SEAGATE SOFTWARE INC, 10-12G/A, 1997-12-11

SEAGATE SOFTWARE INC
10-12G/A, 1997-12-11
COMPUTER PERIPHERAL EQUIPMENT, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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POST-EFFECTIVE

AMENDMENT NO. 1

TO
FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934

SEAGATE SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 77-0397623
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)

915 DISC DRIVE 95066
SCOTTS VALLEY, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 438-6550

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

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

Series A Preferred Stock, $.001 par
value per share
Common Stock, $.001 par value per share

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CERTAIN FORWARD-LOOKING INFORMATION

The information contained in this Registration Statement includes forward-
looking statements. Since this information is based on current expectations
which involve risks and uncertainties, actual results could differ materially
from those expressed in the forward-looking statements. Various important
factors known to Seagate Software, Inc. that could cause such material
differences are identified in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Factors
Affecting Future Operating Results" contained in Item 2 of this Registration
Statement. Certain sections of this Registration Statement have been
identified as containing forward-looking statements. The reader is cautioned
that other sections and other sentences not so identified may also contain
forward-looking information.

ITEM 1. BUSINESS

GENERAL

Seagate Software, Inc. (the "Company" or "Seagate Software") was
incorporated in Delaware in November 1993. The Company is a majority-owned and
consolidated subsidiary of Seagate Technology, Inc. ("Seagate Technology" or
the "Parent Company"). The Company develops, markets and supports software
products and provides related services through two business units. The
Information Management Group ("IMG") business unit offers business
intelligence products that support the access, analysis, reporting and
delivery of enterprise data, and the Network and Storage Management Group
("NSMG") business unit offers infrastructure management products that support
the management of Information Technology ("IT") systems.

The Company's products and services are designed to provide users with more
reliable and productive access to and use of critical information and increase
the manageability and reliability of computing systems. The Company's
offerings include products for query and reporting, on line analytical
processing ("OLAP"), data backup and restoration and network management for a
variety of computing environments, including Windows, Windows NT, NetWare and
UNIX. The Company also offers professional services, including consulting and
training programs.

PRODUCTS

BUSINESS INTELLIGENCE PRODUCTS

The delivery of valuable information to decision makers presents continued
challenges to users within complex data intensive organizations. Seagate
Software offers high performance data access, reporting, information sharing
and OLAP tools designed to provide simple ways to obtain timely and relevant
information.

The Company's IMG business unit offers business intelligence products that
enable organizations to better leverage their corporate data investments.
These products bring database and data warehouse information to enterprise
desktops and enable users to identify business trends, analyze complex
information, create timely reports and make informed decisions. The Company's
principal business intelligence products include the following:

. Seagate Crystal Reports--A client/server report writing application
introduced in 1992.

. Seagate Crystal Info--A three tier client/server workgroup decision
support application designed for automated information sharing
introduced in 1995.

. Seagate Holos--A comprehensive development environment engineered for
building large-scale custom business intelligence applications, such as
OLAP introduced in 1988.

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INFRASTRUCTURE MANAGEMENT PRODUCTS

The management of networking and data storage functions presents continued
challenges to IT professionals responsible for maintaining complex computing
environments. The Company's NSMG business unit offers IT systems
infrastructure management products that enable organizations to manage and
optimize resources across different platforms, automate systems management
tasks and processes and simplify the management of disparate systems. These
products provide features such as powerful backup protection, user friendly
administration functions and the flexibility to accommodate a wide range of
network and storage technologies. Such products are scalable from the desktop
to the enterprise. Over 50 percent of the Company's revenues are derived from
the sale of NSMG's network and storage management products, the majority of
which was derived from sales of the Seagate Backup Exec product. In fiscal
1997, the Company's principal NSMG products included the following:

. Seagate Backup Exec--A comprehensive backup and restore program for
servers and desktops introduced in 1993.

. Seagate Desktop Management Suite--An integrated product suite featuring
network inventory, software distribution, backup and remote control
introduced in 1996.

. Seagate NerveCenter--A rules-based event management application that
correlates network and system events and initiates corrective actions
introduced in 1994.

The Company believes that its principal business intelligence and
infrastructure management products are in their early stages of technological
development and that continued revenue growth will depend on new product
releases and upgrades to existing products. The Company has released upgrades
or new versions of each of the above listed products within the last six
months. The Company continuously reviews its products to determine whether the
Company should update or release a new version of each product and anticipates
that it will make such a decision with respect to each of the above listed
products prior to the end of such product's lifecycle.* Competitors could
introduce new or upgrade existing products that could render the Company's
products less marketable. See "Factors Affecting Future Operating Results--New
Product Development and Technological Change" and "Competition" contained in
Item 2 of this Registration Statement.

The Company provides its software products to customers under non-exclusive,
non-transferable license agreements (including shrink-wrap licenses for
certain products). As is customary in the software industry, in order to
protect its intellectual property rights, the Company does not sell or
transfer title to its software products to customers. The Company enters into
both object-code only and source-code licenses of its products. Under the
Company's current standard end user license agreement, licensed software may
be used solely for the customers' internal operations and only at specified
sites, which may be comprised of a stand-alone computer, a single network
server with multiple terminals or multiple network servers with multiple
terminals.

RESEARCH AND DEVELOPMENT

The Company incurred research and development expenses of approximately
$42,842,000, $36,897,000 and $21,152,000 in 1997, 1996 and 1995, respectively.
Certain of the research and development expenses, which have not been material
to date, are funded by the Company's customers. The Company is pursuing its
product development objectives by continuing its emphasis on internally
developing new software products and product enhancements, acquiring products,
technologies and businesses complementary to the Company's existing product
lines and forming alliances with leading technology companies.* The Company
has formed separate in-house development teams to integrate acquired products
and technologies into existing product lines.

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* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Readers are
strongly encouraged to review the section entitled "Factors Affecting Future
Operating Results" commencing on page 13, for a discussion of factors that
could affect future performance. The reader is cautioned that other sections
and other sentences not so identified may also contain forward-looking
information.

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SALES AND MARKETING

The Company employs a multi-faceted sales strategy. The Company utilizes
direct sales forces, and certain indirect sales channels, such as distributors
and original equipment manufacturer ("OEM") relationships for sales of its
selected products to end users. These distributors and OEMs may also sell
other products that are complementary to or compete with those of the Company.
The Company provides sales and marketing programs to encourage the sale of its
products, but there can be no assurance that its distributors and OEMs will
not place a higher priority on competing products. Agreements with its
distributors and OEMs are generally non exclusive and may be terminated by
either party without cause. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Operating Results."

The Company generally markets its products domestically and overseas through
a network of wholly-owned subsidiaries. These subsidiaries utilize authorized
distributors and direct sales forces. The Company adapts certain products for
foreign markets, including translation and documentation, and the Company
prepares marketing and sales support programs accordingly.

The Company's marketing efforts are designed to increase awareness and
consideration of, and generate leads for, the Company's products. Marketing
activities include print advertising in trade and technical publications, on-
line advertising on the World Wide Web, cooperative marketing with
distributors and resellers, participation in seminars and tradeshows, mailings
to end users and other public relations efforts. The Company's marketing
groups produce or oversee the production of substantially all of the on-line
and print product literature, brochures, advertising and similar marketing and
promotional material for the Company.

Revenue from one third party customer, Ingram Micro Inc., accounted for 18%
and 16% of the Company's total revenues in 1997 and 1996, respectively. In
1995, revenue from Seagate Technology was 11% of total revenues. Revenues from
the Company's distributors and OEMs were 63%, 70% and 75% of total revenues
during 1997, 1996 and 1995, respectively. Revenues outside of North America
were 30%, 11% and 8% of total revenues during 1997, 1996 and 1995,
respectively.

TECHNICAL SUPPORT AND MAINTENANCE

The Company's technical support groups, located at various sites in the
U.S., Canada and Europe, provide pre-sale, installation and post-sale support
to current users and potential customers evaluating the Company's products.
Certain technical support groups also offer seven-day, 24-hour toll-free
telephone services. The Company believes that effective technical support
during product evaluation substantially contributes to product acceptance, and
that post-sale support has been, and will continue to be, a substantial factor
in maintaining customer satisfaction.*

The Company offers maintenance programs for certain of its software
products, which may consist of product enhancements, updated products and
technical support. Generally, customers renew maintenance and support on an
annual basis by paying a maintenance fee. Maintenance revenue implicit in new
product sales and recurring maintenance charges are recognized ratably over
the period the maintenance and support services are to be provided.

COMPETITION

The business intelligence and infrastructure management software markets in
which the Company competes are comprised of numerous competitors, and the
Company expects competition to increase.* The Company has recently experienced
increased competition from additional entrants into its markets, including
companies that specialize in the development, marketing and support of
information management and network and storage management software products.
Many of the Company's current and prospective competitors have significantly
greater financial, technical and marketing resources than the Company. In
addition, many prospective customers may have the internal capability to
implement solutions to their problems.
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3
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The competitive factors affecting the market for the Company's software
products include the following: product functionality, performance and
reliability; demonstrable economic benefits for users relative to cost; price;
quality of customer support and user documentation and ease of installation;
vendor reputation, experience and financial stability. The Company believes
that it currently competes effectively with respect to these factors. The
Company's ability to remain competitive will depend, to a great extent, upon
its ongoing performance in the areas of product development and customer
support.* To be successful in the future, the Company must respond promptly
and effectively to the challenges of technological change and its competitors'
innovations by continually enhancing its own product offerings.* Performance
in these areas will, in turn, depend upon the

Company's ability to attract and retain highly qualified technical personnel
in a competitive market for experienced and talented software developers.* The
Company also expects to continue its strategy of identifying and acquiring
business intelligence and infrastructure management assets and technologies
and businesses that have developed such products and technologies.*

PATENTS AND INTELLECTUAL PROPERTY RIGHTS

The Company by and through its predecessor companies, has been awarded four
United States patents and has two United States and four foreign patent
applications pending (representing multiple filings for certain technologies),
two of which it intends to withdraw.* Because software technology changes
rapidly, the Company believes that the improvement of existing products,
reliance upon trade secrets and unpatented proprietary know-how and
development of new products are generally more important than patent
protection. The Company nevertheless believes that patents are of value to its
business and intends to continue its efforts to obtain patents, when
available, in connection with its research and development programs.* There
can be no assurance that any patents obtained will provide substantial
protection or be of commercial benefit to the Company, or that their validity
will not be challenged.

The Company's license agreements have restrictions in place to protect and
defend the Company's intellectual property. The Company realizes that although
it has incorporated these restrictions, there is a possibility for
unauthorized use of its software. In addition to relying on these contractual
rights, the Company is implementing a copyright registration program to
establish and protect the Company's proprietary rights in its products, and
has an ongoing trademark registration program in which it registers certain of
its product names, slogans, and logos in the United States and some foreign
countries.

EMPLOYEES

As of June 27, 1997, the Company employed approximately 1,400 persons. The
Company's success is highly dependent on its ability to attract and retain
qualified employees. Competition for qualified employees is intense in the
software industry. None of the Company's employees are represented by a labor
union or is the subject of a collective bargaining agreement. The Company has
never experienced a work stoppage and believes that its employee relations are
good.

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ITEM 2. FINANCIAL INFORMATION

SELECTED FINANCIAL DATA

The consolidated financial data with respect to the fiscal years ended June
27, 1997, June 28, 1996 and June 30, 1995 are derived from the audited
Consolidated Financial Statements of the Company which are included elsewhere
in this Registration Statement. The consolidated financial data set forth
below with respect to the fiscal years ended July 1, 1994 and July 2, 1993 are
derived from the Consolidated Financial Statements of the Company which are
not included in this Registration Statement. The selected consolidated
financial data set forth below as of October 3, 1997 and for the three months
ended September 27, 1996 and October 3, 1997 were derived from unaudited
condensed consolidated financial statements of the Company that, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
financial position at that date and results of operations for those periods.
The results for the three months ended October 3, 1997 are not necessarily
indicative of the results for any future period. The following data should be
read in conjunction with the Consolidated Financial Statements and notes
thereto included elsewhere in this Registration Statement and in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
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(IN THOUSANDS, EXCEPT OCT. 3, SEPT. 27, JUNE 27, JUNE 28, JUNE 30, JULY 1, JULY 2,
SHARE AND PER SHARE DATA) 1997 1996 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 63,022 $ 51,463 $216,950 $ 141,586 $ 92,796 $ 30,696 $ 12,774
Gross profit............ 49,226 39,837 169,161 112,567 70,417 23,556 10,776
Loss from operations.... (3,399) (7,608) (64,033) (137,806) (80,166) (11,068) (5,157)
Net loss................ (2,915) (7,864) (57,700) (129,668) (82,864) (6,884) (3,102)
Net loss per common
share.................. (28.12) (125.82) (852.11)
Total assets............ 133,679 143,594 143,594 201,598 101,928 20,854 3,746
Stockholders' equity.... $ 59,027 $ 61,618 $ 61,618 $ 115,602 $ 47,215 $ 6,978 $ 984
Weighted average common
shares outstanding..... 103,659 62,500 67,714
</TABLE>

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CERTAIN FORWARD-LOOKING INFORMATION

Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") and contained elsewhere in this
Registration Statement are forward-looking statements based on current
expectations, and entail various risks and uncertainties that could cause
actual results to differ from those projected in such forward-looking
statements. Certain of these risks and uncertainties are set forth below in
the sections entitled "Quarters Ended September 27, 1996 and October 3, 1997,"
"Fiscal Years 1995, 1996 and 1997," "Liquidity and Capital Resources" and
"Factors Affecting Future Operating Results." Certain sections in this
Registration Statement have been identified as containing forward-looking
statements. The reader is cautioned that other sections and other sentences
not so identified may also contain forward-looking information.

OVERVIEW

The Company is a majority-owned and consolidated subsidiary of Seagate
Technology, a data technology company that provides products for storing,
managing and accessing digital information on computer systems. The Company's
revenues have been derived from the sale of software product licenses and
related maintenance and support and training and consulting through two
business units. The IMG business unit products support the access, analysis,
reporting and delivery of enterprise data, and the NSMG business unit products
support the management of IT systems infrastructures.

The Company was incorporated in Delaware in November 1993 and commenced
operations in May 1994 pursuant to Seagate Technology's acquisition of Crystal
Computer Services, Inc. From May 1994 to June 1996, Seagate Technology
acquired the ten software companies listed in the following table:

SOFTWARE COMPANIES ACQUIRED BY THE PARENT COMPANY

<TABLE>
<CAPTION>
DATE ACQUIRED NAME OF COMPANY ACQUIRED NATURE OF ACQUIRED COMPANY'S BUSINESS
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<S> <C> <C>
May 1994................ Crystal Computer Services, Inc. Management reporting software
August 1994............. Palindrome Corporation Data protection and management software for
Novell NetWare platform networks and
enterprise LANs
February 1995........... Network Computing, Inc. Network management software for Novell
NetWare platform networks
March 1995.............. NetLabs, Inc. Network management software for UNIX
platform networks
May 1995................ Frye Computer Systems, Inc. Network management software for PC-LANs
June 1995............... Creative Interaction Technologies, Inc. Batch scheduling software for heterogeneous
client/server computing
February 1996........... Arcada Holdings, Inc. (in connection Data protection and storage management software
with the merger with Conner
Peripherals, Inc.)
March 1996.............. OnDemand Software, Inc. Network installation software
May 1996................ Calypso Software Systems, Inc. Software for systems and applications
management in complex distributed
client/server networks
June 1996............... Holistic Systems, Ltd. OLAP-compliant, integrated business
intelligence software
</TABLE>

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Beginning in April 1996, Seagate Technology contributed ownership of its
software product assets acquired pursuant to the acquisitions listed above,
and its related subsidiaries, to Seagate Software. In connection with the
contribution, the newly recapitalized Seagate Software issued preferred stock
and common stock to Seagate Technology and its subsidiaries.

As of June 27, 1997, Seagate Technology and its subsidiaries held 99.9% of
the Company's outstanding capital stock. On a fully diluted basis, the
outstanding minority interests of Seagate Software amount to approximately 9%
of the Company and consist of the Company's Common Stock and options to
purchase its Common Stock, held by certain employees and directors of the
Company and Seagate Technology, issued pursuant to the Company's 1996 Stock
Option Plan.

The Company's historical results of operations reflect the operations of the
above described software companies on a consolidated basis. Acquisitions
accounted for as purchases are included in the Company's results of operations
for the periods subsequent to the date of acquisition. The acquisitions of
Crystal Computer Services, Inc. and Arcada Holdings, Inc. were accounted for
as poolings-of-interests and their results of operations are included for all
periods presented. Additionally, the results of operations include the
recognition, as of the date of each acquisition, of Seagate Technology's basis
in acquired assets, and the allocation to Seagate Software of certain expenses
incurred by Seagate Technology for officer and employee salaries, rent and
depreciation, legal, accounting, sales and marketing and general and
administrative expenses.

Historically, the Company's revenues have been generated primarily from
distributors, direct sales to end users, large corporations and OEMs including
Seagate Technology. The Company's revenue related to Parent Company
transactions primarily consists of shipments to Seagate Technology's OEM tape
drive divisions located in Costa Mesa, California and Scotland. The Company
has also developed strategic relationships with a number of computer hardware
manufacturers and packaged application software developers.

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 delivery, provided there are no significant
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 delivered.

Service revenues from customer maintenance fees for ongoing customer support
and product updates are recognized ratably over the maintenance term, which is
typically 12 months. Payments for maintenance fees are generally received in
advance and recognized ratably. Service revenues from training and consulting
are recognized when such services are performed.

The Company operates and reports financial results on a fiscal year of 52 or
53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1997
ended on June 27, 1997, fiscal 1996 ended on June 28, 1996 and fiscal 1995
ended on June 30, 1995. All fiscal years comprised 52 weeks. Fiscal 1998 will
be a 53-week year and will end on July 3, 1998. The quarter ended October 3,
1997 consisted of 14 weeks. All references to years represent fiscal years
unless otherwise noted.

Arcada Holdings, Inc., which was acquired by the Company pursuant to Seagate
Technology's merger with Conner Peripherals, Inc., had a fiscal year which
ended on the Saturday closest to December 31. Accordingly, Arcada's statement
of operations for the year ended December 30, 1995 has been combined with the
Company's statement of operations for the year ended June 30, 1995. In order
to conform Arcada's fiscal year end to the Company's fiscal year end, the
Company's consolidated statement of operations for the year ended June 28,
1996 includes six months (July 1, 1995 through December 31, 1995) for Arcada
which are also included in the Company's consolidated statement of operations
for the year ended June 30, 1995.

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FISCAL YEARS 1995, 1996 AND 1997

REVENUES. Total revenues increased 53% from $141,586,000 in 1996 to
$216,950,000 in 1997. The increase in licensing revenues was due in part to
growth in the market for business intelligence and IT infrastructure
management software products and related services, expansion of the Company's
European distribution channels and market demand for NSMG's Backup Exec 6.0, a
storage management product released in August, 1995 that supports Microsoft's
Windows NT operating system. The increase in maintenance, support and other
revenues was due in part to higher training and consulting revenues resulting
from a larger customer base. Additionally, the 1997 results included a full
year of operations for the 1996 acquisitions of OnDemand Software, Inc. and
Holistic Systems, Ltd. These 1996 acquisitions accounted for increases in
licensing, licensing from Seagate Technology and maintenance, support and
other revenues of approximately $26,039,000, $842,000 and $14,758,000,
respectively, in 1997 as compared with 1996.

During 1997 the Company generated export revenues from the United States of
approximately $44,129,000, that were denominated in U.S. dollars. Revenues and
expenses from the Company's operations outside of North America were
approximately $18,896,000 and $23,938,000, respectively, and were denominated
in foreign currencies. The principal currency for such operations is the
British pound. The Company believes that its exposure to foreign currency
fluctuations is not material and does not engage in foreign currency hedging
programs.

Total revenues increased 53% from $92,796,000 in 1995 to $141,586,000 in
1996. The increase in licensing revenues was due in part to growth in the
market for business intelligence and IT infrastructure management software
products and related services. Additionally, the 1996 results included a full
year of operations for the 1995 acquisitions of Palindrome Corporation,
Network Computing, Inc., Netlabs, Inc., Frye Computer Systems, Inc. and
Creative Interaction Technologies. These 1995 acquisitions accounted for
increases in licensing and maintenance, support and other revenues of
approximately $15,350,000 and $2,240,000, respectively, in 1996 as compared
with 1995. In 1996, the Company acquired OnDemand Software, Inc., Calypso
Software, Inc. and Holistic Systems, Ltd. Revenues for the 1996 acquisitions
are included from the dates of acquisition and accounted for increases in
licensing and maintenance, support and other revenues of approximately
$3,523,000 and $1,446,000, respectively, in 1996 as compared with none in
1995.

COST OF REVENUES. The cost of revenues consists of the amortization of
acquired developed technology, royalties, product packaging, documentation,
duplication, production and the cost of maintenance, consulting support and
other services. Acquired developed technology is amortized based on the
greater of the straight-line method over its estimated useful life (30 to 60
months) or the ratio of current revenues to the total of current and
anticipated future revenues. The cost of revenues increased from $29,019,000
in 1996 to $47,789,000 in 1997, representing 20% and 22% of total revenues,
respectively. The majority of the increase in absolute dollars was due to an
increase in the amortization of acquired developed technology due to a higher
level of intangible assets and an increase in IMG's costs related to service
revenues and related costs resulting from the inclusion of a full year of
operations in 1997 of the 1996 acquisition of Holistic Systems, Ltd.
Additionally, in 1997 the Company wrote-off and wrote-down certain developed
technologies amounting to approximately $6,918,000 as a result of asset values
that had become impaired based on the Company's phasing out of certain
products.

The cost of revenues increased from $22,379,000 in 1995 to $29,019,000 in
1996 representing 24% and 20% of total revenues, respectively. The majority of
the increase in absolute dollars was due to an increase in the amortization of
acquired developed technology due to a higher level of intangible assets.

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SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel related expenses, advertising, sales and marketing promotions and
customer technical support costs. Sales and marketing costs increased from
$71,129,000 in 1996 to $107,706,000 in 1997, representing 50% of total
revenues in both periods. The increase in absolute dollars was due to
increased personnel, advertising and promotion costs necessary to support
revenue growth and the expansion of the Company's European distribution
channel. Additionally, the 1997 results included a full year of operations for
the Company's 1996 acquisitions compared with a partial year of operations in
1996.

