terminates its business operations, the other party may at its option immediately terminate this Agreement.

3.6           Rights and Obligations on Expiration or Termination.  Except to the extent expressly provided to the contrary, the following provisions shall survive the termination of this Agreement: Articles IV and V.

ARTICLE IV

WARRANTY; STOCK ROTATION

4.1           Warranty.

(a)           NCD warrants to Neoware that the Products, when shipped to Neoware by NCD, will conform in all respects to the specifications set forth on Attachment A hereto and that they comply with the warranties set forth on Attachment F hereto (collectively, the “Warranties”).  NCD assumes all responsibility for, and shall bear the cost of complying with all of the warranties.

(b)           NCD agrees to provide all services required to correct, repair or replace Products or parts thereof covered by the Warranties in accordance with the terms of the Warranties.  Such services shall be consistent, in all material respects, with the quality and manner of performance of similar services provided by or made available to under the Warranties prior to the Closing Date, as defined in the Purchase Agreement.  NCD shall use business practices, standards and internal controls that are substantially the same as those used by NCD prior to the Closing Date and consistent with past practices, with only such changes as are agreed to between NCD and Neoware.  Not in limitation of the foregoing, NCD shall repair or replace and ship at least 95% of units of Products returned pursuant to the terms of the Warranties in accordance with the following time schedule:

(i)            within 5 days after receipt of the Products, for Products that were in production in the 12 calendar month period prior to the return;

(ii)           within 10 days after receipt of the Products, for Products that were in production in the 13 to 24 calendar month period prior to the return; and

(iii)          within 15 days after receipt of the Products, for Products that were in production in the 25 to 36 calendar month period prior to the return.

4.2           NCD Indemnification.  NCD shall indemnify Neoware against any and all liability, damages, cost and expenses, including without limitation reasonable attorneys’ fees made against or sustained by Neoware or its affiliates arising out of or resulting from (i) NCD’s failure to deliver such Product in accordance with NCD’s warranties or its other obligations as provided in this Agreement or (ii) NCD’s negligence or willful misconduct.

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4.3           Stock Rotation Obligations.  With respect to any Product units (a) which were sold by NCD on or prior to the Closing Date or are sold in EMEA after the Closing Date and are returned to NCD or Neoware on or after the Closing Date, NCD shall retain sole responsibility for, and shall bear the cost of reconfiguring such units; and (b) which are sold by Neoware after the Closing Date, other than units that are sold in EMEA, and are returned to NCD or Neoware after the Closing Date, Neoware shall pay to NCD $*** per unit for the cost of reconfiguring such units.  With respect to all such units referred to in this Section 4.3(b), Neoware agrees to order replacement units from NCD in an amount equal to the lesser of (i) the corresponding new order, if any, received by Neoware from the customer which has returned such units, or (ii) the number of units returned by the customer.

ARTICLE V

MISCELLANEOUS

5.1           Entire Agreement.  This Agreement contains the entire agreement of the parties regarding the subject matter hereof and supersedes all prior agreements, understandings and negotiations regarding the same.  This Agreement may not be changed, modified, amended or supplemented except by a written instrument signed by both parties.  Furthermore, it is the intention of the parties that this Agreement be controlling over additional or different terms of any order, confirmation, invoice or similar document, even if accepted in writing by both parties, and that waivers and amendments shall be effective only if made by non pre-printed agreements clearly understood by both parties to be an amendment or waiver.

5.2           Assignability.  This Agreement and the rights hereunder are not transferable or assignable without the prior written consent of the parties hereto, except for rights to payment.

5.3           Severability.  If any provision of this Agreement shall be held illegal or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

5.4           Further Assurances.  Each party hereto agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

5.5           Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally, (ii) upon receipt, when sent by facsimile, provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party , or (iii) one (1) business day after deposit with a nationally recognized overnight courier.  The addresses for such communications shall be the addresses first set forth herein or as amended by notice pursuant to this section.

5.6           Relationships of the Parties.  The parties hereto are independent contractors.  Neither party is a legal representative, legal partner, franchisee or agent of the other, and neither party has authority to act for, bind or make commitments for the other.  Each party shall be free to establish its own prices.

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5.7           Waiver.  The waiver by either party of a breach of any provisions contained herein shall be in writing and shall in no way be construed as a waiver of any succeeding breach of such provision or the waiver of the provision itself.

5.8           Applicable Law.  This Agreement shall be governed by and construed under the  laws of the Commonwealth of Pennsylvania and the United States without regard to  conflicts of laws provisions thereof.  Unless waived by Neoware in writing for the particular instance, the sole jurisdiction and venue for actions related to the subject matter hereof shall be the Pennsylvania state and federal courts having within their jurisdiction the location of Neoware’s principal place of business.

5.9           Captions.  Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement.

5.10         Force Majeure.  Neither party shall be liable for damages and costs to the other party arising out of delays or failures to perform under this Agreement if such delays or failures result from causes beyond the reasonable control of a party, and are not caused by an act or omission of such party.  Notice of any such delays or failures and explanation of their causes must be given to the other party within five (5) days of the occurrence.  As soon as it is reasonably apparent that the occurrence will likely cause a delay of more than sixty (60) days, the party against whom this section is invoked shall have the right to terminate the affected installments under any Purchase Order.  This force majeure provision may not be invoked for failure or inability to make a payment under this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first written above.

NETWORK COMPUTING DEVICES, INC.

By:

Name:

Title:

NEOWARE SYSTEMS, INC.

By:

Name:

Title:

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Attachment A

Products

NCD ThinSTAR 332

NCD ThinSTAR 332Web

NCD ThinSTAR 500

NCD ThinSTAR 550

NCD ThinSTAR Voyager

See Attachment A.1 for product specifications.

Attachment A.1

Product Specifications

Attachment C

Product Lead Times

First two months of a calendar quarter:

No longer than four weeks from Neoware PO date.

Last month of a calendar quarter:

No longer than two weeks from Neoware PO date.

Attachment D

Technical Support Services

NCD provide services for the NCD ThinStar devices including the ThinStar software as part of the 3-year warranty. Customer can purchase extended warranty for 1 or 2 extra years.

NCD also provides technical services and upgrades for the ThinPATH products. This service is free for 30 days after shipment/installation. After this period, NCD offers support based on incident contracts or subscription licenses

The following technical support services shall be provided to Neoware Customers by NCD pursuant to Section 8.4 (a) of the Asset Purchase Agreement, at no additional cost to Neoware or its customers.

Technical support services are many and varied. NCD phone support will be available according to specific product warranty periods and support contracts, and for a minimum of three years for the ThinSTAR products.

Support hours are currently Monday through Friday, 9AM to 8PM EST.

NCD will provide Level 1 support to Neoware customers/end-users including call taking, call handling, problem solving, call dispatch and reporting. NCD with handle and track the progress of all calls until:

•       NCD solves the question or problem.

•       The customer is advised to download a driver or patch. NCD will answer questions over the downloading and installation of the patch.

•       An RMA number is assigned and communicated to the customer.

•       The call is escalated to Level 2 support.

NCD: Level 1 – Call acceptance and ownership until resolution. Gather problem information and try to answer questions. Escalate to Level 2 as required.

NCD: Level 2 – Respond to Level 1 escalations with a higher level of problem isolation, solution creation, and product expertise. Provide Level 1 with existing fixes, work-around solutions, or escalate to Level 3 support.

NCD: Level 3 – Respond to Level 2 escalations with the highest level of product expertise. Will assign resources as required to solve problems. Has the ability to direct problems to engineering or program management resources for resolution.

NCD Help Desk has an SQL compliant call tracking system that is used to gather information on all calls. This information can be made available to Neoware as needed.

NCD has 2 phone queues. All initial phone calls are answered by the Call Center for data gathering and entitlement. Customers who have paid NCD for “live” immediate phone technical support, or have purchased a ThinSTAR unit within the past 30 days, are then transferred into a support phone queue for immediate assistance.  All other customers do not receive immediate “technical” assistance. However the Call Center does answer their calls asap from the main NCD incoming phone queue.

Reports:

NCD shall provide Neoware with reports of all customer contact for hardware repair

and technical support services on a monthly basis, which include the following information:

Company name

Contact name

Contact telephone number

Contact email address

Product

Serial number (if available)

Date call initiated

Date call closed

Problem

Resolution

Attachment E

Pricing to Neoware

	TS332	TS332Web	TS500
Cost – Base	***	***	***
- Keyboard	***	***	***
- P/Sup Kit	***	***	***
- Overpack	***	***	***
- Pericom Roy.	***	***	***
- CE License	***	***	***
- Warranty	***	***	***
- Freight	***	***	***
Price to Neoware for EMEA sales	***	***	***
- Warranty	***	***	***
- Freight	***	***	***
Price to NWRE for non-EMEA sales	***	***	***

Attachment F

Warranties

NCD’s standard warranty on current products is 3 years.

The warranty is a “return to depot” service and covers NCD’s base module. Customers simply return the base module and within 10 business days from receipt of the faulty base module, NCD will repair or replace the faulty base model. NCD’s standard warranty is designed to protect the investment of our customers and to provide coverage of the typical financial life of the product.

Exhibit F

Employees

List of employees which Purchaser may desire to hire after the Closing:

Bill Rademacher

Delanie Doyle

Erin Ellery-Guy

Morten Roising

Mike Meacham

Tony Vaccari

Gary Barkley

Ron San Chirico

Rich San Chirico

Merle McGreehan

Ruta Wells

Chan Yong

Robert Groom

Exhibit G

Neoware Systems, Inc. Form of Non-Solicitation and Confidentiality Agreement

THIS NON-SOLICITATION AND CONFIDENTIALITY AGREEMENT is made and entered into this      day of            , 2001, by and between NEOWARE SYSTEMS, INC., for and on behalf of itself, its parents, subsidiaries, affiliates and related entities (collectively, the “Company”) and                    (“Employee”).

RECITALS

The Company has agreed to employ Employee in the capacity of              .

In and as a result of his or her employment by the Company, Employee will be making use of, acquiring and/or adding to confidential information of a special and unique nature and value relating to such matters as the Company’s trade secrets, systems, procedures, product formulas, cost and price information and lists of clients.

As an inducement to the Company to hire Employee, Employee is willing to agree to protect confidential information of the Company and to refrain from soliciting customers or employees of the Company as more fully provided in this Agreement.

AGREEMENT

In consideration of the foregoing, of the mutual promises herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

1.             During the term of his or her employment and at all times thereafter, Employee agrees to keep secret and retain in the strictest confidence all Confidential Information and Trade Secrets of the Company learned by Employee heretofore or hereafter, and not to use them for his or her own benefit or disclose them to anyone outside of the Company, either during or after the term of his or her employment, except as required for the performance of Employee’s duties as an employee of the Company or with the Company’s express written consent.

2.             Employee agrees to deliver promptly to the Company on the termination of his or her employment, or at any time the Company may so request, all memoranda, notes, records, reports, manuals, drawings and other documents (and all copies thereof in whatever medium they may be recorded or stored) relating to the Company’s business and all property associated therewith, which Employee may then possess or have under Employee’s control.

3.             For purposes of this Agreement, “Confidential Information” shall mean information disclosed to Employee or learned or made known to Employee as a consequence of or through his or her employment by the Company, not generally known in the industry in which the Company is or may become engaged, about the Company’s clients, customers, products, processes, and services, including, but not limited to: information relating to research, development, source codes, object codes or other technology-based information or products, inventions, manufacturing, purchasing, accounting, engineering, marketing, merchandising, and selling as well as lists of actual or prospective customers, customer contacts, pricing strategy, sources of suppliers and materials, accounting records, operating and cost data or other company financial information, compilations of information, drawings, proposals, job notes, reports, records and specifications, inventions, technology, patent applications and/or any other proprietary information as may exist or be developed from time to time by the Company or its affiliates.  For purposes of this Agreement, “Trade Secret” means the whole or any portion or phase of any scientific or technical information, design, process, formula, or improvement which is secret and is not generally available to the public, and which gives one who uses it an advantage over competitors who do not know of or use it.

4.             Employee agrees that upon termination of Employee’s employment, Employee shall return any and all customer lists and client lists to the Company and shall not, during the term of his or her employment or any time thereafter, directly or indirectly, use the Company’s customer or client lists for his or her own benefit or disclose the Company’s customer or client lists to any person firm or corporation.

5.             During the Term and at all times thereafter, Employee shall not disclose or use in any manner, directly or indirectly, and shall use Employee’s best efforts and shall take all reasonable precautions to prevent the disclosure of, any such Trade Secrets or other Confidential Information, except to the extent required in the performance of Employee’s duties or obligations to the Company hereunder or by express prior written consent of a duly authorized officer or director of the Company (other than Employee).

6.             Employee agrees that during the term of Employee’s employment and for a period of one (1) year thereafter, Employee shall not either directly or indirectly, on his or her own behalf or in the service or on behalf of others, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Competing Business, any person or entity that was a customer or client of the Company at any time during the 12-month period preceding such solicitation. For purposes of this Section 6, a “Competing Business” is any business engaged in the sale or provision of products and/or services comparable to the products and/or services offered by the Company at any time during the term of Employee’s employment by the Company.

7.             Employee agrees that during the term of Employee’s employment and for a period of one (1) year thereafter, Employee shall not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert, or hire away, to any other business, any person employed by the Company, whether or not such employee is a full-time employee or a temporary employee of the Company and whether or not

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such employment is pursuant to a written agreement and whether or not such employment is for a determined period or is at will.

8.             It is the express intention of Employee and the Company to comply with the provisions of all applicable law relating to the covenants contained in paragraphs 6 and 7 above. Employee stipulates that the provisions of this Agreement are not oppressive or overly burdensome to Employee and will not prevent Employee from earning an income following termination of this Agreement.  Employee warrants and represents that:

a.             Employee is familiar with the non-solicitation covenants;

b.             Employee has discussed or acknowledges the opportunity to discuss the provisions of the non-solicitation covenants contained herein with Employee’s attorney and has concluded that such provisions (including, without limitation, the right to equitable relief and the length of time provided for herein) are fair, reasonable and just under the circumstances;

c.             Employee is fully aware of the obligations, limitations and liabilities included in the non-solicitation covenants contained in this Agreement;

d.             The scope of activities covered hereby are substantially similar to those activities to be performed by Employee under this Agreement;

e.             The twelve (12) month non-solicitation periods are reasonable restrictions, giving consideration to the following factors:  (1) Employee and the Company reasonably anticipate that their employment relationship, although terminable at will, will continue in effect for sufficient duration to allow Employee to attain superior bargaining strength and an ability for unfair competition with respect to the customers covered hereby; (2) the duration of the twelve (12) month non-solicitation period is a reasonably necessary period to allow the Company to restore its position of equivalent bargaining strength and fair competition with respect to the Company’s Business covered hereby; and (3) historically, employees of all types have remained with the Company for a duration of longer than the duration of the twelve (12) month non-solicitation period; and

9.             Employee recognizes that the services to be performed by Employee are of a special, unique, unusual, extraordinary and intellectual character which gives them particular value, a loss of which cannot be reasonably or adequately compensated in damages in an action at law.  Employee therefore expressly agrees that the Company, in addition to any other rights or remedies which the Company may possess, shall be entitled to injunctive and other equitable relief to prevent a breach of this Agreement by Employee. If Employee violates any of the provisions of Sections 1 through 7 hereof, the Company shall have the following rights and remedies:

(1)           In the event of a breach, or a threatened breach, the right and remedy to have the provisions of this Agreement specifically enforced by any court having equity

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jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company; and

(2)           In the event of an actual breach, the right to recover damages for all losses, actual and contingent, and the right to require Employee to account for and pay over to the Company all profits or other benefits (collectively “Benefits”) derived or received by Employee as the result of any transactions constituting such a breach, and Employee hereby agrees to account for and pay over such Benefits to the Company.

10.           Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity.  If any of the covenants contained in Sections 1 through 7, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions.  If any of the covenants contained in Sections 1 through 7, or any part thereof, is held to be unenforceable because of the duration of such provision or the scope of the subject matter thereof or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration, scope and/or area of such provision and, in its reduced form, said provision shall then be enforceable.

11.           The Company shall be the sole owner of all the products and proceeds of Employee’s services hereunder, including, but not limited to, all materials, ideas, concepts, formats, suggestions, developments, arrangements, packages, computer programs and other intellectual properties that Employee may acquire, obtain, develop or create in connection with Employee’s employment by the Company, free and clear of any claims by Employee (or anyone claiming under Employee) of any kind or character whatsoever.  Employee shall, at the request of the Company, execute such assignments, certificates or other instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its right, title and interest in or to any such properties.

12.           Employee hereby represents and warrants that his employment by the Company will not cause Employee to be in violation of any non-competition or restrictive covenant which would, if enforceable, restrict his ability to continue as an employee of the Company and to perform his duties to the Company.

13.           This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without reference to principles of conflicts of law.

14.           This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof.

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15.           The Company may assign its rights, together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its business or assets.

16.           This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance.  The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same.  No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

NEOWARE SYSTEMS, INC.

(a Delaware corporation)

By:

EMPLOYEE:

EMPLOYEE’S ADDRESS:

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Exhibit H

OEM Supply Agreement

*** PORTIONS OF THIS EXHIBIT HAVE BEEN DELETED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.  THE CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

OEM SUPPLY AGREEMENT

This OEM Supply Agreement (the “Agreement”) is entered into as of March     , 2002, by and between NEOWARE SYSTEMS, INC. (“Neoware”), a Delaware corporation, with its principal place of business at 400 Feheley Drive, King of Prussia, Pennsylvania 19406, and NETWORK COMPUTING DEVICES, INC. (“NCD”), a Delaware corporation, with its principal place of business at 301 Ravendale Avenue, Mountain View, California 94043.

WHEREAS, NCD is presently engaged in the business of designing, developing, manufacturing, distributing and selling server and thin client management software marketed under the ThinPath and Thinfrastructure brand names, and thin client products, including Network Computers marketed under the NC900 brand name, and Windows-based thin client devices marketed under the ThinStar brand name;

WHEREAS, contemporaneously with the execution and delivery hereof, Neoware is acquiring the goodwill and certain assets used or useful in NCD’s business of designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name pursuant to an Asset Purchase Agreement, dated as of March     , 2002, to which Neoware and NCD are parties (the “Purchase Agreement”); and

WHEREAS, NCD wishes to purchase ThinStar products from Neoware and distributesuch products in Europe, the Middle East and Africa, and Neoware is willing to supply NCD with such products.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties, intending to be legally bound hereby, agree as follows:

1.             Appointment as Distributor; Territory; Products.

1.1           Subject to all the terms and conditions of this Agreement, Neoware hereby appoints NCD for the term of this Agreement as an exclusive distributor of the Products (as hereinafter defined) only to persons and entities located and taking delivery in Europe, the Middle East and Africa (the “Territory”).  NCD agrees to purchase the Products exclusively from Neoware in accordance with the terms of this Agreement. Products resold by NCD for further distribution may be distributed only through persons who are bound in writing to all the restrictions on NCD contained in this Agreement.  Except as set forth herein, nothing in this Agreement shall be construed as limiting in any manner Neoware’s marketing or distribution activities or its appointment of other suppliers, resellers, distributors, licensees or agents with respect to any of its products (except for the Products marketed and sold under the ThinStar brand) or any of its intellectual property, including the intellectual property which is a part of the Products (except for the ThinStar brand name).

1.2           “Products” shall mean the products marketed and sold under the ThinStar brand set forth in Attachment A, together with the documentation provided therewith by Neoware.  Any update, enhancement or improvement of a Product that is made generally

available by Neoware, that is substantially similar to such Product, and that is marketed under the same product number and nomenclature as such Product, shall be added to Attachment A as a new Product.  Neoware reserves the right to change or modify any Product at any time.  Neoware may add or delete products to or from Attachment A.  Initially, the Products will be units of NCD’s current product line of ThinStar 332, ThinStar 332Web and ThinStar 500 units until NCD’s and NCD’s suppliers’ inventory of such units (the “Existing Inventory”) has been consumed in accordance with Section 8.3 of the Purchase Agreement.  Thereafter, Neoware shall supply the ThinStar Products either with client software and functionality the same as NCD’s client software and functionality, provided that NCD develops such software at its sole cost, or with Neoware’s  standard client software, extended by NCD’s client-side management software, provided that NCD develops such software at its sole cost.  If NCD develops such software, Neoware shall provide limited telephone technical assistance to NCD to assist NCD in doing so.  Additionally, Neoware will agree to provide versions of its thin client products based upon Linux, Windows CE, Windows NTe and Windows XPe to NCD, provided that NCD extends these products with NCD’s client-side management software.  Neoware and NCD will collaborate to develop additional products with functionality and pricing required to meet NCD’s market requirements

2.             Supply and Payment Terms.

2.1           Neoware agrees to sell the Products to NCD, and NCD agrees to purchase the Products from Neoware, in accordance with the terms and conditions of this Agreement.

2.2           Products shall be delivered F.O.B. Neoware’s applicable warehouse or place of production, in the United States, China, Taiwan or other location of origin. Neoware shall supply the Products to NCD at a fixed price that represents a minimum of *** margin over actual burdened cost to Neoware, except with respect to ThinStar Voyager units, which Neoware shall supply to NCD at a fixed price representing a minimum of *** margin to Neoware. As of the date hereof, prices payable by NCD are those set forth in Attachment B.  Neoware shall have the right, from time to time or at any time, to change such prices to conform to the foregoing minimum margin requirements, upon thirty (30) days written notice.  New prices will apply to all shipments made after the end of such notice period.  In addition, NCD will pay ***.  Payment shall be made in U.S. dollars.  Terms of payment will be net sixty (60) days from invoice date, unless otherwise agreed to in writing by NCD and Neoware, or unless Neoware at any time determines that NCD’s credit is not satisfactory, in which case payment terms shall be C.O.D.  NCD’s payment obligations shall be secured pursuant to the terms of the Escrow and Security Agreement, dated March 22, 2002, between Neoware and NCD.

2.3           Copies of software Products are licensed for distribution only and are not sold.  NCD is not entitled to receive any source code or source documentation relating to the Products. Software components of Product(s) shall be licensed by Neoware to the end-user customer in accordance with the terms of the software license accompanying the relevant Product(s).  NCD shall inform its resellers in writing, and require them to deliver to the end-user

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customer the applicable software licenses with the relevant Product(s), and if required by applicable law,  obtain the customer’s signature on such licenses.

3.             Orders; Shipment.

3.1           Neoware and NCD will agree to a schedule for the manufacture and shipment of Products. Once agreed to, manufacture and shipment of Products will be in accordance with NCD’s binding purchase orders (“Purchase Orders”). Purchase Orders shall be numbered and dated and reference this Agreement in accordance with the provisions set forth in Attachment C.

3.2           NCD forecasts of Product purchases beyond ninety (90) days (or some other mutually agreed period) are for planning purposes only, are not firm, and will be issued every two weeks. Such forecasts shall not constitute or be deemed to be binding commitments by NCD.

3.3           Neoware will manufacture Products according to the quantity and delivery schedules set forth in Purchase Orders in effect from time to time during the term of this Agreement. Product Lead Times shall be set forth in Attachment B.  Neoware shall either acknowledge or object to each Purchase Order within five (5) days of receipt. Lack of acknowledgment by Neoware shall constitute acceptance.  Purchase Order Releases shall authorize shipment of Product to NCD or NCD customers.

3.4           Neoware will use its commercially reasonable efforts to meet any scheduled ship dates but reserves the right to schedule, reschedule or make partial shipments at its discretion; provided, however, that Neoware shall use its commercially reasonable efforts to give NCD notice for such rescheduling or partial shipments.

3.5           Upon delivery to the carrier, title (except as set forth herein) and risk of loss for all Product(s) shall pass to NCD.  Neoware shall use NCD’s specified carriers as identified on NCD’s Purchase Orders.  In the event of loss or damage, NCD shall notify the carrier and the insurer for the purpose of filing a claim.  Neoware will provide reasonable assistance to NCD in establishing any such claim.

3.6           Product over-shipment, incorrect shipment or receipt of a D.O.A. (Dead On Arrival) unit may be returned without penalty as set forth in Attachment D.

