BEA SYSTEMS INC, 424B4, 1997-07-23

BEA SYSTEMS INC
424B4, 1997-07-23
COMPUTER PROGRAMMING SERVICES

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<PAGE>

FILED PURSUANT TO RULE 424(b(4)
REGISTRATION NO. 333-29961

6,000,000 SHARES

BEA SYSTEMS, INC.

[LOGO]
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)

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Of the 6,000,000 shares of Common Stock offered, 4,800,000 shares are being
offered hereby in the United States and 1,200,000 shares are being offered in a
concurrent international offering outside the United States. The public offering
price and aggregate underwriting discount per share will be identical for both
offerings. See "Underwriting".

All of the shares of Common Stock offered hereby are being sold by the
Company.

The last reported sale price of the Company's Common Stock, which is traded
on the Nasdaq National Market under the symbol "BEAS", on July 21, 1997 was
$18 3/8 per share. See "Price Range of Common Stock".

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
---------------- ------------- --------------
<S> <C> <C> <C>
Per Share............................................................. $17.00 $0.89 $16.11
Total(3).............................................................. $102,000,000 $5,340,000 $96,660,000
</TABLE>

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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(2) Before deducting estimated expenses of $500,000 payable by the Company.

(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 720,000 shares at the offering price per share,
less the underwriting discount, solely to cover over-allotments.
Additionally, the Company has granted the International Underwriters a
similar option with respect to an additional 180,000 shares as part of the
concurrent International offering. If such options are exercised in full,
the total price to public, underwriting discount and proceeds to Company
will be $117,300,000, $6,141,000 and $111,159,000, respectively. See
"Underwriting".

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The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
July 25, 1997 against payment therefor in immediately available funds.

GOLDMAN, SACHS & CO.

ALEX. BROWN & SONS INCORPORATED

ROBERTSON, STEPHENS & COMPANY

SOUNDVIEW FINANCIAL GROUP, INC.
------------

The date of this Prospectus is July 21, 1997.

<PAGE>
Set forth on the left hand side of the inside front cover page are three
square boxes, side by side, each bearing the inscription "SERVER." Set forth on
top of these squares are twelve other squares of equal size, partially
overlapping each other and connected to the three other boxes by four lines
emanating from each square. Three of the twelve squares bear the inscription
"CLIENT" Underneath the graphic is set forth the caption "BEFORE BEA."

Set forth on the right hand side of the inside front cover is an identical
graphic, with the exception of a horizontal rectangular box bearing the caption
"BEA ENTERPRISE TRANSACTION FRAMEWORK" inserted between the lower three squares
and the other twelve squares. The three lower squares are connected to the
rectangular box by three lines, one emanating from each square. The twelve other
squares are connected to the rectangular box by twelve lines, one emanating from
each square. Underneath the graphic is set forth a caption which reads "AFTER
BEA."

Above the two graphics across the length of the page is set forth the
caption "THE BEA ENTERPRISE MIDDLEWARE SOLUTION: SIMPLIFYING AND PROVIDING
RELIABILITY TO THE PROCESSING OF COMPLEX BUSINESS TRANSACTIONS." Underneath the
two graphics, is set forth the following text: "Building, deploying, managing
and expanding distributed mission-critical computer software applications across
large enterprises is an increasingly important business requirement for large
organizations. By coordinating these applications among the many distributed
clients and servers supporting enterprise applications, the BEA Enterprise
Transaction Framework provides an integrated middleware platform that is
scalable, reliable, and flexible."

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. IN ADDITION, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS, IF ANY)
ALSO MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET, IN ACCORDANCE WITH RULE 103 UNDER THE SECURITIES
EXCHANGE ACT OF 1934. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".

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BEA, BEA Builder, BEA Connect, BEA Jolt, BEA Manager, Enterprise Middleware
Solutions, BEA MessageQ, BEA ObjectBroker and Jolt are trademarks of the
Company. The Company has licensed worldwide rights to TUXEDO, which is a
registered trademark of Novell, Inc. in the United States and other countries.
This Prospectus contains other product names, trade names and trademarks of the
Company and of other organizations.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS (I) INCLUDES AS COMMON STOCK 30,475,881 SHARES OF NONVOTING
CLASS B COMMON STOCK AND (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. SEE "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."

THE COMPANY

BEA Systems, Inc. ("BEA" or the "Company") designs, develops, markets and
supports software used by large organizations to enable and support their most
critical business processes. The Company's Enterprise Transaction Framework is
an open, integrated middleware software platform for developing, deploying and
managing distributed mission-critical computer software applications. The core
of the BEA Enterprise Transaction Framework is BEA TUXEDO, a software engine
that manages transactions and communications for enterprise-wide applications,
enabling organizations to realize the benefits offered by distributed computing
environments while preserving the traditional advantages of mainframe-based
systems. BEA products provide a middleware software infrastructure that supports
thousands of simultaneous users distributed worldwide. Through its recent
acquisition of exclusive rights to MessageQ and ObjectBroker from Digital
Equipment Corporation ("Digital"), the Company seeks to extend its Enterprise
Transaction Framework to incorporate comprehensive message-oriented middleware
for application integration and new object-oriented technologies. In addition to
its software products, BEA provides its customers with complete solutions
through a range of professional services offerings.

BEA's products are marketed and sold worldwide, principally through the
Company's direct sales force and also indirectly through third parties. BEA's
products have been adopted in a wide variety of industries, including
telecommunications, banking and finance, manufacturing, retail, technology and
transportation. During the fiscal year ended January 31, 1997, BEA sold new
product licenses to over 170 customers, including over 100 customers that were
newly-developed by the Company. The total number of customers using products
that have been acquired and developed by BEA is greater than 600 worldwide.
These customers include: The AT&T Corp., Bell Communications Research, Inc.,
Damark International Inc., Discover Card Trust, Federal Express Corp., Fidelity
Investments, Gap Inc., J.J. Kenney, McKesson Corp., Motorola Inc., Nippon
Telephone & Telegraph, Northwest Airlines Corp., U.K. Employment Services, Union
Bank of Switzerland, Union Pacific Railroad and Walgreens Co. In addition,
independent software vendors ("ISVs"), such as PeopleSoft Inc. and Clarify,
Inc., embed BEA TUXEDO into their own product offerings in order to improve the
scalability, portability and interoperability of their products.

Over the past decade, the information systems of many organizations have
been evolving from traditional mainframe systems to distributed computing
environments. This evolution has been driven by the benefits offered by
distributed computing, including lower incremental technology costs, faster
application development and deployment, increased flexibility and improved
access to business information. However, the inherent technical and business
limitations of distributed computing have generally precluded its use for
complex, large-scale, mission-critical applications, such as airline
reservations, credit card processing and customer billing and support systems,
that enable and support fundamental business processes. These shortcomings
include the limited scalability, reliability and interoperability of distributed
computing environments. In addition, it has been difficult to integrate
distributed computing technologies with existing mission-critical applications,
limiting organizations' ability to leverage their substantial investments in
legacy systems and existing personnel and skills.

BEA's products and services enable companies to overcome the limitations of
distributed computing for mission-critical applications. BEA's Enterprise
Transaction Framework, based upon time-tested and market-proven BEA TUXEDO
technology, provides a middleware solution that addresses the scalability,
manageability, platform independence, interoperability, integrity, reliability
and security requirements of complex, large-scale, distributed computing in the
heterogeneous environments present in most major organizations. The BEA solution
allows companies to leverage their substantial investments in legacy systems,
significantly extending the useful lives of mainframe and programmer assets
while exploiting the benefits offered by distributed computing.

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The Company's objective is to establish its middleware solutions as the
industry standard for developing, deploying and managing distributed
mission-critical applications. To this end, BEA intends to enhance its
technological leadership by adding new functionality to its products; expand its
global distribution facilities to complement its direct sales, services,
training and support capabilities; promote the embedding of BEA TUXEDO into the
product offerings of ISVs to accelerate the acceptance of its products; leverage
strategic partnerships to augment the efforts of its direct sales force; and
provide the software and services necessary to conduct safe, reliable
transactions over the Internet.

The Company acquired worldwide exclusive rights to TUXEDO from Novell, Inc.
("Novell") in February 1996, acquired Information Management Company ("IMC") and
Independence Technologies, Inc. ("ITI"), two leading distributors of TUXEDO, in
September 1995 and November 1995, respectively, and acquired a number of other
TUXEDO distribution, sales and support organizations between May 1996 and
December 1996. In March 1997, the Company acquired exclusive rights to MessageQ,
ObjectBroker and other related products from Digital. Such acquisitions are
referred to herein as the "Acquisitions." See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Company Background"
and Notes 2 and 13 of Notes to BEA Systems, Inc. January 31, 1997 Consolidated
Financial Statements (the "BEA Annual Financials").

The Company was incorporated in Delaware in January 1995 under the name BEA
Enterprises, Inc. and changed its name to BEA Systems, Inc. in September 1995.
References herein to "BEA" or the "Company" refer to BEA Systems, Inc., its
subsidiaries and predecessor entities acquired in the Acquisitions. The
Company's headquarters are located at 385 Moffett Park Drive, Sunnyvale,
California 94089-1208, and its telephone number is (408) 743-4000.

RISK FACTORS

For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 6,000,000 shares(1)
Common Stock to be outstanding after the
Offering.................................... 61,140,176 shares(1)(2)
Use of proceeds.............................. For repayment of certain borrowings under a
credit line and payment of certain
obligations incurred in connection with the
Acquisitions, for possible future
acquisitions and for working capital and
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol................ BEAS
</TABLE>

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(1) Excludes 900,000 shares issuable upon exercise of the Underwriters'
over-allotment option.
(2) Based on the number of shares of Common Stock outstanding as of April 30,
1997. Excludes (i) 7,578,326 shares issuable upon exercise of options
outstanding as of April 30, 1997, having a weighted average exercise price
of $1.90 per share, under the Company's 1995 Flexible Stock Incentive Plan
and (ii) 6,350,000 additional shares authorized for issuance under the
Company's 1997 Stock Incentive Plan and 1997 Employee Stock Purchase Plan
(collectively, the "Stock Plans"). See "Management--Stock Plans" and Notes
11 and 14 of Notes to the BEA Annual Financials.

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL
YEAR ENDED JANUARY 31, 30,
-------------------------- --------------------------
1996(1) 1997 1996 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
License Revenues...................................... $ 3,569 $ 46,839 $ 5,484 $ 24,478
Service Revenues...................................... 1,564 14,759 1,367 5,911
------------ ------------ ------------ ------------
Total Revenues(2)................................... 5,133 61,598 6,851 30,389
Total Cost of Revenues(3)............................... 2,704 18,607 2,494 7,035
------------ ------------ ------------ ------------
Gross Margin............................................ 2,429 42,991 4,357 23,354

Operating Expenses:
Research and Development.............................. 3,244 18,183 3,097 5,143
Sales and Marketing................................... 2,572 30,970 3,912 15,917
General and Administrative............................ 3,058 12,732 2,579 3,611
Write-Off of In-Process Research and Development...... 11,194 62,248 60,948 16,000
------------ ------------ ------------ ------------
Total Operating Expenses............................ 20,068 124,133 70,536 40,671
------------ ------------ ------------ ------------

Income (Loss) from Operations........................... (17,639) (81,142) (66,179) (17,317)
Other Income (Expense).................................. 48 4 (117) (517)
Interest Expense........................................ (89) (6,727) (1,117) (1,965)
------------ ------------ ------------ ------------
Income (Loss) before Income Taxes....................... (17,680) (87,865) (67,413) (19,799)
Provision for Income Taxes.............................. 60 800 38 572
------------ ------------ ------------ ------------
Net Income (Loss)....................................... $ (17,740) $ (88,665) $ (67,451) $ (20,371)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro Forma Net Income (Loss) Per Share(4)................ $ (1.73) $ (0.40)
------------ ------------
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Shares Used in Computing Pro Forma Net Income (Loss) Per
Share(4).............................................. 51,162 50,710
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APRIL 30, 1997
--------------------------
AS
ACTUAL ADJUSTED(5)
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(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and Cash Equivalents............................... $ 6,541 $ 29,647
Working Capital (Deficit)............................... (22,624) 25,008
Total Assets............................................ 73,360 96,466
Long-Term Obligations (Less Current Portion)............ 50,012 1,484
Stockholders' Equity (Deficit).......................... (44,577) 51,583
</TABLE>

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(1) The consolidated statement of operations data for the year ended January 31,
1996 includes results of operations from incorporation (January 20, 1995)
through January 31, 1995.

(2) If the acquisitions of IMC, ITI, TUXEDO and USL Finance S.A. had occurred on
February 1, 1995, the pro forma revenues would have been $33.6 million and
$62.5 million for the years ended January 31, 1996 and 1997, respectively,
and $7.8 million for the three months ended April 30, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(3) Includes expenses attributable to amortization of intangible assets
resulting from acquisitions in the amounts of $1.0 million and $8.6 million,
and $1.6 million and $2.6 million for the years ended January 31, 1996 and
1997, and the three months ended April 30, 1996 and 1997, respectively.

(4) See Note 1 of Notes to the BEA Annual Financials and Note 2 to BEA Systems,
Inc. Unaudited Condensed Consolidated Financial Statements at April 30, 1997
for an explanation of the method used to determine the number of shares used
in computing pro forma net income (loss) per share.

(5) Adjusted to reflect the sale of 6,000,000 shares offered by the Company
hereby and the application of the estimated net proceeds therefrom for the
repayment of debt outstanding as of April 30, 1997. See "Use of Proceeds."

5
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING AN INVESTMENT
IN THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, INCLUDING STATEMENTS REGARDING (I) THE EXPECTED INCREASES IN LICENSE
AND SERVICE REVENUES IN FUTURE PERIODS; (II) THE PLANNED EXPANSION OF THE
COMPANY'S SALES, MARKETING AND RESEARCH AND DEVELOPMENT ORGANIZATIONS; (III) THE
SPENDING REQUIRED TO DEVELOP ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT INTO
VIABLE PRODUCTS; AND (IV) THE SUFFICIENCY OF THE COMPANY'S CURRENT CASH
BALANCES, BORROWINGS AVAILABLE UNDER ITS LINES OF CREDIT AND CASH FLOW FROM
OPERATIONS TO MEET ITS WORKING CAPITAL REQUIREMENTS. THESE STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM SUCH
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF
THE RISK FACTORS SET FORTH BELOW AND FOR THE REASONS DESCRIBED ELSEWHERE IN THIS
PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS AND REASONS WHY RESULTS MAY DIFFER
INCLUDED IN THIS PROSPECTUS ARE MADE AS OF THE DATE HEREOF, AND THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENT OR REASON WHY
ACTUAL RESULTS MIGHT DIFFER.

LIMITED OPERATING HISTORY; INTEGRATION OF ACQUISITIONS; NO ASSURANCE OF
PROFITABILITY

The Company was incorporated in January 1995 and, accordingly, has a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Revenues generated by the Company to date have been derived primarily
from sales of BEA TUXEDO, a product to which the Company acquired worldwide
rights in February 1996, and from fees for related services. Since its
inception, the Company has acquired a number of businesses and other products in
addition to BEA TUXEDO. Prior to the consummation of these acquisitions, the
Company had no revenues and limited business activities. Accordingly, the
Company is subject to the risks inherent both in the operation of a new business
enterprise and the integration of a number of previously separate and
independent business operations, and there can be no assurance that the Company
will be able to address these risks successfully. Although the Company has
experienced recent substantial revenue growth, the Company has incurred
significant net losses since its inception, including losses of approximately
$17.7 million and $88.7 million during the fiscal years ended January 31, 1996
and 1997, respectively, and $20.4 million for the fiscal quarter ended April 30,
1997. At April 30, 1997, the Company had an accumulated deficit of approximately
$128.0 million. In addition, in connection with certain acquisitions, the
Company recorded approximately $120.5 million as intangible assets,
approximately $101.8 million of which has already been amortized and expensed
and approximately $18.7 million of which is expected to be amortized and
expensed in future periods through the Company's fiscal year ending January 31,
2001. The amounts of such intangible assets to be expensed in future periods,
which will not be separately reported but will be included primarily in cost of
sales, are expected to be $2.9 million per quarter during the remainder of the
fiscal year ending January 31, 1998 and are expected to average $1.7 million per
fiscal quarter in the fiscal year ending January 31, 1999. To the extent the
Company makes additional acquisitions of businesses, products and technologies
in the future, the Company may report additional, potentially significant,
amortization expenses related thereto. To the extent future events result in the
impairment of any capitalized intangible assets, amortization expenses may occur
sooner than the Company expects. For the foregoing reasons, there can be no
assurance that the Company will be profitable in any future period, and recent
operating results should not be considered indicative of future financial
performance. See "--Past and Future Acquisitions," "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

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<PAGE>
products; the lengthy sales and implementation cycle for the Company's products
and the potential for significant delays; market acceptance of new products and
product enhancements; technological changes in computer systems and
environments; the structure and timing of future acquisitions of businesses,
products and technologies, if any; increased competition; the ability of the
Company to develop, introduce and market new products on a timely basis; changes
in the Company's or its competitors' pricing policies; customer order deferrals
in anticipation of future new products and product enhancements, if any; the
Company's success in expanding its sales and marketing programs; mix of products
and services sold; mix of distribution channels; ability to meet the service
requirements of its customers; costs associated with acquisitions; loss of key
personnel; fluctuations in foreign currency exchange rates; and general economic
conditions. As a result of all of these factors, the Company believes that
quarterly revenues and operating results are difficult to forecast and
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.

Because the Company generally ships software products within a short period
after receipt of an order, it will not at any given time have a material backlog
of unfilled orders, and revenues in any quarter will be substantially dependent
on orders booked and shipped in that quarter. In addition, the Company
historically has recognized, and expects to continue to recognize, a significant
portion of license revenue in the last month of each fiscal quarter. The Company
anticipates that it will derive a substantial portion of its revenues from
increasingly large orders, as customers deploy BEA products throughout their
organizations. In certain circumstances, the Company may grant favorable payment
terms to strategic customers which the Company believes are making significant
purchase decisions. As a consequence, accounts receivable and days sales
outstanding may fluctuate in future quarters. In order to manage the accounts
receivable balance and days sales outstanding, management may, from time to
time, offer discounts to customers for earlier payments and/or consider the sale
of accounts receivable. However, management does not expect that any such
receivables sales or discounts would have a material adverse effect on the
Company's results of operations. Any inability of the Company to generate large
orders, or any delay or loss of such orders in a particular quarter, will
materially adversely affect the Company's revenues and, more significantly on a
percentage basis, its net income or loss in that quarter. The Company's expense
levels are based, in part, on its expectations of future revenues. The Company
expects to increase expense levels in each of the next several quarters,
primarily to support increased sales, services and customer support efforts and
research and development efforts, and to build greater infrastructure in its
international offices, particularly in finance and administration functions. The
Company is generally unable to reduce expenses significantly in the short term
to compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of revenues in relation to the Company's expectations or any material
delay of large orders would have a material adverse effect on the Company's
business, operating results and financial condition. Due to all the foregoing
factors, it is likely that in some future quarters the Company's operating
results will not meet the expectations of public stock market analysts and
investors. As a result, the market price of the Company's Common Stock would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

PRODUCT CONCENTRATION; DEPENDENCE ON GROWTH OF MARKET FOR MIDDLEWARE; NOVELL
RELATIONSHIP

Revenues generated by the Company to date have been derived primarily from
sales of BEA TUXEDO, a product to which the Company acquired worldwide rights in
February 1996, and from fees for related services. These products and services
are expected to continue to account for a substantial majority of the Company's
revenues for the foreseeable future. As a result, factors adversely affecting
the pricing of or demand for BEA TUXEDO, such as competition or technological
change, could have a material adverse effect on the Company's business,
operating results and financial condition. The Company's success is dependent in
significant part on the Company's middleware software products achieving market
acceptance by large organizations with substantial legacy mainframe systems. All
of the Company's business is in the market for middleware and related services,
which is still an emerging market that is characterized by continuing
technological developments, evolving industry standards and

7
<PAGE>
changing customer requirements. The Company's future financial performance will
depend in large part on continued growth in the number of companies extending
their mainframe-based, mission-critical applications to an enterprise-wide
distributed computing environment through the use of middleware technology.
There can be no assurance that the market for middleware technology and related
services will continue to grow. If the middleware market fails to grow or grows
more slowly than the Company currently anticipates, or if the Company
experiences increased competition in this market, the Company's business,
operating results and financial condition will be materially adversely affected.

Under the terms of the Company's license agreement with Novell for the BEA
TUXEDO product (the "Novell Agreement"), the Company is required to make
aggregate annual payments to Novell of $15 million and $33 million during the
remainder of calendar year 1997 and calendar year 1998, respectively, and, to
acquire perpetual rights to TUXEDO, a final payment of $12 million in January
1999. In connection with the Novell Agreement, Warburg, Pincus Ventures, L.P.
("Warburg"), the Company's principal stockholder, has guaranteed payment
obligations to Novell. See Note 6 of Notes to BEA Annual Financials. In
addition, the Novell Agreement requires BEA to employ at least 47 developers
devoted to BEA TUXEDO product development at December 31, 1997 and 62 such
developers at December 31, 1998. There can be no assurance that the Company will
employ the required minimum number of BEA TUXEDO developers. Any failure to make
the required payments or any failure by the Company to achieve minimum
contractual employment levels under the Novell Agreement would result in a loss
of the Company's rights to BEA TUXEDO, which would have a material adverse
effect on the Company's business, operating results and financial condition. See
"--Substantial Future Capital Needs," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Products."

LENGTHY SALES AND IMPLEMENTATION CYCLE

The Company's products are typically used to integrate applications that are
critical to a customer's business, and the purchase of the Company's products is
often part of a customer's implementation of a distributed computing
environment. In such cases, the sales and implementation of the Company's
middleware software products are included in a larger decision-making process
within a customer's organization which can cause orders of the Company's
products to be delayed or be subject to numerous factors beyond the Company's
control. In addition, customers which are evaluating the purchase of the
Company's products face complex decisions regarding alternative approaches to
the integration of enterprise applications, competitors, product offerings,
rapidly changing software technologies and limited internal resources due to
other information systems requirements such as Year 2000 compliance. The Company
expects that licenses for BEA TUXEDO will increase in size and the
implementation of the Company's products will become more complex as customers
use BEA TUXEDO for larger and more sophisticated installations. For these and
other reasons, the sales and implementation cycle associated with the licensing
of the Company's products is very lengthy and is subject to a number of
significant delays over which the Company has little or no control. Following
the signing of a license contract for BEA products, a customer's implementation
consists of a pre-deployment and a deployment phase. Approximately 10 to 30
percent of the revenues from most customers is realized during the
pre-deployment phase and is usually weighted toward professional services and
training. The remaining portion of revenues is realized during the deployment
stage and predominantly consists of license fees. During the fiscal year ended
January 31, 1997, license fees per customer for BEA products generally ranged
from $84,000 to $2.6 million and averaged approximately $395,000. While the
sales and implementation cycle varies substantially from customer to customer,
for initial sales it has ranged from 18 to 24 months from the initial contact to
the completion of the deployment phase. Any significant or ongoing failure by
the Company to achieve such sales or any delays in the implementation process
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Sales, Marketing and Services."

8
<PAGE>
COMPETITION

The market for middleware software and related services is highly
competitive. The Company's competitors are diverse and offer a variety of
solutions directed at various segments of the middleware software marketplace.
These competitors include database vendors such as Oracle Corporation
("Oracle"), IBM Corporation ("IBM") and others, which offer their own
development tools for use with their proprietary databases, as well as companies
offering and developing middleware software products and related services or
application development tools that compete with products offered by the Company.
In addition, Microsoft Corporation ("Microsoft") has announced that it will
provide middleware functionality in future versions of its Windows NT operating
system and has recently announced the release of a product that includes certain
middleware functionality. Further, internal development groups within
prospective customers' organizations may develop software and hardware systems
that may substitute for those offered by the Company. A number of the Company's
competitors and potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger installed base of customers than the
Company.

The Company's principal competitors currently are database vendors that
advocate client/server networks driven by the database server and software tool
vendors that offer development tools designed to enable customers to create
distributed mission-critical applications. Oracle is the primary relational
database vendor offering products that are intended to serve as alternatives to
the Company's enterprise middleware solutions. Currently, the software
development tool vendors typically emphasize the broad versatility of their
toolsets and, in some cases, offer complementary middleware software that
supports these tools and performs messaging and other basic middleware
functions. There can be no assurance that the Company will compete successfully
with database vendors and software tool vendors, or that the products offered by
such vendors will not achieve greater market acceptance than the Company's
products.

Microsoft has announced that it will provide middleware functionality in
future versions of its Windows NT operating system and has recently announced
the release of a product that includes certain middleware functionality. The
bundling of middleware functionality in Windows NT will require the Company to
compete with Microsoft in the Windows NT marketplace, where Microsoft will have
certain inherent advantages due to its significantly greater financial,
technical, marketing and other resources, greater name recognition, its
substantial installed base and the integration of its enterprise middleware
functionality with Windows NT. If Microsoft successfully incorporates middleware
functionality into Windows NT or separately offers middleware applications, the
Company will need to differentiate its products based on functionality,
interoperability with non-Microsoft platforms, performance and reliability and
establish its products as more effective solutions to customers' needs. There
can be no assurance that the Company will be able to successfully differentiate
its products from those offered by Microsoft, or that Microsoft's entry into the
middleware market will not materially adversely affect the Company's business,
operating results and financial condition.

In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of the Company's current and prospective customers. Accordingly, it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. Such competition could
materially adversely affect the Company's ability to sell additional licenses
and maintenance and support renewals on terms favorable to the Company. Further,
competitive pressures could require the Company to reduce the price of its
products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business-- Competition."

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<PAGE>
PAST AND FUTURE ACQUISITIONS

From its inception in January 1995 through March 31, 1997, the Company
concluded the acquisition of eight companies, divisions or products. Integration
of acquired companies, divisions and products will involve the assimilation of
conflicting operations and products, which will divert the attention of the
Company's management team and may have a material adverse effect on the
Company's operating results in future quarters. In addition, in connection with
the acquisition of certain companies, divisions or products, the Company is
required to make certain future payments. Under the Novell Agreement, the
Company is obligated to make aggregate annual payments to Novell of $15 million
and $33 million during the remainder of calendar year 1997 and calendar year
1998, respectively, and a final payment of $12 million in January 1999 in
connection with the Company's acquisition of TUXEDO. Under the agreement with
Digital pursuant to which the Company acquired exclusive rights to certain
software products developed by Digital (the "Digital Agreement"), the Company is
obligated to make aggregate payments to Digital of $17 million through February
2000. On or before February 1, 1998, 1999 and 2000, BEA is obligated to make
payments to Digital of $2 million, $4 million and $11 million, respectively;
however, at Digital's election, certain portions of these payments may be
converted into shares of the Company's Common Stock at prices ranging from $9.00
to $15.00 per share. Any failure to make such payments or otherwise perform the
Company's other continuing obligations relative to these acquisitions would
result in the Company's loss of certain of its rights in the acquired businesses
or products and would have a material adverse effect on the Company's business,
operating results and financial condition. The Company intends to make
additional acquisitions in the future, although there can be no assurance that
suitable companies, divisions or products will be available for acquisition.
Such acquisitions entail numerous risks, including an inability to successfully
assimilate acquired operations and products, diversion of management's
attention, difficulties and uncertainties in transitioning the business
relationships from the acquired entity to the Company and loss of key employees
of acquired companies. In addition, future acquisitions by the Company may
result in dilutive issuances of equity securities, the incurrence of debt, large
one-time expenses, and the creation of goodwill or other intangible assets that
could result in significant amortization expense. These factors could have a
material adverse effect on the Company's business, operating results and
financial condition. See "--Product Concentration; Dependence on Growth of
Market for Middleware; Novell Relationship," "--Substantial Future Capital
Needs," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 2 of Notes to the BEA Annual Financials.

MANAGEMENT OF GROWTH

The Company currently is experiencing a period of rapid and substantial
growth that has placed, and is expected to continue to place, a strain on the
Company's administrative, financial and operational resources. The Company's
revenues have increased from $5.1 million for the fiscal year ended January 31,
1996 to $61.6 million for the fiscal year ended January 31, 1997. Revenue was
$30.4 million for the quarter ended April 30, 1997. The number of Company
employees has increased from 120 employees in three offices in the United States
at January 31, 1996 to over 600 employees in 36 offices in 17 countries at April
30, 1997. The Company's ability to manage its staff and growth effectively will
require it to continue to improve its operational, financial and management
controls, reporting systems and procedures, to train, motivate and manage its
employees and, as required, to install new management information and control
systems. In that regard, the Company is currently installing and implementing a
new management information system that is designed to integrate financial and
other reporting among the Company's multiple domestic and foreign offices. In
addition, the Company intends to significantly increase its administrative staff
in its foreign offices, particularly in the area of finance, and to improve
financial reporting and controls for the Company's international operations.
There can be no assurance that the Company will be able to implement
improvements to its management information and control systems in an efficient
or timely manner or that, during the course of this implementation, deficiencies
in existing systems and controls will not be discovered. If management of the
Company is unable to manage growth effectively, the Company's business,

10
<PAGE>
operating results and financial condition will be materially adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

USE OF PROCEEDS TO PAY CERTAIN OUTSTANDING INDEBTEDNESS AND ACQUISITION
OBLIGATIONS

SUBSTANTIAL FUTURE CAPITAL NEEDS

The Company will require substantial additional funds to satisfy its payment
obligations related to certain of its acquisitions. Under the Novell Agreement,
the Company is required to make aggregate payments of $15 million and $33
million during the remainder of calendar year 1997 and calendar year 1998,
respectively, and, to acquire perpetual rights to TUXEDO, a final payment of $12
million in January 1999. Payment obligations have been guaranteed by the
Company's principal stockholder, Warburg. See Note 6 of Notes to the BEA Annual
Financials. Under the Digital Agreement, the Company is obligated to make
aggregate payments of $17 million through February 2000. As of April 30, 1997,
the Company had $6.5 million in cash, cash equivalents and short-term
investments. The Company believes that the net proceeds of the offering,
together with its cash, cash equivalents and short-term investments, the Warburg
guaranty, available borrowings under its lines of credit and cash from
operations, will be sufficient to meet its working capital requirements,
including the payment obligations under the Novell Agreement and the Digital
Agreement, through at least the next twelve months. To the extent the Company
makes future acquisitions, the Company expects that it would require substantial
additional capital. Depending upon the Company's success in achieving continued
revenue growth from sales of BEA TUXEDO and services related thereto and the
extent to which Digital elects not to convert payment amounts due into shares of
the Company's Common Stock, the Company may require additional equity or debt
financing earlier than currently anticipated in order to fund its working
capital and other requirements. There can be no assurance that additional
financing will be available or, if available, that it will be on terms
satisfactory to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

DEPENDENCE ON KEY PERSONNEL AND NEED TO HIRE ADDITIONAL PERSONNEL

The Company's future performance depends to a significant degree upon the
continued service of its key members of management, as well as marketing, sales,
consulting and product development personnel. The loss of any of William T.
Coleman III, the Company's President, Chairman and Chief Executive Officer,
Edward W. Scott, Jr., the Company's Executive Vice President of Worldwide Field
Operations, or Alfred S. Chuang, the Company's Chief Technical Officer and
Executive Vice President of Product Development, or one or more of the Company's
other key personnel, would have a material adverse effect on the Company's
business, operating results and financial condition. The Company believes its
future success will also depend in large part upon its ability to attract and
retain highly skilled management, marketing, sales, consulting and product
development personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be able to retain its key employees or
that it will be successful in attracting, assimilating and retaining them in the
future. As the Company seeks to expand its worldwide support organization,
hiring of qualified technical personnel in foreign countries will be difficult
due to the limited number of qualified professionals. Failure to attract,
assimilate and retain key personnel would have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
Novell Agreement requires the Company to employ a minimum number of research and
development personnel. See "--Product Concentration; Dependence on Growth of
Market for Middleware; Novell Relationship" and "Business--Employees."

11
<PAGE>
EXPANDING DISTRIBUTION CHANNELS AND RELIANCE ON THIRD PARTIES

To date, the Company has sold its products principally through its direct
sales force, as well as through indirect sales channels, such as ISVs, hardware
OEMs, systems integrators, independent consultants and distributors. Of the
Company's revenues in the fiscal year ended January 31, 1997, approximately
$52.2 million resulted from sales by the Company's direct sales force, and
approximately $9.4 million resulted from sales through indirect channels. The
Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in expanding its direct sales force and in
further establishing and maintaining relationships with distributors, OEMs and
ISVs. In particular, a significant element of the Company's strategy is to embed
its technology in products offered by the Company's ISV customers. The Company
intends to seek distribution arrangements with other ISVs to embed the Company's
technology in their products and expects that these arrangements will account
for a significant portion of the Company's revenues in future periods.

Although the Company is currently investing, and plans to continue to
invest, significant resources to expand its direct sales force and to develop
relationships with distributors and ISVs, the Company has at times experienced
and continues to experience difficulty in recruiting qualified sales personnel
and in establishing necessary third-party relationships. There can be no
assurance that the Company will be able to successfully expand its direct sales
force or other distribution channels, secure license agreements with additional
ISVs on commercially reasonable terms or at all, or otherwise further develop
its relationships with distributors and ISVs, or that any such expansion or
additional license agreements would result in an increase in revenues. Although
the Company believes that its investments in the expansion of its direct sales
force and in the establishment of other distribution channels through third
parties ultimately will improve the Company's operating results, to the extent
that such investments are made and revenues do not correspondingly increase, the
Company's business, operating results and financial condition will be materially
and adversely affected. See "Business--Sales, Marketing and Services."

INTERNATIONAL OPERATIONS

International revenues accounted for 11% and 40% of total revenues in the
fiscal years ended January 31, 1996 and 1997, respectively and 51% for the
fiscal quarter ended April 30, 1997. Revenues from France and the United Kingdom
accounted for 13% and 10%, respectively, of the Company's total revenues in the
fiscal year ended January 31, 1997. The Company believes that its success
depends upon continued expansion of its international operations. As of April
30, 1997, the Company had sales and service offices in Brisbane, Cape Town,
Espoo (Finland), Hong Kong, Johannesburg, London, Melbourne, Munich, Paris, Sao
Paulo, Seoul, Singapore, Stockholm, Sydney, Taipei, Toronto, Yokohama, Zaventem
(Belgium) and Zurich. At April 30, 1997, the Company also had 13 resellers in 11
locations outside the United States. The Company's international business
involves a number of risks, including lack of acceptance of localized products;
cultural differences in the conduct of business; longer accounts receivable
payment cycles; greater difficulty in accounts receivable collection;
seasonality due to the slow-down in European business activity during the summer
months; unexpected changes in regulatory requirements; royalties and withholding
taxes that restrict the repatriation of earnings; tariffs and other trade
barriers; difficulty hiring qualified personnel; economic and political
conditions in each country; management of an enterprise spread over various
countries; and the burden of complying with a wide variety of foreign laws. In
addition, the Company has acquired or otherwise established 19 foreign offices
since inception and is seeking to integrate each of these offices into the
Company's overall administrative and financial reporting structure, which is
anticipated to result in the hiring of additional personnel in many of these
international offices. To the extent profit is generated or losses are incurred
in foreign countries, the Company's effective income tax rate may be materially
and adversely affected. In some markets, localization of the Company's products
is essential to achieve market penetration. The Company may incur substantial
costs and experience delays in localizing its products, and there can be no
assurance that any localized product will generate significant revenues.

12
<PAGE>
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Japanese yen, the German mark, the French franc and the
British pound. As a result, appreciation in the value of these currencies
relative to the U.S. dollar could adversely materially affect operating results.
Foreign currency transaction gains and losses arising from normal business
operations are credited to or charged against operations in the period incurred.
As a result, fluctuations in the value of the currencies in which the Company
conducts its business relative to the U.S. dollar have caused and will continue
to cause currency transaction gains and losses. The Company is currently
establishing a program to reduce its foreign currency exposure. However, there
can be no assurance that the Company will not continue to experience currency
losses in the future, nor can the Company predict the effect of future exchange
rate fluctuations on future operating results. In future periods, the Company
may determine to increase the percentage of international sales of its products
at prices denominated in U.S. dollars. In such event, fluctuations in currency
exchange rates may render the price of the Company's products unaffordable or
uncompetitive. Such an event could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that any of the factors described herein will not have a material
adverse effect on the Company's future international sales and, consequently,
its business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Sales, Marketing and
Services" and Note 12 of Notes to BEA Annual Financials.

TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS

The market for the Company's products is highly fragmented, competitive with
alternative computing architectures, and characterized by continuing
technological development, evolving industry standards and changing customer
requirements. The introduction of products embodying new technologies, the
emergence of new industry standards or changes in customer requirements could
render the Company's existing products obsolete and unmarketable. As a result,
the Company's success depends upon its ability to enhance existing products,
respond to changing customer requirements, and develop and introduce in a timely
manner new products that keep pace with technological developments and emerging
industry standards. Customer requirements include, but are not limited to,
operability across distributed and changing heterogeneous hardware platforms,
operating systems, relational databases and networks. For example, although BEA
TUXEDO interoperates with applications on over 40 operating platforms, as
certain of the Company's customers start to utilize emerging platforms, it will
be necessary for the Company to further enhance its products to interoperate
with applications on these emerging platforms. There can be no assurance that
the Company's products will adequately address the changing needs of the
marketplace or that the Company will be successful in developing and marketing
enhancements to its existing products or new products incorporating new
technology on a timely basis. Failure to develop and introduce new products, or
enhancements to existing products, in a timely manner in response to changing
market conditions or customer requirements, will materially and adversely affect
the Company's business, operating results and financial condition.

The Company's BEA Jolt product is designed to enable the extension of
enterprise-wide, mission-critical applications to Internet and intranet
environments. Although BEA Jolt has not accounted for a significant portion of
the Company's revenues to date, the Company intends to release enhanced versions
of BEA Jolt with greater functionality during the fiscal year ended January 31,
1998, and the Company's objective is to increase license revenues from the BEA
Jolt product, both in absolute dollars and as a percentage of the Company's
revenues in future periods, although there can be no assurance of such increase.
The success of BEA Jolt depends upon, among other things, the future growth of
the Internet for commercial transactions. There can be no assurance that
communication or commerce over the Internet will become widespread, or that the
Internet will prove to be a viable commercial marketplace. If BEA Jolt fails to
adequately address customer concerns regarding the use of the Internet for
commerce, or if the Internet otherwise does not prove to be a viable commercial
marketplace, the success of the BEA Jolt product will be materially and
adversely affected. In addition, the current version

13
<PAGE>
of BEA Jolt operates through Java-based applets, and the Company anticipates
that future versions of BEA Jolt will similarly operate through Java.
Accordingly, the success of BEA Jolt depends upon the continued widespread
demand for Java-enabled World Wide Web browsers. See "Business--Products and
- --Research and Development."

SOFTWARE DEFECTS

Software products as complex as those offered by the Company frequently
contain errors or defects, especially when first introduced or when new versions
or enhancements are released. Despite product testing, the Company's recently
introduced products or any products may contain defects or software errors and,
as a result, the Company may experience delayed or lost revenues during the
period required to correct any defects or errors. Any such defects or errors
could result in adverse customer reactions, negative publicity regarding the
Company and its products, harm to the Company's reputation, or loss of or delay
in market acceptance, or could require expensive product changes, any of which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business--Products and --Research and
Development."

PRODUCT LIABILITY

The Company markets its products to customers for developing, building,
deploying and managing distributed mission-critical computer software
applications. The Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. Although the Company has not experienced any
product liability claims to date, the sale and support of its products by the
Company may entail the risk of such claims, which could be substantial in light
of the use of such products in mission-critical applications. A successful
product liability claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition.

DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT

The Company's success depends upon its proprietary technology. The Company
relies on a combination of copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
its proprietary rights. The Company presently has three issued patents and two
pending patent applications, as well as an exclusive license to two patents and
three pending patent applications. No assurance can be given that competitors
will not successfully challenge the validity or scope of the Company's patents
and that such patents will provide a competitive advantage to the Company. As
part of its confidentiality procedures, the Company generally enters into
non-disclosure agreements with its employees, distributors and corporate
partners, and license agreements with respect to its software, documentation and
other proprietary information. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. In particular, the Company has, in the past, provided certain
hardware OEMs with access to its source code, and any unauthorized publication
or proliferation of this source code could materially adversely affect the
Company's business, operating results and financial condition. Policing
unauthorized use of the Company's products is difficult and, although the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
Effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. There can be no assurance that the Company's
protection of its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology, duplicate the
Company's products or design around any patents issued to the Company or other
intellectual property rights of the Company.

14
<PAGE>

with respect to current or future products. The Company has received
correspondence claiming that its ObjectBroker product infringes certain
third-party patents. The Company is investigating this claim and currently
believes it to be without merit and that the Company is entitled to
indemnification for such claim. The Company expects that software product
developers will increasingly be subject to such claims as the number of products
and competitors in the Company's industry segment grows and the functionality of
products in the industry segment overlaps. Any such claims, with or without
merit, could result in costly litigation that could absorb significant
management time, which could have a material adverse effect on the Company's
business, operating results and financial condition. Such claims might require
the Company to enter into royalty or license agreements. Such royalty or license
agreements, if required, may not be available on terms acceptable to the Company
or at all, which could have a material adverse effect upon the Company's
business, operating results and financial condition. See "Business--Intellectual
Property."

POSSIBLE VOLATILITY OF STOCK PRICE

The market price for the Common Stock following the offering will be
affected by a number of factors, including the announcement of new products or
product enhancements by the Company or its competitors, quarterly variations in
the Company's or its competitors' results of operations, changes in earnings
estimates or recommendations by securities analysts, developments in the
Company's industry, general market conditions and other factors, including
factors unrelated to the operating performance of the Company or its
competitors. In addition, stock prices for many companies in the technology and
emerging growth sectors have experienced wide fluctuations that have often been
unrelated to the operating performance of such companies. Such factors and
fluctuations, as well as general economic, political and market conditions, such
as recessions, may materially adversely affect the market price of the Company's
Common Stock.

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE OF THE
COMMON STOCK

Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the offering, the Company will have 61,553,120 shares of Common
Stock (including 23,425,554 shares of Common Stock issuable upon conversion of
the Class B Common Stock) outstanding based on shares outstanding as of May 31,
1997. Of these shares, the 6,000,000 shares sold in the offering and the
5,372,633 shares sold in the Company's initial public offering will be freely
transferable without restriction under the Securities Act, unless they are held
by "affiliates" of the Company as that term is used under the Securities Act and
the Regulations promulgated thereunder.

15
<PAGE>

convert the entire remaining convertible portion of such note. Under the terms
of the note, 222,222 shares would be issuable on February 1, 1998, 370,370
shares would be issuable on February 1, 1999 and the remaining 333,333 shares
would be issuable on February 1, 2000. The Company may, however, with the
approval of Goldman, Sachs & Co., issue all or a portion of these shares at any
time prior to these dates. Upon issuance, such shares would become eligible for
immediate resale. In addition, 500,000 additional shares subject to outstanding
warrants will be available on October 8, 1997. The remainder of the shares will
be eligible for sale from time to time thereafter upon expiration of their
respective one-year holding periods, subject in each case to the restrictions on
such sales by affiliates of the Company. Any shares subject to lock-up
agreements may be earlier released at any time without notice by Goldman, Sachs
& Co. See "Shares Eligible for Future Sale."

ANTITAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW

The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting and conversion rights, of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. In addition, the Board of Directors has the authority to issue
undesignated Preferred Stock and, subject to certain limitations, to determine
the rights, preferences, privileges and restrictions, including voting rights,
of such shares without any further vote or action by the stockholders. The
issuance of Preferred Stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Company is subject to the antitakeover provisions of
Section 203 of the Delaware General Corporation Law, which will prohibit the
Company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. The application of Section 203
also could have the effect of delaying or preventing a change of control of the
Company. Further, certain provisions of the Company's Certificate of
Incorporation and Bylaws and of Delaware law could delay or make more difficult
a merger, tender offer or proxy contest involving the Company, which could
adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock--Preferred Stock and --Antitakeover Effects of
Provisions of the Certificate of Incorporation, Bylaws and Delaware Law."

CONTROL BY MANAGEMENT AND CURRENT STOCKHOLDERS

After the offering, the Company's officers and directors, and their
affiliates, in the aggregate, will have voting control over approximately 65.0%
of the Company's voting Common Stock. In particular, Warburg will have voting
control over approximately 49.0% of the Company's voting Common Stock and will
beneficially own approximately 68.4% of the Company's Common Stock (which
includes the non-voting Class B Common Stock owned by Warburg). As a result,
these stockholders will be able to control all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. The voting power of Warburg and the Company's officers
and directors under certain circumstances could have the effect of delaying or
preventing a change in control of the Company. See "Principal Stockholders" and
"Description of Capital Stock."

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<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
being offered hereby are estimated to be approximately $96,160,000 ($110,659,000
if the Underwriters' over-allotment options are exercised in full).

The net proceeds of the offering are expected to be used for repayment of
amounts borrowed by the Company under its revolving credit line and for the
payment of certain obligations incurred in connection with the Acquisitions.
Approximately $9.6 million will be used to repay all outstanding borrowings as
of July 18, 1997 under the revolving credit line. Management currently intends
to use approximately $71.5 million to repay notes payable to Novell and Digital,
each bearing imputed interest at 8% and due in January 1999 and February 2000,
respectively, taking advantage of certain prepayment discounts. The remaining
proceeds will be added to working capital and used for general corporate
purposes. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary businesses, products or technologies. Currently,
there are no commitments or agreements regarding any acquisitions. Pending such
uses, the net proceeds of the offering will be invested in investment grade,
interest-bearing instruments.

The Company believes the net proceeds of the offering together with its
cash, cash equivalents and short-term investments, the Warburg guaranty,
available borrowings under its lines of credit and cash from operations will be
sufficient to meet its working capital requirements, including the payment
obligations under the Novell Agreement and the Digital Agreement, through at
least the next twelve months. To the extent the Company makes future
acquisitions the Company expects that it would require substantial additional
capital. See "Risk Factors--Past and Future Acquisitions, --Use of Proceeds to
Pay Certain Outstanding Indebtedness and Acquisition Obligations and
- --Substantial Future Capital Needs" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support the
development of its business and does not anticipate paying cash dividends for
the foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results and
current and anticipated cash needs. In addition, an existing revolving line of
credit agreement prohibits the Company from paying cash dividends without the
lender's consent. See Note 6 of Notes to BEA Annual Financials.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has traded publicly on the Nasdaq National Market
under the trading symbol "BEAS" since April 11, 1997. The following table sets
forth, for the periods indicated, the high and low closing sales prices of the
Common Stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ending January 31, 1998
First Quarter (beginning April 11, 1997)....................................................... $ 6 3/8 $ 6
Second Quarter (through July 21, 1997)......................................................... 20 1/16 6 1/8
</TABLE>

On July 21, 1997, the last reported sale price reported on the Nasdaq
National Market for the Common Stock was $18 3/8 per share. On May 31, 1997,
there were approximately 186 holders of record of the Common Stock.

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<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of April
30, 1997, and as adjusted to give effect to the sale by the Company of 6,000,000
shares of Common Stock offered by the Company hereby and the receipt of
estimated net proceeds therefrom. This table should be read in conjunction with
the Financial Statements and Notes thereto and "Selected Consolidated Financial
Data" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
APRIL 30, 1997
--------------------------
ACTUAL AS ADJUSTED
------------ ------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)

Long-Term Debt and Capital Lease Obligations.......................................... $ 50,012 $ 1,484
Stockholders' Equity (Deficit):
Common Stock, $0.001 par value; 80,000,000 shares authorized; 24,664,295 shares
issued and outstanding, actual; 36,794,295 shares issued and outstanding, as
adjusted(1)(2)(3)................................................................. 25 37
Class B Common Stock: $0.001 par value; 35,000,000 shares authorized; 30,475,881
shares issued and outstanding, actual; 24,345,881 shares issued and outstanding,
as adjusted(1).................................................................... 30 24
Additional Paid-in Capital(2)(3)...................................................... 84,461 180,615
Notes Receivable from Stockholders.................................................... (544) (544)
Cumulative Translation Adjustment..................................................... 211 211
Deferred Compensation related to Stock Options........................................ (784) (784)
Accumulated Deficit................................................................... (127,976) (127,976)
------------ ------------
Total Stockholders' Equity (Deficit)(2)(3).......................................... (44,577) 51,583
------------ ------------
Total Capitalization(2)(3)........................................................ $ 5,435 $ 53,067
------------ ------------
------------ ------------
</TABLE>

- --------------

(1) Gives effect to the conversion of 6,130,000 shares of Class B Common Stock
into Common Stock upon completion of this offering. See "Description of
Capital Stock" for a description of the terms of the Class B Common Stock.

(2) Excludes (i) 7,578,326 shares issuable upon exercise of options outstanding
as of April 30, 1997 having a weighted average exercise price of $1.90 per
share under the Company's 1995 Flexible Stock Incentive Plan and (ii)
6,350,000 additional shares authorized for issuance under the Stock Plans.
See "Management--Stock Plans and --Executive Compensation" and Note 11 of
Notes to the Annual Financials.

(3) Excludes 372,633 shares issued in May 1997 pursuant to the partial exercise
of the Underwriters' over-allotment option from the Company's initial public
offering.

18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data of the Company should be
read in conjunction with the consolidated financial statements and the notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein. The consolidated statements of
operations data of the Company for the years ended January 31, 1996 and 1997 and
the consolidated balance sheet data of the Company at January 31, 1996 and 1997
are derived from, and qualified by reference to, the BEA Annual Financials,
which have been audited by Ernst & Young LLP, independent auditors, included
elsewhere in this Prospectus. The consolidated statements of operations data of
the Company for the three-month periods ended April 30, 1996 and 1997 and the
consolidated balance sheet data of the Company at April 30, 1997 are unaudited
but have been prepared on the same basis as the audited financial statements
and, in the opinion of management, contain all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for such periods. The results of operations for the three months
ended April 30, 1997 are not necessarily indicative of results to be expected
for the full fiscal year.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JANUARY 31, APRIL 30,
-------------------------- --------------------
1996(1) 1997 1996 1997
------------ ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
License Revenues............................................. $ 3,569 $ 46,839 $ 5,484 $ 24,478
Service Revenues............................................. 1,564 14,759 1,367 5,911
------------ ------------ --------- ---------
Total Revenues(2).......................................... 5,133 61,598 6,851 30,389
Total Cost of Revenues(3)...................................... 2,704 18,607 2,494 7,035
------------ ------------ --------- ---------
Gross Margin................................................... 2,429 42,991 4,357 23,354
Operating Expenses:
Research and Development..................................... 3,244 18,183 3,097 5,143
Sales and Marketing.......................................... 2,572 30,970 3,912 15,917
General and Administrative................................... 3,058 12,732 2,579 3,611
Write-Off of In-Process Research and Development............. 11,194 62,248 60,948 16,000
------------ ------------ --------- ---------
Total Operating Expenses................................... 20,068 124,133 70,536 40,671
------------ ------------ --------- ---------
Income (Loss) from Operations.................................. (17,639) (81,142) (66,179) (17,317)
Other Income (Expense)......................................... 48 4 (117) (517)
Interest Expense............................................... (89) (6,727) (1,117) (1,965)
------------ ------------ --------- ---------
Income (Loss) before Income Taxes.............................. (17,680) (87,865) (67,413) (19,799)
Provision for Income Taxes..................................... 60 800 38 572
------------ ------------ --------- ---------
Net Income (Loss).............................................. $ (17,740) $ (88,665) $ (67,451) $ (20,371)
------------ ------------ --------- ---------
------------ ------------ --------- ---------
Pro Forma Net Income (Loss) Per Share(4)....................... $ (1.73) $ (0.40)
------------ ---------
------------ ---------
Shares Used in Computing Pro Forma Net Loss Per Share(4)....... 51,162 50,710
------------ ---------
------------ ---------
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and Cash Equivalents...................................... $ 4,549 $ 3,283 $ 6,541
Working Capital (Deficit)...................................... 2,510 (32,798) (22,624)
Total Assets................................................... 18,953 57,973 73,360
Long-Term Obligations (Less Current Portion)................... 4,287 49,540 50,012
Stockholders' Equity (Deficit)................................. 2,038 (76,289) (44,577)
</TABLE>

- ------------------

(1) The consolidated statement of operations data for the year ended January 31,
1996 includes results of operations from incorporation (January 20, 1995)
through January 31, 1995.

(2) If the acquisitions of IMC, ITI, TUXEDO and USL Finance S.A. had occurred on
February 1, 1995, the pro forma revenues would have been $33.6 million and
$62.5 million for the years ended January 31, 1996 and 1997, respectively
and $7.8 million for the three months ended April 30, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(3) Includes expenses attributable to amortization of intangible assets
resulting from acquisitions in the amounts of $1.0 million, $8.6 million,
$1.6 million and $2.6 million, for the years ended January 31, 1996 and 1997
and the three months ended April 30, 1996 and 1997, respectively.

(4) See Note 1 of Notes to BEA Annual Financials and Note 2 to BEA Systems, Inc.
Unaudited Condensed Consolidated Financial Statements at April 30, 1997 for
an explanation of the method used to determine the number of shares used in
computing pro forma net loss per share.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E
OF THE EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING (I) THE
EXPECTED INCREASES IN LICENSE AND SERVICE REVENUES IN FUTURE PERIODS; (II) THE
PLANNED EXPANSION OF THE COMPANY'S SALES, MARKETING AND RESEARCH AND DEVELOPMENT
ORGANIZATIONS; (III) THE SPENDING REQUIRED TO DEVELOP ACQUIRED IN-PROCESS
RESEARCH AND DEVELOPMENT INTO VIABLE PRODUCTS; AND (IV) THE SUFFICIENCY OF THE
COMPANY'S CURRENT CASH BALANCES, BORROWINGS AVAILABLE UNDER ITS LINES OF CREDIT
AND CASH FLOW FROM OPERATIONS TO MEET ITS WORKING CAPITAL REQUIREMENTS. THESE
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN OF THE FACTORS, INCLUDING BUT NOT LIMITED TO THOSE DISCUSSED IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.

COMPANY BACKGROUND

The Company was founded in January 1995 to address the growing need of large
organizations to extend mission-critical applications beyond legacy mainframe
systems to distributed computing environments. To address this problem, the
Company evaluated the growing market for middleware solutions in an effort to
identify a robust, scalable software product that would enable interoperable,
seamless processing of applications between the mainframe and distributed
environments within an organization. The Company identified the TUXEDO product,
all rights to which were owned by Novell, as a middleware infrastructure
solution capable of meeting this need and serving as a standard for extending
the functionality of mainframes to distributed computing environments. To
implement its strategy, the Company first acquired two leading United States
resellers of TUXEDO and then acquired a worldwide exclusive license to TUXEDO
from Novell. Through these and a number of subsequent acquisitions, the Company
has built a worldwide organization that now owns or controls substantially all
of the development, distribution and marketing rights to TUXEDO as well as
several other products that comprise the BEA Enterprise Transaction Framework.

From January 1995 to September 1995, the Company pursued the acquisition of
two leading resellers of Novell's TUXEDO product, which culminated in the
acquisition of IMC in September 1995 and ITI in November 1995. Both IMC and ITI
were authorized resellers of Novell's TUXEDO product line and had established
sales and support organizations that enabled BEA to provide direct sales and
support throughout all of North America. In September 1995, the Company also
acquired the TP Blue product from VI Systems, Inc. TP Blue complements BEA
TUXEDO in that it enables the integration of legacy mainframe applications into
distributed computing environments.

In February 1996, BEA acquired exclusive worldwide rights to TUXEDO from
Novell. Novell had originally obtained TUXEDO through its acquisition in 1993 of
UNIX Systems Laboratories from AT&T, which originally developed TUXEDO in its
Bell Labs division. Under the terms of the Novell Agreement, the Company
obtained worldwide exclusive rights to TUXEDO in exchange for a series of fixed
payments totaling $90 million over the original three-year term of the agreement
and was granted an option, exercisable in January 1999, to acquire perpetual
rights to the TUXEDO product line. Under the terms of the Novell Agreement,
Novell retains the right to market TUXEDO in combination with its Netware
product. The Company is obligated to make payments of $15 million and $33
million during the remainder of calendar year 1997 and calendar year 1998,
respectively, and will be required to pay an additional $12 million on exercise
of its January 1999 option. For financial reporting purposes, the purchase price
allocation to assets acquired in the acquisition of TUXEDO has been determined
based on the assumed exercise by the Company of its option in January 1999 to
acquire the perpetual worldwide rights to TUXEDO. As part of the Company's
original licensing of TUXEDO, Novell transferred

20
<PAGE>
to the Company approximately 53 employees engaged in the development, marketing
and support of the TUXEDO product line, as well as all of Novell's rights and
obligations under its agreements with worldwide distributors and resellers for
TUXEDO. At April 30, 1997, the Company had a development staff of 177, which
included the original four architects, as well as many of the original
developers, of TUXEDO. See "Risk Factors--Product Concentration; Dependence on
Growth of Market for Middleware; Novell Relationship."

As part of its strategy to rapidly build an international sales and support
organization, BEA further acquired, between May 1996 and December 1996, a number
of sales and support organizations located in France, South Africa, Finland and
Australia. See "Risk Factors--Limited Operating History; Integration of
Acquisitions; No Assurance of Profitability and --Past and Future Acquisitions."

In March 1997, the Company acquired exclusive worldwide rights to MessageQ,
ObjectBroker and other related products from Digital for an aggregate
consideration of $22 million. Of the aggregate consideration for the products,
$5 million was payable in cash ($2 million of which was paid on April 1997 and
$3 million of which was paid on June 20, 1997), and $17 million is payable
pursuant to a non-interest bearing convertible promissory note delivered by the
Company at the closing of that transaction. The promissory note provides for
installments of $2 million, $4 million and $11 million payable on or before
February 1, 1998, 1999 and 2000, respectively, and may be converted into shares
of the Company's Common Stock at the option of Digital at conversion prices of
$9.00, $10.80 and $15.00 per share, respectively; provided, however, that only
$5 million of such $11 million is convertible. In July 1997, Digital gave the
Company formal notice of its election to convert the $2 million and $4 million
payments, and has orally indicated its current intention to convert $5 million
payment, into an aggregate of 925,925 shares, which shares will be issued on the
date each respective payment is due. The Company may, however, with the approval
of Goldman, Sachs & Co., issue all or a portion of these shares at any time
prior to these dates. Upon issuance, such shares would become eligible for
immediate resale. In addition, the Company has granted Digital a warrant to
purchase 500,000 shares of Common Stock at a price of $6.00 per share
exercisable for the period beginning on October 8, 1997 and expiring one year
thereafter. As part of the Digital transaction, the Company added a total of
approximately 90 employees and contractors who were primarily responsible for
development of the acquired products at Digital.

OVERVIEW

The Company's total revenues consist of license revenues and service
revenues. License revenues are derived primarily from sales of BEA TUXEDO and
accounted for 76% of total revenues in the fiscal year ended January 31, 1997.
Service revenues are derived primarily from a full range of services
complementing the Company's products, including software maintenance and
support, training and consulting projects, and accounted for 24% of total
revenues in the fiscal year ended January 31, 1997. Sales of BEA TUXEDO and
related services are expected to continue to account for a substantial majority
of the Company's revenues for the forseeable future. See "Risk Factors--Product
Concentration; Dependence on Growth of Market for Middleware; Novell
Relationship."

21
<PAGE>
Historically, the Company's revenues have been generated primarily through
its direct sales force. The Company has also developed strategic relationships
with a number of organizations, including hardware manufacturers, packaged
application software developers, systems integrators and independent
consultants, independent software tool vendors and distributors. For their sales
and marketing efforts, these organizations are typically granted a discount from
the Company's standard list price or are paid a commission on sales. Revenues
and operating margins may fluctuate in any period due to the mix of license
revenues derived from sales for which a discount is granted or for which
commissions are paid. See "Risk Factors--Expanding Distribution Channel and
Reliance on Third Parties."

The Company recognizes license revenues in accordance with American
Institute of Certified Public Accountants Statement of Position 91-1, SOFTWARE
REVENUE RECOGNITION. Revenues from software license agreements are recognized at
the time of product shipment, provided there are no vendor obligations remaining
to be fulfilled and collectibility is probable. Typically, the Company's
software licenses do not include significant ongoing vendor obligations.
Therefore, the Company generally recognizes all revenues from software licenses
in the period in which the product is shipped.

Service revenues from customer maintenance fees for ongoing customer support
and product updates are recognized ratably over the maintenance term, which is
typically twelve months. Payments for maintenance fees are generally received in
advance and recognized ratably. Service revenues from training and consulting
are recognized when the services are performed. Revenues from development
agreements are recognized upon achievement of contractual milestones or on a
percentage of completion basis.

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth, as a percentage of total revenues,
historical consolidated statements of operations for the periods indicated:

<TABLE>
<CAPTION>
THREE
MONTHS THREE
YEAR ENDED YEAR ENDED ENDED MONTHS
JANUARY 31, JANUARY 31, APRIL 30, ENDED APRIL
1996 1997 1996 30, 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
License Revenues................. 70% 76% 80% 81%
Service Revenues................. 30 24 20 19
--- --- ----------- ---
Total Revenues................. 100 100 100 100
Total Cost of Revenues(1).......... 53 30 36 23
--- --- ----------- ---
Gross Margin....................... 47 70 64 77
Operating Expenses:
Research and Development......... 63 30 45 17
Sales and Marketing.............. 50 50 57 52
General and Administrative....... 60 21 38 12
Write-Off of In-Process Research
and Development................ 218 101 890 53
--- --- ----------- ---
Total Operating Expenses....... 391 202 1030 134
--- --- ----------- ---
Income (Loss) from Operations...... (344) (132) (966) (57)
Other Income (Expense)............. 1 -- (2) (2)
Interest Expense................... (2) (11) (16) (6)
--- --- ----------- ---
Income (Loss) before Income
Taxes............................ (345) (143) (984) (65)
Provision for Income Taxes......... 1 1 1 2
--- --- ----------- ---
Net Income (Loss).................. (346)% (144)% (985)% (67)%
--- --- ----------- ---
--- --- ----------- ---
</TABLE>

- --------------

(1) Includes amortization of intangibles of 20%, 14%, 23% and 9% of total
revenues, respectively, as a result of the Acquisitions.

22
<PAGE>
HISTORICAL CONSOLIDATED RESULTS OF OPERATIONS

QUARTERS ENDED APRIL 30, 1996 AND 1997

The Company acquired TUXEDO from Novell during the fiscal quarter ended
April 30, 1996. During the remainder of the fiscal year ended January 31, 1997,
the Company acquired additional technologies, as well as acquired and further
established distribution channels for the Company's products and services.
Therefore, the Company's operations have experienced significant growth.

REVENUES

The Company's revenues are derived primarily from fees for software licenses
and to a lesser extent from services. The Company's revenues were $6.9 million
and $30.4 million for the fiscal quarters ended April 30, 1996 and 1997,
respectively.

International revenues, which the Company defines as revenues from sales to
customers outside the United States, accounted for 15% and 51% of total revenues
in the fiscal quarters ended April 30, 1996 and 1997, respectively. The increase
was due primarily to the Company's opening of local subsidiaries throughout
Europe and Asia as well as its acquisition of USL Finance S.A. ("USL France") in
May 1996.

LICENSE REVENUES. License revenues were $5.5 million and $24.5 million for
the fiscal quarters ended April 30, 1996 and 1997, respectively, representing
80% and 81% of total revenues in the respective periods. The increase in dollar
amount was primarily due to the impact of the Acquisitions as well as additional
market acceptance of BEA TUXEDO and related products.

SERVICE REVENUES. Service revenues were $1.4 million and $5.9 million for
the fiscal quarters ended April 30, 1996 and 1997, respectively, representing
20% and 19% of total revenues in the respective periods. The increase in dollar
amount was primarily due to the increase in consulting, training and maintenance
fees associated with the increased sales of the Company's software licenses.

COST OF REVENUES

Cost of revenues is comprised of cost of licenses and cost of services.

COST OF LICENSES. Cost of licenses consists primarily of amortization of
certain intangible assets related to acquisitions as well as product media,
product duplication and shipping. Cost of licenses totaled $2.0 million and $3.2
million for the fiscal quarters ended April 30, 1996 and 1997, respectively,
representing 37% and 13% of license revenues, respectively. The increase in
absolute dollars was due primarily to the Company's acquisitions and the
amortization of intangibles related to those acquisitions. The decrease as a
percentage of revenues was due primarily to the substantial increase in license
revenues during the period. Amortization of intangible assets resulted from
certain acquisitions during the fiscal years ended January 31, 1996 and 1997, as
well as the acquisition of certain software products developed by Digital in the
fiscal quarter ended April 30, 1997. Amortization of certain intangible assets
included in cost of licenses totaled $1.6 million and $2.6 million in the fiscal
quarters ended April 30, 1996 and 1997, respectively. In the future,
amortization of intangible assets acquired through the date hereof is expected
to total $2.8 million per fiscal quarter for the rest of the fiscal year ending
January 31, 1998; $6.6 million for the fiscal year ended January 31, 1999; and
$2.4 million for the remaining balance of intangible assets through the fiscal
year ended January 31, 2002. To the extent future events result in the
impairment of any capitalized intangible assets, amortization expense would be
accelerated.

COST OF SERVICES. Cost of services consists primarily of personnel-related
costs incurred in providing consulting services, training and maintenance to
customers. Cost of services were $458,000 and $3.9 million for the fiscal
quarters ended April 30, 1996 and 1997, respectively, representing 33%

23
<PAGE>
and 65% of total service revenues for each period, respectively. The increase in
absolute dollars was due primarily to the Company's growing customer base and
increased operating activity resulting from such growth. The increase in costs
as a percentage of related service revenues for the fiscal quarter ended April
30, 1997 over the same period in 1996 is the result of the hiring of additional
consulting and support personnel in response to an anticipated increase in the
number of customers. The Company has also invested substantial resources in a
worldwide customer support organization to provide a high level of maintenance
service to the Company's customers.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses include
engineering personnel and related expenses, as well as consulting costs
associated with new product development and enhancement of existing products.
Research and development expenses were $3.1 million and $5.1 million for the
fiscal quarters ended April 30, 1996 and 1997, respectively, representing 45%
and 17% of total revenues in each period, respectively. The increase in dollar
amount was due to an increase in personnel and related expenses, including a
significant increase in such expenses resulting from the acquisition of TUXEDO.
The decrease in research and development expenses as a percentage of total
revenues was primarily due to the substantial increase in revenues. The Company
expects that the dollar amount of research and development expenses will
continue to increase as the Company continues to commit substantial resources to
product development and engineering in future periods.

SALES AND MARKETING. Sales and marketing expenses include salaries,
commissions, advertising, direct mail, seminars, public relations, trade shows,
travel and other related selling and marketing expenses. Sales and marketing
expenses were $3.9 million and $15.9 million for the fiscal quarters ended April
30, 1996 and 1997, respectively, representing 57% and 52% of total revenues for
each period, respectively. The increase in absolute dollars was due primarily to
the expansion of the Company's direct sales force and an increase in marketing
personnel and activities. The Company believes that the dollar amount of sales
and marketing expenses will continue to increase as the Company expands its
sales and marketing organization.

GENERAL AND ADMINISTRATIVE. General and administrative expenses include
personnel costs for administration, finance, human resources, information
technology and general management, as well as amortization of goodwill related
to certain acquisitions. General and administrative expenses were $2.6 million
and $3.6 million for the fiscal quarters ended April 30, 1996 and 1997,
respectively, representing 38% and 12% of total revenues for each period,
respectively. The increase in dollar amount was attributed to the expansion of
the Company's general and administrative staff and associated expenses necessary
to manage and support the Company's growth. The decrease in general and
administrative expenses as a percentage of total revenues was primarily due to
the substantial increase in revenues. The Company expects that the dollar amount
of general and administrative expenses will continue to increase in the future
as the Company expands its staffing and incurs higher costs associated with
being a public company. Amortization of goodwill totaled $47,000 and $57,000 in
the fiscal quarters ended April 30, 1996 and 1997, respectively. Amortization of
goodwill is expected to total $77,300 per fiscal quarter for the rest of the
fiscal year ending January 31, 1998 and $1.0 million for the remaining balance
of intangible assets through the fiscal year ended January 31, 2003. To the
extent future events result in the impairment of goodwill, these amortization
expenses would be accelerated.

WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. As a result of the
acquisitions of TUXEDO from Novell in the fiscal quarter ended April 30, 1996
and MessageQ, ObjectBroker and other related products from Digital in the fiscal
quarter ended April 30, 1997, the Company has acquired a number of projects and
products that had not reached technological feasibility at the date of purchase.
Accordingly, such costs ($60.9 million and $16.0 million in the fiscal quarters
ended April 30, 1996 and 1997, respectively) were expensed at the time of the
related acquisitions. Costs to complete such projects and products are included
in research and development expense in the period incurred. At

24
<PAGE>
April 30, 1997, the Company believes that approximately $5.0 million of
additional research and development spending is needed to develop the in-process
research and development acquired from Digital into viable products. There can
be no assurance that the Company will be successful in completing the
development of such in-process research and development or that development
efforts will result in viable products.

PROVISION FOR INCOME TAXES

The Company has experienced operating losses to date. The Company has
incurred income tax expense of $38,000 and $572,000 for the fiscal quarters
ended April 30, 1996 and 1997, respectively. The income tax expense is comprised
primarily of foreign withholding tax and, to a lesser extent, foreign income tax
expense incurred as a result of local country profits.

FISCAL YEARS ENDED JANUARY 31, 1996 AND 1997

REVENUES

The Company's revenues were $5.1 million and $61.6 million for the fiscal
years ended January 31, 1996 and 1997, respectively.

If the acquisitions of IMC, ITI, TUXEDO and USL Finance, S.A. ("USL
France"), which represent the significant acquisitions made by the Company, had
occurred on February 1, 1995, the Company's pro forma revenues would be
approximately $33.6 million and $62.5 million for the fiscal years ended January
31, 1996 and 1997, respectively, representing an 86% increase. Such pro forma
revenues are derived by combining the historical revenues of IMC, ITI, TUXEDO
and USL France and eliminating any revenues on transactions between the entities
prior to their acquisition by the Company. Pro forma revenues for the fiscal
year ended January 31, 1996 give effect to historical TUXEDO revenues generated
by Novell totaling approximately $20.4 million. As the Company acquired TUXEDO
from Novell at the beginning of its fiscal year 1997, no corresponding revenue
of Novell related to TUXEDO is included in fiscal 1997 pro forma revenue. The
increase in pro forma revenue was due primarily to increased market acceptance
of BEA TUXEDO after its acquisition by the Company, as well as to the increase
in consulting, training and maintenance fees associated with the increased
license revenues.

International revenues accounted for 11% and 40% of total revenues in the
fiscal years ended January 31, 1996 and 1997, respectively. Pro forma
international revenues totalled $15.1 and $25.8 million, or 45% and 41% of total
revenues in the fiscal years ended January 31, 1996 and 1997, respectively. Pro
forma international revenues for the year ended January 31, 1996 include
approximately $13.1 million of international historical TUXEDO revenues
generated by Novell, which comprised 64% of TUXEDO revenues generated by Novell.
Approximately 73% of international historical TUXEDO revenues generated by
Novell related to the European marketplace. See "Risk Factors-- International
Operations."

LICENSE REVENUES. License revenues were $3.6 million and $46.8 million for
the fiscal years ended January 31, 1996 and 1997, respectively, representing 70%
and 76% of total revenues in the respective periods. The increase in dollar
amount was primarily due to the Company's inclusion of the results of operations
of IMC and ITI for a full year, acquisitions in the fiscal year ended January
31, 1997 of TUXEDO, USL France and Client Server Technologies OY ("CST"), and
market acceptance of BEA TUXEDO and related products.

SERVICE REVENUES. Service revenues were $1.6 million and $14.8 million for
the fiscal years ended January 31, 1996 and 1997, respectively, representing 30%
and 24% of total revenues in the respective periods. The increase in dollar
amount was primarily due to the Company's inclusion of IMC and ITI for a full
year of operations, and its subsequent acquisitions, as well as to the increase
in consulting, training and maintenance fees associated with the increased sales
of the Company's software licenses. The

25
<PAGE>
Company expects that service revenues will increase as a percentage of total
revenues in future periods, as the Company continues to leverage its existing
customer base by providing additional services to assist customers in enhancing
their uses of the Company's products.

COST OF REVENUES

COST OF LICENSES. Cost of licenses totaled $1.9 million and $10.3 million
for the fiscal years ended January 31, 1996 and 1997, respectively, representing
54% and 22% of license revenues, respectively. The increase in absolute dollars
was due primarily to the Company's acquisitions and the amortization of
intangibles related to those acquisitions. The decrease as a percentage of
revenues was due primarily to the substantial increase in license revenues
during the period. Amortization of intangible assets resulted from the
acquisition of IMC and ITI in the fiscal year ended January 31, 1996, as well as
to the acquisitions of TUXEDO, USL France and CST in the fiscal year ended
January 31, 1997. Amortization of intangible assets totaled $1.0 million and
$8.6 million in the fiscal years ended January 31, 1996 and 1997, respectively.
In the future, amortization of intangible assets acquired through January 31,
1997 are expected to total $9.9 million for the fiscal year ended January 31,
1998, $5.2 million for the fiscal year ended January 31, 1999 and $1.4 million
for the remaining balance of intangible assets through the fiscal year ended
January 31, 2002. In addition, the recent acquisition of MessageQ and
ObjectBroker from DEC is estimated to add approximately $1.6 million to $2.4
million per year in amortization of intangible assets in the fiscal years ending
January 31, 1998 and 1999. To the extent future events result in the impairment
of any capitalized intangible assets, amortization expenses may occur sooner
than the Company expects. See "Risk Factors--Limited Operating History;
Integration of Acquisitions; No Assurance of Profitability."