Sales and marketing expenses increased from $38,495,000 in 1995 to
$71,129,000 in 1996, representing 41% and 50% of total revenues, respectively.
The majority of the increase in absolute dollars was due to increased
personnel, advertising and promotion costs necessary to support revenue growth
and expansion of the Company's distribution channels. Additionally, the 1996
results included a full year of operations for the Company's 1995 acquisitions
and a partial year of operations for the 1996 acquisitions.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel related expenses, depreciation of development equipment
and facilities and occupancy costs. 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 has
substantially coincided. As a result, software development costs qualifying
for capitalization have been insignificant.

Research and development expenses increased from $36,897,000 in 1996 to
$42,842,000 in 1997, representing 26% and 20% of total revenues, respectively.
The increase in absolute dollars was primarily due to increases in personnel
and related expenses, new product development and localization costs,
partially offset by facility consolidations and reductions in workforce within
the NSMG business unit. Additionally, the 1997 results included a full year of
operations for the Company's 1996 acquisitions compared with a partial year of
operations in 1996.

Research and development expenses increased from $21,152,000 in 1995 to
$36,897,000 in 1996, representing 23% and 26% of total revenues, respectively.
The increase in absolute dollars was primarily due to increases in personnel
and related expenses and a greater number of development programs resulting
from the acquisition of software companies. Additionally, the 1996 results
included a full year of operations for the Company's 1995 acquisitions and a
partial year of operations for the 1996 acquisitions.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel related expenses for finance, legal, information
technology, human resources and general management, fixed asset provisions and
outside services. Total general and administrative expenses increased from
$22,852,000 in 1996 to $36,861,000 in 1997, representing 16% and 17% of total
revenues, respectively. The increase in absolute dollars was primarily due to
increases in personnel and related expenses and increases in corporate
administrative expenses and information systems necessary to support the
Company's growth. Additionally, the 1997 results included a full year of
operations for the Company's 1996 acquisitions compared with a partial year of
operations in 1996.

General and administrative expenses increased from $13,086,000 in 1995 to
$22,852,000 in 1996, representing 14% and 16% of total revenues, respectively.
The increase in absolute dollars was primarily due to increases in personnel
and related expenses, the establishment of corporate administrative facilities
and cost sharing allocations from the Parent Company. Additionally, the 1996
results included a full year of operations for the Company's 1995 acquisitions
and a partial year of operations for the 1996 acquisitions. Cost sharing
allocations from the Parent Company increased approximately $1,161,000
primarily due to higher expense allocations for information technology costs
and legal and accounting professional service fees necessary to support the
Company's acquisition activities. Expense allocation amounts are determined
based on values

9
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assigned to costs incurred directly by Seagate Technology on behalf of the
Company. While the Company's expense allocation practices have remained
consistent, such amounts have fluctuated based on the amount of general and
administrative services provided by the Parent Company, offset by the Company's
increased capacity to incur such costs directly.

WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. As a result of its
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 Company determined that purchased in-process technology had not reached
technological feasibility as no working model or detail program design existed
at the time of purchase, and no alternative uses had been identified.
Accordingly, in-process research and development was expensed when acquired.

During 1997, total write-offs of in-process research and development were
$2,613,000. The Company incurred this charge in connection with additional
amounts paid with respect to the June 1996 acquisition of Holistic Systems,
Ltd.

During 1996, total write-offs of in-process research and development were
$96,958,000, which consisted of $43,949,000 from the acquisition of the
minority interest of Arcada Holdings, Inc., $35,892,000 from the June 1996
acquisition of Holistic Systems, Ltd., $8,900,000 from the acquisition of
OnDemand Software, Inc., $5,400,000 from the acquisition of Calypso Software
Systems, Inc. and $2,817,000 from the acquisition of Sytron Corporation, a data
storage management software company that was acquired in July 1995 by Arcada
Software, Inc., a majority-owned subsidiary of Arcada Holdings, Inc. Arcada
Holdings, Inc. was acquired by the Company in connection with Seagate
Technology's merger with Conner Peripherals, Inc. in February 1996.

During 1995, total write-offs of in-process research and development were
$73,177,000, which consisted of $42,980,000 from the acquisition of Palindrome
Corporation, $8,900,000 from the acquisition of Frye Computer Systems, Inc.,
$7,500,000 from the acquisition of Netlabs, Inc., $5,700,000 from the
acquisition of Creative
Interaction Technologies, $5,280,000 from the acquisition of Network Computing,
Inc. and $2,817,000 from the acquisition of Sytron Corporation.

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill represents the
excess of the purchase price of acquired companies over the estimated fair
values of the tangible and intangible net assets acquired. Goodwill is
amortized on a straight-line basis over six to seven years. Other intangible
assets consist of acquired trademarks, assembled workforces, distribution
networks, developed technology, customer bases, and covenants not to compete.
Amortization of other intangibles, other than acquired developed technology, is
provided based on the straight-line method over the respective useful lives of
the assets ranging from one to five years.

Amortization of goodwill and other intangibles increased from $13,035,000 in
1996 to $27,202,000 in 1997, representing 9% and 13% of total revenues,
respectively. The increase in absolute dollars was primarily due to increased
amortization expense on a higher level of intangible assets and write-downs and
write-offs of the carrying value of goodwill and other intangible assets of
approximately $10,259,000 based on shortfalls of estimated future cash flows.

Amortization of goodwill and other intangibles increased from $4,673,000 in
1995 to $13,035,000 in 1996, representing 5% and 9% of total revenues,
respectively. The increase in absolute dollars was primarily due to increased
amortization expense on a higher level of intangible assets and write-downs and
write-offs of the carrying value of goodwill and other intangible assets of
approximately $2,157,000 based on the Company's decision to discontinue the use
of a trademark and not to enforce a covenant not to compete.

RESTRUCTURING. Restructuring charges were $9,502,000 in 1996 and $2,524,000
in 1997, representing 7% and 1% of total revenues, respectively. The
restructuring charges were incurred in both years as a result of

10
<PAGE>

reorganizations and closures within the NSMG business unit for the reduction
of personnel, write-off or write- down of equipment, intangibles and other
assets, closure of duplicate facilities, fees for legal and accounting
services, contract cancellations and other related expenses.

UNUSUAL ITEMS. In connection with the June 1996 acquisition of Holistic
Systems, Ltd. ("Holistic"), $18,000,000 of funds were placed in escrow pending
the outcome of certain purchase price contingencies. Prior to the expiration
of the contingency period, the Company elected to release the funds to the
Holistic shareholders even though certain contingencies had not been met. Of
the $18,000,000 total contingency payment, the Company recorded $13,446,000 as
compensation expenses for amounts paid to former Holistic shareholders who
were employees of the Company and recorded the remaining $4,554,000 paid to
non-employee shareholders as additional purchase price. The $13,446,000
unusual item in 1997 represented 6% of total revenues.

The Company released the funds prior to the expiration of the contingency
period, because in order to position the IMG business unit for future growth
and product development, the Company needed to begin an aggressive plan to
integrate the operations of Holistic. These activities resulted in the
diversion of the attention of certain Holistic employees from their
responsibilities at Holistic. As such, Holistic's ability to achieve the
purchase price contingencies necessary to trigger the $18,000,000 contingency
payment was impaired. The Company believed that the Holistic employees should
not be penalized, because they had sacrificed achievement of their individual
goals in order to meet the overall needs of the Company. Accordingly, the
Company elected to make the full payment of $18,000,000.

INTEREST AND OTHER, NET. Total interest and other expense represented a net
expense of $433,000 in 1995, $610,000 in 1996 and $2,381,000 in 1997,
representing 0.5%, 0.4% and 1.1% of total revenues, respectively. The
increases in 1997 and 1996 were primarily due to interest expense on
borrowings from Seagate Technology.

INCOME TAXES. The Company recorded a $8,714,000 benefit from income taxes at
an effective rate of 13% in 1997 compared with a $8,748,000 benefit from
income taxes at an effective rate of 6% for 1996. The effective rate used to
record the benefit from income taxes in each fiscal year was less than the
statutory rate primarily from increases in the valuation allowance for
deferred tax assets and charges in 1996 for in-process research and
development for certain acquisitions that were not deductible for tax
purposes.

The Company recorded a $8,748,000 benefit from income taxes at an effective
rate of 6% in 1996 compared with a $2,265,000 provision for income taxes in
1995 recorded at an effective rate of 3%. The effective rate used to record
the benefit from income taxes in 1996 and provision for income taxes in 1995
was less than the statutory rate primarily from increases in the valuation
allowance for deferred tax assets and charges for in-process research and
development for certain acquisitions that were not deductible for tax
purposes.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its business acquisitions through
cash purchases and issuances of equity securities funded by the Parent
Company. Operations have been financed by cash flows from operating activities
and borrowings from the Parent Company. Borrowings from the Parent Company
were $28,971,000 and $32,991,000 at June 27, 1997 and June 28, 1996,
respectively. The Company pays interest of 6% per annum on such borrowings.

Total cash was $12,085,000 and $7,595,000 at June 27, 1997 and June 28,
1996, respectively. This increase in cash was primarily due to an increase in
cash provided by operating activities, but was offset in part by the Company's
additions to property, equipment and leasehold improvements. The Company's
cash is maintained in highly liquid operating accounts and primarily consists
of bank deposits. At June 27, 1997 and June 28, 1996, the Company had working
capital deficits of approximately $27,939,000 and $27,193,000, respectively.

11
<PAGE>

During the year ended June 27, 1997, the Company made investments in
property and equipment totaling approximately $17,500,000 for new office
facilities, leasehold improvements, computers, furniture and office equipment.
The Company presently anticipates it will make investments in 1998 of
approximately $10,692,000 in property and equipment and will fund such
investments from existing cash balances and cash flows from operations.*

Obligations under capital leases were $113,000 and $535,000 for 1997 and
1996, respectively. As of June 27, 1997, the Company did not have any material
commitments for capital expenditures.

The Company believes its current cash balances, its borrowings from the
Parent Company and cash flows generated from the Company's operations will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next 12 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 operating and
investing activities may use cash.* Consequently, any such growth will require
the Company to obtain additional debt financing from Seagate Technology or
alternative sources.* The Company believes that additional financing will be
available from Seagate Technology at a reasonable cost.*

QUARTERS ENDED SEPTEMBER 27, 1996 AND OCTOBER 3, 1997

REVENUES. The increase in licensing revenues over the comparable year-ago
quarter was primarily due to an increase in the number of NSMG and IMG product
licenses sold and expansion of the Company's direct and indirect sales forces.
Indirect and direct revenues increased 25% and 16%, respectively, over the
comparable year-ago quarter. Additionally, the Company experienced licensing
revenue growth as a result of continued growth in the market for network and
storage management products that support Microsoft's Windows NT operating
system. The increase in maintenance, support and other revenues over the
comparable year-ago quarter was primarily due to increases in training and
consulting revenues resulting from a larger installed customer base.

COST OF REVENUES. The increase in cost of revenues over the comparable year-
ago quarter was primarily due to an increase in the cost of maintenance,
support and other revenues resulting from expansion of the Company's
professional services work force necessary to support the growth in training
and consulting revenues. The decrease in the amortization of developed
technology over the comparable year-ago quarter was primarily due to a lower
level of intangible assets and the write-down during the comparable year-ago
quarter of certain developed technologies amounting to approximately $800,000
as a result of asset values that had become impaired based on the Company's
phasing out of certain products.

SALES AND MARKETING. The increase in sales and marketing expenses over the
comparable year-ago quarter was primarily due to expansion of the Company's
sales force and increases in advertising, promotion and technical support
costs necessary to support revenue growth. Such increases were partially
offset by reductions in work force within the NSMG organization due to
facility consolidations.

RESEARCH AND DEVELOPMENT. The increase in research and development expenses
over the comparable year-ago quarter was primarily due to increases in
personnel and related expenses necessary to support new product development
and localization costs. Such increases were partially offset by reductions in
work force within the NSMG organization due to facility consolidations.

GENERAL AND ADMINISTRATIVE. The increase in general and administrative
expenses over the comparable year-ago quarter was primarily due to increases
in personnel and related expenses necessary to support the Company's growth.

- --------

* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Future
Operating Results" commencing on page 13, for a discussion of factors that
could affect future performance. The reader is cautioned that other sections
and other sentences not so identified may also contain forward-looking
information.

12
<PAGE>

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. The decrease in the
amortization of goodwill and other intangibles over the comparable year-ago
quarter was primarily due to a decrease in amortization expense based on a
lower level of intangible assets.

INTEREST EXPENSE. The increase in interest expense was primarily due to
higher interest expense on outstanding borrowings under the Company's Loan
Agreement with Seagate Technology.

INCOME TAXES. The effective tax rate used to record the benefit for income
taxes for the quarter ended October 3, 1997 was 17% compared with a 1%
effective tax rate for the comparable year-ago quarter. The effective tax rate
used to record the benefits for each quarter was less than the statutory rate
primarily from increases in the valuation allowance for deferred tax assets
and the amortization of goodwill which is not deductible for tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

The Company's total cash was $9,175,000 and $12,085,000 as of October 3,
1997 and June 27, 1997, respectively. The decrease in cash was primarily due
to acquisitions of property and equipment and a reduction in the Company's
loan payable balance to Seagate Technology, partially offset by cash provided
by operating activities. The Company's cash is maintained in highly liquid
operating accounts and primarily consists of bank deposits.

The Company's operations have been financed by cash flows from operating
activities and borrowings from the Parent Company. Such borrowings are
available to the Company under an intercompany Revolving Loan Agreement dated
as of June 28, 1996, whereby the Parent Company finances certain of the
Company's working capital requirements. The Loan Agreement provides for
maximum borrowings of up to $60,000,000 and matures within two years and is
extendable by mutual consent. Interest is paid to the Parent Company at the
rate of 6% per annum. The loan balance was $27,435,000 as of October 3, 1997.

During the three months ended October 3, 1997, the Company made investments
in property and equipment totaling approximately $2,329,000 for new office
facilities, leasehold improvements, computers, furniture and office equipment.
The Company presently anticipates it will make investments in 1998 of
approximately $12,600,000 in property and equipment and will fund such
investments from existing cash balances and cash flows from operations.*

FACTORS AFFECTING FUTURE OPERATING RESULTS

POTENTIAL FLUCTUATIONS IN ANNUAL AND/OR QUARTERLY OPERATING RESULTS. The
Company's future results of operations may be subject to substantial future
fluctuations. Because the Company has a relatively limited operating history
and has recently increased its operations through acquisitions, the Company
does not have a significant number of periods of relevant historical financial
data upon which to base planned operating expenses. The Company's expense
levels are therefore based in part on its expectations as to future revenues,
which are
- --------

* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Future
Operating Results" commencing on page 13, for a discussion of factors that
could affect future performance. The reader is cautioned that other sections
and other sentences not so identified may also contain forward-looking
information.

13
<PAGE>

difficult to accurately forecast due to its limited operating history. In
addition, the Company operates with no backlog because its software products
are generally shipped shortly after orders are received. Annual and/or
quarterly sales and operating results therefore depend on the volume and
timing of and the ability to fill orders received within a given quarter, and
such factors are difficult to forecast. The Company recognizes a substantial
portion of its revenue in the last month of each quarter and, therefore, may
be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. If revenue levels in a given year or quarter are
below expectations, the Company's operating results may be materially
adversely affected.

The Company expects to experience significant fluctuations in annual and/or
quarterly operating results based upon a number of factors including, but not
limited to, (i) market acceptance of new products and product enhancements,
(ii) the Company's ability to develop, introduce and market new products and
product enhancements in a timely fashion, (iii) the timing of large orders,
(iv) increased competition, (v) changes in pricing policies by the Company
and/or its competitors, (vi) the Company's ability to control costs, (vii) the
amount of one time charges incurred in future acquisitions, (viii) the
Company's ability to integrate future acquisitions into its operations, (ix)
technological changes in the Company's markets, (x) personnel changes and (xi)
general economic factors. Because of these considerations, the Company
believes that a period to period
comparison of its operations is not necessarily meaningful and should not be
relied upon as any indication of future performance.

REVENUE CONCENTRATION. The Company derives a substantial majority of its
revenues from a limited number of software products and anticipates that
revenue from these products will continue to account for a majority of the
Company's revenue in the foreseeable future. Broad market acceptance of such
products is therefore critical to the Company's future success. New versions
of these products have been introduced recently into the market, and failure
to achieve broad market acceptance of these products as a result of
competition, technological change or other factors would have a material
adverse effect on the business, operating results and financial condition of
the Company. The life cycle of these products is difficult to estimate, and
the Company's future financial performance may depend in part on the
successful development, introduction and market acceptance of new products,
applications and product enhancements. There can be no assurance that the
Company will continue to be successful in marketing its key products or any
new products, applications or product enhancements.

NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The markets for the
Company's products are characterized by rapidly changing technology, evolving
industry standards and frequent new product introductions. The Company's
future success will therefore depend on its ability to design, develop, test
and support new software products and enhancements on a timely and cost
effective basis. There can be no assurance that the Company will be successful
in developing and marketing new products that respond to technological changes
or that the Company's new products will achieve market acceptance. If the
Company is unable for technological or other reasons to develop and introduce
new products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition may be materially adversely affected. If potential new products are
delayed or fail to achieve market acceptance, the Company's business,
operating results and financial condition will be materially adversely
affected.

RELIANCE ON SALES STAFF AND CHANNEL PARTNERS. The Company sells and supports
its products through its sales staff and third party distributors and OEMs.
The Company has made significant expenditures in recent years into the
expansion of its sales and marketing force and plans to continue to expand its
sales and marketing force. The Company's future success will depend in part
upon the productivity of its sales and marketing force and the ability of the
Company to continue to attract, integrate, train, motivate and retain new
sales and marketing personnel. Competition for sales and marketing personnel
in the software industry is intense. There can be no assurance that the
Company will be successful in hiring and retaining such personnel in
accordance with its plans. There can be no assurance that the Company's recent
and other planned expenses in sales and marketing will ultimately prove to be
successful or that the incremental revenue generated will exceed the
significant incremental costs associated with these efforts. In addition,
there can be no assurance that the Company's sales and marketing organization
will be able to compete successfully against the significantly more extensive
and

14
<PAGE>

better funded sales and marketing operations of many of the Company's current
and potential competitors. If the Company is unable to develop and manage its
sales and marketing force expansion effectively, the Company's business,
operating results and financial condition would be materially adversely
affected.

The Company derives a substantial portion of its revenue from the marketing
and distribution of its products by its distributors and OEMs. The Company's
agreements with distributors and OEMs typically allow such resellers to carry
product lines that are competitive with those of the Company and in many cases
may be terminated by either party without cause. There can be no assurance
that such distributors and OEMs will place high priority on the marketing of
the Company's products or that they will continue to carry the Company's
products. Loss of the Company's current distributors and OEMs or the inability
to attract new distributors and OEMs could materially adversely affect the
Company's business, operating results and financial condition.

COMPETITION. The markets for the Company's products are highly competitive
and characterized by rapidly changing technology and evolving standards.
Increased competition can be expected to cause price reductions, reduced gross
margins and loss of market share, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
Current and potential competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources for the development, promotion, sale and support of their
products than the Company. It is possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. In
addition, network operating system vendors could introduce new or upgrade
existing operating systems or environments that could render the Company's
products obsolete and unmarketable. There can be no assurance that the Company
will successfully compete against current or future competitors, or that
competitive pressures faced by the Company will not materially adversely
affect its business, operating results and financial condition.

DEPENDENCE ON KEY 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 and product development personnel. The loss of one
or more of the Company's 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 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.

MANAGEMENT OF INTEGRATION AND GROWTH. The Company has recently expended
substantial management resources in integrating its operations after a period
characterized by a substantial number of acquisitions. In addition, the
Company is in the process of expanding the geographic scope of its customer
base and operations. This integration and expansion have resulted and will
continue to result in substantial demands on the Company's management
resources. The Company's future operating results will depend on the ability
of its officers and other key employees to continue to implement and improve
its operations and customer support and financial control systems and to
effectively expand, train and manage its employee base.

RISK OF ACQUISITIONS. The Company has acquired numerous businesses and
intends to enter into future business combinations and acquisitions of
complementary companies, products and technologies, although there can be no
assurance that suitable companies, divisions or products will be available for
acquisition. Such acquisitions are inherently subject to certain risks,
including the difficulty of assimilating the operations and personnel of the
combined companies, the potential disruption of the Company's ongoing
business, the potential inability to retain key technical and managerial
personnel, additional expenses associated with the amortization of acquired
intangible assets, and the potential impairment of relationships with
employees and customers as a result of any integration of new personnel. There
can be no assurance that the Company will be successful in overcoming these
risks or that such transactions will not have a material adverse effect upon
the Company's business, financial condition or results of operations.

15
<PAGE>

RISKS OF INFRINGEMENT. The Company's success depends on its proprietary
technology. The Company relies on a combination of patent, copyright,
trademark and trade secret rights, confidentiality procedures, employee and
third party nondisclosure agreements and licensing arrangements to protect its
proprietary rights. As part of its confidentiality procedures, the Company
enters into license agreements with respect to its software, documentation and
other proprietary information. In licensing its products, the Company relies
in part on shrink wrap licenses that are not signed by the end user and,
therefore, may be unenforceable under the laws of certain jurisdictions.
Despite the precautions undertaken by the Company, it may be possible for a
third party to copy or otherwise obtain and use the Company's products and
technology without authorization. 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.

PROTECTION OF INTELLECTUAL PROPERTY. No assurance can be given that
competitors will not successfully challenge the validity or scope of the
Company's patents, copyrights and trademarks and that such patents, copyrights
and trademarks 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. 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 believes that software product
developers will be subject increasingly to claims of infringement 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, and the Company's inability to enter such
agreements could have a material adverse effect on the Company's business,
operating results and financial condition.

PRODUCT LIABILITY. The Company markets its products to customers for IT
system management and resource optimization and to access, analyze, report and
deliver enterprise data. 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. 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 system
management, resource optimization and business intelligence 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.