3.7           Neoware shall package, handle and label the Products so as to protect the Products from loss or damage, in conformance with good commercial practice, NCD’s specifications (provided NCD’s packing specifications do not create such non-conformance), government regulations, or other applicable standards.  Neoware shall be responsible for loss or damage resulting from such non-conformance.  Invoices will be forwarded to NCD the next business day after shipment.

4.             NCD’s Covenants and Representations.

Except as expressly and unambiguously provided herein, NCD represents, warrants and agrees:

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4.1           Not to (i) disassemble, decompile or otherwise reverse engineer the Products or otherwise attempt to learn the source code, structure, algorithms or ideas underlying the Products, (ii) rent, lease or otherwise provide temporary access to a Product, except as agreed by Neoware, (iii) copy or modify the Products, or (iv) allow others to do any of the foregoing.

4.2           To use its commercially reasonable efforts to successfully market, distribute and support (including installation, training and other support) the Products on a continuing basis, and to comply with good business practices and all laws and regulations relevant to this Agreement or the subject matter hereof.

4.3           To keep Neoware informed as to any major problems encountered with the Products and any resolutions arrived at for those problems, and to communicate promptly to Neoware material modifications, design changes or improvements of the Products suggested by any customer, employee or agent.  NCD will also promptly notify Neoware of any infringement of any trademarks or other proprietary rights relating to the Products, of which it becomes aware.

4.4           To comply with all export laws and restrictions and regulations of the Department of Commerce or other United States or foreign agency or authority, and not to export, or allow the export or reexport of any Product in violation of any such restrictions, laws or regulations. NCD shall, with the assistance of Neoware, which assistance shall be promptly provided, obtain any necessary licenses and/or exemptions with respect to the export from the U.S. of all material or items deliverable.

4.5           To obtain and maintain, at its expense, any business licenses, permits and approvals which are required to sell the Products and to comply with applicable law and regulations.

4.6           To demonstrate the Products when demonstrating thin client products to customers and prospective customers at trade shows, seminars and all other marketing events.

4.7           To advertise the Products in its advertisements, product brochures and on its website.  All advertisements and promotional materials of the Products shall be subject to the prior approval of Neoware, which approval shall not be unreasonably withheld.

4.8           To provide Neoware with access to its sales force for training and to invite Neoware’s employees to joint presentations to its customers and prospects.

4.9           To dedicate a product marketing person whose primary responsibility will be to support marketing and sales of the Products to its customers.

4.10         To provide Neoware with monthly sales-out reports by the end of each month detailing the company name, postal code, quantity and configuration of the Products shipped in the prior month to end customers or resellers for all end customers or resellers to whom Neoware does not directly ship products.

4.11         To comply with Neoware’s business compliance requirements, including a Business Plan, Hardware and Software Training and Sell Through Reporting, all as set forth on Attachment E.

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4.12         To read and follow any additional requirements for the distribution of Products as may be specified in the applicable attachments hereto, distributor handbook or ongoing communications.

4.13         Not to purchase, design or develop for sale any thin client device under the NCD or ThinStar brands, except for the existing NCD NC900 thin client device, other than products purchased from Neoware.

4.14         To purchase the Existing Inventory of the Products in accordance with Section 8.3 of the Purchase Agreement.

5.             Warranty and Technical Support.

5.1           EXCEPT FOR THE WARRANTY ACCOMPANYING EACH PRODUCT, NO OTHER WARRANTY OR CONDITION, EXPRESS OR IMPLIED, SHALL APPLY.  NEOWARE SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.  NO REPRESENTATION, CONDITION OR WARRANTY, INCLUDING BUT NOT LIMITED TO, STATEMENTS OF CAPACITY, SUITABILITY FOR USE, OR PERFORMANCE, WHETHER MADE BY NEOWARE EMPLOYEES OR NCD PERSONNEL, SHALL BE CONSIDERED TO BE A WARRANTY BY NEOWARE FOR ANY PURPOSE OR GIVE RISE TO ANY LIABILITY OF NEOWARE WHATSOEVER. The above warranty does not extend to any Product that (i) is modified or altered, (ii) is not maintained to Neoware’s maintenance recommendations, (iii) is operated in a manner other than that specified by Neoware, or (iv) is treated with abuse, negligence or other improper treatment.  NCD is fully responsible for satisfaction of its customers and will be responsible for all claims, damages, settlements, expenses and attorneys’ fees incurred by Neoware with respect to NCD’s customers or their claims beyond Neoware’s above warranty obligation to NCD.  NCD’s sole remedy with respect to any defect of the Products is as stated herein.

5.2           NCD may return Products found to be defective within thirty (30) days of shipment for credit against replacement Products, provided the amount for the credit shall be equal to, and shall not exceed, the purchase price paid by NCD.  All replaced parts or Products shall become the property of Neoware.  NCD shall return all defective parts or Products to Neoware in the United States, Taiwan or China, at Neoware’s option, freight and duty prepaid.  Replaced Products shall be shipped by Neoware freight prepaid.

5.3           Neoware shall provide technical support to NCD as set forth in Attachment F.

6.             Indemnification.

6.1           Neoware will defend, indemnify and hold NCD and its officers, directors, agents and employees harmless from liability resulting from any claim of infringement by the Product of any copyright, trade secret or patents, provided that NCD notifies Neoware within ten (10) days of any such claim in writing and gives to Neoware information, assistance and the sole authority to defend or settle such claim (at Neoware’s expense).  Neoware will pay all damages and costs finally awarded against NCD.  If Neoware’s Product is held to infringe, and the use of

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such Product is enjoined, or in the case of settlement, Neoware will have the option either to procure for NCD the right to continue using such Product or modify the Product so it becomes non-infringing, or grant NCD a credit for the depreciated value of the Product and accept return of the Product.

6.2           The foregoing indemnification does not apply with respect to Products or portions of components thereof (i) used in combination with products not supplied by Neoware, if such claim would have been avoided but for such combination, (ii) made in accordance with NCD’s specifications, designs or instructions, to the extent that such specifications, designs or instructions caused such claim, (iii) which are modified after shipment by Neoware, if such claim would have been avoided but for such modification, (iv) combined with other products, processes or materials, if such claim would have been avoided but for such combination, (v) where NCD continues the allegedly infringing activity after being notified thereof or after being informed of a modification that would have avoided the alleged infringement, or (vi) where NCD’s use of the Product is not in accordance with the terms of, or documentation or specifications provided by Neoware in, this Agreement, if such claim would have been avoided but for such use.  NCD will indemnify and hold Neoware and its officers, directors, agents and employees harmless from all damages, settlements, attorneys’ fees and expenses related to a claim of infringement excluded from Neoware’s indemnification obligation under this section.

The foregoing states the entire liability of Neoware with respect to infringement of intellectual property by the Products or any parts thereof.

7.             Limited Liability.

NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (1) ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE AMOUNTS PAID TO NEOWARE HEREUNDER DURING THE TWELVE-MONTH PERIOD PRIOR TO THE DATE THE CAUSE OF ACTION AROSE OR (2) ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOST DATA OR (3) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.  NEOWARE SHALL HAVE NO LIABILITY FOR ANY FAILURE OR DELAY DUE TO MATTERS BEYOND ITS REASONABLE CONTROL.

8.             Title; License.

8.1           Upon delivery to the carrier, except as set forth herein, title to the Products shall pass to NCD.

8.2           Title in and to the documentation for such Products shall remain solely in Neoware.

8.3           Title in and to, and except as expressly provided herein, all rights to all software Products, all copies and derivative works thereof, and all related documentation and materials, shall remain solely in Neoware.

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8.4           Title in and to, and except as expressly provided herein, all rights to any and all service marks, trademarks, trade names or other designations, copyrights, patent rights, trade secrets and other proprietary rights in the Products shall remain solely in Neoware. Neoware will provide NCD with advertising guidelines for Neoware’s logos, trade and service marks, trade names, emblems, and titles (hereinafter “Trademarks”).  Neoware will notify NCD in writing of the Trademarks, if any, NCD is authorized to use.  NCD may use the Trademarks only as described in such advertising guidelines and only in association with the Product(s) it is authorized to market.

8.5           Subject to the terms and conditions set forth in the Neoware License Agreement between Neoware and NCD, the form of which is attached hereto as Attachment G, Neoware shall grant to NCD an exclusive license to distribute the Products in the Territory.

9.             Relationship of Parties.

The parties hereto are independent contractors.  Neither party is a legal representative, legal partner, franchisee or agent of the other, and neither party has authority to act for, bind or make commitments for the other.  Each party shall be free to establish its own prices.

10.           Assignment.

This Agreement and the rights hereunder are not transferable or assignable without the prior written consent of the parties hereto, except for rights to payment.

11.           Option to Purchase; Right of First Refusal.

11.1         Option to Purchase.      Neoware may purchase from NCD, at any time prior to December 31, 2003, substantially all of the EMEA Assets and Liabilities (as defined herein) of NCD’s EMEA Operations (as defined herein).  Neoware shall furnish a notice to NCD of its intent to exercise its option to purchase.  Neoware will pay NCD an amount equal to the “Value” (as defined herein) of the EMEA Assets.  The closing of the purchase of the EMEA Assets will occur as soon as practicable after receipt by Neoware of all customary materials required to be delivered to Neoware in connection with the closing. Upon closing of the purchase of the EMEA Assets, this Agreement will be deemed terminated.

11.1.1      For purposes of Section 11.1, “EMEA Operations” means NCD’s operations in Europe, the Middle East and Africa.

11.1.2      For purposes of this Section 11.1, the “EMEA Assets” means substantially all of the assets owned or used or useful by NCD in connection with the EMEA Operations, at the time of the purchase, including, but not limited to, personal property, contract rights, intellectual property, governmental licenses and books and records, and substantially all of the liabilities of the EMEA Operations.

11.1.3      For purposes of this Section 11.1, “Value” shall be calculated as a percentage of the revenues for the EMEA Operations for the six months ending on the last day of the calendar month preceding the date of Neoware’s notice to NCD to exercise its option to purchase, multiplied by two. If the profits of the EMEA Operations for such period, calculated as

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EBITDA, is 1% or less of revenues, Value shall equal 25% of revenues for such period, with each additional full one percent of profit , as a percentage of revenues, resulting in an increase in Value in an amount equal to 5% of revenues, up to a maximum of 60% of revenues, multiplied by two.  The purchase price shall be paid in unregistered shares of Neoware’s common stock, subject to applicable securities laws, provided that Seller shall have the right to demand that up to 30% of the shares be registered for resale.

11.2         Right of First Refusal. Notwithstanding any other provision in this Agreement to the contrary, in the event NCD receives a bona fide offer (“Offer”) to purchase the EMEA Assets at any time prior to December 31, 2004, Neoware shall have a right of first refusal to purchase the EMEA Assets, as described herein. Upon receiving an Offer, NCD agrees to promptly deliver to Neoware a notice setting forth the terms of the Offer (“Offer Notice”). The Offer Notice shall be deemed to constitute an offer to sell to Neoware the EMEA Assets, on the terms set forth in the Offer. Neoware will have a period of thirty (30) days from the date of the Offer Notice to notify NCD that it agrees to purchase the EMEA Assets on such terms as set forth in the Offer. If Neoware timely agrees in writing to purchase the EMEA Assets, the parties will proceed to consummate the purchase of the EMEA Assets not later than the ninetieth day after the date of the Offer Notice. If Neoware does not agree within such thirty-day period to purchase the EMEA Assets, NCD will have the right, for a period of ninety (90) days after such thirtieth day, to sell to the person or entity (the “Offeror”) identified in the Offer Notice the EMEA Assets on terms and conditions no less favorable to NCD than those set forth in the Offer.  If NCD fails to sell the EMEA Assets to the Offeror on such terms and conditions within such ninety-day period, NCD will again be subject to the provisions of this Section 11.2 with respect to subsequent Offers to purchase the EMEA Assets. Upon closing of the purchase of the EMEA Assets, this Agreement will be deemed terminated.

11.3         Neoware Election.     In the event NCD receives an Offer under Section 11.2, Neoware shall be entitled to elect whether to have the provisions of Section 11.1 or 11.2 apply to its purchase of the EMEA Assets.

12.           Rescheduling and Cancellation.

12.1         NCD may increase, decrease or reschedule Products previously released for production on agreed terms and costs (if any) mutually agreed to by the parties.

12.2         NCD may not cancel production of Products within thirty (30) days of their scheduled ship dates.  NCD may reschedule production of Products within thirty (30) days of ship date as mutually agreed upon by the parties.  NCD may cancel Purchase Orders outside the thirty (30) day production period but will be responsible for the Termination Inventory as set forth in Section 13.

13.           Inventory Indemnification.

13.1         Upon cancellation of a Purchase Order, or upon expiration of this Agreement or termination of this Agreement for any reason, NCD shall be responsible for:

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(a)           all finished Products scheduled for shipment within the thirty (30) days immediately following Neoware’s receipt of the cancellation or termination notice (the “Notice”);

(b)           all work-in-process at receipt of the Notice; and

(c)           all components, subassemblies and other material purchased to fill a Purchase Order or authorized to be purchased by Neoware which are on hand or on order at the time of receipt of the Notice, including, without limitation, any parts of the Products made obsolete due to changes to the Products and the quantity of Products ordered, provided that such components, subassemblies or other materials cannot be used in other products by Neoware on a current basis.

Items (a) through (c) above are referred to as the “Termination Inventory.”  In calculating the quantity of finished Products under (a) above, Products rescheduled for manufacture and shipment during the forty-five (45) days immediately prior to receipt of the Notice may be counted by Neoware.

13.2         Within thirty (30) days from the date of termination or cancellation, Neoware will invoice, and NCD will purchase, the Termination Inventory, at the purchase price in effect as of the date of termination or cancellation, as applicable.

14.           Term and Termination.

14.1         The term of the Agreement shall commence on the date hereof (the “Effective Date”) and shall continue until December 31, 2004, or until it is otherwise terminated pursuant to the terms hereof.

14.2         This Agreement may be terminated by either party if the other party materially breaches this Agreement and fails to cure the default within thirty (30) days after receipt of written notice of termination from the other party specifying such breach, or fails to reach agreement with the party providing notice within such thirty (30) day period to cure the breach in accordance with such agreement.

14.3         If either party becomes insolvent or seeks protection under, or becomes the subject of, any bankruptcy, receivership, creditor’s arrangement or comparable proceeding, the other party may at its option, by written notice, immediately terminate this Agreement.

14.4         If either party ceases to do business, or otherwise terminates its business operations, the other party may at its option immediately terminate this Agreement.

14.5         Termination of this Agreement shall not affect Neoware’s right to be repaid for undisputed invoices for Products already shipped and accepted by NCD or Neoware’s rights to any credits or payments owed or accrued to the date of termination, or NCD’s rights to receive Products under Purchase Orders accepted by Neoware, provided that such Purchase Orders are for a maximum quantity representing sixty (60) days of supply based upon the prior six months’ deliveries.

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14.6         The following sections shall survive termination of this Agreement: Sections 5, 6, 7, 8, 10, 11, 12 and 15.

15.           General.

15.1         Except as otherwise expressly provided herein, any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or any particular instance and either retroactively or prospectively) only with the written consent of the parties.  However, it is the intention of the parties that this Agreement be controlling over additional or different terms of any order, confirmation, invoice or similar document, even if accepted in writing by both parties, and that waivers and amendments shall be effective only if made by non-preprinted agreements clearly understood by both parties to be an amendment or waiver.

15.2         This Agreement shall be governed by and construed under the laws of the Commonwealth of Pennsylvania and the United States without regard to conflicts of laws provisions thereof and without regard to the United Nations Convention on Contracts for the International Sale of Goods.  Unless waived by Neoware in writing for the particular instance, the sole jurisdiction and venue for actions related to the subject matter hereof shall be the Pennsylvania state and federal courts having within their jurisdiction the location of Neoware’s principal place of business.

15.3         Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement.

15.4         Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally, (ii) upon receipt, when sent by facsimile, provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party or (iii) one (1) business day after deposit with a nationally recognized overnight courier.  The addresses for such communications shall be the addresses first set forth herein or as amended by notice pursuant to this section.

15.5         This Agreement supersedes all proposals, oral or written, all negotiations, conversations, or discussions between or among parties relating to the subject matter of this Agreement and all past dealings or industry custom.

15.6         If any provisions of this Agreement is held by a court of competent jurisdiction to be illegal, invalid or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

15.7         Neoware and NCD agree to be bound by the terms of the Confidentiality and Non-Disclosure Agreement dated March      , 2002, between Neoware and NCD, with regard to the terms of this Agreement or any attachment hereto, and to any information disclosed by either party to the other relating to this Agreement.

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15.8         Neither party shall be liable for damages and costs to the other party arising out of delays or failures to perform under this Agreement if such delays or failures result from causes beyond the reasonable control of a party, and are not caused by an act or omission of such party.  Notice of any such delays or failures and explanation of their causes must be given to the other party within five (5) days of the occurrence.  As soon as it is reasonably apparent that the occurrence will likely cause a delay of more than sixty (60) days, the party against whom this section is invoked shall have the right to terminate the affected installments under any Purchase Order.  If NCD is the party claiming the force majeure event, NCD shall be liable for any applicable cancellation charges and be responsible for termination obligations as detailed within Section 13.  This force majeure provision may not be invoked for failure or inability to make a payment under this Agreement.

15.9         This Agreement shall be binding upon and inure to the benefit of Neoware and NCD and their respective successors, heirs and assigns; provided, however, that, except as provided in this Section 15.9, NCD shall not directly or indirectly transfer or assign this Agreement or any part hereof without the prior written consent of Neoware. Subject to the foregoing, this Agreement is not intended to benefit, and shall not run to the benefit of or be enforceable by, any other person or entity other than the parties hereto and their permitted successors and assigns.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

NETWORK COMPUTING DEVICES, INC.

By:

Name:

Title:

Date:

NEOWARE SYSTEMS, INC.

By:

Name:

Title:

Date:

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ATTACHMENT A

PRODUCTS

NCD ThinSTAR 332

NCD ThinSTAR 332Web

NCD ThinSTAR 500

NCD ThinSTAR 550

NCD ThinSTAR Voyager

ATTACHMENT B

PRODUCT LEAD TIME AND PRICE LIST

Model	P/N	Description	Price (1)(4)		Lead time
NCD ThinStar 332		Existing NCD ThinSTAR 332	$	***	4 WEEKS
NCDThinSTAR 332		Existing NCDThinSTAR 332Web	$	***	4 WEEKS
NCD ThinSTAR 500		Existing NCD ThinSTAR 500	$	***	4 WEEKS
NCD ThinSTAR 550 (5)	TSB55 0-1	ThinSTAR 550 CE.NET 16MB FLASH 32MB RAM MOUSE EURO CORD (NO KBD)	$	***	4 WEEKS (2)
NCD ThinSTAR Voyager		(6)	(6)		(6)
Customization Charge		Rating Label, Packaging, Bezel Silkscreen, Manual.	$	***	6 WEEKS (3)

Notes:

(1).  Price based upon minimum 500 units per shipment.

(2).  Standard leadtime based upon accurate rolling forecast, otherwise 8 weeks.

(3).  Customization leadtime is from receipt of NCD artworks to availability in mass production.

(4).  Excluding the ThinSTAR Voyager, the purchase price shall be *** of the above prices for the ThinSTAR 550, and *** of the above prices for the ThinSTAR 332, ThinSTAR 332Web and ThinSTAR 500 after *** of combined shipments per quarter.

(5).  The ThinSTAR 550 will be made available only after Neoware’s obligation to purchase up to a maximum of 10,000 existing ThinSTAR units under Section 8.3 of the Purchase Agreement has been satisfied.

(6).  The description, price and lead time applicable to the NCD ThinSTAR Voyager will be subject to the OEM Purchase and Development Agreement between NCD and Airspeak, Incorporated, dated December 20, 2001, which agreement will be assigned to Neoware.

ATTACHMENT C

PRODUCT ORDERS

1.0           To place an order, purchase orders should be sent by fax/mail to:

Neoware Systems, Inc.

400 Feheley Drive

King of Prussia, Pa 19406

ATTN: Order Administration

Email:  orders@neoware.com

Phone: 610-277-8300 Ext. 184

Fax: 610-275-5739

The signed purchase order should include:

Agreement number

Purchase order number

Bill to name and address

Ship to name(s) and address(es)

Part number of each Product ordered

Quantity of each Product ordered

Price of each Product ordered

Desired delivery date(s)

Preferred carrier and forwarding agent

Special shipping instructions, if appropriate

Delivery Date(s) shall mean the date(s) Neoware shall deliver the Product(s) to a freight carrier as specified in NCD’s purchase order.  Neoware shall incur no shipping costs unless expressly agreed to in writing.

ATTACHMENT D

PRODUCT RETURNS

Section I.               Product Returns: (DOA/RMA- Return Merchandise Authorization)

1.0           NCD may return Product without penalty under the following conditions:

Over-shipment by Neoware.

Incorrect Product shipped.

Product received was Dead On Arrival (D.O.A.), damaged or defective unless such damage was caused by NCD’s freight carrier.

NOTE 1:        Product may only be returned under this process if they have been in NCD’s possession no longer than thirty (30) calendar days. NCD may be asked to provide the serial number(s) as proof of the 30-day possession.  For all repairs, please see Product Returns as set forth in Section II of this Attachment.

2.0           Process:

2.1)          Contact 610-277-8300 to request RMA.

2.2)          Upon request provide:

Product part number(s)

Quantity

Product serial number(s)

Reason for return or the specific failure experienced

Replacement P.O. and ship-to address

2.3)          Customer Support will:

Provide RMA number and Neoware shipping address to return Product.

Fax RMA label to requestor; such label MUST be attached to all Product cartons to be returned to Neoware.

NOTE 2:  RMA number MUST be visible on EACH carton.  NCD may use the RMA label provided, or may prominently note RMA number on shipping label.  PROPER CREDIT CANNOT BE ISSUED WITHOUT THE RMA NUMBER.

The return shipping expense will be incurred by Neoware.

NOTE 3:  Please note that replacement orders must be made by NCD, not the end-user.  If the return has been in NCD’s possession more than 30 days, the customer should follow the warranty policy for the units. (See the related Repair Procedure.)

Section II:   Product Returns: (For All Repairs)

1.0   Policy

During the three-year return to depot warranty applicable for the hardware, the warranty will be fulfilled by Neoware in Europe, the United States, Taiwan, China, or other location, at Neoware’s sole option.

2.0   Process

Contact 610-277-8300 to request RMA.

Caller must have the following information available when placing a service call:

Unit Model Number

Unit serial Number

Description of Problem

Upon supplying this information you will be given a repair authorization as well as shipping information.

Customer pays for all shipping costs. Neoware pays return shipping from the repair depot.

Upon receiving a unit, the average turn around time is 30 days.

ATTACHMENT E

BUSINESS PLAN, HARDWARE AND SOFTWARE TRAINING
AND SELL THROUGH REPORTING REQUIREMENTS

Section I.               Business Plan – Elements of the Business Plan should include the following:

1.0           Business Plan:

1.1)          ***

1.2)          ***.

1.3)          ***.

1.4)          ***.

1.5)          ***.

Section II.              Neoware Hardware and Software Training

2.0           Training

2.1)          To ensure that resellers can properly support Neoware Products and customers, Neoware requires that distributors receive training on Neoware’s Products.  It is required that at least two (2) of NCD’s employees be trained by Neoware.

2.2)          NCD must be trained on Windows NT prior to being authorized to sell Neoware’s Products.  Neoware will not authorize any distributor who has not been trained on Windows NT.  Potential distributors may be trained on Citrix products after having been signed by Neoware at Neoware’s discretion.

Section III.            Sell Through Reporting

3.0           Reporting

3.1)          NCD must provide Neoware with Point-of-Sale (“POS”) reports for each month by the 7^th of the following month.

3.2)          POS should be sent in a Microsoft Excel format.  Columns should be listed as follows:

XYZ COMPANY POS REPORT: JAN 1 - JAN 31, 2001

ORDER DATE CUSTOMER NAME SALES REP. PART# QTY COST EXT COST SHIP TO CITY SHIP TO  COUNTRY

POS report should be e-mailed to orders@neoware.com.