COST OF SERVICES. Cost of services were $775,000 and $8.3 million for the
fiscal years ended January 31, 1996 and 1997, respectively, representing 50% and
56% of total service revenues for each period, respectively. The increase in
absolute dollars was due primarily to the Company's acquisitions and increased
operating activity resulting, in part, from such acquisitions. The increase in
costs as a percentage of related service revenues for the fiscal year ended
January 31, 1997 over the same period in 1996 is the result of the hiring of
additional consulting and support personnel in response to an anticipated
increase in the number of customers. The Company has also invested substantial
resources in a worldwide 7x24x365 Customer Support organization to provide a
high level of maintenance service to the Company's customers. The Company
expects service margins to improve to the extent service revenues continue to
increase.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. In accordance with Statement of Financial
Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE
SOLD, LEASED OR OTHERWISE MARKETED, software development costs are expensed as
incurred until technological feasibility has been established, at which time
such costs are capitalized until the product is available for general release to
customers. To date, the establishment of technological feasibility of the
Company's products and general release of such software have substantially
coincided. As a result, software development costs qualifying for capitalization
have been insignificant, and therefore, the Company has not capitalized any
software development costs. Research and development expenses were $3.2 million
and $18.2 million for the fiscal years ended January 31, 1996 and 1997,
respectively, representing 63% and 30% of total revenues in each period,
respectively. The increase in dollar amount was attributed to an increase in
personnel and related expenses, including a significant increase in such
expenses resulting from the acquisition of TUXEDO. The decrease in research and
development expenses as a percentage of total revenues was primarily due to the
substantial increase in revenues. The Company expects that the dollar amount of
research and development expenses will continue to increase as the Company
continues to commit substantial resources to product development and engineering
in future periods.

26
<PAGE>
SALES AND MARKETING. Sales and marketing expenses were $2.6 million and
$31.0 million for the fiscal years ended January 31, 1996 and 1997,
respectively, representing 50% of total revenues for each period. The increase
in absolute dollars was due primarily to the expansion of the Company's direct
sales force through hiring and acquisitions and an increase in marketing
personnel and activities. The Company believes that the dollar amount of sales
and marketing expenses will continue to increase as the Company expands its
sales and marketing organization.

GENERAL AND ADMINISTRATIVE. General and administrative expenses include
personnel costs for administration, finance, human resources, information
technology and general management, as well as amortization of goodwill related
to the purchase of IMC. General and administrative expenses were $3.1 million
and $12.7 million for the fiscal years ended January 31, 1996 and 1997,
respectively, representing 60% and 21% of total revenues for each period,
respectively. The increase in dollar amount was attributed to the expansion of
the Company's general and administrative staff and associated expenses necessary
to manage and support the Company's growth. Amortization of goodwill will total
$187,000 per year through September 30, 2000. To the extent future events result
in the impairment of goodwill, amortization expenses may occur sooner than the
Company expects. The decrease in general and administrative expenses as a
percentage of total revenues was primarily due to the substantial increase in
revenues. The Company expects that the dollar amount of general and
administrative expenses will continue to increase in the future as the Company
expands its staffing and incurs higher costs associated with being a public
company.

WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. As a result of the
Acquisitions, the Company has acquired a number of projects and products that
were considered in-process research and development on the date of acquisition.
The majority of this acquired in-process research and development related to BEA
TUXEDO. At the time of acquisition of the acquired in-process research and
development, the Company estimated that an aggregate of approximately $5.5
million of research and development spending would be required in order to
develop the acquired in-process research and development into viable products.
Actual development costs incurred related to acquired in-process research and
development are included in research and development expense in the period
incurred. At January 31, 1997, the Company believes an additional approximately
$2.2 million of research and development spending continues to be required to
develop the remaining acquired in-process research and development into viable
products. However, there can be no assurance that the Company will be successful
in completing the development of such in-process research and development or
that development efforts will result in viable products.

Write-off of in-process research and development is related to the
Acquisitions and totaled $11.2 million for the fiscal year ended January 31,
1996, consisting of IMC ($5.2 million), VI Systems ($860,000) and ITI ($5.1
million). The total of $62.2 million for the fiscal year ended January 31, 1997
included the acquisitions of TUXEDO ($60.9 million) and CST ($1.3 million). See
Note 2 of Notes to BEA Annual Financials.

PROVISION FOR INCOME TAXES

The Company has experienced operating losses to date and incurred income tax
expense of $60,000 and $800,000 for the fiscal years ended January 31, 1996 and
1997, respectively. The income tax expense is comprised primarily of foreign
income tax withholding.

27
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth certain unaudited quarterly financial data
for the six most recent quarters and the percentage of total revenues
represented by each line item. The Company believes that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the selected quarterly information
when read in conjunction with the Consolidated Financial Statements and the
Notes thereto included elsewhere herein. In view of the Acquisitions and other
factors, the Company believes that quarterly total revenues and operating
results should not be relied upon as indications of future performance or
results for the fiscal year ending January 31, 1998 or any other future period.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1996 1997 1997
--------- ---------- --------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License Revenues...................... $ 3,071 $ 5,484 $ 9,678 $ 11,693 $ 19,984 $ 24,478
Service Revenues...................... 1,309 1,367 3,804 4,323 5,265 5,911
--------- ---------- --------- ---------- --------- ----------
Total Revenues...................... 4,380 6,851 13,482 16,016 25,249 30,389
Total Cost of Revenues.................. 2,217 2,494 4,243 5,761 6,109 7,035
--------- ---------- --------- ---------- --------- ----------
Gross Margin............................ 2,163 4,357 9,239 10,255 19,140 23,354
Operating Expenses:
Research and Development.............. 2,713 3,097 4,673 4,868 5,545 5,143
Sales and Marketing................... 1,598 3,912 6,450 9,049 11,559 15,917
General and Administrative............ 2,122 2,579 2,778 3,519 3,856 3,611
Write-off of In-Process Research and
Development......................... 5,274 60,948 1,300 -- -- 16,000
--------- ---------- --------- ---------- --------- ----------
Total Operating Expenses............ 11,707 70,536 15,201 17,436 20,960 40,671
--------- ---------- --------- ---------- --------- ----------
Income (Loss) from Operations........... (9,544) (66,179) (5,962) (7,181) (1,820) (17,317)
Other Income (Expense).................. 42 (117) 1 209 (89) (517)
Interest Expense........................ (68) (1,117) (1,765) (2,059) (1,786) (1,965)
--------- ---------- --------- ---------- --------- ----------
Income (Loss) before Income Taxes....... (9,570) (67,413) (7,726) (9,031) (3,695) (19,799)
Provision for Income Taxes.............. 60 38 116 146 500 572
--------- ---------- --------- ---------- --------- ----------
Net Income (Loss)....................... $ (9,630) $ (67,451) $ (7,842) $ (9,177) $ (4,195) $ (20,371)
--------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ----------
Pro Forma Net Income (Loss) Per Share... $ (0.19) $ (1.35) $ (0.16) $ (0.18) $ (0.08) $ (0.40)
--------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ----------
Shares Used In Computing Pro Forma Net
Income (Loss) Per Share............... 49,941 50,013 50,376 52,062 52,197 50,710
--------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ----------
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1996 1997 1997
-------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License Revenues................. 70% 80% 72% 73% 79% 81%
Service Revenues................. 30 20 28 27 21 19
--- --------- --- --- --- ---
Total Revenues................. 100 100 100 100 100 100
Total Cost of Revenues............. 51 36 31 36 24 23
--- --------- --- --- --- ---
Gross Margin....................... 49 64 69 64 76 77
Operating Expenses:
Research and Development......... 62 45 35 31 22 17
Sales and Marketing.............. 37 57 48 56 46 52
General and Administrative....... 48 38 20 22 15 12
Write-off of In-Process Research
and Development................ 120 890 10 -- -- 53
--- --------- --- --- --- ---
Total Operating Expenses....... 267 1030 113 109 83 134
--- --------- --- --- --- ---
Income (Loss) from Operations...... (218) (966) (44) (45) (7) (57)

Other Income (Expense)............. 1 (2) -- 1 (1) (2)
Interest Expense................... (2) (16) (13) (12) (7) (6)
--- --------- --- --- --- ---
Income (Loss) before Income
Taxes............................ (219) (984) (57) (56) (15) (65)
Provision for Income Taxes......... 1 1 1 1 2 2
--- --------- --- --- --- ---
Net Income (Loss).................. (220)% (985)% (58)% (57)% (17)% (67)%
--- --------- --- --- --- ---
--- --------- --- --- --- ---
</TABLE>

Total revenues have increased each quarter over the past six quarters from
$4.4 million in the quarter ended January 31, 1996 to $30.4 million in the
quarter ended April 30, 1997. These increases were primarily attributable to the
acquisition of BEA TUXEDO in February 1996 and other acquisitions during the
period, increasing market acceptance of BEA TUXEDO and related services, the
expansion of the Company's direct and indirect sales organizations and growth in
order sizes for the Company's products.

Cost of revenues includes the amortization of intangible assets related to
the acquisitions of IMC, ITI, TUXEDO, USL France, CST and Bay Technologies Pty.,
Limited. The amounts included in the six quarters beginning with the quarter
ended January 31, 1996 and ending with the quarter ended April 30, 1997 were
$809,000 (18% of revenues); $1.6 million (23% of revenues); $2.2 million (16% of
revenues); $2.3 million (14% of revenues); $2.5 million (10% of revenues); and
$2.6 million (9% of revenues) for the respective periods.

Gross margin increased from 49% in the quarter ended January 31, 1996 to 77%
in the quarter ended April 30, 1997. This increase resulted primarily from the
increase in total revenues during the period as compared to the relatively fixed
level of amortization charges included in cost of revenues during this period.

Total operating expenses have varied substantially both in absolute dollars
and as a percentage of total revenues during the period, due primarily to large
write-offs of in-process research and development. These write-offs occurred in
the quarters ended January 31, 1996, April 30, 1996, July 31, 1996 and April 30,
1997. Excluding write-offs for in-process research and development, the dollar
amounts of operating expenses have increased in each successive quarter during
the period. However, such expenses decreased as a percentage of total revenues
during the three quarters ended July 31,

29
<PAGE>
1996. During the quarter ended October 31, 1996, total operating expenses
(excluding write-offs of in-process research and development) increased to 109%
of total revenues from 103% of total revenues. General and administrative
expenses include $47,000 per quarter in all quarters for the amortization of
goodwill throughout the quarter ended January 31, 1997. Amortization of goodwill
for the quarter ended April 30, 1997 was $57,000. While the Company expects
operating expenses to increase in absolute dollars over the next several
quarters, to the extent that revenues increase, management believes that
operating expenses as a percentage of revenues will decline.

The Company expects that it will experience significant fluctuations in
future quarterly operating results as a result of many factors, including, among
others: the size and timing of orders; introduction or enhancement of products
by the Company or its competitors; market acceptance of middleware products; the
lengthy sales and implementation cycle for the Company's products and the
potential for significant delays; market acceptance of new products and product
enhancements; technological changes in computer systems and environments; the
structure and timing of future acquisitions of businesses, products and
technologies, if any; increased competition; the ability of the Company to
develop, introduce and market new products on a timely basis; changes in the
Company's or its competitors' pricing policies; customer order deferrals in
anticipation of future new products and product enhancements, if any; the
Company's success in expanding its sales and marketing programs; mix of products
and services sold; mix of distribution channels; ability to meet the service
requirements of its customers; costs associated with acquisitions; loss of key
personnel; fluctuations in foreign currency exchange rates; and general economic
conditions. As a result of all of these factors, the Company believes that
quarterly revenues and operating results are difficult to forecast and
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
See "Risk Factors--Potential Fluctuations in Quarterly Operating Results."

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations, and acquisitions
of subsidiaries and the distribution rights to TUXEDO, primarily through a
public sale of securities with net proceeds of approximately $25.6 million, the
private sale of equity securities of approximately $51 million, notes payable of
approximately $95 million, financing of approximately $1.6 million under its
equipment lease line, borrowings on a revolving credit arrangement, and an
unsecured credit arrangement of approximately $4.5 million with the Company's
majority stockholder.

During the quarter ended April 30, 1997, the Company successfully completed
its initial public offering of its Common Stock. The offering generated net
proceeds of approximately $25.6 million from the sale of 5,000,000 shares of
Common Stock. Subsequent to the end of the quarter, the underwriters exercised a
portion of their over-allotment option, generating additional net proceeds of
approximately $2.1 million from the sale of 372,633 shares of Common Stock. The
proceeds from the offering have been used to fund scheduled payments on the
Novell note payable, reduce the balance of the revolving credit arrangement, and
fund operating activities.

Under the terms of the revolving credit arrangement, the Company has the
ability to borrow up to $20 million. Borrowing availability of $15 million
thereof is based on a percentage of certain accounts receivable. As of July 18,
1997, the Company had borrowed approximately $9.6 million and had an additional
borrowing availability of $5.5 million. The credit arrangement is collateralized
by the assets of the Company. The credit arrangement bears interest at the
monthly average LIBOR rate plus 5.125% (10.845% in aggregate for the month of
June 1997) and is scheduled to expire in April 1998.

Under the terms of the unsecured credit arrangement with the Company's
majority stockholder, the Company had the ability to borrow up to $10 million.
At January 31, 1997, the Company had borrowed $1.0 million. During the quarter
ended April 30, 1997, the Company borrowed an additional $3.5 million.

30
<PAGE>
Upon the completion of the Company's initial public offering in April 1997, the
principal balance of $4.5 million plus the accrued interest was converted into
Common Stock and the credit arrangement was terminated.

As of April 30, 1997, the balance of the note payable to Novell was $54.5
million. Scheduled payments for the next twelve months are $23.0 million, in
aggregate.

At April 30, 1997, the note payable to Digital (see Note 3 to the BEA
Systems, Inc. April 30, 1997 Condensed Consolidated Financial Statements) had a
balance of $14.1 million. The scheduled payment during the next twelve months is
$2 million, due in February 1998. The payment is convertible into Common Stock
at Digital's option. Additionally, $3 million not related to the note was paid
on June 20, 1997.

During the fiscal years ended January 31, 1996 and 1997 and during the
quarters ended April 30, 1996 and 1997, respectively, the Company used
approximately $67,000, $4.7 million, $79,000 and $791,000, respectively, of cash
to purchase property and equipment, primarily for leasehold improvements,
computers, furniture and other office equipment. The Company also acquired
equipment with a cost of approximately $580,000 under a capital lease line of
credit in the quarter ended April 30, 1997. At April 30, 1997, the Company had
available borrowings of $420,000 under the capital lease line of credit. As of
April 30, 1997, the Company did not have any material commitments for capital
expenditures.

Due to the relatively large dollar size of individual sales and the fact
that a substantial portion of the Company's accounts receivable from license
revenues have been generated within the last weeks of each quarter, the Company
has experienced significant fluctuations in its average days sales outstanding.
The Company believes that such fluctuations will continue in the future and will
continue to affect its liquidity, working capital and financial condition. In
certain circumstances, the Company may grant favorable payment terms to
strategic customers which the Company believes are making significant purchase
decisions. As a consequence, accounts receivable and days sales outstanding may
fluctuate in future quarters. In order to manage the accounts receivable balance
and days sales outstanding, management may, from time to time, offer discounts
to customers for earlier payments and/ or consider the sale of accounts
receivable. However, management does not expect that any such receivables sales
or discounts would have a material adverse effect on the Company's results of
operations.

A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Japanese yen, the German mark, the French franc and the
British pound. As a result, appreciation in the value of these currencies
relative to the U.S. dollar could adversely affect operating results. Foreign
currency transaction gains and losses arising from normal business operations
are credited to or charged against operations in the period incurred. As a
result, fluctuations in the value of the currencies in which the Company
conducts its business relative to the U.S. dollar have caused and will continue
to cause currency transaction gains and losses. The Company is currently
establishing a program to reduce its foreign currency exposure. However, there
can be no assurance that the Company will not continue to experience currency
losses in the future, nor can the Company predict the effect of future exchange
rate fluctuations on future operating results. See "Risk Factors--International
Operations."

At April 30, 1997, the Company had $6.5 million in cash and cash equivalents
and a working capital deficit of $22.6 million. The Company is currently in
negotiation to secure additional lines of credit. The Company believes that the
current cash balance, the estimated net proceeds of the offering plus the cash
available under its existing and expected lines of credit will be sufficient to
meet its working capital requirements for at least the next twelve months.
Although operating activities may provide cash in certain periods, to the extent
that the Company experiences growth in the future, the Company anticipates that
its operating and investing activities may use cash. Consequently, any such
growth may

31
<PAGE>
require the Company to obtain additional equity or debt financing. There can be
no assurance that additional financing will be available or, if available, that
it will be on terms satisfactory to the Company. See "Risk Factors--Substantial
Future Capital Needs."

SELECTED UNAUDITED PRO FORMA OPERATING RESULTS

The selected unaudited pro forma condensed consolidated financial
information for the Company set forth below gives effect to the acquisition of
USL France. The historical and unaudited pro forma financial information set
forth below has been derived from, and is qualified by reference to, the
consolidated financial statements of the Company and USL France and should be
read in conjunction with the respective consolidated financial statements and
the notes thereto. The unaudited pro forma condensed consolidated statements of
operations data for the year ended January 31, 1997 gives effect to the
acquisition as if it had occurred on February 1, 1996. The unaudited pro forma
condensed consolidated financial information set forth below reflects certain
adjustments, including, among others, adjustments (i) to eliminate revenues and
expenses which occurred between the entities prior to the acquisition by the
Company and (ii) to reflect the amortization of purchased intangible assets as
though the business had been combined for the full period. The information set
forth below should be read in conjunction with the other information contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company and USL France. The
unaudited pro forma condensed consolidated financial information set forth below
does not purport to represent what the consolidated results of operations or
financial condition of the Company would have been if it had acquired USL France
on such date or to project the future consolidated results of operations or
financial condition of the Company. See "Risk Factors--Past and Future
Acquisitions."

32
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
USL FRANCE
FOR THE PRO FORMA
BEA FOR THE PERIOD FROM PRO FORMA FOR THE YEAR
YEAR ENDED FEBRUARY 1, BUSINESS ENDED
JANUARY 31, 1996 TO MAY COMBINATION JANUARY 31,
1997 5, 1996 ADJUSTMENTS 1997
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
Total Revenues........................................ $ 61,598 $ 1,183 $ (260)(1) $ 62,521
Total Cost of Revenues................................ 18,607 886 (7)(1)(2) 19,486
------------ ------------ --------------- ------------
Gross Margin.......................................... 42,991 297 (253) 43,035
Operating Expenses:
Research and Development............................ 18,183 -- 18,183
Sales and Marketing................................. 30,970 341 31,311
General and Administrative.......................... 12,732 42 12,774
Write-off of In-Process Research and Development.... 62,248 62,248
------------ ------------ --------------- ------------
Total Operating Expenses.......................... 124,133 383 -- 124,516
------------ ------------ --------------- ------------
Income (Loss) from Operations......................... (81,142) (86) (253) (81,481)
Interest Expense...................................... (6,727) (10) -- (6,737)
Other Income (Expense)................................ 4 32 -- 36
------------ ------------ --------------- ------------
Income (Loss) before Income Taxes..................... (87,865) (64) (253) (88,182)
Provision for Income Taxes............................ 800 58 858
------------ ------------ --------------- ------------
Net Income (Loss)..................................... $ (88,665) $ (122) $ (253) $ (89,040)
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
Pro Forma Net Income (Loss) Per Share(3).............. $ (1.74)
------------
------------
Pro Forma Weighted Average Number of Common Shares
Outstanding(3)...................................... 51,162
------------
------------
</TABLE>

- --------------

PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1997, ARE AS FOLLOWS:

(1) Reflects the elimination of revenues and related cost of revenue on
transactions between the entities prior to acquisition by the Company.

(2) Reflects the amortization of acquired distribution rights as though USL
France had been included for the full period. Additional amortization totals
$253,000 and represents approximately three months of amortization of
acquired distribution rights of $2,672,000 which are being amortized over a
period of 30 months. Amortization subsequent to May 5, 1996 is included in
the historical results of the Company.

(3) Pro forma net income (loss) per share is computed by dividing pro forma net
income (loss) by the pro forma weighted average number of shares used
elsewhere in this Prospectus.

33
<PAGE>
BUSINESS

INTRODUCTION

BEA Systems, Inc. ("BEA" or the "Company") designs, develops, markets and
supports software used by large organizations to enable and support their most
critical business processes. The Company's Enterprise Transaction Framework is
an open, integrated middleware software platform for developing, deploying and
managing distributed mission-critical computer software applications. The core
of the BEA Enterprise Transaction Framework is BEA TUXEDO, a software engine
that manages transactions and communications for enterprise-wide applications,
enabling organizations to realize the benefits offered by distributed computing
environments while preserving the traditional advantages of mainframe-based
systems. BEA products provide a middleware software infrastructure that supports
thousands of simultaneous users distributed worldwide. Through the recent
acquisition of exclusive rights to Digital MessageQ (renamed BEA MessageQ) and
Digital ObjectBroker (renamed BEA ObjectBroker), the Company seeks to extend its
Enterprise Transaction Framework to incorporate comprehensive message-oriented
middleware for application integration and new object-oriented technologies. In
addition to its software products, BEA provides its customers with complete
solutions through a range of professional services offerings.

BEA's products are marketed and sold worldwide, principally through the
Company's direct sales force and also indirectly through third parties. BEA's
products have been adopted in a wide variety of industries, including banking
and finance, manufacturing, retail, technology, telecommunications and
transportation. During the fiscal year ended January 31, 1997, BEA sold new
product licenses to over 170 customers, including over 100 customers that were
not inherited through acquisitions. The total number of customers using products
that have been acquired and developed by BEA is greater than 600 worldwide.
These customers include: The AT&T Corp., Bell Communications Research, Inc.,
Damark International Inc., Discover Card Trust, Federal Express Corp., Fidelity
Investments, Gap Inc., J.J. Kenney, MBNA, McKesson Corp., Motorola Inc., Nippon
Telephone & Telegraph, Northwest Airlines Corp., U.K. Employment Services, Union
Bank of Switzerland, Union Pacific Railroad and Walgreens Co. In addition, ISVs
such as PeopleSoft Inc. and Clarify, Inc. embed BEA TUXEDO into their own
product offerings in order to improve the scalability, portability and
interoperability of their products.

INDUSTRY BACKGROUND

Over the past decade, the information systems of many large organizations
have been evolving from traditional mainframe-based systems to distributed
computing environments. This evolution has been driven by the benefits offered
by distributed computing, including lower incremental technology costs; faster
application development and deployment; increased flexibility; and improved
access to business information. Despite these benefits, large-scale
mission-critical applications that enable and support fundamental business
processes, such as airline reservations, credit card processing and customer
billing and support systems, have largely remained in mainframe environments.
For several decades, the high levels of reliability, scalability, security,
manageability and control required for these complex, transaction-intensive
systems within thousands of organizations have been provided by mainframe
middleware software such as IBM's Customer Information and Control Systems
("CICS"). Today, according to estimates by The Standish Group, there are more
than 50,000 CICS licenses and over two billion lines of CICS code in use for
mission-critical applications worldwide. These mainframe environments, however,
suffer from several shortcomings, including inflexibility, lengthy development
and maintenance cycles and limited, character-based user interfaces.
Increasingly, these shortcomings are forcing many organizations to seek out
technologies that will enable them to overcome the limitations of distributed
computing for mission-critical applications while providing the robust computing
infrastructure previously unavailable outside the mainframe environment.

34
<PAGE>
THE LIMITATIONS OF DISTRIBUTED COMPUTING FOR LARGE-SCALE MISSION-CRITICAL
APPLICATIONS

While some mission-critical applications have been successfully migrated to
distributed computing environments, the inherent technical and business
limitations of distributed computing have generally precluded its use for the
complex, large-scale, transaction-intensive applications that are critical to
the ongoing operations of many organizations. These limitations include the
following:

LIMITED SCALABILITY, RELIABILITY AND INTEROPERABILITY. Distributed
computing applications are generally limited in scalability to the capacity of
database and application servers. Adding servers requires significant rewriting
of application logic because existing applications are written in such a manner
that each component must know the specific location within the system of all
other components. In addition, in distributed computing environments, a
significant portion of an application's business logic typically resides on the
client (a desktop PC or workstation), while the database resides on one or more
servers. Large amounts of data must travel over the network, limiting network
performance, while application changes or updates must be deployed and monitored
at each client, making effective network administration and management
difficult. As a result of these factors, the addition of more clients and
servers may actually lead to a decrease in system performance. Also, additional
servers exponentially increase the difficulty of managing multiple resources and
dynamically balancing processing loads across the network as a result of several
factors, including: the risk of interruption to critical business processes due
to the inability to make online changes to applications, the complexities that
arise in ensuring that any changes are reflected across the network in a
comprehensive and consistent manner and the need to reoptimize system
performance in light of these changes.

Mission-critical applications must maintain the highest levels of
reliability and data and transaction integrity, all of which are very difficult
to achieve in distributed computing environments. These requirements mandate
comprehensive monitoring and control of all system components in order to verify
the correct completion of each processing step. In addition, most of these
environments are heterogeneous, requiring applications to interoperate across a
variety of hardware and software platforms. The lack of scalability, reliability
and interoperability has greatly limited the use of distributed computing for
large-scale, mission-critical applications.

DIFFICULTY IN LEVERAGING INVESTMENTS IN LEGACY TECHNOLOGY. Many
organizations have significant, long-standing investments in their
mainframe-based systems and the mission-critical applications running on these
systems. According to IDC, approximately $250 billion has been spent to date on
mainframe system hardware purchases. Distributed computing technologies have
provided minimal integration or interoperability with existing mission-critical
applications on the mainframe; therefore, achieving the benefits of distributed
computing has generally required organizations to build entirely new
applications. This typically means abandoning previous investments in legacy
applications and increases the risk of costly business interruptions when
organizations attempt to migrate mission-critical applications from the
mainframe.

DIFFICULTY IN LEVERAGING EXISTING PERSONNEL AND SKILLS. Over time,
organizations have invested extensively in mainframe-based programmers and
technology. The Standish Group estimates that there are currently one million
COBOL programmers worldwide. These programmers are well-versed in the business
logic, programming languages and development methodologies necessary to build
mainframe-based mission-critical applications. The successful implementation of
distributed computing, however, requires additional expertise in various other
skill sets and emerging technologies. Organizations that seek to implement
distributed computing for mission-critical applications are thus faced with the
choice of either retraining existing programmers or replacing them with new
programmers possessing the requisite skills, but who must still be trained in
the organization's business processes. These alternatives are extremely costly,
have no guarantee of success and raise the risk of potential disruptions to
critical business processes.

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<PAGE>
MIDDLEWARE AS THE MEANS TO IMPLEMENT DISTRIBUTED MISSION-CRITICAL APPLICATIONS

In order to overcome the technical and business limitations of distributed
computing for large-scale, mission-critical applications, organizations are
turning to a new architecture that incorporates middleware--a software
infrastructure that is designed to connect clients, applications and databases.
A sufficiently robust middleware product would enable developers to create
large-scale, mission-critical applications that can be deployed and interoperate
across multiple heterogeneous platforms, databases and operating systems while
providing the flexibility to select those platforms that best suit a particular
application environment. Such a software infrastructure would provide the
traditional benefits of mainframe-based computing--scalability, reliability,
security, manageability and control--while taking advantage of the opportunities
offered by distributed computing.

MARKET OPPORTUNITY

The Company believes that robust middleware software, and the training and
professional services capabilities required to support it, are crucial to
enabling organizations to extend their mission-critical applications to take
advantage of the benefits offered by distributed computing. The Standish Group
estimates that U.S. companies spent over $60 billion in 1996 to modernize their
mainframe-based applications to include distributed client/server and Internet
technologies and that this annual spending rate will double by the year 2000.
The Company believes that the potential benefits to organizations of distributed
computing for mission-critical applications are significant. In order to be
successful, however, distributed computing environments must provide many of the
desirable capabilities of current mainframe-based systems and must preserve and
leverage existing investments in technology and programmers.

THE BEA SOLUTION

BEA's products and services enable companies to overcome the limitations of
distributed computing for mission-critical applications. BEA's Enterprise
Transaction Framework, based upon time-tested and market-proven BEA TUXEDO
technology, provides a middleware solution that addresses the scalability,
manageability, platform independence, interoperability, integrity, reliability
and security requirements of complex, large-scale, distributed computing in the
heterogeneous environments present in most major organizations. The BEA solution
allows companies to leverage their substantial investments in legacy systems,
significantly extending the useful lives of mainframe and programmer assets
while fully exploiting the benefits offered by distributed computing. The
incorporation of BEA MessageQ and BEA ObjectBroker into the Enterprise
Transaction Framework will extend its capabilities to include message-oriented,
middleware-based and object-oriented programming methodologies.

The BEA solution provides the following benefits:

PROVIDES A TESTED, PROVEN INFRASTRUCTURE FOR DISTRIBUTED MISSION-CRITICAL
APPLICATIONS

BEA TUXEDO, the foundation of the BEA Enterprise Transaction Framework, is a
time-tested and market-proven infrastructure for distributed mission-critical
applications. By providing a robust, scalable, cost-effective
infrastructure--formerly available only on mainframe computers--BEA enables
mission-critical applications to run in distributed computing environments. BEA
TUXEDO overcomes the limitations on scalability that characterize distributed
computing environments by providing a messaging and dynamic load balancing
infrastructure that determines the location and syntax of any component without
requiring them to be programmed within an application. This separation of
business logic from location and syntax enables an arbitrary number of servers
to be added to the network with processing loads being balanced dynamically,
thereby providing mainframe-like scalability and flexibility. This separation
also enables applications written using BEA TUXEDO to reflect more closely
underlying business processes, thereby increasing an organization's flexibility
with respect to the design, development, implementation and adaptability of its
mission-critical applications.

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<PAGE>
BEA TUXEDO's application, transaction and fault management systems combine
to ensure data and transaction integrity, enabling distributed computing
environments to achieve mainframe-like reliability and security. By using BEA's
products and services, organizations do not have to build their own custom
infrastructure solutions, a costly and time-consuming process that is often
beyond their technical capabilities and resources. Instead, organizations can
focus on developing and deploying their mission-critical applications, with the
assurance that BEA TUXEDO will ensure their scalability, reliability,
interoperability and security. The recent acquisition of BEA MessageQ and BEA
ObjectBroker is intended to extend the capabilities of the Enterprise
Transaction Framework. BEA MessageQ is optimized for integrating disparate
distributed applications across a broad range of hardware platforms and
operating systems, providing a fast and reliable queuing and
publish-and-subscribe system for brokering messages and enabling customers to
communicate among existing applications through one standard enterprise
middleware infrastructure. BEA ObjectBroker allows customers to deploy mission-
critical object-based applications. The planned integration of BEA TUXEDO and
BEA ObjectBroker will enable objects to interoperate with BEA TUXEDO services,
providing a migration path to object technology.

PRESERVES THE VALUE OF INVESTMENTS IN LEGACY SYSTEMS AND SKILLS

BEA products and services preserve an organization's investment in mainframe
technology and programmers while allowing customers to take advantage of the
capabilities of distributed computing. Customers do not need to change or
replace reliable, robust mission-critical applications in which they have made
significant investments; rather, BEA's products and services enable them to
extend and evolve these applications to take advantage of the benefits of
distributed computing. BEA's solutions allow mainframe software to be extended
to distributed computing platforms with minimal change, protecting the
investment in mainframe-based systems while permitting an orderly transition to
a distributed computing environment. Because BEA's products allow the mainframe
to be treated as just another node on the network, programmers can continue to
develop, deploy and maintain mainframe-based applications as before. This allows
current programmers who are well-versed in the business processes and logic of
the organization to work more efficiently without needing to be trained in the
skills necessary to maintain a reliable distributed computing environment.
Additionally, BEA's products enable customers to adopt and integrate new
technologies--such as the Internet and object-oriented development
technologies--as they emerge.

ENABLES INTEROPERABILITY ACROSS A BROAD RANGE OF PLATFORMS

BEA TUXEDO runs on virtually all major commercial platforms, providing
interoperability across heterogeneous computing environments. This allows
organizations to develop mission-critical applications that are independent of
specific hardware, software and networking technologies. This interoperability
enables organizations to avoid the cost, delay and technical risks associated
with rewriting of applications to be compatible with new technologies and
computer systems. By providing an open application programming interface for BEA
TUXEDO, programmers may write applications only to that interface and can then
rely on BEA TUXEDO to execute their applications across multiple platforms. BEA
MessageQ, to which the Company has acquired exclusive rights from Digital, runs
on all major UNIX platforms, Windows NT, Windows 95, Windows 3.1, Open VMS,
Macintosh, OS/2, MS-DOS and selected IBM environments via LU 6.2. BEA
ObjectBroker, which the Company also acquired from Digital, also runs on all
major UNIX platforms, as well as Windows NT, Windows 95, Windows 3.1 and Open
VMS. Currently, BEA TUXEDO supports over 40 operating platforms, including the
market-leading UNIX platforms, Windows NT and IBM MVS. BEA TUXEDO also supports
all XA-compliant relational databases available as of January 31, 1997,
including products from IBM Corporation, Informix Software, Inc., Microsoft
Corporation, Oracle Corporation and Sybase Inc. BEA TUXEDO also works with over
40 development, testing and management tools.

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<PAGE>
REDUCES TIME AND COST OF APPLICATION DEVELOPMENT AND DEPLOYMENT

Application development using the BEA Enterprise Transaction Framework
allows programmers to design the business logic in their applications
independent of system deployment issues. Once the business logic has been
programmed, the BEA Enterprise Transaction Framework provides the translations
and interface conversions necessary to run the application in a distributed
computing environment. This reduces the time and cost of developing and
deploying applications because programmers need focus only on the business
logic, while the BEA Enterprise Transaction Framework ensures that these changes
are incorporated automatically in a comprehensive and consistent manner. Because
of this segregation, BEA's products enable an entire worldwide system to be
tuned and administered, servers to be added and deleted and the network
configuration to be altered, without changing the business application.

EXTENDS MISSION-CRITICAL APPLICATIONS TO THE INTERNET AND INTRANETS

BEA Jolt enables the extension of enterprise-wide mission-critical
applications to the Internet and intranets without reprogramming. BEA Jolt
translates between Java applets and BEA TUXEDO, ensuring that transaction
integrity is maintained despite unreliable connections and the Internet's
inherent inability to retain the current state of a transaction. By enabling
Internet and intranet applications to meet the stringent scalability,
reliability and availability requirements for mission-critical applications,
many of the challenges of electronic commerce can be overcome. See "Risk
Factors--Technological Change; Dependence on New Products and Product
Enhancements."

THE BEA STRATEGY

The Company's strategy is to leverage its current leadership position in
distributed transaction processing in order to establish its middleware
solutions as the industry standard for developing, deploying and managing
large-scale mission-critical applications for distributed environments.

The key elements of the Company's strategy are:

ENHANCE BEA'S TECHNOLOGY LEADERSHIP

The BEA Enterprise Transaction Framework is based upon BEA TUXEDO, a
market-tested and proven technology initially developed at AT&T Bell Labs in
1984. The Company, which acquired the rights to TUXEDO in February 1996, intends
to continue to invest in the enhancement of its core BEA TUXEDO technology. BEA
expects to add new functionality to all components of the BEA Enterprise
Transaction Framework. Over the course of the next twelve months, planned
releases of BEA products will complete the integration of BEA TUXEDO with BEA
MessageQ and BEA ObjectBroker, improve electronic commerce capabilities and
increase the number of platforms supported to more than 50.

EXPAND BEA'S GLOBAL SOLUTIONS CHANNEL

Due to the strategic nature of the Company's products, customers require BEA
to provide complete global services and support. As of April 30, 1997, the
Company had 36 offices in 17 countries worldwide and intends to continue to
expand its global distribution facilities to provide the direct sales, services,
training and support necessary to enable customers to develop, deploy and manage
distributed mission-critical applications. In addition, the Company will
continue to develop third-party relationships to augment its sales, services,
training and support capabilities.

PROMOTE THE EMBEDDING OF BEA TUXEDO IN ISV APPLICATIONS

BEA will continue to work with ISVs to embed BEA TUXEDO into their product
offerings. By licensing its products in this manner, the Company aims to
accelerate the acceptance of BEA's products and establish these products as the
de facto standard middleware solution. ISVs can benefit significantly

38
<PAGE>
from embedding BEA software into their product offerings, enabling them to scale
the number of clients supported, eliminate most hardware porting concerns and
provide interoperability with other applications based on the BEA Enterprise
Transaction Framework. ISVs that have already embedded BEA software into their
products include Clarify Inc., Cycare Systems, Inc., Filoli Information Systems
and PeopleSoft Inc.