POTENTIAL LITIGATION/LIABILITY RELATED TO YEAR 2000 COMPLIANCE. The
Company's products are used in numerous operating environments. It is likely
that, commencing in the Year 2000, the functionality of certain operating
environments will be adversely affected when one or more component products of
the environment is unable to process four-digit characters representing years.
Although the Company is taking measures to bring its products into Year 2000
compliance in a timely way, there can be no assurance that such efforts will
be fully successful or that the Company's fully compliant products, if any,
will be able to function when integrated with other noncompliant component
products. The inability of one or more of the Company's products to properly

16
<PAGE>

manage and manipulate data related to the Year 2000 could result in a material
adverse affect on the Company's business, financial condition and results of
operations, including increased warranty costs, customer satisfaction issues
and potential lawsuits.

Even if the Company successfully brings its products into Year 2000
compliance, the Company anticipates that substantial litigation may be brought
against vendors of all component products of noncompliant operating
environments, including the Company. The Company's agreements with its
customers typically contain provisions designed to limit the Company's
liability for such claims. It is possible, however, that these measures will
not provide protection from liability claims, as a result of existing or
future federal, state or local laws or ordinances or unfavorable judicial
decisions. The Company believes that any such claims, with or without merit,
could result in costly litigation (and possible adverse judgment) that could
absorb significant management and product development time and potentially
result in significant liability to the Company, which could have a material
adverse effect on the Company's business, operating results and financial
condition.

The Company is identifying Year 2000 dependencies in the Company's systems
and implementing changes to its internal information systems to make them Year
2000 compliant. While the Company currently expects that the Year 2000 will
not pose significant operational problems, delays in the implementation of new
information systems, or a failure to fully identify all Year 2000 dependencies
in the Company's systems could result in material adverse consequences,
including delays in the delivery or sale of products.

SOFTWARE PRODUCT ERRORS OR 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 extensive product changes, any of which could have a material adverse
effect upon the Company's business, operating results or financial condition.

RISK OF INTERNATIONAL SALES. 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 repatriation of earnings, tariffs and other trade barriers,
difficulty in 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. A majority of the
Company's international sales are currently denominated in U.S. dollars, and
an increase in the value of the U.S. dollar relative to foreign currencies
could make the Company's products more expensive and potentially less
competitive in foreign markets. There can be no assurance that such factors
will not have a material adverse effect on the Company's future international
sales and therefore the overall operating results and financial condition of
the Company.

17
<PAGE>

ITEM 3. PROPERTIES

Seagate Software's executive offices are located in Scotts Valley,
California. Principal facilities are located in Florida, California, Canada
and the United Kingdom. A major portion of the Company's facilities are
occupied under leases which expire at various times through 2008. The
following is a summary of square footage leased by the Company:

FACILITIES

<TABLE>
<CAPTION>
TOTAL
LOCATION SQUARE FEET
-------- -----------
<S> <C>
North America
California
Central California........................................ 53,429
Northern California....................................... 41,838(1)
Northeast USA............................................... 50,640
Southeast USA............................................... 114,144(2)
Other USA................................................... 33,390
Canada...................................................... 40,194
-------
Total North America..................................... 333,635
Europe
United Kingdom.............................................. 31,361
Germany..................................................... 6,527
France...................................................... 4,000
Other Europe................................................ 1,756
-------
Total Europe............................................ 43,644
Asia
Australia................................................... 4,799
Malaysia.................................................... 1,760
Singapore................................................... 2,125
Japan....................................................... 1,400
Other Pacific Rim........................................... 2,206
-------
Total Asia.............................................. 12,290
-------
Grand Total............................................. 389,569
=======
</TABLE>
- --------
(1) Excludes approximately 16,375 square feet subleased to others.
(2) Excludes approximately 12,641 square feet of unoccupied space.

18
<PAGE>

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding shares of Common Stock and Series A
Preferred Stock on an as converted basis (collectively with the Common Stock,
the "Common Equivalent Shares") as of October 2, 1997 by (i) each person who
is known to the Company to be the beneficial owner of 5% or more of the
Company's outstanding Common Equivalent Shares, (ii) each of the Company's
directors and executive officers named in the Summary Compensation Table below
and (iii) all current directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF PERCENT
COMMON OF COMMON
EQUIVALENT EQUIVALENT
SHARES SHARES(1)
---------- ----------
<S> <C> <C>
Seagate Technology, Inc. (2)............................ 54,695,833 99.9%
920 Disc Drive
Scotts Valley, CA 95066
Alan F. Shugart (3)..................................... 54,701,833 99.9%
Stephen J. Luczo (4).................................... 54,699,833 99.9%
Donald L. Waite (5)..................................... 54,715,833 99.9%
Gary B. Filler (6)...................................... 54,699,833 99.9%
Lawrence Perlman (7).................................... 54,699,833 99.9%
Ellen E. Chamberlain (8)................................ 12,000 *
Terence R. Cunningham (9)............................... 40,000 *
Gregory B. Kerfoot (10)................................. 40,000 *
All directors and executive officers as a group (8
persons) (11).......................................... 54,825,833 99.9%
</TABLE>
- --------
* Less than one percent.
(1) Applicable percentage ownership is based on 54,716,688 Common Equivalent
Shares outstanding as of October 2, 1997 together with applicable options
for such stockholder. The Company's Series A Preferred Stock is reflected
on an as converted basis assuming a 1:1 conversion. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission based on factors including voting and investment power with
respect to shares subject to applicable community property laws. Common
Equivalent Shares subject to options currently exercisable or exercisable
within 60 days after October 2, 1997 are deemed outstanding for computing
the percentage ownership of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.

(2) Includes 7,200,000 shares of Class B Exchangeable Shares of Seagate
Software Information Management Group, Inc., Vancouver, British Columbia
("IMG Vancouver"), which may be exchanged at the option of the holder,
Seagate Technology International, a subsidiary of the Parent Company, for
an equal number of shares of Series A Preferred Stock of the Company
within 60 days of October 2, 1997. See Item 7, "Certain Relationships and
Related Transactions." Excludes 38,000 shares of the Company's Common
Stock held by or issuable pursuant to options granted to Messrs. Shugart,
Luczo, Waite, Filler and Perlman over which Seagate Technology does not
possess sole or shared voting or investment control and therefore of
which it is not a beneficial owner.

(3) Includes 6,000 shares of Common Stock which may be acquired upon the
exercise of stock options exercisable within 60 days after October 2,
1997. Includes 54,695,833 shares of Series A Preferred Stock (and
7,200,000 shares of Class B Exchangeable Shares of IMG Vancouver)
beneficially owned by Seagate Technology to which Mr. Shugart, in his
capacity as an officer and director of Seagate Technology, may be deemed
to have shared power to vote or dispose of. However, Mr. Shugart
disclaims such beneficial ownership.

19
<PAGE>

(4) Includes 4,000 shares of Common Stock which may be acquired upon the
exercise of stock options exercisable within 60 days after October 2,
1997. Includes 54,695,833 shares of Series A Preferred Stock (and
7,200,000 shares of Class B Exchangeable Shares of IMG Vancouver)
beneficially owned by Seagate Technology to which Mr. Luczo may be
deemed, in his capacity as an officer of Seagate Technology, to have
shared power to vote or dispose of. However, Mr. Luczo disclaims such
beneficial ownership.

(5) Includes 16,000 shares of Common Stock which are subject to repurchase by
the Company. The Company's repurchase right lapses for 4,000, 6,000 and
6,000 shares on April 4, 1998, 1999 and 2000, respectively. Includes
54,695,833 shares of Series A Preferred Stock (and 7,200,000 shares of
Class B Exchangeable Shares of IMG Vancouver) beneficially owned by
Seagate Technology to which Mr. Waite may be deemed, in his capacity as
an officer of Seagate Technology, to have shared power to vote or dispose
of. However, Mr. Waite disclaims such beneficial ownership.

(6) Includes 4,000 shares of Common Stock which may be acquired upon the
exercise of stock options exercisable within 60 days after October 2,
1997. Includes 54,695,833 shares of Series A Preferred Stock (and
7,200,000 shares of Class B Exchangeable Shares of IMG Vancouver)
beneficially owned by Seagate Technology to which Mr. Filler may be
deemed, in his capacity as a director of Seagate Technology, to have
shared power to vote or dispose of. However, Mr. Filler disclaims such
beneficial ownership.

(7) Includes 4,000 shares of Common Stock which may be acquired upon the
exercise of stock options exercisable within 60 days after October 2,
1997. Includes 54,695,833 shares of Series A Preferred Stock (and
7,200,000 shares of Class B Exchangeable Shares of IMG Vancouver)
beneficially owned by Seagate Technology to which Mr. Perlman may be
deemed, in his capacity as a director of Seagate Technology, to have
shared power to vote or dispose of. However, Mr. Perlman disclaims such
beneficial ownership.
(8) Includes 12,000 shares of Common Stock which may be acquired upon the
exercise of stock options exercisable within 60 days after October 2,
1997.
(9) Includes 40,000 shares of Common Stock which may be acquired upon the
exercise of stock options exercisable within 60 days after October 2,
1997.
(10) Includes 40,000 shares of Common Stock which may be acquired upon the
exercise of stock options exercisable within 60 days after October 2,
1997.

(11) Includes 110,000 shares of Common Stock which may be acquired upon the
exercise of stock options exercisable within 60 days after October 2,
1997. See notes 2 through 7 to this table regarding reporting of shares
held by Seagate Technology.

20
<PAGE>

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and certain information
about them as of October 2, 1997 are as follows:

<TABLE>
<CAPTION>
DIRECTOR OR
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<S> <C> <C> <C>
Stephen J. Luczo........ 40 Chairman of the Board of Directors 1996
Gary B. Filler.......... 56 Director 1996
Lawrence Perlman........ 59 Director 1996
Alan F. Shugart......... 67 Director 1996
Donald L. Waite......... 64 Director 1996
Terence R. Cunningham... 38 President and Chief Operating Officer 1996
Gregory B. Kerfoot...... 37 Chief Strategic Officer 1996
Ellen E. Chamberlain.... 40 Senior Vice President, Treasurer and 1996
Chief Financial Officer
</TABLE>

Mr. Luczo currently serves as Chairman of the Board of Directors for the
Company and is President and Chief Operating Officer of Seagate Technology. He
joined Seagate Technology in October 1993 as Senior Vice President, Corporate
Development. In March 1995 he was promoted to Executive Vice President,
Corporate Development and Chief Operating Officer of the Software Group.
Before joining Seagate Technology in 1993, Mr. Luczo was Senior Managing
Director and Co-head of the Bear Stearns and Co. Global Technology Group from
February 1992 to October 1993. Mr. Luczo also serves on the Board of Directors
of Gadzoox Networks, Inc. and Dragon Systems, Inc.

Mr. Filler serves as a Director for the Company and has been a financial
consultant since September 1996. He was Senior Vice President and Chief
Financial Officer of Diamond Multimedia Systems, Inc., a multimedia and
graphics company, from January 1995 to September 1996. From June 1994 to
January 1995, Mr. Filler was a business consultant and private investor. From
February 1994 until June 1994, he served as Executive Vice President and Chief
Financial Officer of ASK Group, Inc., a computer systems company. Mr. Filler
was Chairman of the Board of Directors of Seagate Technology from September
1991 until October 1992. From October 1990 until September 1991, Mr. Filler
served as Vice Chairman of the Board of Directors of Seagate Technology. Mr.
Filler also serves as a Director of Seagate Technology.

Mr. Perlman serves as a Director of the Company. He was appointed Chairman
of the Board of Directors of Ceridian Corporation, a technology based services
company, in November 1992. Mr. Perlman previously held several executive
positions at Ceridian Corporation (formerly Control Data Corporation)
including President and Chief Executive Officer of Imprimis Technology
Incorporated, a subsidiary of Control Data Corporation. Mr. Perlman is also a
Director of Seagate Technology, Computer Network Technology Corporation and
Valspar Corporation. He was a regent of the University of Minnesota from 1992
to 1995.

Mr. Shugart currently serves as a Director of the Company. From May 1996 to
June 1997, Mr. Shugart served as the Company's Chief Executive Officer and
President. Mr. Shugart is the Chairman of the Board of Directors and the Chief
Executive Officer of Seagate Technology. He has held several executive
positions with Seagate Technology from its inception including President from
September 1991 to September 1997, Chief Executive Officer from 1979 to the
present, and Chairman from 1979 to September 1991 and October 1992 to the
present. Mr. Shugart, in addition to serving on the Board of Directors of
Seagate Technology, serves on the Boards of Directors of Valence Technology,
Inc. and SanDisk Corporation.

Mr. Waite serves as a Director for the Company and currently serves as
Executive Vice President, Chief Administrative Officer and Chief Financial
Officer for Seagate Technology. Mr. Waite joined Seagate Technology in 1983
and has served in various roles at the Parent Company prior to being named to
his current position in March 1995. Mr. Waite is also a Director of California
Micro Devices.

21
<PAGE>

Mr. Cunningham founded Crystal Computer Services, Inc. ("Crystal") in 1984
and served as its President until Crystal's acquisition by Seagate Technology.
In May 1994 he joined Seagate Technology in connection with the Parent
Company's acquisition of Crystal and continued as President for such
subsidiary. In May 1996, he was named President of the Storage Management
Group and later in the year named Executive Vice President and General Manager
of Seagate Software NSMG. In fiscal 1998 Mr. Cunningham was named President
and Chief Operating Officer for the Company as well as Executive Vice
President and General Manager of NSMG. In his role as President and Chief
Operating Officer of the Company, Mr. Cunningham is responsible for the day to
day operations of Seagate Software and serves in a role functionally
equivalent to those of a chief executive officer of a corporation.

Mr. Kerfoot joined Crystal in September 1988 as the Director of Research and
Development and Chief Architect of Crystal Reports. Mr. Kerfoot joined Seagate
Technology in May 1994 when the Parent Company acquired Crystal, and he
continued as Director of Research and Development for such subsidiary. In May
1996, he was appointed President of the Information Management Group and later
in the year named Executive Vice President and General Manager of Seagate
Software IMG. In fiscal 1998 Mr. Kerfoot was named Chief Strategic Officer for
the Company as well as Executive Vice President and General Manager of IMG.

Ms. Chamberlain joined Seagate Technology in March 1985 and served in
various finance positions through March 1994 when she began supporting the
corporate development efforts. She was promoted to Vice President and
Treasurer of Seagate Technology in November 1994 in addition to her financial
role in Corporate Development. In April 1996, Ms. Chamberlain was appointed
Vice President and Assistant Treasurer of the Company and in December of 1996,
she was appointed Senior Vice President and Chief Financial Officer of the
Company. In fiscal 1998 Ms. Chamberlain was also named Treasurer for the
Company.

22
<PAGE>

ITEM 6. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation paid by the Company to the
President and the three other most highly compensated executive officers of
the Company (the "Named Executive Officers") for the year ended June 27, 1997:

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
OTHER ANNUAL UNDERLYING
FISCAL COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) GRANTED(1)
- --------------------------- ------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Alan F. Shugart......... 1997 $ 3,750(2) $ 5,870(2) $ 67 --
Chief Executive Officer
Stephen J. Luczo........ 1997 100,000(2) 195,000(2) 1,659(2) 80,000
Chief Operating Officer
Terence R. Cunningham... 1997 150,530 537,127(3) -- 100,000
Executive Vice
President and General
Manager, NSMG
Gregory B. Kerfoot...... 1997 139,947 953,292(3) -- 100,000
Executive Vice
President and General
Manager, IMG
Ellen E. Chamberlain.... 1997 155,000 221,500(4) 6,000 28,000
Senior Vice President
and Chief Financial
Officer
</TABLE>
- --------
(1) The stock options listed in the table represent options to purchase Common
Stock of the Company. See below for additional information regarding
options to purchase stock of the Company granted during fiscal year 1997.

(2) Amount represents the percentage of Mr. Shugart's and Mr. Luczo's salaries
that directly benefited the Company. These amounts were directly paid by
the Company to Seagate Technology under a General Services Agreement. See
Pushdown and Carveout Accounting note to the Consolidated Financial
Statements.
(3) Includes amounts earned under a three year bonus plan entered into after
the acquisition of Crystal with Mr. Cunningham and Mr. Kerfoot based upon
the revenue performance of IMG for the years 1995 through 1997.
(4) Includes amounts deferred under Seagate Technology's compensation plan.

23
<PAGE>

OPTION GRANTS IN 1997

The following table sets forth certain information concerning grants of
stock options to each of the Company's Named Executive Officers during the
fiscal year ended June 27, 1997.

<TABLE>
<CAPTION>
% OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS EXERCISE AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO OR BASE STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES PRICE PER FOR OPTION TERM (4)
GRANTED IN FISCAL SHARE EXPIRATION ---------------------------
NAME (1) YEAR (2/3) DATE 5% 10%
---- ---------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan F. Shugart......... -- -- -- -- -- --
Stephen J. Luczo........ 80,000 2.81% $6.00 01/09/07 $301,869 $ 764,996
Terence R. Cunningham... 100,000 3.51 6.00 12/10/06 377,337 956,245
Gregory B. Kerfoot...... 100,000 3.51 6.00 12/10/06 377,337 956,245
Ellen E. Chamberlain.... 28,000 0.98 6.00 12/10/06 105,654 267,749
</TABLE>
- --------
(1) All stock options granted in 1997 vest over a four year period, 20% of the
shares granted vest on the first anniversary of the date of grant, an
additional 20% of the option shares vest on the second anniversary of the
date of grant, 30% of the option shares vest on the third anniversary of
the date of grant and the option shares vest in full on the fourth
anniversary of the date of grant. Under the 1996 Seagate Software
Incentive Stock Option Plan, the Company's Board retains discretion to
modify the terms, including the price, of outstanding options.

(2) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the grant date, as determined by the
Board of Directors of Seagate Software. To determine the fair market value
of the Company's Common Stock, the Board of Directors considers a number
of factors, including, but not limited to, the Company's current financial
performance and prospects for future growth and profitability, the status
of product releases and product integration, the absence of a resale
market for the Company's Common Stock, the liquidity preferences of the
Company's Preferred Stock and the control position held by Seagate
Technology and comparisons of certain key valuation metrics for the
Company with similar metrics for comparable publicly traded companies,
including measures of market capitalization based on revenue multiples,
price-earnings ratios and operating margins.
(3) Exercise price and withholding obligations may be paid in cash or delivery
of already-owned shares subject to certain conditions.
(4) Potential realizable value is based on the assumption that the Company's
Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the ten year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth.

24
<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

The following table sets forth certain information regarding the exercise of
stock options in the last fiscal year by the persons named in the Summary
Compensation Table and the value of options held by such individuals at the
end of the fiscal year.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT 1997 YEAR END AT 1997 YEAR END (2)
ACQUIRED RECEIVED ------------------------- -------------------------
NAME ON EXERCISE $(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan F. Shugart......... -- -- 6,000 24,000 $12,000 $ 48,000
Stephen J. Luczo........ -- -- 4,000 96,000 8,000 32,000
Terence R. Cunningham... -- -- 20,000 180,000 40,000 160,000
Gregory B. Kerfoot...... -- -- 20,000 180,000 40,000 160,000
Ellen E. Chamberlain.... -- -- 6,400 53,600 12,800 51,200
</TABLE>
- --------
(1) Market value of the Company's Common Stock at the exercise date minus the
exercise price.

(2) Market value of the Company's Common Stock at fiscal year end minus the
exercise price. The fair market value of Seagate Software Common Stock at
1997 fiscal year end, as determined by the Seagate Software Board of
Directors, was $6.00 per share. To determine the fair market value of the
Company's Common Stock, the Board of Directors considers a number of
factors, including, but not limited to, the Company's current financial
performance and prospects for future growth and profitability, the status
of product releases and product integration, the absence of a resale
market for the Company's Common Stock, the liquidity preferences of the
Company's Preferred Stock and the control position held by Seagate
Technology and comparisons of certain key valuation metrics for the
Company with similar metrics for comparable publicly traded companies,
including measures of market capitalization based on revenue multiples,
price-earnings ratios and operating margins.

DIRECTOR COMPENSATION

Directors who are employed by the Company and/or the Parent Company, receive
no additional compensation for service on the Board of Directors. Only Gary
Filler and Lawrence Perlman, the non-employee directors, receive cash
compensation for attending meetings of both the Board of Directors and
Compensation Committee. Mr. Filler and Mr. Perlman receive $1,000 each quarter
they serve as a member of both the Board of Directors and Compensation
Committee.

Stephen Luczo, Chairman of the Board of Directors, received options to
purchase 80,000 shares of the Company's Common Stock at the exercise price of
$6.00 per share during 1997.

25
<PAGE>

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company was recapitalized in April 1996 to integrate the business
conducted by the software divisions of the Parent Company. The Company entered
into a Restructuring and Contribution Agreement, dated April 4, 1996 (the
"Contribution Agreement"), affecting the reorganization and defining the
relationship between Seagate Technology and the Company. Pursuant to this
Contribution Agreement and subsequent amendments, all of the software
divisions have been transferred to the Company or its subsidiaries in exchange
for 54,633,333 shares of Series A Preferred Stock (including shares
exchangeable to Series A Preferred Stock) and 62,500 shares of Common Stock.

Prior to December 1996, Seagate Technology International ("STI"), a wholly
owned subsidiary of Seagate Technology, owned all outstanding capital stock of
IMG Vancouver (the "IMG Stock"). Pursuant to an agreement among STI, Seagate
Software and IMG Vancouver dated December 19, 1996, STI surrendered the IMG
Stock (which was subsequently cancelled by IMG Vancouver) in exchange for
7,200,000 Convertible Preference Shares of IMG Vancouver. On December 26,
1996, the Convertible Preference Shares were exchanged for 7,200,000 Class B
Exchangeable Shares of IMG Vancouver. These Class B Exchangeable Shares do not
have voting rights except as required by law, but can be exchanged at STI's
sole discretion for 7,200,000 shares of Seagate Software Series A Preferred
Stock. In connection with the issuance of the Class B Exchangeable Shares
described above, STI was granted voting rights in Seagate Software equivalent
to 7,200,000 shares of Series A Preferred Stock. Also on December 26, 1996,
IMG Vancouver issued 10,000 Class A Common Shares, which carry the right to
vote, to Seagate Software. Seagate Software therefore now owns all voting
shares of IMG Vancouver. For financial reporting purposes, the 7,200,000
shares of Series A Preferred Stock of the Company which STI could elect to
receive in exchange for the Class B Exchangeable Shares of IMG Vancouver have
been treated as issued and outstanding shares of Series A Preferred Stock of
the Company.