Section IV.            Inventory Reporting

4.0           Reporting

4.1)          Distributor must provide Neoware with an inventory report for each month by the 7^th of the following month.  Inventory Reports should be e-mailed to orders@neoware.com.

4.2)          Inventory Reports should be sent in a Microsoft Excel format.  Columns should be listed as follows:

Vendor Part# Description Inventory Status Code Back Orders Qty Available In Transit On Order

ATTACHMENT F

NEOWARE TECHNICAL SUPPORT RESPONSIBILITIES

1.0           Neoware Technical Support Responsibilities:

1.1)          Technical Support

1.1.1)           Neoware will provide the following support service options for NCD that will allow it to fulfill its end-user technical support responsibilities:

1.1.1.1)	NCD will provide Level 1 with Neoware “back-up” Level 2 support
1.1.1.2)	Neoware may make available, to NCD, Level 2 support as required (for a fee), to support end-user.  Level 2 support can be purchased from Neoware at the prices listed on Neoware’s published price list.
1.1.1.3)	Neoware may make available, to NCD, Level 2 support on an annual technical support contract basis at the price listed in the Neoware published price list.  Agreements will be between Neoware and NCD, on a per end-user account basis.  A Level 2 support agreement (Neoware Technical Support Agreement) will provide NCD with technical support services necessary to offer Level 2 support to their end-user accounts.
* Level 1 support refers to initial call taking and routine technical support
** Level 2 support refers to advanced technical support (i.e.: troubleshooting, debugging, etc.)

1.2)          Contacting Technical Support

Technical Support Response Center

By phone number: +1-610-277-8300

	U.S. East Coast Time
	8:30 a.m. – 5:30 p.m. (Monday - Friday); Immediate response
	- 7 x 24 hr.; Voice mail
By E-mail:		support@neoware.com - response within 1 business day
By Internet:		http://www.neoware.com/

1.3)          Product Maintenance

1.3.1)       Should Neoware determine that there is a defect in its product, Neoware will use its commercially reasonable efforts to provide an avoidance procedure for and/ or a correction of such defect through off-site telephone support of NCD.  Neoware shall have sole discretion as to the method and manner of maintenance and support efforts.

1.4)          Software Updates

1.4.1)       As solutions are developed for known errors in the software, they may be incorporated from time to time in updates to the software (“Software Updates”).  Neoware will notify NCD of such updates on an as needed basis and will make Software Updates available to NCD at then current prices when updates are developed.  However, Neoware is under no obligation to provide software updates for the Products.

1.5)          Enhancements

1.5.1)       On an as needed basis, Neoware will inform NCD of new features (“Enhancements”) which NCD may acquire at its option, at Neoware’s then current prices.

Section II.              Neoware Hardware and Software Training

2.0           Partner Technical Support Responsibilities

2.1)          Marketing Efforts & Restrictions

2.1.1)       NCD will understand and agree to instruct customers on technical support options.

2.1.2)       NCD shall leave all technical support information shipped with the unit intact.

2.2)          Training

2.2.1)       NCD agrees to maintain a staff having the technical knowledge and training necessary to inform customers of Neoware Product features and capabilities.

2.3)          Technical Support

2.3.1)       NCD will provide technical support to meet the needs of their customers (Level 1 & Level 2 support), either directly providing technical services or indirectly through Neoware or any combination thereof.  For customers that are directly supported by NCD (NCD providing Level 1 support), it will be the responsibility of NCD to inform these end-users of updates and enhancements to the Product.

2.4)          Costs

2.4.1)       Except as provided herein, NCD will pay all costs and expenses incurred as part of its technical support responsibilities.

ATTACHMENT G

NEOWARE LICENSE AGREEMENT

This License Agreement (the “Agreement”) is entered into this 22nd day of March, 2002 (the “Effective Date”), by and between NEOWARE SYSTEMS, INC. (“Neoware”), having its principal place of business at 400 Feheley Drive, King of Prussia, Pennsylvania 19406, and NETWORK COMPUTING DEVICES, INC. (“NCD”), having its place of business at 301 Ravendale Drive, Mountain View, California 94043.

WHEREAS, NCD is presently engaged in the business of designing, developing, manufacturing, distributing and selling server and thin client management software marketed under the ThinPath and Thinfrastructure brand names, and thin client products, including Network Computers marketed under the NC900 brand name, and Windows-based thin client devices marketed under the ThinStar brand name;

WHEREAS, contemporaneously with the execution and delivery hereof, Neoware is acquiring the goodwill and certain assets used or useful in NCD’s business of designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name pursuant to an Asset Purchase Agreement, dated as of March 22, 2002, to which Neoware and NCD are parties (the “Purchase Agreement”);

WHEREAS, contemporaneously with the execution and delivery hereof, NCD has agreed to purchase ThinStar products from Neoware and to distribute such products in Europe, the Middle East and Africa, and Neoware is willing to supply NCD with such products, pursuant to an OEM Supply Agreement, dated as of March 22, 2002, to which Neoware and NCD are parties (the “OEM Supply Agreement”); and

WHEREAS, Neoware wishes to grant to NCD certain licenses as set forth herein so that NCD may perform certain of its obligations under the Purchase Agreement and the OEM Supply Agreement.  

NOW, THEREFORE, in consideration of the mutual promises contained herein, and intending to be legally bound hereby, the parties agree to the following:

1.             DEFINITIONS.

(a)           “Intellectual Property Rights” means all copyright, trademark, trade secret, trade name, know-how, mask work and moral rights and all rights related to issued and pending patents and all patent registrations and applications for registrations (including patent reissues, divisions, continuations, continuations-in-part, renewals and extensions).

(b)           “Neoware Software” means those portions of Neoware’s Windows CE, Windows NTe, Windows XPe and Linux software that Neoware in its sole judgment deems necessary for NCD to fulfill its obligations under Section 1.2 of the OEM Supply Agreement, as well as updates and enhancements thereto, in source code form, and the related documentation.

(c)           “ThinStar Software” means the ThinStar Software acquired from NCD pursuant to the Purchase Agreement, and products incorporating all of the ThinStar Software, as well as updates and enhancements thereto, as described in Exhibit A, in source code and object code form, and the related documentation.

2.             LICENSE & OWNERSHIP.

(a)           Nonexclusive License to ThinStar Software. Neoware grants to NCD a nonexclusive, non-transferable, worldwide, fully-paid license to use, reproduce, modify and create derivative works of the ThinStar Software for the purposes of (i) complying with its warranty and support obligations as set forth in Sections 8.1 (“Seller-Assumed Warranty Obligations”) and 8.4 (“Seller-Assumed Support Service Obligations”) of the Purchase Agreement, and (ii) developing the “Products” defined in Section 1.2 of the OEM Supply Agreement. This license shall terminate upon the later of  (i) the date that NCD has fulfilled its obligations as set forth in Sections 8.1 and 8.4 of the Purchase Agreement, or (ii) the termination date of the OEM Supply Agreement.  Notwithstanding the foregoing, this license shall be terminable by Neoware, in its sole discretion, in the event of NCD’s continued material breach of its obligations under Sections 8.1 or 8.4 of the Purchase Agreement.

(b)           Nonexclusive License to Neoware Software.  Neoware grants to NCD a nonexclusive, non-transferable, fully-paid license to use and reproduce the Neoware Software for the sole purpose of developing client-side management software for Neoware’s Windows CE, NTe, XPe and Linux products, as referred to in Section 1.2 of the OEM Supply Agreement, for use on products provided by Neoware under the OEM Supply Agreement.  This license shall be terminable by Neoware, in its sole discretion, in the event NCD fails to develop such software by September 30, 2002.This license shall terminate on the termination date of the OEM Supply Agreement. Notwithstanding the foregoing, this license shall be terminable by Neoware, in its sole discretion, in the event of NCD’s continued material breach ofits obligations under Sections 8.1 or 8.4 of the Purchase Agreement.

(c)           Exclusive License to Distribute ThinStar Brand in EMEA.  Subject to NCD’s  timely payment of the price (as set forth in the OEM Supply Agreement) and compliance by NCD with each of the terms and provisions of the OEM Supply Agreement, Neoware grants to NCD an exclusive, non-transferable, fully-paid license to sell and distribute the ThinStar  branded products set forth in Exhibit B to NCD’s customers in Europe, the Middle East and Africa (“EMEA”), provided that such products are purchased from Neoware in accordance with the terms of the OEM Supply Agreement.  This license shall be terminable by Neoware, in its sole discretion, in the event NCD fails to perform its obligations under the OEM Supply Agreement.  This license shall terminate on the termination date of the OEM Supply Agreement. This license grants exclusive use of the ThinStar brand only, and does not grant any exclusive or non-exclusive use of the ThinStar Software or the Neoware Software.

(d)           Restrictions.  NCD shall not license, sublicense, distribute or release the Neoware Software (or any derivative works thereof) or the ThinStar Software (or any derivative works thereof) alone or with any software, product or service, or otherwise use the Neoware Software or the ThinStar Software other than as set forth in this Agreement.

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(e)           Trademarks & Copyrights.  NCD is not granted any right or license to display or otherwise use Neoware’s trademarks under this Agreement.  NCD shall, however, display the following language in connection with the ThinStar Software :

“Includes Neoware thin client appliance technology, under license from Neoware Systems, Inc.

©2002 Neoware Systems, Inc.  All Rights Reserved.”

in all copyright notices in product labels, source code, help screens, manuals and all other documentation and in the “about” window that may be activated on a user’s computer screen when using the ThinStar Software or the Neoware Software.

(f)            Ownership.  Neoware retains all right, title and interest, including all Intellectual Property Rights, in the ThinStar Software and the Neoware Software and any part thereof as well as in any derivative works of, and any updates and enhancements to, the ThinStar Software and the Neoware Software, whether created or developed by Neoware or NCD, and NCD shall have no rights thereto other than as set forth in Section 2 hereof.

3.             INDEMNIFICATION.  NCD shall indemnify, defend and hold Neoware harmless from any and all liability, loss, cost, damage, judgment or expense (including reasonable attorneys’ and expert witnesses’ fees and costs) resulting from or arising out of (i) any material breach by NCD of any of the terms of this Agreement, or (ii) any use or modification of the Neoware Software or the ThinStar Software other than as permitted in this Agreement which causes damage or liability to Neoware or results in infringement of any third party’s Intellectual Property Rights.  This obligation is subject to Neoware notifying NCD promptly in writing of the claim.

4.             NO WARRANTY; DISCLAIMER.  THE NEOWARE SOFTWARE AND THE THINSTAR SOFTWARE IS PROVIDED “AS IS” AND WITHOUT WARRANTY OF ANY KIND.  NEOWARE DOES NOT WARRANT THE PERFORMANCE OR RESULTS FROM ANY USE OF THE NEOWARE SOFTWARE OR THE THINSTAR SOFTWARE.   NEOWARE MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

5.             LIMITATION OF LIABILITY.  To the maximum extent permitted by law, in no event shall Neoware be liable to NCD or its customers for any consequential or incidental damages, including any lost profits or lost savings arising out of the subject matter of this Agreement, even if Neoware has been advised of the possibility of such damages, or any claim against NCD by any third party.  In no event will Neoware be liable for any representation or warranty made by NCD to any third party or for the failure of the NCD Software or the ThinStar Software to perform.  In no event shall Neoware’s total liability to NCD for all damages, losses, attorneys’ fees and court costs, and causes of action in any way related to the subject matter of this Agreement (whether in contract, tort including negligence or otherwise) exceed twenty thousand dollars ($20,000).  Except for a breach of any of the terms of this Agreement by NCD,

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 which are excluded from this limitation of liability, NCD’s total liability to Neoware for third party claims in any way related to the subject matter of this Agreement (whether in contract, tort including negligence or otherwise) shall not exceed twenty thousand dollars ($20,000).

6.             INJUNCTIVE RELIEF.  Neoware and NCD each acknowledges and agrees that a breach of the confidentiality restrictions contained in Section 8 shall cause irreparable injury to the aggrieved party for which such party shall not have an adequate remedy at law.  In addition to any other relief to which the aggrieved party might be entitled, the party shall be entitled to equitable relief in court, including, but not limited to, temporary restraining orders, preliminary injunctions, and permanent injunctions.  NCD and Neoware hereby expressly waive any requirement that the aggrieved party first post a bond or security before obtaining such relief.

7.             PUBLICITY.  Neither party may disclose the terms of this Agreement or the subject matter thereof without the prior written consent of the other party, unless required by law.

8.             CONFIDENTIAL INFORMATION.

(a)           Confidential Information.  By virtue of this Agreement, either party may have access to the other party’s Confidential Information (as defined below).  Each party agrees to use the other party’s Confidential Information solely for purposes of this Agreement and will hold the other party’s Confidential Information in confidence during the term of this Agreement and after termination.  Each party further agrees that, unless required by law, it will not make the other party’s Confidential Information available in any form to any third party for a period of five (5) years following termination of this Agreement other than (i) its own employees and/or contractors who need to know or use such Confidential Information for purposes of implementing this Agreement,  (ii) its licensees as limited in Section 2 of this Agreement, or (iii) pursuant to a valid court order provided the disclosing party provides the other party with prompt written notice of such requirement so that the other party may seek a protective order or other appropriate remedy. Each party shall take all reasonable precautions to prevent the disclosure, distribution or use of the Confidential Information of the other party by its employees, agents, or contractors in violation of the terms of this Agreement.

(b)           Definition.  “Confidential Information” means the Neoware Software, the ThinStar Software, the terms and conditions of this Agreement, and non-public information provided by one party to the other under this Agreement that is identified in writing as confidential.

(c)           Exclusions.  Confidential Information does not include information that (i) is or becomes publicly available through no act or omission of the receiving party; (ii) is rightfully received by the receiving party from a third party without restriction on disclosure and without breach of a nondisclosure obligation; or (iii) is previously rightfully known to the receiving party.

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9.             TERM & TERMINATION.

(a)         Term.  This Agreement begins on the Effective Date and continues unless and until it is terminated pursuant to Section 9(b).  Each license shall terminate as set forth in Section 2.

(b)           Termination.  Either party may terminate this Agreement upon thirty (30) days written notice of a material breach of this Agreement by the other party if such breach is not cured within such thirty (30) day period.  In addition, each license may be terminated by Neoware as set forth in Section 2.

(c)           Rights Upon Termination.  Upon termination of this Agreement, all licenses granted to NCD under this Agreement, except as described in this Section, shall immediately terminate, NCD shall cease all use, reproduction and distribution of the Neoware  Software and the ThinStar Software and any part or derivative work thereof, and NCD will destroy all copies of the Neoware Software and the ThinStar Software and any part thereof in NCD’s possession or under its control within ten (10) days following the termination date, except that NCD may retain one (1) copy of the ThinStar Software to be used solely for end-user support purposes for up to two (2) years after termination of this Agreement.

10.           GOVERNMENT RESTRICTIONS.  For Neoware Software and ThinStar Software and documentation delivered to an agency or instrumentality of the United States government, NCD shall identify the Neoware Software and the ThinStar Software and documentation as “commercial computer software” and “commercial computer software documentation” and, pursuant to FAR 12.212 and/or DFARS 227.7202 (and their successors, as applicable), shall restrict the government’s right to use, reproduce and/or disclose such Neoware  Software and ThinStar Software and documentation in accordance with the terms of NCD’s then-current standard end user license agreement.

11.           GENERAL.

(a)           Notice.  Any notices to be given hereunder will be given in writing via postage prepaid, return receipt requested certified mail (or an equivalent method under the laws of the country where mailed), courier service or facsimile transmission to the address of each party set forth in this Agreement or to such other address as either party may substitute by written notice to the other as provided herein.  Notices shall be effective two (2) days after official confirmation of delivery to the intended recipient by return receipt or the equivalent or, in the case of facsimile, one (1) day after confirmation of transmission.

(b)           Waiver.  Failure by either party to exercise any of its rights hereunder shall not constitute or be deemed a waiver or forfeiture of such rights.

(c)           Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.  The United Nations Convention on Contracts for the International Sale of Goods (1980) is specifically excluded from application to this Agreement.

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(d)           Severability.  If any provision of this Agreement is unenforceable or invalid under applicable law, such provision shall be changed and interpreted to best accomplish the objectives of the original provision to the fullest extent allowed by law and the remaining provisions of this Agreement shall remain in full force and effect.

(e)           Export.  NCD shall be fully and solely responsible for securing any and all permits and licenses in order to export the ThinStar branded products set forth in Exhibit B.

(f)            Attorney’s Fees.  In the event any proceeding or lawsuit is brought by either party to enforce its rights hereunder, the prevailing party shall be entitled to recover its costs, including expert witness fees and reasonable attorneys’ fees.

(g)           Headings.  Headings are used in this Agreement for convenience only and shall not affect any construction or interpretation of this Agreement.

(h)           Assignment. This Agreement shall be binding upon and inure to the benefit of Neoware and NCD and their respective successors, heirs and assigns; provided, however, that NCD shall not directly or indirectly transfer or assign this Agreement or any part hereof without the prior written consent of Neoware.  Any assignee of Neoware shall be obligated to perform all of Neoware’s obligations hereunder.  Subject to the foregoing, this Agreement is not intended to benefit, and shall not run to the benefit of or be enforceable by, any other person or entity other than the parties hereto and their permitted successors and assigns.

(i)            Entire Agreement.  This Agreement, including the exhibits attached hereto, is the complete agreement between Neoware and NCD and supersedes any prior agreements between Neoware and NCD relating to the subject matter hereof.  This Agreement shall not be modified except by a properly executed written agreement.

(j)            Survival.  The provisions of Sections 2 (“Ownership”), 3 (“Indemnification”), 4 (“No Warranty; Disclaimer”), 5 (“Limitation of Liability”), 6 (“Injunctive Relief”), 7 (Publicity), 8 (“Confidential Information”), 9(c) (“Rights Upon Termination”) and 11 (“General”) shall survive termination or expiration of this Agreement or the licenses granted hereunder.

(k)           Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument.

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IN WITNESS WHEREOF, Neoware and NCD have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

	NETWORK COMPUTING		NEOWARE SYSTEMS, INC.
	DEVICES, INC.
By		By:
Name:		Name:
Title:		Title:

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Exhibit A

ThinSTAR Software:

All software used in the NCD ThinSTAR 200, 300, 400, and 500 Series product lines,     resident in the NCD ThinSTAR thin client flash PROM and BOOT ROM.

Boot ROM validates integrity of the file system and may initiate a reload of the software

System can be reinitialized by the user.

The ThinSTAR can load in additional or replacement software modules over the network
Modules have unique upgrade policies based on terminal model number.

Ability to delete options from the terminal over the network or locally on the terminal.

Ability to customize the available local printers.

Local LPD for ability to print to terminal from Unix host.

Ability to control disability setting to enable keyboard audio confirmation.

All enhancements to Microsoft’s Windows CE operating system designed and developed by NCD for use in the ThinSTAR product line.

Exhibit B

Products:

NCD ThinSTAR 332

NCD ThinSTAR 332Web

NCD ThinSTAR 500

NCD ThinSTAR 550

NCD ThinSTAR Voyager

Exhibit I

Warranties

NCD’s standard warranty on current products is 3 years.

The warranty is a “return to depot” service and covers NCD’s base module.  Customers simply return the base module and within 10 business days from  receipt of the faulty base module, NCD will repair or replace the faulty  base module. NCD’s standard warranty is designed to protect the  investment of our customers and to provide coverage for the typical  financial life of the product.

Exhibit J

Technical Support Services

NCD provide services for the NCD ThinStar devices including the ThinStar software as part of the 3-year warranty. Customer can purchase extended warranty for 1 or 2 extra years.

NCD also provides technical services and upgrades for the ThinPATH products. This service is free for 30 days after shipment/installation. After this period, NCD offers support based on incident contracts or subscription licenses.

The following technical support services shall be provided to Neoware Customers by NCD pursuant to Section 8.4 (a) of the Asset Purchase Agreement, at no additional cost to Neoware or its customers.

Technical support services are many and varied. NCD phone support will be available according to specific product warranty periods and support contracts, and for a minimum of three years for the ThinSTAR products.

Support hours are currently Monday through Friday, 9AM to 8PM EST.

NCD will provide Level 1 support to Neoware customers/end-users including call taking, call handling, problem solving, call dispatch and reporting. NCD with handle and track the progress of all calls until:

•      NCD solves the question or problem.

•The customer is advised to download a driver or patch. NCD will answer questions over the downloading and installation of the patch.

•      An RMA number is assigned and communicated to the customer.

•      The call is escalated to Level 2 support.

NCD: Level 1 – Call acceptance and ownership until resolution. Gather problem information and try to answer questions. Escalate to Level 2 as required.

NCD: Level 2 – Respond to Level 1 escalations with a higher level of problem isolation, solution creation, and product expertise. Provide Level 1 with existing fixes, work-around solutions, or escalate to Level 3 support.

NCD: Level 3 – Respond to Level 2 escalations with the highest level of product expertise. Will assign resources as required to solve problems. Has the ability to direct problems to engineering or program management resources for resolution.

NCD Help Desk has an SQL compliant call tracking system that is used to gather information on

all calls. This information can be made available to Neoware as needed.

NCD has 2 phone queues. All initial phone calls are answered by the Call Center for data gathering and entitlement. Customers who have paid NCD for “live” immediate phone technical support, or have purchased a ThinSTAR unit within the past 30 days, are then transferred into a support phone queue for immediate assistance.  All other customers do not receive immediate “technical” assistance. However the Call Center does answer their calls asap from the main NCD incoming phone queue.

Reports:

NCD shall provide Neoware with reports of all customer contact for hardware repair and technical support services on a monthly basis, which include the following information:

Company name

Contact name

Contact telephone number

Contact email address

Product

Serial number (if available)

Date call initiated

Date call closed

Problem

Resolution

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EX-4.3

EXHIBIT 4.3

NETWORK COMPUTING DEVICES, INC.

AMENDED AND RESTATED

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS

OF THE TERMS OF THE SERIES B AND SERIES C PREFERRED STOCK

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

The undersigned President and Chief Executive Officer of Network Computing Devices, Inc., organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:

That, on August 29, 2001, the Board of Directors of the Corporation adopted the following resolution changing the designations, preferences and rights of the terms of the Series B Preferred Stock and creating a series of 530,000 shares of Preferred Stock designated as Series C Preferred Stock:

RESOLVED, that the designations, preferences and rights of the Series B Preferred Stock of the Corporation are hereby amended, and a new series of Preferred stock of the Corporation, designated Series C Preferred Stock, is hereby created, and that the designation and amount thereof and the powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

Section 1:               DESIGNATION AND AMOUNT.

The shares of such series shall be designated as “Series B Preferred Stock” (the “Series B Preferred Stock”), par value $.001 per share, and “Series C Preferred Stock” (the “Series C Preferred Stock”), par value $.001 per share.  The number of shares initially constituting the Series B Preferred Stock and the Series C Preferred Stock shall be 290,000 shares and 530,000 shares, respectively.  The Series B Preferred Stock and Series C Preferred Stock are sometimes referred to together as the “Series Preferred Stock.”

Section 2:               DIVIDENDS AND DISTRIBUTIONS.

(a)           Dividends. The holders of the Series B Preferred Stock (the “Series B Holders”) and the holders of the Series C Preferred Stock (the “Series C Holders” or, collectively with the Series B Holders, the “Series Holders”) shall be entitled to receive when, as and if declared by the Board of Directors, out of any assets legally available therefor, dividends not less than, and in preference and priority to any payment of, any dividend or distribution on the Common Stock or any other class or series of stock of the Corporation ranking junior to the Series Preferred Stock and pro rata with payment of any dividend on any class or series of stock of the Corporation ranking on a parity with the Series Preferred Stock as to dividends.  Such dividends on the Series B Preferred Stock and the Series C Preferred Stock shall accrue at the rate of $.41 per share and $.23 per share, respectively, per annum from the date of issuance to the date of payment, based on the actual number of days elapsed, and shall be payable on the payment date fixed by the declaration or, if no payment date is fixed, shall accrue semi-annually

on May 31^st, and November 30^th of each year, and upon any Liquidation (as hereinafter defined). In the event dividends in less than the full preferential amount shall be paid to the holders of the Series Preferred Stock, such dividends shall be distributed ratably among such holders in proportion to the full preferential amont that each such holder is otherwise entitled to receive under this Section 2(a).