LEVERAGE STRATEGIC PARTNERSHIPS

The sale of middleware solutions for distributed mission-critical
applications requires significant expertise and time spent with potential
customers. By leveraging its strategic partnerships with hardware OEMs, ISVs,
systems integrators and consultants, the Company is able to extend the reach of
its direct sales force. The Company intends to strengthen existing relationships
with key industry players, such as Andersen Consulting, Hewlett-Packard
Corporation and Sun Microsystems, as well as develop new relationships, in order
to increase market awareness and demand and shorten the sales cycle for BEA's
products.

FACILITATE THE EMERGENCE OF ELECTRONIC COMMERCE OVER THE INTERNET

The Company intends to provide the software and services necessary to enable
businesses to conduct safe, reliable commercial transactions over the Internet
while making use of their existing mission-critical applications. In order to
provide robust commerce over the Internet, an application must be able to
accommodate unreliable connections, massive scalability requirements and an
inherent inability to retain the current state of a transaction. With BEA Jolt
and the BEA Enterprise Transaction Framework, the Company provides both the
middleware infrastructure and Java-based technology to meet these technical
challenges and to enable an organization to extend its mission-critical
applications to the Internet and intranets without reprogramming. See "Risk
Factors--Technological Changes; Dependence on New Products and Product
Enhancements."

MARKETS AND CUSTOMERS

The total number of licensees using BEA TUXEDO and related products is
greater than 1,200 worldwide. For the fiscal year ended January 31, 1997, BEA
sold new product licenses to over 170 customers, including over 100 customers
that were newly-developed by the Company. The Company's target end-user
customers are organizations with sophisticated, high-end information systems
with numerous, often geographically dispersed users and diverse, heterogeneous
computing environments. Customers are generally mainframe-reliant or have
large-scale client/server implementations that handle very high volumes of
business transactions. The Company's customers use BEA products as a middleware
platform for developing, deploying and managing mission-critical applications
key to the customer's business.

39
<PAGE>
The following is a representative list of the organizations that accounted
for at least $100,000 in revenues to the Company during the fiscal year ended
January 31, 1997:

<TABLE>
<CAPTION>
TELECOMMUNICATIONS BANKING AND FINANCE GOVERNMENT
- --------------------------- --------------------------- ---------------------------
<S> <C> <C>
Alltel Corp. Banco del Atlantico Finnish Ministry of Labor
Ameritech Corp. Cybercash, Inc. Finnish Post
AT&T Corp. First Datacard Greek Ministry of Finance
AT&T Wireless MBNA Swedish Police
Bell Atlantic Corp. Societe Generale Swedish Tax Office
Bell Communications Swiss Life Swedish Labor Union
Research, Inc. RBC Dominion United Utilities
Cincinnati Bell Information Union Bancaire Privee United States Postal
Systems, Inc. Union Bank of Switzerland Service
Deutsche Telecom DISTRIBUTION AND RETAIL
France Telecom TRANSPORTATION Broadway & Seymour Inc.
Lucent Technologies Inc. Federal Express Corp. Shopright Checkers
MCI Communications Corp. McKesson Corp. Walgreens Co.
Motorola Inc. Northwest Airlines Corp.
Nynex Cablecommunication Renault
Group Inc. Union Pacific Railroad
Nippon Telephone and
Telegraph
Pacific Bell
Southern New England
Telecommunications
Corporation
Telecom Finland
</TABLE>

In addition to direct sales to end-user customers, BEA works with systems
and software integrators that incorporate BEA products for resale. The Company
also sells BEA TUXEDO to software and computer hardware providers to embed into
their application software or software toolsets. These customers include the
following organizations:

<TABLE>
<CAPTION>
SYSTEMS INTEGRATORS/
HARDWARE OEMS ISVS CONSULTANTS
- --------------------------- --------------------------- ---------------------------
<S> <C> <C>
Bull Group CableData Andersen Consulting
Data General Corporation Clarify Inc. Cambridge Technology
Digital Equipment Corp. Cylink Corporation Partners
Fujitsu Filoli Information Systems Computer Science
Hewlett-Packard Minnesota Mining and Corporation
Hyundai Manufacturing Co. Electronic Data Systems
IBM Nomad Software Corporation
ICL plc Oracle Perot Systems
Lucky Goldstar PeopleSoft Inc. Steria (France)
NEC Sybase Inc. Tangent Computer, Inc.
Samsung
Sequent Computer Systems
Inc.
Siemens-Nixdorf GmbH
Sun Microsystems
Tandem Computers Inc.
Unisys Corp.
</TABLE>

40
<PAGE>

See "Risk Factors--Expanding Distribution Channels and Reliance on Third
Parties."

The following examples illustrate how some organizations are using BEA
products as a middleware framework to provide the infrastructure for enabling
mission-critical distributed transaction processing applications.

AT&T

AT&T's Consumer Customer Care system for bill inquiry and order entry
supports 7,500 services and 1,500 sales/customer contact positions 24 hours a
day, seven days a week and is key to AT&T's overall customer satisfaction
efforts. When AT&T decided to reengineer these applications to make use of
distributed systems, BEA TUXEDO was selected as the middleware solution to
provide reliable communications among the Customer Care system's many
applications. The decision to use BEA TUXEDO was based on the product's
asynchronous messaging technology and data-dependent routing capabilities, and
its ability to support multiple processors in a flexible configuration. In the
AT&T implementation of BEA TUXEDO, each processor is viewed as an independent
domain. By providing independent application services that can be used by all
domains, BEA TUXEDO isolates the impact of single processor failures, which has
enabled high availability applications to be supported without redundant
hardware. Overall, through this reengineering effort, AT&T is lowering unit
costs and improving customer and employee satisfaction in support of bill
inquiry and order entry functions.

BANCO DEL ATLANTICO

Banco del Atlantico ("B.A."), the fifth largest bank in Mexico, needed an
information system that would allow it to leverage its legacy Unisys platform
with its newly acquired Hewlett-Packard distributed systems. B.A. had over 4,000
personal computers and more than 100 local area networks running on
heterogeneous platforms at its branch banks and headquarters in Mexico City.
B.A. chose to invest in a middleware solution to increase total reliability and
security, allow for more consistent performance, and solve key connectivity
issues relating to integrating legacy and distributed systems. B.A. initially
evaluated BEA TUXEDO and several other products and chose BEA TUXEDO because of
its reliability and ability to provide seamless integration among all of B.A.'s
platforms. BEA TUXEDO provides a common layer in the B.A. infrastructure to
direct the complex interactions between applications and systems. Currently, all
of B.A.'s telephone banking applications and customer information database
applications are supported by BEA TUXEDO.

DAMARK

After years of growth, Damark, a major catalog direct marketing company,
reached an earnings plateau in early 1994, despite increased sales. Damark was
experiencing increasing paper and postage costs, which represent significant
elements of its direct marketing efforts to 10 million prospective customers.
The challenge faced by its IT department was to find the most efficient,
cost-effective way to receive and fill customer orders, which at times reach
fifteen thousand per day. The IT department evaluated middleware solutions that
were capable of handling peak order volume and scaling to incorporate multiple
call centers around the United States. Damark's specific requirements included
guaranteed message delivery for both asynchronous or synchronous communications,
a single development interface for all components, operational manageability and
off-the-shelf, proven technology. Through a solution that combined BEA TUXEDO
and Oracle relational databases, Damark was able to connect its toll-free call
representatives directly to the prospective customer's information database,
thereby significantly improving overall representative efficiency. In addition,
Damark uses BEA TUXEDO to minimize system downtime, as users are transferred
within 30 seconds from a failed node to another node capable of handling the
requested transaction.

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<PAGE>
PEOPLESOFT

PeopleSoft, a leading provider of enterprise software supporting human
resources, financial and manufacturing applications on open systems, needed a
software framework to strengthen its ability to implement applications across
multiple sites and computing environments. PeopleSoft investigated multiple
technologies, including a number of middleware products. PeopleSoft decided to
base PeopleSoft Release 6 and future applications on BEA technology, selecting
BEA TUXEDO because of its request/reply and publish/subscribe messaging
capabilities, and its strengths in handling high-volume transaction processing
with high availability and reliability. By using BEA TUXEDO as its middleware
infrastructure, PeopleSoft is able to deliver multi-tier global applications.
PeopleSoft is making use of the multiple communication capabilities within the
BEA TUXEDO framework based on the need of applications to process transactions
in either a real-time or asynchronous mode. In addition, end users can use BEA
TUXEDO to enable custom applications to interoperate with the packaged
PeopleSoft applications. PeopleSoft 6, the first PeopleSoft release using BEA
TUXEDO, began shipping to customers in December 1996.

UNITED KINGDOM EMPLOYMENT SERVICE

In 1996, the United Kingdom Employment Service ("E.S.") determined that it
needed a new software application to support its labor market activities. E.S.'s
existing systems were reaching the end of their product life cycles and did not
have the flexibility to incorporate new technology to enhance functionality.
E.S. selected BEA TUXEDO as the middleware framework for the Labour Market
System ("LMS"), an application designed to replace all existing applications.
LMS now links all 1,067 job centers in Great Britain, using CA-Ingres relational
databases running on Sequent platforms as the core of the system. LMS has become
one of the world's largest distributed systems. Thirty thousand people
throughout E.S. have been trained to use the system, which processes over five
million transactions per day. The integrated system enables immediate searches
and displays of suitable vacancies and opportunities for job seekers, thereby
improving the services that E.S. is able to offer its clients.

PRODUCTS

The BEA Enterprise Transaction Framework is an integrated middleware
software platform for building, deploying and managing distributed
mission-critical applications. The BEA Enterprise Transaction Framework provides
the scalability, manageability, platform independence, interoperability,
integrity, reliability and security requirements of complex, large-scale,
transaction-intensive mission-critical applications in a distributed computing
environment. The core of the BEA Enterprise Transaction Framework is BEA TUXEDO,
a market-proven and time-tested technology first developed at AT&T Bell Labs in
1984. The Company took over development, sales and support of TUXEDO from Novell
in February 1996 and has subsequently shipped BEA TUXEDO Release 6.3, BEA
Connect SNA Version 1.1, BEA Connect TCP Version 1.1, and BEA Jolt Version 1.0.
In March 1997, the Company acquired exclusive rights to BEA MessageQ, BEA
ObjectBroker and other related products from Digital.

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<PAGE>
THE BEA ENTERPRISE TRANSACTION FRAMEWORK

Set forth on page 43 are three concentric circles. The inner circle contains
the words "BEA TUXEDO." The middle circle is divided into four equal quadrants.
The upper right hand quadrant contains the caption "Objects - BEA OBJECTBROKER";
the lower right hand quadrant contains the caption "BEA JOLT Internet"; the
upper left hand quadrant contains the caption "Legacy - BEA TP BLUE BEA
CONNECT"; the lower left hand quadrant contains the caption "BEA MESSAGEQ -
Messaging". The outer circle contains three captions: in the upper left hand
corner is set forth the caption "Development - BEA BUILDER", in the upper right
hand corner is set forth the caption "Management - BEA MANAGER", at the bottom
is set forth the caption "CONSULTING - TRAINING - SUPPORT Services".

BEA TUXEDO

BEA TUXEDO is a robust engine for developing, deploying and managing
mission-critical applications in distributed computing environments. BEA TUXEDO
provides distributed transaction processing and application messaging
capabilities, as well as the full complement of services necessary to build and
run mission-critical applications. It enables developers to create applications
that interoperate across multiple hardware platforms, databases and operating
systems.

BEA TUXEDO provides mainframe-like performance for distributed
mission-critical applications. It allows these applications to accommodate
thousands of worldwide users, high-transaction throughput, multiple concurrent
database access and large volumes of data, while maintaining short response
times, high data integrity and security and 7x24x365 system availability. At the
same time, BEA TUXEDO enables developers and systems managers to take advantage
of the benefits offered by distributed computing environments, such as lower
incremental technology costs, increased flexibility, faster application
development and deployment and improved access to business information.

BEA MESSAGEQ

BEA MessageQ enables messages to be sent from one application to another
through an advanced queued message bus. Queued messaging allows applications to
communicate without interruption, either synchronously or asynchronously,
through queues or publish-and-subscribe mechanisms. BEA MessageQ ensures that
messages on incoming and outgoing queues are recognized and executed only when
the receiving or sending system is ready for processing. The communicating
programs can be on the same computer or on many different computers in an
enterprise-wide network.

BEA OBJECTBROKER

BEA ObjectBroker is a CORBA-compliant Object Request Broker ("ORB") that
simplifies software integration and the development of new, object-oriented
distributed solutions. BEA ObjectBroker, having first shipped in 1991, is the
most mature existing ORB technology. Throughout its development and ongoing
enhancements, BEA ObjectBroker has focused on high performance and
enterprise-level robustness.

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<PAGE>
BEA JOLT

BEA Jolt extends the capabilities of BEA TUXEDO to the Internet and
intranets, making mission-critical applications immediately accessible through
these media without the need for any additional application programming. It
enables Internet and intranet application developers to take full advantage of
the benefits offered by the BEA Enterprise Transaction Framework and, the
Company believes, provides the means for resolving many of the technical issues
hindering the development of electronic commerce on the Internet. BEA Jolt
ensures that transaction integrity is maintained, notwithstanding the Internet's
inherent inability to retain the current state of any transaction or the
frequently unreliable connections encountered by users. BEA Jolt employs a
Java-based interface that allows programmers to execute service requests from
any Java-enabled web browser without requiring any knowledge of detailed
transaction semantics. BEA Jolt also ensures an application's security, since
neither transactional programming nor semantics are accessible from the Internet
or intranets.

BEA TP BLUE

BEA TP Blue provides mainframe-to-UNIX and mainframe-to-NT application
portability, compatibility and connectivity for CICS-based transaction
processing. With BEA TP Blue, organizations can extend the useful lives of CICS
applications, either by seamlessly sharing the transaction processing load with
UNIX- or NT-based hardware or by migrating applications and data from the
mainframe to a UNIX- or NT-based distributed computing environment. BEA TP Blue
preserves organizations' investments in CICS/COBOL programs and programmers,
while enabling them to take advantage of UNIX- and NT-based technologies.
Programmers can continue to develop and deploy mission-critical applications on
the mainframe using CICS/COBOL and to rely upon BEA TP Blue to connect or
migrate those applications to UNIX and NT whenever necessary.

BEA CONNECT

BEA Connect is a family of connectivity products that allows applications to
extend across heterogeneous hardware and software platforms. Designed to work in
concert with all other BEA products, BEA Connect assures ready, transparent
access to critical information across the network with a single, standard
programming interface. BEA Connect supports a variety of mainframe-based and
distributed transactional technologies, including CICS and IMS, by using
standard network protocols such as TCP/IP, LU6.2/SNA or OSITP. Interfaces can
also be built for connectivity with specific packaged software applications,
such as SAP's R/3. BEA Connect also enables customers to write mission-critical
applications that access remote application services on mainframes or other
hosts via industry-standard communications mechanisms.

BEA BUILDER

BEA Builder enables programmers to use familiar graphical development
environments, such as Visual Basic, Visual C++ and PowerBuilder, in the
development of BEA TUXEDO-based applications. BEA Builder incorporates
application frameworks and code generators that enhance programmers'
productivity, and provides pre-programmed wizards to automate the configuration
and deployment of an application. By leveraging developers' familiarity with
popular development environments and adding the capabilities noted above, BEA
Builder reduces the training and development needed to design and deploy
distributed mission-critical applications using BEA TUXEDO.

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<PAGE>
BEA MANAGER

The BEA Manager family of products extends the native management
capabilities of BEA TUXEDO by enabling it to integrate with, and take advantage
of the capabilities of, various third-party management frameworks, including
Tivoli's TME 10 NetView, Sun's Solstice and Hewlett-Packard's OpenView. BEA
Manager adds application level instrumentation for performance measurement and
centralized message logging, which together provide increased detection and
isolation capabilities for application faults. BEA Manager also provides a set
of customizable intelligent agents that reduce the human involvement required to
handle routine maintenance and fault correction. Finally, BEA Manager can be
deployed by existing operations staff with little additional training required.

To date, the majority of the Company's license revenues have come from the
BEA TUXEDO product. The Company's other products are sold as additional
components of the BEA Enterprise Transaction Framework, often at the time of the
initial BEA TUXEDO license sale. The core BEA TUXEDO product is priced based on
the number of concurrent run-time users and has a U.S. list price of $395 per
user. The additional components of the BEA Enterprise Transaction Framework are
priced and licensed separately. During the fiscal year ended January 31, 1997,
license fees per customer for BEA products generally ranged from $84,000 to $2.6
million and averaged approximately $395,000. Some components of the BEA
Enterprise Transaction Framework, such as BEA Jolt, are priced by server class.
See "Risk Factors--Product Concentration; Dependence on Growth of Market for
Middleware; Novell Relationship."

TECHNOLOGY

TUXEDO was initially developed in 1983 within AT&T Bell Labs and released in
1984. Release 1.0 enabled an application to be partitioned into a set of
cooperating client and server processes and an application programming interface
("API"). Subsequent releases built on this foundation, incorporating
capabilities to support high levels of system availability, highly secured and
widely distributed clients and servers, interoperability across heterogeneous
platforms, a graphical user interface for administration, transactional control
of heterogeneous databases, implementation of both conversational and queued
communications methodologies, enhanced data integrity and security and an event
broker that supports the publish and subscribe paradigm.

The most recent version of BEA TUXEDO, Release 6.3, conforms with
industry-standard interfaces and protocols. BEA TUXEDO's modular architecture is
centered on the Application Transaction Manager Interface ("ATMI"), which
consists of 30 simple calls and has been adopted by The Open Group as a standard
X/Open API. BEA TUXEDO supports the Open Group's Distributed Computing
Environment Remote Procedure Call ("DCE RPC") interface. BEA TUXEDO's
performance is publicly documented in Transaction Processing Performance Council
("TPC") benchmarks and is used by virtually all hardware and database vendors
publishing audited benchmarks of their platforms.

The BEA Enterprise Transaction Framework is a set of inter-related software
technologies that enable the development, deployment and management of
large-scale, mission-critical distributed applications. BEA technologies are
typically used in conjunction with relational database management systems
("RDBMS"). The RDBMS provides a run-time environment for storing and retrieving
data, while BEA provides the application server infrastructure for executing the
business logic. In addition, the recent acquisition of exclusive rights to
MessageQ and ObjectBroker is intended to extend the BEA Enterprise Transaction
Framework's capabilities to include message-oriented middleware-based and
object-oriented programming methodologies. BEA also provides a rich set of
messaging services that enable reliable, efficient communications among
components of a distributed application, as well as web-based access to the
application services using Java and HTML. BEA technologies are hardware and
operating system independent and are available on a wide variety of platforms,
including Microsoft Windows and Windows NT, all major versions of UNIX, MVS Open
Edition, Tandem NSK and AS/400.

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TRANSACTION INTEGRITY AND SECURITY

Transaction integrity and security are fundamental requirements for building
mission-critical applications, particularly in distributed computing
environments where additional burdens are placed on the execution and management
of these applications. BEA TUXEDO, through its transactional kernel, enables the
resolution and execution of distributed application service requests. These
application service requests are implementations of business processes, such as
withdrawals and deposits in a banking application. BEA TUXEDO provides automated
preparation and transmission of the underlying distributed application services
in a real-time manner. It also provides automated propagation of transactions
and security contexts, which enables distributed services to be automatically
invoked without explicit sign-on to each server. BEA TUXEDO also provides
automatic advertisement of available transaction services. This feature is
critical when an application server becomes unavailable, as it prevents an
application from waiting indefinitely for that particular service. The
combination of these capabilities enables applications that incorporate BEA
TUXEDO to achieve mainframe-like transaction integrity and security, while still
taking advantage of the benefits offered by distributed computing environments.

ROBUST MESSAGING--PUBLISH-AND-SUBSCRIBE MODEL

Through the use of the recently developed publish-and-subscribe model, a new
BEA product called the Event Broker allows applications to subscribe to events
about which they are interested. BEA's Event Broker manages these subscriptions
by maintaining a subscription list and managing event posting. The BEA Event
Broker executes subscription actions in which subscriber and publisher maintain
complete anonymity and independence. The Event Broker enables clients and
servers to post events that have occurred and ensures that the appropriate
applications are notified of the occurrence of those events. By combining BEA
TUXEDO asynchronous messaging capability and the Event Broker, network traffic
can be significantly reduced, as applications are only notified of relevant
events. In addition, the complexity associated with incorporating new
applications within a system is simplified by ensuring that existing
applications are notified of updates and that subscription lists and postings
are modified accordingly.

BEA TUXEDO supports five different modes of communication. In addition to
the publish-and-subscribe model, these modes include asynchronous and
synchronous transactions, request/ response, peer-to-peer messaging and reliable
queuing. Each of these can be carried out with or without distributed
transaction semantics and any combination can be utilized within a single
business application. This enables BEA TUXEDO to be utilized as a
message-oriented middleware platform for developing both transactional and
non-transactional distributed applications.

MESSAGE QUEUING-ASYNCHRONOUS TRANSFER MODE

Following the acquisition of exclusive rights to the MessageQ technology
from Digital, the Enterprise Transaction Framework will incorporate a high
performance, reliable asynchronous queuing infrastructure. MessageQ provides a
powerful, easy-to-use programming paradigm for application-to-application
communication through an advanced queued message bus. Queued messaging allows
applications on different platforms to communicate without interruption with the
operations of any existing systems. Messages on incoming and outgoing queues are
consumed and executed only when the receiving or sending system is ready for
processing. BEA plans to incorporate the BEA Event Broker technology into BEA
MessageQ to provide a complete publish-and-subscribe programming mechanism on
top of a high performance, robust and reliable queuing platform.

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OPEN ARCHITECTURE AND PROGRAMMING API

The APIs provided with the BEA Enterprise Transaction Framework are built on
a common set of robust kernel services provided by BEA TUXEDO. These services
provide a level of abstraction between the application programs and the
underlying system facilities. They also enable transparent interoperability
between components developed to different APIs. For example, a Java client can
invoke a CICS transaction or an X/Open-compliant XATMI-based service via the
same API call. This support of multiple programming styles also facilitates the
migration of existing applications to distributed computing environments via the
BEA Enterprise Transaction Framework. In addition, BEA ObjectBroker is an
implementation of the Common Object Request Broker Architecture ("CORBA") as
specified by the Object Management Group ("OMG").

BEA products have been designed from the ground up to conform with
industry-standard interfaces and protocols. These include both formal standards,
such as X/Open, DCE and ISO, and de facto standards, such as SNA, the Java
Virtual Machine, OLE and ActiveX. The Company's product development efforts
continuously reflect the knowledge gained from working with customers to build
large-scale, mission-critical distributed applications. An example of the
benefits to the Company of these efforts is the XA implementation within BEA
TUXEDO, which vendors such as Oracle and Microsoft have selected as the
reference platform for their database integration efforts. The Company's
products support all major RDBMS platforms, which, in addition to Oracle and
Microsoft's SQL Server, include Informix, IBM DB2/6000, Sybase and CA/Ingres.

SYSTEMS SERVICES

BEA products provide a robust set of system services that enable distributed
applications to be developed in a standard and consistent manner. These services
include naming, application activation and deactivation, dynamic application
reconfiguration and system fault management. In addition, the Company's products
also provide a set of application level services. These services include
intra-node and inter-node application communication management, application
transaction management, client/ workstation handling, security management,
application queue management and event management. By providing these system and
application level services, the Company's products significantly reduce the
amount of system and application level programming effort required. These
services also enable applications developed within the BEA Enterprise
Transaction Framework to interoperate across heterogeneous computing
environments.

MANAGEMENT INFORMATION BASE

BEA's products enable distributed transaction system monitoring and
management through a Management Information Base ("MIB"). This system monitors
applications, databases, operating systems and networks; it also provides
logging facilities, and event and performance management. The management
information base enables systems administrators to set pre-defined rules or
allows them to monitor and manages systems interactively through an easy-to-use
graphical interface. In addition, BEA provides a Simple Network Management
Protocol ("SNMP") agent kit to allow the use of any SNMP-based management tool,
such as OpenView or TME.

APPLICATION-TO-APPLICATION CONNECTIVITY

Most connectivity products on the market today only provide a low-level
solution, such as connecting a UNIX system running TCP/IP to a mainframe running
SNA. This leaves most of the application-level connectivity programming to the
IT programmers. BEA's products, however, support high-level
application-to-application connectivity for a wide variety of mainframe and
distributed systems, relieving programmers of the burden previously associated
with systems level programming efforts. These connectivity technologies support
industry-wide networking standards, such as the OSI/TP protocol for application
services or the IBM LU6.2/SNA protocol. In addition, the Company

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provides an IBM syncpoint-enabled transactional connectivity technology for
IMS-based or CICS-based applications. The Company is also currently developing
an IBM-compatible Intersystems Communication ("ISC") protocol-based connectivity
technology for customers who wish to develop mainframe-style applications in a
fully-distributed environment. In addition, BEA MessageQ employs an advanced
queued message bus that enables applications on different computers to exchange
data.

INTERNET/INTRANET EXTENSIBILITY

BEA Jolt extends BEA TUXEDO-based applications to the Internet/intranets
without the need for additional application programming. BEA Jolt provides
object-oriented access, from any Java-enabled browser via Java applets, to BEA
TUXEDO-based applications behind an organization's firewall. Legacy mainframe
environments, such as CICS, are similarly accessible using BEA Jolt and BEA
Connect. BEA Jolt simplifies application design by providing object interfaces
for Java, as well as turn-key access to BEA-developed Java class definitions and
customized Java applets residing in the BEA Jolt repository. For ease of
management, the BEA Jolt server can be administered with the same tools used to
manage any resource within the BEA TUXEDO environment.

THE NOVELL AGREEMENT

Under the terms of the Novell Agreement, BEA acquired worldwide exclusive
rights to TUXEDO from Novell in February 1996 in exchange for a series of fixed
payments totaling approximately $90 million over the original three-year term of
the Novell Agreement. The Novell Agreement grants the Company an option,
exercisable in January 1999, to acquire perpetual rights to the TUXEDO product
line. The Company is obligated to make payments of $15 million and $33 million
during the remainder of calendar year 1997 and calendar year 1998, respectively,
and will be required to pay an additional $12 million on exercise of its January
1999 option. Pursuant to the Novell Agreement, Novell transferred to the Company
approximately 53 employees engaged in the development, marketing and support of
the TUXEDO product line, as well as all of Novell's rights and obligations under
its agreements with worldwide distributors and resellers for TUXEDO. Pursuant to
the Novell Agreement, Novell retains the right to market and distribute versions
of BEA TUXEDO that are compatible with Novell's Netware product. The Novell
Agreement further provided for Novell and the Company to form a Technology
Coordination Committee to coordinate regarding development of BEA TUXEDO and
obtain patents regarding BEA TUXEDO. The Novell Agreement further provides for
BEA to integrate BEA TUXEDO with Novell's NDS Software. The Novell Agreement is
terminable by BEA on six months notice to Novell and the payment of up to $9
million by BEA as a termination payment to Novell.

THE DIGITAL AGREEMENT

Pursuant to the Digital Agreement, the Company acquired in March 1997
exclusive worldwide rights to MessageQ, ObjectBroker and other related products
from Digital for an aggregate consideration of $22 million. Pursuant to the
Digital Agreement, $5 million is payable in cash ($2 million of which was paid
in April 1997 and $3 million of which was paid in June 1997), and $17 million is
payable pursuant to a non-interest bearing convertible promissory note delivered
by the Company at the closing of that transaction. The promissory note provides
for installments of $2 million, $4 million and $11 million payable on or before
February 1, 1998, 1999 and 2000, respectively, and may be converted into shares
of the Company's Common Stock at the option of Digital at conversion prices
ranging from $9 to $15; provided, however, that only $5 million of such $11
million is convertible. In addition, the Company has granted Digital a warrant
to purchase 500,000 shares of Common Stock at a price of $6.00 per share
exercisable for the period beginning in October 1997 and expiring one year
thereafter. As part of the Digital transaction, the Company has added a total of
approximately 90 employees and contractors, who were primarily responsible for
development of the acquired products at Digital. Under the Digital Agreement,
Digital received a non-exclusive, fully paid, perpetual license to certain
patents transferred by Digital to the Company and agreed not to compete with the
Company with respect to the acquired

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products following the closing of that transaction. Pursuant to the Digital
Agreement, the Company is to provide certain consulting services to Digital and
is to receive payments from Digital of $2.5 million on each of April 30, 1997
and July 1, 1997. Following the initial payments in April and July 1997,
payments to the Company under the Digital consulting agreement are based on a
time and materials rate and shall not exceed $10 million during the term of that
agreement. Digital was further granted a non-exclusive distribution right for
BEA TUXEDO and the former Digital products acquired by the Company pursuant to
the Digital Agreement. Digital is to pay BEA for any such products at varying
discounts from BEA's U.S. list price, based on the location of the Digital
customer.

RESEARCH AND DEVELOPMENT

The Company has made substantial investments in technology acquisition and
product development. BEA TUXEDO was originally developed by AT&T Bell Labs, and
had been revised by UNIX System Labs and Novell before BEA became the developer
of the product in February 1996. Important product technology for the BEA
Enterprise Transaction Framework was gained through many of the Company's
acquisitions. The Company will continue to review possible technology
acquisitions when appropriate. See "Risk Factors--Past and Future Acquisitions"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operation."

At April 30, 1997, the Company had a development staff of over 180, which
included the original four architects, as well as many of the original
developers, of TUXEDO. In addition, as a result of its recent acquistion of BEA
MessageQ, BEA ObjectBroker and related products from Digital, the Company
acquired the services of approximately 90 product development employees and
contractors. In its fiscal years ended January 31, 1996 and 1997, the Company's
product development expenses were $3.2 million and $18.2 million, respectively.
The Company's product development organization is responsible for product
architecture, core technology and functionality, product testing, user interface
development and expanding the ability of BEA's products to operate with the
leading hardware platforms, operating systems, relational database management
systems ("RDBMSs"), application development and management tools and networking
and communication protocols. To date, the Company has not capitalized any
software development costs and does not anticipate capitalizing any software
development costs. The Company expects to continue to devote substantial
resources to its product development activities, including continued support of
existing and emerging hardware platforms, operating systems, RDBMSs, application
development and management tools, and networking and communication protocols.

BEA shipped BEA TUXEDO Release 6.1, Vol. 2 in July 1996, BEA Connect SNA
Version 1.1 in August 1996, BEA Connect TCP in November 1996, BEA TUXEDO 6.2 in
December 1996 and BEA TUXEDO 6.3 in April 1997. The Company released the first
customer shipment of BEA Jolt Version 1.0, the first product developed
exclusively by BEA, in December 1996. The Company intends to continue to extend
the functionality of BEA TUXEDO and the BEA Enterprise Transaction Framework, to
commit significant resources to the ongoing development of BEA TUXEDO and to
support existing and emerging technologies such as object-oriented technology.

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interoperates with applications on over 40 operating platforms, as certain of
the Company's customers start to utilize emerging platforms, it will be
necessary for the Company to further enhance its products to interoperate with
applications on these emerging platforms. There can be no assurance that the
Company's products will adequately address the changing needs of the marketplace
or that the Company will be successful in developing and marketing enhancements
to its existing products or new products incorporating new technology on a
timely basis. Failure to develop and introduce new products, or enhancements to
existing products, in a timely manner in response to changing market conditions
or customer requirements, will materially and adversely affect the Company's
business, operating results and financial condition.

SALES, MARKETING AND SERVICES

The Company's sales strategy is to pursue opportunities worldwide within
large organizations through its direct sales, professional services and
technical support organizations, complemented by indirect sales channels such as
hardware OEMs, packaged application software developers, systems integrators and
independent consultants, software tool vendors and distributors. The Company
currently intends to add to its direct sales, support and professional services
organizations in all major markets worldwide.

DIRECT SALES ORGANIZATION

BEA markets its software and services primarily through its direct sales
organization. As of April 30, 1997, the Company's direct sales force totaled
over 100 sales representatives in 36 offices worldwide. At April 30, 1997, the
direct sales force was supported by over 30 technical sales engineers worldwide.
Field sales representatives are assigned quotas and compensated for all Company
revenues, both direct and indirect, resulting from their assigned territory.
Leads are generally qualified by a third party and then passed through the field
sales organization.

The Company typically uses a consultative, solution-oriented sales model
that entails the collaboration of technical and sales personnel to formulate
proposals to address specific customer requirements. Because the Company's
products are typically used to integrate applications that are critical to a
customer's business, the Company focuses its initial sales efforts on senior IT
department personnel who are responsible for such applications. Subsequent
efforts often include other senior members of a customer's executive management
team.

PRODUCT SALES AND IMPLEMENTATION CYCLE

The license of the Company's software products is often an enterprise-wide
decision by prospective customers and requires the Company to engage in a
lengthy sales cycle to provide a significant level of education to prospective
customers regarding the use and benefits of the Company's products. The
Company's sales process consists of several phases: lead generation, initial
contact, lead qualification, needs assessment, proposal generation and contract
negotiation. Following the signing of a license contract for BEA products, a
customer's implementation consists of a pre-deployment and a deployment phase.
Approximately 10 to 30 percent of the revenue from a typical customer is
realized during the pre-deployment phase and is usually weighted toward
professional services and training. The remaining portion of revenue is realized
during the deployment stage and predominantly consists of license fees. While
the sales and implementation cycle varies substantially from customer to
customer, for initial sales it has ranged from 18 to 24 months from the initial
contact to the completion of the deployment phase. In many cases, a customer
begins a second development project using BEA products, often with substantially
shortened development and deployment timeframes. Additional development projects
by a particular customer are often implemented in progressively abbreviated
timeframes. See "Risk Factors--Lengthy Sales and Implementation Cycle."

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STRATEGIC RELATIONSHIPS

An important element of the Company's sales and marketing strategy is to
expand its relationships with third parties to increase the market awareness,
demand and acceptance of BEA and its products. The Company often benefits from
third-party selling assistance and believes that, in a number of instances, its
relationships with strategic partners have substantially shortened the Company's
sales cycle. Partners have often generated and qualified sales leads, made
initial customer contacts, assessed needs and recommended contact with the
Company prior to BEA's introduction. Partners can provide customers with
additional resources and expertise, especially in vertical markets, to help meet
their system application development requirements. Types of partners include:

HARDWARE OEMS. BEA's hardware partners often act as resellers of BEA
TUXEDO, either under the BEA TUXEDO name or integrated with their own software
products, or recommend BEA TUXEDO to their customers and prospects who are
planning to implement high-end, mission-critical applications on their hardware
platform. BEA's relationships with hardware manufacturers include Digital,
Fujitsu Limited, Hewlett-Packard Corporation, IBM, NEC Corporation, Pyramid
Technology Corp., Sequent Computer Systems Inc., Siemens-Nixdorf
Informationssysteme A.G., Sun Microsystems Inc., Unisys and Tandem Computers
Inc.

PACKAGED APPLICATION SOFTWARE DEVELOPERS. BEA licenses its software to
packaged application software vendors. These vendors embed the software as a
middleware infrastructure for the applications they supply, giving these
applications increased distribution, scalability and portability across all
platforms on which BEA TUXEDO runs. Customers can also easily integrate custom
applications built using BEA TUXEDO into these existing packaged applications.
Vendors that embed BEA TUXEDO software in their packaged applications include
CableData, Clarify, Inc., Cycare Systems, Inc., Filoli Information Systems and
PeopleSoft, Inc.

SYSTEMS INTEGRATORS AND INDEPENDENT CONSULTANTS. Systems integrators often
refer their customers to BEA and may utilize BEA as a subcontractor in some
situations. BEA TUXEDO has been designated by EDS as a certified framework
product, and BEA seeks similar certification from other systems integrators. BEA
also works cooperatively with independent consulting organizations, often being
referred to prospective customers by professional services organizations with
expertise in high-end transactional applications. In addition to EDS, BEA has
relationships with systems integrators such as Andersen Consulting, Oracle
Consulting and Perot Systems Corporation, as well as many independent
consultants.

INDEPENDENT SOFTWARE TOOL VENDORS. Partner ISVs integrate their tools with
BEA TUXEDO to enable their customers to use these tools to build scalable
distributed applications more easily. BEA has relationships with over 40 tool
vendors, including Borland International Inc., BMC Software Inc., Compuware
Corporation, Dynasty, Mercury Interactive Corporation, Microsoft, NAT Systems
International, Inc., Oracle, Passport Communications, Inc. and Prolifics.

DISTRIBUTORS. The Company uses distributors to sell its products in North
America and major markets in Europe, Asia and Latin America to augment the
efforts of its direct sales force. As of April 30, 1997, the Company was
represented by 13 distributors.

PROFESSIONAL SERVICES

The Company's professional services organization provides a full range of
consulting services to customers developing, deploying and managing
mission-critical applications using BEA products. These services include
architectural assistance, prototyping, implementation, legacy migration,
porting, application integration, performance evaluation and tuning, and data
conversions. Because of the complex nature of its customers' mission-critical
applications, the Company believes that its professional services organization
plays a key role in facilitating initial license sales and enabling

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customers to successfully develop, deploy and manage such applications. As of
April 30, 1997, the Company employed over 90 professional services consultants.
Fees for professional services are generally charged on a time and materials
basis and vary depending upon the nature and extent of services to be performed.

