1100813--4/14/2006--OPSWARE

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{customer, product, revenue}

{product, market, service}

{regulation, change, law}

{stock, price, operating}

{acquisition, growth, future}

{personnel, key, retain}

{property, intellectual, protect}

{provision, law, control}

{control, financial, internal}

{regulation, government, change}

{product, liability, claim}

{system, service, information}

{condition, economic, financial}

{competitive, industry, competition}

We have relatively limited experience operating as a software company, which makes it difficult to evaluate our future prospects. Our financial results may fluctuate significantly, which could cause our stock price to decline. Our operating results are and will continue to be highly dependent upon our relationship with EDS and any deterioration of our relationship with EDS could adversely affect the success of our business. If we fail to maintain or achieve benefits from our existing distribution channels and develop additional channels in the future, our financial results may suffer. The IT automation software market is relatively new, and our business will suffer if the market, or the technology standards within that market, do not develop as we expect. The market for our technology and services is competitive and we may not have the resources required to compete effectively. The rates we charge our customers for our software products may decline or the terms of our customer contracts upon renewal may be changed over time, either of which could reduce our revenue and affect our financial results. We must satisfy the criteria for revenue recognition in order to recognize the fees generated under our license agreements as revenue. Our sales in any quarter depend on a small number of relatively large transactions Sales of our products generally involve lengthy sales cycles, which may cause our financial results to suffer. We may continue to incur significant operating losses and negative cash flow in future periods. Our revenue and operating results will be highly dependent upon our ability to provide high levels of customer satisfaction. We may engage in additional acquisitions or investments, which may place a strain on our resources, cause dilution to our stockholders and harm our operating results. Our business is subject to changing regulation that has increased both our costs and the risk of noncompliance. Unfavorable economic conditions and reductions in information technology spending could limit our ability to grow our business. If we do not develop our direct sales organization, we will have difficulty acquiring customers. Future changes in accounting standards or our interpretation of current standards, particularly changes affecting revenue recognition, could cause unexpected fluctuations in reported revenue. Changes in the accounting treatment of stock options will significantly impact our results of operations and could negatively impact our ability to attract and retain employees. If we are unable to manage rapid growth and change, our operating results could be adversely affected. If we do not develop and maintain productive relationships with systems integrators, our ability to deploy our software, generate sales leads and increase our revenue sources may be limited. Because our success depends on our proprietary technology, if third parties infringe our intellectual property or if we are unable to rely upon the legal protections for our technology, we may be forced to expend significant resources enforcing our rights or suffer competitive injury. If our products infringe on the intellectual property rights of others, we could face costly litigation, which could cause us to pay substantial damages and ongoing royalties, and limit our ability to use our technology or sell some or all of our products. Our business will suffer if we do not enhance our products or introduce new products and upgrades to meet changing customer requirements. We rely on third-party software to develop and deliver our products to our customers, and the loss of access to this software could harm our business. Defects or security flaws in our products or claims asserted against us could result in the loss of customers, a decrease in revenue, unexpected expenses, loss of competitive market share and liability claims. If we are unable to retain our executive officers or key technical personnel, we may not be able to successfully manage our business or achieve our objectives. Our business will suffer if we are unable to hire and retain highly qualified employees. Our stock price has been volatile and could decline. We may require additional capital to fund our operations or may elect to raise additional capital if the market permits. Insiders have substantial control over us and this could delay or prevent a change in control and could negatively affect your investment. We have implemented anti-takeover provisions that could make it more difficult to acquire us.

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1100813--4/14/2006--OPSWARE_INC