(b)           Distributions. As used in this Section 2, the term “distribution” shall mean a transfer of cash, property or securities without consideration, whether by way of dividend or otherwise, or the purchase or redemption of shares of the Corporation.

(c)           Necessary Actions. The Corporation shall take any and all corporate action necessary to declare and pay the dividends required.

Section 3:               LIQUIDATION.

(a)           Liquidation Defined. “Liquidation” means any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, other than any dissolution, liquidation or winding up in connection with any reincorporation of the Corporation in another jurisdiction.  A Corporate Transaction (as hereinafter defined) shall be deemed to be a Liquidation.  As used herein, “Corporate Transaction” shall mean (i) any consolidation or merger of the Corporation with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Corporation immediately prior to such consolidation, merger or reorganization own less than fifty percent (50%) of the Corporation’s voting power immediately after such consolidation, merger or reorganization, or (ii) a sale, lease, transfer or other disposition of all or substantially all of the assets of the Corporation.

(b)           Rights. Upon a Liquidation, as hereinabove defined, after payment or provision for payment of the debts and other liabilities of the Corporation, and prior to any distribution to the holders of Series A Participating Preferred Stock or Common Stock of the Corporation, the Series Holders shall be entitled to receive, out of the remaining assets of the Corporation available for distribution to its stockholders, an amount equal to $7.00 per share plus accrued and unpaid dividends, if any, with respect to each share of Series B Preferred Stock (the “Series B Liquidation Preference”) and an amount equal to $3.80 per share plus accrued and unpaid dividends, if any, with respect to each share of Series C Preferred Stock (the “Series C Liquidation Preference”).  Following the payment of the full amount of the Series B Liquidation Preference and the Series C Liquidation Preference and any preference that is payable to the holders of any other series of Preferred Stock, the holders of Series Preferred Stock and Common Stock and, to the extent provided for in the Certificate of Incorporation, such other series of Preferred Stock, shall receive their ratable and proportionate share, on a per share and as-converted to Common Stock basis, of the remaining assets to be distributed with respect to such Series Preferred Stock, such other series of Preferred Stock and Common Stock, respectively.  If upon any Liquidation the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay to the Series Holders and the holders of any other class of capital stock ranking on a parity with the Series Preferred Stock (“Parity Holders”) the full Series B Liquidation Preference, Series C Liquidation Preference and liquidation preference payable to such Parity Holders (“Parity Preference”), respectively, the Series B Holders, Series C Holders and Parity Holders shall share pro rata in any distribution of assets in accordance with such full

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Series B Liquidation Preference, Series C Liquidation Preference and Parity Preference amounts, respectively.

Section 4:               VOTING RIGHTS.

In addition to other rights provided herein or by law, the Series Holders shall be entitled to vote on all matters submitted to the stockholders of the Corporation for vote or consent and, except when a single class vote is required, will vote with the holders of Common Stock as one class.  Each Series Holder shall be entitled to one vote per share of Common Stock issuable upon conversion of the shares of Series Preferred Stock then held by such holder.

Section 5:               CONVERSION.

(a)           Rate.  The Series B Preferred Stock and the Series C Preferred Stock shall be convertible, at the option of the holder thereof at a rate of ten (10) shares of Common Stock for each share of Series B Preferred Stock or Series C Preferred Stock, subject to appropriate adjustment in the event of any stock split, stock dividend or reverse stock split affecting the Common Stock where the Series B Preferred Stock or Series C Preferred Stock is not treated in an equivalent manner.  Notwithstanding the foregoing, the Series C Preferred Stock shall not be convertible unless and until the Certificate of Incorporation of the Corporation is amended to increase the number of authorized shares of Common Stock by not less than 5,300,000, provided that, while this restriction remains in effect, the Series C Holders shall have the same rights upon a Liquidation under Section 3 and the same voting rights under Section 4 as they would have absent this restriction.

(b)           Mechanics of Conversion.  Upon delivery to the Company of the certificate or certificates for the shares of Series Preferred Stock to be converted, duly endorsed or assigned in blank to the Company (if required by it), the Company shall issue and deliver to or upon the written order of a Series Holder, to the place designated by such holder, a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled.

Section 6:               REDEMPTION.

The Series B Preferred Stock and the Series C Preferred Stock may not be redeemed by the Corporation without the consent of the holders of all of the Series B Preferred Stock or Series C Preferred Stock, respectively, then outstanding.

Section 7:               NO REISSUANCE.

No shares of Series Preferred Stock acquired by the Company by reason of exchange, conversion or otherwise shall be reissued and all such shares shall be canceled, retired and eliminated from the shares of Series Preferred Stock which the Company shall be authorized to issue.

Section 8:               PROTECTIVE PROVISIONS.

(a)           Required Consents. In addition to any other vote or consent required herein or by law, the affirmative vote or written consent of the Series B Holders owning a

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majority of the outstanding Series B Preferred Stock, and the Series C Holders owning a majority of the outstanding Series C Preferred Stock, each voting as a separate class, shall be necessary for effecting or validating the following actions:

(i)            Any amendment, alteration, repeal, or waiver of any provision of the Certificate of Incorporation of the Company (including the filing of any Certificate of Designations), as in effect from time to time (the “Certificate of Incorporation”), or the Bylaws of the Company, that affects adversely the voting powers, preferences, priorities or other special rights or privileges, qualifications, limitations, or restrictions of such series of Preferred Stock;

(ii)           Any redemption or repurchase of capital stock of the Company (except for acquisitions of Common Stock by the Company under stock option or restricted stock agreements with employees approved by the Board of Directors);

(iii)          Any material disbursement of funds outside of the ordinary course of the Company’s business;

(iv)          Any consolidation or merger of the Company with or into any other Company or other entity or person, or the entering into any other corporate reorganization;

(v)           Any termination of the Company’s line of business as of the date of the first issuance of Series B Preferred Stock or substitution of an unrelated line of business as its principal focus of the Company’s activities;

(vi)          Any voluntary dissolution, liquidation winding-up or partial liquidation of the Company, or any distribution or transaction in the nature of a partial liquidation or distribution, or any sale or other transfer of all or substantially all of the assets of the Company (including shares, or all or substantially all of the assets, of any subsidiary of the Company); or

(vii)         Any increase or decrease in the authorized number of shares of any series or class of the Company’s capital stock.

(b)           Financial Reports. The Company will furnish to the Series Holders, as soon as practicable, and in any case within 75 days after the end of each fiscal quarter, unaudited quarterly financial statements, and within 90 days after the end of each fiscal year, annual audited financial statements (all prepared in accordance with generally accepted accounting principles consistently applied).

Section 9:               NO IMPAIRMENT

The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series Preferred Stock set forth herein, and will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Series Holders against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be

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necessary or appropriate in order that the Company may reserve for issuance, and validly and legally issue fully paid and non-assessable Company shares on the conversion of all Series Preferred Stock from time to time outstanding.

Section 10:             NOTICES.

All notices, requests and other communications shall be in writing addressed to the Company at its principal office or to the Series Holders at their addresses appearing on the stock ownership records of the Company and delivered by a nationally recognized overnight mail carrier, certified  mail return receipt requested or facsimile.  Any notice sent by nationally-recognized overnight mail carrier shall be deemed to be delivered on the expected date of delivery.  Any notice sent by certified mail, return receipt requested, shall be deemed to be delivered 3 days after mailing.  Any notice sent by facsimile shall be deemed delivered upon the receipt by sender of written confirmation of transmission.

3.             That the foregoing amendment has been duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF, I have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 29th day of August, 2001.

/s/	Rudolph G. Morin
	Rudolph G. Morin, President and Chief Executive Officer

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EX-4.5

EXHIBIT 4.5

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 AND AN EXEMPTION UNDER APPLICABLE STATE LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

WARRANT TO PURCHASE STOCK

Corporation:	Network Computing Devices, Inc.
Number of Shares:	650,000 shares
Class of Stock:	Common Stock
Initial Exercise Price:	$0.50 per share
Issue Date:	October 29, 2001
Expiration Date:	October 29, 2006

THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, SILICON VALLEY BANK (“Holder”) is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the “Shares”) of the corporation (the “Company”) at the initial exercise price per Share (the “Warrant Price”) all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

ARTICLE 1. EXERCISE.

1.1           Method of Exercise.  Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company.  Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased.

1.2           Conversion Right.  In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share.  The fair market value of the Shares shall be determined pursuant to Section 1.3.

1.3           Fair Market Value.  If the Shares are traded in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company’s stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company.  If the Shares are not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

1.4           Delivery of Certificate and New Warrant.  Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

1.5           Replacement of Warrants.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the

Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

1.6           Assumption on Sale, Merger, or Consolidation of the Company.

1.6.1        “Acquisition”.  For the purpose of this Warrant, “Acquisition” means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction.

1.6.2        Assumption of Warrant.  Upon the closing of any Acquisition, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing.  The Initial Exercise Price and/or number of Shares shall be adjusted accordingly.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

2.1           Stock Dividends, Splits, Etc.  If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides the Shares in a transaction that increases the amount of common stock into which the Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred.  If the outstanding shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Initial Exercise Price shall be proportionately increased.

2.2           Reclassification, Exchange, Combinations or Substitution.  Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event.  Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Articles of Incorporation upon the closing of a registered public offering of the Company’s common stock.  The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property.  The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Initial Exercise Price and to the number of securities or property issuable upon exercise of the new Warrant.  The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

2.3           Adjustments for Diluting Issuances.  The Warrant Price and the number of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred Stock, the number of shares of common stock issuable upon conversion of the Shares, shall be subject to adjustment, from time to time in the manner set forth in the Company’s Certificate of Incorporation.  The provisions set forth for the Shares in the Company’s Certificate of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects Holder in the same manner as they affect all other shareholders of the same series of shares granted to the Holder.

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2.4           No Impairment.  The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Article against impairment.

2.5           Fractional Shares.  No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share.  If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

2.6           Certificate as to Adjustments.  Upon each adjustment of the Warrant Price, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.1           Representations and Warranties.  The Company represents and warrants to the Holder as follows:

(a)           The initial Warrant Price referenced on the first page of this Warrant is not greater than (i) the price per share at which the Shares were last issued in an arms-length transaction in which at least $500,000 of the Shares were sold and (ii) the fair market value of the Shares as of the date of this Warrant.

(b)           All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

(c)           The Capitalization Table previously provided to Holder remains true and complete as of the Issue Date.

3.2           Notice of Certain Events.  If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company’s securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.

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3.3           Registration Under Securities Act of 1933, as amended.  The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be subject to the registration rights set forth in the Amended and Restated Registration Rights Agreement among the Company, SCI Technology, Inc., Guenther Pfaff, and Hofmann & Co. dated as of August 29, 2001 or similar agreement.  The provisions set forth in the Company’s Investors’ Right Agreement or similar agreement relating to the above in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects Holder in the same manner as they affect all other shareholders of the same series of shares granted to the Holder .

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER.  The Holder represents and warrants to the Company as follows:

4.1           Purchase for Own Account.  Except for transfers to Holder’s affiliates, this Warrant and the securities to be acquired upon exercise of this Warrant by the Holder will be acquired for investment for the Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the 1933 Act, and the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same.  If not an individual, the Holder also represents that the Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.

4.2           Disclosure of Information.  The Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities.  The Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Holder or to which the Holder has access.

4.3           Investment Experience.  The Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk.  The Holder:  (i) has experience as an investor in securities of companies in the development stage and acknowledges that the Holder is able to fend for itself, can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that the Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or (ii) has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables the Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4           Accredited Investor Status.  The Holder is an “accredited investor” within the meaning of Regulation D promulgated under the 1933 Act.

ARTICLE 5. MISCELLANEOUS.

5.1           Term:  This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

5.2           Legends.  This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR UNDER ANY APPLICABLE STATE LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THERE OF UNDER SUCH ACT AND AN EXEMPTION UNDER APPLICABLE STATE LAW OR PURSUANT TO

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RULE 144 OR AN OPINION OF  COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

5.3           Compliance with Securities Laws on Transfer.  This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company).  The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder’s notice of proposed sale.

5.4 Transfer Procedure.  Subject to the provisions of Section 5.3, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) to Silicon Valley Bancshares, or The Silicon Valley Bank Foundation, or to any affiliate of Holder at any time without prior notice to Company; provided, however, if Holder transfers this warrant to any other transferee, Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable).  The Company may refuse to transfer this Warrant to any person who directly competes with the Company unless the Company’s stock is publicly traded.

5.5           Notices.  All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time.  All notices to the Holder shall be addressed as follows:

Silicon Valley Bank

Attn:  Treasury Department

3003 Tasman Drive, HG 110

Santa Clara, CA 95054

5.6           Waiver.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7           Attorney’s Fees.  In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable

5.8           Automatic Conversion upon Expiration.  In the event that, upon the Expiration  Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Exercise Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to the Holder.

5.9           Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

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“COMPANY”
NETWORK COMPUTING DEVICES, INC.
By:	/s/ Rudolph G. Morin
Name:					Rudolph G. Morin
(Print)
Title:						Chairman of the Board, President or Vice President
By:		/s/ Michael Garner
Name:					Michael Garner
(Print)
Title:							Chief Financial Officer, Secretary, Assistant Treasurer or Assistant Secretary
“HOLDER”
Silicon Valley Bank
By:			/s/ Milad Hanna
Name:								Milad T. Hanna
Title:				Senior Vice President

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APPENDIX 1

NOTICE OF EXERCISE

1.             Holder elects to purchase                          shares of the Common/Series                               Preferred [strike one] Stock of                                          pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.

1.             Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant.  This conversion is exercised for                                         of the Shares covered by the Warrant.

[Strike paragraph that does not apply.]

2.             Please issue a certificate or certificates representing the shares in the name specified below:

Holders Name

(Address)

3.   The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution except in compliance with applicable securities laws.

	HOLDER:
	By:
	Name:
	Title:
(Date)

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EX-10.71

EXHIBIT 10.71

Silicon Valley Bank

Loan and Security Agreement

Borrower:	Network Computing Devices, Inc.
Address:	301 Ravendale Drive Mountain View, California  94043
Date:	October 29, 2001

THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK,  COMMERCIAL FINANCE DIVISION (“Silicon”), whose address is 3003 Tasman Drive, Santa Clara, California  95054 and the borrower(s) named above (jointly and severally, the “Borrower”), whose chief executive office is located at the above address (“Borrower’s Address”).  The Schedule to this Agreement (the “Schedule”) shall for all purposes be deemed to be a part of this Agreement, and the same is an integral part of this Agreement.  (Definitions of certain terms used in this Agreement are set forth in Section 8 below.)

1.     LOANS.

1.1  Loans.  Silicon will make loans to Borrower (the “Loans”), in amounts determined by Silicon in its sole discretion, up to the amounts (the “Credit Limit”) shown on the Schedule, provided no Default or Event of Default has occurred and is continuing, and subject to deduction of any Reserves for accrued interest and such other Reserves as Silicon deems proper from time to time.

1.2  Interest.  All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement.  Interest shall be payable monthly, on the last day of the month.  Interest may, in Silicon’s discretion, be charged to Borrower’s loan account, and the same shall thereafter bear interest at the same rate as the other Loans.  Silicon may, in its discretion, charge interest to Borrower’s Deposit Accounts maintained with Silicon.  Regardless of the amount of Obligations that may be outstanding from time to time, Borrower shall pay Silicon minimum monthly interest during the term of this Agreement in the amount set forth on the Schedule (the “Minimum Monthly Interest”).

1.3  Overadvances.  If at any time or for any reason the total of all outstanding Loans and all other Obligations exceeds the Credit Limit (an “Overadvance”), Borrower shall immediately pay the amount of the excess to Silicon, without notice or demand.  Without limiting Borrower’s obligation to repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount of any Overadvance, on demand, at a rate equal to the interest rate which would otherwise be applicable to the Overadvance, plus an additional 2% per annum.

1.4  Fees.  Borrower shall pay Silicon the fee(s) shown on the Schedule, which are in addition to all interest and other sums payable to Silicon and are not refundable.

1.5  Letters of Credit.  At the request of Borrower, Silicon may, in its sole discretion, issue or arrange for the issuance of letters of credit for the account of Borrower, in each case in form and substance satisfactory to Silicon in its sole discretion (collectively, “Letters of Credit”).  The aggregate face amount of all outstanding Letters of Credit from time to time shall not exceed the amount shown on the Schedule (the “Letter of Credit Sublimit”), and shall be reserved against Loans which would otherwise be available hereunder.  Borrower shall pay all bank charges (including charges of Silicon) for the issuance of Letters of Credit, together with such additional fee as Silicon’s letter of credit department shall charge in connection with the issuance of the Letters of Credit.  Any payment by Silicon under or in connection with a Letter of Credit shall constitute a Loan hereunder on the date such payment is made.  Each Letter of Credit shall have an expiry date no later than thirty days prior to the Maturity Date.  Borrower hereby agrees to indemnify, save, and hold Silicon harmless from any loss, cost, expense, or liability, including payments made by Silicon, expenses, and reasonable attorneys’ fees incurred by Silicon arising out of or in connection with any Letters of Credit.  Borrower agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Silicon and opened for Borrower’s account or by Silicon’s

interpretations of any Letter of Credit issued by Silicon for Borrower’s account, and Borrower understands and agrees that Silicon shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.  Borrower understands that Letters of Credit may require Silicon to indemnify the issuing bank for certain costs or liabilities arising out of claims by Borrower against such issuing bank.  Borrower hereby agrees to indemnify and hold Silicon harmless with respect to any loss, cost, expense, or liability incurred by Silicon under any Letter of Credit as a result of Silicon’s indemnification of any such issuing bank.  The provisions of this Loan Agreement, as it pertains to Letters of Credit, and any other present or future documents or agreements between Borrower and Silicon relating to Letters of Credit are cumulative.

2.     SECURITY INTEREST.

2.1  Security Interest.  To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to Silicon a security interest in all of Borrower’s interest in the following, whether now owned or hereafter acquired, and wherever located:  All Inventory, Equipment, Receivables, and General Intangibles, including, without limitation, all of Borrower’s Deposit Accounts, and all money, and all property now or at any time in the future in Silicon’s possession (including claims and credit balances), and all proceeds (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products and all books and records related to any of the foregoing (all of the foregoing, together with all other property in which Silicon may now or in the future be granted a lien or security interest, is referred to herein, collectively, as the “Collateral”).

3.     REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.

In order to induce Silicon to enter into this Agreement and to make Loans, Borrower represents and warrants to Silicon as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants:

3.1  Corporate Existence and Authority.  Borrower, if a corporation, is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation.  Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a material adverse effect on Borrower.  The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors’ rights generally), and (iii) do not violate Borrower’s articles or certificate of incorporation, or Borrower’s by-laws, or any law or any  material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any material agreement or instrument which is binding upon Borrower or its property.

3.2  Name; Trade Names and Styles.  The name of Borrower set forth in the heading to this Agreement is its correct name.  Listed on the Schedule are all prior names of Borrower and all of Borrower’s present and prior trade names.  Borrower shall give Silicon 30 days’ prior written notice before changing its name or doing business under any other name.  Borrower has complied, and will in the future comply, with all laws relating to the conduct of business under a fictitious business name.

3.3  Place of Business; Location of Collateral.  The address set forth in the heading to this Agreement is Borrower’s chief executive office.  In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule.  Borrower will give Silicon at least 30 days prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrower’s Address or one of the locations set forth on the Schedule.

3.4  Title to Collateral; Permitted Liens.  Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased by Borrower.  The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens.  Silicon now has, and will continue to have, a first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend Silicon and the Collateral against all claims of others.  None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture.  Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or impair Borrower’s right to remove any Collateral from the leased premises.  Whenever any Collateral is located upon premises in which any third party has an interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever requested by Silicon, use its best efforts to cause such third party to execute and deliver to Silicon, in form acceptable to Silicon, such waivers and subordinations as Silicon shall specify, so as to ensure that Silicon’s rights in the Collateral are, and will continue to be, superior to the rights of any such third party.  Borrower will keep in full force and effect, and will comply with all the terms of, any lease of real

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property where any of the Collateral now or in the future may be located.

3.5  Maintenance of Collateral.  Borrower will maintain the Collateral in good working condition, and Borrower will not use the Collateral for any unlawful purpose.  Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral.

3.6  Books and Records.  Borrower has maintained and will maintain at Borrower’s Address complete and accurate books and records, comprising an accounting system in accordance with generally accepted accounting principles.

3.7  Financial Condition, Statements and Reports.  All financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with generally accepted accounting principles and now and in the future will completely and accurately reflect the financial condition of Borrower, at the times and for the periods therein stated.  Between the last date covered by any such statement provided to Silicon and the date hereof, there has been no material adverse change in the financial condition or business of Borrower.  Borrower is now and will continue to be solvent.

3.8  Tax Returns and Payments; Pension Contributions.  Borrower has timely filed, and will timely file, all tax returns and reports required by foreign, federal, state and local law, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower.  Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower’s obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Silicon in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral.  Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.  Borrower shall, at all times, utilize the services of an outside payroll service providing for the automatic deposit of all payroll taxes payable by Borrower.

3.9  Compliance with Law.  Borrower has complied, and will comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, those relating to Borrower’s ownership of real or personal property, the conduct and licensing of Borrower’s business, and all environmental matters.

3.10  Litigation.  Except as disclosed in the Schedule, there is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrower’s knowledge) threatened by or against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which may result, either separately or in the aggregate, in any material adverse change in the financial condition or business of Borrower, or in any material impairment in the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted.  Borrower will promptly inform Silicon in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against Borrower involving any single claim of $50,000 or more, or involving $100,000  or more in the aggregate.

3.11  Use of Proceeds.  All proceeds of all Loans shall be used solely for lawful business purposes.  Borrower is not purchasing or carrying any “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any “margin stock” or to extend credit to others for the purpose of purchasing or carrying any “margin stock.”

4.     RECEIVABLES.

4.1  Representations Relating to Receivables.  Borrower represents and warrants to Silicon as follows:  Each Receivable with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, (i) represent an undisputed bona fide existing unconditional obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services in the ordinary course of Borrower’s business, and (ii) meet the Minimum Eligibility Requirements set forth in  Section 8 below.

4.2  Representations Relating to Documents and Legal Compliance.  Borrower represents and warrants to Silicon as follows:  All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Receivables are and shall be true and correct and all such invoices, instruments and other documents and all of Borrower’s books and records are and shall be genuine and in all respects what they purport to be, and all signatories and endorsers have the capacity to contract.  All sales and other transactions underlying or giving rise to each Receivable shall fully comply with all applicable laws and governmental rules and regulations.  All signatures and endorsements on all documents, instruments, and agreements relating to all Receivables are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms.

4.3  Schedules and Documents relating to Receivables.  Borrower shall deliver to Silicon transaction reports and

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loan requests, schedules and assignments of all Receivables, and schedules of collections, all on Silicon’s standard forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect or limit Silicon’s security interest and other rights in all of Borrower’s Receivables, nor shall Silicon’s failure to advance or lend against a specific Receivable affect or limit Silicon’s security interest and other rights therein.  Loan requests received after 12:00 Noon will not be considered by Silicon until the next Business Day.  Together with each such schedule and assignment, or later if requested by Silicon, Borrower shall furnish Silicon with copies (or, at Silicon’s request, originals) of all contracts, orders, invoices, and other similar documents, and all original shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Receivables, and Borrower warrants the genuineness of all of the foregoing.  Borrower shall also furnish to Silicon an aged accounts receivable trial balance in such form and at such intervals as Silicon shall  request.  In addition, Borrower shall deliver to Silicon the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Receivables, immediately upon receipt thereof and in the same form as received, with all necessary indorsements, all of which shall be with recourse.  Borrower shall also provide Silicon with copies of all credit memos within two days after the date issued.