TECHNICAL SUPPORT

The Company believes that a high level of customer support is integral to
the successful marketing and sale of BEA products. Mission-critical applications
require rapid support response and problem resolution. The Company's direct
sales to customers include a basic level of maintenance. Comprehensive 7x24x365
support contracts are also available, typically on an annual basis. In addition,
the Company offers introductory and advanced classes and training programs at
the Company's offices, customer sites and training centers worldwide. Telephone
hotline support is offered worldwide at either a standard or around-the-clock
level, depending on customer requirements. The Company maintains product and
technology experts on call at all times worldwide and has support call centers
located in Sunnyvale, California and Paris, France. The Company sponsors user
group conferences in North America and Europe.

MARKETING

The Company's marketing efforts are directed at broadening the market for
BEA TUXEDO and the BEA Enterprise Transaction Framework by increasing awareness
of the benefits of using the Company's products to build mission-critical
distributed applications. Marketing efforts are also aimed at supporting the
Company's worldwide direct and indirect sales channels. Marketing personnel
engage in a variety of activities including conducting public relations and
product seminars, issuing newsletters, sending direct mailings, preparing sales
collateral and other marketing materials, coordinating the Company's
participation in industry trade shows, programs and forums, and establishing and
maintaining close relationships with recognized industry analysts. The Company's
senior executives are frequent speakers at industry forums in many of the major
markets the Company serves.

COMPETITION

The market for middleware software and related services is highly
competitive. The Company's competitors are diverse and offer a variety of
solutions directed at various segments of the middleware software marketplace.
These competitors include database vendors such as Oracle, IBM and others, which
offer their own development tools for use with their proprietary databases, as
well as companies offering and developing middleware software products and
related services or application development tools that compete with products
offered by the Company. In addition, Microsoft has announced that it will
provide middleware functionality in future versions of its Windows NT operating
system and has recently announced the release of a product that includes certain
middleware functionality. Further, internal development groups within
prospective customers' organizations may develop software and hardware systems
that may substitute for those offered by the Company. A number of the Company's
competitors and potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger installed base of customers than the
Company.

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assurance that the Company will compete successfully with database vendors and
software tool vendors, or that the products offered by such vendors will not
achieve greater market acceptance than the Company's products.

The Company believes that the principal competitive factors in the market
for its products are the ability to scale to accommodate a large number of
users, interoperability with major hardware and software platforms and legacy
systems, cost, time to implementation, robustness and support services. Based on
these factors, the Company believes its products compete favorably, although
there can be no assurance that the Company can maintain its competitive position
against current and potential competitors.

In order to be successful in the future, the Company must continue to
respond promptly and effectively to the challenges of technological change and
competitors' innovations. There can be no assurance that the Company will be
able to compete successfully with existing or new competitors or that
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations.

INTELLECTUAL PROPERTY

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precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's products or technology without authorization, or to
develop similar technology independently. In particular, the Company has, in the
past, provided certain hardware OEMs with access to its source code, and any
unauthorized publication or proliferation of this source code could materially
adversely affect the Company's business, operating results and financial
condition. Policing unauthorized use of the Company's products is difficult and,
although the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. Effective protection of intellectual property rights is unavailable or
limited in certain foreign countries. There can be no assurance that the
Company's protection of its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology,
duplicate the Company's products or design around any patents issued to the
Company or other intellectual property rights of the Company.

The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company has received correspondence claiming that its
ObjectBroker product infringes certain third-party patents. The Company is
investigating this claim and currently believes it to be without merit and that
the Company is entitled to indemnification for such claim. The Company expects
that software product developers will increasingly be subject to such claims as
the number of products and competitors in the Company's industry segment grows
and the functionality of products in the industry segment overlaps. Any such
claims, with or without merit, could result in costly litigation that could
absorb significant management time, which could have a material adverse effect
on the Company's business, operating results and financial condition. Such
claims might require the Company to enter into royalty or license agreements.
Such royalty or license agreements, if required, may not be available on terms
acceptable to the Company or at all, which could have a material adverse effect
upon the Company's business, operating results and financial condition.

EMPLOYEES

At April 30, 1997, the Company had over 600 full-time employees of whom over
180 were primarily engaged in research and development, over 370 in consulting,
training, sales, support and marketing and over 50 in administration and
finance. None of the Company's employees is represented by a collective
bargaining agreement and the Company has never experienced any work stoppage.
The Company considers its relations with its employees to be good. The Company
also employs a number of temporary and contract employees from time to time. At
April 30, 1997, the Company employed approximately 63 temporary and contract
employees.

The Company's future performance depends to a significant degree upon the
continued service of its key members of management, as well as key marketing,
sales, consulting and product development personnel. The loss of any of William
T. Coleman III, the Company's President, Chairman and Chief Executive Officer,
Edward W. Scott, Jr., the Company's Executive Vice President of Worldwide Field
Operations, or Alfred S. Chuang, the Company's Chief Technical Officer and
Executive Vice President of Product Development, or one or more of the Company's
other key personnel, would have a material adverse effect on the Company's
business, operating results and financial condition. The Company believes its
future success will also depend in large part upon its ability to attract and
retain highly skilled management, marketing, sales, consulting and product
development personnel. Competition for such personnel is intense, and there can
be no assurance that the Company can retain its key employees or that it will be
successful in attracting, assimilating and retaining such personnel in the
future. Hiring of qualified technical personnel in foreign countries will be
difficult due to a more limited number of qualified professionals, as the
Company seeks to expand its worldwide support organization. Failure to attract,
assimilate and retain key personnel would have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
Novell Agreement requires the Company to employ a minimum number of research and
development personnel.

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FACILITIES

The Company's primary offices are located in approximately 38,000 and 18,000
square feet of space in Sunnyvale, California and approximately 61,000 square
feet in Bernards Township, New Jersey under leases expiring in January 31, 2001,
June 30, 1998 and April 31, 2006, respectively. The Company has an option to
extend the lease of the premises in Sunnyvale for an additional five years after
the original expiration date on substantially the same terms. The Company also
leases space for its sales and support offices in Atlanta, Georgia; Boston,
Massachusetts; Brisbane, Australia; CapeTown, South Africa; Dallas, Texas;
Escondido, California; Espoo, Finland; Golden, Colorado; Johannesburg, South
Africa; Kowloon, Hong Kong; London, England; Melbourne, Australia; Minneapolis,
Minnesota; Munich, Germany; Paris, France; Reston, Virginia; San Francisco,
California; Sao Paulo, Brazil; Schaumberg, Illinois; Sydney, Australia; Toronto,
Canada; Yokohama, Japan, Zaventem, Belgium and Zurich, Switzerland. BEA also has
offices in Seoul, Korea and Stockholm, Sweden, which are leased by other
companies. The Company believes that its existing facilities are sufficient to
meet its anticipated needs for the foreseeable future.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the executive
officers and directors of the Company as of May 31, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- -------------------------- ----------- --------------------------------------------------------------------------------
<S> <C> <C>
William T. Coleman III 49 President, Chief Executive Officer, Chairman of the Board and Director

Edward W. Scott, Jr. 58 Executive Vice President of Worldwide Field Operations, Assistant Secretary and
Director

Alfred S. Chuang 35 Chief Technical Officer, Executive Vice President of Product Development

Steve L. Brown 44 Executive Vice President, Chief Financial Officer and Secretary

Carol Bartz(1) 48 Director

Cary J. Davis 30 Director

Stewart K.P. Gross(2) 37 Director

William H. Janeway(1) 54 Director

Dean Morton(2) 65 Director
</TABLE>

- --------------

(1) Member of Compensation Committee.

(2) Member of Audit Committee.

MR. COLEMAN is a founder of the Company and has been its President, Chief
Executive Officer and a member of its Board of Directors since the Company's
inception. Prior to founding the Company in January 1995, Mr. Coleman was
employed by Sun Microsystems, Inc. from 1985 to January 1995, where his last
position was Vice President and General Manager of its Sun Integration division.
Mr. Coleman holds a B.S. from the Air Force Academy and an M.S. from Stanford
University.

MR. SCOTT is a founder of the Company and has been a member of its Board of
Directors and its Executive Vice President of Worldwide Field Operations since
the Company's inception. Prior to founding the Company in January 1995, Mr.
Scott was employed by Pyramid Technology, Inc. as its Executive Vice President
of Worldwide Sales and Marketing from September 1988 to April 1995 and by Sun
Microsystems from October 1985 to September 1988. Mr. Scott has a B.A. and an
M.A. from Michigan State University and a Bachelor's Degree from Oxford
University.

MR. CHUANG is a founder of the Company and has been its Chief Technical
Officer and Executive Vice President of Product Development since the Company's
inception. He served as a member of its Board of Directors from the Company's
inception until September 1995. From 1986 to December 1994, Mr. Chuang worked at
Sun Microsystems, Inc. in various positions, including Chief Technology Officer
of Sun Integration Services and Corporate Director of Strategic Systems
Development of Sun's Middleware Group. Mr. Chuang has a B.S. from the University
of San Francisco and an M.S. from U.C. Davis.

MR. BROWN joined the Company in August 1996 and is currently Executive Vice
President, Chief Financial Officer and Secretary. From October 1994 to July
1996, Mr. Brown was employed by MicroUnity Systems Engineering, Inc., where his
last position was Vice President, Finance. From 1978 to 1994, Mr. Brown was
employed at the Hewlett-Packard Corporation in various controller and treasury
positions. He holds a B.A. from San Diego State University and an M.B.A. from
UCLA.

56
<PAGE>
MS. BARTZ has served as a director of the Company since November 1995. From
April 1992 to present, Ms. Bartz has served as the Chairman and Chief Executive
Officer of Autodesk, Inc. From 1983 to April 1992, Ms. Bartz served in various
positions with Sun Microsystems, Inc., most recently as Vice President of
Worldwide Field Operations. Ms. Bartz is a director of Autodesk, Inc., AirTouch
Communications, Cadence Design Systems, Inc., Cisco Systems, Inc. and Network
Appliance, Inc. Ms. Bartz holds a B.S. from the University of Wisconsin at
Madison.

MR. DAVIS has served as a director of the Company since November 1995. Mr.
Davis is a Vice President of Warburg, Pincus Ventures, LLC, the venture capital
subsidiary of E.M. Warburg, Pincus & Company, LLC, ("EMWP") where he has been
employed since October 1994. From August 1992 to September 1994, Mr. Davis was
employed by Dell Computer Corporation, where his last position was Manager of
Worldwide Desktop Marketing. Mr. Davis holds a B.A. from Yale University and an
M.B.A. from Harvard University.

MR. GROSS has served as a director of the Company since inception. Mr. Gross
is a Managing Director of EMWP and has been employed by EMWP since 1987. Prior
to joining EMWP, Mr. Gross was employed at Morgan Stanley & Co. Mr. Gross is a
director of Vanstar Corporation, TSI International Software and several
privately-held companies. Mr. Gross has a B.A. from Harvard University and an
M.B.A. from Columbia University.

MR. JANEWAY has served as a director of the Company since inception. Mr.
Janeway has been a Managing Director of EMWP since July 1988. Prior to joining
EMWP, Mr. Janeway was the Vice President and Director of Corporate Finance at F.
Eberstadt & Co., Inc. from 1979 to July 1988. Mr. Janeway is a director of
ECSoft Group plc, Industri-Matematik Corp., Maxis, Inc., Vanstar Corporation,
VERITAS Software Corporation, Zilog, Inc. and several privately-held companies.
Mr. Janeway has a B.A. from Princeton University and a Ph.D. from Cambridge
University, where he studied as a Marshall Scholar.

MR. MORTON has served as a director of the Company since March 1996. Mr.
Morton was Executive Vice President, Chief Operating Officer and a Director of
the Hewlett-Packard Corporation until his retirement in October 1992, where he
held various positions since 1960. Mr. Morton is a director of ALZA Corporation,
KLA-Tencor Corporation, Raychem Corporation, The Clorox Company, Centigram
Communications Corporation, and Kaiser Foundation Health Plan, Inc. Hospitals.
He is a trustee of the State Street Research Group of Funds, The State Street
Research Portfolios, Inc. and The Metropolitan Series Fund. Mr. Morton holds a
B.S. from Kansas State University and an M.B.A. from Harvard University.

Currently all directors hold office until the next annual meeting of
stockholders or until their successors are duly qualified. The Amended and
Restated Certificate of Incorporation of the Company provide for the Board of
Directors to be divided into three classes, each with staggered three-year
terms. As a result, only one class of directors will be elected at each annual
meeting of stockholders of the Company, with the other classes continuing for
the remainder of their respective three-year terms. In the absence of cumulative
voting rights, the Company's stockholders holding a majority of the shares of
Common Stock outstanding will be able to elect all the directors. See
"Description of Capital Stock-- Antitakeover Effects of Provisions of the
Company's Charter and Bylaws" and "Risk Factors--Control by Management and
Current Stockholders."

Officers are elected by and serve at the discretion of the Board of
Directors. There are no family relationships among the directors or officers of
the Company.

BOARD COMMITTEES

AUDIT COMMITTEE. The Audit Committee of the Board of Directors reviews the
results and scope of the annual audit and other services provided by the
Company's independent accountants, reviews and evaluates the Company's internal
audit and control functions, and monitors transactions between the

57
<PAGE>
Company and its employees, officers and directors. Stewart K.P. Gross and Dean
Morton serve as members of the Audit Committee.

COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors administers the 1997 Stock Incentive Plan, the 1997 Employee Stock
Purchase Plan and the 1995 Flexible Stock Incentive Plan, and reviews and
approves the compensation and benefits for the Company's executive officers.
Carol Bartz and William H. Janeway serve as members of the Compensation
Committee.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No interlocking relationship exists between any member of the Company's
Board of Directors or Compensation Committee and any member of the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.

DIRECTOR COMPENSATION

The Company's outside directors are reimbursed for expenses incurred in
connection with attending Board and Committee meetings but are not compensated
for their services as Board members. The Company may also grant to directors
options to purchase Common Stock of the Company pursuant to the terms of the
1997 Stock Incentive Plan and they are eligible to receive bonuses under the
1997 Management Bonus Plan. See "--Stock Plans--1997 Stock Incentive Plan and
- --1997 Management Bonus Plan."

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company whose aggregate cash compensation
exceeded $100,000 during the fiscal year ended January 31, 1997 (collectively,
the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1)
- ------------------------------------------------------------ --------- --------- ----------- --------------------
<S> <C> <C> <C> <C>
William T. Coleman III ..................................... 1997 177,923(2) 33,255 --
President, Chief Executive Officer, Chairman of the Board 1996 152,885 -- 22,500
and Director
Edward W. Scott, Jr. ....................................... 1997 150,000 22,170 --
Executive Vice President and Director 1996 91,154 -- --
Alfred S. Chuang ........................................... 1997 150,000 22,170 --
Executive Vice President 1996 109,654 -- 16,500
</TABLE>

- --------------
(1) Represents contributions made by the Company to the named individual's
self-employed retirement benefits plan. The named individuals became
ineligible to continue participating in these plans in January 1996 when the
Company qualified to adopt a 401(k) plan, and the Company does not
anticipate making contributions to these plans in future periods.

(2) Mr. Coleman's salary paid in the fiscal year ended January 31, 1997
represents an annual salary of $180,000 less unpaid time off in the amount
of $2,077.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with William T. Coleman
III, Edward W. Scott, Jr. and Alfred S. Chuang (the "Employees"), dated
September 28, 1995 (the "Employment Agreements").

The Employment Agreements provide that Mr. Coleman, Mr. Scott and Mr. Chuang
receive a yearly salary of $180,000, $150,000 and $150,000, respectively (to be
reviewed annually), and reimbursement

58
<PAGE>
for certain expenses. The Employees are also entitled to participate in any
pension, bonus, insurance, savings or other employee benefit plans adopted by
the Company.

The Employment Agreements continue until the earlier of (1) September 28,
1999 or (2) termination of employment (i) by the Board of Directors for cause at
any time upon 10 days' written notice, or without cause upon 24 hours' written
notice; (ii) by death; (iii) by the Employee for good reason or following
certain corporate transactions, or at will upon two weeks' notice; or (iv) due
to disability. Upon termination of employment without cause by the Company, or
for good reason by the Employee, the Company will hire the Employee as a
consultant until the end of the period of employment, or for a period of two
years following termination. During the Consultancy Period (as defined in the
Employment Agreements), the Employee is required to be available a maximum of 40
hours per week in return for which he will be entitled to receive a monthly
salary, bonus and benefits equal to the amount that he received immediately
prior to the termination of employment. Upon termination of employment for cause
by the Company, or at will by the Employee, the Company can require the Employee
to provide consulting services for a maximum of 40 hours per week until the end
of the period of employment, during which period the Employee will be paid his
monthly salary on a prorated basis. Upon termination by death or disability, the
Employee or his estate will under certain circumstances receive the Employee's
salary and certain other benefits until the end of the period of employment.

The Employment Agreements contain a covenant not to compete which provides
that during the Consultancy Period, under certain circumstances the Employee
cannot compete with the Company, or accept employment with a competitor of the
Company.

1997 MANAGEMENT BONUS PLAN

In January 1997, the Board approved the 1997 Management Bonus Plan (the
"Bonus Plan") pursuant to the terms of which the Company's officers and a number
of key employees, such as managers and architects, are eligible to receive
bonuses of up to 100% of their current base salary, subject to length of
employment and certain other conditions. The bonus level is determined on a
quarterly basis based upon achievement of specified revenue and contribution
performance objectives.

STOCK PLANS

1995 FLEXIBLE STOCK INCENTIVE PLAN

The Company's 1995 Flexible Stock Incentive Plan (the "1995 Incentive Plan")
was adopted by the Board of Directors and approved by the Company's stockholders
in September 1995. The 1995 Incentive Plan provides for the granting to
employees of the Company and its subsidiaries of incentive stock options within
the meaning of Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code"), and for the granting to employees, outside directors, consultants,
and independent contractors of nonstatutory stock options. In addition, the 1995
Incentive Plan provides for the sale or grant of restricted Common Stock to
eligible individuals in connection with the performance of services for the
Company. The Board of Directors and the stockholders have authorized a total of
9,600,000 shares of Common Stock for issuance pursuant to the 1995 Incentive
Plan of which options to purchase 7,532,868 shares of Common Stock were
outstanding as of May 31, 1997.

The 1995 Incentive Plan may be administered by the Board of Directors or a
committee of the Board (the "Committee"). The Committee has the power to
determine the terms of the options granted, including the exercise price, number
of shares subject to the option and the exercisability thereof, and the form of
consideration payable upon exercise. Options granted under the 1995 Incentive
Plan are not transferable by the optionee other than by will or the laws of
descent or distribution, and each option is exercisable during the lifetime of
the optionee only by such optionee. The exercise price of all incentive stock
options granted under the 1995 Incentive Plan must be at least equal to the fair
market value of the Common Stock on the date of grant. The exercise price of all
nonstatutory stock options granted under the 1995 Incentive Plan must be at
least 85% of the fair market value of the Common Stock on the date of

59
<PAGE>
grant. With respect to any participant who owns stock representing more than 10%
of the combined voting power of the Company or certain affiliated entities (a
"10% Stockholder"), the exercise price of any incentive stock option granted
must equal at least 110% of the fair market value on the grant date. The term of
incentive stock options granted under the 1995 Incentive Plan may not exceed ten
years (or five years in the case of an incentive stock option granted to a 10%
Stockholder). No stock option granted under the 1995 Incentive Plan shall vest
at a rate of less than 20% per year over five years from the date the option is
granted. The consideration for exercising any option must consist of cash unless
the Board, in its sole discretion, permits payment by check, Company shares, a
promissory note or the assignment of part of the proceeds of the shares acquired
upon exercise of the options.

With certain exceptions, the options terminate upon termination of
employment, disability or death of the employee. In the event of a merger with
or into another corporation, the options will terminate upon the consummation of
a merger, unless assumed or substituted by a successor corporation or its parent
company.

Upon the completion of the Company's initial public offering, the Company
ceased making awards under the 1995 Incentive Plan.

1997 STOCK INCENTIVE PLAN

The Company's 1997 Stock Incentive Plan (the "1997 Stock Incentive Plan")
was adopted by the Board of Directors in March 1997 and was approved by the
Company's stockholders in March 1997. The purpose of the 1997 Stock Incentive
Plan is to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to employees,
directors and consultants of the Company and its subsidiaries and to promote the
success of the Company's business. The 1997 Stock Incentive Plan provides for
the granting to employees of incentive stock options within the meaning of
Section 422 of the Code and the granting of nonstatutory stock options, stock
appreciation rights, dividend equivalent rights, restricted stock, performance
units, performance shares, and other equity-based rights ("Awards") to
employees, directors and consultants of the Company. Initially, 5,100,000 shares
of Common Stock are reserved for issuance under the plan. Commencing January 2,
1998, the number of shares of Common Stock reserved for issuance under the 1997
Stock Incentive Plan will be increased by a number equal to three and one half
percent (3.5%) of the number of shares of Common Stock outstanding as of
December 31 of the immediately preceding calendar year, provided that the number
of shares of Common Stock available for grant of incentive stock options shall
be 5,100,000 shares, and such number shall not be subject to adjustment as
described above. The Board of Directors determined the number of shares to
include in the 1997 Stock Incentive Plan based in part on the number of shares
remaining in the 1995 Incentive Plan, which will not be granted. As of May 31,
1997, options for 202,200 shares of Common Stock were outstanding and options
for 4,897,800 shares of Common Stock remained available for grant. Where the
Award agreement permits the exercise or purchase of the Award for a certain
period of time following the recipient's termination of service with the
Company, disability, or death, the Award will terminate to the extent not
exercised or purchased on the last day of the specified period or the last day
of the original term of the Award, whichever occurs first.

With respect to Awards granted to directors or officers, the 1997 Stock
Incentive Plan is administered by the Board of Directors or a committee
designated by the Board of Directors constituted to permit such Awards to be
exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended, in
accordance with Rule 16b-3 thereunder. With respect to Awards granted to other
participants, the 1997 Stock Incentive Plan is administered by the Board of
Directors or a committee designated by the Board of Directors. In each case, the
Board of Directors or such committees (the "Plan Administrator") shall determine
the provisions, terms and conditions of each Award, including, but not limited
to, the Award vesting schedule, repurchase provisions, rights of first refusal,
forfeiture provisions, form of payment (cash, shares of Common Stock, or other
consideration) upon settlement of the Award, payment contingencies and
satisfaction of any performance criteria. Incentive stock options are not
transferable by the optionee other than by will or the laws of descent or
distribution, and each incentive

60
<PAGE>
stock option is exercisable during the lifetime of the optionee only by such
optionee. Other Awards shall be transferable to the extent provided in the
agreement evidencing the Award. The exercise price of incentive stock options
must be at least equal to the fair market value of the Common Stock on the date
of grant, and the term of the option must not exceed ten years. The term of
other Awards will be determined by the Plan Administrator. With respect to an
employee who owns stock possessing more than 10% of the voting power of all
classes of the Company's outstanding capital stock, the exercise price of any
incentive stock option must equal at least 110% of the fair market value of the
Common Stock on the grant date and the term of the option must not exceed five
years. The exercise or purchase price of other Awards will be such price as
determined by the Plan Administrator. The consideration to be paid for the
shares of Common Stock upon exercise or purchase of an Award will be determined
by the Plan Administrator and may include cash, check, shares of Common Stock, a
promissory note, or the assignment of part of the proceeds from the sale of
shares acquired upon exercise or purchase of the Award.

In the event of an acquisition of the Company through the sale of all or
substantially all of its assets, a merger or other business combination in which
the Company is not the surviving entity, outstanding Awards under the 1997 Stock
Incentive Plan, except as otherwise provided in a specific Award Agreement,
terminate unless assumed by the successor company or its parent.

Unless terminated sooner, the 1997 Stock Incentive Plan will terminate
automatically in 2007. The Board has the authority to amend, suspend or
terminate the 1997 Stock Incentive Plan subject to stockholder approval of
certain amendments and provided no such action may affect Awards previously
granted under the 1997 Stock Incentive Plan.

1997 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan"),
which was approved by the Board of Directors and the Company's stockholders in
March 1997, is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code and to provide employees of the Company with an
opportunity to purchase Common Stock through payroll deductions. An aggregate of
1,250,000 shares of the Company's Common Stock are reserved for issuance under
the Stock Purchase Plan and available for purchase thereunder, subject to
adjustment in the event of a stock split, stock dividend or other similar change
in the Common Stock or the capital structure of the Company. All employees of
the Company and its subsidiaries (including officers) whose customary employment
is for more than five months in any calendar year and more than 20 hours per
week are eligible to participate in the Stock Purchase Plan. Outside directors,
consultants and employees subject to the rules or laws of a foreign jurisdiction
that prohibit or make impractical the participation of such individuals in the
Stock Purchase Plan are not eligible to participate in the Stock Purchase Plan.
As of May 31, 1997, employees have subscribed to purchase shares with an
aggregate purchase price of approximately $892,500 (approximately 175,000 shares
at the currently applicable purchase price) at the end of the first accrual
period on June 30, 1997.

The Stock Purchase Plan designates Purchase Periods, Accrual Periods and
Exercise Dates. Purchase Periods are generally overlapping periods of 24 months.
The first Purchase Period initiated on April 10, 1997 and additional Purchase
Periods will commence each subsequent January and July. The initial Purchase
Period will end on June 30, 1999. Accrual Periods are generally six months
periods. The initial Accrual Period commenced on April 10, 1997 and will end on
June 30, 1997. Subsequent Accrual Periods will commence each January 1 and July
1. The Exercise Dates are the last days of each Accrual Period.

On the first day of each Purchase Period, a participating employee is
granted a purchase right which is a form of option to be automatically exercised
on the forthcoming Exercise Dates within the Purchase Period during which
deductions are to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Stock Purchase Plan.
When the purchase right is exercised, the participant's withheld salary is used
to purchase shares of Common Stock of the

61
<PAGE>
Company. The price per share at which shares of Common Stock are to be purchased
under the Stock Purchase Plan during any Accrual Period is the lesser of (a) 85%
of the fair market value (as defined in the Stock Purchase Plan) of the Common
Stock on the date of the grant of the option (the commencement of the Purchase
Period) or (b) 85% of the fair market value of the Common Stock on the Exercise
Date (the last day of an Accrual Period). The participant's purchase right is
exercised in this manner on all four Exercise Dates arising in the Purchase
Period unless, on the first day of any Accrual Period, the fair market value of
the Common Stock is lower than the fair market value of the Common Stock on the
first day of the Purchase Period. If so, the participant's participation in the
original Purchase Period is terminated, and the participant is automatically
enrolled in the new Purchase Period commencing on that day.

Payroll deductions may range from 1% to 10% (in whole percentage increments)
of a participant's regular base pay, commissions, overtime, bonuses, annual
awards, other incentive payments, and deferred compensation. Participants may
not make direct cash payments to their accounts. The maximum number of shares of
Common Stock which any employee may purchase under the Stock Purchase Plan
during an Accrual Period is 3,000 shares. Certain additional limitations on the
amount of Common Stock which may be purchased during any calendar year are
imposed by the Code.

The Stock Purchase Plan will be administered by the Board of Directors or a
committee designated by the Board, which will have the authority to administer
the Stock Purchase Plan and to resolve all questions relating to its
administration.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by the Delaware General Corporation Law,
as amended. The Company is also empowered under its Bylaws to enter into
indemnification agreements with its directors and officers and to purchase
insurance on behalf of any person whom it is required or permitted to indemnify.
The Company has entered into indemnification agreements with each of its
directors and executive officers. The Company has obtained a policy of
directors' and officers' liability insurance that insures such persons against
the cost of defense, settlement or payment of a judgment under certain
circumstances.

In addition, the Company's Certificate of Incorporation provides that the
liability of the Company's directors for monetary damages shall be eliminated to
the fullest extent permissible under the Delaware General Corporation Law, as
amended. This provision in the Certificate of Incorporation does not eliminate a
director's duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available. Each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for acts
or omissions that the director believes to be contrary to the best interests of
the Company or its stockholders, for any transaction from which the director
derived an improper personal benefit, for improper transactions between the
director and the Company and for improper distributions to stockholders and
loans to directors and officers. This provision also does not affect a
director's responsibilities under any other laws, such as the federal securities
laws or state or federal environmental laws.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Voting Common Stock as of May
31, 1997, as adjusted to reflect the sale of shares offered hereby, by (a) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Voting Common Stock, (b) each of the Company's directors, (c) each
Named Executive Officer (see "Management--Executive Compensation") and (d) all
current executive officers and directors as a group.

<TABLE>
<CAPTION>
VOTING SHARES PERCENTAGE PRIOR TO PERCENTAGE AFTER
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) THE OFFERING(2) THE OFFERING(2)(3)
- ---------------------------------------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C>
Warburg, Pincus Ventures, L.P.(4)................... 12,917,673 49.0% 49.0%
William T. Coleman III(5)........................... 2,515,161 9.6 6.5
Alfred S. Chuang(6)................................. 1,671,586 6.3 4.4
Edward W. Scott, Jr.(7)............................. 1,603,786 6.1 4.2
William H. Janeway(8)............................... 12,917,673 49.0 49.0
Stewart K.P. Gross(8)............................... 12,917,673 49.0 49.0
Cary J. Davis(8).................................... 12,917,673 49.0 49.0
Carol Bartz(9)...................................... 164,075 * *
Dean Morton(10)..................................... 153,335 * *
All executive officers and directors as a
group(9 persons)(11)............................... 19,025,616 71.9 65.0
</TABLE>

- --------------

* Less than 1% of the outstanding Voting Common Stock.

(1) To the Company's knowledge, except as set forth in the footnotes to this
table and subject to applicable community property laws, each person named
in the table has sole voting and investment power with respect to the shares
set forth opposite such person's name. Except as otherwise indicated, the
address of each of the persons in this table is as follows: c/o BEA Systems,
Inc., 385 Moffett Park Drive, Suite 105, Sunnyvale, California 94089-1208.

(2) Based on 26,377,239 shares of voting Common Stock outstanding as of May 31,
1997 and 38,127,566 shares of voting Common Stock outstanding after this
offering, assuming in each case the conversion into voting Common Stock of
such number of shares of non-voting Class B Common Stock held by Warburg as
would be necessary to maintain a 49% ownership interest by Warburg in all
voting Common Stock. Does not include 23,425,554 shares of non-voting Class
B Common Stock, which represents all Class B Common Stock to be outstanding
after this offering, assuming such conversion. See "Description of Capital
Stock." Including such shares, Warburg would hold 42,093,554 shares or 68.4%
of the Company's outstanding stock after the offering.

(3) Assumes no exercise of the underwriters' over-allotment option. If the
over-allotment option is exercised in full, the Company will sell an
aggregate of 6,900,000 shares of Common Stock.

(4) The sole general partner of Warburg, Pincus Ventures, L.P. ("Warburg") is
Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg,
Pincus & Co., LLC, a New York limited liability company ("EMWP"), manages
Warburg. The members of EMWP are substantially the same as the partners of
WP. Lionel I. Pincus is the managing partner of WP and the managing member
of EMWP and may be deemed to control both WP and EMWP. WP has a 15% interest
in the profits of Warburg as the general partner, and also owns
approximately 1.5% of the limited partnership interests in Warburg. Messrs.
Janeway and Gross, directors of the Company, are Managing Directors and
members of EMWP and general partners of WP. As such, Messrs. Janeway and
Gross may be deemed to have an indirect pecuniary interest (within the
meaning of Rule 16a-1 under the Exchange Act) in an indeterminate portion of
the shares beneficially owned by Warburg and WP. See Note 7 below. The
address for Warburg is 466 Lexington Avenue, New York, New York, 10017.

63
<PAGE>
(5) Represents shares held of record by the Coleman Family Trust, dated July 12,
1995, of which William T. and Claudia L. Coleman are co-trustees. Includes
62,000 shares of which the economic ownership has been transferred to
certain of Mr. Coleman's relatives. Mr. Coleman retains sole voting power
and investment power of these shares.

(6) Includes 90,000 shares of which the economic ownership has been transferred
to certain of Mr. Chuang's relatives. Mr. Chuang retains sole voting power
and investment power of these shares.

(7) Includes shares held by the following trusts, of which Mr. Scott is the sole
trustee (i) 10,000 shares held by the Edward W. Scott, Jr. 1996 Irrevocable
Living Trust for the Benefit of Eneida Sanchez UDT. and dated 9/17/96; (ii)
20,000 shares held by the Edward W. Scott, Jr. 1996 Irrevocable Living Trust
for the Benefit of Carolina Gutierrez UDT. and dated 9/17/96; and (iii)
30,000 shares held by the Edward W. Scott, Jr. 1996 Irrevocable Living Trust
for the Benefit of Reece D. Scott UDT. and dated 9/17/96. Also includes
10,000 shares held by Mr. Scott's wife.

(8) All of the shares indicated as owned by Mr. Janeway, Mr. Gross and Mr. Davis
are owned directly by Warburg and are included because of Mr. Janeway's, Mr.
Gross' and Mr. Davis' affiliation with Warburg. Mr. Janeway, Mr. Gross and
Mr. Davis disclaim beneficial ownership of these shares within the meaning
of Rule 13d-3 under the Exchange Act. The address for Mr. Janeway, Mr. Gross
and Mr. Davis is c/o E.M. Warburg, Pincus & Co., LLC, 466 Lexington Avenue,
New York, New York 10017.

(9) Includes 56,875 shares subject to options exercisable within 60 days after
May 31, 1997. The address for Ms. Bartz is c/o Autodesk, Inc., 111 McInnis
Parkway, San Rafael, CA 94903.

(10) Includes 43,333 shares subject to options exercisable within 60 days after
May 31, 1997. The address for Mr. Morton is c/o Hewlett-Packard Corporation,
3200 Hillview Avenue, Palo Alto, California 94304.

(11) Includes 100,208 shares subject to options exercisable within 60 days after
May 31, 1997. Includes 11,870,000 shares beneficially owned by Warburg,
which shares are included because of the affiliation of Mr. Janeway, Mr.
Gross and Mr. Davis with Warburg. Mr. Janeway, Mr. Davis and Mr. Gross each
disclaim beneficial ownership of such shares.

64
<PAGE>
CERTAIN TRANSACTIONS

PREFERRED STOCK ISSUANCES

On September 28, 1995, Warburg entered into a Stock Purchase Agreement with
the Company which was subsequently amended on October 31, 1995, January 10,
1996, April 16, 1996, July 1, 1996, September 3, 1996 and December 18, 1996. As
a result of purchases under such agreement, Warburg acquired an aggregate of
4,000,000 shares of Common Stock, 17,066,000 shares of Series A Preferred Stock
and 19,847,800 shares of Series B Preferred Stock for an aggregate purchase
price of $50,000,000. In addition, on April 24, 1996, the Board approved the
purchase of an aggregate of 100,000 shares of Series A Preferred Stock
(converted into Voting Common Stock upon the closing of the offering) by Carol
Bartz and Dean Morton, who are directors of the Company. Each share of Series A
Preferred Stock automatically converted into two shares of Common Stock upon the
closing of the Company's initial public offering. Pursuant to the terms of the
Stock Purchase Agreement, prior to the closing of the Company's initial public
offering, Warburg elected to convert all its Series B Preferred Stock, at a rate
of $1.00 per share plus accumulated but unpaid dividends divided by the initial
public offering price per share net of underwriting discounts, into a total of
3,744,847 shares of Common Stock.

WARBURG ASSIGNMENT AGREEMENT

On September 28, 1995, in connection with the Company's acquisition of its
two main operating subsidiaries, the Company and Warburg, the Company's major
stockholder, entered into an Assignment Agreement, under the terms of which
Warburg assigned to the Company certain rights to acquire stock from
stockholders of the subsidiaries, as well as a number of agreements related to
the acquisitions, such as letters of intent and an Escrow Agreement, enabling
the Company to acquire all outstanding stock of the two operating subsidiaries.
See "Risk Factors--Past and Future Acquisitions" and "Management's Discussion
and Analysis of Financial Conditions and Results of Operations--Company
Background."

WARBURG LINE OF CREDIT

On January 22, 1997, the Company entered into a credit agreement with
Warburg pursuant to the terms of which Warburg granted the Company a
subordinated line of credit of up to $10,000,000. The agreement provided for an
annual interest rate of 11% and, pursuant to the terms of the credit agreement,
the principal of and interest on the loan was converted by Warburg into 817,334
shares of Common Stock within five days after the closing of the initial public
offering, at the offering price net of underwriting discounts, and the credit
arrangement was terminated.

OFFICERS' SECURITIES ISSUANCES

On February 1, 1995 and following the incorporation of the Company, the
Company's three founders, William T. Coleman III, the Company's President and
Chief Executive Officer and a member of its Board of Directors, Edward W. Scott,
Jr., the Company's Executive Vice President for Worldwide Sales and a member of
its Board of Directors and Alfred S. Chuang, the Company's Executive Vice
President of Product Development and Chief Technical Officer, purchased
1,200,000, 800,000 and 800,000 shares, respectively, of the Company's Common
Stock at a price of $0.005 per share. These shares were purchased pursuant to
Restricted Stock Purchase Agreements, which provide for the repurchase of these
shares under certain conditions.