Pursuant to a General Services Agreement between the Company and Seagate
Technology dated June 28, 1997 (the "General Services Agreement"), Seagate
Technology has agreed to provide those administrative, accounting and similar
services requested by the Company. The services provided by Seagate Technology
may include, but are not limited to: (i) providing general accounting
services, budgeting, forecasting, cost control and other financial planning
services; (ii) assisting with or employee benefits administration, hiring and
payroll administration; (iii) providing legal and government relations
services such as preparing applications for export licenses; (iv) tax
analysis, documentation, reporting and withholding for customs duties, import
taxes, value-added taxes, and any other charges or taxes imposed on the
Company's products; (v) assisting the Company with federal, state, and
international tax planning, provisions, audits, and compliance, including
income, sales and use, property, VAT, and similar taxes; (vi) providing
assistance relating to the marketing, promotion, and sale of the Company's
products; (vii) providing services and support relating to information
technology and facilities; and (viii) managerial oversight, including
screening of potential acquisitions, partnerings, joint ventures, or similar
transactions.

During 1997, 1996 and 1995 Seagate Technology charged the Company
$1,958,000, $2,260,000 and $1,273,000, respectively, for various corporate
services. The Company pays service fees to the Parent Company each fiscal year
that represent a reasonable estimate of the Parent Company's direct and
indirect costs incurred in performing services for the Company. Service fees
are to be paid in equal monthly installments within 30 days after the end of
the month. Additionally, the Company and Seagate Technology are required to
review, on an annual basis, the actual level of services provided and the
corresponding reasonably determinable direct and indirect costs incurred by
the Parent Company pursuant to the General Services Agreement. If the
reasonably determinable costs are greater than or less than the service fees
paid, the difference will be charged to or refunded to the Company, as the
case may be, within 30 days after such review.

26
<PAGE>

In addition, the Company agreed pursuant to the General Services Agreement
to reimburse the Parent Company for the amount of reasonably determinable
expenses for services provided in prior fiscal years by the Parent Company to
the Company, its affiliates and predecessors.

The service fees assessed to the Company and the end of period adjustments
thereto are intended by the Company and Seagate Technology to allocate costs
for those services provided on a basis no less favorable than the Company
could obtain from an unaffiliated third party. The Company has audit rights
with respect to the computation and analysis of service fees pursuant to the
General Services Agreement. In addition, the Parent Company is required to
indemnify, defend and hold the Company harmless against any and all claims,
suits, actions, demands, proceedings, losses, damages, liabilities, costs and
expenses, including, without limitation, interest and reasonable attorney's
fees, arising out of, relating to, or resulting from services performed by the
Parent Company pursuant to the General Services Agreement, other than those
liabilities that would not have arisen but for any act, error and/or omission
of the Company and/or any of its officers, directors, employees and/or agents.

Additionally, the Company has entered into an Intercompany Revolving Loan
Agreement ("Loan Agreement") dated as of June 28, 1996 between the Company and
Seagate Technology, whereby the Parent Company finances certain of the
Company's working capital requirements. The Loan Agreement provides for
maximum borrowings of up to $60,000,000 and matures within two years and is
extendable by mutual consent. Borrowings from the Parent Company were
$28,971,000 and $32,991,000 at June 27, 1997 and June 28, 1996, respectively.
Borrowings from the Parent Company consist primarily of funding the Company's
operating activities. During 1997, gross borrowings and gross repayments under
the Loan Agreement were $129,263,000 and $133,283,000, respectively. Average
outstanding borrowings under the Loan Agreement, computed based on quarter
ending balances, were $32,405,000 during 1997. The Company pays interest of 6%
per annum on such borrowings.

Revenues from the Parent Company were $1,000,000, $5,762,000, $9,374,000 and
$10,662,000 in the three months ended October 3, 1997 and fiscal 1997, 1996
and 1995, respectively. This revenue primarily consists of shipments to
Seagate Technology's OEM Tape drive divisions located in Costa Mesa,
California and Scotland. Additionally, this revenue is supported by license
agreements, which have comparable terms and pricing as those agreements
between the Company and third party customers.

The Company is included in the consolidated federal and certain combined and
consolidated foreign and state income tax returns of Seagate Technology.
Seagate Technology and the Company have entered into a tax sharing agreement
(the "Tax Allocation Agreement") pursuant to which the Company computes
hypothetical tax returns as if the Company was not joined in consolidated or
combined returns with Seagate Technology. The Company must pay Seagate
Technology the positive amount of any such hypothetical taxes. If the
hypothetical tax returns show entitlement to refunds, including any refunds
attributable to a carryback, then Seagate Technology will pay the Company the
amount of such refunds. At year end for both 1997 and 1996, there were no
outstanding intercompany tax-related balances due to or from the Company to
Seagate Technology.

ITEM 8. LEGAL PROCEEDINGS

On November 10, 1997, Vedatech Corporation ("Vedatech") commenced an action
against the Company's United Kingdom subsidiary, Seagate Software Information
Management Group, Ltd. ("SS IMG LTD") in the High Court of Justice in the
United Kingdom. The Writ alleges that SS IMG LTD breached an existing oral
agreement and also alleges joint ownership of the United Kingdom copyright for
the Japanese translation of a Company software product (the "Complaint"). The
Company has not yet filed a response to Vedatech's writ. The Company believes
the Complaint has no merit and intends to vigorously defend the action.
However, if an unfavorable outcome were to arise, there can be no assurance
that such outcome would not have a material adverse effect on the Company's
liquidity, financial position, or results of operations.

In addition to the foregoing, the Company is engaged in legal actions
arising in the ordinary course of its business and believes that the ultimate
outcome of these actions will not have a material adverse effect on the
Company's financial position, liquidity, or results of operations.

27
<PAGE>

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDERS MATTERS

As of October 3, 1997, the Company had outstanding 122,697 shares of Common
Stock held by 92 shareholders and 54,633,333 shares of Series A Preferred
Stock (including shares exchangeable to Series A Preferred Stock) held by one
shareholder. There is no established public trading market for any class of
the Company's equity securities.

The Company has not paid any dividends on any of its capital stock and does
not anticipate that any cash dividends will be declared in the foreseeable
future.

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

The following sales of securities by the Company have occurred in the three
years ended June 27, 1997:

The Company was recapitalized in April 1996 to integrate the business
conducted by the software divisions of the Parent Company. The Company entered
into the Contribution Agreement, which affected the reorganization and defined
the relationship between Seagate Technology and the Company. Pursuant to this
Contribution Agreement and subsequent amendments, all of Seagate Technology's
software divisions have been transferred to the Company or its subsidiaries in
exchange for 54,633,333 shares of Series A Preferred Stock, including shares
exchangeable to Series A Preferred Stock, and 62,500 shares of Common Stock.

The Company issued an aggregate of 20,855 shares, during 1997, of its Common
Stock to an aggregate of 42 persons, each of whom is a current or former
employee of the Company. All such shares were issued pursuant to the Company's
1996 Incentive Stock Option Plan. Such shares were issued upon exercise of
stock options with an exercise price of $4.00 per share. The transactions
described in this paragraph were exempt from the registration requirements of
the Securities Act of 1933, as amended.

ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED

The Company's authorized capital stock consists of 95,600,000 shares of
Common Stock, $.001 par value per share, and 73,000,000 shares of Preferred
Stock, $.001 par value per share, 54,633,333 of which have been designated as
Series A Convertible Preferred Stock (the "Series A Preferred") and 18,366,667
of which remain undesignated.

Pursuant to this Registration Statement, the Company is registering under
the Securities and Exchange Act of 1934, as amended, its Series A Preferred
and Common Stock. A description of the Company's capital stock follows.

28
<PAGE>

COMMON STOCK. Holders of shares of Common Stock are entitled to one vote per
share in all matters to be voted on by shareholders. Subject to the prior
rights of holders of outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive such dividends, if any, as may
be declared from time to time by the Board of Directors in its discretion from
funds legally available therefore, and upon liquidation or dissolution of the
Company are entitled to receive all assets available for distribution to the
shareholders. The Common Stock has no preemptive or other subscription rights,
and there are no conversion rights or redemption or sinking fund provisions
with respect to such shares. All of the outstanding shares of Common Stock are
fully paid and nonassessable.

The Company may at any time, out of funds legally available therefore,
repurchase shares of Common Stock of the Company (i) issued to or held by
employees, directors or consultants of the Company or its subsidiaries upon
termination of their employment or services, pursuant to any agreement
providing for such right of repurchase, or (ii) issued to or held by any
person subject to the Company's right of first refusal to purchase such shares
where the purchase is pursuant to the exercise of such right of first refusal,
in either case whether or not dividends on the Preferred Stock shall have been
declared and paid or funds set aside therefore.

PREFERRED STOCK. The shares of Series A Preferred have the following
rights, preferences and privileges:

Conversion. The holders of the Series A Preferred have the right to convert
the Series A Preferred at any time into Common Stock. The Series A Preferred
will convert automatically into the Company's Common Stock, at the then
effective Conversion Price, upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended. The initial conversion rate will be one
share of Series A Preferred for each share of Common Stock. The conversion
price of the Series A Preferred will be subject to adjustment to reduce the
effect of dilution in the event that the Company issues additional shares of
Common Stock, shares convertible into Common Stock (such as shares of Series A
Preferred) or options, warrants or other rights exercisable for Common Stock
at a purchase price or exercise price less than the applicable conversion
price then in effect for each series of Preferred Stock other than: (i) shares
of Common Stock issued upon conversion of the Company's Preferred Stock; (ii)
certain shares of Common Stock issued as a dividend or distribution on Series
A Preferred Stock; (iii) shares of Common Stock issued pursuant to equipment
lease financing transactions approved by the Board of Directors; (iv) shares
of Common Stock issued to employees, officers, directors, consultants and/or
advisors under employee benefit plans, including the Company's 1996 Incentive
Stock Option Plan, and arrangements approved by the Board of Directors and (v)
shares of Common Stock issued by way of a dividend or other distribution on
shares of Common Stock excluded from the definition of additional shares of
Common Stock by the foregoing clauses. In the event of any splits, reverse
splits, combinations or consolidation of Common Stock, unaccompanied by
corresponding adjustments of Series A Preferred, or of stock dividends paid on
Common Stock, the conversion price of the Series A Preferred will be
proportionately adjusted.

Voting. Each share of Series A Preferred entitles the holder to one vote for
each share of Common Stock into which such share could then be converted.
Except as required by law, the holders of shares of Series A Preferred and the
holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Company.

Dividend Preference. The holders of shares of Series A Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, an annual cash dividend in the
amount of $0.45 per share (as adjusted to reflect any stock split, stock
dividend, combination, recapitalization and the like (collectively, a
"Recapitalization") with respect to the Series A Preferred), prior and in
preference to any declaration or payment of any dividend (payable other than
in Common Stock) on the Common Stock of the Company. Such dividends shall not
be cumulative, and no right shall accrue to holders of Series A Preferred by
reason of the fact that dividends on such shares are not declared or paid in
any year. On the date that is the end of the first fiscal year in which the
Company recognizes net income after taxes, the holders of shares of Series A
Preferred shall be entitled to receive, out of funds legally available for the
purpose, an annual cash dividend in the amount of $0.45 per share (as adjusted
to reflect any Recapitalization) prior and in

29
<PAGE>

preference to any declaration or payment of any dividend (payable other than
in Common Stock) on the Common Stock of the Company (the "Cumulative
Dividend"). The Cumulative Dividend shall accrue from the Cumulative Dividend
Date and shall be payable only when, as and if determined by the Board,
provided, that if the Cumulative Dividend shall not have been paid and a sum
sufficient for the payment thereof set apart, the deficiency shall first be
fully paid before any dividend or other distribution (other than dividends
payable solely in Common Stock) shall be paid or declared and set apart for
the Common Stock of the Company. In the event any dividend shall be paid to
the holders of Common Stock, such dividend shall be distributed among the
holders of the Common Stock and the Series A Preferred in proportion to the
shares of Common Stock then held by them and the shares of Common Stock which
such holders have the right to acquire upon the conversion of the Series A
Preferred then held.

Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the Company, a distribution shall be made to the holders of
Series A Preferred in respect of such Series A Preferred before any amount
shall be paid to the holders of Common Stock in respect of such Common Stock.
The holders of the Series A Preferred Stock shall be entitled to receive prior
and in preference to any distribution of the assets of the Company to the
holders of the Common Stock by reason of their ownership thereof as a result
of a Liquidation Event, an amount per share equal to (i) $7.50, as adjusted to
reflect any Recapitalization of the Series A Preferred, plus (ii) all accrued
or declared but unpaid dividends, if any. If, upon the occurrence of a
Liquidation Event, the assets and funds thus distributed among the holders of
the Series A Preferred shall be insufficient to permit the payment to such
holders of their full liquidation preference, then the entire assets and funds
of the Company legally available for distribution to the holders of capital
stock shall be distributed ratably among the holders of the Series A
Preferred. After payment has been made to the holders of the Series A
Preferred of the full amounts to which they shall be entitled as set forth
above, then the entire remaining assets and funds of the Company shall be
distributed among the holders of the Common Stock and the Series A Preferred
in proportion to the shares of Common Stock then held by them and the shares
of Common Stock which they then have the right to acquire upon the conversion
of the Series A Preferred held by them. A consolidation or merger of the
Company with or into any other corporation or the sale or other transfer in a
single transaction or a series of related transactions of all or substantially
all of the assets of this Company, or any other reorganization of this Company
shall be deemed a Liquidation Event of the Company provided that the merger or
consolidation of the Company with or into a wholly owned subsidiary of the
Company or into another corporation or person or entity in which the holders
of the capital stock of the Company hold at least 50% of the voting securities
of the surviving entity shall not be deemed to be a Liquidation Event of the
Company.

CLASS B EXCHANGEABLE SHARES. Although the Class B Exchangeable Shares are
not securities of the Company subject to registration herein, the following
description is provided as such shares may be converted into the Company's
Series A Preferred. Prior to December 1996, Seagate Technology International
("STI"), a wholly owned subsidiary of Seagate Technology, owned all
outstanding capital stock of IMG Vancouver (the "IMG Stock"). Pursuant to an
agreement among STI, Seagate Software and IMG Vancouver dated December 19,
1996, STI surrendered the IMG Stock (which was subsequently cancelled by IMG
Vancouver) in exchange for 7,200,000 Convertible Preference Shares of IMG
Vancouver. On December 26, 1996, the Convertible Preference Shares were
exchanged for 7,200,000 Class B Exchangeable Shares of IMG Vancouver. These
Class B Exchangeable Shares do not have voting rights except as required by
law, but can be exchanged at STI's sole discretion for 7,200,000 shares of
Seagate Software Series A Preferred Stock. In connection with the issuance of
the Class B Exchangeable Shares described above, STI was granted voting rights
in Seagate Software equivalent to 7,200,000 shares of Series A Preferred
Stock. Also on December 26, 1996, IMG Vancouver issued 10,000 Class A Common
Shares, which carry the right to vote, to Seagate Software. Seagate Software
therefore now owns all voting shares of IMG Vancouver. For financial reporting
purposes, the 7,200,000 shares of Series A Preferred Stock of the Company
which STI could elect to receive in exchange for the Class B Exchangeable
Shares of IMG Vancouver have been treated as issued and outstanding shares of
Series A Preferred Stock of the Company.

30
<PAGE>

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"). In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years
after the date of the transaction which the person 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 which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which 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 by (a) persons who are directors and also
officers and (b) 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) on or subsequent
to such date the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66 and 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. 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 involving the interested stockholder of 10% or more of the
assets of the corporation; (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 interest stockholder; (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of 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 loans, advances guarantees, pledges or other
financial benefits provided by or through the corporation. In general, Section
203 defines an interested stockholder as any entity or person who, together
with affiliates and associates, beneficially owns (or within three years, did
beneficially own) 15% or more of a corporation's voting stock. The statute
could prohibit or delay mergers or other takeover or change in control
attempts with respect to the Company and, accordingly, may discourage attempts
to acquire the Company.

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company is subject to Section 145 of the Delaware General Corporation
Law ("Section 145"). Section 145 permits indemnification of officers and
directors of the Company under certain conditions and subject to certain
limitations. Section 145 also provides that a corporation has the power to
maintain insurance on behalf of its officers and directors against any
liability asserted against such person and incurred by him or her in such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such
liability under the provisions of Section 145. Article VI, Sections 6.1, 6.2
and 6.3, of the Registrant's Bylaws provide for mandatory indemnification of
its directors and officers and permissible indemnification of employees and
other agents to the maximum extent not prohibited by the Delaware General
Corporation Law. For purposes of this section, a "director" or "officer" of
the Company includes any person (i) who is or was a director or officer of the
corporation, (ii) who is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise, or (iii) who was a director or officer of a corporation
which was a predecessor corporation of the Company or of another enterprise at
the request of such predecessor corporation. The rights to indemnity
thereunder continue as to a person who has ceased to be a director, officer,
employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she
is or was a director or officer of the Company (or was serving at the
Company's request as a director or officer of another corporation) shall be
paid by the Company in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that he
or she is not entitled to be indemnified by the Company as authorized by the
relevant section of the Delaware General Corporation Law.

As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be personally liable for monetary

31
<PAGE>

damages for breach of the directors' fiduciary duty as directors to the
Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
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 international misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Section 174 of the Delaware General Corporation Law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws. The Company has entered into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
attempt to provide the maximum protection permitted by Delaware law as it may
be amended from time to time and to obtain directors' and officers' insurance
if available on reasonable terms. Moreover, the indemnification agreements
provide for certain additional indemnification. Under such additional
indemnification provisions, however, an individual will not receive
indemnification for judgments, settlements or expenses if he or she is found
liable to the Company (except to the extent the court determines he or she is
fairly and reasonably entitled to indemnity for expenses), for settlements not
approved by the Company or for settlements and expenses if the settlement is
not approved by the court. The indemnification agreements provide for the
Company to advance to the individual any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or defending any
such action, suit or proceeding. In order to receive an advance of expenses,
the individual must submit to the Company copies of invoices presented to him
or her for such expenses. Also, the individual must repay such advances upon a
final judicial decision that he or she is not entitled to indemnification.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.

ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 15.

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

32
<PAGE>

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements and Schedules

1. Financial Statements. The following Consolidated Financial Statements of
Seagate Software and subsidiaries and the Report of Independent Auditors are
included at pages F-1 through F-31 of this Registration Statement.

<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................. F-2
Consolidated Balance Sheets--June 27, 1997 and June 28, 1996...... F-3
Consolidated Statements of Operations--Years Ended June 27, 1997,
June 28, 1996 and June 30, 1995.................................. F-4
Consolidated Statements of Cash Flows--Years Ended June 27, 1997,
June 28, 1996 and June 30, 1995.................................. F-5
Consolidated Statements of Stockholders' Equity--Years Ended June
27, 1997, June 28, 1996 and June 30, 1995........................ F-6
Notes to Consolidated Financial Statements........................ F-7
Condensed Consolidated Balance Sheets--October 3, 1997 (unaudited)
and June 27, 1997................................................ F-26
Condensed Consolidated Statements of Operations--Three Months
Ended October 3, 1997 and September 27, 1996 (unaudited)......... F-27
Condensed Consolidated Statements of Cash Flows--Three Months
Ended October 3, 1997 and September 27, 1996 (unaudited)......... F-28
Notes to Condensed Consolidated Financial Statements (unaudited).. F-29
</TABLE>

2. Financial Statement Schedules. The following Consolidated Financial
Statement Schedules of Seagate Software and subsidiaries are filed as part of
this Registration Statement and should be read in conjunction with the
Consolidated Financial Statements of Seagate Software and subsidiaries.

<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C>
Schedule II--Valuation and Qualifying Accounts...................... II-1
</TABLE>

Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or notes thereto.

33
<PAGE>

3. Exhibits:

<TABLE>
<C> <S> <C>
2.1+ Restructuring and Contribution Agreement dated April 4, 1996
among the Registrant, Seagate Technology, Inc., and Seagate
Peripherals, Inc. and for purposes of Sections 3 and 6 only:
Seagate Technology International Holdings and Crystal Computer
Services, Inc.
2.2+ Exchange Agreement dated June 29, 1996 among the Registrant,
Seagate Technology, Inc. and Seagate Peripherals, Inc.
3.1+ Certificate of Incorporation of Registrant, as amended
3.2+ Bylaws of Registrant, as amended
4.1+ Voting Agreement dated December 26, 1996 among the Registrant,
Seagate Software Information Management Group, Inc. and Seagate
Technology International Holdings
10.1+ 1996 Stock Option Plan, as amended, form of Stock Option
Agreement and form of Amendment to Stock Option Agreement
10.2(A)+ Seagate Technology, Inc. Employee Stock Purchase Plan, as
amended
10.3+ Lease Agreement, dated December 27, 1994, between the
Registrant and Clover Investments, Inc.
10.4+ Lease Agreement, dated March 21, 1996 between the Registrant
and 400 International Parkway Development Company
10.5* General Services Agreement dated June 28, 1997 between the
Registrant and Seagate Technology, Inc.
10.6+ Tax Allocation Agreement dated April 4, 1996 between the
Registrant and Seagate Technology, Inc.
10.7+ Intercompany Revolving Loan Agreement dated June 28, 1996
between the Registrant and Seagate Technology, Inc.
10.8+ Form of Indemnification Agreement entered into between the
Registrant and its directors and officers
10.9+ Support Agreement dated December 26, 1996 between the
Registrant and Seagate Software Information Management Group,
Inc.
13.1+ Holistic Systems Ltd. (now Seagate Software Information
Management Group Limited) Statements of Consolidated Profits
and Cash Flows and Related Notes Year Ended 31 March 1996
21.1+ Subsidiaries of the Registrant
24.1+ Power of Attorney (see page 27)
27.1 Financial Data Schedule
</TABLE>
- --------
* Confidential treatment has been requested for a portion of this exhibit
pursuant to a request for confidential treatment filed with the Securities
and Exchange Commission. Omitted portions have been filed separately with
the Commission.

+ Previously filed.
(A) Incorporated by reference to exhibits filed in connection with Seagate
Technology's Registration Statement on Form S-8 (Reg. No. 33-56215) as
declared effective by the Securities and Exchange Commission on November
16, 1994.