4.4  Collection of Receivables.  Borrower shall have the right to collect all Receivables, unless and until a Default or an Event of Default has occurred.  Borrower shall hold all payments on, and proceeds of, Receivables in trust for Silicon, and Borrower shall immediately deliver all such payments and proceeds to Silicon in their original form, duly endorsed in blank, to be applied to the Obligations in such order as Silicon shall determine.  Silicon may, in its discretion, require that all proceeds of Collateral be deposited by Borrower into a lockbox account, or such other “blocked account” as Silicon may specify, pursuant to a blocked account agreement in such form as Silicon may specify.  Silicon or its designee may, at any time, notify Account Debtors that the Receivables have been assigned to Silicon.

4.5.  Remittance of Proceeds.  All proceeds arising from the disposition of any Collateral shall be delivered, in kind, by Borrower to Silicon in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations in such order as Silicon shall determine; provided that, if no Default or Event of Default has occurred, Borrower shall not be obligated to remit to Silicon the proceeds of the sale of worn out or obsolete equipment disposed of by Borrower in good faith in an arm’s length transaction for an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year).  Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower’s other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Silicon.  Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

4.6  Disputes.  Borrower shall notify Silicon promptly of all disputes or claims relating to Receivables.  Borrower shall not forgive (completely or partially), compromise or settle any Receivable for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm’s length transactions, which are reported to Silicon on the regular reports provided to Silicon; (ii) no Default or Event of Default has occurred and is continuing; and (iii) taking into account all such discounts settlements and forgiveness, the total outstanding Loans will not exceed the Credit Limit.  Silicon may, at any time after the occurrence of an Event of Default, settle or adjust disputes or claims directly with Account Debtors for amounts and upon terms which Silicon considers advisable in its reasonable credit judgment and, in all cases, Silicon shall credit Borrower’s Loan account with only the net amounts received by Silicon in payment of any Receivables.

4.7  Returns.  Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower in the ordinary course of its business, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount (sending a copy to Silicon).  In the event any attempted return occurs after the occurrence of any Event of Default, Borrower shall (i) hold the returned Inventory in trust for Silicon, (ii) segregate all returned Inventory from all of Borrower’s other property, (iii) conspicuously label the returned Inventory as Silicon’s property, and (iv) immediately notify Silicon of the return of any Inventory, specifying the reason for such return, the location and condition of the returned Inventory, and on Silicon’s request deliver such returned Inventory to Silicon.

4.8  Verification.  Silicon may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Receivables, by means of mail, telephone or otherwise, either in the name of Borrower or Silicon or such other name as Silicon may choose.

4.9  No Liability.  Silicon shall not under any circumstances be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to a Receivable, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Receivable, or for settling any Receivable in good faith for less than the full amount thereof, nor shall Silicon be deemed to be responsible for any of Borrower’s obligations under any contract or agreement giving rise to a Receivable.

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Nothing herein shall, however, relieve Silicon from liability for its own gross negligence or willful misconduct.

5.     ADDITIONAL DUTIES OF BORROWER.

5.1  Financial and Other Covenants.  Borrower shall at all times comply with the financial and other covenants set forth in the Schedule.

5.2  Insurance.  Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in such form and amounts as Silicon may reasonably require, and Borrower shall provide evidence of such insurance to Silicon, so that Silicon is satisfied that such insurance is, at all times, in full force and effect.  All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon.  Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction of the Obligations as Silicon shall determine in its sole discretion, except that, provided no Default or Event of Default has occurred and is continuing, Silicon shall release to Borrower insurance proceeds with respect to Equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid.  Silicon may require reasonable assurance that the insurance proceeds so released will be so used.  If Borrower fails to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at Borrower’s expense.  Borrower shall promptly deliver to Silicon copies of all reports made to insurance companies.

5.3  Reports.  Borrower, at its expense, shall provide Silicon with the written reports set forth in the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as Silicon shall from time to time reasonably specify.

5.4  Access to Collateral, Books and Records.  At reasonable times, and on one Business Day’s notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower’s books and records.  Silicon shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but Silicon shall have the right to disclose any such information to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process.  The foregoing inspections and audits shall be at Borrower’s expense and the charge therefor shall be $700 per person per day (or such higher amount as shall represent Silicon’s then current standard charge for the same), plus reasonable out of pocket expenses.  Borrower will not enter into any agreement with any accounting firm, service bureau or third party to store Borrower’s books or records at any location other than Borrower’s Address, without first obtaining Silicon’s written consent, which may be conditioned upon such accounting firm, service bureau or other third party agreeing to give Silicon the same rights with respect to access to books and records and related rights as Silicon has under  this Loan Agreement.  Borrower waives the benefit of any accountant-client privilege or other evidentiary privilege precluding or limiting the disclosure, divulgence or delivery of any of its books and records (except that Borrower does not waive any attorney-client privilege).

5.5  Negative Covenants.  Except as may be permitted in the Schedule, Borrower shall not, without Silicon’s prior written consent, do any of the following:  (i) merge or consolidate with another corporation or entity; (ii) acquire any assets, except in the ordinary course of business; (iii) enter into any other transaction outside the ordinary course of business; (iv) sell or transfer any Collateral, except for the sale of finished Inventory in the ordinary course of Borrower’s business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of business; (v) store any Inventory or other Collateral with any warehouseman or other third party; (vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii) make any loans of any money or other assets; (viii) incur any debts, outside the ordinary course of business, which would have a material, adverse effect on Borrower or on the prospect of repayment of the Obligations; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity; (x) pay or declare any dividends on Borrower’s stock (except for dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower’s stock; (xii) make any change in Borrower’s capital structure which would have a material adverse effect on Borrower or on the prospect of repayment of the Obligations; or (xiii) pay total compensation, including salaries, fees, bonuses, commissions, and all other payments, whether directly or indirectly, in money or otherwise, to Borrower’s executives, officers and directors (or any relative thereof) in an amount in excess of the amount set forth on the Schedule; or (xiv) dissolve or elect to dissolve.  Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default would occur as a result of such transaction.

5.6  Litigation Cooperation.  Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or in any manner relating to Borrower, Borrower shall, without expense to Silicon, make available Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Silicon may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding.

5.7  Further Assurances.  Borrower agrees, at its expense, on request by Silicon, to execute all documents and take all actions, as Silicon, may deem reasonably necessary or useful in order to perfect and maintain Silicon’s perfected security interest in the Collateral, and in order to

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fully consummate the transactions contemplated by this Agreement.

6.     TERM.

6.1  Maturity Date.  This Agreement shall continue in effect until the maturity date set forth on the Schedule (the “Maturity Date”), subject to Section 6.3 below.

6.2  Early Termination.  This Agreement may be terminated prior to the Maturity Date as follows:  (i) by Borrower, effective three Business Days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence of an Event of Default, without notice, effective immediately.  If this Agreement is terminated by Borrower or by Silicon under this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount equal to * of the Maximum Credit Limit, provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Silicon Valley Bank.  The termination fee shall be due and payable on the effective date of termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations.

*one percent (1%)

6.3  Payment of Obligations.  On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable.  Without limiting the generality of the foregoing, if on the Maturity Date,  or on any earlier effective date of termination, there are any outstanding Letters of Credit issued by Silicon or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to Silicon cash collateral in an amount equal to the face amount of all such Letters of Credit plus all interest, fees and cost due or to become due in connection therewith, to secure all of the Obligations relating to said Letters of Credit, pursuant to Silicon’s then standard form cash pledge agreement.  Notwithstanding any termination of this Agreement, all of Silicon’s security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are subject to the discretion of Silicon, Silicon may, in its sole discretion, refuse to make any further Loans after termination.  No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full.  Upon payment and performance in full of all the Obligations and termination of this Agreement, Silicon shall promptly deliver to Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate Silicon’s security interests.

7.     EVENTS OF DEFAULT AND REMEDIES.

7.1  Events of Default.  The  occurrence of any of the following events shall constitute an “Event of Default” under this Agreement, and Borrower shall give Silicon immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to Silicon by Borrower or any of Borrower’s officers, employees or agents, now or in the future, shall be untrue or misleading in a material respect; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall fail to comply with any of the financial covenants set forth in the Schedule or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured; or (e) Borrower shall fail to perform any other non-monetary Obligation, which failure is not cured within 5 Business Days after the date due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within 10 days after the occurrence of the same; or (g) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has or may reasonably be expected to have a material adverse effect on Borrower’s business or financial condition; or (i) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (j) the commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 30 days after the date commenced; or (k) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (l) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (m) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations other than as permitted in the applicable subordination agreement, or if any Person

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who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (n) there shall be a change in the record or beneficial ownership of an aggregate of more than 20% of the outstanding shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof, without the prior written consent of Silicon; or (o) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a material adverse change in Borrower’s business or financial condition; or (q) Silicon, acting in good faith and in a commercially reasonable manner, deems itself insecure because of the occurrence of an event prior to the effective date hereof of which Silicon had no knowledge on the effective date or because of the occurrence of an event on or subsequent to the effective date.  Silicon may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred.

7.2  Remedies.  Upon the occurrence of any Event of Default, and at any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Silicon without judicial process to enter onto any of Borrower’s premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as Silicon deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possesion of any of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and Borrower, and to remove the Collateral to such locations as Silicon may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use Borrower’s premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale.  Silicon shall have the right to conduct such disposition on Borrower’s premises without charge, for such time or times as Silicon deems reasonable, or on Silicon’s premises, or elsewhere and the Collateral need not be located at the place of disposition.  Silicon may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition.  Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Receivables and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower’s name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicon’s sole discretion, to grant extensions of time to pay, compromise claims and settle Receivables and the like for less than face value; (h) Offset against any sums in any of Borrower’s general, special or other Deposit Accounts with Silicon; and (i) Demand and receive possession of any of Borrower’s federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto.  All reasonable attorneys’ fees, expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.  Without limiting any of Silicon’s rights and remedies, from and after the occurrence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent per annum.

7.3  Standards for Determining Commercial Reasonableness.  Borrower and Silicon agree that a sale or other disposition (collectively, “sale”) of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable:  (i) Notice of the sale is given to Borrower at least seven days prior to the sale, and, in the case of a public sale, notice of the sale is published at least seven days before the sale in a newspaper of general circulation in the county where the

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sale is to be conducted; (ii) Notice of the sale describes the collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;  (v) Payment of the purchase price in cash or by cashier’s check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same.  Silicon shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable.

7.4  Power of Attorney.  Upon the occurrence of any Event of Default, without limiting Silicon’s other rights and remedies, Borrower grants to Silicon an irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower’s expense, to do any or all of the following, in Borrower’s name or otherwise, but Silicon agrees to exercise the following powers in a commercially reasonable manner:  (a) Execute on behalf of Borrower any documents that Silicon may, in its sole discretion, deem advisable in order to perfect and maintain Silicon’s security interest in the Collateral, or in order to exercise a right of Borrower or Silicon, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of Borrower any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of Silicon’s Collateral or in which Silicon has an interest; (c) Execute on behalf of Borrower, any invoices relating to any Receivable, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic’s, materialman’s or other lien, or assignment or satisfaction of mechanic’s, materialman’s or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Silicon’s possession; (e) Endorse all checks and other forms of remittances received by Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle Receivables and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of Borrower’s taxes or to secure the release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Silicon the same rights of access and other rights with respect thereto as Silicon has under this Agreement; and (k) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other present or future agreements.  Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.  In no event shall Silicon’s rights under the foregoing power of attorney or any of Silicon’s other rights under this Agreement be deemed to indicate that Silicon is in control of the business, management or properties of Borrower.

7.5  Application of Proceeds.  All proceeds realized as the result of any sale of the Collateral shall be applied by Silicon first to the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion.  Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Silicon for any deficiency.  If, Silicon, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Silicon shall have the option, exercisable at any time, in its sole discretion, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor.

7.6  Remedies Cumulative.  In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Silicon and Borrower, and all of such rights and remedies are cumulative and none is exclusive.  Exercise or partial exercise by Silicon of one or more of its rights or remedies shall not be deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies.  The failure or delay of Silicon to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed.

8.     DEFINITIONS.  As used in this Agreement, the following terms have the following meanings:

“Account Debtor” means the obligor on a Receivable.

“Affiliate” means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any

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Person controlling, controlled by or under common control with such Person.

“Business Day” means a day on which Silicon is open for business.

“Code” means the Uniform Commercial Code as adopted and in effect in the State of California from time to time.

“Collateral” has the meaning set forth in Section 2.1 above.

“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.

“Deposit Account” has the meaning set forth in Section 9102(a) of the Code.

“Eligible Inventory”  [NOT APPLICABLE].

“Eligible Receivables” means Receivables arising in the ordinary course of Borrower’s business from the sale of goods or rendition of services, which Silicon, in its sole judgment, shall deem eligible for borrowing, based on such considerations as Silicon may from time to time deem appropriate.  Without limiting the fact that the determination of which Receivables are eligible for borrowing is a matter of Silicon’s discretion, the following (the “Minimum Eligibility Requirements”) are the minimum requirements for a Receivable to be  an Eligible Receivable:  (i) the Receivable must not be outstanding for more than 90 days from its invoice date, (ii) the Receivable must not represent progress billings, or be due under a fulfillment or requirements contract with the Account Debtor, (iii) the Receivable must not be subject to any contingencies (including Receivables arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional), (iv) the Receivable must not be owing from an Account Debtor with whom Borrower has any dispute (whether or not relating to the particular Receivable), (v) the Receivable must not be owing from an Affiliate of Borrower, (vi) the Receivable must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not acceptable to Silicon, or which, fails or goes out of a material portion of its business, (vii) the Receivable must not be owing from the United States or any department, agency or instrumentality thereof (unless there has been compliance, to Silicon’s satisfaction, with the United States Assignment of Claims Act), (viii) the Receivable must not be owing from an Account Debtor located outside the United States or Canada (unless pre-approved by Silicon in its discretion in writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to Silicon),  (ix) the Receivable must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise. Receivables owing from one Account Debtor will not be deemed Eligible Receivables to the extent they exceed 25% of the total Receivables outstanding.  In addition, if more than 50% of the Receivables owing from an Account Debtor are outstanding more than 90days from their invoice date (without regard to unapplied credits) or are otherwise not eligible Receivables, then all Receivables owing from that Account Debtor will be deemed ineligible for borrowing.  Silicon may, from time to time, in its discretion, revise the Minimum Eligibility Requirements, upon written notice to Borrower.

“Equipment” means all of Borrower’s present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Borrower’s operations or owned by Borrower and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located.

“Event of Default” means any of the events set forth in Section 7.1 of this Agreement.

“General Intangibles” means all general intangibles of Borrower, whether now owned or hereafter created or acquired by Borrower, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security  and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Borrower against Silicon, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Borrower, all rights to indemnification and all other intangible property of every kind and nature (other than Receivables).

“Inventory” means all of Borrower’s now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Borrower’s business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse

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receipts, documents of title and other documents representing any of the foregoing.

“Obligations” means all present and future Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Silicon, whether evidenced by this Agreement or any note or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, banker’s acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Silicon in Borrower’s debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorney’s fees, expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other present or future instrument or agreement between Borrower and Silicon.

“Permitted Liens” means the following:  (i) purchase money security interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes not yet payable; (iv) additional security interests and liens consented to in writing by Silicon, which consent shall not be unreasonably withheld; (v) security interests being terminated substantially concurrently with this Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent; (vii) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (i) or (ii) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (viii) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods.  Silicon will have the right to require, as a condition to its consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on Silicon’s then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Silicon, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity.

“Receivables” means all of Borrower’s now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Borrower, all guaranties and other security therefor, all merchandise returned to or repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party.

“Reserves” means, as of any date of determination, such amounts as Silicon may from time to time establish and revise in good faith reducing the amount of Loans, Letters of Credit and other financial accommodations which would otherwise be available to Borrower under the lending formula(s) provided in the Schedule:  (a) to reflect events, conditions, contingencies or risks which, as determined by Silicon in good faith, do or may affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Receivables), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of Silicon in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Silicon’s good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Silicon is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Silicon determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.

Other Terms.  All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with generally accepted accounting principles, consistently applied.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein.

9.     GENERAL PROVISIONS.

9.1  Interest Computation.  In computing interest on the Obligations, all checks, and other items of payment received by Silicon (including proceeds of Receivables and payment of the Obligations in full) shall be deemed applied by Silicon on account of the Obligations three Business Days after receipt by Silicon of immediately available funds, and wire transfers received by Silicon shall be applied on the date of receipt, provided that, for purposes of the foregoing, all funds received after 12:00 Noon on any day shall be deemed received on the next Business Day.  Silicon shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Silicon in its sole discretion, and Silicon may charge Borrower’s loan account for the amount of any item of payment which is returned to Silicon unpaid.

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9.2  Application of Payments.  All payments with respect to the Obligations may be applied, and in Silicon’s sole discretion reversed and re-applied, to the Obligations, in such order and manner as Silicon shall determine in its sole discretion.

9.3  Charges to Accounts.  Silicon may, in its discretion, require that Borrower pay monetary Obligations in cash to Silicon, or charge them to Borrower’s Loan account, in which event they will bear interest at the same rate applicable to the Loans.  Silicon may also, in its discretion, charge any monetary Obligations to Borrower’s Deposit Accounts maintained with Silicon.

9.4  Monthly Accountings.  Silicon shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement.  Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Silicon), unless Borrower notifies Silicon in writing to the contrary within thirty days after each account is rendered, describing the nature of any alleged errors or admissions.

9.5  Notices.  All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party.  Notices to Silicon shall be directed to the Commercial Finance Division, to the attention of the Division Manager or the Division Credit Manager.  All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid.

9.6  Severability.  Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect.

9.7  Integration.  This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement.  There are no oral understandings, representations or agreements between the parties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith.

9.8  Waivers.  The failure of Silicon at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and Silicon shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith.  Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar.  None of the provisions of this Agreement or any other agreement now or in the future executed by Borrower and delivered to Silicon shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an authorized officer of Silicon and delivered to Borrower.  Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Silicon on which Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement.

9.9  No Liability for Ordinary Negligence.  Neither Silicon, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Silicon, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon, but nothing herein shall relieve Silicon from liability for its own gross negligence or willful misconduct.

9.10  Amendment.  The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Silicon.

9.11  Time of Essence.  Time is of the essence in the performance by Borrower of each and every obligation under this Agreement.

9.12  Attorneys Fees and Costs.  Borrower shall reimburse Silicon for all reasonable attorneys’ fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys’ fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower’s books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicon’s security interest in, the Collateral; and otherwise represent

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Silicon in any litigation relating to Borrower.  In satisfying Borrower’s obligation hereunder to reimburse Silicon for attorneys fees, Borrower may, for convenience, issue checks directly to Silicon’s attorneys, Levy, Small & Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas is representing only Silicon and not Borrower in connection with this Agreement.  If either Silicon or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and attorneys’ fees, including (but not limited to) reasonable attorneys’ fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment.  All attorneys’ fees and costs to which Silicon may be entitled pursuant to this Paragraph shall immediately become part of Borrower’s Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.

9.13  Benefit of Agreement.  The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Silicon; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Silicon, and any prohibited assignment shall be void.  No consent by Silicon to any assignment shall release Borrower from its liability for the Obligations.

9.14  Joint and Several Liability.  If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower.

9.15  Limitation of Actions.Any claim or cause of action by Borrower against Silicon, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other present or future document or agreement, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one year after the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, and the service of a summons and complaint on an officer of Silicon, or on any other person authorized to accept service on behalf of Silicon, within thirty (30) days thereafter.  Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action.  The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Silicon in its sole discretion.  This provision shall survive any termination of this Loan Agreement or any other present or future agreement.

9.16  Paragraph Headings; Construction.  Paragraph headings are only used in this Agreement for convenience.  Borrower and Silicon acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement.  The term “including”, whenever used in this Agreement, shall mean “including (but not limited to)”.  This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or Borrower under any rule of construction or otherwise.

9.17  Governing Law; Jurisdiction; Venue.  This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and Borrower shall be governed by the laws of the State of California.  As a material part of the consideration to Silicon to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Silicon’s option, be litigated in courts located within California, and that the exclusive venue therefor shall be Santa Clara County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding.

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9.18  Mutual Waiver of Jury Trial.  BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

Borrower:
		NETWORK COMPUTING DEVICES, INC.
		By	/s/ Rudolph Morin
		President or Vice President
		By		/s/ Michael Garner
		Secretary or Ass’t Secretary
Silicon:
	SILICON VALLEY BANK
	By		/s/ Milad Hanna
	Title				Senior Vice President

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Silicon Valley Bank

Schedule to

Loan and Security Agreement

Borrower:	Network Computing Devices, Inc.
Address:	301 Ravendale Drive
	Mountain View, California  94043
Date:	October 29, 2001

This Schedule forms an integral part of the Loan and Security Agreement between Silicon Valley Bank and the above-borrower of even date.

1.  CREDIT LIMIT
		(Section 1.1):	An amount not to exceed the lesser of:  (i) $5,000,000 at any one time outstanding (the “Maximum Credit Limit”); or (ii) 60% of the amount of Borrower’s Eligible Receivables (as defined in Section 8 above).
Letter of Credit Sublimit
	(Section 1.5):		$500,000.
Foreign Exchange
Contract Sublimit			$500,000.
			Borrower may enter into foreign exchange forward contracts with Silicon, on its standard forms, under which Borrower commits to purchase from or sell to Silicon a set amount of foreign currency more than one business day after the contract date (the “FX Forward Contracts”); provided that (1) at the time the FX Forward Contract is entered into Borrower has Loans available to it under this Agreement in an amount at least equal to 10% of the amount of the FX Forward Contract; (2) the total FX Forward Contracts at any one time outstanding may not exceed 10 times the amount of the Foreign Exchange Contract Sublimit set forth above. Silicon shall have the right to withhold, from the Loans otherwise available to Borrower under this Agreement, a reserve (which shall be in addition to all other reserves) in an amount equal to 10% of the total FX Forward Contracts from time to time outstanding. Silicon may, in its discretion, terminate the FX Forward Contracts at any time that an Event of Default occurs and is continuing. Borrower shall execute all standard form applications and agreements of Silicon in connection with the FX Forward Contracts, and without limiting any of the terms of such

applications and agreements, Borrower shall pay all standard fees and charges of Silicon in connection with the FX Forward Contracts.

2.  INTEREST.

Interest Rate (Section 1.2):
	A rate equal to the “Prime Rate” in effect from time to time, plus 2% per annum.  Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed.  “Prime Rate” means the rate announced from time to time by Silicon as its “prime rate;” it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon.  The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate.
Minimum Monthly
Interest (Section 1.2):	None.

3.  FEES (Section 1.4):

Loan Fee:	$50,000, payable concurrently herewith.
Collateral Monitoring Fee:	$1,000 per month, payable in arrears (prorated for any partial month at the beginning and at termination of this Agreement).
Unused Line Fee:	In the event, in any calendar month (or portion thereof at the beginning and end of the term hereof), the average daily principal balance of the Loans outstanding during the month is less than the amount of the Maximum Credit Limit, Borrower shall pay Silicon an unused line fee in an amount equal to 0.25% per month on the difference between the amount of the Maximum Credit Limit and the average daily principal balance of the Loans outstanding during the month, which unused line fee shall be computed and paid monthly, in arrears, on the first day of the following month.

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4.  MATURITY DATE
	(Section 6.1):	One year from the date of this Agreement.