On September 28, 1995, Messrs. Coleman, Scott and Chuang purchased
1,306,828, 871,586 and 871,586 shares, respectively, of the Company's Common
Stock at a price per share of $0.285 per share, payable in part in cash and in
part in the form of a full recourse, five-year promissory note secured by the
purchased shares pursuant to a security agreement entered into on the same date.
The original principal amounts of these notes for Messrs. Coleman, Scott and
Chuang were $97,446, $248,402 and $198,402,

65
<PAGE>
respectively. The notes bear interest at 7% per annum. These shares were
purchased pursuant to Restricted Stock Purchase Agreements, which provide for
the repurchase at original cost of these shares in decreasing percentages during
the four-year period following the date of issuance of these shares.

In September 1996 Steve Brown, an Executive Vice President of the Company
and its Chief Financial Officer and Secretary, was granted an option to purchase
400,000 shares of Common Stock at an exercise price of $0.285 per share. Such
options vest and become exercisable at the rate of 25% one year from the date of
grant and monthly thereafter for the three-year period following the grant. Such
options expire ten years from the grant date.

In March 1997, Mr. Coleman was granted an option to purchase 35,000 shares
of Common Stock, Messrs. Scott and Chuang were each granted options to purchase
25,000 shares of Common Stock and Mr. Brown was granted an option to purchase
15,000 shares of Common Stock, all at an exercise price of $6.00 per share. Such
options vest and become exercisable at the rate of 25% one year from the date of
grant and monthly thereafter for the three-year period following the grant. Such
options expire ten years from the grant date.

In April 1997, Messrs. Coleman, Scott and Chuang were each granted options
to purchase 9,804 shares of Common Stock at an exercise price of $6.00 per
share. Such options vest and become exercisable at the rate of 25% of such
options semi-annually for the two-year period following the grants. Such options
expire ten years after the grant dates.

REGISTRATION RIGHTS

Certain holders of Common Stock and Warburg are entitled to certain
registration rights. See "Description of Capital Stock--Registration Rights."

FOUNDERS' LOANS AND EMPLOYMENT AGREEMENTS

On December 12, 1995, Edward W. Scott, Jr., the Company's Executive Vice
President of Worldwide Operations issued a promissory note in the amount of
$720,000 in favor of the Company for the purpose of financing real property. The
note bears interest at 7% per annum and is secured by a deed of trust covering
the real property acquired by Mr. Scott. Pursuant to its terms, the note is
repayable upon expiration of Mr. Scott's employment agreement with the Company.
See "Management--Employment Agreements."

The Company has entered into employment agreements with certain of its
directors and officers. See "Management--Employment Agreements."

POLICY REGARDING FUTURE AFFILIATE TRANSACTIONS

All future transactions, including loans, between the Company and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors.

66
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue up to 120,000,000 shares, $0.001 par
value, divided into two classes designated "Common Stock" and "Preferred Stock."
Of such shares authorized, 115,000,000 shares are designated as Common Stock, of
which 35,000,000 shares are designated Class B Common Stock, and 5,000,000 are
designated Preferred Stock.

COMMON STOCK

As of May 31, 1997, there were 26,377,239 shares of Common Stock outstanding
that were held of record by approximately 186 stockholders. There will be
38,127,566 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' overallotment options and no exercise of outstanding options)
after giving effect to the sale of Common Stock offered to the public by the
Company hereby.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The Company does
not have cumulative voting rights in the election of directors, and accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor as well as any distributions to the stockholders. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
of the Company remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock have
no preemptive or other subscription of conversion rights. There are no
redemption or sinking fund provisions applicable to the Common Stock.

CLASS B COMMON STOCK

As of May 31, 1997, there were 29,175,881 shares of Class B Common Stock
outstanding, all of which shares were held by Warburg. The Class B Common Stock
has the same rights, preferences, privileges and restrictions as the Common
Stock, except that the Class B Common Stock is convertible into Common Stock,
has no voting rights (except as required by Delaware law) and has no right to
vote for the election of directors. The shares of Class B Common Stock are, upon
any transfer of such shares by Warburg, convertible into a like number of shares
of Common Stock, subject to adjustment upon certain events with respect to the
Common Stock. The shares of Class B Common Stock are also convertible at the
option of Warburg into Common Stock, so long as such conversion results in
Warburg holding equal to or less than 49% of the Company's outstanding voting
securities. Upon consummation of the offering, Warburg would be entitled to
convert 5,750,327 shares of Class B Common Stock into Common Stock.

PREFERRED STOCK

Pursuant to the Company's Certificate of Incorporation, the Board of
Directors will have the authority, without further action by the stockholders,
to issue up to 5,000,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, any or all of which
may be greater than the rights of Common Stock, without any further vote or
action by stockholders. The issuance of Preferred Stock could adversely affect
the voting power of holders of Common Stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plan to issue any shares of Preferred Stock after
consummation of the offering.

67
<PAGE>
REGISTRATION RIGHTS

Pursuant to an investor rights agreement (the "Rights Agreement") entered
into in September 1995 between the Company and holders (the "Holders") of
approximately 48,118,081 shares of the Company's Common Stock, including William
T. Coleman III, Alfred S. Chuang, Edward W. Scott, Jr., and Warburg, the Holders
are entitled to certain rights with respect to the registration of such shares
under the Securities Act of 1933, as amended (the "Securities Act"). If the
Company proposes to register any of its securities under the Securities Act,
either for its own account or the account of other security holders, the Company
is required to notify such Holders and to use its best efforts to effect the
registration, and such Holders are entitled to include at the Company's expense
their Registrable Securities (as such term is defined in the Rights Agreement)
in such registration, subject to certain conditions and limitations. In
addition, Holders may also require the Company to file a registration statement
under the Securities Act at the Company's expense with respect to their shares,
and the Company is required to use its diligent reasonable efforts to effect
such registration. Further, Holders may require the Company to file registration
statements on Form S-3 at the Company's expense, when such form is available for
use by the Company. These rights are subject to certain conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration and the right of the Company
not to effect a requested registration within six months following a registered
offering of the Company's securities, including the offering made hereby. See
"Certain Transactions--Registration Rights."

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS

The Certificate of Incorporation of the Company provides for the Board of
Directors to be divided into three classes, with staggered three-year terms. As
a result, only one class of directors will be elected at each annual meeting of
stockholders of the Company, with the other classes continuing for the remainder
of their respective three-year terms. Stockholders have no cumulative voting
rights, and the Company's stockholders representing a majority of the shares of
Common Stock outstanding are able to elect all of the directors. The Company's
Bylaws also provide that all stockholder action must be effected at a duly
called meeting of stockholders and not by a consent in writing; the Bylaws
provide that only the Company's Chief Executive Officer, the President of the
Company and the Board of Directors may call a special meeting of stockholders.

The classification of the Board of Directors and lack of cumulative voting
will make it more difficult for the Company's existing stockholders to replace
the Board of Directors as well as for another party to obtain control of the
Company by replacing the Board of Directors. Since the Board of Directors has
the power to retain and discharge officers of the Company, these provisions
could also make it more difficult for existing stockholders or another party to
effect a change in management.

These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. These
provisions are intended to enhance the likelihood of continued stability in the
composition of the Board of Directors and in the policies furnished by the Board
of Directors and to discourage certain types of transactions that may involve an
actual or threatened change of control of the Company. These provisions are
designed to reduce the vulnerability of the Company to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit fluctuations in the market
price of the Company's shares that could result from actual or rumored takeover
attempts. Such provisions also may have the effect of preventing changes in the
management of the Company. See "Risk Factors--Antitakeover Effects of
Certificate of Incorporation, Bylaws and Delaware Law."

68
<PAGE>
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to Section 203 or the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested holder, (ii)
upon consummation of the transaction that that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) at or subsequent
to such time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.

In general, Section 203 defines business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder, (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder, (iii)
subject to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the effect
of increasing the proportionate share of the stock or any class or series of the
corporation beneficially owned by the interested stockholder or (v) the receipt
by the interested stockholder of the benefit of any loss, advances, guarantees,
pledges or other financial benefits by or through the corporation. In general,
Section 203 defines interested stockholder as an entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by such entity or
person. See "Risk Factors--Antitakeover Effects of Certificate of Incorporation,
Bylaws and Delaware Law."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock of the Company is
BankBoston, N.A. Its address is 150 Royall Street, Canton, Massachusetts 02021,
and its telephone number is (617) 575-3120.

69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

The remaining 50,180,487 outstanding shares were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are restricted securities within the meaning of Rule 144 under the
Securities Act. None of these shares will be eligible for sale in the public
market at the effective date of the Registration Statement of which this
Prospectus is a part (the "Effective Date"). On October 8, 1997, approximately
1,822,765 shares will become eligible for sale subject to the provisions of Rule
144 or Rule 701, and beginning and the day after the periods ending 120 days and
180 days after the date of this Prospectus, an additional 6,204,727 shares and
42,093,550 shares, respectively, will become eligible for sale subject to such
provisions, in each case upon the expiration of agreements not to sell such
shares entered into with Goldman, Sachs & Co. or the Company. The remainder of
the shares will be eligible for sale from time to time thereafter upon
expiration of their respective one-year holding period, subject in each case to
the restrictions on such sales by affiliates of the Company. On October 8, 1997,
approximately 1,822,765 shares subject to vested options as of the date of this
Prospectus will be available for sale subject to compliance with Rule 701, and
beginning 120 days after the date of this Prospectus, an additional 305,683
shares subject to vested options will become eligible for sale subject to such
provisions, in each case upon the expiration of agreements not to sell such
shares entered into with Goldman, Sachs & Co. or the Company. An additional
925,925 shares may be issued to Digital upon conversion of a portion of a
certain note payable to Digital. See Note 13 of Notes to the BEA Annual
Financials. In July 1997, Digital formally notified the Company of its intention
to convert $6 million of such note and indicated to the Company its current
intention to convert the entire remaining convertible portion of such note.
Under the terms of the note, 222,222 shares would be issuable on February 1,
1998, 370,370 shares would be issuable on February 1, 1999 and the remaining
333,333 shares would be issuable on February 1, 2000. The Company may, however,
with the approval of Goldman, Sachs & Co., issue all or a portion of these
shares at any time prior to these dates. Upon issuance, such shares would become
eligible for immediate resale. In addition, 500,000 additional shares subject to
outstanding warrants will be available for sale on October 8, 1997. The
remainder of the shares will be eligible for sale from time to time thereafter
upon expiration of their respective one-year holding periods, subject in each
case to the restrictions on such sales by affiliates of the Company. Any shares
subject to lock-up agreements may be released at any time without notice by
Goldman, Sachs & Co.

The Company has filed a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock reserved for issuance under
the 1997 Employee Stock Purchase Plan and intends to file a registration
statement on Form S-8 under the Securities Act to register shares of Common
Stock reserved for issuance under the 1995 Incentive Plan and the 1997 Stock
Incentive Plan, thus permitting the resale of such shares by non-affiliates in
the public market without restriction under the Securities Act unless subject to
lock-up agreements. Such registration statement will become effective
immediately upon filing.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Morrison & Foerster LLP, Palo Alto, California. A partner at Morrison
& Foerster LLP beneficially owns 56,500 shares of Common Stock of the Company.
Certain legal matters in connection with the offerings will be passed upon for
the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.

EXPERTS

The consolidated balance sheets of BEA Systems, Inc. as of January 31, 1996
and January 31, 1997, and the consolidated statements of operations, redeemable,
convertible preferred stock and stockholders' equity (deficit) and cash flows
for the years ended January 31, 1996 and 1997, appearing

70
<PAGE>
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

The balance sheets of Information Management Company as of December 31, 1994
and September 29, 1995, and the statements of operations and retained earnings
(deficit) and cash flows for the year ended December 31, 1994 and for the nine
months ended September 29, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

The statements of operations and cash flows of Independent Technologies,
Inc. for the period from January 1, 1995 to November 1, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.

The consolidated balance sheet of USL France as of May 5, 1996, and the
consolidated statements of operations, shareholders' equity and cash flows for
the period from November 1, 1995 to May 5, 1996, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young Audit, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to this Registration Statement and the
exhibits and schedules filed as a part hereof. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the North Western Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, NY 10048, and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission. The Commission maintains a web site at http://www.sec.gov that
contains, reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

71
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
BEA SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--THREE MONTHS ENDED APRIL 30,
1996 AND 1997
Condensed Consolidated Balance Sheet................................................. F-2
Condensed Consolidated Statements of Operations...................................... F-3
Condensed Consolidated Statements of Cash Flows...................................... F-4

Notes to Condensed Consolidated Financial Statements................................. F-5

CONSOLIDATED FINANCIAL STATEMENTS--YEARS ENDED JANUARY 31, 1996 AND 1997
Report of Ernst & Young LLP, Independent Auditors.................................... F-8
Consolidated Balance Sheets........................................................ F-9
Consolidated Statements of Operations.............................................. F-10
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)................................................... F-11
Consolidated Statements of Cash Flows.............................................. F-12
Notes to Consolidated Financial Statements......................................... F-13

INFORMATION MANAGEMENT COMPANY
FINANCIAL STATEMENTS--YEAR ENDED DECEMBER 31, 1994 AND NINE MONTHS ENDED SEPTEMBER
29, 1995
Report of Ernst & Young LLP, Independent Auditors.................................... F-30
Balance Sheets..................................................................... F-31
Statements of Operations and Retained Earnings (Deficit)........................... F-32
Statements of Cash Flows........................................................... F-33
Notes to Financial Statements...................................................... F-34

INDEPENDENCE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS AND CASH FLOWS--FOR THE PERIOD FROM JANUARY 1, 1995 TO
NOVEMBER 1, 1995
Report of Ernst & Young LLP, Independent Auditors.................................... F-38
Statement of Operations............................................................ F-39
Statement of Cash Flows............................................................ F-40
Notes to Statements of Operations and Cash Flows................................... F-41

USL FINANCE S.A.
CONSOLIDATED FINANCIAL STATEMENTS--FOR THE PERIOD FROM NOVEMBER 1, 1995 TO
MAY 5, 1996
Report of Ernst & Young Audit, Independent Auditors.................................. F-44
Consolidated Balance Sheet......................................................... F-45
Consolidated Statement of Operations............................................... F-46
Consolidated Statement of Shareholders' Equity..................................... F-47
Consolidated Statement of Cash Flows............................................... F-48
Notes to Consolidated Financial Statements......................................... F-49
</TABLE>

F-1
<PAGE>
BEA SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
APRIL 30,
1997
------------
<S> <C>
Current assets:
Cash and cash equivalents......................................................................... $ 6,541
Accounts receivable, net of allowance for doubtful accounts of $1,200............................. 30,675
Other current assets.............................................................................. 8,085
------------
Total current assets............................................................................ 45,301
Property and equipment, net......................................................................... 6,900
Acquired intangible assets, net..................................................................... 18,715
Other assets........................................................................................ 2,444
------------
Total assets.................................................................................... $ 73,360
------------
------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Borrowings under line of credit................................................................... $ 4,455
Accounts payable.................................................................................. 3,838
Accrued payroll and related liabilities........................................................... 7,210
Accrued sales tax................................................................................. 2,277
Other accrued liabilities......................................................................... 8,382
Other current liability........................................................................... 7,986
Deferred revenue.................................................................................. 8,315
Current portion of long-term debt & capital lease obligations..................................... 25,462
------------
Total current liabilities....................................................................... 67,925
Long-term debt and capital lease obligations........................................................ 50,012
Stockholders' deficit:
Common stock $0.001 par value
Authorized--80,000 shares
Issued and outstanding--24,664 shares........................................................... 25
Class B common stock $0.001 par value
Authorized--35,000 shares
Issued and outstanding--30,476 shares........................................................... 30
Additional paid-in capital........................................................................ 84,461
Notes receivable from stockholders................................................................ (544)
Deferred compensation............................................................................. (784)
Cumulative translation adjustment................................................................. 211
Accumulated deficit............................................................................... (127,976)
------------
Stockholders' deficit............................................................................... (44,577)
------------
Total liabilities and stockholders' deficit..................................................... $ 73,360
------------
------------
</TABLE>

See accompanying notes.

F-2
<PAGE>
BEA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
------------------------
1996 1997
----------- -----------

<S> <C> <C>
Revenues:
License.............................................................................. $ 5,484 $ 24,478
Service.............................................................................. 1,367 5,911
----------- -----------
Total revenues..................................................................... 6,851 30,389
----------- -----------
Cost of revenues:
License.............................................................................. 2,036 3,181
Service.............................................................................. 458 3,854
----------- -----------
Total cost of revenues............................................................. 2,494 7,035
----------- -----------
Gross margin........................................................................... 4,357 23,354
Operating expenses:
Research and development............................................................. 3,097 5,143
Sales and marketing.................................................................. 3,912 15,917
General and administrative........................................................... 2,579 3,611
Write-off of in-process research and development..................................... 60,948 16,000
----------- -----------
Total operating expenses........................................................... 70,536 40,671
----------- -----------
Loss from operations................................................................... (66,179) (17,317)
Other income (expense)................................................................. (117) (517)
Interest expense....................................................................... (1,117) (1,965)
----------- -----------
Loss before provision for income taxes................................................. (67,413) (19,799)
Provision for income taxes............................................................. 38 572
----------- -----------
Net loss............................................................................... $ (67,451) $ (20,371)
----------- -----------
----------- -----------
Pro forma net loss per share......................................................... $ (1.35) $ (0.40)
----------- -----------
----------- -----------
Shares used in computing pro forma net loss
per share.......................................................................... 50,013 50,710
----------- -----------
----------- -----------
</TABLE>

See accompanying notes.

F-3
<PAGE>
BEA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss................................................................................. $ (67,451) $ (20,371)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation........................................................................... 829 583
Amortization of deferred compensation.................................................. -- 61
Loss on sale of assets................................................................. -- 255
Amortization of intangible assets acquired and write-off of in process research and
development.......................................................................... 62,871 18,660
Changes in assets and liabilities:
Accounts receivable.................................................................. (1,154) (5,897)
Other current assets................................................................. (408) 748
Other assets......................................................................... (250) 511
Accounts payable..................................................................... 97 350
Accrued payroll and related liabilities.............................................. 635 613
Other accrued liabilities............................................................ 22 1,569
Accrued sales tax.................................................................... 184 704
Other current liabilities............................................................ -- (2,849)
Deferred revenue..................................................................... 837 (382)
---------- ----------
Net cash used in operating activities.................................................... (3,788) (5,445)
---------- ----------
INVESTING ACTIVITIES
Acquisition of property and equipment.................................................... (791) (79)
---------- ----------
Net cash used in investing activities.................................................... (791) (79)
---------- ----------
FINANCING ACTIVITIES
Payment of borrowings on line of credit.................................................. -- (4,595)
Proceeds from long term debt............................................................. 845 3,500
Payments on long term debt and capital lease obligations................................. -- (16,014)
Proceeds from issuances of common and preferred stock.................................... 5,001 25,754
---------- ----------
Net cash provided by financing activities................................................ 5,846 8,645
---------- ----------
Net increase in cash and cash equivalents................................................ 1,267 3,121
Cumulative translation adjustment........................................................ -- 137
Cash and cash equivalents at the beginning of the period................................. 4,549 3,283
---------- ----------
Cash and cash equivalents at end of period............................................... $ 5,816 $ 6,541
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................................................... $ -- $ 1,762
---------- ----------
---------- ----------
Cash paid for income taxes............................................................... $ -- $ 76
---------- ----------
---------- ----------
Notes issued to acquire businesses....................................................... $ 77,301 $ 13,985
---------- ----------
---------- ----------
Line of credit converted to common stock................................................. $ -- $ 4,561
---------- ----------
---------- ----------
Incurrence of capital lease obligations related to acquisition of equipment.............. $ -- $ 580
---------- ----------
---------- ----------
</TABLE>

See accompanying notes.

F-4
<PAGE>
BEA SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
BEA Systems, Inc. (the "Company"), include all adjustments (consisting only of
normal recurring items) which, in the opinion of management, are necessary for a
fair presentation of financial position, results of operations and cash flows.
These financial statements should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
audited financial statements for the fiscal year ended January 31, 1997 included
elsewhere in this Prospectus. The results of operations for interim periods are
not necessarily indicative of results to be expected for a full year.

2. NET LOSS PER SHARE

Except as noted below, net loss per share is computed using the weighted
average number of shares of common stock outstanding during the period. Common
stock equivalents relating to stock options, the convertible preferred stock and
the convertible line of credit are excluded from the computation as their effect
is antidilutive. However, for the quarter ended April 30,1996, the calculation
includes those common equivalent shares required by the Securities and Exchange
Commission's staff accounting bulletins and guidelines. Per share information
calculated on the above noted basis is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Net loss per share..................................................... $ (2.43) $ (1.02)
--------- ---------
--------- ---------
Shares used in calculating net loss per share (in thousands)........... 27,822 20,323
--------- ---------
--------- ---------
</TABLE>

For the three months ended April 30, 1996, the pro forma net loss per share
has been computed as described above and also gives effect, pursuant to SEC
policy, to common equivalent shares from convertible preferred stock issued more
than twelve months prior to the initial public offering and converted upon
completion of the offering.

For the three months ended April 30, 1997, the pro forma net loss per share
gives effect to common equivalent shares from the convertible preferred stock
and the convertible line of credit outstanding prior to the Company's initial
public offering (using the if-converted method).

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS 128"). The Statement is effective for both
interim and annual financial statements for periods ending after December 15,
1997. Under the Statement, primary earnings per share ("EPS") computed in
accordance with Accounting Principle Board Opinion No. 25 will be replaced with
a new simpler calculation called "basic EPS" and the Company will be required to
restate EPS amounts for all prior periods. Under the new requirements, basic
loss per share for the three months ended April 30, 1997 would be unchanged from
the loss per share of $1.02 presented above. For the quarter ended April 30,
1996, the basic loss per share under the new requirements would be $8.15 based
on weighted average shares outstanding of 8,289,000. The Company has not
currently determined the impact of SFAS 128 on diluted EPS.

F-5
<PAGE>
BEA SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTION WITH DIGITAL EQUIPMENT CORPORATION ("DEC")

On March 26, 1997, the Company completed an agreement with DEC to acquire
exclusive worldwide rights to MessageQ, ObjectBroker and other related products
from DEC. The purchase price (including direct acquisition costs) was
approximately $19.8 million. Of the aggregate consideration for the products, $5
million is payable in cash ($2 million was paid during the quarter ended April
30, 1997, and $3 million was paid on June 20, 1997), and aggregate payments of
$17 million pursuant to a convertible promissory note. Interest was imputed at
8% which results in the recorded liability of approximately $14 million. The
promissory note provides for payments of $2 million, $4 million and $11 million
payable on or before February 1, 1998, 1999 and 2000, respectively. Each
installment may be converted into shares of the Company's Common Stock, at the
option of DEC, at a conversion price of $9.00, $10.80 and $15.00 per share,
respectively. Of the final installment of $11 million, only $5 million is
convertible. In addition, the Company has granted DEC a warrant to purchase
500,000 shares of Common Stock at a price of $6.00 per share, exerciseable for a
one year period, commencing in October, 1997. Of the purchase price, $16.0
million was allocated to in-process research and development and was written-off
in the quarter ended April 30, 1997. Consistent with previous acquisitions of
businesses or assets, the values assigned to acquired in-process research and
development and other identified intangibles were determined by independent
appraisal using discounted cash flow analysis.

4. INITIAL PUBLIC OFFERING

During the quarter ended April 30, 1997, the Company completed its initial
public offering of Common Stock (the "Offering"). The Offering generated net
proceeds of approximately $25.6 million from the sale of 5,000,000 shares of
Common Stock. Subsequent to the end of the quarter, the Company's underwriters
exercised a portion of the over-allotment option, generating net proceeds of
approximately $2.1 million from the sale of 372,633 shares of Common Stock.

Concurrent with the closing of the Offering, the holders of all of the
Series A and Series B Preferred Stock converted their shares into the Company's
Common Stock and Class B Common Stock. The conversion of the Series A and Series
B Preferred Stock and the convertible line of credit resulted in the issuance of
8,445,531 shares of Common Stock and 30,475,881 shares of Class B Common Stock.

F-6
<PAGE>
BEA SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes Payable and capital lease obligations consist of the following:

<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1997
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Subordinated notes payable to founders of an acquired company. The
notes were due upon the completion of the initial public offering,
and were paid on May 1, 1997 Accrued interest of $430,000 and
$524,000 was included at January 31, 1997 and April 30, 1997,
respectively...................................................... $ 4,589 $ 4,683
Note payable to Novell.............................................. 69,900 54,505
Note payable to DEC (See Note 3). The balance at April 30, 1997
includes accrued interest of $109,000............................. -- 14,094
Credit arrangement from the Company's majority stock-holder. During
the quarter ended April 30, 1997, an additional $3.5 million was
borrowed. Upon the completion of the public offering, the
aggregate principal balance of $4.5 million plus the accrued
interest of approximately $61,000 was converted into 817,334
shares of Common Stock............................................ 1,000 --
Note payable to the former shareholders of Bay Technologies Pty.,
Ltd............................................................... 928 820
Other notes payable................................................. 299 38
Capital lease obligations........................................... 1,004 1,334
------------ ---------
77,720 75,474
Less amounts due within one year.................................... (28,180) (25,462)
------------ ---------
Long-term debt and capital lease obligations........................ $ 49,540 $ 50,012
------------ ---------
------------ ---------
</TABLE>

6. PRO FORMA INFORMATION

The following unaudited pro forma summary represents the consolidated
results of operations of the Company as if the acquisitions of Tuxedo from
Novell and USL had occurred as of January 1, 1996 and does not purport to be
indicative of what would have occurred had the acquisitions been made as of that
date or the results which may occur in the future.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
1996
---------------
<S> <C>
Pro forma net revenues (in thousands)............................................................ $ 7,774
---------------
---------------
Pro forma net loss (in thousands)................................................................ $ (67,826)
---------------
---------------
Pro forma net loss per share..................................................................... $ (1.36)
---------------
---------------
</TABLE>

The unaudited pro forma results include the historical operations of the
Company and the historical operations of the acquired businesses adjusted to
reflect the amortization of the excess purchase prices and an increase in
interest expense resulting from additional debt used to finance the
acquisitions.

F-7
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
BEA Systems, Inc.

We have audited the accompanying consolidated balance sheets of BEA Systems,
Inc. as of January 31, 1996 and 1997, and the related consolidated statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BEA Systems,
Inc. at January 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

San Jose, California
March 10, 1997, except for Note 14,
as to which the date is March 19, 1997

F-8
<PAGE>
BEA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1996 1997
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 4,549 $ 3,283
Accounts receivable, net of allowance for doubtful accounts of $400 at January
31, 1996 and $1,095 at January 31, 1997..................................... 3,725 24,778
Prepaid expenses and other current assets..................................... 752 3,083
----------- -----------
Total current assets............................................................ 9,026 31,144
Property and equipment, net..................................................... 456 6,648
Acquired intangible assets, net................................................. 8,751 17,226
Note receivable from officer.................................................... 720 720
Other assets.................................................................... -- 2,235
----------- -----------
Total assets.................................................................... $ 18,953 $ 57,973
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowings under line of credit............................................... $ -- $ 9,050
Accounts payable.............................................................. 772 3,488
Accrued payroll and related liabilities....................................... 800 6,597
Accrued sales tax............................................................. 949 1,573
Other accrued liabilities..................................................... 1,032 6,030
Royalties payable............................................................. 777 327
Deferred revenue.............................................................. 2,146 8,697
Current portion of notes payable and capital lease obligations................ 40 28,180
----------- -----------
Total current liabilities....................................................... 6,516 63,942
Notes payable and capital lease obligations..................................... 4,287 49,540
Commitments.....................................................................
Series B redeemable convertible preferred stock, $0.001 par value:
Authorized shares--20,000,000
Issued and outstanding shares--6,060,000 at January 31, 1996 and 19,847,800 at
January 31, 1997, liquidation preference of $20,780 at January 31, 1997..... 6,112 20,780

Stockholders' equity (deficit):
Series A preferred stock, $0.001 par value.................................... 11 17
Authorized shares--20,000,000
Issued and outstanding shares--11,100,000 at January 31, 1996 and 17,166,000
at January 31, 1997, liquidation preference of $29,182 at January 31,
1997.......................................................................
Common stock, $0.001 par value................................................ 8 11
Authorized shares--80,000,000
Issued and outstanding shares--8,274,000 at January 31, 1996 and 10,747,787
at January 31, 1997
Additional paid-in capital...................................................... 20,355 32,335
Notes receivable from stockholders.............................................. (544) (544)
Deferred compensation........................................................... -- (845)
Cumulative translation adjustment............................................... -- 74
Accumulated deficit............................................................. (17,792) (107,337)
----------- -----------
Stockholders' equity (deficit).................................................. 2,038 (76,289)
----------- -----------
Total liabilities and stockholders' equity (deficit)............................ $ 18,953 $ 57,973
----------- -----------
----------- -----------
</TABLE>

See accompanying notes.

F-9
<PAGE>
BEA SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenues:
License............................................................................. $ 3,569 $ 46,839
Service............................................................................. 1,564 14,759
------------ ------------
Total revenues.................................................................... 5,133 61,598

Cost of revenues:
License............................................................................. 1,929 10,287
Service............................................................................. 775 8,320
------------ ------------
Total cost of revenues............................................................ 2,704 18,607
------------ ------------
Gross margin.......................................................................... 2,429 42,991

Operating expenses:
Research and development............................................................ 3,244 18,183
Sales and marketing................................................................. 2,572 30,970
General and administrative.......................................................... 3,058 12,732
Write-off of in-process research and development.................................... 11,194 62,248
------------ ------------
Total operating expenses.............................................................. 20,068 124,133
------------ ------------
Income (loss) from operations......................................................... (17,639) (81,142)

Interest expense...................................................................... (89) (6,727)
Other income (expense)................................................................ 48 4
------------ ------------

Income (loss) before income taxes..................................................... (17,680) (87,865)
Provision for income taxes............................................................ 60 800
------------ ------------
Net income (loss)..................................................................... $ (17,740) $ (88,665)
------------ ------------
------------ ------------
Pro forma net income (loss) per share................................................. $ (1.73)
------------
------------
Shares used in computing pro forma net income (loss) per share........................ 51,162
------------
------------
</TABLE>

See accompanying notes.

F-10
<PAGE>
BEA SYSTEMS, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JANUARY 31, 1996 AND 1997

(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
SERIES B ------------------------------------------------------------------
REDEEMABLE CONVERTIBLE
SERIES A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ------------------ ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock...... -- $-- -- $-- 8,000,000 $ 8 $ 1,446 $ --
Exercise of stock options..... -- -- -- -- 100,000 -- 1 --
Issuance of preferred stock... -- -- 11,100,000 11 -- -- 18,859 --
Issuance of Series B
redeemable convertible
preferred stock.............. 6,060,000 6,060 -- -- -- -- -- --
Accretion of cumulative
dividends on Series B
redeemable convertible
preferred stock.............. -- 52 -- -- -- -- -- (52)
Issuance of common stock for
services..................... -- -- -- -- 174,000 -- 49 --
Net loss...................... -- -- -- -- -- -- -- (17,740)
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
Balance at January 31, 1996... 6,060,000 6,112 11,100,000 11 8,274,000 8 20,355 (17,792)
Issuance of preferred stock... -- -- 6,066,000 6 -- -- 10,306 --
Issuance of common stock...... -- -- -- -- 2,000,000 2 568 --
Exercise of stock options..... -- -- -- -- 403,787 1 113 --
Issuance of Series B
redeemable convertible
preferred stock.............. 13,787,800 13,788 -- -- -- -- -- --
Accretion of cumulative
dividends on Series B
redeemable convertible
preferred stock.............. -- 880 -- -- -- -- -- (880)
Issuance of common stock for
services..................... -- -- -- -- 70,000 -- 20 --
Deferred compensation related
to grant of stock options.... -- -- -- -- -- -- 973 --
Amortization of deferred
compensation................. -- -- -- -- -- -- -- --
Translation adjustment........ -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- (88,665)
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
Balance at January 31, 1997... 19,847,800 $20,780 17,166,000 $17 10,747,787 $11 $32,335 $(107,337)
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
---------- ----------- ---------- ------ ---------- ------ ---------- -----------

STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------
NOTES TOTAL
RECEIVABLE CUMMULATIVE STOCKHOLDERS'
FROM DEFERRED TRANSLATION EQUITY
STOCKHOLDERS COMPENSATION ADJUSTMENT (DEFICIT)
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock...... $(544) $-- --$ $ 910
Exercise of stock options..... -- -- -- 1
Issuance of preferred stock... -- -- -- 18,870
Issuance of Series B
redeemable convertible
preferred stock.............. -- -- -- --
Accretion of cumulative
dividends on Series B
redeemable convertible
preferred stock.............. -- -- -- (52)
Issuance of common stock for
services..................... -- -- -- 49
Net loss...................... -- -- -- (17,740)
------ ------ --- -------------
Balance at January 31, 1996... (544) -- -- 2,038
Issuance of preferred stock... -- -- -- 10,312
Issuance of common stock...... -- -- -- 570
Exercise of stock options..... -- -- -- 114
Issuance of Series B
redeemable convertible
preferred stock.............. -- -- -- --
Accretion of cumulative
dividends on Series B
redeemable convertible
preferred stock.............. -- -- -- (880)
Issuance of common stock for
services..................... -- -- -- 20
Deferred compensation related
to grant of stock options.... -- (973) -- --
Amortization of deferred
compensation................. -- 128 -- 128
Translation adjustment........ -- -- 74 74
Net loss...................... -- -- -- (88,665)
------ ------ --- -------------
Balance at January 31, 1997... $(544) $(845) $74 $ (76,289)
------ ------ --- -------------
------ ------ --- -------------
</TABLE>

See accompanying notes.

F-11
<PAGE>
BEA SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................................................... $ (17,740) $ (88,665)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................................. 39 1,490
Amortization of deferred compensation..................................................... -- 128
Amortization of intangible assets acquired and write-off of in-process research and
development............................................................................. 12,302 71,054
Issuance of note for compensation......................................................... 1,429 --
Issuance of common stock for services..................................................... 49 20
Changes in assets and liabilities:
Interest accrued........................................................................ 89 329
Accounts receivable..................................................................... (1,510) (13,968)
Prepaid expenses and other current assets............................................... (576) (2,024)
Other assets............................................................................ -- (2,231)
Accounts payable........................................................................ 772 2,598
Accrued payroll and related liabilities................................................. 80 5,797
Other accrued liabilities............................................................... (4,261) (2,743)
Accrued sales tax....................................................................... 949 622
Royalties payable....................................................................... 777 (450)
Deferred revenue........................................................................ 2,146 6,378
--------- ---------
Net cash used in operating activities....................................................... (5,455) (21,665)
--------- ---------
INVESTING ACTIVITIES
Acquisition of property and equipment....................................................... (67) (4,667)
Acquisition of businesses, net of cash acquired............................................. (15,050) (2,566)
Note receivable from officer................................................................ (720) --
--------- ---------
Net cash used in investing activities....................................................... (15,837) (7,233)
--------- ---------
FINANCING ACTIVITIES
Borrowings under line of credit............................................................. -- 9,050
Repayment of principal on notes payable and capital lease obligations....................... -- (7,540)
Proceeds from debt issuances................................................................ -- 1,264
Proceeds from issuance of common and preferred stock........................................ 25,841 24,784
--------- ---------
Net cash provided by financing activities................................................... 25,841 27,558
--------- ---------
Net increase (decrease) in cash and cash equivalents........................................ 4,549 (1,340)
Cumulative translation adjustment........................................................... -- 74
Cash and cash equivalents at beginning of period............................................ -- 4,549
--------- ---------
Cash and cash equivalents at end of period.................................................. $ 4,549 $ 3,283
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest.................................................... $ -- $ 6,285
--------- ---------
--------- ---------
Cash paid for income taxes.................................................................. $ -- $ 230
--------- ---------
--------- ---------
Incurrence of capital lease obligations related to acquisition of equipment................. $ -- $ 1,001
--------- ---------
--------- ---------
Notes issued to acquire businesses.......................................................... $ 2,730 $ 78,217
--------- ---------
--------- ---------
</TABLE>

See accompanying notes.

F-12
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

BEA Systems, Inc. (the "Company" or "BEA"), a Delaware corporation, was
incorporated on January 20, 1995. The Company designs, develops, markets, and
supports the BEA Enterprise Transaction Framework, an integrated middleware
software platform for building, deploying, and managing distributed
mission-critical computer software applications. In addition to its software
products, the Company provides customer solutions through a range of
professional services offerings.

BASIS OF PRESENTATION

On September 30, 1995, the Company acquired all of the shares of Information
Management Company ("IMC") for approximately $10,420,000. The transaction was
recorded using the purchase method of accounting. Accordingly, a new basis of
accounting was established based on the purchase price. See Note 2.