34
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
REGISTRATION STATEMENT ON FORM 10 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

Seagate Software, Inc.

/s/ Terence R. Cunningham
By: _________________________________
TERENCE R. CUNNINGHAM PRESIDENT
AND CHIEF OPERATING OFFICER

Dated: December 11, 1997

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM 10 HAS BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ Terence R. Cunningham President and Chief December 11, 1997
- ------------------------------------- Operating Officer
(TERENCE R. CUNNINGHAM)

/s/ Gregory B. Kerfoot* Chief Strategic December 11, 1997
- ------------------------------------- Officer
(GREGORY B. KERFOOT)

/s/ Ellen E. Chamberlain Senior Vice December 11, 1997
- ------------------------------------- President,
(ELLEN E. CHAMBERLAIN) Treasurer and Chief
Financial Officer

/s/ Stephen J. Luczo* Chairman of the December 11, 1997
- ------------------------------------- Board of Directors
(STEPHEN J. LUCZO)

/s/ Gary B. Filler* Director December 11, 1997
- -------------------------------------
(GARY B. FILLER)

/s/ Lawrence Perlman* Director December 11, 1997
- -------------------------------------
(LAWRENCE PERLMAN)

/s/ Alan F. Shugart* Director December 11, 1997
- -------------------------------------
(ALAN F. SHUGART)

/s/ Donald L. Waite* Director December 11, 1997
- -------------------------------------
(DONALD L. WAITE)

/s/ Ellen E. Chamberlain
*By: ________________________________
(ELLEN E. CHAMBERLAIN)
(ATTORNEY-IN-FACT)
</TABLE>

35
<PAGE>

SEAGATE SOFTWARE, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets as of June 27, 1997 and June 28, 1996........ F-3
Consolidated Statements of Operations for the Years Ended
June 27, 1997, June 28, 1996 and June 30, 1995.......................... F-4
Consolidated Statements of Cash Flows for the Years Ended
June 27, 1997, June 28, 1996 and June 30, 1995.......................... F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended June 27, 1997, June 28, 1996 and June 30, 1995.................... F-6
Notes to the Consolidated Financial Statements........................... F-7
Condensed Consolidated Balance Sheets--October 3, 1997 (unaudited) and
June 27, 1997........................................................... F-26
Condensed Consolidated Statements of Operations--Three Months Ended
October 3, 1997 and September 27, 1996 (unaudited)...................... F-27
Condensed Consolidated Statements of Cash Flows--Three Months Ended
October 3, 1997 and September 27, 1996 (unaudited)...................... F-28
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-29
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders Seagate Software, Inc.

We have audited the accompanying consolidated balance sheets of Seagate
Software, Inc. as of June 27, 1997 and June 28, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 27, 1997. Our audits also
included the financial statement schedule listed at Item 15(a) of the
Registration Statement on Form 10. These consolidated financial statements and
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Seagate Software, Inc. at June 27, 1997 and June 28, 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended June 27, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

/s/ ERNST & YOUNG LLP
San Jose, California

September 17, 1997,
except for the first
paragraph of the Legal
Proceedings note as to
which the date is
November 10, 1997

F-2
<PAGE>

SEAGATE SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash.................................................... $ 12,085 $ 7,595
Accounts receivable, net................................ 28,172 32,755
Inventories............................................. 3,206 1,625
Other current assets.................................... 4,040 2,833
--------- ---------
Total Current Assets................................ 47,503 44,808
Property, equipment and leasehold improvements, net..... 20,785 15,161
Goodwill and other intangibles, net..................... 75,306 123,629
Restricted cash......................................... -- 18,000
--------- ---------
Total Assets........................................ $ 143,594 $ 201,598
========= =========
LIABILITIES
Loan payable to Seagate Technology...................... $ 28,971 $ 32,991
Accounts payable........................................ 9,116 11,121
Accrued employee compensation........................... 10,267 8,189
Accrued expenses........................................ 16,035 13,605
Accrued income taxes.................................... 2,699 389
Deferred revenue........................................ 8,354 5,706
--------- ---------
Total Current Liabilities........................... 75,442 72,001
Deferred income taxes................................... 6,233 13,738
Other liabilities....................................... 301 257
--------- ---------
Total Liabilities................................... 81,976 85,996
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value--73,000,000
shares authorized; Series A: shares issued and
outstanding--54,633,333 in 1997 and 47,433,333 in 1996
(aggregate liquidation preference of $409,750 in 1997
and $355,750 in 1996).................................. 55 47
Common stock, $.001 par value--95,600,000 shares
authorized; shares issued and outstanding--83,355 in
1997 and 62,500 in 1996................................ -- --
Additional paid-in capital.............................. 342,091 338,534
Accumulated deficit..................................... (280,685) (222,985)
Foreign currency translation adjustment................. 157 6
--------- ---------
Total Stockholders' Equity.......................... 61,618 115,602
--------- ---------
Total Liabilities and Stockholders' Equity.......... $ 143,594 $ 201,598
========= =========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

SEAGATE SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------
JUNE 27, JUNE 28, JUNE 30,
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Licensing...................................... $183,556 $ 124,380 $ 79,992
Licensing from Seagate Technology.............. 5,762 9,374 10,662
Maintenance, support and other................. 27,632 7,832 2,142
--------- --------- --------
Total revenues............................... 216,950 141,586 92,796
Cost of revenues:
Licensing...................................... 17,535 14,885 12,914
Licensing from Seagate Technology.............. 1,834 3,999 4,112
Maintenance, support and other................. 6,560 194 240
Amortization of developed technologies......... 21,860 9,941 5,113
--------- --------- --------
Total cost of revenues....................... 47,789 29,019 22,379
--------- --------- --------
Gross profit................................... 169,161 112,567 70,417
Operating expenses:
Sales and marketing............................ 107,706 71,129 38,495
Research and development....................... 42,842 36,897 21,152
General and administrative (including parent
company allocations of $1,939 in 1997, $2,242
in 1996 and $1,080 in 1995)................... 36,861 22,852 13,086
In-process research and development............ 2,613 96,958 73,177
Amortization of goodwill and other
intangibles................................... 27,202 13,035 4,673
Restructuring costs............................ 2,524 9,502 --
Unusual items.................................. 13,446 -- --
--------- --------- --------
Total operating expenses..................... 233,194 250,373 150,583
--------- --------- --------
Loss from operations........................... (64,033) (137,806) (80,166)
Interest expense............................... (2,688) (970) (767)
Other, net..................................... 307 360 334
--------- --------- --------
Interest and other, net...................... (2,381) (610) (433)
--------- --------- --------
Loss before income taxes....................... (66,414) (138,416) (80,599)
Benefit from (provision for) income taxes...... 8,714 8,748 (2,265)
--------- --------- --------
Net loss....................................... $ (57,700) $(129,668) $(82,864)
========= ========= ========
Net loss per common share...................... $ (852.11)
=========
Weighted average number of common shares
outstanding................................... 67,714
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

SEAGATE SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------
JUNE 27, JUNE 28, JUNE 30,
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $(57,700) $(129,668) $ (82,864)
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization................ 41,381 24,737 11,983
Deferred income taxes........................ (7,505) (3,021) (650)
Write-off of in-process research and develop-
ment........................................ 2,613 96,958 73,177
Write-off of goodwill and intangibles........ 17,192 2,157 --
Unusual items................................ 13,446 -- --
Write-offs due to restructure................ 1,494 4,427 --
Other........................................ -- 400 219
Changes in operating assets and liabilities:
Accounts receivable........................ 4,583 (12,129) (10,655)
Inventories................................ (1,581) (11) (82)
Other current assets....................... (1,207) 1,080 367
Accounts payable........................... (1,609) 4,887 3,438
Accrued employee compensation.............. 2,078 2,570 4,536
Accrued expenses........................... 2,430 4,629 (4,053)
Accrued income taxes....................... 5,796 (3,297) 2,634
Deferred revenue........................... 2,648 1,613 4,067
Other liabilities.......................... 44 (3,667) 26
-------- --------- ---------
Net cash provided by (used in) operating ac-
tivities.................................... 24,103 (8,335) 2,143
INVESTING ACTIVITIES
Acquisition of property, equipment and
leasehold improvements, net................... (15,823) (10,167) (4,671)
Acquisitions of businesses, net of cash
acquired...................................... -- (94,007) (124,747)
Escrow establishment........................... -- (18,000) --
(Increase)/decrease in other non-current
assets, net................................... -- 1,556 (1,142)
Other, net..................................... -- 4 2
-------- --------- ---------
Net cash (used in) investing activities...... (15,823) (120,614) (130,558)
FINANCING ACTIVITIES
Sale of common stock........................... 79 -- 185
Funding by Seagate Technology for acquisitions
of businesses................................. -- 108,400 121,239
Borrowings from Seagate Technology, net........ (4,020) 20,418 11,415
-------- --------- ---------
Net cash provided by (used in) financing ac-
tivities.................................... (3,941) 128,818 132,839
Effect of exchange rate changes on cash........ 151 8 (4)
-------- --------- ---------
Increase (decrease) in cash.................. 4,490 (123) 4,420
Elimination of Arcada's net cash activity for
the duplicated six months ended December 31,
1995........................................ -- 1,768 --
Cash at the beginning of the year.............. 7,595 5,950 1,530
-------- --------- ---------
Cash at the end of the year.................... $ 12,085 $ 7,595 $ 5,950
======== ========= =========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

SEAGATE SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE COMMON FOREIGN
FOR THE YEARS ENDED JUNE 27, 1997, PREFERRED STOCK STOCK ADDITIONAL CURRENCY
JUNE 28, 1996 AND JUNE 30, 1995 ----------------- ------------- PAID-IN TRANSLATION ACCUMULATED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
- ------------------------------------ ---------- ------ ------ ------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1,
1994................... -- $-- -- $-- $ 17,511 $-- $ (10,533) $ 6,978
Issuance of common stock
upon exercise of
options................ -- -- -- -- 185 -- -- 185
Issuance of Arcada
warrants to Conner
Peripherals, Inc....... -- -- -- -- 1,300 -- -- 1,300
Equity funding provided
by Conner Peripherals,
Inc. pursuant to
research and
development
arrangement............ -- -- -- -- 375 -- -- 375
Acquisition by Seagate
Technology of Creative
Interaction
Technologies;
Network Computing,
Inc.; Netlabs, Inc.;
Frye Computer Systems,
Inc. and Palindrome
Corporation............ -- -- -- -- 121,239 -- -- 121,239
Foreign currency
translation
adjustment............. -- -- -- -- -- 2 -- 2
Net loss................ -- -- -- -- -- -- (82,864) (82,864)
---------- ---- ------ ---- -------- ---- --------- ---------
BALANCE AT JUNE 30,
1995................... -- -- -- -- 140,610 2 (93,397) 47,215
Acquisition by Seagate
Technology of OnDemand
Software, Inc. and
minority interest of
Arcada Holdings, Inc... -- -- -- -- 98,249 -- -- 98,249
Issuance of convertible
preferred stock and
common stock to Seagate
Technology pursuant to
the formation of
Seagate Software....... 34,500,000 34 62,500 -- (34) -- -- --
Issuance of convertible
preferred stock to
Seagate Technology
pursuant to the
acquisition of Calypso
Software Systems,
Inc.................... 1,733,333 2 -- -- 13,797 -- -- 13,799
Issuance of convertible
preferred stock to
Seagate Technology
pursuant to the
acquisition of Holistic
Systems, Ltd........... 11,200,000 11 -- -- 84,046 -- -- 84,057
Income Tax Benefit from
Seagate Technology
stock option
exercises.............. -- -- -- -- 1,866 -- -- 1,866
Foreign currency
translation
adjustment............. -- -- -- -- -- 4 -- 4
Net loss................ -- -- -- -- -- -- (129,668) (129,668)
Elimination of Arcada
Holdings, Inc. activity
for the duplicated six
months ended December
31, 1995............... -- -- -- -- -- -- 80 80
---------- ---- ------ ---- -------- ---- --------- ---------
BALANCE AT JUNE 28,
1996................... 47,433,333 47 62,500 -- 338,534 6 (222,985) 115,602
Income Tax Benefit from
Seagate Technology
stock option
exercises.............. -- -- -- -- 3,486 -- -- 3,486
Issuance of common stock
upon exercise of
employee stock
options................ -- -- 20,855 -- 79 -- -- 79
Issuance of convertible
preferred stock
pursuant to the
transfer to the Company
of IMG Vancouver....... 7,200,000 8 -- -- (8) -- -- --
Foreign currency
translation
adjustment............. -- -- -- -- -- 151 -- 151
Net loss................ -- -- -- -- -- -- (57,700) (57,700)
---------- ---- ------ ---- -------- ---- --------- ---------
BALANCE AT JUNE 27,
1997................... 54,633,333 $ 55 83,355 $-- $342,091 $157 $(280,685) $ 61,618
========== ==== ====== ==== ======== ==== ========= =========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS. Seagate Software, Inc. (the "Company" or "Seagate
Software") was incorporated in Delaware in November 1993. The Company
develops, markets and supports software products, and provides related
services through two business units. The Information Management Group ("IMG")
business unit offers business intelligence products that support the access,
analysis, reporting and delivery of enterprise data, and the Network and
Storage Management Group ("NSMG") business unit offers infrastructure
management products that support the management of Information Technology
("IT") systems. The Company's products and services are designed to provide
users with more reliable and productive access to and use of critical
information and increase the manageability and reliability of computing
systems. The Company's offerings include products for query and reporting, on
line analytical processing ("OLAP"), data backup and restoration and network
management for a variety of computing environments, including Windows, Windows
NT, NetWare and UNIX. The Company also offers professional services, including
consulting and training programs.

The Company is a majority-owned and consolidated subsidiary of Seagate
Technology, Inc. ("Seagate Technology" or the "Parent Company"). Seagate
Technology is a data technology company that provides products for storing,
managing and accessing digital information on computer and data communications
systems. These products include disc drives, disc drive components and tape
drives.

BASIS OF PRESENTATION. These financial statements are presented as if the
Company had existed as an entity separate from Seagate Technology during the
periods presented and include the historical assets, liabilities, revenues and
expenses that are directly related to the Company's operations. Intercompany
transactions and balances have been eliminated.

The Company's current capital structure was established by a
recapitalization and contribution agreement in April 1996 when Arcada
Holdings, Inc. ("Arcada"), an existing wholly-owned software subsidiary of
Seagate Technology, changed its name to Seagate Software, Inc. and issued
Common Stock to Seagate Technology. Seagate Technology then contributed to
Seagate Software all of its interests in six wholly owned software
subsidiaries (Palindrome Corporation; Network Computing, Inc.; NetLabs, Inc.;
Frye Computer Systems, Inc.; Creative Interaction Technologies, Inc.; and
OnDemand Software, Inc.) in exchange for 34,500,000 shares of Seagate Software
Series A Preferred Stock. These six wholly-owned subsidiaries and Arcada had
been previously acquired by Seagate Technology during the period from August
1994 through March 1996. In May 1996 and June 1996, Seagate Technology
acquired two additional software companies, Calypso Software Systems, Inc. and
Holistic Systems, Ltd., and contributed ownership of these companies to
Seagate Software in exchange for a total of 12,933,333 shares of Series A
preferred stock.

Prior to December 1996, Seagate Technology International ("STI"), a wholly
owned subsidiary of Seagate Technology, owned all outstanding capital stock
(the "IMG Stock") of IMG Vancouver (formerly Crystal Services, Inc.). Pursuant
to an agreement among STI, Seagate Software and IMG Vancouver dated December
19, 1996, STI surrendered the IMG Stock (which was subsequently cancelled by
IMG Vancouver) in exchange for 7,200,000 Convertible Preference Shares of IMG
Vancouver. On December 26, 1996, the Convertible Preference Shares were
exchanged for 7,200,000 Class B Exchangeable Shares of IMG Vancouver. These
Class B Exchangeable Shares do not have voting rights except as required by
law, but can be exchanged at STI's sole discretion for 7,200,000 shares of
Seagate Software Series A Preferred Stock. In connection with the issuance of
the Class B Exchangeable Shares described above, STI was granted voting rights
in Seagate Software equivalent to 7,200,000 shares of Series A Preferred
Stock. Also on December 26, 1996, IMG Vancouver issued 10,000 Class A Common
Shares, which carry the right to vote, to Seagate Software. Seagate Software
therefore now owns all voting shares of IMG Vancouver. For financial reporting
purposes, Seagate Software has control over IMG Vancouver and therefore
consolidates the results of IMG Vancouver. Additionally, the 7,200,000 shares
of

F-7
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Series A Preferred Stock of the Company which STI could elect to receive in
exchange for the Class B Exchangeable Shares of IMG Vancouver have been
treated as issued and outstanding shares of Series A Preferred Stock of the
Company.

In May 1994, Seagate Technology acquired Crystal Computer Services, Inc.
("Crystal") in a transaction accounted for as a pooling-of-interests. The
results of Crystal are included for all periods presented.

In February 1996, Seagate Technology acquired Conner Peripherals, Inc.
("Conner") in a transaction accounted for as a pooling-of-interests. At the
time of the merger between Seagate Technology and Conner, Arcada was
approximately a 69 percent (on a fully diluted basis) majority-owned software
subsidiary of Conner. In connection with the merger, Seagate Technology also
acquired the outstanding minority interest of Arcada in a transaction
accounted for as a purchase. Because the merger was accounted for as a
pooling-of-interests, the financial statements of Seagate Software include the
results of Arcada for all periods presented. Arcada had a fiscal year which
ended on the Saturday closest to December 31. Accordingly, Arcada's statement
of operations for the year ended December 30, 1995, has been combined with the
Company's statement of operations for the year ended June 30, 1995. In order
to conform Arcada's fiscal year end to the Company's fiscal year end, the
Company's consolidated statement of operations for the year ended June 28,
1996 includes six months (July 1, 1995 through December 31, 1995) for Arcada
which are also included in the Company's consolidated statement of operations
for the year ended June 30, 1995.

The Company operates and reports financial results on a fiscal year of 52 or
53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1997
ended on June 27, 1997, fiscal 1996 ended on June 28, 1996 and fiscal 1995
ended on June 30, 1995. All fiscal years comprised 52 weeks. Fiscal 1998 will
be a 53-week year and will end on July 3, 1998. All references to years in
these notes to consolidated financial statements represent fiscal years unless
otherwise noted.

ECONOMIC DEPENDENCE ON SEAGATE TECHNOLOGY. The Company has incurred net
losses since inception and had net losses aggregating $270,232,000 during
1997, 1996 and 1995, and had a working capital deficit at June 27, 1997, of
$27,939,000. The Company has entered into a Loan Agreement dated as of June
28, 1996, between the Company and Seagate Technology, whereby the Parent
Company finances certain of the Company's working capital needs. The Loan
Agreement provides for maximum borrowings of up to $60,000,000 and matures
within two years and is extendible by mutual consent. Borrowings from the
Parent Company were $28,971,000 and $32,991,000 at June 27, 1997 and June 28,
1996, respectively. Borrowings from the Parent Company consist primarily of
funding the Company's operating activities. The Company pays interest of 6%
per annum on such borrowings. The Company is economically dependent on Seagate
Technology and believes that to the extent future cash flows from operations
and borrowings under the existing loan agreement with Seagate Technology are
not sufficient to fund the Company's working capital deficit and planned
activities during the next 12 months, that additional funding will be
available at a reasonable cost from Seagate Technology.

ACCOUNTING 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 materially from
those estimates.

CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of
cash, cash equivalents and accounts receivable. Accounts receivable are
derived from revenues earned from customers primarily located in North America
and Europe. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company maintains reserves for
potential credit losses and historically such losses have been immaterial.
Revenue from one third party customer accounted for 18 percent and 16 percent
of total revenues in 1997 and 1996, respectively. In 1995, revenue from
Seagate Technology was 11 percent of total revenues.

F-8
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOREIGN CURRENCY TRANSLATION. The U.S. dollar is the functional currency for
most of the Company's foreign operations. Gains and losses on the
remeasurement into U.S. dollars of amounts denominated in foreign currencies
are included in net income for those operations whose functional currency is
the U.S. dollar. Gains and losses on translation into U.S. dollars of foreign
operations whose functional currency is the local currency are recorded as a
separate component of stockholders' equity.

CASH MANAGEMENT. Seagate Technology uses a centralized cash management
function for all of its domestic operations, including certain domestic
operations of the Company. A substantial majority of the Company's cash is
from balances maintained by the Company's foreign subsidiaries.

CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with an original maturity of 90 days or less at the time of
purchase to be cash equivalents.

INVENTORIES. Inventories are stated at the lower of cost (first in, first
out method) or market, and consist primarily of materials used in software
products, related supplies and packaging materials.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Property and equipment,
including leasehold improvements, 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 using the straight-line method over the
shorter of the estimated useful lives of the assets or the remaining lease
term.

IMPAIRMENT OF LONG-LIVED ASSETS. The Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") during the
year ended June 28, 1996. The adoption of SFAS 121 did not have a material
impact on the Company's financial position or results of operations.

GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill represents the excess of the
purchase price of acquired companies over estimated fair values of tangible
and intangible net assets acquired. Goodwill is amortized on a straight-line
basis over six to seven years. The carrying values of long-term assets and
intangibles other than developed technology ("other intangibles") are reviewed
if facts and circumstances suggest that they may be impaired. If this review
indicates that carrying values of long-term assets and other intangibles and
associated goodwill will not be recoverable based on projected undiscounted
future cash flows, carrying values are reduced to estimated fair values by
first reducing goodwill and second by reducing long-term assets and other
intangibles.

Other intangible assets consist of trademarks, assembled workforces,
distribution networks, developed technology, customer bases, and covenants not
to compete related to acquisitions accounted for by the purchase method. See
Note on Business Combinations and Acquisitions. Amortization of purchased
intangibles, other than acquired developed technology, is provided on the
straight-line basis over the respective useful lives of the assets ranging
from 36 months to 60 months for trademarks, 48 months for assembled workforces
and distribution networks, 12 to 36 months for customer bases and 18 to 24
months for covenants not to compete. In-process research and development
without alternative future use is expensed when acquired.