5.  FINANCIAL COVENANTS
	(Section 5.1):	Borrower shall comply with each of the following covenant(s).  Compliance shall be determined as of the end of each month, except as otherwise specifically provided below:
Minimum Tangible Net Worth:		Borrower shall maintain a Tangible Net Worth of not less than the following amounts as of the end of each month during the following periods:

Dates	Tangible Net Worth
October 1, 2001 to and including December 31, 2001	$	4,500,000
January 1, 2002 to and including June 30, 2002	$	4,000,000
After June 30, 2002	$	4,500,000

Definitions.	For purposes of the foregoing financial covenants, the following term shall have the following meaning:
	“Tangible Net Worth” shall mean the excess of total assets over total liabilities, determined in accordance with generally accepted accounting principles, with the following adjustments:
	(A) there shall be excluded from assets:  (i) notes, accounts receivable and other obligations owing to Borrower from its officers or other Affiliates, and (ii) all assets which would be classified as intangible assets under generally accepted accounting principles, including without limitation goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises
	(B) there shall be excluded from liabilities:  all indebtedness which is subordinated to the Obligations under a subordination agreement in form specified by Silicon or by language in the instrument evidencing the indebtedness which is acceptable to Silicon in its discretion.

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6.  REPORTING.
	(Section 5.3):
		Borrower shall provide Silicon with the following:
		1.	Monthly Receivable agings, aged by invoice date, within fifteen days after the end of each month.
		2.	Monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, within fifteen days after the end of each month.
		3.	Monthly reconciliations of Receivable agings (aged by invoice date), transaction reports, and general ledger, within fifteen days after the end of each month.
		4.	Monthly perpetual inventory reports for the Inventory valued on a first-in, first-out basis at the lower of cost or market (in accordance with generally accepted accounting principles) or such other inventory reports as are reasonably requested by Silicon, all within fifteen days after the end of each month.
		5.	Monthly unaudited financial statements, as soon as available, and in any event within thirty days after the end of each month.
		.
		6.	Monthly Compliance Certificates, within thirty days after the end of each month, in such form as Silicon shall reasonably specify, signed by the Chief Financial Officer of Borrower, certifying that as of the end of such month Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Silicon shall reasonably request, including, without limitation, a statement that at the end of such month there were no held checks.
		7.	Quarterly unaudited financial statements, as soon as available, and in any event within forty-five days after the end of each fiscal quarter of Borrower.
		8.	Annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower within thirty days prior to the end of each fiscal year of Borrower.
		9.	Annual financial statements, as soon as available, and in any event within 120 days following the end of Borrower’s fiscal year, certified by independent certified public accountants acceptable to Silicon.

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7.  COMPENSATION
	(Section 5.5):	Without Silicon’s prior written consent, Borrower shall not pay total compensation, including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any fiscal year to all of Borrower’s executives, officers and directors (or any relative thereof) as a group in excess of 115% of the total amount thereof in the prior fiscal year.

8.  BORROWER INFORMATION:

Prior Names of Borrower
(Section 3.2):	As set forth in the Borrower’s Representations and Warranties dated August 13, 2001.
Prior Trade Names of Borrower (Section 3.2):	As set forth in the Borrower’s Representations and Warranties dated August 13, 2001.
Existing Trade Names of Borrower (Section 3.2):	As set forth in the Borrower’s Representations and Warranties dated August 13, 2001.
Other Locations and Addresses (Section 3.3):	As set forth in the Borrower’s Representations and Warranties dated August 13, 2001.
Material Adverse
Litigation (Section 3.10):	None

9.  OTHER COVENANTS
(Section 5.1):	Borrower shall at all times comply with all of the following additional covenants:
	(1)	Banking Relationship.  Borrower shall at all times maintain its exclusive banking relationship with Silicon. Without limiting the generality of the foregoing, Borrower shall, within 10 Business Days after the date hereof, and, at all times during the term of this Agreement, maintain 100% of its total cash and investments on deposit with Silicon.
	(2)	Subordination of Inside Debt.  All present and future indebtedness of Borrower to its officers, directors and

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	shareholders (“Inside Debt”) shall, at all times, be subordinated to the Obligations pursuant to a subordination agreement on Silicon’s standard form.  Borrower represents and warrants that there is no Inside Debt presently outstanding.  Prior to incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside Debt will be owed to execute and deliver to Silicon a subordination agreement on Silicon’s standard form.
(3)	Warrants.  Concurrently, Borrower shall issue to Silicon five-year warrants to purchase 650,000 shares of the common stock of Borrower (the “Warrants”) at $0.50 per share.
(4)	Copyright Filings. Concurrently, Borrower is executing and delivering to Silicon an Intellectual Property Security Agreement between Borrower and Silicon (the “Intellectual Property Agreement”).  Within 30 days after the date hereof, Borrower shall (i) cause all of its computer software, the licensing of which results in Receivables, to be registered with the United States Copyright Office, (ii) cause the Intellectual Property Agreement to be supplemented to cover such registered software and cause such supplement to be recorded in the United States Copyright Office, and (iii) provide evidence of such recordation to Silicon.
(5)	Subsidiary. Borrower represents and warrants that its wholly-owned subsidiary, NCD Graphic Software Corporation, is and will continue to be a shell corporation without assets, and that it has been dissolved or will be dissolved within 60 days after the date hereof
(6)	Conditions Precedent.  Prior to the first disbursement of the Loans, Borrower shall comply with the following conditions precedent:
	(a)	Subordination.  SCI Technology, Inc. shall execute and deliver to Silicon a Subordination Agreement on Silicon’s standard form, subordinating the following (the “Subordinated Debt”) to the Obligations: (i) indebtedness evidenced by that certain Amended and Restated Convertible Promissory Note made by Borrower to SCI Technology, Inc., dated August 31, 2001 in the original principal amount of $3,300,000 and having an unpaid principal balance of $3,300,000; and (ii) indebtedness evidenced by that certain Promissory Note made by Borrower to SCI Technology, Inc., dated October 17, 2001 in the original principal amount of $1,000,000 and having an unpaid principal balance of $1,000,000.
	(b)	Equity.  Borrower shall receive cash proceeds of the issuance of new equity securities of Borrower, after October 1, 2001, of not less than $2,000,000 and shall

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	provide evidence of the same to Silicon which is reasonably satisfactory to Silicon.
(c)	Foreign Credit Insurance.  Borrower shall obtain foreign credit insurance in form and amount satisfactory to Silicon in its good faith business judgement

Borrower:				Silicon:
	NETWORK COMPUTING DEVICES, INC.			SILICON VALLEY BANK
	By		/s/ Rudolph Morin	By	/s/ Milad Hanna
	President or Vice President			Title		Senior Vice President
	By	/s/ Michael Garner
	Secretary or Ass’t Secretary

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EX-10.72

Silicon Valley Bank

Limited Waiver and

Amendment to Loan Documents

Borrower:             Network Computing Devices, Inc.

Date:                      March 4, 2002

THIS LIMITED WAIVER AND AMENDMENT TO LOAN DOCUMENTS is entered into between Silicon Valley Bank (“Silicon”) and the borrower named above (“Borrower”).

The Parties agree to amend the Loan and Security Agreement between them, dated October 29, 2001 (as otherwise amended, if at all, the “Loan Agreement”), as follows, effective as of the date hereof.  (Capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Loan Agreement.)

                1.             Waiver of Default.  Silicon and Borrower agree that the Borrower’s existing defaults under the Loan o the Borrower’s failure to comply with the Minimum Tangible Net Worth Financial Covenant set forth in Section 5 of the Schedule to Loan and Security Agreement entitled “5.  FINANCIAL COVENANTS (Section 5.1),” for the reporting periods ending November 30, 2001 and December 31, 2001 are hereby waived.  It is understood by the parties hereto, however, that such waiver does not constitute a waiver of any other provision or term of the Loan Agreement or any related document nor an agreement to waive in the future this covenant or any other provision or term of the Loan Agreement or any related document.

                2.             Modified Credit Limit.  That portion of the Credit Limit set forth in Section 1 of the Schedule to Loan and Security Agreement that currently reads as follows:

An amount not to exceed the lesser of:  (i) $5,000,000 at any one time outstanding (the “Maximum Credit Limit”); or (ii) 60% of the amount of Borrower’s Eligible Receivables (as defined in Section 8 above).

is hereby amended to read as follows:

An amount not to exceed the lesser of:  (i) $2,000,000 at any one time outstanding (the “Maximum Credit Limit”); or (ii) 50% of the amount of Borrower’s Eligible Receivables (as defined in Section 8 above).

                                3.             Modified Tangible Net Worth Financial Covenant.  The Minimum Tangible Net Worth Financial Covenant set forth in that portion of the Schedule to Loan and Security Agreement entitled “5. FINANCIAL COVENANTS (Section 5.1)” which currently reads as follows:

Minimum TangibleNet Worth:	Borrower shall maintain a Tangible Net Worth of not less than the following amounts as of the end of each month during the following periods:
	Dates	Tangible Net Worth
	October 1, 2001 to and including December 31, 2001	$4,500,000
	January 1, 2002 to and including June 30, 2002	$4,000,000
	After June 30, 2002	$4,500,000

is hereby amended to read as follows:
Minimum Tangible Net Worth:	Borrower shall maintain a Tangible Net Worth of not less than the following amounts as of the end of each month during the following periods:
	January 1. 2002 through and including May 31, 2002:  $2,500,000;
	June 1, 2002 through and including June 30, 2002:  $3,750,000; and
	After June 30, 2002:  $4,500,000.

                                4.             Fee.  In consideration for Silicon entering into this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of $15,000, which shall be non-refundable and in addition to all interest and other fees payable to Silicon under the Loan Documents.  Silicon is authorized to charge said fee to Borrower’s loan account.

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                                5.             Representations True.  Borrower represents and warrants to Silicon that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct.

                                6.             General Provisions.This Amendment, the Loan Agreement, any prior written amendments to the Loan Agreement signed by Silicon and Borrower, and the other written documents and agreements between Silicon and Borrower set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and under­standings between the parties with respect to the subject hereof.  Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, and all other documents and agreements between Silicon and Borrower shall continue in full force and effect and the same are hereby ratified and confirmed. 

Borrower:		Silicon:
NETWORK COMPUTING DEVICES, INC.		SILICON VALLEY BANK
By	Michael A. Garner	By	Arlene Soriano
	President or Vice President
		Title	VP Market Manager
By	Rudolph G. Morin
	Secretary or Ass’t Secretary

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EX-10.74

EXHIBIT 10.74

***PORTIONS OF THIS EXHIBIT HAVE BEEN DELETED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

OEM SUPPLY AGREEMENT

This OEM Supply Agreement (the “Agreement”) is entered into as of March 22, 2002, by and between NEOWARE SYSTEMS, INC. (“Neoware”), a Delaware corporation, with its principal place of business at 400 Feheley Drive, King of Prussia, Pennsylvania 19406, and NETWORK COMPUTING DEVICES, INC. (“NCD”), a Delaware corporation, with its principal place of business at 301 Ravendale Avenue, Mountain View, California 94043.

WHEREAS, NCD is presently engaged in the business of designing, developing, manufacturing, distributing and selling server and thin client management software marketed under the ThinPath and Thinfrastructure brand names, and thin client products, including Network Computers marketed under the NC900 brand name, and Windows-based thin client devices marketed under the ThinStar brand name;

WHEREAS, contemporaneously with the execution and delivery hereof, Neoware is acquiring the goodwill and certain assets used or useful in NCD’s business of designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name pursuant to an Asset Purchase Agreement, dated as of March 22, 2002, to which Neoware and NCD are parties (the “Purchase Agreement”); and

WHEREAS, NCD wishes to purchase ThinStar products from Neoware and distributesuch products in Europe, the Middle East and Africa, and Neoware is willing to supply NCD with such products.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties, intending to be legally bound hereby, agree as follows:

1.             Appointment as Distributor; Territory; Products.

1.1           Subject to all the terms and conditions of this Agreement, Neoware hereby appoints NCD for the term of this Agreement as an exclusive distributor of the Products (as hereinafter defined) only to persons and entities located and taking delivery in Europe, the Middle East and Africa (the “Territory”).  NCD agrees to purchase the Products exclusively from Neoware in accordance with the terms of this Agreement. Products resold by NCD for further distribution may be distributed only through persons who are bound in writing to all the restrictions on NCD contained in this Agreement.  Except as set forth herein, nothing in this Agreement shall be construed as limiting in any manner Neoware’s marketing or distribution activities or its appointment of other suppliers, resellers, distributors, licensees or agents with respect to any of its products (except for the Products marketed and sold under the ThinStar brand) or any of its intellectual property, including the intellectual property which is a part of the Products (except for the ThinStar brand name).

1.2           “Products” shall mean the products marketed and sold under the ThinStar brand set forth in Attachment A, together with the documentation provided therewith by Neoware.  Any update, enhancement or improvement of a Product that is made generally

available by Neoware, that is substantially similar to such Product, and that is marketed under the same product number and nomenclature as such Product, shall be added to Attachment A as a new Product.  Neoware reserves the right to change or modify any Product at any time.  Neoware may add or delete products to or from Attachment A.  Initially, the Products will be units of NCD’s current product line of ThinStar 332, ThinStar 332Web and ThinStar 500 units until NCD’s and NCD’s suppliers’ inventory of such units (the “Existing Inventory”) has been consumed in accordance with Section 8.3 of the Purchase Agreement.  Thereafter, Neoware shall supply the ThinStar Products either with client software and functionality the same as NCD’s client software and functionality, provided that NCD develops such software at its sole cost, or with Neoware’s  standard client software, extended by NCD’s client-side management software, provided that NCD develops such software at its sole cost.  If NCD develops such software, Neoware shall provide limited telephone technical assistance to NCD to assist NCD in doing so.  Additionally, Neoware will agree to provide versions of its thin client products based upon Linux, Windows CE, Windows NTe and Windows XPe to NCD, provided that NCD extends these products with NCD’s client-side management software.  Neoware and NCD will collaborate to develop additional products with functionality and pricing required to meet NCD’s market requirements

2.             Supply and Payment Terms.

2.1           Neoware agrees to sell the Products to NCD, and NCD agrees to purchase the Products from Neoware, in accordance with the terms and conditions of this Agreement.

2.2           Products shall be delivered F.O.B. Neoware’s applicable warehouse or place of production, in the United States, China, Taiwan or other location of origin. Neoware shall supply the Products to NCD at a fixed price that represents a minimum of *** (***) margin over actual burdened cost to Neoware, except with respect to ThinStar Voyager units, which Neoware shall supply to NCD at a fixed price representing a minimum of *** (***) margin to Neoware. As of the date hereof, prices payable by NCD are those set forth in Attachment B.  Neoware shall have the right, from time to time or at any time, to change such prices to conform to the foregoing minimum margin requirements, upon thirty (30) days written notice.  New prices will apply to all shipments made after the end of such notice period.  In addition, NCD will pay ***.  Payment shall be made in U.S. dollars.  Terms of payment will be net sixty (60) days from invoice date, unless otherwise agreed to in writing by NCD and Neoware, or unless Neoware at any time determines that NCD’s credit is not satisfactory, in which case payment terms shall be C.O.D.  NCD’s payment obligations shall be secured pursuant to the terms of the Escrow and Security Agreement, dated March 22, 2002, between Neoware and NCD.

2.3           Copies of software Products are licensed for distribution only and are not sold.  NCD is not entitled to receive any source code or source documentation relating to the Products. Software components of Product(s) shall be licensed by Neoware to the end-user customer in accordance with the terms of the software license accompanying the relevant Product(s).  NCD shall inform its resellers in writing, and require them to deliver to the end-user

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customer the applicable software licenses with the relevant Product(s), and if required by applicable law,  obtain the customer’s signature on such licenses.

3.             Orders; Shipment.

3.1           Neoware and NCD will agree to a schedule for the manufacture and shipment of Products. Once agreed to, manufacture and shipment of Products will be in accordance with NCD’s binding purchase orders (“Purchase Orders”). Purchase Orders shall be numbered and dated and reference this Agreement in accordance with the provisions set forth in Attachment C.

3.2           NCD forecasts of Product purchases beyond ninety (90) days (or some other mutually agreed period) are for planning purposes only, are not firm, and will be issued every two weeks. Such forecasts shall not constitute or be deemed to be binding commitments by NCD.

3.3           Neoware will manufacture Products according to the quantity and delivery schedules set forth in Purchase Orders in effect from time to time during the term of this Agreement. Product Lead Times shall be set forth in Attachment B.  Neoware shall either acknowledge or object to each Purchase Order within five (5) days of receipt. Lack of acknowledgment by Neoware shall constitute acceptance.  Purchase Order Releases shall authorize shipment of Product to NCD or NCD customers.

3.4           Neoware will use its commercially reasonable efforts to meet any scheduled ship dates but reserves the right to schedule, reschedule or make partial shipments at its discretion; provided, however, that Neoware shall use its commercially reasonable efforts to give NCD notice for such rescheduling or partial shipments.

3.5           Upon delivery to the carrier, title (except as set forth herein) and risk of loss for all Product(s) shall pass to NCD.  Neoware shall use NCD’s specified carriers as identified on NCD’s Purchase Orders.  In the event of loss or damage, NCD shall notify the carrier and the insurer for the purpose of filing a claim.  Neoware will provide reasonable assistance to NCD in establishing any such claim.

3.6           Product over-shipment, incorrect shipment or receipt of a D.O.A. (Dead On Arrival) unit may be returned without penalty as set forth in Attachment D.

3.7           Neoware shall package, handle and label the Products so as to protect the Products from loss or damage, in conformance with good commercial practice, NCD’s specifications (provided NCD’s packing specifications do not create such non-conformance), government regulations, or other applicable standards.  Neoware shall be responsible for loss or damage resulting from such non-conformance.  Invoices will be forwarded to NCD the next business day after shipment.

4.             NCD’s Covenants and Representations.

Except as expressly and unambiguously provided herein, NCD represents, warrants and agrees:

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4.1           Not to (i) disassemble, decompile or otherwise reverse engineer the Products or otherwise attempt to learn the source code, structure, algorithms or ideas underlying the Products, (ii) rent, lease or otherwise provide temporary access to a Product, except as agreed by Neoware, (iii) copy or modify the Products, or (iv) allow others to do any of the foregoing.

4.2           To use its commercially reasonable efforts to successfully market, distribute and support (including installation, training and other support) the Products on a continuing basis, and to comply with good business practices and all laws and regulations relevant to this Agreement or the subject matter hereof.

4.3           To keep Neoware informed as to any major problems encountered with the Products and any resolutions arrived at for those problems, and to communicate promptly to Neoware material modifications, design changes or improvements of the Products suggested by any customer, employee or agent.  NCD will also promptly notify Neoware of any infringement of any trademarks or other proprietary rights relating to the Products, of which it becomes aware.

4.4           To comply with all export laws and restrictions and regulations of the Department of Commerce or other United States or foreign agency or authority, and not to export, or allow the export or reexport of any Product in violation of any such restrictions, laws or regulations. NCD shall, with the assistance of Neoware, which assistance shall be promptly provided, obtain any necessary licenses and/or exemptions with respect to the export from the U.S. of all material or items deliverable.

4.5           To obtain and maintain, at its expense, any business licenses, permits and approvals which are required to sell the Products and to comply with applicable law and regulations.

4.6           To demonstrate the Products when demonstrating thin client products to customers and prospective customers at trade shows, seminars and all other marketing events.

4.7           To advertise the Products in its advertisements, product brochures and on its website.  All advertisements and promotional materials of the Products shall be subject to the prior approval of Neoware, which approval shall not be unreasonably withheld.

4.8           To provide Neoware with access to its sales force for training and to invite Neoware’s employees to joint presentations to its customers and prospects.

4.9           To dedicate a product marketing person whose primary responsibility will be to support marketing and sales of the Products to its customers.

4.10         To provide Neoware with monthly sales-out reports by the end of each month detailing the company name, postal code, quantity and configuration of the Products shipped in the prior month to end customers or resellers for all end customers or resellers to whom Neoware does not directly ship products.

4.11         To comply with Neoware’s business compliance requirements, including a Business Plan, Hardware and Software Training and Sell Through Reporting, all as set forth on Attachment E.

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4.12         To read and follow any additional requirements for the distribution of Products as may be specified in the applicable attachments hereto, distributor handbook or ongoing communications.

4.13         Not to purchase, design or develop for sale any thin client device under the NCD or ThinStar brands, except for the existing NCD NC900 thin client device, other than products purchased from Neoware.

4.14         To purchase the Existing Inventory of the Products in accordance with Section 8.3 of the Purchase Agreement.

5.             Warranty and Technical Support.

5.1           EXCEPT FOR THE WARRANTY ACCOMPANYING EACH PRODUCT, NO OTHER WARRANTY OR CONDITION, EXPRESS OR IMPLIED, SHALL APPLY.  NEOWARE SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.  NO REPRESENTATION, CONDITION OR WARRANTY, INCLUDING BUT NOT LIMITED TO, STATEMENTS OF CAPACITY, SUITABILITY FOR USE, OR PERFORMANCE, WHETHER MADE BY NEOWARE EMPLOYEES OR NCD PERSONNEL, SHALL BE CONSIDERED TO BE A WARRANTY BY NEOWARE FOR ANY PURPOSE OR GIVE RISE TO ANY LIABILITY OF NEOWARE WHATSOEVER. The above warranty does not extend to any Product that (i) is modified or altered, (ii) is not maintained to Neoware’s maintenance recommendations, (iii) is operated in a manner other than that specified by Neoware, or (iv) is treated with abuse, negligence or other improper treatment.  NCD is fully responsible for satisfaction of its customers and will be responsible for all claims, damages, settlements, expenses and attorneys’ fees incurred by Neoware with respect to NCD’s customers or their claims beyond Neoware’s above warranty obligation to NCD.  NCD’s sole remedy with respect to any defect of the Products is as stated herein.

5.2           NCD may return Products found to be defective within thirty (30) days of shipment for credit against replacement Products, provided the amount for the credit shall be equal to, and shall not exceed, the purchase price paid by NCD.  All replaced parts or Products shall become the property of Neoware.  NCD shall return all defective parts or Products to Neoware in the United States, Taiwan or China, at Neoware’s option, freight and duty prepaid.  Replaced Products shall be shipped by Neoware freight prepaid.

5.3           Neoware shall provide technical support to NCD as set forth in Attachment F.

6.             Indemnification.

6.1           Neoware will defend, indemnify and hold NCD and its officers, directors, agents and employees harmless from liability resulting from any claim of infringement by the Product of any copyright, trade secret or patents, provided that NCD notifies Neoware within ten (10) days of any such claim in writing and gives to Neoware information, assistance and the sole authority to defend or settle such claim (at Neoware’s expense).  Neoware will pay all damages and costs finally awarded against NCD.  If Neoware’s Product is held to infringe, and the use of

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such Product is enjoined, or in the case of settlement, Neoware will have the option either to procure for NCD the right to continue using such Product or modify the Product so it becomes non-infringing, or grant NCD a credit for the depreciated value of the Product and accept return of the Product.

6.2           The foregoing indemnification does not apply with respect to Products or portions of components thereof (i) used in combination with products not supplied by Neoware, if such claim would have been avoided but for such combination, (ii) made in accordance with NCD’s specifications, designs or instructions, to the extent that such specifications, designs or instructions caused such claim, (iii) which are modified after shipment by Neoware, if such claim would have been avoided but for such modification, (iv) combined with other products, processes or materials, if such claim would have been avoided but for such combination, (v) where NCD continues the allegedly infringing activity after being notified thereof or after being informed of a modification that would have avoided the alleged infringement, or (vi) where NCD’s use of the Product is not in accordance with the terms of, or documentation or specifications provided by Neoware in, this Agreement, if such claim would have been avoided but for such use.  NCD will indemnify and hold Neoware and its officers, directors, agents and employees harmless from all damages, settlements, attorneys’ fees and expenses related to a claim of infringement excluded from Neoware’s indemnification obligation under this section.

The foregoing states the entire liability of Neoware with respect to infringement of intellectual property by the Products or any parts thereof.

7.             Limited Liability.

NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (1) ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE AMOUNTS PAID TO NEOWARE HEREUNDER DURING THE TWELVE-MONTH PERIOD PRIOR TO THE DATE THE CAUSE OF ACTION AROSE OR (2) ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOST DATA OR (3) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.  NEOWARE SHALL HAVE NO LIABILITY FOR ANY FAILURE OR DELAY DUE TO MATTERS BEYOND ITS REASONABLE CONTROL.