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany transactions and
balances have been eliminated. Operations of businesses acquired and accounted
for as purchases are consolidated as of the date of acquisition. The Company had
no operating activity from inception through January 31, 1995. Accordingly,
operating results for the year ending January 31, 1996 reflect the period from
incorporation (January 20, 1995) to January 31, 1996.

The Company has incurred operating losses to date, including a net loss of
approximately $88.7 million for the year ended January 31, 1997. At January 31,
1997, the Company had a stockholders' deficit of approximately $76.3 million and
current liabilities exceeded current assets by approximately $32.8 million. The
majority shareholder of the Company has guaranteed certain payment obligations
of the Company as discussed in Note 6. In addition, in January 1997, the Company
received a $10,000,000 unsecured line of credit from the majority stockholder.
The Company anticipates additional equity funding will be needed to finance
expected operations in the fiscal year ending January 31, 1998 and for existing
obligations. If such additional equity funding is not available, management
believes, based on anticipated operations, that available resources combined
with the majority shareholder line of credit and debt payment guaranty will
provide sufficient resources to enable the Company to meet its obligations
through at least January 31, 1998. If anticipated operations are not achieved,
management has the intent and believes it has the ability to delay or reduce
expenditures so as not to require additional financial resources if such
resources were not available.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

CONCENTRATION OF CREDIT RISK

The Company sells its products to customers, typically large corporations,
in a variety of industries in North America, Europe, and Asia/Pacific. The
Company performs ongoing credit evaluations of its

F-13
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
customers and generally does not require collateral. The Company maintains
reserves for estimated credit losses and such losses have been within
management's expectations.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's foreign subsidiaries is the local
currency of the respective subsidiary. The Company translates the assets and
liabilities of its foreign subsidiaries to U.S. dollars at the rates of exchange
in effect at the end of the period, while revenues and expenses are translated
at average rates during the period. Gains and losses from currency translation
are included in stockholders' equity (deficit). Currency transaction gains or
losses are recognized in current operations.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and highly liquid investments with
insignificant interest rate risk and maturities of three months or less at the
date of purchase.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from three to five years. Assets under capital leases and leasehold
improvements are amortized over the shorter of the asset life or the remaining
lease term. The related amortization expense is included in depreciation
expense.

INTANGIBLE ASSETS

Intangible assets consist of developed technology, distribution rights,
trademarks and tradenames and goodwill related to acquisitions accounted for by
the purchase method. See Note 2. Amortization of these purchased intangibles is
provided on the straight-line basis over the respective useful lives of the
assets ranging from twenty-four to thirty months for developed technology and
distribution rights to sixty months for trademarks and tradenames and goodwill.
Acquired in-process research and development without alternative future use is
expensed when acquired.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts discussed below have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange.

The Company maintains its cash and cash equivalents principally with major
banks. At January 31, 1996 and 1997, the Company had $3.8 million and $19,000,
respectively, of cash and cash equivalents invested in money market mutual funds
which invest in various short-term corporate debt instruments and U.S. Treasury
bills. The carrying value of these investments by the Company approximate their
market value, and therefore, no unrealized gains or losses exist at January 31,
1996 or 1997.

At January 31, 1997, the carrying value of notes receivable from
stockholders approximates their fair value. The fair values of notes receivable
from officers and stockholders are estimated using discounted

F-14
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
cash flow analyses, based on interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality.

The fair value of short-term and long-term debt is estimated based on
current interest rates available to the Company for debt instruments with
similar terms, the degree of risk, and remaining maturities. The carrying values
of the loans approximate their respective fair values.

PRODUCT CONCENTRATION

The Company currently derives the majority of its revenue from the licensing
of products in its BEA TUXEDO product line and fees from related services. These
products and services are expected to continue to account for the majority of
the Company's revenue for the foreseeable future. Furthermore, under the terms
of its agreement with Novell, Inc., the Company is obligated to make certain
payments to Novell through January 1999 as discussed in Note 6 to acquire
perpetual rights to the TUXEDO product. Failure by the Company for any reason to
make these payments could terminate the Company's continuing rights to BEA
TUXEDO. A reduction in demand for, or an increase in competition on these
products, or a decline in sales of such products, would adversely affect
operating results.

REVENUE RECOGNITION

The Company recognizes revenues in accordance with American Institute of
Certified Public Accountants Statement of Position 91-1, SOFTWARE REVENUE
RECOGNITION. Revenues from software license agreements are recognized at the
time of product shipment, provided there are no vendor obligations remaining to
be fulfilled and collectibility is probable. Ongoing license royalties are
recognized on an as-reported basis by the Company's licensees.

Service revenues include consulting services, post-contract customer support
and training. Consulting revenues and the related cost of these revenues are
generally recognized on a time and materials basis; however, revenue from
certain fixed price contracts are recognized on the percentage of completion
basis, which involves the use of estimates. Actual results could differ from
those estimates and, as a result, future profitability on such contracts may be
more or less than planned. The amount of consulting contracts recognized on a
percentage of completion basis has not been material to date. Post-contract
customer support revenues are recognized ratably over the term of the support
period (generally one year), and training and other service revenues are
recognized as the related services are provided. The unrecognized portion of
amounts paid in advance for licenses and services is reported as deferred
revenues.

RESEARCH AND DEVELOPMENT

Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires
the capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expense in the period incurred.

F-15
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("FAS 123"). FAS 123 allows
companies that have stock-based compensation arrangements with employees to
adopt a new fair-value basis of accounting for stock options and other equity
instruments, or to continue to apply the existing accounting rules under APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), but with
additional financial statement disclosure. The Company has continued to account
for stock-based compensation arrangements under APB 25; therefore, FAS 123 did
not have a material impact on its financial position, results of operations or
cash flows.

NET LOSS PER SHARE

Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
from common stock options and convertible preferred stock are excluded from the
computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common
and common equivalent shares issued during the period commencing twelve months
prior to the initial filing of the Company's public offering Prospectus at
prices below the assumed public offering price have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method at the initial public offering price per share for stock
options and the if-converted method for preferred stock). Per share information
calculated on the above noted basis is as follows:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY
31,
--------------------
1996 1997
--------- ---------
Net loss per share......................................................... $(0.74) $(3.09)
<S> <C> <C>
--------- ---------
Shares used in calculating net loss per share (in thousands)............... 24,128 28,962
--------- ---------
--------- ---------
</TABLE>

Pro forma net loss per share has been computed as described above and also
gives effect, pursuant to SEC policy, to common equivalent shares from
convertible preferred stock issued more than twelve months prior to the initial
public offering that converted upon completion of the Company's initial public
offering (using the if-converted method) from the original date of issuance.

2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS

ACQUISITION OF INFORMATION MANAGEMENT COMPANY

On September 30, 1995, the Company acquired 100% of the outstanding shares
of Information Management Company ("IMC"). The purchase price (including direct
acquisition costs) was approximately $10,420,000 and consisted of cash and the
issuance of notes payable to the founders of IMC totaling approximately
$2,730,000. The Company has accounted for the acquisition using the purchase
method, and the results of operations of IMC are included in the Company's
operations since acquisition.

F-16
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
The following is a summary of the purchase price allocation (IN THOUSANDS):

<TABLE>
<S> <C>
Current assets and other tangible assets.......................... $ 1,438
Liabilities assumed............................................... (2,131)
Acquired in-process research and development...................... 5,200
Developed technology.............................................. 4,780
Trademarks and tradenames......................................... 200
Goodwill.......................................................... 933
---------
$ 10,420
---------
---------
</TABLE>

ACQUISITION OF INDEPENDENCE TECHNOLOGIES, INC.

On November 2, 1995, the Company acquired 100% of the outstanding shares of
Independence Technologies, Inc. ("ITI"). The purchase price (including direct
acquisition costs) was approximately $7,520,000 which was paid in cash. The
Company has accounted for the acquisition using the purchase method, and the
results of operations of ITI are included in the Company's operations since
acquisition.

The following is a summary of the purchase price allocation (IN THOUSANDS):

<TABLE>
<S> <C>
Current assets and other tangible assets.......................... $ 1,681
Liabilities assumed............................................... (3,241)
Acquired in-process research and development...................... 5,134
Developed technology.............................................. 3,946
---------
$ 7,520
---------
---------
</TABLE>

ACQUISITION OF TUXEDO PRODUCT LINE

On February 23, 1996, the Company entered into a license agreement with
Novell, Inc. ("Novell") and acquired exclusive rights to distribute and make
enhancements to Novell's TUXEDO product on UNIX, Windows NT, and all non-NetWare
platforms. In addition, the Company has assumed Novell's obligations and rights
under all contracts with TUXEDO partners, distributors and customers, and has
exclusive rights to the TUXEDO trademark. The purchase price (including direct
acquisition costs) was approximately $77,500,000 and consists primarily of a
note payable to Novell with fixed payment terms. See Note 6.

The following is a summary of the purchase price allocation (IN THOUSANDS):

<TABLE>
<S> <C>
Receivables and other tangible assets............................. $ 4,270
Liabilities assumed............................................... (702)
Acquired in-process research and development...................... 60,948
Developed technology.............................................. 9,825
Trademarks and tradenames......................................... 3,159
---------
$ 77,500
---------
---------
</TABLE>

F-17
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
ACQUISITION OF USL FINANCE, S.A., A FRENCH CORPORATION

On May 5, 1996, the Company acquired 100% of the outstanding shares of USL
Finance, S.A. ("USL"), a distributor of BEA TUXEDO in France. The purchase price
(including direct acquisition costs) was approximately $3,250,000 which was paid
in cash. The Company has accounted for the acquisition using the purchase
method, and the results of operations of USL are included in the Company's
operations since acquisition.

The following is a summary of the purchase price allocation (IN THOUSANDS):

<TABLE>
<S> <C>
Current assets and other tangible assets........................... $ 6,060
Liabilities assumed................................................ (5,482)
Distribution rights................................................ 2,672
---------
$ 3,250
---------
---------
</TABLE>

ACQUISITION OF CLIENT SERVER TECHNOLOGIES, OY, A FINNISH CORPORATION

On June 12, 1996, the Company acquired 100% of the outstanding shares in
Client Server Technologies, OY ("CST"), a distributor of BEA TUXEDO in Finland.
The purchase price (including direct acquisition costs) was approximately
$2,163,000 which was paid in cash. The Company has accounted for the acquisition
using the purchase method, and the results of operations of CST are included in
the Company's operations since acquisition.

The following is a summary of the purchase price allocation (IN THOUSANDS):

<TABLE>
<S> <C>
Current assets and other tangible assets........................... $ 1,483
Liabilities assumed................................................ (1,067)
In-process research and development................................ 1,300
Distribution rights................................................ 389
Trademarks and tradenames.......................................... 58
---------
$ 2,163
---------
---------
</TABLE>

ACQUISITION OF BAY TECHNOLOGIES PTY. LIMITED.

On December 23, 1996, the Company acquired 100% of the outstanding shares in
Bay Technologies Pty., Limited ("Bay"), a distributor of BEA Tuxedo in
Australia. The purchase price (including direct acquisition costs) was
approximately $1,006,000 and consisted primarily of a note payable of $915,800.
The Company has accounted for the acquisition using the purchase method, and the
results of operations of Bay Technologies are included in the Company's
operations since acquisition.

F-18
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
The following is a summary of the purchase price allocation (IN THOUSANDS):

<TABLE>
<S> <C>
Current assets and other tangible assets........................... $ 121
Liabilities assumed................................................ (293)
Distribution Rights................................................ 1,178
---------
$ 1,006
---------
---------
</TABLE>

OTHER

On August 1, 1995, the Company purchased certain technology of VI Systems,
Inc. for $860,000 in cash. The entire purchase price has been charged to
operations as acquired in-process research and development on the date of
acquisition as substantially all of the technology was to be incorporated in
products under development and had no alternative future use.

PRO FORMA INFORMATION

The following unaudited pro forma summary represents the consolidated
results of operations of the Company as if the acquisitions of TUXEDO from
Novell and USL had occurred at the beginning of the periods presented and does
not purport to be indicative of what would have occurred had the acquisitions
been made as of those dates or the results which may occur in the future. The
operating results of the acquisitions of CST and Bay have not been included in
the below pro forma amounts as the effect is immaterial.

<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997
-----------
(UNAUDITED,
IN
THOUSANDS)
<S> <C>
Pro forma net revenues......................................... $ 62,521
-----------
-----------
Pro forma net loss............................................. $ (89,040)
-----------
-----------
Pro forma net loss per share................................... $ (1.74)
-----------
-----------
</TABLE>

3. ACQUIRED INTANGIBLE ASSETS

Values assigned to acquired in-process research and development,
distribution rights, developed technology, and trademarks and tradenames were
generally determined by independent appraisals using discounted cash flow
analysis. To determine the value of the in-process research and development, the
Company considered, among other factors, the state of development of each
project, the time and cost needed to complete each project, expected income, and
associated risks which included the inherent difficulties and uncertainties in
completing the project and thereby achieving technological feasibility and risks
related to the viability of and potential changes to future target markets. This
analysis results in amounts assigned to in-process research and development
projects that had not

F-19
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUIRED INTANGIBLE ASSETS (CONTINUED)
yet reached technological feasibility (as defined and utilized by the Company in
assessing software capitalization) and does not have alternative future uses. To
determine the value of the distribution rights, the Company considered, among
other factors, the size of the current and potential future customer base,
quality of existing relationships with customers, the expected income, and
associated risks. Associated risks included the inherent difficulties and
uncertainties in transitioning the business relationships from the acquired
entity to the Company, and risks related to the viability of and potential
changes to future target markets. To determine the value of the developed
technology, the expected future cash flows of each existing technology product
were discounted taking into account risks related to the characteristics and
applications of each product, existing and future markets, and assessments of
the life cycle stage of each product. Based on this analysis, the existing
technology that had reached technological feasibility was capitalized.

<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Developed technology and distribution rights........................... $ 8,726 $ 22,790
Trademarks and tradenames.............................................. 200 3,417
Goodwill............................................................... 933 933
--------- ---------
9,859 27,140
Accumulated amortization............................................... (1,108) (9,914)
--------- ---------
Acquired intangible assets, net........................................ $ 8,751 $ 17,226
--------- ---------
--------- ---------
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment......................................................... $ 442 $ 2,920
Software................................................................... 4 1,013
Furniture and fixtures..................................................... 11 1,576
Vehicles and other......................................................... 38 40
Leasehold improvements..................................................... -- 1,474
Equipment under capital leases............................................. -- 1,154
--------- ---------
495 8,177
Accumulated depreciation and amortization.................................. (39) (1,529)
--------- ---------
$ 456 $ 6,648
--------- ---------
--------- ---------
</TABLE>

The accumulated amortization of equipment under capital leases at January
31, 1996 and 1997, was $0 and $154, respectively.

F-20
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. OTHER ASSETS

Included in other assets at January 31, 1997 is $1,450,000 invested in bank
certificates of deposit (CDs) at interest rates ranging from 3.90% to 4.25%. The
CDs' support letters of credit that are required as a security deposits under
certain of the Company's facilities leases and other credit arrangements.

6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

LINES OF CREDIT

At January 31, 1997, the Company had borrowed $9.0 million pursuant to a
revolving line of credit with a commercial lender. The maximum credit available
is $10,000,000 and borrowing availability is based on the aggregate of (i) a
percentage of certain accounts receivable and (ii) $4.0 million. Additional
borrowings available under the line totaled $1.0 million at January 31, 1997.
Borrowings under the credit arrangement bear interest adjusted monthly at the
LIBOR plus 5.125% (10.49% in aggregate at January 31, 1997) and is secured by
substantially all assets of the Company. In addition, the credit agreement
prohibits the Company from paying dividends without the lender's approval. The
credit agreement has a maturity date of April, 1997. However, the lender has
verbally agreed to automatically renew the arrangement through April, 1998 and
allow the Company to borrow up to $10 million regardless of the eligible trade
receivable balance. The credit arrangement was not in place at January 31, 1996.

The Company has available capital lease lines totaling $999,000 at January
31, 1997, which availability expires June 30, 1997.

F-21
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable and capital lease obligations consist of the following:

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Subordinated notes payable to founders of IMC bearing interest at 8%. Principal and
interest is payable upon the earlier of a successfully completed public offering of
the Company's common stock generating net proceeds of at least $20,000,000 or
September 2000. Accrued interest of $89,000 and $430,000 is included at January 31,
1996 and 1997, respectively......................................................... $ 4,248 $ 4,589

Note payable to Novell with interest imputed at 8%. The note is due in quarterly
installments of various amounts totalling $64,550,000, which are guaranteed by the
majority shareholder of the Company, with a final payment of $12,000,000 due in
January 1999 upon the Company's exercise of an option to purchase perpetual rights
to TUXEDO........................................................................... -- 69,900

Credit arrangement from the Company's majority stockholder. Borrowings under the
arrangement are unsecured and bear interest at 11%. The maximum credit available is
$10 million. The borrowings under the arrangement are convertible, at the option of
the lender, into shares of Common Stock at the price equal to the borrowings
outstanding divided by the proceeds per share (net of underwriting commissions)
received by the Company upon the successful completion of an initial public
offering. The outstanding borrowings and accrued interest are due upon the earlier
of the successful completion of an initial public offering or July 22, 1998......... -- 1,000

Notes payable to the former shareholders of Bay Technologies Pty., Limited, with
interest imputed at 8% and is payable in quarterly installments ranging from
$107,000 to $123,000 during the next two years...................................... -- 928

Other notes payable, bearing interest ranging from 9%-12% per annum, payable in
installments through October 31, 1997............................................... 79 299

Capital lease obligations............................................................. -- 1,004
------------ ------------

4,327 77,720

Less amounts due within one year...................................................... (40) (28,180)
------------ ------------

Long-term debt and capital obligations due after one year............................. $ 4,287 $ 49,540
------------ ------------
------------ ------------
</TABLE>

F-22
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Scheduled maturities of notes payable and capital lease obligations are as
follows:

<TABLE>
<CAPTION>
CAPITAL
NOTES LEASES
PAYABLE OBLIGATIONS
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Fiscal year ending January 31,
1998................................................................. $ 27,880 $ 422
1999................................................................. 44,199 395
2000................................................................. 4,637 413
--------- -----------
Total................................................................ $ 76,716 1,230
---------
---------
Less amount representing interest.................................... (226)
-----------
Present value of net minimum lease payments.......................... 1,004
Less current portion................................................. (300)
-----------
Noncurrent obligations under capital leases.......................... $ 704
-----------
-----------
</TABLE>

7. NOTES RECEIVABLE FROM SHAREHOLDERS

In September 1995, the Company issued 3,050,000 shares of common stock to
certain officers in exchange for, in aggregate, cash of $325,000 and notes
receivable of $544,250. The notes bear interest at 7% compounded semi-annually
and are due upon the earlier of September 28, 2000 or on thirty days or one year
after termination of employment, depending upon the circumstances of the
termination of employment.

In December 1995, the Company loaned $720,000 to an officer and founder of
the Company for the financing of real property. The note receivable, which is
secured by a deed of trust on the real property, bears interest at 7% per annum
and is due and payable on the earlier of January 1, 2001 or termination of the
founder's employment with the Company. The note may be repaid at any time prior
to the due date.

8. OPERATING LEASE COMMITMENTS

The Company leases its facilities under operating lease arrangements.
Certain of the leases provide for certain specified annual rent increases as
well as options to extend the lease beyond its initial term. Approximate annual
minimum operating lease commitments are as follows (in thousands):

<TABLE>
<S> <C>
Fiscal year ending January 31,
1998.............................................................. $ 3,532
1999.............................................................. 2,686
2000.............................................................. 2,462
2001.............................................................. 1,621
2002.............................................................. 1,585
Thereafter........................................................ 8,248
---------
Total minimum lease payments...................................... $ 20,134
---------
---------
</TABLE>

Total rental expense charged to operations for the years ended January 31,
1996 and 1997 was approximately $184,000, and $3.3 million, respectively.

F-23
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES

The provisions for income taxes of $60,000 and $800,000 for the years ended
January 31, 1996 and 1997, respectively, represent primarily foreign withholding
taxes for which no U.S. tax benefit is currently recognizable.

The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rate (34%) to income tax expense is
as follows (in thousands):

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
------------ ------------
<S> <C> <C>
Tax credit at U.S. statutory rate................................. $ (6,011) $ (29,874)
Nondeductible amortization of intangibles......................... 1,770 11,842
Valuation allowance............................................... 4,241 18,304
Foreign withholding taxes, net.................................... 60 528
------------ ------------
60 800
------------ ------------
------------ ------------
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows (in thousands):

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................... $ 1,545 $ 7,279
Deferred revenue................................................... 468 82
Accruals and reserves.............................................. 580 3,193
Property and equipment and intangible assets....................... 2,549 17,547
---------- ----------
Total deferred tax assets...................................... 5,142 28,101
Valuation allowance.................................................. (5,142) (28,101)
---------- ----------
Net deferred tax assets.............................................. $ -- $ --
---------- ----------
---------- ----------
</TABLE>

Realization of deferred tax assets is dependent on future taxable income,
the timing and amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax assets at January 31, 1996
and 1997, has been established to reflect these uncertainties. The valuation
allowance increased by $22,959,000 in the year ended January 31, 1997.
Approximately $728,000 of the valuation allowance at January 31, 1996 and 1997
relates to acquired net operating loss carryforwards, the benefit of which will
be credited to intangible assets when realized.

As of January 31, 1996 and 1997, the Company had net operating loss
carryforwards for federal tax purposes of approximately $4,100,000 and
$19,800,000, respectively, that will expire from 2010 through 2012. The Company
also has state net operating loss carryforwards at January 31, 1996 and 1997 of
approximately $2,300,000 and $8,900,000, respectively, expiring from 2000
through 2002. Utilization of net operating loss carryforwards may be subject to
substantial limitations due to the ownership change and other limitations
provided by the Internal Revenue Code and similar state provisions. These
limitations may result in the expiration of net operating loss carryforwards
before full utilization.

F-24
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK

Holders of Series B Redeemable Convertible Preferred Stock (the "Series B
Stock") are entitled to annual dividends, when and if declared by the Board of
Directors, of $0.07 per share, payable prior and in preference to any
declaration or payment of any dividend on the Series A Convertible Preferred
Stock (the "Series A Stock") and the Common Stock. The right to receive such
dividends are cumulative and will accrue to the extent that such dividends are
not declared or paid in any year. No dividends have been declared or paid by the
Company on the Series B Stock. Total accumulated dividends on the Series B Stock
were approximately $932,000 at January 31, 1997.

In the event of liquidation of the Company, holders of Series B Stock are
entitled to receive a liquidation preference of $1.00 per share, plus all
accumulated but unpaid dividends, prior and in preference to any payments made
to holders of Series A Stock and common stock. The Series B Stock carries no
voting rights.

Each share of Series B Stock is convertible, at the option of the holder,
into that number of shares of common stock obtained by dividing the amount
payable to such holder in the event of liquidation by the fair value of the
Company's common stock, as determined by the Board of Directors, or, in the
event of a conversion in connection with an initial public offering, by the per
share initial public offering price, net of underwriting commissions.

Each holder of Series B Stock has the right, exercisable at any time
following September 30, 2001, to require the Company to redeem all or a portion
of such holder's Series B Stock for $1.00 per share, plus accumulated and unpaid
dividends (the "Redemption Price"). However, upon the closing of an initial
public offering of the Company's common stock at an offering price of not less
than $5.00 per share and gross proceeds to the Company of at least $10,000,000,
each share of Series B Stock will be redeemed for the Redemption Price unless
converted, at the option of the holder, into shares of common stock of the
Company. Additionally, the Company may, at its option, redeem at any time any or
all of the outstanding shares of the Series B Stock at the Redemption Price.

11. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

Series A Stock holders are entitled to noncumulative annual dividends, when
and if declared by the Board of Directors, of $0.12 per share, payable in
preference to common stock dividends, but after all cumulative dividends payable
with respect to the Series B Stock have been declared and paid. No dividends
have been declared or paid by the Company on the Series A Stock.

In the event of liquidation of the Company, Series A Stock holders are
entitled to receive a liquidation preference of $1.70 per share, plus all
declared but unpaid dividends, after payment of the full liquidation preference
has been made on the Series B Stock prior and in preference to any payments made
to holders of common stock.

Each share of Series A Stock votes equally with shares of common stock on an
"if-converted" basis. Each share of Series A Stock is convertible at any time at
the option of the shareholder into two shares of common stock. The conversion
ratio is subject to upward adjustment upon the occurrence of certain events.
Upon conversion, all declared and unpaid dividends will be paid in cash. Each
share of Series A Stock automatically converts into common stock at the
then-effective conversion rate in the event of an underwritten initial public
offering of the Company's common stock at an offering price of not less than

F-25
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
$5.00 per share and gross proceeds to the Company of at least $10,000,000, or
upon the written consent of two-thirds of the then outstanding Series A Stock.

COMMON STOCK REPURCHASE RIGHTS

The Company has stock repurchase agreements with certain individuals
whereby, if the stockholder ceases to be a consultant or employee of the
Company, the Company has the right to repurchase the stock at the original
issuance price. Such repurchase rights generally lapse over four to five years
from the original date of issuance. Certain of the repurchase rights lapse upon
the successful completion of an initial public offering. Common stock subject to
repurchase totaled 5,889,964 shares with an aggregate repurchase price of
$23,127,606 as of January 31, 1997. Series A Stock subject to repurchase at
January 31, 1997 was 100,000 shares at an aggregate price of $170,000.

COMMON STOCK RESERVED FOR FUTURE ISSUANCE

At January 31, 1997, the Company had reserved shares of common stock for
future issuance as follows:

<TABLE>
<S> <C>
Conversion of Series A convertible preferred stock............. 34,332,000
1995 Flexible Stock Incentive Plan............................. 9,026,213
</TABLE>

In addition, the Company has reserved sufficient shares of common stock for
the conversion of Series B redeemable convertible preferred stock and borrowings
outstanding under the credit arrangement with the Company's majority
stockholder.

STOCK OPTION PLAN

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recorded.

The fair value option valuation models were developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly speculative assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

Pro forma information regarding net income and earnings per share is
required by FAS 123 which also requires that the information be determined as if
the Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a minimum
value-pricing model with a risk free interest rate of 5.0%, no dividend yield
and an estimated life of 48 months. The effect of applying the minimum value
method to the stock option activity did not result in pro forma net loss and
loss per share that are materially different from historical amounts reported.
Therefore, such pro forma information is not separately presented herein. Future
pro forma net income or loss and earnings or loss

F-26
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
per share may be materially different from actual amounts reported. The Company
will not use the minimum value-pricing model when granting options when the
Company becomes a public company.

The Company's 1995 Flexible Stock Incentive Plan (the "Plan") provides for
the grant of incentive and nonstatutory stock options, as determined by the
Board of Directors. Options are generally granted at an exercise price of not
less than the fair value per share of the common stock on the date of grant. The
vesting and exercise provision are determined by the Board of Directors with a
maximum term of ten years. Options granted under the Plan are immediately
exercisable and generally vest over a four-year period with 25% vesting after
one year and 2.08% each month thereafter. Unvested shares are subject to
repurchase by the Company. There were 404,959 shares vested at January 31, 1997,
at an average exercise price of $0.285. At January 31, 1997, 2,344,925 shares of
common stock were reserved for future grants under the Plan. The Plan also
provides for the sale or bonus of common stock to eligible individuals in
connection with the performance of services for the Company. During the year
ended January 31, 1997, the Company issued under the Plan 70,000 shares of
Common Stock as payment for services.

Information with respect to option activity in the Plan is summarized as
follows:

<TABLE>
<CAPTION>
WEIGHTED
OPTIONS PRICE AVERAGE
OUTSTANDING PER SHARE PRICE
------------ -------------- -----------
<S> <C> <C> <C>
Balance at January 20, 1995............................................ -- $ --
Granted.............................................................. 2,344,200 $.01 - $.285 $ 0.273
Exercised............................................................ (100,000) $0.01 $ 0.010
------------
Balance at January 31, 1996............................................ 2,244,200 $ 0.285
Granted.............................................................. 4,016,550 $0.285 $ 0.285
186,750 $1.000 $ 1.000
235,500 $2.000 $ 2.000
452,525 $4.000 $ 4.000
476,925 $6.000 $ 6.000
Exercised............................................................ (403,787) $0.285 $ 0.285
Forfeited............................................................ (527,375) $0.655 $ 0.655
------------
Balance at January 31, 1997............................................ 6,681,288 $ 0.996
------------
------------
</TABLE>

The assumed weighted average remaining contractual life of options at
January 31, 1997 is as follows:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
- -------------------------------------
WEIGHTED
AVERAGE REMAINING
PRICE CONTRACTUAL
PER SHARE LIFE MONTHS
- ---------- -------------------------
<S> <C>
$0.285 107
$1.00 115
$2.00 116
$4.00 117
$6.00 119
</TABLE>

The weighted average fair value of options granted in fiscal 1996 and 1997
was $0.273 and $1.37, respectively.

F-27
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
The Company has recorded deferred compensation of $973,000 for the
difference between the grant price and the deemed fair value of certain of the
Company's common stock options granted in the year ended January 31, 1997. This
amount is being amortized over the vesting period of the individual options,
generally four years. Compensation expense recognized in the year ended January
31, 1997 totaled $128,000 and at January 31, 1997, deferred compensation totaled
$845,000.

INITIAL PUBLIC OFFERING

In January 1997, the Board of Directors authorized management of the Company
to file a registration statement with the SEC, offering its common stock to the
public.

12. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION

The Company operates in one industry segment (the development and marketing
of computer software and related services) and markets its products and services
internationally through subsidiaries in Europe and Asia, and through independent
distributors and resellers located worldwide. Export sales totaled $553,000 for
the year ended January 31, 1996 and $3.2 million for the year ended January 31,
1997. Transfers between geographic areas are accounted for at estimated amounts
which are generally above cost. Such transfers are eliminated in the
consolidated financial statements. Identifiable assets are those assets that can
be directly associated with a particular geographic area. The following is a
summary of operations within geographic areas.

<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues from unaffiliated customers
United States................................................................ $ 5,133 $ 40,182
Europe....................................................................... -- 17,922
Asia and other............................................................... -- 3,494
---------- ----------
Total revenues............................................................. $ 5,133 $ 61,598
---------- ----------
---------- ----------
Income (loss) from operations
United States................................................................ $ (17,740) $ (78,328)
Europe....................................................................... -- (874)
Asia and other............................................................... -- (1,940)
---------- ----------
Total income (loss) from operations........................................ $ (17,740) $ (81,142)
---------- ----------
---------- ----------
Identifiable assets (at end of year)
United States................................................................ $ 18,953 $ 41,348
Europe....................................................................... -- 13,041
Asia and other............................................................... -- 3,584
---------- ----------
Total identifiable assets.................................................. $ 18,953 $ 57,973
---------- ----------
---------- ----------
</TABLE>

13. TRANSACTION WITH DIGITAL EQUIPMENT CORPORATION ("DIGITAL")

On January 31, 1997, the Company entered into an agreement with Digital to
acquire exclusive worldwide rights to MessageQ, ObjectBroker and other related
products from Digital for an aggregate consideration of $22 million. The Digital
transaction closed in March 1997. Of the aggregate

F-28
<PAGE>
BEA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. TRANSACTION WITH DIGITAL EQUIPMENT CORPORATION ("DIGITAL") (CONTINUED)
consideration for the products, $5 million is payable in cash ($3 million of
which will be due on June 20, 1997 and $2 million of which will be due on the
earlier of June 20, 1997 or 10 days after the purchase by Digital of $2 million
worth of Common Stock offered hereby), and $17 million is payable by delivery of
a $17 million non-interest bearing convertible promissory note. The promissory
note provides for installments of $2 million, $4 million and $11 million payable
on or before February 1, 1998, 1999 and 2000, respectively, and may be converted
into shares of the Company's Common Stock at the option of Digital at a
conversion price of 1.5 times, 1.8 times and 2.5 times the initial public
offering price, respectively; provided, however, that only $5 million of such
$11 million is convertible. In addition, the Company has granted Digital
warrants to purchase $3 million worth of Common Stock at a price equal to the
initial public offering price exercisable for the period beginning 180 days
after the date of this offering and expiring one year thereafter.

14. SUBSEQUENT EVENTS

On March 19, 1997, the Company's Board of Directors authorized, subject to
stockholder approval, 35,000,000 shares of an additional class of common stock
("Class B Common Stock"), and amended the terms of conversion of the shares of
Series A and Series B Preferred Stock. Assuming conversion into Common Stock or
Class B Common Stock of all outstanding shares of Series A and Series B
Preferred Stock, approximately 30.0 million shares of Class B Common Stock will
be issued upon conversion of certain shares of Series A Preferred Stock and all
shares of Series B Preferred Stock at or prior to the closing of the Company's
initial public offering. All outstanding shares of Class B Common Stock will be
held by the Company's majority stockholder. The Class B Common Stock has the
same rights, preferences, privileges and restrictions as the Common Stock,
except that the Class B Common Stock is convertible into Common Stock, has no
voting rights except as required by Delaware law and has no right to vote for
the election of directors. The shares of Class B Common Stock will, upon any
transfer of such shares, be automatically converted into a like number of shares
of Common Stock, subject to adjustment upon certain events with respect to the
Common Stock. The shares of Class B Common Stock are also convertible at the
option of the holder thereof into Common Stock, so long as such conversion
results in the stockholder holding equal to or less than 49% of the Company's
outstanding voting securities.

On March 19, 1997, the Company's Board of Directors adopted, subject to
stockholder approval, the 1997 Stock Incentive Plan under which the Company is
initially authorized to grant up to 5,100,000 stock options with similar terms
to the 1995 Flexible Stock Incentive Plan. The Company will not grant additional
stock options under the 1995 Flexible Stock Incentive Plan subsequent to the
effective date of the 1997 Stock Option Plan.

In addition, on March 19, 1997, the Company's Board of Directors adopted,
subject to stockholder approval, the 1997 Employee Stock Purchase Plan under
which an aggregate of 1,250,000 shares of Common Stock will be reserved.

F-29
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Information Management Company

We have audited the accompanying balance sheets of Information Management
Company as of December 31, 1994 and September 29, 1995, and the related
statements of operations and retained earnings (deficit) and cash flows for the
year and nine months then ended, respectively. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Information Management
Company at December 31, 1994 and September 29, 1995, and the results of its
operations and its cash flows for the year and nine months then ended,
respectively, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

MetroPark, New Jersey
January 10, 1997

F-30
<PAGE>
INFORMATION MANAGEMENT COMPANY

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
1994 1995
-------------- --------------

<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 30,783 $ --
Accounts receivable, less allowance for doubtful accounts of $49,000 in 1994
and $200,000 in 1995......................................................... 1,255,269 1,334,324
Prepaid expenses and other current assets...................................... 13,419 47,414
-------------- --------------
Total current assets............................................................. 1,299,471 1,381,738

Property and equipment, net...................................................... 54,936 56,402
-------------- --------------
$ 1,354,407 $ 1,438,140
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Cash overdraft................................................................. $ -- $ 123,380
Line of credit................................................................. -- 522,123
Accounts payable............................................................... 37,223 259,071
Accrued compensation and related payroll liabilities........................... 213,804 107,656
Accrued royalties.............................................................. 310,102 154,545
Accrued sales taxes............................................................ 350,000 600,000
Other accrued liabilities...................................................... 55,676 112,298
Deferred revenue............................................................... 334,126 505,133
-------------- --------------
Total current liabilities........................................................ 1,300,931 2,384,206

Commitments

Stockholders' equity (deficit):
Common stock, no par value, 1,500 shares authorized, issued and outstanding.... 200 200
Retained earnings (deficit).................................................... 53,276 (946,266)
-------------- --------------
Total stockholders' equity (deficit)............................................. 53,476 (946,066)
-------------- --------------
$ 1,354,407 $ 1,438,140
-------------- --------------
-------------- --------------
</TABLE>

See accompanying notes.

F-31
<PAGE>
INFORMATION MANAGEMENT COMPANY

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 29,
1994 1995
-------------- --------------
<S> <C> <C>
Revenues:
License........................................................................ $ 4,365,735 $ 2,753,789
Service........................................................................ 1,069,221 1,858,759
-------------- --------------
Total revenues................................................................... 5,434,956 4,612,548

Cost of revenues:
License........................................................................ 1,623,565 734,233
Service........................................................................ 887,296 1,407,760
-------------- --------------
Total cost of revenues........................................................... 2,510,861 2,141,993
-------------- --------------
Gross profit..................................................................... 2,924,095 2,470,555

Operating expenses:
Research and development....................................................... 111,504 726,615
Sales and marketing............................................................ 1,513,185 1,223,783
General and administrative..................................................... 996,411 1,505,275
-------------- --------------
Total operating expenses......................................................... 2,621,100 3,455,673
-------------- --------------

Income (loss) from operations.................................................... 302,995 (985,118)

Interest expense................................................................. 22,634 12,543
Other expense.................................................................... 691 1,881
-------------- --------------
Net income (loss)................................................................ 279,670 (999,542)

Retained earnings (deficit) at beginning of period............................... (226,394) 53,276
-------------- --------------
Retained earnings (deficit) at end of period..................................... $ 53,276 $ (946,266)
-------------- --------------
-------------- --------------
</TABLE>

See accompanying notes.