The Company applies Statement of Financial Accounting Standard No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed" ("SFAS 86") to developed technologies acquired in business
acquisitions. Acquired developed technology is amortized based on the greater
of the straight-line basis over the estimated useful life (30 to 60 months) or
the ratio of current revenues to the total of current and anticipated future
revenues. The recoverability of the carrying value of acquired developed
technology and associated goodwill is reviewed periodically. If estimated
undiscounted future cash flows are not

F-9
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

sufficient to recover the combined carrying value of the acquired developed
technology and associated goodwill, the carrying value of goodwill is first
reduced and then the carrying value of acquired developed technology is
reduced by any remaining difference.

SOFTWARE DEVELOPMENT COSTS. Software development costs are included in
research and development and are expensed as incurred. SFAS 86 requires the
capitalization of certain software development costs once technological
feasibility is established, which based on the Company's development process
is generally the completion of a working model. The capitalized costs are
amortized based on the greater of the straight-line basis over the estimated
product life, which is generally three to five years, or the ratio of current
revenues to current and anticipated future revenues. The time period between
achieving technological feasibility and the general availability of software
has been short and the capitalization of software development costs has not
been material to date.

FAIR VALUE DISCLOSURES. The Company maintains its cash principally with
major banks in interest and non-interest bearing bank accounts. There are no
realized or unrealized gains or losses and fair value equals carrying value
for all cash balances.

PUSHDOWN AND CARVEOUT ACCOUNTING. Seagate Technology has provided
substantial services to the Company, including general management, treasury,
tax, financial reporting, benefits administration, insurance, information
technology, legal, accounts payable and receivable and credit functions.
Seagate Technology has charged the Company for these services through
corporate expense allocations. The amount of corporate expense allocations is
dependent upon the total amount of allocable costs incurred by Seagate
Technology on behalf of Seagate Software less amounts charged as a specific
cost or expense rather than by allocation. Included in general and
administrative and sales and marketing expenses are corporate allocation
charges of $1,958,000, $2,260,000, and $1,273,000, for the fiscal years ended
1997, 1996 and 1995, respectively.

The Company also participates in Seagate Technology's profit sharing and
management bonus plans. Compensation expenses recorded by the Company related
to these plans total $3,158,000, $910,000 and $315,000 for 1997, 1996 and
1995, respectively.

The employees of the Company also participate in the Seagate Technology
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan permits
eligible employees who have completed thirty days of employment prior to the
inception of the offering period to purchase common stock of Seagate
Technology through payroll deductions at the lower of 85% of the fair market
value of the common stock at the beginning or at the end of each six-month
offering period. Under the plan, 80,643, 41,574 and 11,512 shares of common
stock of Seagate Technology were issued to the Company's employees in 1997,
1996 and 1995, respectively.

REVENUE RECOGNITION. The Company recognizes revenue in accordance with the
American Institute of Certified Public Accountants' Statement of Position 91-1
entitled "Software Revenue Recognition." The Company's total revenues are
derived from license revenues for its various software products as well as
maintenance, support, training and consulting. Revenues for maintenance,
support services, training and consulting are recognized separately from
software licenses. License revenues are recognized upon delivery of the
product if no significant vendor obligations remain and collection of the
resulting receivable is probable. Allowances for estimated future returns and
price protection are provided upon shipment. Maintenance and support revenues
consist of ongoing support and product updates and are recognized ratably over
the term of the contract, which is typically twelve months. Revenues from
training and consulting are recognized when the services are performed.

ADVERTISING EXPENSE. The cost of advertising is expensed as incurred. The
Company does not incur any direct response advertising. Advertising costs
totaled $21,617,000, $15,748,000 and $2,119,000 for 1997, 1996 and 1995,
respectively.

F-10
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NET LOSS PER SHARE. The net loss per common share is computed for 1997 using
the weighted average number of shares of common stock outstanding during the
period. Common equivalent shares from common stock options and convertible
preferred stock are excluded from the computation as their effect is
antidilutive. The net loss per common share for 1996 and 1995 is not presented
because the Company's current capital structure did not exist prior to April
1996 and presentation for prior periods would not be meaningful.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS 128")
which the Company is required to adopt in the fiscal quarter ended January 2,
1998. At that time, the Company will be required to change the method
currently used to compute net income (loss) per share and to restate all prior
periods. Under the new requirements for calculating primary net income (loss)
per share, the dilutive effect of stock options will be excluded. If SFAS 128
had been effective for 1997, it would not have had an effect on the reported
net loss per share as only the weighted average number of shares of common
stock outstanding during the period was used in the calculation.

ACCOUNTS RECEIVABLE.

Accounts receivable are summarized below, in thousands:

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accounts receivable........................................... $29,442 $33,352
Less allowance for non-collection............................. (1,270) (597)
------- -------
$28,172 $32,755
======= =======

INVENTORIES.

Inventories are summarized below, in thousands:

<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials................................................. $ 1,699 $ 712
Finished goods................................................ 1,507 913
------- -------
$ 3,206 $ 1,625
======= =======
</TABLE>

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.

Property, equipment and leasehold improvements consisted of the following,
in thousands:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1997 1996
------------------- -------- -------
<S> <C> <C> <C>
Equipment.............................. Three to five years $ 27,504 $17,518
Building and leasehold improvements.... Life of lease 6,428 2,622
Construction in progress............... 2,505 474
-------- -------
36,437 20,614
Less accumulated depreciation and
amortization.......................... (15,652) (5,453)
-------- -------
$ 20,785 $15,161
======== =======
</TABLE>

Depreciation expense was $8,911,000, $3,918,000, and $2,197,000 in 1997,
1996, and 1995, respectively.

F-11
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

GOODWILL AND OTHER INTANGIBLES.

Goodwill and other intangibles consisted of the following, in thousands:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Goodwill.................................................... $ 46,200 $ 60,167
Developed technology........................................ 46,136 58,165
Trademarks.................................................. 9,972 9,551
Assembled workforce......................................... 6,666 6,526
Distribution network........................................ 2,925 2,925
Other intangibles........................................... 12,853 12,576
-------- --------
124,752 149,910
Accumulated amortization.................................... (49,446) (26,281)
-------- --------
Goodwill and other intangibles.............................. $ 75,306 $123,629
======== ========
</TABLE>

Amortization of developed technologies is included in costs of revenues. In
1997 the amortization of acquired developed technologies includes write-downs
and write-offs to net realizable value of $6,918,000. In 1997 and 1996 the
amortization of goodwill and other intangibles includes write-downs and write-
offs to estimated fair value of $10,259,000 and $2,157,000, respectively.

BUSINESS COMBINATIONS AND ACQUISITIONS

The Company acquired a total of nine companies and one minority interest
during 1996 and 1995. There were no acquisitions in 1997.

VALUATION OF ACQUIRED INTANGIBLE ASSETS. Values assigned to acquired in-
process research and development, developed technology, distribution networks,
customer bases, trademarks, and assembled workforces were determined using
independent valuations obtained by the Company.

To determine the value of 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, associated
risks which included the inherent difficulties and uncertainties in completing
each project and thereby achieving technological feasibility and risks related
to the viability of and potential changes to future target markets. This
analysis resulted in amounts assigned to in-process research and development
for projects that had not yet reached technological feasibility and which did
not have alternative future uses.

To determine the value of developed technologies, the expected future cash
flows of existing product technologies were evaluated 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 technologies that had reached
technological feasibility were capitalized.

To determine the value of the distribution networks and customer bases, the
Company considered, among other factors, the size of the current and potential
future customer bases, the quality of existing relationships with customers,
the historical costs to develop customer relationships, 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.

F-12
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

To determine the value of trademarks, the Company considered, among other
factors, the assumption that in lieu of ownership of a trademark, a company
would be willing to pay a royalty in order to exploit the related benefits of
such trademark.

To determine the value of assembled workforces, the Company considered,
among other factors, the costs to replace existing employees including search
costs, interview costs and training costs .

Goodwill is determined based on the residual difference between the amount
paid and the values assigned to identified tangible and intangible assets. If
the values assigned to identified tangible and intangible assets exceed the
amounts paid, including the effect of deferred taxes, the values assigned to
long-term assets were reduced proportionally until there was no negative
goodwill.

ACQUISITION OF MINORITY INTEREST OF ARCADA HOLDINGS, INC. The combination of
Seagate Software with Arcada, a company which develops, markets and supports
data protection and storage management software products that operated across
multiple desktop and client/server environments, was accounted for as a
pooling-of-interests and, accordingly, all prior periods presented in the
accompanying consolidated financial statements include the accounts and
operations of Arcada. Arcada's results of operations for the duplicated six
months ended December 30, 1995 were as follows, in thousands:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 30, 1995
-----------------
<S> <C>
Net revenues............................................ $37,700
Operating expenses...................................... 29,320
Other income (expense).................................. 588
Net loss................................................ (80)

In connection with the pooling-of-interests, the Company acquired the then
outstanding minority interest of Arcada. The minority interest was
approximately 31 percent on a fully diluted basis. The acquisition of the
minority interest was accounted for as a purchase and in connection with the
acquisition, Seagate Technology issued common stock and options to purchase
common stock with a fair market value of approximately $85,074,000. The
following is a summary of the purchase price allocation for the acquisition of
the minority interest, in thousands:

Assembled workforce..................................... $ 1,355
Distribution network.................................... 94
Corporate accounts...................................... 375
Strategic alliances..................................... 1,437
OEM agreements.......................................... 3,217
Value added resellers................................... 2,030
Trademarks.............................................. 2,811
Developed technology.................................... 4,623
In-process research and development..................... 43,949
Deferred tax liability.................................. (6,254)
Goodwill................................................ 31,437
-------
$85,074
=======
</TABLE>

ACQUISITION OF PALINDROME CORPORATION. In August 1994, the Company acquired
all of the outstanding shares and stock options of Palindrome Corporation
("Palindrome"), a company engaged in developing, producing and marketing data
protection and management software for NetWare-based networks and enterprise
LANs. The purchase price of approximately $70,244,000 was paid in cash. The
Company accounted for the

F-13
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

acquisition using the purchase method, and the results of operations of
Palindrome are only included in the Company's operations since the acquisition
was completed. The following is a summary of the purchase price allocation, in
thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets......................... $ 5,680
Liabilities assumed.............................................. (4,557)
Trademarks....................................................... 2,000
Assembled workforce.............................................. 1,900
Distribution network............................................. 2,900
Developed technology............................................. 13,020
In-process research and development.............................. 42,980
Deferred tax liability........................................... (1,710)
Goodwill......................................................... 8,031
-------
$70,244
=======
</TABLE>

ACQUISITION OF NETWORK COMPUTING, INC. In February 1995, the Company
acquired all of the outstanding shares and stock options of Network Computing,
Inc. ("NCI"), a company engaged in developing, producing and marketing network
management software products for Novell NetWare networks. The purchase price
of approximately $10,488,000 was paid in cash. The Company accounted for the
acquisition using the purchase method, and the results of operations of NCI
are only included in the Company's operations since the acquisition was
completed. The following is a summary of the purchase price allocation, in
thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets......................... $ 383
Liabilities assumed.............................................. (554)
Trademarks....................................................... 850
Assembled workforce.............................................. 410
Developed technology............................................. 2,310
Customer base.................................................... 140
Covenant not to compete.......................................... 1,040
In-process research and development.............................. 5,280
Deferred tax liability........................................... (1,786)
Goodwill......................................................... 2,415
-------
$10,488
=======
</TABLE>

ACQUISITION OF NETLABS, INC. In March 1995, the Company acquired all of the
outstanding shares and stock options of NetLabs, Inc. ("NetLabs"), a company
engaged in developing, producing and marketing network management software
solutions for UNIX-based networks. The purchase price of approximately
$15,262,000 was paid in cash. The Company accounted for the acquisition using
the purchase method, and the results of operations of NetLabs are only
included in the Company's operations since the acquisition was completed. The
following is a summary of the purchase price allocation, in thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets......................... $ 2,457
Liabilities assumed.............................................. (5,208)
Assembled workforce.............................................. 1,380
Developed technology............................................. 5,000
In-process research and development.............................. 7,500
Deferred tax liability........................................... (2,370)
Goodwill......................................................... 6,503
-------
$15,262
=======
</TABLE>

F-14
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

ACQUISITION OF FRYE COMPUTER SYSTEMS, INC. In May 1995, the Company acquired
all of the outstanding shares of Frye Computer Systems, Inc. ("Frye"), a
company engaged in developing, producing and marketing network management
software solutions for PC-LANs. The purchase price of approximately
$15,164,000 was paid in cash. The Company accounted for the acquisition using
the purchase method, and the results of operations of Frye are only included
in the Company's operations since the acquisition was completed. The following
is a summary of the purchase price allocation, in thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets......................... $ 1,364
Liabilities assumed.............................................. (503)
Trademarks....................................................... 300
Assembled workforce.............................................. 600
Developed technology............................................. 2,600
Covenant not to compete.......................................... 1,900
In-process research and development.............................. 8,900
Deferred tax liability........................................... (2,030)
Goodwill......................................................... 2,033
-------
$15,164
=======
</TABLE>

ACQUISITION OF CREATIVE INTERACTION TECHNOLOGIES. In June 1995, the Company
acquired all of the outstanding shares and stock options of Creative
Interaction Technologies ("CIT"), a company engaged in developing, producing
and marketing AshWin, a batch scheduler for heterogeneous client/server
computing. The purchase price of approximately $10,080,000 was paid in cash.
The Company accounted for the acquisition using the purchase method, and the
results of operations of CIT are only included in the Company's operations
since the acquisition was completed. The following is a summary of the
purchase price allocation, in thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets......................... $ 284
Liabilities assumed.............................................. (764)
Assembled workforce.............................................. 220
Developed technology............................................. 4,200
In-process research and development.............................. 5,700
Deferred tax liability........................................... (1,662)
Goodwill......................................................... 2,102
-------
$10,080
=======
</TABLE>

ACQUISITION OF SYTRON CORPORATION. In July 1995, Arcada Software, Inc., a
majority-owned subsidiary of Arcada, acquired the assets and liabilities of
Sytron Corporation ("Sytron"), a company which develops, produces and markets
software products for data storage management. The purchase price of
approximately $5,017,000 was paid in cash. Arcada accounted for the
acquisition using the purchase method, and the results of operations of Sytron
are only included in the Company's operations since the acquisition was
completed. The following is a summary of the purchase price allocation, in
thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets.......................... $ 848
Liabilities assumed............................................... (508)
Developed technology.............................................. 1,487
In-process research and development............................... 2,817
Goodwill.......................................................... 373
------
$5,017
======
</TABLE>

F-15
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

ACQUISITION OF ONDEMAND SOFTWARE, INC. In March 1996, the Company acquired
all of the outstanding shares and stock options of OnDemand Software, Inc.
("OnDemand"), a company engaged in developing, producing and marketing
WinINSTALL, a product which automates installation, upgrades and uninstalls of
network applications throughout the enterprise. The purchase price of
approximately $13,425,000 was paid in cash. The Company accounted for the
acquisition using the purchase method, and the results of operations of
OnDemand are only included in the Company's operations since the acquisition
was completed. The following is a summary of the purchase price allocation, in
thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets......................... $ 832
Liabilities assumed.............................................. (227)
Assembled workforce.............................................. 270
Developed technology............................................. 2,000
Covenant not to compete.......................................... 50
In-process research and development.............................. 8,900
Goodwill......................................................... 1,600
-------
$13,425
=======
</TABLE>

ACQUISITION OF CALYPSO SOFTWARE SYSTEMS, INC. In May 1996, the Company
acquired all of the outstanding shares of Calypso Software Systems, Inc.
("Calypso"), a company engaged in developing, producing and marketing software
for managing systems and applications in complex, distributed client/server
computer networks. The purchase price of approximately $13,865,000 was paid in
cash. The Company accounted for the acquisition using the purchase method, and
the results of operations of Calypso are only included in the Company's
operations since the acquisition was completed. The following is a summary of
the purchase price allocation, in thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets......................... $ 1,209
Liabilities assumed.............................................. (245)
Assembled workforce.............................................. 400
Developed technology............................................. 3,600
Customer base.................................................... 540
In-process research and development.............................. 5,400
Goodwill......................................................... 2,961
-------
$13,865
=======
</TABLE>

F-16
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

ACQUISITION OF HOLISTIC SYSTEMS, LTD. In June 1996, the Company acquired all
of the outstanding shares of Holistic Systems, Ltd. ("Holistic"), a company
engaged in developing, producing and marketing OLAP-compliant, integrated
enterprise business intelligence systems encompassing facilities for executive
information, decision support and other business intelligence applications.
The purchase price of approximately $85,458,000 was paid in cash, and a
portion of such consideration ($18,000,000) was placed in escrow for
contingent consideration. The escrow was released by the Company during the
third quarter of fiscal 1997. The Company accounted for the acquisition using
the purchase method, and the results of operations of Holistic are only
included in the Company's operations since the acquisition was completed. The
following is a summary of the initial purchase price allocation, in thousands:

<TABLE>
<S> <C>
Current assets and other tangible assets......................... $ 9,993
Liabilities assumed.............................................. (5,087)
Trademarks....................................................... 5,889
Assembled workforce.............................................. 1,890
Developed technology............................................. 16,453
Customer base.................................................... 3,746
In-process research and development.............................. 35,892
Restricted cash held in escrow................................... 18,000
Deferred tax liability........................................... (1,318)
Goodwill......................................................... --
-------
$85,458
=======
</TABLE>

As noted above, $18,000,000 of the acquisition consideration was held in
escrow as contingent consideration. The Company decided to release to the
former shareholders of Holistic the escrow funds of $18,000,000 in the third
quarter of fiscal 1997 even though the required contingencies had not been
satisfied. As a result, the Company recorded compensation expense as an
unusual item amounting to $13,446,000 for payments made to Company employees
who were also former shareholders of Holistic and an additional purchase price
amount of $4,554,000 for payments to former shareholders of Holistic who were
not employees of the Company. The additional purchase price was allocated
based on the same methodology as the original purchase price and in the third
quarter of 1997, the Company recorded an additional in-process research and
development write-off of $2,613,000, acquired intangible assets of $2,037,000
and a deferred tax liability of $96,000.

STOCKHOLDERS' EQUITY

The Company's authorized capital stock consists of 95,600,000 shares of
common stock and 73,000,000 shares of preferred stock, 54,633,333 of which
have been designated as Series A preferred stock and 18,366,667 of which
remain undesignated.

PREFERRED STOCK. The Series A preferred have the following rights,
preferences and privileges:

Conversion. The holders of the Series A preferred stock have the right to
convert the Series A preferred stock at any time into common stock. The
preferred stock will be automatically converted into common stock, at the then
effective conversion price, upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended. The initial conversion rate will be one
share of preferred stock for each share of common stock. The conversion price
of the preferred stock will be subject to adjustment to reduce the effect of
dilution in the event that the Company issues additional shares of common
stock or equivalents.

F-17
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Voting. Each share of Series A preferred stock entitles the holder to one
vote for each share of common stock into which such share could then be
converted. Except as required by law, the holders of shares of Series A
preferred stock and the holders of shares of common stock shall vote together
as one class on all matters submitted to a vote of stockholders of the
Company.

Dividend Preference. The holders of shares of Series A preferred stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, an annual cash dividend in the
amount of $0.45 per share (as adjusted to reflect any stock split, stock
dividend, combination, recapitalization and the like (collectively a
"Recapitalization") with respect to the Series A preferred stock), prior and
in preference to any declaration or payment of any dividend (payable other
than in common stock) on the common stock of the Company. Such dividends shall
not be cumulative, and no right shall accrue to holders of Series A preferred
stock by reason of the fact that dividends on such shares are not declared or
paid in any year. On the date that is the end of the first fiscal year in
which the Company recognizes net income after taxes, the holders of shares of
Series A preferred stock shall be entitled to receive, out of funds legally
available for the purpose, an annual cash dividend in the amount of $0.45 per
share (as adjusted to reflect any Recapitalization) prior and in preference to
any declaration or payment of any dividend (payable other than in common
stock) on the common stock of the Company (the "Cumulative Dividend"). The
Cumulative Dividend shall accrue from the Cumulative Dividend Date and shall
be payable only when, as and if determined by the Board, provided, that if the
Cumulative Dividend shall not have been paid and a sum sufficient for the
payment thereof set apart, the deficiency shall first be fully paid before any
dividend or other distribution (other than dividends payable solely in common
stock) shall be paid or declared and set apart for the common stock of the
Company. In the event any dividend shall be paid to the holders of common
stock such dividend shall be distributed among the holders of the common stock
and the Series A preferred stock in proportion to the shares of common stock
then held by them and the shares of common stock which they then have the
right to acquire upon the conversion of the Series A preferred stock held by
them.

Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the Company, a distribution equivalent to the liquidation
preference shall be made to the holders of Series A preferred stock before any
amount shall be paid to the holders of common stock of $7.50 per share, plus
all accrued or declared but unpaid dividends, if any.

DIVIDENDS. No dividends have been declared, or paid, to date by the Company
on any of the outstanding common stock or preferred stock.

STOCK OPTION PLANS. The Company's 1996 Stock Option Plan (the "Plan")
provides for the issuance of either incentive or nonstatutory stock options to
employees and consultants of the Company. The Company has reserved a total of
12,600,000 shares under the Plan. Options granted under the Company's Plan are
granted at fair market value, expire ten years from the date of the grant and
vest over four years, 20% at the end of year one and year two and 30% at the
end of year three and year four.

F-18
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Following is a summary of stock option activity from the inception of the
plan through the year ended June 27, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at June 30, 1995........................... -- --
Granted.......................................... 3,276,200 $4.00
Exercised........................................ -- --
Canceled......................................... (45,088) $4.00
---------
Balance at June 28, 1996........................... 3,231,112 $4.00
Granted.......................................... 2,851,255 $5.42
Exercised........................................ (20,855) $4.00
Canceled......................................... (973,733) $4.36
---------
Balance at June 27, 1997........................... 5,087,779 $4.73
=========
</TABLE>

Options available for grant were 7,491,366 at June 27, 1997 and 9,368,888 at
June 28, 1996. The following tables summarize information about options
outstanding at June 27, 1997.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE
EXERCISE PRICES OF SHARES LIFE (IN YEARS) EXERCISE PRICE
- --------------- --------- --------------------- ----------------
<S> <C> <C> <C>
$4.00.......................... 3,236,319 9.0 $4.00
$6.00.......................... 1,851,460 9.6 $6.00
---------
Total........................ 5,087,779 9.2 $4.73
=========
</TABLE>

<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
--------------------------
NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OF SHARES EXERCISE PRICE
- --------------- --------- ----------------
<S> <C> <C>
$4.00................................................ 531,213 $4.00
$6.00................................................ -- --
-------
Total.............................................. 531,213 $4.00
=======
</TABLE>

PRO FORMA INFORMATION. In October 1995, the Financial Accounting Standards
Board released Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 provides an
alternative to APB Opinion 25, "Accounting for Stock Issued to Employees"
("APBO 25") and requires additional disclosures. The Company has elected to
follow APBO 25 in accounting for stock options granted. Under APBO 25, the
Company generally recognized no compensation expense with respect to such
options.