8.             Title; License.

8.1           Upon delivery to the carrier, except as set forth herein, title to the Products shall pass to NCD.

8.2           Title in and to the documentation for such Products shall remain solely in Neoware.

8.3           Title in and to, and except as expressly provided herein, all rights to all software Products, all copies and derivative works thereof, and all related documentation and materials, shall remain solely in Neoware.

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8.4           Title in and to, and except as expressly provided herein, all rights to any and all service marks, trademarks, trade names or other designations, copyrights, patent rights, trade secrets and other proprietary rights in the Products shall remain solely in Neoware. Neoware will provide NCD with advertising guidelines for Neoware’s logos, trade and service marks, trade names, emblems, and titles (hereinafter “Trademarks”).  Neoware will notify NCD in writing of the Trademarks, if any, NCD is authorized to use.  NCD may use the Trademarks only as described in such advertising guidelines and only in association with the Product(s) it is authorized to market.

8.5           Subject to the terms and conditions set forth in the Neoware License Agreement between Neoware and NCD, the form of which is attached hereto as Attachment G, Neoware shall grant to NCD an exclusive license to distribute the Products in the Territory.

9.             Relationship of Parties.

The parties hereto are independent contractors.  Neither party is a legal representative, legal partner, franchisee or agent of the other, and neither party has authority to act for, bind or make commitments for the other.  Each party shall be free to establish its own prices.

10.           Assignment.

This Agreement and the rights hereunder are not transferable or assignable without the prior written consent of the parties hereto, except for rights to payment.

11.Option to Purchase; Right of First Refusal.

11.1         Option to Purchase.      Neoware may purchase from NCD, at any time prior to December 31, 2003, substantially all of the EMEA Assets and Liabilities (as defined herein) of NCD’s EMEA Operations (as defined herein).  Neoware shall furnish a notice to NCD of its intent to exercise its option to purchase.  Neoware will pay NCD an amount equal to the “Value” (as defined herein) of the EMEA Assets.  The closing of the purchase of the EMEA Assets will occur as soon as practicable after receipt by Neoware of all customary materials required to be delivered to Neoware in connection with the closing. Upon closing of the purchase of the EMEA Assets, this Agreement will be deemed terminated.

11.1.1      For purposes of Section 11.1, “EMEA Operations” means NCD’s operations in Europe, the Middle East and Africa.

11.1.2      For purposes of this Section 11.1, the “EMEA Assets” means substantially all of the assets owned or used or useful by NCD in connection with the EMEA Operations, at the time of the purchase, including, but not limited to, personal property, contract rights, intellectual property, governmental licenses and books and records, and substantially all of the liabilities of the EMEA Operations.

11.1.3      For purposes of this Section 11.1, “Value” shall be calculated as a percentage of the revenues for the EMEA Operations for the six months ending on the last day of the calendar month preceding the date of Neoware’s notice to NCD to exercise its option to purchase, multiplied by two. If the profits of the EMEA Operations for such period, calculated as

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EBITDA, is 1% or less of revenues, Value shall equal 25% of revenues for such period, with each additional full one percent of profit , as a percentage of revenues, resulting in an increase in Value in an amount equal to 5% of revenues, up to a maximum of 60% of revenues, multiplied by two.  The purchase price shall be paid in unregistered shares of Neoware’s common stock, subject to applicable securities laws, provided that Seller shall have the right to demand that up to 30% of the shares be registered for resale.

11.2         Right of First Refusal. Notwithstanding any other provision in this Agreement to the contrary, in the event NCD receives a bona fide offer (“Offer”) to purchase the EMEA Assets at any time prior to December 31, 2004, Neoware shall have a right of first refusal to purchase the EMEA Assets, as described herein. Upon receiving an Offer, NCD agrees to promptly deliver to Neoware a notice setting forth the terms of the Offer (“Offer Notice”). The Offer Notice shall be deemed to constitute an offer to sell to Neoware the EMEA Assets, on the terms set forth in the Offer. Neoware will have a period of thirty (30) days from the date of the Offer Notice to notify NCD that it agrees to purchase the EMEA Assets on such terms as set forth in the Offer. If Neoware timely agrees in writing to purchase the EMEA Assets, the parties will proceed to consummate the purchase of the EMEA Assets not later than the ninetieth day after the date of the Offer Notice. If Neoware does not agree within such thirty-day period to purchase the EMEA Assets, NCD will have the right, for a period of ninety (90) days after such thirtieth day, to sell to the person or entity (the “Offeror”) identified in the Offer Notice the EMEA Assets on terms and conditions no less favorable to NCD than those set forth in the Offer.  If NCD fails to sell the EMEA Assets to the Offeror on such terms and conditions within such ninety-day period, NCD will again be subject to the provisions of this Section 11.2 with respect to subsequent Offers to purchase the EMEA Assets. Upon closing of the purchase of the EMEA Assets, this Agreement will be deemed terminated.

11.3         Neoware Election.     In the event NCD receives an Offer under Section 11.2, Neoware shall be entitled to elect whether to have the provisions of Section 11.1 or 11.2 apply to its purchase of the EMEA Assets.

12.           Rescheduling and Cancellation.

12.1         NCD may increase, decrease or reschedule Products previously released for production on agreed terms and costs (if any) mutually agreed to by the parties.

12.2         NCD may not cancel production of Products within thirty (30) days of their scheduled ship dates.  NCD may reschedule production of Products within thirty (30) days of ship date as mutually agreed upon by the parties.  NCD may cancel Purchase Orders outside the thirty (30) day production period but will be responsible for the Termination Inventory as set forth in Section 13.

13.           Inventory Indemnification.

13.1         Upon cancellation of a Purchase Order, or upon expiration of this Agreement or termination of this Agreement for any reason, NCD shall be responsible for:

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(a)           all finished Products scheduled for shipment within the thirty (30) days immediately following Neoware’s receipt of the cancellation or termination notice (the “Notice”);

(b)           all work-in-process at receipt of the Notice; and

(c)           all components, subassemblies and other material purchased to fill a Purchase Order or authorized to be purchased by Neoware which are on hand or on order at the time of receipt of the Notice, including, without limitation, any parts of the Products made obsolete due to changes to the Products and the quantity of Products ordered, provided that such components, subassemblies or other materials cannot be used in other products by Neoware on a current basis.

Items (a) through (c) above are referred to as the “Termination Inventory.”  In calculating the quantity of finished Products under (a) above, Products rescheduled for manufacture and shipment during the forty-five (45) days immediately prior to receipt of the Notice may be counted by Neoware.

13.2         Within thirty (30) days from the date of termination or cancellation, Neoware will invoice, and NCD will purchase, the Termination Inventory, at the purchase price in effect as of the date of termination or cancellation, as applicable.

14.           Term and Termination.

14.1         The term of the Agreement shall commence on the date hereof (the “Effective Date”) and shall continue until December 31, 2004, or until it is otherwise terminated pursuant to the terms hereof.

14.2         This Agreement may be terminated by either party if the other party materially breaches this Agreement and fails to cure the default within thirty (30) days after receipt of written notice of termination from the other party specifying such breach, or fails to reach agreement with the party providing notice within such thirty (30) day period to cure the breach in accordance with such agreement.

14.3         If either party becomes insolvent or seeks protection under, or becomes the subject of, any bankruptcy, receivership, creditor’s arrangement or comparable proceeding, the other party may at its option, by written notice, immediately terminate this Agreement.

14.4         If either party ceases to do business, or otherwise terminates its business operations, the other party may at its option immediately terminate this Agreement.

14.5         Termination of this Agreement shall not affect Neoware’s right to be repaid for undisputed invoices for Products already shipped and accepted by NCD or Neoware’s rights to any credits or payments owed or accrued to the date of termination, or NCD’s rights to receive Products under Purchase Orders accepted by Neoware, provided that such Purchase Orders are for a maximum quantity representing sixty (60) days of supply based upon the prior six months’ deliveries.

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14.6         The following sections shall survive termination of this Agreement: Sections 5, 6, 7, 8, 10, 11, 12 and 15.

15.           General.

15.1         Except as otherwise expressly provided herein, any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or any particular instance and either retroactively or prospectively) only with the written consent of the parties.  However, it is the intention of the parties that this Agreement be controlling over additional or different terms of any order, confirmation, invoice or similar document, even if accepted in writing by both parties, and that waivers and amendments shall be effective only if made by non-preprinted agreements clearly understood by both parties to be an amendment or waiver.

15.2         This Agreement shall be governed by and construed under the laws of the Commonwealth of Pennsylvania and the United States without regard to conflicts of laws provisions thereof and without regard to the United Nations Convention on Contracts for the International Sale of Goods.  Unless waived by Neoware in writing for the particular instance, the sole jurisdiction and venue for actions related to the subject matter hereof shall be the Pennsylvania state and federal courts having within their jurisdiction the location of Neoware’s principal place of business.

15.3         Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement.

15.4         Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally, (ii) upon receipt, when sent by facsimile, provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party or (iii) one (1) business day after deposit with a nationally recognized overnight courier.  The addresses for such communications shall be the addresses first set forth herein or as amended by notice pursuant to this section.

15.5         This Agreement supersedes all proposals, oral or written, all negotiations, conversations, or discussions between or among parties relating to the subject matter of this Agreement and all past dealings or industry custom.

15.6         If any provisions of this Agreement is held by a court of competent jurisdiction to be illegal, invalid or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

15.7         Neoware and NCD agree to be bound by the terms of the Confidentiality and Non-Disclosure Agreement dated March 22, 2002, between Neoware and NCD, with regard to the terms of this Agreement or any attachment hereto, and to any information disclosed by either party to the other relating to this Agreement.

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15.8         Neither party shall be liable for damages and costs to the other party arising out of delays or failures to perform under this Agreement if such delays or failures result from causes beyond the reasonable control of a party, and are not caused by an act or omission of such party.  Notice of any such delays or failures and explanation of their causes must be given to the other party within five (5) days of the occurrence.  As soon as it is reasonably apparent that the occurrence will likely cause a delay of more than sixty (60) days, the party against whom this section is invoked shall have the right to terminate the affected installments under any Purchase Order.  If NCD is the party claiming the force majeure event, NCD shall be liable for any applicable cancellation charges and be responsible for termination obligations as detailed within Section 13.  This force majeure provision may not be invoked for failure or inability to make a payment under this Agreement.

15.9         This Agreement shall be binding upon and inure to the benefit of Neoware and NCD and their respective successors, heirs and assigns; provided, however, that, except as provided in this Section 15.9, NCD shall not directly or indirectly transfer or assign this Agreement or any part hereof without the prior written consent of Neoware. Subject to the foregoing, this Agreement is not intended to benefit, and shall not run to the benefit of or be enforceable by, any other person or entity other than the parties hereto and their permitted successors and assigns.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

NETWORK COMPUTING DEVICES, INC.
By:	/s/ Guenther Pfaff
Name:				Guenther Pfaff
Title:			Chief Executive Officer
Date:
NEOWARE SYSTEMS, INC.
By:	/s/ Michael Kantrowitz
Name:				Michael Kantrowitz
Title:			Chief Executive Officer
Date:		3-22-02

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ATTACHMENT A

PRODUCTS

NCD ThinSTAR 332

NCD ThinSTAR 332Web

NCD ThinSTAR 500

NCD ThinSTAR 550

NCD ThinSTAR Voyager

ATTACHMENT B

PRODUCT LEAD TIME AND PRICE LIST

Model	P/N	Description	Price (1)(4)		Lead time
NCD ThinStar 332		Existing NCD ThinSTAR 332	$	***	4 WEEKS
NCDThinSTAR 332		Existing NCDThinSTAR 332Web	$	***	4 WEEKS
NCD ThinSTAR 500		Existing NCD ThinSTAR 500	$	***	4 WEEKS
NCD ThinSTAR 550 (5)	TSB55 0-1	ThinSTAR 550 CE.NET 16MB FLASH 32MB RAM MOUSE EURO CORD (NO KBD)	$	***	4 WEEKS (2)
NCD ThinSTAR Voyager		(6)	(6)		(6)
Customization Charge		Rating Label, Packaging, Bezel Silkscreen, Manual.	$	***	6 WEEKS (3)

Notes:

(1).  Price based upon minimum 500 units per shipment.

(2).  Standard leadtime based upon accurate rolling forecast, otherwise 8 weeks.

(3).  Customization leadtime is from receipt of NCD artworks to availability in mass production.

(4).  Excluding the ThinSTAR Voyager, the purchase price shall be *** of the above prices for the ThinSTAR 550, and *** of the above prices for the ThinSTAR 332, ThinSTAR 332Web and ThinSTAR 500 after *** of combined shipments per quarter.

(5).  The ThinSTAR 550 will be made available only after Neoware’s obligation to purchase up to a maximum of 10,000 existing ThinSTAR units under Section 8.3 of the Purchase Agreement has been satisfied.

(6).  The description, price and lead time applicable to the NCD ThinSTAR Voyager will be subject to the OEM Purchase and Development Agreement between NCD and Airspeak, Incorporated, dated December 20, 2001, which agreement will be assigned to Neoware.

ATTACHMENT C

PRODUCT ORDERS

1.0           To place an order, purchase orders should be sent by fax/mail to:

Neoware Systems, Inc.

400 Feheley Drive

King of Prussia, Pa 19406

ATTN: Order Administration

Email:  orders@neoware.com

Phone: 610-277-8300 Ext. 184

Fax: 610-275-5739

The signed purchase order should include:

Agreement number

Purchase order number

Bill to name and address

Ship to name(s) and address(es)

Part number of each Product ordered

Quantity of each Product ordered

Price of each Product ordered

Desired delivery date(s)

Preferred carrier and forwarding agent

Special shipping instructions, if appropriate

Delivery Date(s) shall mean the date(s) Neoware shall deliver the Product(s) to a freight carrier as specified in NCD’s purchase order.  Neoware shall incur no shipping costs unless expressly agreed to in writing.

ATTACHMENT D

PRODUCT RETURNS

Section I.               Product Returns: (DOA/RMA- Return Merchandise Authorization)

1.0           NCD may return Product without penalty under the following conditions:

Over-shipment by Neoware.

Incorrect Product shipped.

Product received was Dead On Arrival (D.O.A.), damaged or defective unless such damage was caused by NCD’s freight carrier.

NOTE 1:Product may only be returned under this process if they have been in NCD’s possession no longer than thirty (30) calendar days. NCD may be asked to provide the serial number(s) as proof of the 30-day possession.  For all repairs, please see Product Returns as set forth in Section II of this Attachment.

2.0           Process:

2.1)          Contact 610-277-8300 to request RMA.

2.2)          Upon request provide:

Product part number(s)

Quantity

Product serial number(s)

Reason for return or the specific failure experienced

Replacement P.O. and ship-to address

2.3)          Customer Support will:

Provide RMA number and Neoware shipping address to return Product.

Fax RMA label to requestor; such label MUST be attached to all Product cartons to be returned to Neoware.

NOTE 2:  RMA number MUST be visible on EACH carton.  NCD may use the RMA label provided, or may prominently note RMA number on shipping label.  PROPER CREDIT CANNOT BE ISSUED WITHOUT THE RMA NUMBER.

The return shipping expense will be incurred by Neoware.

NOTE 3:  Please note that replacement orders must be made by NCD, not the end-user.  If the return has been in NCD’s possession more than 30 days, the customer should follow the warranty policy for the units. (See the related Repair Procedure.)

Section II:   Product Returns: (For All Repairs)

1.0Policy

During the three-year return to depot warranty applicable for the hardware, the warranty will be fulfilled by Neoware in Europe, the United States, Taiwan, China, or other location, at Neoware’s sole option.

2.0Process

Contact 610-277-8300 to request RMA.

Caller must have the following information available when placing a service call:

Unit Model Number

Unit serial Number

Description of Problem

Upon supplying this information you will be given a repair authorization as well as shipping information.

Customer pays for all shipping costs. Neoware pays return shipping from the repair depot.

Upon receiving a unit, the average turn around time is 30 days.

ATTACHMENT E

BUSINESS PLAN, HARDWARE AND SOFTWARE TRAINING
AND SELL THROUGH REPORTING REQUIREMENTS

Section I.               Business Plan – Elements of the Business Plan should include the following:

1.0           Business Plan:

1.1)          ***.

1.2)          ***.

1.3)          ***.

1.4)          ***.

1.5)          ***.

Section II.              Neoware Hardware and Software Training

2.0           Training

2.1)          To ensure that resellers can properly support Neoware Products and customers, Neoware requires that distributors receive training on Neoware’s Products.  It is required that at least two (2) of NCD’s employees be trained by Neoware.

2.2)          NCD must be trained on Windows NT prior to being authorized to sell Neoware’s Products.  Neoware will not authorize any distributor who has not been trained on Windows NT.  Potential distributors may be trained on Citrix products after having been signed by Neoware at Neoware’s discretion.

Section III.            Sell Through Reporting

3.0           Reporting

3.1)          NCD must provide Neoware with Point-of-Sale (“POS”) reports for each month by the 7^th of the following month.

3.2)          POS should be sent in a Microsoft Excel format.  Columns should be listed as follows:

XYZ COMPANY POS REPORT: JAN 1 - JAN 31, 2001

ORDER DATE CUSTOMER NAME SALES REP. PART# QTY COST EXT COST SHIP TO CITY SHIP TO  COUNTRY

POS report should be e-mailed to orders@neoware.com.

Section IV.            Inventory Reporting

4.0           Reporting

4.1)Distributor must provide Neoware with an inventory report for each month by the 7^th of the following month.  Inventory Reports should be e-mailed to orders@neoware.com.

4.2)Inventory Reports should be sent in a Microsoft Excel format.  Columns should be listed as follows:

Vendor Part# Description Inventory Status Code Back Orders Qty Available In Transit On Order

ATTACHMENT F

NEOWARE TECHNICAL SUPPORT RESPONSIBILITIES

1.0           Neoware Technical Support Responsibilities:

1.1)          Technical Support

1.1.1)Neoware will provide the following support service options for NCD that will allow it to fulfill its end-user technical support responsibilities:

1.1.1.1)	NCD will provide Level 1 with Neoware “back-up” Level 2 support
1.1.1.2)	Neoware may make available, to NCD, Level 2 support as required (for a fee), to support end-user.  Level 2 support can be purchased from Neoware at the prices listed on Neoware’s published price list.
1.1.1.3)	Neoware may make available, to NCD, Level 2 support on an annual technical support contract basis at the price listed in the Neoware published price list.  Agreements will be between Neoware and NCD, on a per end-user account basis.  A Level 2 support agreement (Neoware Technical Support Agreement) will provide NCD with technical support services necessary to offer Level 2 support to their end-user accounts.
* Level 1 support refers to initial call taking and routine technical support
** Level 2 support refers to advanced technical support (i.e.: troubleshooting, debugging, etc.)

1.2)          Contacting Technical Support

Technical Support Response Center

By phone number: +1-610-277-8300

	U.S. East Coast Time
	8:30 a.m. – 5:30 p.m. (Monday - Friday); Immediate response
	- 7 x 24 hr.; Voice mail
By E-mail:		support@neoware.com - response within 1 business day
By Internet:		http://www.neoware.com/

1.3)          Product Maintenance

1.3.1)Should Neoware determine that there is a defect in its product, Neoware will use its commercially reasonable efforts to provide an avoidance procedure for and/ or a correction of such defect through off-site telephone support of NCD.  Neoware shall have sole discretion as to the method and manner of maintenance and support efforts.

1.4)          Software Updates

1.4.1)As solutions are developed for known errors in the software, they may be incorporated from time to time in updates to the software (“Software Updates”).  Neoware will notify NCD of such updates on an as needed basis and will make Software Updates available to NCD at then current prices when updates are developed.  However, Neoware is under no obligation to provide software updates for the Products.

1.5)          Enhancements

1.5.1)       On an as needed basis, Neoware will inform NCD of new features (“Enhancements”) which NCD may acquire at its option, at Neoware’s then current prices.

Section II.              Neoware Hardware and Software Training

2.0           Partner Technical Support Responsibilities

2.1)          Marketing Efforts & Restrictions

2.1.1)       NCD will understand and agree to instruct customers on technical support options.

2.1.2)       NCD shall leave all technical support information shipped with the unit intact.

2.2)          Training

2.2.1)NCD agrees to maintain a staff having the technical knowledge and training necessary to inform customers of Neoware Product features and capabilities.

2.3)          Technical Support

2.3.1)NCD will provide technical support to meet the needs of their customers (Level 1 & Level 2 support), either directly providing technical services or indirectly through Neoware or any combination thereof.  For customers that are directly supported by NCD (NCD providing Level 1 support), it will be the responsibility of NCD to inform these end-users of updates and enhancements to the Product.

2.4)          Costs

2.4.1)Except as provided herein, NCD will pay all costs and expenses incurred as part of its technical support responsibilities.

ATTACHMENT G

NEOWARE LICENSE AGREEMENT

NEOWARE LICENSE AGREEMENT

This License Agreement (the “Agreement”) is entered into this 22nd day of March, 2002 (the “Effective Date”), by and between NEOWARE SYSTEMS, INC. (“Neoware”), having its principal place of business at 400 Feheley Drive, King of Prussia, Pennsylvania 19406, and NETWORK COMPUTING DEVICES, INC. (“NCD”), having its place of business at 301 Ravendale Drive, Mountain View, California 94043.

WHEREAS, NCD is presently engaged in the business of designing, developing, manufacturing, distributing and selling server and thin client management software marketed under the ThinPath and Thinfrastructure brand names, and thin client products, including Network Computers marketed under the NC900 brand name, and Windows-based thin client devices marketed under the ThinStar brand name;

WHEREAS, contemporaneously with the execution and delivery hereof, Neoware is acquiring the goodwill and certain assets used or useful in NCD’s business of designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name pursuant to an Asset Purchase Agreement, dated as of March 22, 2002, to which Neoware and NCD are parties (the “Purchase Agreement”);

WHEREAS, contemporaneously with the execution and delivery hereof, NCD has agreed to purchase ThinStar products from Neoware and to distribute such products in Europe, the Middle East and Africa, and Neoware is willing to supply NCD with such products, pursuant to an OEM Supply Agreement, dated as of March 22, 2002, to which Neoware and NCD are parties (the “OEM Supply Agreement”); and

WHEREAS, Neoware wishes to grant to NCD certain licenses as set forth herein so that NCD may perform certain of its obligations under the Purchase Agreement and the OEM Supply Agreement.  

NOW, THEREFORE, in consideration of the mutual promises contained herein, and intending to be legally bound hereby, the parties agree to the following:

1.             DEFINITIONS.

(a)   “Intellectual Property Rights” means all copyright, trademark, trade secret, trade name, know-how, mask work and moral rights and all rights related to issued and pending patents and all patent registrations and applications for registrations (including patent reissues, divisions, continuations, continuations-in-part, renewals and extensions).

(b)   “Neoware Software” means those portions of Neoware’s Windows CE, Windows NTe, Windows XPe and Linux software that Neoware in its sole judgment deems necessary for NCD to fulfill its obligations under Section 1.2 of the OEM Supply Agreement, as well as updates and enhancements thereto, in source code form, and the related documentation.

(c)   “ThinStar Software” means the ThinStar Software acquired from NCD pursuant to the Purchase Agreement, and products incorporating all of the ThinStar Software, as well as updates and enhancements thereto, as described in Exhibit A, in source code and object code form, and the related documentation.

2.             LICENSE & OWNERSHIP.

(a)   Nonexclusive License to ThinStar Software. Neoware grants to NCD a nonexclusive, non-transferable, worldwide, fully-paid license to use, reproduce, modify and create derivative works of the ThinStar Software for the purposes of (i) complying with its warranty and support obligations as set forth in Sections 8.1 (“Seller-Assumed Warranty Obligations”) and 8.4 (“Seller-Assumed Support Service Obligations”) of the Purchase Agreement, and (ii) developing the “Products” defined in Section 1.2 of the OEM Supply Agreement. This license shall terminate upon the later of  (i) the date that NCD has fulfilled its obligations as set forth in Sections 8.1 and 8.4 of the Purchase Agreement, or (ii) the termination date of the OEM Supply Agreement.  Notwithstanding the foregoing, this license shall be terminable by Neoware, in its sole discretion, in the event of NCD’s continued material breach of its obligations under Sections 8.1 or 8.4 of the Purchase Agreement.