F-32
<PAGE>
INFORMATION MANAGEMENT COMPANY

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 29,
1994 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................................ $ 279,670 $ (999,542)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................. 768 44,746
Changes in assets and liabilities:
Accounts receivable, net..................................................... (1,014,717) (79,055)
Prepaid expenses and other current assets.................................... 14,325 (33,995)
Accounts payable and accrued expenses........................................ 26,927 172,322
Deferred revenue............................................................. 250,276 171,007
Royalties payable............................................................ 310,102 (155,557)
Sales taxes payable.......................................................... 350,000 250,000
-------------- --------------
Net cash provided by (used in) operating activities.............................. 217,351 (630,074)

INVESTING ACTIVITIES
Purchases of property and equipment.............................................. (47,362) (46,212)
-------------- --------------
Net cash used in investing activities............................................ (47,362) (46,212)
-------------- --------------

FINANCING ACTIVITIES
Borrowing under line of credit................................................... 1,341,627 1,646,015
Payments on line of credit....................................................... (1,481,949) (1,123,892)
Cash overdraft................................................................... 123,380
-------------- --------------
Net cash (used in) provided by financing activities.............................. (140,322) 645,503
-------------- --------------

Net increase (decrease) in cash and cash equivalents............................. 29,667 (30,783)
Cash and cash equivalents at beginning of period................................. 1,116 30,783
-------------- --------------
Cash and cash equivalents at end of period....................................... $ 30,783 $ --
-------------- --------------
-------------- --------------

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest......................................... $ 22,634 $ 12,543
-------------- --------------
-------------- --------------
</TABLE>

See accompanying notes.

F-33
<PAGE>
INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 29, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Information Management Company (the "Company") was incorporated in the state
of Delaware in July 1990 and is located in Liberty Corner, New Jersey. The
Company is engaged in providing standards-based, enterprise-wide client/server
products and services.

Effective September 30, 1995, the Company was purchased by BEA Systems, Inc.
("BEA"); (see Note 7). The accompanying financial statements have been prepared
on the Company's historical cost basis, and do not reflect any adjustments
resulting from the acquisition.

REVENUE RECOGNITION

Revenues from end user software license agreements are recognized at the
time of product shipment, provided there are no vendor obligations remaining to
be fulfilled and collectibility is probable. License fees from resellers are
also recognized as revenue when the software has been shipped, provided that no
significant vendor obligations remain to be fulfilled, certain customer criteria
established by the Company have been met, and the fees are payable within twelve
months.

Services revenues include consulting services, post-contract customer
support, and training. Consulting revenues and the related cost of these
revenues are recognized on a time and materials basis. Support revenues are
recognized pro rata over the term of the service period and training or other
revenues are recognized as the related services are provided. The unrecognized
portion of amounts billed or paid in advance for such services is reported as
deferred revenues.

CASH EQUIVALENTS

The Company considers all highly liquid short-term investments with original
maturities of 90 days or less when purchased to be cash equivalents.

CONCENTRATION OF CREDIT RISK

The Company sells its products to customers, typically large corporations,
in a variety of industries, primarily in North America. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses and such
losses have been within management's expectations.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
computed using the double-declining balance method.

The estimated useful lives used in computing depreciation are as follows:

<TABLE>
<S> <C>
Machinery and equipment.................................. 3-5 years
Furniture and fixtures................................... 7 years
Leasehold improvements................................... 10 years
Vehicles................................................. 5 years
</TABLE>

F-34
<PAGE>
INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 29, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

The Company has elected, with the consent of its shareholders, to be treated
as an S Corporation under the Internal Revenue Code. The shareholder of an S
Corporation includes the Company's income in its own income for income tax
purposes. Accordingly, no federal income taxes are provided for in the
accompanying financial statements. Effective January 1, 1995, the Company has
also elected S Corporation status under the applicable sections of the New
Jersey income tax laws.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

RESEARCH AND DEVELOPMENT

Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expenses in the accompanying
statements of operations.

PRODUCT CONCENTRATION

The Company derives the majority of its revenue from the licensing of
products in the TUXEDO product line, to which the Company has certain
distribution rights from Novell Inc. ("Novell"), and fees from related services.
These products and services are expected to continue to account for a majority
of the Company's revenue for the foreseeable future. Consequently, a reduction
in demand or an increase in competition for these products due to market factors
or a decline in sales of such products would affect operating results adversely.

During the year ended December 31, 1994 and the nine months ended September
29, 1995, the amount of royalties due to Novell totalled $982,500 and $687,440,
respectively, and are included in cost of sales in the accompanying statements
of operations.

F-35
<PAGE>
INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 29, 1995

2. TRANSACTIONS WITH SIGNIFICANT CUSTOMERS

Customers that comprise greater than 10% of the Company's total revenues in
the periods presented are as follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 29,
1994 1995
----------------- -----------------
<S> <C> <C>
Customer A................................................ 22% 10%
Customer B................................................ 15% --
Customer C................................................ -- 12%
</TABLE>

Revenues generated from these customers were less than 10% of total revenue
in the periods where percentages are not shown.

3. PROPERTY AND EQUIPMENT

The components of property and equipment at December 31, 1994 and September
29, 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Machinery and equipment.............................................. $ 60,012 $ 82,558
Furniture and fixtures............................................... 14,486 18,685
Leasehold improvements............................................... 9,112 21,578
Vehicles............................................................. 1,060 8,061
--------- -----------
84,670 130,882
Less accumulated depreciation and amortization....................... 29,734 74,480
--------- -----------
$ 54,936 $ 56,402
--------- -----------
--------- -----------
</TABLE>

4. LINE OF CREDIT

In March 1995, the Company entered into an accounts receivable revolving
loan facility with a bank with availability up to $750,000 and renewable
annually. Borrowings are limited to the borrowing base (as defined); however,
the full amount of the facility was available to the Company at September 29,
1995. Advances bear interest at 1.5% above the bank's floating base rate (8% at
September 29, 1995), and the Company is required to pay a fee for the unused
portion equal to .5%, payable quarterly and calculated monthly. Borrowings under
the facility is secured by substantially all assets of the Company and is
personally guaranteed by the principal stockholders.

Management estimates that the carrying value of the revolving loan facility
approximates its fair value.

During 1994, the Company maintained a line of credit with another bank in
the amount of $350,000. This line was increased to $550,000 in January 1995
before it was replaced with the facility discussed above.

F-36
<PAGE>
INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 29, 1995

5. LEASES

The Company leases its operating facility, certain equipment and vehicles
under noncancellable operating leases that expire in 1997. The leases provide
for all real estate taxes and operating expenses to be paid by the Company.
Under the lease of the operating facility, the Company has the option to renew
for additional terms at specified rentals. Minimum future rental payments under
such leases as of September 29, 1995 are as follows:

<TABLE>
<S> <C>
Three months ending December 31, 1995.................... $ 79,851
Year ending December 31, 1996............................ 308,779
Year ending December 31, 1997............................ 178,396
---------
Total minimum future rental payments..................... $ 567,026
---------
---------
</TABLE>

Total rent expense charged to operations was $107,600 and $184,221, during
the year ended December 31, 1994 and the nine months ended September 29, 1995,
respectively.

6. GENERAL AND ADMINISTRATIVE EXPENSES

During the nine months ended September 29, 1995, the Company incurred
various professional fees in conjunction with negotiations for the sale of the
Company to prospective buyers, including BEA (see Note 7). These fees totaled
$213,000 for the period and are included in general and administrative expenses
in the accompanying statement of operations.

7. SUBSEQUENT EVENT

Effective September 30, 1995, the Company was purchased by BEA, a company
which develops and markets middleware solution platforms. The purchase price,
excluding liabilities assumed and direct acquisition costs, was $10,010,000 of
which $7,280,000 was paid in cash at the closing and $2,730,000 is payable
through the issuance of a subordinated promissory note. The interest rate on
this note is 8%.

F-37
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
BEA Systems, Inc.

We have audited the accompanying statements of operations and cash flows of
Independence Technologies, Inc. for the period from January 1, 1995 to November
1, 1995. These statements of operations and cash flows are the responsibility of
BEA Systems, Inc.'s management. Our responsibility is to express an opinion on
these statements of operations and cash flows based on our audit.

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

The accompanying statements of operations and cash flows were prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form SB-2 of
BEA Systems, Inc. as described in Note 1, and are not intended to be a complete
presentation of the financial position and results of operations of Independence
Technologies, Inc.

In our opinion, the statements of operations and cash flows referred to
above present fairly, in all material respects, the results of operations and
cash flow of Independence Technologies, Inc. for the period from January 1, 1995
to November 1, 1995, in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP

San Jose, California
January 20, 1997

F-38
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.

STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995

<TABLE>
<S> <C>
Revenues:
License...................................................................... $ 3,756,574
Service...................................................................... 1,960,103
-----------
Total revenues............................................................. 5,716,677
-----------
Cost of revenues:
License...................................................................... 1,188,482
Service...................................................................... 1,239,911
-----------
Total cost of revenues..................................................... 2,428,393
-----------
Gross profit................................................................... 3,288,284
Operating expenses:
Research and development..................................................... 1,493,622
Sales and marketing.......................................................... 1,777,710
General and administrative................................................... 1,290,768
-----------
Total operating expenses................................................... 4,562,100
-----------

Loss from operations........................................................... (1,273,816)

Interest income.............................................................. 15,693
Interest expense............................................................. (31,382)
-----------

Loss before extraordinary item................................................. (1,289,505)

Extraordinary item--forgiveness of debt........................................ 1,035,000
-----------

Net loss....................................................................... $ (254,505)
-----------
-----------
</TABLE>

See accompanying notes.

F-39
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995

<TABLE>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
Net loss....................................................................... $ (254,505)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 365,417
Gain on forgiveness of debt.................................................. (1,035,000)
Changes in assets and liabilities:
Accounts receivable........................................................ 33,711
Prepaid expenses and other current assets.................................. 61,126
Accounts payable........................................................... 236,063
Accrued liabilities........................................................ 714,529
-----------
Net cash provided by operating activities...................................... 121,341
-----------
INVESTING ACTIVITIES
Acquisition of property and equipment.......................................... (88,963)
Advances to stockholders....................................................... (2,621)
-----------
Net cash used in investing activities.......................................... (91,584)
-----------
FINANCING ACTIVITIES
Repayments of long-term debt................................................... (14,433)
Payments on capital lease obligations.......................................... (13,905)
Net proceeds from issuance of common stock and warrants........................ 48,312
-----------
Net cash provided by financing activities...................................... 19,974

Net increase in cash........................................................... 49,731
Cash, beginning of period...................................................... 250,508
-----------
Cash, end of period............................................................ $ 300,239
-----------
-----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest....................................... $ 18,216
-----------
-----------
Conversion of debt to common stock............................................. $ 2,466,536
-----------
-----------
</TABLE>

See accompanying notes.

F-40
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.

NOTES TO STATEMENTS OF OPERATIONS AND CASH FLOWS

FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Independence Technologies, Inc. (the "Company") which was incorporated in
July 1988 provides object-oriented software, programming products, and
consulting services primarily for large, distributed on-line transaction
processing applications based on the UNIX operating system. The Company also
acts as a distributor of certain third party software products.

BASIS OF PRESENTATION

On November 1, 1995, the Company was acquired by Information Management
Company ("IMC"), a wholly owned subsidiary of BEA Systems, Inc. ("BEA") for
approximately $7,266,000 in cash and the assumption of certain liabilities. The
accompanying financial statements have been prepared on the Company's historical
cost basis, and do not reflect any adjustments resulting from the acquisition.

The accompanying statements of operations and cash flows were prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form-SB-2 of
BEA and are not intended to be a complete presentation of the financial position
and results of operations of Independence Technologies, Inc.

USE OF ESTIMATES

CONCENTRATION OF CREDIT RISK

The Company sells its products to customers, typically large corporations,
in a variety of industries. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.

REVENUE RECOGNITION

Revenues from end user software license agreements and license fees from
third-party distributors and value-added resellers are recognized at the time of
product shipment, provided there are no significant vendor obligations remaining
to be fulfilled and collectibility is probable. Consulting revenues and the
related costs are generally recognized on a time and materials basis; however,
certain fixed price contracts are recognized on the percentage of completion
basis which involves the use of estimates. Actual results could differ from
those estimates and, as a result, future profitability on such contracts may be
more or less than estimated. The amount of consulting contracts recognized on a
percentage of completion basis has not been material to date. Support revenues
are recognized prorata over the term of the service period. Training and other
service revenues are recognized as the related services are performed. The
unrecognized portion of amounts paid for such consulting, support, and other
services is reported as deferred revenues.

F-41
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.

NOTES TO STATEMENTS OF OPERATIONS AND CASH FLOWS (CONTINUED)

FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets ranging
from three to seven years. Assets under capital leases and leasehold
improvements are amortized over the shorter of the asset life or the remaining
lease term. The related amortization expense is included in depreciation
expense.

RESEARCH AND DEVELOPMENT

PRODUCT CONCENTRATION

The Company derives a majority of its revenue from the licensing of products
in the TUXEDO product line, to which the Company has certain distribution rights
from Novell, Inc. and fees from related services. These products and services
are expected to continue to account for a majority of the Company's revenue for
the foreseeable future. Consequently, a reduction in demand or an increase in
competition for these products due to market factors, or a decline in sales of
such products, would affect operating results adversely.

2. EXTRAORDINARY ITEM

On June 27, 1995, the Company entered into a settlement agreement to resolve
all disputes with respect to a loan agreement with one of its creditors. In
connection with this settlement agreement, the Company realized an extraordinary
gain of approximately $1,035,000, representing the forgiveness of both principal
and accrued interest due on the loan.

3. LEASE COMMITMENTS

Facilities are leased under operating leases expiring at various dates
through November 30, 1999. Certain leases have escalating rental payments and
options for renewal for additional terms. Future minimum rental payments for the
years ended and period ended December 31, are as follows:

<TABLE>
<S> <C>
November 2 through December 31, 1995............................. $ 27,000
1996............................................................. 164,000
1997............................................................. 171,000
1998............................................................. 176,000
1999............................................................. 162,000
---------
Total............................................................ $ 700,000
---------
---------
</TABLE>

F-42
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.

NOTES TO STATEMENTS OF OPERATIONS AND CASH FLOWS (CONTINUED)

FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995

3. LEASE COMMITMENTS (CONTINUED)
Rent expense was $147,916 for the period from January 1, 1995 to November 1,
1995.

4. INCOME TAXES

Due to the Company's loss position, there is no provision for income taxes
for the period from January 1, 1995, to November 1, 1995.

<TABLE>
<CAPTION>
NOVEMBER 1,
1995
--------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................................ $ 743,000
Deferred revenue............................................................ 554,000
Accruals and reserves....................................................... 527,000
Fixed assets................................................................ 39,000
--------------
Total deferred tax assets................................................. 1,863,000
Valuation allowance......................................................... (1,863,000)
--------------
Net deferred tax assets....................................................... $ 0
--------------
--------------
</TABLE>

Based upon the weight of available evidence, which includes the Company's
historical operating performance, the reported cumulative net loss for the prior
three years, and the uncertainties regarding future results of operations of the
Company, the Company has provided a full valuation allowance against its net
deferred tax assets as at this time it is more likely than not that the deferred
tax assets will not be realized. The change in the valuation allowance was an
increase of $7,000 for the period ended November 1, 1995.

As of November 1, 1995, the Company had net operating loss carryforwards for
federal and state tax purposes of approximately $2,100,000 and $200,000 which
will expire from 1998 through 2009. Utilization of net operating loss
carryforwards may be subject to a substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code of 1986, as
amended, and similar state provisions. The annual limitation may result in the
expiration of net operating loss carryforwards before full utilization.

5. OTHER

During the period from August 1995 through October 1995 approximately
$2,000,000 of convertible debentures and approximately $467,000 of accrued
royalties were converted into common stock of the Company.

F-43
<PAGE>
REPORT OF ERNST & YOUNG AUDIT, INDEPENDENT AUDITORS

The Board of Directors

USL Finance S.A.

We have audited the accompanying consolidated balance sheet of USL Finance
S.A. as of May 5, 1996 and the related consolidated statements of operations,
shareholders' equity, and cash flows for the period from November 1, 1995
through May 5, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with United States generally accepted
auditing standards. 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 consolidated financial position of
USL Finance S.A. as of May 5, 1996, and the consolidated results of its
operations, and its cash flows for the period from November 1, 1995 to May 5,
1996, in conformity with United States generally accepted accounting principles.

/s/ ERNST & YOUNG Audit

Paris, France

December 24, 1996

F-44
<PAGE>
USL FINANCE S.A.

CONSOLIDATED BALANCE SHEET

MAY 5, 1996

(IN THOUSANDS OF U.S. DOLLARS)

ASSETS

<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents........................................................ $ 2,259
Accounts receivable.............................................................. 2,875
Prepaid expenses and other current assets........................................ 284
---------
Total current assets......................................................... 5,418
---------
Leasehold improvements and equipment, net........................................ 642
---------
Distribution rights, net of amortization......................................... 294
---------
Total assets................................................................. $ 6,354
---------
---------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable................................................................. $ 405
Accrued expenses................................................................. 350
Payable to BEA Systems Inc. ..................................................... 3,091
Value-added tax payable.......................................................... 277
Deferred revenues................................................................ 411
---------
Total current liabilities.................................................... 4,534

Net deferred tax liabilities....................................................... 5
Deferred revenues.................................................................. 750
Long-term debt..................................................................... 541
Minority interests................................................................. 76

Commitments........................................................................

Shareholders' equity:
Common stock, FF 100 par value; 13,220 shares issued and
outstanding.................................................................... 270
Capital in excess of par value................................................... 131
Cumulative translation adjustment................................................ (24)
Retained Earnings................................................................ 71
---------
Total shareholders' equity..................................................... 448
---------
Total liabilities and shareholders' equity................................... $ 6,354
---------
---------
</TABLE>

See accompanying notes.

F-45
<PAGE>
USL FINANCE S.A.

CONSOLIDATED STATEMENT OF OPERATIONS

NOVEMBER 1, 1995 THROUGH MAY 5, 1996

(IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<S> <C>
Revenues:
License.................................................................. $ 2,024
Service.................................................................. 868
-------
Total revenues............................................................. 2,892

Cost of revenues:
License.................................................................. 1,044
Service.................................................................. 873
-------
Total cost of revenues..................................................... 1,917
-------
Gross profit............................................................... 975

Operating expenses:
Marketing and selling.................................................... 667
General and administrative............................................... 88
Amoritzation of distribution rights...................................... 76
-------
Total operating expenses............................................... 831
-------
Income from operations..................................................... 144

Interest income............................................................ 64
Interest expense........................................................... (20)
Minority interest.......................................................... (32)
-------

Income before income taxes................................................. 156
Income taxes............................................................... (85)
-------
Net income................................................................. $ 71
-------
-------
</TABLE>

See accompanying notes.

F-46
<PAGE>
USL FINANCE S.A.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE TOTAL
---------------------- CAPITAL IN EXCESS TRANSLATION RETAINED SHAREHOLDERS'
SHARES AMOUNT OF PAR VALUE ADJUSTMENT EARNINGS EQUITY
--------- ----------- ------------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance October 31, 1995........ 13,220 $ 270 $ 131 $ (21) $ -- $ 380
Translation adjustment........ -- -- -- (3) -- (3)
Net income.................... -- -- -- -- 71 71
--------- ----- ----- --- --- -----
Balance May 5, 1996............. 13,220 $ 270 $ 131 $ (24) $ 71 $ 448
--------- ----- ----- --- --- -----
--------- ----- ----- --- --- -----
</TABLE>

F-47
<PAGE>
USL FINANCE S.A.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM NOVEMBER 1, 1995 TO MAY 5, 1996

(IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income................................................................ $ 71
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of leasehold improvements and
equipment........................................................... 48
Amortization of distribution rights................................... 76
Interests in equity investments....................................... 20
Deferred income taxes................................................. 18
Increase (decrease) in cash from:
Accounts receivable................................................... 475
Prepaid expenses and other current assets............................. (174)
Accounts payable and accrued expenses................................. 522
Deferred revenues..................................................... 1,199
Value-added tax payable............................................... 128
-------
Net cash provided by operating activities........................... 2,383

INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment.......................... (479)
Proceeds from sale of equipment........................................... 6
Business acquisition, net of cash acquired................................ (541)
-------
Net cash used in investing activities..................................... (1,014)

FINANCING ACTIVITIES
Increase in long-term debt................................................ 559
-------
Net cash provided by financing activities................................. 559
Effect of changes in foreign exchange rates on cash....................... (81)
-------
Net increase in cash and cash equivalents................................. 1,847
Cash and cash equivalents at beginning of period.......................... 412
-------
Cash and cash equivalents at end of period................................ $ 2,259
-------
-------
</TABLE>

F-48
<PAGE>
USL FINANCE S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

USL Finance S.A. (the "Company") was incorporated in Paris, France in August
1995 and had no operating activity until it acquired from Novell, Inc., with
effect from November 3, 1995, a 90% equity ownership in USL France S.A. (USL).
The main activities of USL are the marketing and support of UNIX software
products as well as offering related consulting and training services. USL's
primary software product is TUXEDO, a product developed by Novell, Inc. USL's
products are distributed through its direct sales force as well as through an
external marketing firm.

With effect from February 23, 1996, Novell, Inc. granted to BEA Systems,
Inc. (BEA) certain rights and licenses relating to TUXEDO software and USL
entered into a new royalty agreement with BEA. Novell, Inc. transferred to BEA
its debt due by USL and related to the royalty agreement in effect between
Novell, Inc. and USL before February 23, 1996. On May 5, 1996, BEA purchased
100% of the shares of USL. The accompanying financial statements have been
prepared on the Company's historical cost basis, and do not reflect any
adjustments resulting from the acquisition.

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The Company and its subsidiary prepare their financial statements in
accordance with accounting principles generally accepted in France.

The consolidated financial statements have been restated in order to comply
with accounting principles generally accepted in the United States and stated in
U.S. dollars. The preparation of financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying footnotes. Actual results could differ from those
estimates.

The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position 91-1 on software revenue
recognition. License fees under software license agreements with end users and
distributors are recognized upon shipment if no significant vendor obligations
remain and collection of the resulting receivables is deemed probable. Service
revenues are derived from consulting and training services and fees earned under
annual or multi-year maintenance agreements for providing updates (on an "if and
when available" basis) for existing software products, user documentation, and
technical support. Maintenance revenue is recognized ratably over the term of
such agreements. If such services are included in the initial licensing fee, the
value of the services is unbundled and recognized ratably over the related
service period. Revenue from consulting and training services is recognized as
the services are performed.

CONCENTRATION OF CREDIT RISK

The Company sells its products to customers in a variety of industries in
Southern Europe, Africa, and Israel. The Company performs ongoing credit
evaluations of its customers and maintains

F-49
<PAGE>
USL FINANCE S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
allowances for potential credit losses. To date, such losses have been within
management's expectations.

Three customers accounted for 12%, 11%, and 10% of revenues, respectively.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on deposit or temporary cash
investments with original maturities of 90 days or less. The Company considers
all highly liquid investments with insignificant interest rate risk and
purchased with an original maturity of three months or less to be cash
equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At May 5, 1996, the carrying values of cash and cash equivalents
approximated their market value based on the short-term maturities of these
instruments. The fair value of long-term debt is estimated using current
interest rates available to the Company for debt instruments with similar terms,
degree of risk, and maturities. The carrying value of the loans approximate
their respective fair value.

FOREIGN CURRENCY TRANSLATIONS

The functional currency of the Company is the French Franc ("FF"). Foreign
currency transactions outstanding at the balance sheet date are translated into
French Francs at year-end rates of exchange. Aggregate realized and unrealized
gains or losses from foreign currency transactions are included in results of
operations and amounted to a gain of $10,739. The effect of translating to U.S.
Dollars is recorded as a cumulative translation adjustment.

DISTRIBUTION RIGHTS

Distribution rights relate to the right to distribute products in certain
territories. Amortization is computed using the straight-line method over 30
months.

LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives:

<TABLE>
<S> <C>
Purchase software 3 years
Computer equipment 5 years
Furniture and other equipment 10 years
Leasehold improvements 10 years, or lease term if less
</TABLE>

INCOME TAXES

In accordance with Statement of Financial Accounting Standards No. 109, the
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are

F-50
<PAGE>
USL FINANCE S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expected to reverse. A valuation allowance is established if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax asset will not be realized.

2. BUSINESS ACQUISITION AND DEBT

On November 3, 1995, the Company completed a transaction with Novell, Inc.
in which the Company purchased from Novell, Inc. a 90% interest in USL for a
consideration of FF4,500,000 (approximately $870,000), of which FF3,000,000 was
paid in cash with the balance payable in installments with interest at 5% as
follows:

- FF500,000 due on October 31, 1998 (approximately $97,000)

- FF500,000 due on October 31, 1999 (approximately $97,000)

- FF500,000 due on October 31, 2000 (approximately $97,000)

The acquisition was accounted for using the purchase method of accounting in
accordance with APB Opinion No. 16, "Business Combinations" ("APB16"). Under
APB16, purchase price allocations were made to the assets acquired and the
liabilities assumed based on their respective fair value, as follows:

<TABLE>
<S> <C>
Purchase price................................................... $ 870,406
Estimated fair value of net tangibles assets acquired............ 502,321
---------
Excess of purchase price over net tangible assets acquired....... $ 368,085
</TABLE>

The excess of purchase price over net tangible assets acquired was allocated
to distribution rights.

On January 1, 1995, the Company issued FF1,300,000 (approximately $250,000)
in bonds which are payable in full on November 20, 2000. Interest is payable
annually at a rate of 5% beginning October 31, 1996.

3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents at May 5, 1996 include (in thousands):

<TABLE>
<S> <C>
Cash held at bank............................................... $ 7
Temporary cash investments...................................... 2,252
-----------
$ 2,259
-----------
-----------
</TABLE>

F-51
<PAGE>
USL FINANCE S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996

4. LEASEHOLD IMPROVEMENT AND EQUIPMENT

Leasehold improvement and equipment at May 5, 1996 include (in thousands):

<TABLE>
<S> <C>
Purchased software.............................................. $ 94
Computer equipment.............................................. 276
Furniture and other equipment................................... 126
Leasehold improvements.......................................... 280
-----
776
Accumulated depreciation and amortization....................... (134)
-----
$ 642
-----
-----
</TABLE>

Depreciation and amortization expense for the period from November 1, 1995
through May 5, 1996 was $47,904.

5. PAYABLE TO BEA SYSTEMS, INC (BEA)

The liability to BEA at May 5, 1996 of approximately $3,091,000 consists of
royalties due under the royalty agreement in effect between the parties and
royalties originally due to Novell, Inc which were acquired by BEA in February
1996. All amounts payable to BEA are due currently.

6. SHAREHOLDERS' EQUITY

At May 5, 1996, the issued and outstanding share capital of the Company
consisted of 13,220 shares with a nominal value of $19.

Dividends may be distributed from the statutory retained earnings, subject
to the requirements of French law and the Company's by-laws. The Company has not
distributed any dividends since its inception and had no distributable retained
earnings at May 5, 1996.

7. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

<TABLE>
<S> <C>
Current............................................................... $ 67
Deferred.............................................................. 18
---
Provision for income taxes............................................ $ 85
---
---
</TABLE>

A reconciliation of income taxes computed at the French statutory rate
(36.67%) to the income tax benefit is as follows (in thousands):

<TABLE>
<S> <C>
Income taxes computed at the French statutory rate.................... $ 57
Amortization of distribution rights not deductible for tax............ 28
---
Total............................................................. $ 85
---
---
</TABLE>

Deferred taxes reflect the net tax effects of temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes
and the amount used for income tax purposes.

F-52
<PAGE>
USL FINANCE S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996

7. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred taxes consist of the following
at May 5, 1996 (in thousands):

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 8
Deferred start-up costs............................................... 11
Other................................................................. 1
---
20
Deferred tax liabilities:
Maintenance recognized as a purchase accounting adjustment............ 25
---
Net deferred tax liability.............................................. $ (5)
---
---
</TABLE>

8. EMPLOYEE RETIREMENT PLANS

The Company contributes to government pensions for personnel in France in
accordance with French law based on the salaries of the individuals. There
exists no actuarial liability in connection with these plans. French law also
requires payment of a lump sum retirement indemnity to employees based upon
years of service and compensation at retirement. Benefits do not vest prior to
retirement. The Company's obligation at May 5, 1996 was immaterial.

9. OPERATING LEASE COMMITMENTS

The Company leases its facilities and certain equipment under operating
leases that expire through 2002. Future minimum lease payments under operating
leases due for the periods from May 5, 1996 through January 31, 1997 and for
fiscal years ending January 31 are as follows (in thousands):

<TABLE>
<S> <C>
May 5, 1996 through January 31, 1997.................................... $ 156
12 month periods ending January 31, 1998................................ 208
1999.................................................................... 208
2000.................................................................... 122
2001 and thereafter..................................................... 1
-----
$ 695
-----
-----
</TABLE>

Rental expense for the period from November 1, 1995 through May 5, 1996 was
approximately $108,000.

F-53
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of such U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Alex. Brown &
Sons Incorporated, Robertson, Stephens & Company LLC, and SoundView Financial
Group, Inc. are acting as representatives, has severally agreed to purchase from
the Company, the respective number of shares of Common Stock set forth opposite
its name below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- -------------------------------------------------------------------------- ------------------
<S> <C>
Goldman, Sachs & Co. ..................................................... 1,680,000
Alex. Brown & Sons Incorporated........................................... 672,000
Robertson, Stephens & Company LLC......................................... 672,000
SoundView Financial Group, Inc............................................ 336,000
Dain Bosworth Incorporated................................................ 114,000
Deutsche Morgan Grenfell Inc.............................................. 164,000
A.G. Edwards & Sons, Inc.................................................. 164,000
Morgan Stanley & Co. Incorporated......................................... 164,000
Needham & Company, Inc.................................................... 114,000
PaineWebber Incorporated.................................................. 164,000
Smith Barney Inc.......................................................... 164,000
Sutro & Co. Incorporated.................................................. 114,000
UBS Securities LLC........................................................ 164,000
Unterberg Harris.......................................................... 114,000
------------------
Total............................................................. 4,800,000
------------------
------------------
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the public offering price set forth on the cover page
of this Prospectus, and in part to certain securities dealers at such price less
a concession of $0.50 per share. The U.S. Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the representatives.

The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the international offering
(the "International Underwriters") providing for the concurrent offer and sale
of 1,200,000 shares of Common Stock in an international offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the two offerings are identical. The closing of the
offering made hereby is a condition to the closing of the international
offering, and vice versa. The representatives of the International Underwriters
are Goldman Sachs International, Alex. Brown & Sons International, Robertson,
Stephens & Company LLC and SoundView Financial Group, Inc.

Pursuant to an Agreement between the U.S. and the International Underwriters
(the "Agreement Between") relating to the two offerings, each of the U.S.
Underwriters named herein has agreed that, as a part of the distribution of the
shares offered hereby and subject to certain exceptions, it will offer, sell or
deliver the shares of Common Stock, directly or indirectly, only in the United
States of America (including the States and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction (the
"United States") and to U.S. persons, which term shall mean, for purposes of
this paragraph: (a) any individual who is a resident of the United States or (b)
any corporation, partnership or other entity organized in or under the laws of
the United States or any political subdivision thereof and

U-1
<PAGE>
whose office most directly involved with the purchase is located in the United
States. Each of the International Underwriters has agreed pursuant to the
Agreement Between that, as a part of the distribution of the shares offered as a
part of the international offering, and subject to certain exceptions, it will
(i) not, directly or indirectly, offer, sell or deliver shares of Common Stock
(a) in the United States or to any U.S. persons or (b) to any person who it
believes intends to reoffer, resell or deliver the shares in the United States
or to any U.S. persons, and (ii) cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction.

Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the public offering price, less an amount not greater than the selling
concession.

The Company has granted to the U.S. Underwriters an option exercisable for
30 days after the date of this Prospectus to purchase up to an aggregate of
720,000 additional shares of Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
4,800,000 shares of Common Stock offered hereby. The Company has granted the
International Underwriters a similar option to purchase up to an agregate of
180,000 additional shares of Common Stock.

The Company has agreed, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
the Prospectus, not to offer, sell, contract to sell, or otherwise dispose of
any securities of the Company that are substantially similar to the shares of
Common Stock including but not limited to any securities that are convertible
into, or exchangeable for, or that represent the right to receive Common Stock
or any such substantially similar securities without the prior written consent
of the designated representative of the Underwriters, except for the shares of
Common Stock offered in connection with the concurrent U.S. and international
offerings and except that the Company may issue securities pursuant to employee
stock plans and currently outstanding options.

During and after the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions, "passive" market making (see below) and purchases
to cover syndicate short positions created in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock; and
syndicate share positions involve the sale by the Underwriters of a greater
number of shares of Common Stock than they are required to purchase from the
Company in the offering. The Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker-dealers in
respect of the Common Stock sold in the offering for their account may be
reclaimed by the syndicate if such securities are repurchased by the syndicate
in stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Common Stock which may be
higher than the price that might otherwise prevail in the open market, and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.

As permitted by Rule 103 under the Exchange Act, certain Underwriters (and
selling group members, if any) that are market makers ("passive market makers")
in the Common Stock may make bids for or purchases of the Common Stock in the
Nasdaq National Market until such time, if any, when a stabilizing bid for such
securities has been made. Rule 103 generally provides that (1) a passive market
maker's net daily purchases of the Common Stock may not exceed 30% of its
average daily trading volume in such securities for the two full consecutive
calendar months (or any 60 consecutive days

U-2
<PAGE>
ending within the 10 days) immediately preceding the filing date of the
registration statement of which this Prospectus forms a part, (2) a passive
market maker may not effect transactions or display bids for the Common Stock at
a price that exceeds the highest independent bid for the Common Stock by persons
who are not passive market makers and (3) bids made by passive market makers
must be identified as such.

The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
international offering, to persons located in the United States.

U-3
<PAGE>
BEA--DESCRIPTION OF GRAPHICS

Set forth on the inside back cover are three concentric circles. The inner
circle contains the words "BEA TUXEDO." The middle circle is divided into four
equal quadrants. The upper right hand quadrant contains the caption "Objects -
BEA OBJECTBROKER"; the lower right hand quadrant contains the caption "BEA JOLT
Internet"; the upper left hand quadrant contains the caption "Legacy - BEA TP
BLUE BEA CONNECT"; the lower left hand quadrant contains the caption "BEA
MESSAGEQ - Messaging". The outer circle contains three captions: in the upper
left hand corner is set forth the caption "Development - BEA BUILDER", in the
upper right hand corner is set forth the caption "Management - BEA MANAGER", at
the bottom is set forth the caption "CONSULTING - TRAINING - SUPPORT Services".
Above the graphics is set forth the caption "THE BEA ENTERPRISE TRANSACTION
FRAMEWORK". Underneath the graphics is set forth the following text:

"The BEA Enterprise Transaction Framework is an integrated middleware
software platform, based upon BEA TUXEDO, for developing, deploying, and
managing distributed mission-critical applications.

BEA TUXEDO provides distributed transaction processing and application
messaging capabilities, as well as the full complement of services necessary to
build and run these applications.

BEA Jolt extends the capabilities of BEA TUXEDO to the Internet and
intranets without the need for additional application programming.

BEA TP Blue provides mainframe-to-UNIX and mainframe-to-NT applications
portability, compatibility, and connectivity for CICS-based transaction
processing.

BEA Connect allows applications to access remote applications services on
mainframes or other hosts.

BEA Builder enables programmers to use common development environments to
develop BEA TUXEDO-based applications.

BEA Manager extends the native BEA TUXEDO management capabilities by
allowing it to integrate with third-party management frameworks.

BEA ObjectBroker is an environment for managing and communicating among
object-oriented application components.

BEA MessageQ provides interoperability among heterogeneous applications.

BEA's services provide customers with training, consulting, and technical
support for their mission-critical applications."
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 17
Dividend Policy......................... 17
Price Range of Common Stock............. 17
Capitalization.......................... 18
Selected Consolidated Financial Data.... 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............. 20
Business................................ 34
Management.............................. 56
Principal Stockholders.................. 63
Certain Transactions.................... 65
Description of Capital Stock............ 67
Shares Eligible for Future Sale......... 70
Legal Matters........................... 70
Experts................................. 70
Additional Information.................. 71
Index to Consolidated Financial
Statements............................ F-1
Underwriting............................ U-1
</TABLE>

6,000,000 SHARES

BEA SYSTEMS, INC.

COMMON STOCK
(PAR VALUE $0.001 PER SHARE)

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[LOGO]

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GOLDMAN, SACHS & CO.

ALEX. BROWN & SONS INCORPORATED

ROBERTSON, STEPHENS & COMPANY

SOUNDVIEW FINANCIAL GROUP, INC.

REPRESENTATIVES OF THE UNDERWRITERS

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