Pro forma information regarding net income and earnings per share is
required by SFAS 123 for stock options granted after June 30, 1995 as if the
Company had accounted for its stock options under the fair value method of
SFAS 123. The fair value of the Company's stock options was estimated using a
Black-Scholes option valuation model. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In addition, the
Black-Scholes model requires the input of highly subjective assumptions,
including the expected stock price volatility. Because

F-19
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the Company's stock options granted to employees have characteristics
significantly different from those of exchange-traded options (and are not
fully transferable) and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
Black-Scholes model does not necessarily provide a reliable single measure of
the fair value of its stock options granted to employees. The fair value of
the Company's stock options granted to employees was estimated assuming no
expected dividends and the following weighted average assumptions:

<TABLE>
<CAPTION>
SEAGATE
SEAGATE SOFTWARE TECHNOLOGY
INCENTIVE EMPLOYEE STOCK
STOCK OPTION PURCHASE
PLAN SHARES PLAN SHARES
------------------ -----------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Expected life (in years)................ 3.65 3.65 .50 .50
Risk-free interest rate................. 6.2% 5.6% 5.4% 5.4%
Volatility.............................. .55 .55 .46 .46
</TABLE>

The weighted average exercise price and weighted average fair value of stock
options granted in 1997 under the Company's Plan were $5.42 and $2.48 per
share, respectively. The weighted average purchase price and weighted average
fair value of shares granted in 1997 under the Seagate Technology Employee
Stock Purchase Plan were $32.88 and $8.89, respectively.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period (for stock options) and
the six month purchase period for stock purchases under the Purchase Plan. Pro
forma net loss per common share is not presented for 1996 as the Company did
not have a formal capital structure during most of 1996. The Company's pro
forma information follows, in thousands:

<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Net loss................................................... $(61,568) $(130,043)
Net loss per common share.................................. $(909.24)
</TABLE>

The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to June 30,
1995, and the Company did not commence granting stock options for the purchase
of Seagate Software common stock until June 1996, the pro forma effect will
not be fully reflected until 2000.

INCOME TAXES

The Company is included in the consolidated federal and certain combined and
consolidated foreign and state income tax returns of Seagate Technology.
Seagate Technology and the Company have entered into a tax sharing agreement
(the "Tax Allocation Agreement") pursuant to which the Company computes
hypothetical tax returns as if the Company was not joined in consolidated or
combined returns with Seagate Technology. The Company must pay Seagate
Technology the positive amount of any such hypothetical taxes. If the
hypothetical tax returns show entitlement to refunds, including any refunds
attributable to a carryback, then Seagate Technology will pay the Company the
amount of such refunds. At the end of fiscal 1997 and 1996, there were no
outstanding intercompany tax-related balances due to or from the Company to
Seagate Technology.

F-20
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The (benefit from) provision for income taxes consisted of the following, in
thousands:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current Tax Expense
Federal............................................ $(5,007) $(7,196) $ 367
State.............................................. (384) (762) 188
Foreign............................................ 4,182 996 1,710
------- ------- -------
Total Current Tax Expense............................ (1,209) (6,962) 2,265
======= ======= =======
Deferred Tax Expense
Federal............................................ (6,330) (1,498) --
State.............................................. (1,175) (288) --
------- ------- -------
Total Deferred Tax Expense........................... (7,505) (1,786) --
------- ------- -------
(Benefit from) provision for Income Taxes............ $(8,714) $(8,748) $ 2,265
======= ======= =======
</TABLE>

For purposes of the historical financial statements, the benefit from income
taxes has been computed on a separate return basis, except that the tax
benefits of certain of the Company's tax losses and credits were allocated to
the Company on a current basis if such losses could be utilized by Seagate
Technology in its tax returns.

The proforma information assuming a tax benefit based on a separate return
basis is as follows, in thousands:

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 27, 1997
-------------
<S> <C>
Loss before benefit from income taxes.......................... $(66,414)
(Benefit) from income taxes.................................... (3,323)
--------
Net Loss....................................................... $(63,091)
========
</TABLE>

The income tax benefits related to the exercise of employee stock options
increased amounts due from Seagate Technology pursuant to the Tax Allocation
Agreement and were credited to additional paid-in capital. Such amounts
approximated $3,486,000, $1,866,000 and none in 1997, 1996 and 1995,
respectively.

F-21
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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. The significant
components of the Company's deferred tax assets and liabilities were as
follows, in thousands:

<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Deferred Tax Assets
Receivable reserves....................................... $ 1,859 $ 960
Accrued warranty.......................................... 192 128
Inventory valuation accounts.............................. 299 501
Accrued compensation and benefits......................... 1,517 1,399
Depreciation.............................................. 827 576
Accrued restructuring..................................... 963 1,655
Accrued expenses not currently deductible................. 850 597
Acquisition related items................................. 34,745 24,656
Domestic and foreign net operating loss carryforwards..... 13,098 12,684
Tax credit carryforwards.................................. 1,155 1,155
Other..................................................... 2,372 1,620
-------- ---------
Total Deferred Tax Assets............................... 57,877 45,931
Valuation allowance....................................... (57,877) (45,931)
-------- ---------
Net Deferred Tax Assets................................. -- --
======== =========
Deferred Tax Liabilities
Acquisition related items................................. (6,233) (13,738)
-------- ---------
Total Deferred Tax Liabilities.......................... (6,233) (13,738)
-------- ---------
Net Deferred Tax Liabilities.............................. $ (6,233) $ (13,738)
======== =========
</TABLE>

A valuation allowance has been provided for the deferred tax assets as of
the end of fiscal 1997 and 1996. Realization of the deferred tax assets is
dependent on future earnings, the timing and amount of which are uncertain. In
addition, the net operating loss and tax credit carryforwards of acquired
subsidiaries are subject to further limitations on utilization due to the
"change in ownership" provisions of Internal Revenue Code Section 382 and the
"separate return limitation year" rules of the federal consolidated return
regulations. Approximately $8,213,000 of the valuation allowance in fiscal
1997 and 1996 is attributable to deferred tax assets that when realized, will
reduce unamortized goodwill or other intangible assets of the acquired
subsidiaries. The valuation allowance increased by $11,946,000, $26,038,000
and $13,161,000 in 1997, 1996 and 1995, respectively.

As of June 27, 1997, the Company has domestic and foreign net operating loss
carryforwards of approximately $37,515,000 expiring in 2003 through 2010 if
not used to offset future taxable income. In addition, the Company, as of June
27, 1997, has research and development tax credit carryforwards of
approximately $1,155,000 expiring in 2005 through 2011 if not used to offset
future tax liabilities.

F-22
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The reconciliation between the (benefit from) provision for income taxes at
the U.S. statutory rate and the effective rate are summarized as follows, in
thousands:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(Benefit) provision at U.S. statutory rate...... $(23,245) $(48,446) $(28,210)
State income taxes (benefit), net............... (382) (762) 188
Foreign taxes in excess of the U.S. statutory
rate........................................... 255 25 --
In-process research and development............. -- 15,382 24,626
Goodwill and other acquisition related items.... 5,666 2,833 1,217
Valuation allowance............................. 8,871 22,216 4,293
Other........................................... 121 4 151
-------- -------- --------
$ (8,714) $ (8,748) $ 2,265
======== ======== ========
</TABLE>

RESTRUCTURING COSTS

In March 1996, the Company recorded restructuring charges totaling
$9,502,000 as a result of the acquisition of Arcada, a majority-owned
subsidiary of Seagate Technology which was acquired in connection with Seagate
Technology's merger with Conner. The restructuring charges were incurred for
the reduction of personnel, write-off or write down of equipment, intangibles
and other assets, closure of duplicate and excess facilities, attorneys and
accountants fees, contract cancellations and other expenses. In connection
with the restructuring, the Company expects a total workforce reduction of
approximately 121 employees. Of that number, approximately 64 have been
terminated as of June 27, 1997, and a certain number of employees have left
the Company due to normal attrition.

During 1997, the Company recorded restructuring charges of approximately
$2,524,000, which consisted of $3,481,000 resulting from NSMG's consolidation
efforts, offset by an adjustment to reduce the 1996 restructuring by $957,000.
The restructuring charges were incurred for the reduction of personnel, write-
off or write down of equipment, intangibles and other assets, closure of
duplicate and excess facilities and other expenses. In connection with such
restructuring, the Company currently expects a total workforce reduction of
approximately 109 employees. Of that number, approximately 84 have been
terminated as of June 27, 1997, and a certain number of employees have left
the Company due to normal attrition.

The following table summarizes the Company's restructuring activity for the
two years ended June 27, 1997, in thousands:

<TABLE>
<CAPTION>
CONTRACT
EQUIPMENT, CANCELLATIONS
SEVERANCES EXCESS INTANGIBLES PROFESSIONAL AND OTHER
AND BENEFITS FACILITIES AND OTHER ASSETS FEES EXPENSES TOTAL
------------ ---------- ---------------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
1996 restructuring
charges................ $1,554 $1,571 $ 5,630 $ 525 $ 222 $ 9,502
Cash charges............ (518) -- -- (568) -- (1,086)
Non-cash charges........ -- (121) (4,168) -- (138) (4,427)
------ ------ ------- ----- ----- -------
Reserve balances, June
28, 1996............... 1,036 1,450 1,462 (43) 84 3,989
1997 restructuring
charges................ 770 505 2,106 -- 100 3,481
Cash charges............ (975) (915) -- -- -- (1,890)
Non-cash charges........ -- (72) (1,422) -- -- (1,494)
Adjustments and
reclassifications...... (351) 267 (732) 43 (184) (957)
------ ------ ------- ----- ----- -------
Reserve balances, June
27, 1997............... $ 480 $1,235 $ 1,414 $ -- $ -- $ 3,129
====== ====== ======= ===== ===== =======
</TABLE>

F-23
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in a single industry segment by developing, marketing
and supporting business intelligence and systems infrastructure management
software products, and related professional services.

The following tables summarize the Company's operations in different
geographic areas, in thousands:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 27, 1997
----------------------------------------------
ADJUSTMENTS
NORTH AND
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated
customers..................... $ 203,324 $ 13,626 $ -- $ 216,950
Transfers between geographic
areas......................... 861 841 (1,702) --
--------- -------- ------- ---------
Total net sales................ $ 204,185 $ 14,467 $(1,702) $ 216,950
========= ======== ======= =========
Income (loss) from operations.. (58,962) (5,071) -- (64,033)
Other income (expense), net.... (2,315) (66) -- (2,381)
--------- -------- ------- ---------
Income (loss) before income
taxes......................... $ (61,277) $ (5,137) $ -- $ (66,414)
========= ======== ======= =========
Identifiable assets............ $ 103,880 $ 39,714 $ -- $ 143,594
========= ======== ======= =========
<CAPTION>
YEAR ENDED JUNE 28, 1996
----------------------------------------------
ADJUSTMENTS
NORTH AND
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated
customers..................... $ 139,123 $ 2,463 $ -- $ 141,586
Transfers between geographic
areas......................... 312 -- (312) --
--------- -------- ------- ---------
Total net sales................ $ 139,435 $ 2,463 $ (312) $ 141,586
========= ======== ======= =========
Income (loss) from operations.. (102,273) (35,533) -- (137,806)
Other income (expense), net.... (644) 34 -- (610)
--------- -------- ------- ---------
Income (loss) before income
taxes......................... $(102,917) $(35,499) -- $(138,416)
========= ======== ======= =========
Identifiable assets............ $ 155,730 $ 45,868 -- $ 201,598
========= ======== ======= =========
</TABLE>

The loss from operations includes net revenues less operating expenses. The
loss from operations in Europe for the year ended June 28, 1996 is primarily
related to the write-off of $35,892,000 of in-process research and development
in connection with the acquisition of Holistic. The loss from operations in
Europe for the year ended June 27, 1997 includes approximately $7,662,000
related to the amortization of intangible assets relating to the acquisition
of Holistic and $2,613,000 relating to the write-off of in-process research
and development for contingent payments made to the former shareholders of
Holistic during 1997. The identifiable assets by geographic area are those
assets used in the Company's operations in each area.

Export sales were $44,129,000, $33,617,000 and $13,343,000 in 1997, 1996 and
1995, respectively.

LEGAL PROCEEDINGS

F-24
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

The Company believes the Complaint has no merit and intends to vigorously
defend the action. However, if an unfavorable outcome were to arise, there can
be no assurance that it would not have a material adverse effect on the
Company's liquidity, financial position, or results of operations.

COMMITMENTS

LEASES. The Company leases certain property, facilities and equipment under
non-cancelable lease agreements. Facility leases expire at various dates
through 2008 and contain various provisions for rental adjustments. The leases
require the Company to pay property taxes, insurance and normal maintenance
costs. The Company also occupies certain facilities owned by Seagate
Technology. Future minimum payments for operating leases were as follows at
June 27, 1997, in thousands:

<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1998............................................................ $ 5,701
1999............................................................ 5,271
2000............................................................ 3,639
2001............................................................ 3,117
2002............................................................ 2,836
After 2002...................................................... 13,302
-------
$33,866
=======
</TABLE>

Total rent expense for all facility and equipment operating leases was
approximately $5,292,000, $3,181,000 and $1,941,000 for 1997, 1996 and 1995,
respectively.

CAPITAL EXPENDITURES. The Company did not have any material commitments for
construction of facilities as of June 27, 1997.

SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash Transactions, in thousands:
Cash paid for interest.................................. $ 214 $ 36 $ 227
Cash paid for income taxes.............................. 2,357 4,892 4,151
</TABLE>

F-25
<PAGE>

SEAGATE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
OCTOBER 3, JUNE 27,
1997 1997
----------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................... $ 9,175 $ 12,085
Accounts receivable, net................................ 30,874 28,172
Inventories............................................. 2,375 3,206
Deferred income taxes................................... 47 --
Other current assets.................................... 3,967 4,040
--------- ---------
Total Current Assets................................ 46,438 47,503
Property, equipment and leasehold improvements, net..... 19,512 20,785
Goodwill and other intangibles, net..................... 67,729 75,306
--------- ---------
Total Assets........................................ $ 133,679 $ 143,594
========= =========
LIABILITIES
Loan payable to Seagate Technology...................... $ 27,435 $ 28,971
Accounts payable........................................ 8,509 9,116
Accrued employee compensation........................... 10,984 10,267
Accrued expenses........................................ 11,883 16,035
Accrued income taxes.................................... 1,994 2,699
Deferred revenue........................................ 8,797 8,354
--------- ---------
Total Current Liabilities........................... 69,602 75,442
Deferred income taxes................................... 4,773 6,233
Other liabilities....................................... 277 301
--------- ---------
Total Liabilities................................... 74,652 81,976
--------- ---------
STOCKHOLDERS' EQUITY
Convertible preferred stock............................. 55 55
Common stock............................................ -- --
Additional paid-in capital.............................. 342,453 342,091
Accumulated deficit..................................... (283,600) (280,685)
Foreign currency translation adjustment................. 119 157
--------- ---------
Total Stockholders' Equity.......................... 59,027 61,618
--------- ---------
Total Liabilities and Stockholders' Equity.......... $ 133,679 $ 143,594
========= =========
</TABLE>

See notes to condensed consolidated financial statements.

F-26
<PAGE>

SEAGATE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
OCTOBER 3, SEPTEMBER 27,
1997 1996
---------- -------------
<S> <C> <C>
Revenues:
License................... $51,797 $ 44,165
License from Seagate
Technology, Inc.......... 1,000 2,217
Maintenance, support and
other.................... 10,225 5,081
------- --------
Total revenues.......... 63,022 51,463
Cost of revenues:
License................... 4,969 5,462
License from Seagate
Technology, Inc.......... 285 597
Maintenance, support and
other.................... 4,600 1,146
Amortization of developed
technologies............. 3,942 4,421
------- --------
Total cost of revenues.. 13,796 11,626
------- --------
Gross profit................ 49,226 39,837
Operating expenses:
Sales and marketing....... 28,697 24,261
Research and development.. 11,393 10,488
General and administrative
......................... 9,079 8,257
Amortization of goodwill
and other intangibles.... 3,456 4,439
------- --------
Total operating
expenses............... 52,625 47,445
------- --------
Loss from operations........ (3,399) (7,608)
Interest expense............ (300) (101)
Other, net.................. 165 (198)
------- --------
Interest and other,
net.................... (135) (299)
------- --------
Loss before income taxes.... (3,534) (7,907)
Benefits from (provision
for) income taxes.......... 619 43
------- --------
Net loss.................... $(2,915) $ (7,864)
======= ========
Net loss per common share... $(28.12) $(125.82)
======= ========
Weighted average number of
common shares outstanding.. 103,659 62,500
</TABLE>

See notes to condensed consolidated financial statements.

F-27
<PAGE>

SEAGATE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
OCTOBER 3, SEPTEMBER 27,
1997 1996
---------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................. $(2,915) $(7,864)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 10,245 12,445
Deferred income taxes.............................. (1,507) (1,650)
Write-off of goodwill and intangibles.............. -- 800
Write-offs due to restructure...................... 553 --
Changes in operating assets and liabilities:
Accounts receivable.............................. (2,702) (7,512)
Inventories...................................... 831 (89)
Other current assets............................. 73 (123)
Accounts payable................................. (607) 3,545
Accrued employee compensation.................... 717 2,841
Accrued expenses................................. (4,152) (2,537)
Accrued income taxes............................. (512) 93
Deferred revenue................................. 443 1,150
Other assets and liabilities..................... (24) (110)
------- -------
Net cash provided by (used in) operating
activities........................................ 443 989
INVESTING ACTIVITIES
Acquisition of property, equipment and leasehold
improvements, net................................... (1,948) (5,943)
------- -------
Net cash (used in) investing activities............ (1,948) (5,943)
FINANCING ACTIVITIES
Sale of common stock................................. 169 --
Borrowings from Seagate Technology, net.............. (1,536) 4,355
------- -------
Net cash provided by (used in) financing
activities........................................ (1,367) 4,355
Effect of exchange rate changes on cash.............. (38) 91
------- -------
(Decrease) in cash................................... (2,910) (508)
Cash at the beginning of the period.................. 12,085 7,595
------- -------
Cash at the end of the period........................ $ 9,175 $ 7,087
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............................. $ 14 $ 118
Cash paid for income taxes......................... 991 1,203
</TABLE>

See notes to condensed consolidated financial statements.

F-28
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION. The consolidated condensed financial statements have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The Company believes the
disclosures included in the unaudited consolidated condensed financial
statements, when read in conjunction with the consolidated financial
statements of the Company as of June 27, 1997 and notes thereto, are adequate
to make the information presented not misleading.

The consolidated condensed financial statements reflect, in the opinion of
management, all adjustments necessary to summarize fairly the consolidated
financial position, results of operations and cash flows for such periods.

The results of operations for the three months ended October 3, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending July 3, 1998.

The Company operates and reports financial results on a fiscal year of 52 or
53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1997 was
52 weeks and ended on June 27, 1997 and fiscal 1998 will be 53 weeks and will
end on July 3, 1998, with the first fiscal quarter having 14 weeks.

RECENT ACCOUNTING PRONOUNCEMENT ON SOFTWARE REVENUE RECOGNITION. The
Financial Accounting Standards Board recently approved the new American
Institute of Certified Public Accountants Statement of Position ("SOP") on
software revenue recognition. The new SOP will be effective for the Company
beginning in fiscal year 1999. The Company is currently assessing the impact
of the new SOP on its revenue recognition policies.

NET LOSS PER SHARE. The net loss per common share is computed using the
weighted average number of shares of common stock outstanding during the
period. Common equivalent shares from common stock options and convertible
preferred stock are excluded from the computation as their effect is
antidilutive.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS 128")
which the Company is required to adopt in the fiscal quarter ending January 2,
1998. At that time, the Company will be required to change the method
currently used to compute net income (loss) per share and to restate all prior
periods. Under the new requirements for calculating primary net income (loss)
per share, the dilutive effect of stock options will be excluded. If SFAS 128
had been effective for 1997, it would not have had an effect on the reported
net loss per share as only the weighted average number of shares of common
stock outstanding during the period was used in the calculation.

F-29
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

ACCOUNTS RECEIVABLE.

Accounts receivable are summarized below, in thousands:

<TABLE>
<CAPTION>
OCTOBER 3, JUNE 27,
1997 1997
---------- --------
<S> <C> <C>
Accounts receivable................................ $ 32,210 $ 29,442
Allowance for non-collection....................... (1,336) (1,270)
-------- --------
$ 30,874 $ 28,172
======== ========
</TABLE>

INVENTORIES.

Inventories are summarized below, in thousands:

<TABLE>
<CAPTION>
OCTOBER 3, JUNE 27,
1997 1997
---------- --------
<S> <C> <C>
Raw materials....................................... $ 795 $ 1,699
Finished goods...................................... 1,580 1,507
-------- --------
$ 2,375 $ 3,206
======== ========
</TABLE>

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.

Property, equipment and leasehold improvements consisted of the following,
in thousands:

<TABLE>
<CAPTION>
OCTOBER 3, JUNE 27,
1997 1997
---------- --------
<S> <C> <C>
Property, equipment and leasehold improvements..... $ 37,419 $ 36,437
Allowance for depreciation and amortization........ (17,907) (15,652)
-------- --------
$ 19,512 $ 20,785
======== ========
</TABLE>

GOODWILL AND OTHER INTANGIBLES.