(b)   Nonexclusive License to Neoware Software.  Neoware grants to NCD a nonexclusive, non-transferable, fully-paid license to use and reproduce the Neoware Software for the sole purpose of developing client-side management software for Neoware’s Windows CE, NTe, XPe and Linux products, as referred to in Section 1.2 of the OEM Supply Agreement, for use on products provided by Neoware under the OEM Supply Agreement.  This license shall be terminable by Neoware, in its sole discretion, in the event NCD fails to develop such software by September 30, 2002.This license shall terminate on the termination date of the OEM Supply Agreement. Notwithstanding the foregoing, this license shall be terminable by Neoware, in its sole discretion, in the event of NCD’s continued material breach ofits obligations under Sections 8.1 or 8.4 of the Purchase Agreement.

(c)   Exclusive License to Distribute ThinStar Brand in EMEA.  Subject to NCD’s  timely payment of the price (as set forth in the OEM Supply Agreement) and compliance by NCD with each of the terms and provisions of the OEM Supply Agreement, Neoware grants to NCD an exclusive, non-transferable, fully-paid license to sell and distribute the ThinStar  branded products set forth in Exhibit B to NCD’s customers in Europe, the Middle East and Africa (“EMEA”), provided that such products are purchased from Neoware in accordance with the terms of the OEM Supply Agreement.  This license shall be terminable by Neoware, in its sole discretion, in the event NCD fails to perform its obligations under the OEM Supply Agreement.  This license shall terminate on the termination date of the OEM Supply Agreement. This license grants exclusive use of the ThinStar brand only, and does not grant any exclusive or non-exclusive use of the ThinStar Software or the Neoware Software.

(d)   Restrictions.  NCD shall not license, sublicense, distribute or release the Neoware Software (or any derivative works thereof) or the ThinStar Software (or any derivative works thereof) alone or with any software, product or service, or otherwise use the Neoware Software or the ThinStar Software other than as set forth in this Agreement.

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(e)   Trademarks & Copyrights.  NCD is not granted any right or license to display or otherwise use Neoware’s trademarks under this Agreement.  NCD shall, however, display the following language in connection with the ThinStar Software :

“Includes Neoware thin client appliance technology, under license from Neoware Systems, Inc.

©2002 Neoware Systems, Inc.  All Rights Reserved.”

in all copyright notices in product labels, source code, help screens, manuals and all other documentation and in the “about” window that may be activated on a user’s computer screen when using the ThinStar Software or the Neoware Software.

(f)            Ownership.  Neoware retains all right, title and interest, including all Intellectual Property Rights, in the ThinStar Software and the Neoware Software and any part thereof as well as in any derivative works of, and any updates and enhancements to, the ThinStar Software and the Neoware Software, whether created or developed by Neoware or NCD, and NCD shall have no rights thereto other than as set forth in Section 2 hereof.

3.     INDEMNIFICATION.  NCD shall indemnify, defend and hold Neoware harmless from any and all liability, loss, cost, damage, judgment or expense (including reasonable attorneys’ and expert witnesses’ fees and costs) resulting from or arising out of (i) any material breach by NCD of any of the terms of this Agreement, or (ii) any use or modification of the Neoware Software or the ThinStar Software other than as permitted in this Agreement which causes damage or liability to Neoware or results in infringement of any third party’s Intellectual Property Rights.  This obligation is subject to Neoware notifying NCD promptly in writing of the claim.

4.     NO WARRANTY; DISCLAIMER.  THE NEOWARE SOFTWARE AND THE THINSTAR SOFTWARE IS PROVIDED “AS IS” AND WITHOUT WARRANTY OF ANY KIND.  NEOWARE DOES NOT WARRANT THE PERFORMANCE OR RESULTS FROM ANY USE OF THE NEOWARE SOFTWARE OR THE THINSTAR SOFTWARE.   NEOWARE MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

5.     LIMITATION OF LIABILITY.  To the maximum extent permitted by law, in no event shall Neoware be liable to NCD or its customers for any consequential or incidental damages, including any lost profits or lost savings arising out of the subject matter of this Agreement, even if Neoware has been advised of the possibility of such damages, or any claim against NCD by any third party.  In no event will Neoware be liable for any representation or warranty made by NCD to any third party or for the failure of the NCD Software or the ThinStar Software to perform.  In no event shall Neoware’s total liability to NCD for all damages, losses, attorneys’ fees and court costs, and causes of action in any way related to the subject matter of this Agreement (whether in contract, tort including negligence or otherwise) exceed twenty thousand dollars ($20,000).  Except for a breach of any of the terms of this Agreement by NCD,

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 which are excluded from this limitation of liability, NCD’s total liability to Neoware for third party claims in any way related to the subject matter of this Agreement (whether in contract, tort including negligence or otherwise) shall not exceed twenty thousand dollars ($20,000).

6.     INJUNCTIVE RELIEF.  Neoware and NCD each acknowledges and agrees that a breach of the confidentiality restrictions contained in Section 8 shall cause irreparable injury to the aggrieved party for which such party shall not have an adequate remedy at law.  In addition to any other relief to which the aggrieved party might be entitled, the party shall be entitled to equitable relief in court, including, but not limited to, temporary restraining orders, preliminary injunctions, and permanent injunctions.  NCD and Neoware hereby expressly waive any requirement that the aggrieved party first post a bond or security before obtaining such relief.

7.     PUBLICITY.  Neither party may disclose the terms of this Agreement or the subject matter thereof without the prior written consent of the other party, unless required by law.

                8.             CONFIDENTIAL INFORMATION.

(a)   Confidential Information.  By virtue of this Agreement, either party may have access to the other party’s Confidential Information (as defined below).  Each party agrees to use the other party’s Confidential Information solely for purposes of this Agreement and will hold the other party’s Confidential Information in confidence during the term of this Agreement and after termination.  Each party further agrees that, unless required by law, it will not make the other party’s Confidential Information available in any form to any third party for a period of five (5) years following termination of this Agreement other than (i) its own employees and/or contractors who need to know or use such Confidential Information for purposes of implementing this Agreement,  (ii) its licensees as limited in Section 2 of this Agreement, or (iii) pursuant to a valid court order provided the disclosing party provides the other party with prompt written notice of such requirement so that the other party may seek a protective order or other appropriate remedy. Each party shall take all reasonable precautions to prevent the disclosure, distribution or use of the Confidential Information of the other party by its employees, agents, or contractors in violation of the terms of this Agreement.

(b)   Definition.  “Confidential Information” means the Neoware Software, the ThinStar Software, the terms and conditions of this Agreement, and non-public information provided by one party to the other under this Agreement that is identified in writing as confidential.

(c)   Exclusions.  Confidential Information does not include information that (i) is or becomes publicly available through no act or omission of the receiving party; (ii) is rightfully received by the receiving party from a third party without restriction on disclosure and without breach of a nondisclosure obligation; or (iii) is previously rightfully known to the receiving party.

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                9.             TERM & TERMINATION.

(a) Term.  This Agreement begins on the Effective Date and continues unless and until it is terminated pursuant to Section 9(b).  Each license shall terminate as set forth in Section 2.

(b)   Termination.  Either party may terminate this Agreement upon thirty (30) days written notice of a material breach of this Agreement by the other party if such breach is not cured within such thirty (30) day period.  In addition, each license may be terminated by Neoware as set forth in Section 2.

(c)   Rights Upon Termination.  Upon termination of this Agreement, all licenses granted to NCD under this Agreement, except as described in this Section, shall immediately terminate, NCD shall cease all use, reproduction and distribution of the Neoware  Software and the ThinStar Software and any part or derivative work thereof, and NCD will destroy all copies of the Neoware Software and the ThinStar Software and any part thereof in NCD’s possession or under its control within ten (10) days following the termination date, except that NCD may retain one (1) copy of the ThinStar Software to be used solely for end-user support purposes for up to two (2) years after termination of this Agreement.

                10.           GOVERNMENT RESTRICTIONS.  For Neoware Software and ThinStar Software and documentation delivered to an agency or instrumentality of the United States government, NCD shall identify the Neoware Software and the ThinStar Software and documentation as “commercial computer software” and “commercial computer software documentation” and, pursuant to FAR 12.212 and/or DFARS 227.7202 (and their successors, as applicable), shall restrict the government’s right to use, reproduce and/or disclose such Neoware  Software and ThinStar Software and documentation in accordance with the terms of NCD’s then-current standard end user license agreement.

                11.           GENERAL.

(a)   Notice.  Any notices to be given hereunder will be given in writing via postage prepaid, return receipt requested certified mail (or an equivalent method under the laws of the country where mailed), courier service or facsimile transmission to the address of each party set forth in this Agreement or to such other address as either party may substitute by written notice to the other as provided herein.  Notices shall be effective two (2) days after official confirmation of delivery to the intended recipient by return receipt or the equivalent or, in the case of facsimile, one (1) day after confirmation of transmission.

(b)   Waiver.  Failure by either party to exercise any of its rights hereunder shall not constitute or be deemed a waiver or forfeiture of such rights.

(c)   Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.  The United Nations Convention on Contracts for the International Sale of Goods (1980) is specifically excluded from application to this Agreement.

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                                (d)           Severability.  If any provision of this Agreement is unenforceable or invalid under applicable law, such provision shall be changed and interpreted to best accomplish the objectives of the original provision to the fullest extent allowed by law and the remaining provisions of this Agreement shall remain in full force and effect.

                        (e)           Export.  NCD shall be fully and solely responsible for securing any and all permits and licenses in order to export the ThinStar branded products set forth in Exhibit B.

(f)    Attorney’s Fees.  In the event any proceeding or lawsuit is brought by either party to enforce its rights hereunder, the prevailing party shall be entitled to recover its costs, including expert witness fees and reasonable attorneys’ fees.

(g)   Headings.  Headings are used in this Agreement for convenience only and shall not affect any construction or interpretation of this Agreement.

(h)   Assignment. This Agreement shall be binding upon and inure to the benefit of Neoware and NCD and their respective successors, heirs and assigns; provided, however, that NCD shall not directly or indirectly transfer or assign this Agreement or any part hereof without the prior written consent of Neoware.  Any assignee of Neoware shall be obligated to perform all of Neoware’s obligations hereunder.  Subject to the foregoing, this Agreement is not intended to benefit, and shall not run to the benefit of or be enforceable by, any other person or entity other than the parties hereto and their permitted successors and assigns.

(i)    Entire Agreement.  This Agreement, including the exhibits attached hereto, is the complete agreement between Neoware and NCD and supersedes any prior agreements between Neoware and NCD relating to the subject matter hereof.  This Agreement shall not be modified except by a properly executed written agreement.

(j)    Survival.  The provisions of Sections 2 (“Ownership”), 3 (“Indemnification”), 4 (“No Warranty; Disclaimer”), 5 (“Limitation of Liability”), 6 (“Injunctive Relief”), 7 (Publicity), 8 (“Confidential Information”), 9(c) (“Rights Upon Termination”) and 11 (“General”) shall survive termination or expiration of this Agreement or the licenses granted hereunder.

(k)   Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument.

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IN WITNESS WHEREOF, Neoware and NCD have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

	NETWORK COMPUTING		NEOWARE SYSTEMS, INC.
	DEVICES, INC.
By	/s/ Guenther Pfaff	By:	/s/ Michael Kantrowitz
Name:	Guenther Pfaff	Name:	Michael Kantrowitz
Title:	Chief Executive Officer	Title:	Chief Executive Officer

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Exhibit A

ThinSTAR Software:

All software used in the NCD ThinSTAR 200, 300, 400, and 500 Series product lines,     resident in the NCD ThinSTAR thin client flash PROM and BOOT ROM.

Boot ROM validates integrity of the file system and may initiate a reload of the software

System can be reinitialized by the user.

The ThinSTAR can load in additional or replacement software modules over the network
Modules have unique upgrade policies based on terminal model number.

Ability to delete options from the terminal over the network or locally on the terminal.

Ability to customize the available local printers.

Local LPD for ability to print to terminal from Unix host.

Ability to control disability setting to enable keyboard audio confirmation.

All enhancements to Microsoft’s Windows CE operating system designed and developed by NCD for use in the ThinSTAR product line.

Exhibit B

Products:

NCD ThinSTAR 332

NCD ThinSTAR 332Web

NCD ThinSTAR 500

NCD ThinSTAR 550

NCD ThinSTAR Voyager

EX-10.75

EXHIBIT 10.75

NON-COMPETITION AND CONFIDENTIALITY AGREEMENT

THIS AGREEMENT is made as of  March 22, 2002, among NETWORK COMPUTING DEVICES, INC., a Delaware Corporation (“NCD”) and NEOWARE SYSTEMS, INC., a Delaware corporation (“Neoware”). As used in Sections 2 and 3 herein, the term “NCD” includes, in addition to NCD, each Person (as defined in the Purchase Agreement) 50% or more of the equity interests of which is beneficially owned by NCD or that is otherwise controlled by NCD.

W I T N E S S E T H :

WHEREAS, contemporaneously with the execution and delivery hereof, Neoware is acquiring the goodwill and certain assets used or useful by NCD in designing, developing, manufacturing, distributing and selling the Windows-based thin client devices marketed under the ThinStar brand name (the “Product Line”), pursuant to an Asset Purchase Agreement, dated as of March 22, 2002, to which Neoware and NCD are parties (the “Purchase Agreement”); and

WHEREAS, execution by NCD of this Agreement is a condition precedent to Neoware’s obligation to perform under the Purchase Agreement; and

WHEREAS, by virtue of the purchase of the Product Line, Neoware is and will be engaged throughout the Area in the Thin Client Business which was, in part, formerly conducted by NCD; and

WHEREAS, competition by NCD with Neoware or disclosure by NCD, of certain confidential and proprietary information of NCD will result directly in damage to Neoware and its business, properties, assets, and goodwill and will cause the loss by Neoware of the benefit of its bargain with NCD;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

1.             Definitions.  The following terms shall have the definitions set forth below:

(a)           “Affiliate” of a person shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, the indicated Person.

(b)           “Area” shall mean anywhere within any state of the United States of America or any other country in which Neoware or it Affiliates, directly or indirectly, at any time carries on or engages in the Thin Client Business.

(c)           “Closing Date” shall mean the date of this Agreement.

(d)           “Confidential Information” shall mean all of the following materials and information (whether or not reduced to writing and whether or not patentable) pertaining to Product Line;

(1)           All items of information relating to the Product Line that could be classified as a trade secret pursuant to law;

(2)           The names and addresses of the customers of the Product Line and the nature and amount of business done with such customers;

(3)           The names and addresses of employees, with respect to the Product Line;

(4)           The discoveries, concepts and ideas, whether patentable or not, related to the nature and results of research and development activities, processes and techniques related to research and development, designs, drawings and specifications of NCD relating to the Product Line;

(5)           Source and object codes, flow charts, algorithms, coding sheets, design concept and related documentation and manuals of NCD which relate to the Product Line;

(7)           Production processes, marketing tech­niques, purchasing information, price lists, pricing policies, quoting procedures, financial information, customer names and requirements, customer data and other materials or information relating to NCD’s manner of doing business with respect to the Product Line, excluding customer names and requirements and customer data relating to customers in Europe, the Middle East or Africa; and

(8)           Any other materials or information related to the Product Line which are not generally known to others engaged in similar business activities.

Neoware’s or NCD’s failure to make and keep any of the foregoing confidential shall not affect its status as part of the Confidential Information under the terms of this Agreement.

(e)           “Thin Client Services” shall mean the designing, developing, manufacturing, distributing and selling, directly or indirectly, any thin client devices using embedded operating systems, browsers, terminal emulators, or RDP or ICA protocols, or remotely displaying applications from Unix, Windows or mainframe computers or from the Internet, excluding NCD’s existing NC900 products, as described below (“Thin Client Devices”).  As used in this Agreement, NCD’s existing NC900 products shall consist of the NC900 X Window terminal product line, which is based upon the QED RM5231 processor and supports the X11R6 and ICA3 protocols, as it exists on the date of this Agreement.  NCD may replace end-of-life components of the NC900 products, except for the processor itself, and perform minor bug fixes thereto.

(g)           “ThinPath Products” shall mean those products listed in Exhibit A to the ThinPath License and Distribution Agreement between the parties, dated the date hereof, as well as enhancements to and replacements thereof.

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(h)           “Thin Client Business” shall mean any business, person or entity which is engaged in providing Thin Client Services.

2.             NCD covenants that it shall, for a period of five (5) years from and after Closing Date, observe the following separate and independent covenants:

(a)           Agreement Not to Compete.  Except as set forth in this Agreement, NCD shall not, on its own behalf or in the service or on behalf of others (i) provide Thin Client Services, except with respect to NCD activities pursuant to the OEM Supply Agreement (as defined in the Purchase Agreement); or (ii) use, or become financially interested in (other than as a holder of less than five percent of the outstanding securities of any entity whose voting securities are listed on a national securities exchange or on the Nasdaq Stock Market), or render any services to as a consultant, partner or in any other relationship whatsoever, any business, person or entity that uses NCD’s ThinPath Products to support Thin Client Devices developed, designed, manufactured, sold or distributed by the vendors who are direct competitors of Neoware who are designated on Appendix A hereto or by such additional vendors who are direct competitors of Neoware whose names may be added to Appendix A on a quarterly basis during the five-year period upon the consent of the parties, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, (i) the agreement not to compete set forth in this Section 2(a) does not apply to the supply of TS500 and 332 units to be supplied to Neoware under the OEM Supply Agreement, and (ii) in the event that NCD upgrades the ICA client in its NC900 product, as it exists on the date of this Agreement, and ships at least one such upgraded unit to one of its customers, NCD will pay to Neoware $10 for each unit of NC900, whether or not containing the foregoing upgrade, thereafter shipped by NCD to its customers worldwide, payment to be made within sixty (60) days of the date of shipment.  NCD agrees that if it is obligated to make payments to Neoware under clause (ii) herein, NCD shall maintain true and accurate records containing the data reasonably required for verification of amounts to be paid, and Neoware shall have the right, during normal business hours upon reasonable prior notice to NCD, to inspect the relevant records of NCD to verify compliance with the provisions of clause (ii) herein.

(b)           Agreement Not to Solicit Customers.  NCD shall not, either directly or indirectly, on its own behalf or in the service or on behalf of others, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Thin Client Business, any person or entity whose account was sold or serviced by or under the direction or supervision of NCD at any time prior to the Closing Date.

(c)           Agreement Not to Solicit Employees.  NCD shall not, either directly or indirectly, on its own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert, or hire away, to any Thin Client Business, any person employed by Neoware, whether or not such employee is a full-time employee or a temporary employee of Neoware and whether or not such employment is pursuant to written agreement and whether or not such employment is for a determined period or is at will.

(d)           Non-Interference with Third-Party Relationships.  NCD shall not, in addition to the covenants contained in Sections 2(a), (b) and (c), intentionally interfere with, or intentionally

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disrupt the relationship between Neoware and any third party, including without limitation, any customer, supplier, distributor or employee of Neoware.

3.             Ownership and Non-Disclosure and Non-Use of Confidential Information.  NCD acknowledges and agrees that all Confidential Information, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of Neoware, provided, however, that NCD shall continue to jointly own, and have the right to use, such Confidential Information solely for the purpose of manufacturing, selling and distributing its existing NC900 products.  NCD agrees that it will not (i) disclose or make available any Confidential Information to any person or entity; or (ii) make or cause to be made, or permit, either on its own behalf or in the service or on behalf of others, any use of such Confidential Information.

4.             Acknowledgment.  NCD acknowledges that it has been for many years, and that Neoware is now, engaged in the Thin Client Business throughout the Area, that the within and foregoing covenants are made by it in consequence of and as an inducement to Neoware to acquire the Product Line and to protect and preserve to Neoware the benefit of its bargain in the acquisition of the Product Line, including, particularly, the goodwill associated therewith; that each of the above and foregoing covenants is reasonable and necessary to protect and preserve the benefits of such purchase; and that irreparable loss and injury would result should NCD breach any of the foregoing covenants.

5.             Severability.  Each of the covenants hereinabove contained shall be deemed separate, severable, and independent covenants, and in the event any covenant shall be declared invalid by any court of competent jurisdiction, such invalidity shall not in any manner affect or impair the validity or enforceability of any other part or provision of such covenant or of any other covenant contained herein.

6.             Partial Enforcement.  If any of the covenants contained in Section 2, or any part thereof, is held to be unenforceable because of the duration of such provision or the scope of the subject matter thereof or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration, scope and/or area of such provision and, in its reduced form, said provision shall then be enforceable.

7.             Enforcement.  In addition to all other remedies provided at law or in equity, Neoware shall be entitled to both preliminary and permanent injunctions against NCD to prevent a breach or contemplated or threatened breach by NCD of any of the foregoing covenants, without the necessity of proving actual damages; and the existence of any claim, demand, cause of action, or action of NCD against Neoware, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by Neoware of any such covenants.  In the event of an actual breach of any of the foregoing covenants, Neoware shall have the right to recover damages for all losses, actual and contingent.  In the event of an actual breach of any of the foregoing covenants, Neoware shall have the right to recover damages for all losses, actual and contingent, and the right to require NCD to account for and pay over to Neoware all profits or other benefits (collectively “Benefits”) derived or received by NCD as a result of any transactions constituting such breach, and NCD hereby agrees to account for and pay over such Benefits to Neoware.  Each of the rights and remedies enumerated

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above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to Neoware at law or equity.

8.             Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania.

9.             Counterparts.  This Agreement may be executed and delivered in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall together constitute one and the same agreement.

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

NETWORK COMPUTING DEVICES, INC.
By:	/s/ Guenther Pfaff
Name:				Guenther Pfaff
Title:		Chief Executive Officer
NEOWARE SYSTEMS, INC.
By:	/s/ Michael Kantrowitz
Name:					Michael Kantrowitz
Title:			Chief Executive Officer

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Appendix A

Direct Competitors of Neoware

Wyse Technology

Vendors who sell any products produced by Wyse Technology under OEM labels, such as Compaq Computer Corporation

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EX-11.1

EXHIBIT 11.1

NETWORK COMPUTING DEVICES, INC.

Statement Regarding Computation of Shares

Used in per Share Computations

(in thousands, except per share amounts)

	Years Ended December 31,
	2001			2000			1999
Basic:
Weighted average common shares outstanding during the period	17,613			16,686			16,192
Net income (loss)	$	(9,696	)	$	(32,652	)	$	(16,259	)
Basic income (loss) per share	$	(0.55	)	$	(1.96	)	$	(1.00	)
Diluted:
Weighted average common shares outstanding during the period	17,613			16,686			16,192
Common share equivalents:
Dilutive effect of stock options	-			-			-
Total	17,613			16,686			16,192
Net income (loss)	$	(9,696	)	$	(32,652	)	$	(16,259	)
Diluted income (loss) per share	$	(0.55	)	$	(1.96	)	$	(1.00	)

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders

Network Computing Devices, Inc. and Subsidiaries

Mountain View, California

We hereby consent to the incorporation by reference in the registration statements on Form S-8 (No.'s 333-45964, 333-60359, 333-32067 and 333-12647) of Network Computing Devices, Inc. and subsidiaries of our report dated March 26, 2002 relating to the consolidated financial statements and schedule of Network Computing Devices, Inc. and subsidiaries appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern.

/s/  BDO Seidman, LLP

April 23, 2002

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders

Network Computing Devices, Inc.:

         We consent to incorporation by reference in the registration statements on Form S-8 of Network Computing Devices, Inc. of our report dated February 10, 2000, relating to the consolidated statements of operations, shareholders’ equity, and cash flows of Network Computing Devices, Inc. and subsidiaries for the year ended December 31, 1999, which report appears in the December 31, 2001, annual report on Form 10-K of Network Computing Devices, Inc.

   &# 160;     Our report dated February 10, 2000, contains an explanatory paragraph that states that the Company has suffered recurring losses from operations and has a net working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans as to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ KPMG LLP

Mountain View, California

April 23, 2002