Goodwill and other intangibles consisted of the following, in thousands:

<TABLE>
<CAPTION>
OCTOBER 3, JUNE 27,
1997 1997
---------- --------
<S> <C> <C>
Goodwill........................................... $ 46,200 $ 46,200
Developed technology............................... 46,136 46,136
Trademarks......................................... 9,972 9,972
Assembled workforce................................ 6,666 6,666
Distribution network............................... 2,925 2,925
Other intangibles.................................. 12,853 12,853
-------- --------
124,752 124,752
Accumulated amortization........................... (57,023) (49,446)
-------- --------
Goodwill and other intangibles..................... $ 67,729 $ 75,306
======== ========
</TABLE>

INCOME TAXES

The effective tax rate used to record the benefit for income taxes for the
quarter ended October 3, 1997 was 17% compared with a 1% effective tax rate
for the comparable period last year. The effective tax rate used to record the
benefit for each quarter was less than the statutory rate primarily from
increases in the valuation allowance for deferred tax assets and the
amortization of goodwill which is not deductible for tax purposes.

F-30
<PAGE>

SEAGATE SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

STOCKHOLDERS' EQUITY

Shares authorized and outstanding are as follows:

<TABLE>
<CAPTION>
SHARES OUTSTANDING
---------------------
OCTOBER 3, JUNE 27,
1997 1997
---------- ----------
<S> <C> <C>
Preferred stock, par value $.001 per share,
73,000,000 shares authorized.......................... 54,633,333 54,633,333
Common stock, par value $.001 per share,
95,600,000 shares authorized.......................... 122,697 83,355
</TABLE>

RESTRUCTURING COSTS

During fiscal year 1996, the Company recorded restructuring charges totaling
$9,502,000 as a result of the acquisition of Arcada, a majority-owned
subsidiary of Seagate Technology which was acquired in connection with Seagate
Technology's merger with Conner. The restructuring charges were incurred for
the reduction of personnel, write-off or write down of equipment, intangibles
and other assets, closure of duplicate and excess facilities, attorneys and
accountants fees, contract cancellations and other expenses. In connection
with the restructuring, the Company expects a total workforce reduction of
approximately 121 employees. Of that number, approximately 65 have been
terminated as of October 3, 1997, and a certain number of employees have left
the Company due to normal attrition.

During fiscal year 1997, the Company recorded restructuring charges of
approximately $2,524,000, which consisted of $3,481,000 resulting from NSMG's
consolidation efforts, offset by an adjustment to reduce the 1996
restructuring by $957,000. The restructuring charges were incurred for the
reduction of personnel, write-off or write down of equipment, intangibles and
other assets, closure of duplicate and excess facilities and other expenses.
In connection with such restructuring, the Company expected a total workforce
reduction of approximately 109 employees. Of that number, approximately 100
have been terminated as of October 3, 1997, and a certain number of employees
have left the Company due to normal attrition.

The following table summarizes the Company's restructuring activity for the
three months ended October 3, 1997 (in thousands):

<TABLE>
<CAPTION>
EQUIPMENT,
SEVERANCE INTANGIBLES
AND EXCESS AND
BENEFITS FACILITIES OTHER ASSETS TOTAL
--------- ---------- ------------ ------
<S> <C> <C> <C> <C>
Reserve balances, June 27, 1997...... $480 $1,235 $1,414 $3,129
Cash charges......................... (56) (34) (8) (98)
Non-cash charges..................... -- -- (553) (553)
---- ------ ------ ------
Reserve balances, October 3, 1997.... $424 $1,201 $ 853 $2,478
==== ====== ====== ======
</TABLE>

F-31
<PAGE>

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ------------ ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 27,
1997:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $597,000 $1,522,000 $-- $849,000(1) $1,270,000
======== ========== ==== ======== ==========
YEAR ENDED JUNE 28,
1996:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $405,000 $ 408,000 $-- $216,000(2) $ 597,000
======== ========== ==== ======== ==========
YEAR ENDED JUNE 30,
1995:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $ 64,000 $ 443,000 $-- $ 16,000(3) $ 491,000(4)
======== ========== ==== ======== ==========
</TABLE>
- --------
(1) $849,000 uncollectible accounts written off, net of recoveries.
(2) $216,000 uncollectible accounts written off, net of recoveries.
(3) $16,000 uncollectible accounts written off, net of recoveries.
(4) The ending balance of the allowance for doubtful accounts for the year
ended June 30, 1995 does not agree to the beginning balance for the year
ended June 28, 1996 due to the pooling with Arcada. See Basis of
Presentations note to the Consolidated Financial Statements.

II-1
<PAGE>

SEAGATE SOFTWARE, INC.

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER NUMBER
------- ----------
<C> <S> <C>
2.1+ Restructuring and Contribution Agreement dated April 4,
1996 among the Registrant, Seagate Technology, Inc., and
Seagate Peripherals, Inc. and for purposes of Sections 3
and 6 only: Seagate Technology International Holdings
and Crystal Computer Services, Inc.
2.2+ Exchange Agreement dated June 29, 1996 among the
Registrant, Seagate Technology, Inc. and Seagate
Peripherals, Inc.
3.1+ Certificate of Incorporation of Registrant, as amended
3.2+ Bylaws of Registrant, as amended
4.1+ Voting Agreement dated December 26, 1996 among the
Registrant, Seagate Software Information Management
Group, Inc. and Seagate Technology International
Holdings
10.1+ 1996 Stock Option Plan, as amended, form of Stock Option
Agreement and form of Amendment to Stock Option
Agreement
10.2(A)+ Seagate Technology, Inc. Employee Stock Purchase Plan,
as amended
10.3+ Lease Agreement, dated December 27, 1994, between the
Registrant and Clover Investments, Inc.
10.4+ Lease Agreement, dated March 21, 1996 between the
Registrant and 400 International Parkway Development
Company
10.5* General Services Agreement dated June 28, 1997 between
the Registrant and Seagate Technology, Inc.
10.6+ Tax Allocation Agreement dated April 4, 1996 between the
Registrant and Seagate Technology, Inc.
10.7+ Intercompany Revolving Loan Agreement dated June 28,
1996 between the Registrant and Seagate Technology,
Inc.
10.8+ Form of Indemnification Agreement entered into between
the Registrant and its directors and officers
10.9+ Support Agreement dated December 26, 1996 between the
Registrant and Seagate Software Information Management
Group, Inc.
13.1+ Holistic Systems Ltd. (now Seagate Software Information
Management Group Limited) Statements of Consolidated
Profits and Cash Flows and Related Notes Year Ended 31
March 1996
21.1+ Subsidiaries of the Registrant
24.1+ Power of Attorney (see page 27)
27.1 Financial Data Schedule
</TABLE>
- --------
* Confidential treatment has been requested for a portion of this exhibit
pursuant to a request for confidential treatment filed with the Securities
and Exchange Commission. Omitted portions have been filed separately with
the Commission.

<PAGE>

EXHIBIT 10.5

GENERAL SERVICES AGREEMENT
--------------------------

This GENERAL SERVICES AGREEMENT ("Agreement") is made and entered into as
of June 28, 1997, by and between SEAGATE SOFTWARE, INC., a corporation organized
and existing under the laws of the United States and with its business address
at 920 Disc Drive, Scotts Valley, California 95066, U.S.A. ("SSI"), and SEAGATE
TECHNOLOGY, INC., a corporation organized and existing under the laws of the
United States and with its business address at 920 Disc Drive, Scotts Valley,
California 95066, U.S.A. ("STI").

W I T N E S S E T H:

WHEREAS, SSI and its Affiliates are in the business of producing and
distributing software;

WHEREAS, STI has performed administrative, accounting and similar tasks
that benefited SSI and its Affiliates in their business in prior periods, and
SSI wishes to acquire such services from STI on an ongoing basis; and

WHEREAS, STI is willing and able to perform such services for SSI on the
terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the foregoing, the mutual promises set
forth herein and the mutual benefits to be derived herefrom, SSI and STI hereby
agree as follows:

Article 1: Definitions
- -----------------------

1.1 "Affiliate" shall mean and include any entity or association controlled by,
controlling or under common control with any of the parties. For the
purposes of this definition, the term "control" shall mean the ownership of
at least 50% of the voting interests in any entity or association.

1.2 "Products" shall mean and include all information, storage, and network
management software.

1.3 "Services" shall mean the activities described in Article 2.1 of this
Agreement.

1.4 "Service Fees" shall mean the amount estimated to be paid by SSI to STI
during any fiscal year for the performance of Services hereunder as
specified in Appendix A to this Agreement.

Page 1 of 9
<PAGE>

Article 2: Engagement of STI
- -----------------------------

2.1 SSI hereby engages STI and STI hereby agrees, to provide those
administrative, accounting and similar services requested by SSI and, which
SSI shall require for the effective and efficient operation of SSI's
business. The Services may include, but are not limited to, the following:

(a) providing general accounting services and preparing budgets and
performing financial forecasting, cost control and other financial
planning services;

(b) assisting SSI in human resources activities including, but not limited
to, employee benefits, hiring, and payroll administration;

(c) providing such other legal and government relations services,
preparing applications for export licenses, permits and other
authorization forms, and preparing filings and reports with
governmental agencies, as may be required for the conduct of SSI's
business activities;

(d) preparing the documentation necessary to satisfy customs formalities
and entry procedures, including the determination and reporting of
customs duties, import tax, value-added tax, and any other charges or
taxes imposed on the Products;

(e) assisting SSI with tax related issues including, but not limited to,
Federal, State, and international tax planning, provisions, audits,
and compliance, including income, sales and use, property, VAT, and
similar taxes;

(f) preparing documentation relating to SSI's general administration,
including documentation necessary to maintain it in good standing in
its place of organization and such other jurisdictions where SSI
conducts business;

(g) maintaining files of corporate and commercial documentation;

(h) providing assistance relating to the marketing, promotion, and sale of
the Products;

(i) providing services and support relating to information technology and
facilities;

(j) providing such other administrative services for SSI as SSI may
reasonably request from time to time; and

Page 2 of 9
<PAGE>

(k) oversight by SSI's Chairman of the Board, including screening of
potential acquisitions, partnerings, joint ventures, or similar
transactions.

2.2 The parties acknowledge that STI may provide Services benefitting SSI or
its Affiliates. SSI shall be responsible for payment of Service Fees to
STI pursuant to Article 5 of this Agreement. SSI may allocate such Service
Fees to its Affiliates as SSI determines to be appropriate.

Article 3: Independent Contractors
- -----------------------------------

The relationship of SSI and STI established by this Agreement is that of
independent contractors, and nothing in this Agreement shall be construed: (a)
to give any party the right or power to direct or control the daily activities
of any other party; (b) to constitute the parties as principal and agent,
employer and employee, partners, joint venturers, co-owners or otherwise as
participants in a joint undertaking; or (c) to allow either party (i) to create
or assume any obligation on behalf of the other party for any purpose whatsoever
or (ii) to represent to any person, firm or entity that such party has any right
or power to enter into any binding obligation on the other party's behalf. STI
shall independently determine the method, means and technical details of
performing the services contemplated by this Agreement.

Article 4: Representations, Warranties and Covenants of STI
- ------------------------------------------------------------

STI hereby represents, warrants and covenants that:

(a) It has the personnel, facilities and resources required to discharge
and will discharge the services contemplated by this Agreement in a
timely and efficient manner.

(b) It has the administrative, business and technical experience and
expertise required to perform and will perform such services in a
competent and professional manner.

Article 5: Consideration
- -------------------------

5.1 Service Fees. In consideration for STI's performance of Services
------------
hereunder, SSI shall pay to STI each fiscal year the Service Fees specified
in Appendix A attached to this Agreement. The parties acknowledge that the
Service Fees represent a reasonable estimate of STI's direct and indirect
costs to be incurred in performing the Services. Service Fees shall be paid
in U.S. dollars in equal monthly installments within thirty (30) days after
the end of each month.

Page 3 of 9
<PAGE>

Appendix A shall be reviewed at least annually and revised, as necessary,
as agreed between the parties.

5.2 True-Up Adjustment. For each fiscal year, the parties shall review the
------------------
actual level of Services provided by STI, and the corresponding actual
direct and indirect costs incurred by STI in performing such Services. The
parties agree that if such actual costs are greater than or less than the
Service Fees specified in Appendix A for such fiscal year, such difference
shall be charged to or refunded to SSI, as the case may be, within thirty
(30) days after such review.

5.3 Prior Years. The parties acknowledge that STI performed Services for SSI
-----------
(and/or one or more predecessor entities to SSI) or its Affiliates during
periods prior to the effective date of this Agreement. In recognition of
this fact, SSI hereby agrees to pay Service Fees to STI for such prior
periods. The parties shall agree as to the proper amount of such Service
Fees, and STI shall provide such supporting documentation as SSI reasonably
requests.

5.4 Governmental Adjustment. In the event that any government authority
-----------------------
determines that the provisions hereof do not constitute an arm's-length
arrangement between the parties, and accordingly adjusts the amount to be
reported in such jurisdiction, the parties shall make an appropriate
correlative adjustment between themselves. Payment of such correlative
adjustment shall be made in the year that the amount of the governmental
adjustment becomes fixed by a final administrative determination. If a
party chooses to contest such determination, the payment shall be made in
the year that the governmental adjustment is fixed by a final judgment of a
court of competent jurisdiction or determination under applicable competent
authority proceedings.

Article 6: Examination of Records
- ----------------------------------

STI agrees to provide SSI with access to such original receipts, ledgers
and other records as may be reasonably necessary for SSI or its representatives
to verify the amount and nature of any of STI's costs incurred in performing
Servics hereunder. Any such examination shall be conducted at STI's business
premises during regular business hours. SSI shall bear the cost of any such
examination.

Page 4 of 9
<PAGE>

Article 7: Indemnification
- ---------------------------

STI shall indemnify, defend and hold SSI harmless against any and all
claims, suits, actions, demands, proceedings, losses, damages, liabilities,
costs and expenses, including, without limitation, interest and reasonable
attorneys' fees (collectively, "Liabilities"), arising out of, relating to, or
resulting from Services performed by STI pursuant to this Agreement, other than
those Liabilities that would not have arisen but for any act, error and/or
omission of SSI and/or any of its officers, directors, employees and/or agents.

Article 8: Term and Termination
- --------------------------------

8.1 Term. The term of this Agreement shall commence on the date first written
----
above, and shall continue indefinitely, unless terminated pursuant to the
terms in this Agreement.

8.2 Termination. In addition to the rights of termination established under
-----------
Article 11.2 herein, this Agreement may be terminated in the following
circumstances, without judicial action or arbitration:

(a) In the event of any material breach of, or material default under,
this Agreement by SSI or STI, the nonbreaching or nondefaulting party
shall give the other party written notice of such breach or default.
The other party shall have a period of thirty (30) calendar days from
the date of receipt of such written notice within which to cure the
breach or default. In the event of failure to cure, this Agreement
may be terminated by written notice of the nonbreaching or
nondefaulting party's election to terminate to the other party.

(b) Any party may terminate this Agreement immediately, upon written
notice of termination to the other party, if any other party goes into
bankruptcy or voluntary or involuntary dissolution, is declared
insolvent, fails to pay its debts as they come due, makes an
assignment for the benefit of creditors, becomes subject to any
proceedings under any bankruptcy or insolvency law, or suffers the
appointment of a receiver, manager, trustee or similar officer over
all or substantially all of its assets or properties.

(c) Any party may terminate this Agreement upon sixty (60) calendar days
notice in writing to the other party. In the event that this
Agreement is terminated pursuant to this Article 8.2(c), SSI shall pay
to STI Service Fees for all Services performed prior to the
termination date, within thirty (30) calendar days of STI's submission
to SSI of a final invoice. Thereafter, SSI shall have no further
obligation to STI whatsoever.

Page 5 of 9
<PAGE>

8.3 Preservation of Rights. Termination of this Agreement for any reason
----------------------
whatsoever shall be in addition to, and not in lieu of, any rights and/or
remedies available to any party at law or in equity; provided, however,
that no party shall be liable to any other party for, and each party hereby
expressly waives any right to, any compensation, reimbursement or damages
of any kind or character whatsoever, to which such party may be entitled
solely by virtue of such termination.

Article 9: Assignment
- ----------------------

No party shall have the right or power to assign any of its rights, or
delegate the performance of any of its duties, under this Agreement without the
prior written authorization of the other parties; provided, however, that such
prior written authorization shall not be required for any party to assign any of
its rights, and/or delegate the performance of any of its duties hereunder, to
any Affiliate. In those instances where prior authorization is not required,
any party may assign its complete rights and obligations under this Agreement by
written notice to the other parties.

Article 10: Compliance with Laws
- ---------------------------------

Each party shall at all times and at its own expense (a) strictly comply
with all applicable laws, rules, regulations and governmental orders, now or
hereafter in effect, relating to its performance of this Agreement, (b) pay all
fees and other charges required by such laws, rules, regulations and orders and
(c) maintain in full force and effect all licenses, permits, authorizations,
registrations and qualifications from all applicable governmental departments
and agencies to the extent necessary to perform its obligations hereunder.

Article 11: General Provisions
- -------------------------------

11.1 No Waiver. The failure or delay by any party to assert any of its rights
---------
under this Agreement shall not be deemed to constitute a waiver of that
party's right thereafter to enforce each and every provision of this
Agreement in accordance with its terms.

11.2 Force Majeure. Notwithstanding anything in this Agreement to the contrary,
-------------
no party shall be liable to any other party for any failure to perform, or
delay in the performance of, that party's obligations hereunder, when such
failure to perform or delay in performance is caused by an event of force
-----
majeure; provided, however, that the party whose performance is prevented
-------
or delayed by such event of force majeure shall give prompt notice thereof
----- -------
to the other parties. For purposes of this Article 11.2, the term "force
-----
majeure" shall include war, rebellion, civil disturbance, earthquake, fire,
-------
flood, strike, lockout, labor unrest, acts of governmental authorities,
shortage of materials, acts of God, acts of the public enemy, and, in
general, any other causes or conditions beyond the

Page 6 of 9
<PAGE>

reasonable control of the parties. If any event of force majeure continues
----- -------
for more than ninety (90) calendar days, any party may terminate this
Agreement upon notice to the other parties.

11.3 Notice. All notices required or permitted by, or made pursuant to, this
------
Agreement shall be in writing and shall be sent by facsimile or by
registered, first-class airmail, return receipt requested and postage
prepaid, to the following addresses:

If to SSI: Seagate Software, Inc.
920 Disc Drive
Scotts Valley, California 95066
U.S.A.

Facsimile: (408) 438-0721
Attention: Corporate Counsel

If to STI: Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, California 95066
U.S.A.

Facsimile: (408) 438-8931
Attention: Vice President and Treasurer

All such notices shall be deemed to have been received as follows: (a) if by
facsimile, twenty-four (24) hours after transmission; and (b) if by registered,
first-class airmail, five (5) calendar days after dispatch.

11.4 Subject Headings. The subject headings of this Agreement are included for
----------------
purposes of convenience only and shall not affect the construction or
interpretation of any of its provisions.

11.5 Governing Law. This Agreement and any dispute arising out of or in
-------------
connection with this Agreement, shall be governed by, and interpreted in
accordance with the laws of the United States of America and the State of
California, USA.

11.6 Entire Agreement. This Agreement embodies the entire agreement of SSI and
----------------
STI respecting the Services to be provided hereunder and supersedes all
prior agreements, understandings and communications, whether written or
oral, among the parties with respect to the subject matter hereof. No
modification or amendment of this Agreement shall be effective unless in
writing and executed by a duly authorized representative of each party.

Page 7 of 9
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
effective as of the day and year first written above.

SEAGATE SOFTWARE, INC.

By: /s/ Ellen E. Chamberlain
-----------------------------------------
Ellen E. Chamberlain

Its : Senior Vice President and CFO

SEAGATE TECHNOLOGY, INC.

By: /s/ James A. Taylor
-----------------------------------------
James A. Taylor

Its : Vice President and Treasurer

Page 8 of 9
<PAGE>

APPENDIX A

SEAGATE TECHNOLOGY
BUDGETED EXPENSES FOR SEAGATE SOFTWARE
FISCAL YEAR 1998

<TABLE>
<CAPTION>
DEPARTMENT DEPARTMENT/VENDOR TOTAL SALARY &
NUMBER NAME BENEFITS EXP
<S> <C> <C>
[*** Redacted] [*** Redacted] [*** Redacted]

[*** Redacted] [*** Redacted] [*** Redacted]

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

877,380
==============
</TABLE>

Page 9 of 9

- ------------------
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 3, 1997 AND
CONSOLIDATED/COMBINED BALANCE SHEET AS OF JUNE 27, 1997, THE CONDENSED
CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED OCTOBER 3, 1997 AND
SEPTEMBER 27, 1996, THE CONSOLIDATED/COMBINED STATEMENT OF INCOME FOR THE TWELVE
MONTHS ENDED JUNE 27, 1997, THE CONSOLIDATED/COMBINED BALANCE SHEETS AS OF JUNE
28, 1995 AND JUNE 30, 1995 AND THE CONSOLIDATED/COMBINED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 28, 1996 AND JUNE 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUL-03-1998 JUN-27-1997
<PERIOD-START> JUN-28-1997 JUN-29-1996
<PERIOD-END> OCT-03-1997 SEP-27-1996
<CASH> 9,175 7,087
<SECURITIES> 0 0
<RECEIVABLES> 32,210 44,996
<ALLOWANCES> (1,336) (4,729)
<INVENTORY> 2,375 1,714
<CURRENT-ASSETS> 46,438 70,024
<PP&E> 37,419 26,172
<DEPRECIATION> (17,907) (8,235)
<TOTAL-ASSETS> 133,679 231,871
<CURRENT-LIABILITIES> 69,602 110,765
<BONDS> 0 0
0 0
55 47
<COMMON> 0 0
<OTHER-SE> 58,972 108,654
<TOTAL-LIABILITY-AND-EQUITY> 133,679 231,871
<SALES> 63,022 51,463
<TOTAL-REVENUES> 63,022 51,463
<CGS> 13,796 11,626
<TOTAL-COSTS> 13,796 11,626
<OTHER-EXPENSES> 23,928 23,184<F1>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (300) (101)
<INCOME-PRETAX> (3,534) (7,907)
<INCOME-TAX> (619) (43)
<INCOME-CONTINUING> (2,915) (7,864)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,915) (7,864)
<EPS-PRIMARY> (28.12) (125.82)
<EPS-DILUTED> (28.12) (125.82)
<FN>
<F1>DOES NOT INCLUDE SALES AND MARKETING PER SEC LITERATURE.
</FN>

</TABLE>